Edexcel IGCSE Accounting Student S Book Answers PDF

Answers
Chapter 1: Introduction to accounting principles

1.1 Good financial control is important to ensure the continued profitability and
success of the business. Also to control costs and cash flow.
1.2X Profit is obtained by selling goods for more than the purchase price less expenses
incurred in selling the goods.
1.3 (a) Trading and Profit and Loss Account
(b) Balance Sheet
1.4X A sole trader may incur the following drawbacks whilst trading alone:
• Liable for all the debts of the business
• If a loss is made he/she bears all the losses
• May lack expertise in certain areas
• Often has to work long hours
Positive outcomes:
• Independent and responsible for all decision making
• If successful and a profit is made they keep all the profits
• Able to offer personal service to customers
(Any one from the above would be acceptable as an answer)
1.5 The rules which lay down the way in which the activities of a business are
recorded and the financial statements, i.e. Trading and Profit and Loss Account
and Balance Sheet prepared.
1.6 (a) Going concern concept – when a business is assumed to continue for a
long time.
(b) Accrual concept – where profit is the difference between revenues and
expenses in a specific period and not the difference between cash received
Accounting
and cash paid.
(c) Consistency concept – applying the same method of accounting when
dealing with specific items such as depreciation and in stock valuation.
(d) Prudence concept – an accountant is always very careful not to over value
specific assets such as stock or machinery etc., and to identify any potential
liabilities. It is their duty to prepare the accounts as accurately as possible to
give a fair figure of profit.
1.7X (a) Materiality
(b) Business entity
(c) Money measurement
(d) Prudence
1.8 Employees would be interested in their employer’s financial results for the
following reasons:
• The ability to pay wages and salaries
• Secure employment with the opportunity to progress within the business
• Continued profitability
• Sound cash flow position
• Sales maintained and increasing
• Business viable for the forthcoming period
• Healthy customer base
(Any three of the above would be acceptable as an answer)
© Pearson Education Ltd 2010 1

Answers
Chapter 2: Double entry for cash transactions

2.1 (a) Purchases - asset
(b) Office equipment - asset
(c) Bank loan - liability
(d) Cash in hand - asset
(e) Motor vehicle - asset
(f) Loan from financial company - liability
2.2X Wrong: Assets Liabilities
Money owing to bank Motor van
Stock of goods
2.3
Account to be Debited Account to be Credited
(a) Cash Capital
(b) Bank Cash
(c) Purchases Cash
(d) Office Machinery Bank
(e) Stationery Cash
2.4X Account to be debited Account to be credited

(a) Bank Capital
(b) Purchases Cash
(c) Motor car Bank
(d) Cash Uncle Joe loan
(e) Motor expenses Cash
(f) Computer equipment Cash
Accounting
2.5 Max Morgan

Bank Account
Jan-01 Capital 30,000 Jan-05 Purchases 2,770
Jan-15 Sales 500 Jan-07 S/H Van 4,800
Jan-27 Computer 2,100
Equipment
Jan-30 Purchases 1,090
Capital Account
Jan-01 Bank 30,000
Purchases Account
Jan-05 Bank 2,770
Jan-30 Bank 1,090
Van Account
Jan-07 Bank 4,800
Cash Account
Jan-09 Sales 680 Jan-10 Office Furniture 110
Jan-29 Sales 325 Jan-22 Motor Expenses 92
2 © Pearson Education Ltd 2010

Sales Account
Jan-09 Cash 680
Jan-15 Bank 500
Jan-29 Cash 325
Office Furniture Account
Jan-10 Cash 110
Motor Expenses Account
Jan-22 Cash 92
Computer Equipment Account
Jan-27 Bank 2,100
2.6X
Jane Mellor
Cash Account
May 1 Capital 22,000 May 3 Bank 20,000
May 20 Sales 328 May 22 Stationery 72
Capital Account
May-01 Cash 22,000
Bank Account
May 3 Cash 20,000 May 7 Rent 500
May 25 Sales 560 May 10 Purchases 1,700
May 15 Display units 400
May 23 Purchases 400
May 31 S/H Van 3,000
Rent Account
Accounting
May 7 Bank 500
Purchases Account
May 10 Bank 1,700
May 23 Bank 400
Display Units Account
May 15 Bank 400
Sales Account
May 20 Cash 328
May 25 Bank 560
Stationery Account
May 22 Cash 72
Van Account
May 31 Bank 3,000

Answers
Chapter 3: Double entry for credit transactions

3.1 Account to be Debited Account to be Credited
(a) Purchases P. Hart
(b) Cash Sales
(c) Motor Car Morgan Motors
(d) Purchases Cohens Ltd
(e) P. Hart Purchase Returns
(f) H. Perkins Sales
(g) Bank Sales
(h) Cash Office Furniture
3.2X Account to be debited Account to be credited

(a) Computer equipment J. Kershaw
(b) Stationery Cash
(c) Purchases J. Leung
(d) Daswami & Co Sales
(e) Purchases Bank
(f) Sales returns Daswani & Co
(g) Cash Sales
(h) J. Leung Purchase Returns
3.3 Kendrick Products

Cash Account
Jan-01 Capital 20,000 Jan-05 Bank 18,000
Accounting
Jan-24 Stationery 45
Capital Account
Jan-01 Cash 20,000
Purchases Account
Jan-02 T. Peters 2,543
Jan-07 J. Leigh 349
Jan-09 Bank 592
T. Peters Account
Jan-18 Purchase Returns 160 Jan-02 Purchases 2,543
Jan-26 Bank 2,383
Bank Account
Jan-05 Cash 18,000 Jan-09 Purchases 592
Jan-26 T. Peters 2,383
J. Leighs Account
Jan-07 Purchases 349
Sales Account
Jan-16 P. Lamond 210
Jan-26 D. Gurkan 1,008
P. Lamond Acccount
Jan-16 Sales 210 Jan-30 Sales Returns 60
Purchase Returns Account
Jan-18 T. Peters 160
Stationery Account
Jan-24 Cash 45
D. Gurkan Account
Jan-26 Sales 1,008
Sales Returns Account
Jan-30 P. Lamond 60
Motor Van Account
Jan-31 Harper Motors Ltd 5,250
Harper Motors Ltd Account
Jan-31 Motor Van 5,250
3.4X Mark & Co

Bank Account
Apr 1 Capital 40,000 Apr 14 Purchases 2,300
Apr 28 C. Chang 950
Apr 30 Ash Car Sales 5,400
Capital Account
Apr 01 Bank 40,000
Purchases Account
Apr 3 E. Shah 845
Apr 5 C. Chang 950
Apr 14 Bank 2,300
Apr 20 E. Shah 920
E. Shah Account
Apr 16 Purchase returns 72 Apr 03 Purchases 845
Apr 20 Purchases 920
C. Chang Account
Accounting
Apr 28 Bank 950 Apr 05 Purchases 950
Motor Van Account
Apr 09 Ash Car Sales 10,400
Ash Car Sales Account
Apr 30 Bank 5,400 Apr 09 Motor Van 10,400
Sales Account
Apr 12 Naik Bros 147
Apr 23 Cash 369
Apr 29 Curtis & Co 420
Naik Bros Account
Apr 12 Sales 147
Purchase Returns Accounts
Apr 16 E. Shah 72
Cash Account
Apr 23 Sales 369 Apr 26 Motor Expenses 40
Curtis & Co Account
Apr 29 Sales 420
Motor Expenses Account
Apr 26 Cash 40

Answers
Chapter 4: Balancing of accounts and

preparation of a Trial Balance
4.1
Capital
May-01 Bank 2,500
Bank
May-01 Capital 2,500 May-12 K Gibson 76
May-09 C Bailey 250 May-12 D Ellis 370
May-10 H Spencer 150 May-31 C Mendez 87
May-31 Balance c/d 2,367
2,900 2,900
Jun-01 Balance b/d 2,367
Cash
May-06 Sales 500 May-08 Rent 120
May-15 Stationery 60
May-19 Rent 120
May-31 Balance c/d 200
500 500
Jun-01 Balance b/d 200
Rent
May-08 Cash 120 May-31 Balance c/d 240
May-19 Cash 120
240 240
Accounting

Stationery
May-15 Cash 60
Purchases
May-02 D Ellis 540 May-31 Balance c/d 1,082
May-02 C Mendez 87
May-02 K Gibson 76
May-18 D Ellis 145
May-18 C Mendez 234
1,082 1,082
Sales
May-31 Balance c/d 1,496 May-04 C Bailey 430
May-04 B Hughes 62
May-04 H Spencer 176
May-06 Cash 500
May-25 C Bailey 90
May-25 B Hughes 110
May-25 H Spencer 128
1,496 1,496

H Spencer
May-04 Sales 176 May-10 Bank 150
May-25 Sales 128 May-31 Balance c/d 154
304 304
D Ellis
May-12 Bank 370 May-02 Purchases 540
May-31 Balance c/d 315 May-18 Purchases 145
685 685
C Mendez
May-31 Balance c/d 234 May-18 C Mendez 234
234 234
K Gibson
C Bailey
May-04 Sales 430 May-09 Bank 250
520 520
B Hughes
May-25 Sales 110
172 172
Accounting
Trial Balance as at 31 May 2010
Dr Cr
£ £
Capital 2,500
Bank 2,367
Cash 200
Rent 240
Stationery 60
Purchases 1,082
Sales 1,496
H Spencer 154
D Ellis 315
C Mendez 234
C Bailey 270
B Hughes 172
4,545 4,545

4.2X (a)
Bank Account
August 1 Capital 22,000 August 1 Rent 1,800
August 14 Sales 980 August 7 Shop fittings 3,230
August 20 Sales 1,300 August 7 Purchases 5,000
August 28 Sales 2,000 August 9 Cash 1,000
August 30 Salaries 2,100
August 30 Balance c/d 13,150
26,280 26,280
Sept 1 Balance b/d 13,150
Cash Account
August 9 Bank 1,000 August 9 Stationery 163
August 16 Sundry expenses 28
August 30 Balance c/d 809
1,000 1,000
Sept 1 Balance b/d 809
Sales Account
August 30 Balance c/d 4,280 August 1 Bank 980
August 20 Bank 1,300
4,280 4,280
Sept 1 Balance b/d 4,280
Purchases Account
August 7 Bank 5,000 August 30 Balance c/d 10,700
August 10 Book Supplies 4,200
August 25 Delta Books 1,500
Accounting
10,700 10,700
September 1 balance b/d 10,700
Shop Fittings Account
August 7 Bank 3,230
Capital Account
Rent Account
August 1 Bank 1,800
Stationery Account
August 9 Cash 163
Sundry Expenses Account
August 16 Cash 28
Salaries Account
April 30 Bank 2,100
Book Supplies Accounts
August 10 Purchases 4,200
Delta Books Account
August 25 Purchases 1,500

4.2X (b)
Jenny Moore
Trial Balance as at 31 August 2010
Dr Cr
£ £
Bank 13,150
Cash 809
Sales 4,280
Purchases 10,700
Shop Fittings 3,230
Capital 22,000
Rent 1,800
Stationery 163
Sundry expenses 28
Salaries 2,100
Book Supplies 4,200
Delta Books 1,500
31,980 31,980
4.3
Bank
(1) Capital 15,000 (9) Rent 500
(30) L Clark 440 (11) Rates 190
(30) K Allen 76 (27) Bowman Furnishers 532
(27) Howe Homes 460
(27) W Hunt 2,070
(28) Motor Vehicles 3,000
(30) Bates Motors 5,000
Accounting
(30) Balance c/d 3,764
15,516 15,516
(1) Balance b/d 3,764
Capital
(30) Balance c/d 15,000 (1) Bank 15,000
Howe Homes
(27) Bank 460 (3) Purchases 460
J Bond
(17) Purchases returns 60 (3) Purchases 620
(30) Balance c/d 780 (20) Purchases 220
840 840
(1) Balance b/d 780
Rent
(9) Bank 500 (30) Balance c/d 500
(1) Balance b/d 500
L Clark
(12) Sales 480 (23) Sales returns 40
(30) Bank 440
480 480

R Gee
(12) Sales 1,170 (30) Balance c/d 1,170
Purchses Returns
(30) Balance c/d 88 (17) Bowman Furnishers 28
(17) J Bond 60
88 88
(1) Balance b/d 88
Motor Vehicles
(25) Bates Motors 5,000 (30) Balance c/d 8,000
(28) Bank 3,000
8,000 8,000
Stationery
(29) Cash 56 (30) Balance c/d 56
(30) Balance b/d 56
Purchases
(3) Bowman Furnishers 320 (30) Balance c/d 3,930
(3) Howe Homes 460
(3) W Hunt 1,800
(3) J Bond 620
(20) J Bond 220
(20) W Hunt 270
(20) Bowman 240
3,930 3,930
Bowman Furnishers
Accounting
(17) Purchases returns 28 (3) Purchases 320

(27) Bank 532 (20) Purchases 240
560 560
W Hunt
(27) Bank 2,070 (3) Purchases 1,800
(20) Purchases 270
2,070 2,070
Sales
(30) Balance c/d 2,401 (7) Cash 480
(12) L Clark 480
(12) K Allen 96
(12) R Gee 1,170
(26) Cash 175
2,401 2,401
Rates
(11) Bank 190 (30) Balance c/d 190
(1) Balance b/d 190

K Allen
(12) Sales 96 (23) Sales returns 20
(30) Bank 76
96 96
Wages
(14) Cash 400 (30) Balance c/d 400
(1) Balance b/d 400
Sales Returns
(23) K Allen 20 (30) Balance c/d 60
(23) L Clark 40
60 60
(30) Balance b/d 60
Bates Motors
(30) Bank 5,000 (25) Motor vehicles 5,000
Cash
(7) Sales 480 (14) Wages 400
(26) Sales 175 (29) Stationery 56
(30) Balance c/d 199
655 655
(1) Balance b/d 199
Trial Balance as at 30 April 2010

Dr Cr
£ £
Bank 3,764
Purchases 3,930
Accounting
Capital 15,000
J Bond 780
Sales 2,401
Rent 500
Rates 190
R Gee 1,170
Wages 400
Purchases returns 88
Sales returns 60
Motor vehicles 8,000
Stationery 56
Cash 199
18,269 18,269
4.4 (a) Capital – credit

(b) Sales – credit
(c) Stationary – debit
(d) Cash – debit
(e) T Khan (creditor) – credit
(f) Machinery – debit
(g) Rent – debit
(h) D Allen (debtor) – debit
(i) Bank loan – credit
( j) Purchases – debit
4.5
Trial Balance of P Brown as at 31 May 2010
Dr Cr
£ £
Capital 20,000
Drawings 7,000
General expenses 500
Sales 38,500
Purchases 29,000
Debtors 6,800
Creditors 9,000
Bank 15,100
Cash 200
Plant and equipment 5,000
Heating and lighting 1,500
Rent 2,400
67,500 67,500
4.6 Trial Balance of S Higton as at 30 June 2010

Dr Cr
£ £
Capital 19,956
Sales 119,439
Stationery 1,200
General expenses 2,745
Accounting
Motor expenses 4,476

Cash at the bank 1,950
Stock 1 July 2009 7,668
Wages and salaries 9,492
Rent and rates 10,500
Office equipment 6,000
Purchases 81,753
Rent received 2,139
Debtors 10,353
Drawings 4,200
Creditors 10,230
Motor vehicle 7,500
Interest received 1,725
Insurance 3,444
153,489 153,489

4.7X Trial Balance of Ms Anita Hall as at 31 December 2010
Dr Cr
£ £
Plant and machinery 21,450
Motor vehicles 26,000
Premises 80,000
Wages 42,840
Purchases 119,856
Sales 179,744
Rent received 3,360
Telephone, printing and stationery 3,600
Creditors 27,200
Debtors 30,440
Bank overdraft 2,216
Capital 131,250
Drawings 10,680
General Expenses 3,584
Lighting and heating 2,960
Motor vehicle
343,770 343,770
4.8X (a) Error of principle

(b) Error of commission
(c) Error of omission
(d) Error of original entry
Accounting
(e) Complete reversal of entries
(f) Error of principle

Answers
Chapter 5: Value Added Tax

5.1
(a)
C Black
Curzon Road
Stockport
INVOICE No 947T
To: J Booth Date: 1 March 2011
89 Andrew Lane
Stockport Your Order No. 1697
£
20,000 coils sealing tape x £4.70 per 1,000 94.00
40,000 sheets A5 paper x £4.50 per 1,000 180.00
30,000 sheets A4 paper x £4.20 per 1,000 126.00
400.00
VAT at 17.5% 70.00
470.00
VAT Reg No. 542 4483 95
(b)
J Booth's Books
C Black
2011
01-Mar Purchases 470
C Black's Books
J Booth
Accounting
2011
01-Mar Sales 470
5.2X (a) & (b) & (c)
2010 Name of Customer Net VAT Total

£ £ £
Jan 2 D Woolham & Co 230.00 40.25 270.25
Jan 6 C Crawford 348.00 60.90 408.90
Jan 7 S Brocklehurst 1,980.00 346.50 2,326.50
Jan 9 L Price & Partners 520.00 91.00 611.00
Jan 13 D Woolham & Co 56.00 9.80 65.80
Jan 21 C Crawford 340.00 59.50 399.50
Jan 24 C Crawford 44.00 7.70 51.70
Jan 29 S Brocklehurst 846.00 148.05 994.05
5,286.00 925.05 6,211.05

5.3
(a) Cost of 22 reams of paper at £3.75 £82.50
17.5
Input VAT is 17.5% £82.50  ____
100
£14.44
£96.94
Customer Charged £235.00 including VAT
100
Amount before VAT is added, £235  ______
117.5
£200.00
Therefore, output VAT is £35.00
Amount of VAT due to HMRC, £35.00  £14.44  £20.56
(b) Net Amount VAT Total

£40.00 £7.00 £47.00
£ 2.00 £0.35 £ 2.35
£53.28 £9.32 £62.60
£ 3.20 £0.56 £ 3.76
5.4
(a) Ivy & Co
Dr VAT Account Cr
2010 2010
Apr-30 Purchases Day Book 8,750 Apr-30 Sales Day Book 9,205
May-31 Purchases Day Book 7,350 May-31 Sales Day Book 8,400
Jun-30 Purchases Day Book 9,625 Jun-30 Sales Day Book 10,500
Jun-30 Balances c/d 2,380 28,105
28,105
Jul-01 Balance b/d 2,380
Accounting
(b) The outstanding balance of £2,380 is the amount of VAT due to HMRC for the
quarter ending 30th June 2010.
When Ivy & Co pays this amount to HMRC this will clear the amount in the VAT
account.
5.5X
Dr VAT Account Cr
2010 2010
Oct 31 Purchases Day Book 6,580 Oct 31 Sales Day Book 13,125
Nov 30 Purchases Day Book 6,895 Nov 30 Sales Day Book 10,850
Dec 31 Purchases Day Book 9,100 Dec 31 Sales Day Book 11,900
Dec 31 Balances c/d 13,300
35,875 35,875
Jan 01 Balance b/d 13,300
(b) All business records must be kept for 6 years.

Answers
Chapter 6: Business documentation

6.1 (a) Remittance advice – a document which accompanies payments by cheque
or via BACS and gives details of the payment made.
(b) Statement – this is normally sent to purchasers at the end of each month
and it states the amount owing to the supplier at the end of that particular
month.
(c) Credit note - a document sent to a customer showing allowance given by
supplier in respect of unsatisfactory goods. Usually printed in red to
distinguish it from an invoice.
(d) Invoice – a document prepared by the seller and sent to the purchaser
whenever a business buys goods or services on credit. It gives details of the
supplier and the customer, the goods purchased and their price.
6.2 (a) Purchase order
(b) Invoice
(c) Statement
(d) Remittance advice
6.3X Statement of Account to John Ashley Ltd

Dr Cr Balance
£ £ £
May 1 Balance b/forward 101.50
May 2 Invoice No. 7821 43.75 145.25
May 8 Invoice No. 7955 35.00 180.25
May 17 Credit Note No. 304 10.20 170.05
Accounting
May 23 Invoice No. 8204 74.50 244.55

May 28 Cheque 51.50 193.05
The amount outstanding by John Ashley Ltd is £193.05

6.4X (a) Contents of an invoice - refer to text section 6.3
Contents of a credit note - refer to text section 6.4
(b) An invoice is used when a supplier has provided goods and/or services
to a customer and wishes to inform them how much is owed.
A credit note is issued by the supplier to 'credit' the buyer in respect of
unsatisfactory goods returned.

Answers
Chapter 7: Capital and revenue expenditure

7.1 Newton Data Systems
Type of expenditure Reason
(a) Revenue Use up in the short term
(b) Capital Adds to value of computer equipment
(c) Revenue Used up in the short term
(d) Revenue Used up in the short term
(e) Capital Adds to the value of the computer
(f) Question is not clear
(1) If spent on improving building
Construction  Capital Adds to the value of fixed assets
(2) If spent on extra wages for
Security guards  Revenue Used up in the short term
7.2 Cairns Engineering Co

Capital Revenue
£ £
(a) New stationery and brochures - 411
(b) New pickup truck 18,000 -
(c) New lathe 5,200 -
(d) Delivery costs - lathe 200 -
(e) Electricity - wiring 1,800 -
- electricity costs - 2,100
(f) Wages - Re: Improvements 20,000 -
Accounting
- Other - 45,000
45,200 47,511
Brief description of capital and revenue expenditure - see text
7.3X (a) (i) Capital

(ii) Capital
(iii) Capital
(iv) Revenue
(b) (i) Expenses would be too high and net profit too low
(ii) The value of the fixed assets in the balance sheet would be too low.

7.4 (a) (i) Capital expenditure
(ii) Capital expenditure
(iii) Revenue expenditure
(iv) Capital receipt
(v) Revenue expenditure
(vi) Revenue receipt
(vii) Revenue expenditure
(b) It is important to distinguish between capital and revenue expenditure
because incorrect treatment of expenditure would result in profits being
affected and the balance sheet position becoming distorted.
If capital expenditure is incorrectly treated as revenue expenditure then
the net profit will be understated and the assets in the balance sheet
undervalued. If revenue expenditure is incorrectly treated as capital
expenditure then the net profit would be overstated and the balance sheet
position would be overvalued.
7.5X Capital (a), (c), (f)

Revenue (b), (d), (e), (g)
Accounting

Answers
Chapter 8: Books of original entry and ledgers – Sales day

book and sales ledger including VAT
8.1 (a) Sales day book / sales ledger / personal account
(b) Cash book / general ledger / nominal account
(c) Purchases day book / purchases ledger / personal account
(d) Cash book / general ledger / nominal account
(e) Sales returns day book / sales ledger / personal account
(f) Purchases returns day book / purchases ledger / personal account
8.2X (a) (i) Purchase day book: purchase invoices

(ii) Sales returns day book: sales credit notes
(iii) Cash book: cheques received, cheques paid out, cash receipts and cash
payments
(iv) Sales day book: sales invoices
(v) Purchase returns day book: purchase credit notes
(b) Personal accounts: contain the accounts of businesses and people i.e. debtors
and creditors.
Impersonal accounts: contain the other accounts, divided between real and
nominal accounts.
Real accounts: are accounts in which fixed assets and stock are recorded, such
as machinery, property, fixtures and fittings.
Nominal accounts: record expenses, income and capital.
Accounting
8.3 Sales Day Book
Date Details Folio Goods VAT Total
2010 £ £ £
Nov-02 T Bates 186.00 32.55 218.55
Nov-03 D Cope 166.00 29.05 195.05
Nov-09 F Chan 12.00 2.10 14.10
Nov-11 T Bates 54.00 9.45 63.45
Nov-13 B Ho 66.00 11.55 77.55
Nov-18 D Cope 32.00 5.60 37.60
Nov-23 M Saka & Sons 20.00 3.50 23.50
Nov-30 F Chan 320.00 56.00 376.00
856.00 149.80 1005.80

Sales Ledger
Dr T Bates Account Cr
Nov-02 Sales 218.55
Nov-11 Sales 63.45
Dr D Cope Account Cr
Nov-03 Sales 195.05
Nov-18 Sales 37.60
Dr F Chan Account Cr
Nov-09 Sales 14.10
Nov-30 Sales 376.00
Dr B Mo Account Cr
Nov-13 Sales 77.55
Dr M Saka & Sons Account Cr
Nov-23 Sales 23.50
General Ledger
Dr Sales Account Cr
Nov-30 Credit sales for the month 856.00
Dr VAT Account Cr
Nov-30 Sales day book: VAT 149.80
8.4X Sales Day Book

Date Details Folio Goods VAT Total
2011
Jul 1 Hall Products 520.00 91.00 611.00
Jul 5 Ash & Co 62.00 10.85 72.85
Jul 8 K. Meakin 18.00 3.15 21.15
Jul 14 A. Ballearic 110.00 19.25 129.25
Jul 19 Hall Products 880.00 154.00 1,034.00
Accounting
Jul 26 G. Huang 126.00 22.05 148.05

Jul 28 A. Ballearic 42.00 7.35 49.35
Jul 31 J. Stead 98.00 17.15 115.15
1,856.00 324.80 2,180.80
Sales Ledger
Dr Hall Products Account Cr
Jul 1 Sales 611.00
Jul 19 Sales 1,034.00
Dr Ash & Co Account Cr
Jul 5 Sales 72.85
Dr K. Meakin Account Cr
Jul 8 Sales 21.15
Dr A. Ballearic Account Cr
Jul 14 Sales 129.25
Jul 28 Sales 49.35

Dr G. Huang Account Cr
Jul 26 Sales 148.05
Dr J Stead Account Cr
Jul 31 Sales 115.15
General Ledger
Dr Sales Account Cr
Jul 31 Credit sales for the month 1,856.00
Dr VAT Account Cr
Jul 31 Sales day book : VAT 324.80
8.5 It is important to check sales invoices prior to sending them out to customers for
the following reasons:
• To ensure the customer’s order number or reference is shown.
• To check that the correct quantity of goods has been invoiced.
• To ensure the goods/services are invoiced at the right place.
• To check all the calculations and extensions.
Accounting

Answers
Chapter 9: Purchases day book and

purchase ledger including VAT
9.1 White Bros
Purchases Day Book
Date Details Goods VAT Total
2010 £ £ £
May-01 Bould & Co 104.00 18.20 122.20
May-07 Harlow & Brown 48.00 8.40 56.40
May-16 J Adams Ltd 234.00 40.95 274.95
May-23 Bould & Co 170.00 29.75 199.75
May-26 J H Products 320.00 56.00 376.00
May-28 Harlow & Brown 62.00 10.85 72.85
May-31 P Yeung Ltd 446.00 78.05 524.05
1384.00 242.20 1626.20
Purchase Ledger
Dr Bould & Co Account Cr
May-01 Purchases 122.20
Dr Harlow and Brown Account Cr
Accounting
Dr J Adam Ltd Account Cr

Dr J H Products Account Cr
Dr P Yeung Account Cr
General Ledger
Dr Purchases Account Cr
May-31 Credit purchases 1384.00
for the month
Dr VAT Account Cr
May-31 Purchases Day 242.20
Book : VAT

9.2 Bakers Electrical Co
Purchases Day Book
2010 £ £ £
Jul-03 Peak Electrical 722.00 126.35 848.35
Jul-08 Leigh Electrics 84.00 14.70 98.70
Jul-12 Thomas Motors 274.00 47.95 321.95
Jul-17 Naik & Sons 160.00 28.00 188.00
Jul-21 Peak Electrical 158.00 27.65 185.65
Jul-23 W D Services 46.00 8.05 54.05
Jul-25 Leighs Electrics 210.00 36.75 246.75
Jul-30 Naik & Sons 178.00 31.15 209.15
1832.00 320.60 2152.60
Purchases Ledger
Dr Peak Electrical Ltd Account Cr
Jul-03 Purchases 848.35
Dr Leigh Electrics Account Cr
Dr Thomas Motors Account Cr
Dr Naik & Sons Account Cr
Accounting
Dr W D Services Account Cr
General Ledger
Jul-31 Credit purchases 1832.00
for the month
Dr VAT Account Cr
Jul-31 Purchases Day 320.60
Book : VAT

9.3X Tasty Foods
Purchases Day Book
2010 £ £ £
Aug 1 Barker Foods Ltd 62.00 10.85 72.85
Aug 6 Fern Bros 48.00 8.40 56.40
Aug 10 Ash Catering Co 224.00 39.20 263.20
Aug 14 Barker Foods Ltd 136.00 23.80 159.80
Aug 22 Farm Produce 98.00 17.15 115.15
Aug 27 Fern Bros 166.00 29.05 195.05
Aug 29 Leigh & Sons 84.00 14.70 98.70
Aug 30 Ash Catering Co 366.00 64.05 430.05
1,184.00 207.20 1,391.20
Purchases Ledger
Dr Barker Foods Ltd Account Cr
Aug 1 Purchases 72.85
Dr Fern Bros Account Cr
Dr Ash Catering Co Account Cr
Dr Farm Products Account Cr
Accounting
Dr Leigh & Sons Account Cr

General Ledger
Aug 31 Credit purchases 1,184.00
for the month
Dr VAT Account Cr
Aug 31 Purchases Day 207.20
Book : VAT
9.4X It is important to check invoices prior to payment to ensure:

• The goods invoices match the order specification
• The goods have been received
• They have been charged correctly
• The calculations are accurate
• The invoice has been passed for payment

Answers
Chapter 10: Sales returns day book and purchase

returns day book
10.1
Sales Day Book (Page 7)
Date Goods VAT Total
Details
2010 £ £ £
Jun-01 J Alcock 180.00 31.50 211.50
Jun-01 P Twigg 60.00 10.50 70.50
Jun-09 Bell Products 140.00 24.50 164.50
Jun-09 Travis Ltd 330.00 57.75 387.75
Jun-23 B Seddon 780.00 136.50 916.50
Jun-30 P Twigg 440.00 77.00 517.00
1930.00 337.75 2267.75
Sales Returns Day Book

2010 £ £ £
Jun-12 J Alcock 12.00 2.10 14.10
Jun-28 Travis Ltd 50.00 8.75 58.75
62.00 10.85 72.85
Sales Ledger
Accounting
Dr J Alcock Account Cr
Jun-01 Sales 211.50 Jun-12 Sales returns 14.10
Dr P Twigg Account Cr
Jun-01 Sales 70.50
Jun-30 Sales 517.00
Dr Bell Products Account Cr
Jun-09 Sales 164.50
Dr Travis Ltd Account Cr
Jun-09 Sales 387.75 Jun-28 Sales returns 58.75
Dr B Seddon Account Cr
Jun-23 Sales 916.50
General Ledger
Dr Sales Account Cr
Jun-30 Total SDB 1930.00
Dr Sales Returns Account Cr
Jun-30 Total SRDB 62.00
Dr VAT Account Cr
Jun-30 Total SRDB 10.85 Jun-30 Total SDB 337.75

10.2
Purchases Day Book
2010 £ £ £
May-01 J Yau Ltd 120.00 21.00 141.00
May-05 S Wager 80.00 14.00 94.00
May-05 Ash Bros 220.00 38.50 258.50
May-14 J Yau Ltd 60.00 10.50 70.50
May-19 D Wong 300.00 52.50 352.50
May-19 Rughani & Co 280.00 49.00 329.00
May-19 Ash Bros 80.00 14.00 94.00
May-31 A Davies 56.00 9.80 65.80
May-31 Rughani & Co 172.00 30.10 202.10
1368.00 239.40 1607.40
Purchase Returns Day Book

2010 £ £ £
May-09 J Yau Ltd 30.00 5.25 35.25
May-27 D Wong 42.00 7.35 49.35
72.00 12.60 84.60
Purchase Ledger
Dr J Yau Ltd Account Cr
May-09 Purchase returns 35.25 May-01 Purchases 141.00
Accounting
Dr S Wager Account Cr
Dr Ash Bros. Account Cr
Dr D Wong Account Cr
May-27 Purchase returns 49.35 May-19 Purchases 352.50
Dr Rughani & Co Account Cr
Dr A Davies Account Cr
General Ledger
May-31 Total PDB 1368.00
Dr Purchase Returns Account Cr
May-31 Total PRDB 72.00
Dr VAT Account Cr
May-31 Total PDB 239.40 May-31 Total PRDB 12.60
10.3X Anderson's Ltd (b)
Purchases Day Book
2010
Jan 2 Naylor's Ltd 1,300.00 227.50 1,527.50
Jan 5 Roberts & Sons 668.00 116.90 784.90
Jan 19 R. James & Co 1,512.00 264.60 1,776.60
3,480.00 609.00 4,089.00
Purchase Returns Day Book

2010
Jan 13 Naylor's Ltd 84.00 14.70 98.70
Jan 30 R. James & Co 400.00 70.00 470.00
484.00 84.70 568.70
Sales Day Book

2010
Jan 12 Marlow (Fancy 656.00 114.80 770.80
Gifts)
Jan 26 J. Jeynes 2,468.00 431.90 2,899.90
Jan 26 Birch Bros 340.00 59.50 399.50
Jan 28 F & J Shah 5,000.00 875.00 5,875.00
Jan 28 Marlow (Fancy 380.00 66.50 446.50
Gifts)
8,844.00 1,547.70 10,391.70
Sales Returns Day Book

2010
Marlow (Fancy
Jan 30 60.00 10.50 70.50
Gifts)
Accounting
60.00 10.50 70.50
10.3X (a) (c) (e)

Sales Ledger
J. Jeynes Account
Jan-01 Balance b/d 1,490.00 Jan-31 Balance c/d 4,389.90
Jan-26 Sales 2,899.90
4,389.90 4,389.90
Feb-01 Balance b/d 4,389.90
Marlow (Fancy Goods) Account
Jan-01 Balance b/d 552.00 Jan-30 Sales Returns 70.50
Jan-12 Sales 770.80 Jan-31 Balance c/d 1,698.80
Jan-28 Sales 446.50
1,769.30 1,769.30
F & J Shah Account
Jan-01 Balance b/d 780.00 Jan-31 Balance c/d 6,655.00
Jan-28 Sales 5,875.00
6,655.00 6,655.00
Birch Bros Ltd Account
Jan-26 Sales 399.50
10.3X (a) (c) (e)
Purchase Ledger
R. James & Co. Account
Jan-30 Purchase Returns 470.00 Jan-01 Balance b/d 1,600.00
Jan-31 Balance c/d 2,906.60 Jan-19 Purchases 1,776.60
3,376.60 3,376.60
Naylor's Ltd Account
Jan-13 Purchase Returns 98.70 Jan-01 Balance b/d 900.00
Jan-31 Balance c/d 2,328.80 Jan-02 Purchases 1,527.50
2,427.50 2,427.50
Roberts & Sons Account
Jan-31 Balance c/d 1,274.90 Jan-01 Balance b/d 490.00
Jan-05 Purchases 784.90
1,274.90 1,274.90
10.3X (d)
General Ledger
Dr Sales Account Cr
Jan-31 Total Sales for 8,844.00
January
Dr Sales Returns Account Cr
Jan-31 Total SRDB 60.00
Purchases Account
Accounting
Jan-31 Total Purchases 3,480.00

for January
Purchases Return Account
Jan-31 Total PRDB 484.00
Dr VAT Account Cr
Jan-31 Total PDB 609.00 Jan-31 Total PRDB 84.70
Jan-31 Total SRDB 10.50 Jan-31 Total SDB 1,547.70
Jan-31 Balance c/d 1,012.90
1,632.40 1,632.40
*Feb-01 Balance b/d 1,012.90
* The balance on the VAT account shows that Anderson's Ltd owe £1,012.90 to HMRC
10.4 Perris Design Company

Reconciliation of ledger accounts with supplier's statements
(a) Bennetts Ltd as at 31 July 2010 £
Balance per our Purchase Ledger 760.28
Add Purchases not received by us 121.50
Add Returns not received by supplier 63.50
Balance per Supplier's Statement 945.28
(b) Kirkhams Products Ltd as at 31 July 2010
Balance per our Purchase Ledger 1,387.68
Add Purchases not received by us 68.42
Add Returns not received by supplier 54.62
Balance per Supplier's Statement 1,510.72
Answers
Chapter 11: Cash books

11.1
Cash Book
Cash Bank Cash Bank
(1) Capital 4,000 (2) Fixtures 660
(4) Sales 225 (4) Rent 140
(6) T Thomas 188 (12) Wages 275
(8) Sales 308 (15) Cash 200
(10) J King 300 (20) Stationery 60
J Walters
(14) 500 (22) J French 166
(Loan)
(15) Bank 200 (28) Drawings 100
(30) J Scott 277 (31) Balances c/d 216 4,247
(31) Sales 66
791 5,273 791 5,273
(1) Balances b/d 216 4,247
11.2X
Dr Cash Book Cr
2010 Cash Bank 2010 Cash Bank
Feb 1 Balance b/d 76.32 2,376.50 Feb 2 Electricity 156.00
Feb 6 D Hill 300.00 Feb 4 Motor 15.00
expenses
Feb 6 A Jackson 275.00 Feb 7 Stationery 3.70
Accounting
Feb 6 H Wardle 93.20 Feb 12 Palmer & Sons 723.50
- purchases
Feb 10 Sales 57.10
Feb 14 D Whitman - 500.00 Feb 16 Wright 86.20
loan Brothers
Feb 22 J Smith 217.00 Feb 17 Drawings 50.00
Feb 26 Sales 53.00 Feb 17 Post office re:
Feb 28 Balance c/d 590.60 Telephone a/c 140.60
Mr S Jepson
Feb 23 Petrol 21.00
Feb 27 Brownsons of 899.00
M/cr
Feb 28 Salaries 2,400.00
Feb 28 Balance c/d 43.72
133.42 4,405.30 133.42 4,405.30
Mar-01 Balances b/d 43.72 Mar-01 Balances b/d 590.60

11.3
Cash Book
Disct Cash Bank Disct Cash Bank
(1) Capital 6,000 (1) Fixtures 950
(3) Sales 407 (2) Purchases 1,240
(5) N Morgan 10 210 (4) Rent 200
(9) S Cooper 20 380 (7) S Thompson 4 76
& Co
(14) L Curtis 115 (12) Rates 410
(20) P Exeter 2 78 (16) M Monroe 6 114
(31) Sales 88 (31) Calances c/d 93 4,195
32 407 6,871 10 407 6,871
General Ledger
Discounts Allowed
(31) Cash Book 32
Discounts Received
(31) Cash Book 10
11.4X
M Pinero
Dr Cr
Cash Book
Disct Cash Bank Disct Cash Bank
(1) Balance b/d 58 (1) Balance b/d 1,470
(2) Capital 1,000 (3) Office 780
fixtures
(4) Sales 220 (5) Bank 200
Accounting
(5) Cash 200 (6) B Barnes 2 78

(8) Sales 500 (6) T Horton 6 234
(15) Bank 400 (6) T Jackin 10 390
(18) L Graham 4 76 (12) Motor 77
Expenses
(18) B Crenshaw 7 133 (15) Cash 400
(18) H Green 11 209 (16) Drawings 120
(22) T Weiskopf 204 (20) Wages 210
(28) Cash 755 (26) Insurance 150
(30) Balance c/d 6,049 (28) Bank 755
(31) Motor Van 4,920
(31) Balance c/d 20
22 1,382 8,422 18 1,382 8,422
General Ledger
Dr Cr
Discounts Received Account
(31) Cash Book 18
Dr Discounts Allowed Account Cr
(31) Cash Book 22

Answers
Chapter 12: Petty cash and the imprest system

12.1
Receipts Date Details Voucher Total VAT Postage Cleaning Motor Stationery Sundry
Number Expenses Expenses
£ p £ p £ p £ p £ p £ p £ p £ p
2010
18.52 Jun 01 Balance b/d
131.48 Jun 01 Cash
Jun 01 Window cleaner 32 10.00 10.00
Jun 03 Postage stamps 33 7.60 7.60
Jun 04 Petrol 34 37.60 5.60 32.00
Jun 06 Stationery 35 9.75 1.45 8.30
2.00 Jun 10 Jean Ford stamps 8
Jun 14 Office cleaner 36 20.00 20.00
Jun 16 Parcel postage 37 1.35 1.35
Jun 19 Magazine 38 3.00 3.00
Jun 21 Computer disks 39 7.95 1.05 6.90
Jun 23 Petrol 40 14.10 2.10 12.00
Jun 27 Refreshments 41 4.20 4.20
Jun 29 Office cleaner 42 20.00 20.00
135.55 10.20 8.95 50.00 44.00 15.20 7.20

Jun 30 Balance c/d 16.45
152.00 152.00
16.45 Jul 01 Balance b/d
133.55 Jul 01 Cash
Accounting
£
Amount required to restore imprest = Float required 150.00
Less Cash in hand 16.45
Amount required 133.55

12.2X Singh's Estate Agents - Petty Cash book
Receipts Date Details Voucher Total VAT Postage Cleaning Travel Stationery Sundry
Expenses Expenses
£ £ £ £ £ £ £ £
2010
23.40 15 Oct Balance b/d
76.60 15 Oct Cash
16 Oct Envelopes and files 80 11.66 1.66 10.00
17 Oct Tea, Coffee and milk 81 7.40 7.40
18 Oct Special delivery 82 8.60 8.60
20 Oct Office cleaner 83 20.00 20.00
20 Oct Cleaning materials 84 4.23 0.63 3.60
3.50 23 Oct M Lloyd Stationery 78
23 Oct Postage stamps 85 7.00 7.00
25 Oct Travel expenses 86 16.42 16.42
27 Oct Flowers 87 4.99 0.74 4.25
28 Oct Photocopy paper 88 9.40 1.40 8.00
89.70 4.43 15.60 23.60 16.42 18.00 11.65
31 Oct Balance c/d 13.80
103.50 103.50
13.80 01 Nov Balance b/d
86.20 01 Nov Cash
Amount required to restore the imprest = Float required 100.00

Less Cash in hand 13.80
Amount required 86.20
Accounting

Answers
Chapter 13: Bank reconciliation statements

Note: Both in theory and in practice you can start with the cash book balance working
to the bank statement balance, or you can reverse this method. Many teachers and
lecturers have their preferences, but this is a personal matter only. Examiners sometimes
ask for them using one way, sometimes the other. Students should therefore be able to
tackle them both ways.
13.1
(a)
Cash Book
2010 (Totals so far) 2,328 2010 (Totals so far) 497
Dec-31 J Walters 54 Dec-31 Bank charges 22
Dec-31 Balance c/d 1,863
2,382 2,382
(b)
Bank Reconciliation Statement as at 31 December 2010
Balance per cash book 1,863
Add Unpresented cheque 115
1,978
Less Bankings not yet on bank statement (249 1 178) 427
Balance per bank statement 1,551
OR
Accounting
Add Bankings not yer on bank statement (249 1 178) 427
1,978
Less Unpresented cheque 115
13.2X
(a)
Preston & Co
Dr Cr
Cash Book
Dec 31 Balance b/d 9,155 Dec 31 Bank charges 110
Dec 31 BGC: P Todd 270 Dec 31 Balance c/d 9,315
9,425 9,425
Jan 1 Balance b/d 9,315

(b)
Preston & Co
£
Balance as per cash book 9,315
9,890
Less Bankings not yet on bank statement ( 945 1 300 1 890) 2,135
OR
Preston & Co
£
Balance as per bank statement 7,755
Add Bankings not yet on bank statement ( 945 1 300 1 890) 2,135
9,890
13.3
(a)
Cash Book - James Baxter
2010 £ 2010 £
Mar-31 BGC - A May 929 Mar-31 Balance b/d 2,804
Mar-31 Balance c/d 2,003 Mar-31 Standing order 100
- Oak plc
Accounting
Mar-31 Bank charges 28

2,932 2,932
(b)
James Baxter
Bank Reconciliation Statement as at 31 March 2010
£
Bank overdraft per cash book 2,003
Add Banking not entered on bank statement 160
2,163
Bank overdraft per bank statement 1,673
OR
James Baxter
Bank Reconciliation Statement as at 31 March 2010
£
Balance per bank statement 1,673 O/D
Less Banking not entered on bank statement 160
1,513 O/D
Balance per cash book 2,003 O/D

13.4X
(a)
E Flynn
Cash Book
2010 2010
Dec-06 J Hallworth 155 Dec-01 Balance b/d 3,872
Dec-20 C Walters 189 Dec-10 P Wood 206
Dec-31 P Miller 211 Dec-19 M Roberts 315
Dec-31 K Saunders 180 Dec-29 P Phillips 84
Dec-31 Balance c/d 4,007 Dec-30 s/o Mercantile 200
Dec-31 Bank charges 65
4,742 4,742
(b)
E Flynn
Bank overdraft per cash book 4,007
Add Bank lodgements not yet entered on bank statement 211
4,218
Bank overdraft per bank statement 4,134
13.5
(a) A cheque that the bank refuses to pay due to insufficent funds in the debtor's
account.
(b) Date Narrative £ Date Narrative £
Accounting
Apr-01 Balance b/d 8,000 Apr-02 F Bashir (10123) 1,200
Apr-07 Sales banked 800 Apr-08 M Tyler (10124) 1,300
Apr-13 Sales banked 550 Apr-15 H Joshi (10125) 1,250
Apr-20 Sales banked 650 Apr-15 DD / MTC 250
Apr-30 Sales banked 750 Apr-20 DD / Pre. Ins 80
Apr-22 CT - M Bell 1,230 Apr-28 Bank charges 120
Apr-30 Dishonoured cheque 280
Apr-30 Balance c/d 7,500
11,980 11,980
May-01 Balance b/d 7,500
(c)
Real Kitchen Suppliers
Bank Reconciliation Statement as at 30 April 2010
£ £
Balance as per cash book 7,500
Add: Unpresented cheque - 10125 1,250
8,750
Less: cash not yet credited 750

Answers
Chapter 14: The journal

14.1
The Journal
Date Details Dr Cr
2010 £ £
Jan-01 Computer Equipment 4,000
Data Systems Ltd 4,000
Jan-05 Drawings 120
Purchases 120
Jan-08 Bad debts 220
J Oddy 220
Jan-15 Motor vehicle 15,500
Bank 15,500
Jan-29 Office furniture and fittings 250
J Street 250
14.2X
(a) Fixtures Dr 1,809 J Harper Cr 1,809
(b) Drawings Dr 500 Purchases Cr 500
(c) Drawings Dr 100 Cash Cr 100
(d) Office Dr 500 K Lamb Cr 500
equipment
(e) J Harper Dr 65 Fixtures Cr 65
Accounting
(f) Bad debts Dr 68 J Brown Cr 68

(g) Office Dr 2,190 Super Offices Cr 2,190
equipment
14.3
(a) J Harkness Dr 678 J Harker Cr 678
(b) Machinery Dr 4,390 L Pearson Cr 4,390
(c) Motor Van Dr 10,800 Motor expenses Cr 10,800
(d) E Fletcher Dr 9 Sales Cr 9
(e) Sales Dr 257 Commissions Cr 257
received
14.4X
(a) H Weld Dr 699 K Webb Cr 699
(b) Cash Dr 189 Bank Cr 189
(c) B Maxim Dr 443 B Gunn Cr 443
(d) K Innes Dr 10 Purchases Cr 10
(e) H Mersey* Dr 178 Cash Cr 178
*Needs double the amount to first cancel out the error and then replace it with the
correct amount.

14.5X
(a)
Journal
Dr Cr
Sep 30 Drawings 750
Purchases 750
Bring correction of error of omission
Sep 30 L Patel 500
A Patek 500
Being correction of your error of commission
(b)
Dr Suspense Account Cr
Sep 30 Balance b/d 340 Sep 30 Sales 240
Sep 30 Farmer & Co 170 Sep 30 Pointer Bros 270
510 510
(c) Before discovery of the errors in the Trial Balance the debit side was deficient
by £340.
(d) The trial balance has its limitations since certain errors can occur and not be
revealed, such as:-
• Error of omission
• Error of commission
• Error of principle
• Error of original entry
• Compensating errors
• Complete reversal of entries
Accounting
One from the above list.

Answers
Chapter 15: Sales ledger and purchase ledger

control accounts
15.1
Dr Sales Ledger Control Account Cr
2010 2010
Oct-01 Balance b/d 12,340 Oct-31 SRDB 2,847
Oct-31 SDB 124,790 Oct-31 Bank & cash 116,225
Oct-31 Discount allowed 3,638
Oct-31 Balance c/d 14,420
137,130 137,130
Nov-01 Balance b/d 14,420
15.2X
2010 2010
Feb 1 Balance b/d 33,950 Feb 28 Bank & cash 332,920
Feb 28 SDB 347,480 Feb 28 Discount allowed 4,497
Feb 28 Bank : dishonoured 791 Feb 28 SRDB 11,095
cheques
Feb 28 Bad Debts 977
Feb 28 Purchase ledger 1,400
set offs
Feb 28 Balance c/d 31,332
Accounting
382,221 382,221
Mar 1 Balance b/d 31,332
15.3
Dr Purchase Ledger Control Account Cr
2010 2010
Jul-31 PRDB 1,575 Jul-01 Balance b/d 19,450
Jul-31 Bank 26,150 Jul-31 PDB 28,200
Jul-31 Discount received 550
Jul-31 Balance c/d 19,375
47,650 47,650
Aug-01 Balance b/d 19,375

15.4X
Dr Purchase Ledger Control Account Cr
2010 2010
Jan 31 PRDB 2,835 Jan 31 Balance b/d 35,010
Jan 31 Bank 45,070 Jan 31 PDB 50,760
Jan 31 Discount received 990
Jan 31 Sales ledger set offs 2,000
Jan 31 Balance c/d 34,875
85,770 85,770
Feb 1 Balance b/d 34,875
15.5X
(a)
2009 2009
Jan 1 Balance b/d 65,000 Dec 31 RIDB 6,430
Dec 31 SDB 453,900 Dec 31 Bank 432,000
Dec 31 Returned cheque 750 Dec 31 Discount All 7,540
Dec 31 Bad Debts 650
Dec 31 Purchase ledger 1,650
set offs
Dec 31 Balance c/d 71,380
519,650 519,650
(b) Ravi believes there may be errors in his sales ledger because the sales ledger shows
£78.540 total debtors at the end of December 2009. Having constructed the control
account the total debtors outstanding amounts to £71,380. Therefore there is a
discrepancy of £78,540  £71,380  £7,160 which will require investigation.
Accounting
(c) The closing balance of the sales ledger control account would appear under current
assets in the balance sheet.

Answers
Chapter 16: Trading account and profit and

loss account of a sole trader
16.1 Lucy Chan
Trading and Profit and Loss Account for the year ending 31 December 2010
£ £
Sales 133,770
Less cost of goods sold
Purchases 84,665
Less closing stock 15,085 69,580
Gross Profit 64,190
Less Expenses
Rent 4,595
Printing and stationery 2,940
Electricity expenses 2,485
General expenses 1,295 40,180
Net Profit 24,010
16.2X Charles Drew

Trading and Profit and Loss Account for the year ending 31 December 2010
£ £
Sales 128,452
Purchases 96,547
Accounting

Gross Profit 50,400
Less Expenses
Wages 11,229
Rent 5,330
Office expenses 1,620
Motor expenses 922
Electricity expenses 1,350 20,451
Net Profit 29,949

16.3 G Singh
Trading and Profit and Loss Account for the year ended 31 December 2010
£ £
Sales 73,848
Less Cost of goods sold:
Purchases 58,516
Less Closing stock 10,192 48,324
Gross Profit 25,524
Less Expenses
Wages 8,600
Rates 2,680
Insurance 444
General expenses 420 14,224
Net Profit 11,300
16.4X R Cairns
Trading and Profit and Loss Account for the year ended 30 June 2010
£ £
Sales 99,082
Less Cost of goods sold
Purchases 71,409
Gross Profit 39,171
Less Expenses
Wages 9,492
Rates 2,000
Printing and Stationery 562
Electricity 1,266
Insurance 605
Accounting
Sundry Expenses 1,518
Motor expenses 3,109 18,552
Net Profit 20,619
16.5X J Leung
Trading and Profit and Loss Account for the year ended 31 March 2010
£ £
Sales 153,080
Purchases 133,171
Gross Profit 62,737
Less Expenses
Insurance 1,312
Electricity expenses 2,219
Salaries and wages 26,855
Net Profit 19,748

Answers
Chapter 17: The Balance Sheet

17.1 G Singh
Balance Sheet as at 31 December 2010
£ £ £
Fixed Assets
Buildings 20,000 20,000
Motor vehicle 12,000 12,000
32,000 32,000
Current Assets
Stock 10,192
Debtors 7,800
Cash at bank 6,616
Cash in hand 160 24,768
Less Current Liabilities
Creditors 6,418 6,418
Net current assets 18,350
50,350
Financed by
Cash introduced 48,000
Add Net profit for the year 11,300
59,300
Less Drawings 8,950
50,350
17.2X
Accounting
R Cairns
Balance Sheet as at 30 June 2010
£ £ £
Fixed assets
Premises 145,000 - 145,000
Computer equipment 8,000 - 8,000
Motor vehicle 16,500 - 16,500
169,500 - 169,500
Current assets
Stock 11,498
Debtors 9,498
Cash at bank 6,541
Cash in hand - 27,537
Less Current liabilities
193,419
Financed by:
Capital introduced 185,000
Add Net profit for the year 20,619
205,619
Less Drawings 12,200
193,419

17.3 J Leung
Balance Sheet as at 31 March 2010
£ £ £
Fixed Assets
Buildings 120,400 120,400
Equipment 17,028 17,028
Motor van 15,050 15,050
152,478 152,478
Current Assets
Stock 42,828
Debtors 29,283
Cash at bank 4,876 76,987

Creditors 13,975 13,975
Working Capital 63,012
215,490
Financed by
Capital 212,736
Net profit 19,748
232,484
215,490
17.4X Sarah Joshi

Trading and Profit and Loss Account for the
year ended 31 May 2010
£ £
Accounting
Sales 103,658
Purchases 85,691
Gross Profit 32,965
Less Expenses
Rent 3,000
Printing and stationery 605
Insurance 578 22,262
Net Profit 10,703

Balance Sheet as at 31 May 2010
£ £ £
Fixed Assets
Buildings 180,000 - 180,000
Computer equipment 3,600 - 3,600
Motor vehicle 19,800 - 19,800
203,400 - 203,400
Current Assets
Stock 14,998
Debtors 11,398
Cash at bank 13,850 40,246
Net current assets / working capital 35,903
Less Long-term liabilities -
239,303
Financed By:
Capital 237,240
Add Net profit 10,703
247,943
Less Drawings 8,640
239,303
Accounting

Answers
Chapter 18: Financial statements:

other considerations
18.1 K Jepson
Trading account for the year ended 31-Dec-10
£ £
Sales 69,736
Opening stock 12,463
Add purchases 47,536
Add carriage inwards 1,206
61,205
Gross profit 22,011
18.2X Jane Li
£ £
Sales 98,280
Less Cost of Goods Sold
Opening Stock 29,686
Add Purchases 66,429
Add Carriage Inwards 2,020
98,135
Accounting
Less Closing Stock 33,307 64,828
Gross profit 33,452

18.3 J Mann
Trading and Profit and Loss Account for the year ended 31 July 2010
£ £
Sales 110,859
Less sales returns 1,029
109,830
80,619
Less purchase returns 1,176
79,443
Gross Profit 39,270
Less Expenses
Rent 3,066
Motor Expenses 6,552
Carriage outwards 1,659 22,680
Net Profit 16,590
18.4X Emily Hart

£ £
Sales 189,050
186,200
Accounting
Less Cost of Goods Sold

Add Carriage Inwards 400
157,815
Less Purchase Returns 3,000
154,815
Gross Profit 64,369
Less Expenses
Wages 21,875
Carriage outwards 931
Printing and stationery 525 26,815
Net Profit 37,554

18.5 S Shah
Trading and Profit and Loss Account for the year ended 30 June 2010
£ £
Sales 178,560
176,592
139,699
Less purchase returns 3,091
136,608
Gross Profit 68,304
Less Expenses
Insurance 749
Motor Expenses 4,250
Telephone and internet 4,198
Electricity 1,594
Carriage outwards 1,920
Net Profit 12,586

£ £ £
Fixed Assets
Accounting
Buildings 80,000 80,000
Computer equipment 3,360 3,360
Motor vehicles 17,280 17,280
100,640 100,640
Current Assets
Stock 28,320
Debtors 37,402

Creditors 32,618 32,618
Net Current Assets (Working Capital) 37,731
138,371
Less long-term liabilities
Long-term loans Nil
138,371
Financed by
Capital account
Balance b/f 137,305
Add net profit for the year 12,586
149,891
138,371

18.6X J Collins
£ £ £
Sales 74,400
Less Cost of sales
Carriage inwards 936
62,264
Gross Profit 32,128
Less Expenses
Carriage outwards 1,304
Rent 1,824
Rates 1,080
Printing and stationery 810
Travel expenses 490
Telephone 756
Sundry expenses 2,808 20,860
Net Profit 11,268
Balance Sheet as at 31 March 2010

£ £ £
Fixed Assets
Fixtures and fittings 2,400 2,400
Computer equipment 9,600 9,600
12,000 12,000
Current Assets
Accounting
Stock 19,992
Debtors 18,308
Cash at bank 15,504
Cash in hand 480 54,284

Creditors 12,180 12,180
Net Current assets 42,104
54,104
Financed by:
Capital 51,376
Add net profit 11,268
62,644
Less Drawings 8,540
54,104

Answers
Chapter 19: The concept of depreciation

of fixed assets
19.1
J Chen
(a) Straight Line (b) Reducing Balance
£ £
Cost 6,000 6,000
Year 1 Depreciation* 1,250 Year 1 Depreciation 40% 3 2,400
£6,000
4,750 3,600
Year 2 Depreciation 1,250 Year 2 Depreciation 40% 3 1,440
£3,600
3,500 2,160
Year 3 Depreciation 1,250 Year 3 Depreciation 40% 3 864
£2,160
2,250 1,296
£1,296
1,000 777
6,000 2 1, 000
*Depreciation 5 _____________
4
5 £1,250
Accounting
19.2
Machine
£ £
Cost 75,000 75,000
Year 1 Depreciation* 11,070 Year 1 Depreciation 20% 3 15,000
£75,000
63,930 60,000
£60,000
52,860 48,000
£48,000
41,790 38,400
£38,400
30,720 30,720
75,000 2 30,720
*Depreciation 5 _______________
4
5 £11,070

19.3X
(a)
Reducing Balance
£
Cost 19,200
Year 1 Depreciation 50% of 19,200 9,600
9,600
4,800
2,400
1,200
(b)
Straight Line
£
Cost 19,200
Year 1 Depreciation 4,500
14,700
10,200
5,700
1,200
19,200 2 1,200 5 18,000 4 4 5 4,500
Accounting
19.4X
Computer Equipment
£ £
Cost 4,600 Cost 4,600
Year 1 Depreciation * 1,000 Year 1 Depreciation 25% 3 1,150
4,600
3,600 3,450
3,450
2,600 2,588
2,588
1,600 1,941
1,941
600 1,456
*___________________________________
Depreciation  4,600 2 600  £1,000
     
4
    

19.5X
(a)
Reducing Balance
£
Cost 72,900
Year 1 Depreciation 33 __13 % of 72,900 24,300
48,600
32,400
21,600
14,400

9,600
(b)
Straight Line
£
Cost 72,900
60,240
47,580
Accounting
34,920
22,260
9,600
72,900 2 9,600 5 63,300 4 5 5 12,660

19.6
Dumper
(a) Reducing Balance (b) Straight Line
£ £
Cost 18,000 18,000
Year 1 Depreciation 40% 3 Year 1 Depreciation 5,000
£18,000 7,200
10,800 13,000
£10,800 4,320
6,480 8,000
£6,480 2,592
3,888 3,000
18,000 2 3,000
Depreciation  ______________
  3
       £5,000
19.7X
(a) Machinery has straight line depreciation; fixtures has reducing balance.
(b) Machinery: 4,800 2 1,600 2 1,600  1,600
Fixtures: 2,025 2 506 2 380  1,139
(c) Machinery: 8,000 2 2,000 2 1,500 2 1,125 2 844 5 2,531
(Depreciation rate is 25% p.a.)
Accounting

Answers
Chapter 20: Double entry for depreciation and

disposal of a fixed asset
20.1
(a)
Dr Motor Car Account Cr
2001 £ £
Jan-01 Bank 12,500
(b)
Dr Provision for Depreciation - Motor Car Account Cr
2001 £ 2001 £
Dec-31 Balance c/d 2,500 Dec-31 Profit and loss a/c 2,500
2002 2002
Dec-31 Balance c/d 4,500 Jan-01 Balance b/d 2,500
Dec-31 Profit and loss a/c 2,000
4,500 4,500
2003 2003
Dec-31 Profit and loss a/c 1,600
6,100 6,100
2004
Jan-01 Balance b/d 6,100
Accounting
(c)
Profit and Loss Account (extracts) for the year ended 31 December
£
2001 Depreciation 2,500
(d)
Balance Sheet (extracts) as at 31 December
Cost Total Depreciation Net book value
2001 £ £ £
Motor Car 12,500 2,500 10,000
2002
Motor Car 12,500 4,500 8,000
2003
Motor Car 12,500 6,100 6,400

20.2X
(a) Straight Line Method
Dr Machinery Account Cr
2001 £ £
Nov 01 Bank 18,000
Dr Provision for Depreciation - Machinery Account Cr

2002 £ 2002 £
Oct 31 Balance c/d 1,800 Oct 31 Profit and loss a/c 1,800
Nov 1 Balance b/d 1,800
2003 2003
3,600 3,600
2004 2004
5,400 5,400
(b) Reducing Balance Method

Dr Machinery Account Cr
2001 £ £
Nov 01 Bank 18,000
Dr Provision for Depreciation - Machinery Account Cr

Accounting
2002 £ 2002 £
2003 2003
3,420 3,420
2004 2004
4,878 4,878
(c) Straight Line Method

Profit and Loss Account (extracts) for the year ended 31 October
£
2002 Depreciation - Machinery 1,800

Balance Sheet (extracts) as at 31 October
Cost Total Depreciation Net Book Value
2002 £ £ £
Machinery 18,000 1,800 16,200
2003
Machinery 18,000 3,600 14,400
2004
Machinery 18,000 5,400 12,600
(d) Reducing Balance Method

Profit and Loss Account (extracts) for the year ended 31 October
£
Balance Sheet (extracts) as at 31 October

Cost Total Depreciation Net Book Value
2002 £ £ £
Machinery 18,000 1,800 16,200
2003
Machinery 18,000 3,420 14,580
2004
Machinery 18,000 4,878 13,122
20.3
Accounting
(a)
Computer Equipment Account
2001 2004
Jan-01 Balance b/d 9,500 Jan-01 Computer equipment
disposals 9,500
(b)
Provision for Depreciation : Computer Equipment Account
2001 2001
Computer
Dec-31 Balance c/d 1,900 Jan-01 1,900
equipment
2002 2002
Dec-31 Profit and loss 1,900
3,800 3,800
2003 2003
Dec-31 Profit and loss 1,900
5,700 5,700
2004 2004
Jan-01 Computer equipment 5,700 Jan-01 Balance b/d 5,700
disposals
(c)
Computer Equipment Disposals Account
2004 2004
Jan-01 Computer 9,500 Jan-01 Depreciaiton 5,700
Dec-31 Profit and loss 450 Jan-01 Bank 4,250
9,950 9,950
(d)
Profit and Loss Account (extracts) for the year ended 31 December
£
2001 Depreciation - Computer Equipment 1,900
(e)
Balance Sheet (extracts) as at 31 December
Cost Total Depreciation Net book value
2001 £ £ £
Computer Equipment 9,500 1,900 7,600
2002
2003
20.4X
(a)
Accounting
Motor Van Disposals Account

Motor Van 12,000 Provision for depreciation 9,700
Bank 1,850
Profit and loss : loss on sale 450
12,000 12,000
(b)
Machinery Disposals Account
Machinery 27,900 Provision for depreciation 19,400
Profit and loss : profit on sale 2,770 Bank 11,270
30,670 30,670
(c)
Fixtures Disposals Account
Fixtures 8,420 Provision for depreciation 7,135
Bank 50
Profit and loss : loss on sale 1,235
8,420 8,420

(d)
Buildings Disposals Account
Buildings 200,000 Provision for depreciation 110,000
Profit and loss : profit on sale 59,000 Bank 149,000
259,000 259,000
20.5
(a) Straight Line Method
Cost 2 Scrap Value

  _________________
  
No. of Years
   
35,000 2 11,000
    
  ______________  £6,000 per annum
4
(b)
Dr Provision for Depreciation - Vehicles Account Cr
2005 £ 2005
Mar-31 Balance c/d 7,000 Mar-31 Profit and loss 7,000
Apr-01 Balance b/d 7,000
2006 2006
Mar-31 Balance c/d 12,600 Mar-31 Profit and loss 5,600
12,600 12,600
Apr-01 Balance b/d 12,600
WORKINGS
Year ended 31/03/05
20% 3 35,000  £7,000 per annum
Accounting
Year ended 31/03/06
20% 3 (35,000 2 7,000)  £5,600 per annum
(c) Any two from:

Wear and tear, obsolence, time factors, inadequacy, depletion.
20.6X
(a)
RIALTO TRADERS
Plant and Machinery Account
2007 2007
May 1 Balance b/d 500,000 Dec 31 Plant and machinery 200,000
disposals
2008
Apr 30 Balance c/d 300,000
500,000 500,000
2008
May 1 Balance b/d 300,000

(b)
Motor Vehicles Account
2007
2008 2008
Feb 1 Bank 100,000 Apr 30 Balance c/d 300,000
300,000 300,000
(c)
Provision for Depreciation - Plant and Machinery Account
2007 2007
Dec 31 Plant and Machinery- 150,000 May 1 Balance b/d 200,000
Disposals
2008 2008
Apr 30 Balance c/d 80,000 Apr 30 Profit and Loss 30,000
230,000 230,000
(d)
Plant and Machinery - Disposal Account
2007 2007
Dec 31 Plant and Machinery 200,000 Dec 31 Provision for 150,000
Depreciation
Dec 31 Bank 40,000
Dec 31 Profit and Loss 10,000
200,000 200,000
Accounting
(e) (i) Concept 1 – Consistency

Concept 2 – Accruals
(ii) It is important to apply the consistency concept so that comparisons can be
made between different years. Therefore in the above example depreciation is
changed at 10% using the straight line method, the company needs to be
consistent in using this method and the rate of depreciation in future final
accounts.
In applying the accruals concept the benefit that a fixed asset provides over its
useful life is matched with the depreciation for the same period.

Answers
Chapter 21: Bad debts and provision for

doubtful debts
21.1 Hart & Partners
(a) Dr Bad Debts Account Cr
2009 2009
May-16 S Bayley 550 Dec-31 Profit & loss 1,240
Jul-31 J Carter 223
Nov-09 T Roche 467
1,240 1,240
Dr Provision For Doubtful Debts Account Cr
2009
Dec-31 Profit & loss 520
(b)
Profit and Loss Account for the year ended 31 December 2009 (extracts)
Gross profit
Less Expenses
Bad debts written off 1,240
Provision for doubtful debts 520 1,760
(c) Balance Sheet as at 31 December 2009 (extract)

Current Assets
Accounting
Debtors 26,000
Less Provision for doubtful debts 520 25,480
21.2
Date Total debtors Profit and Dr/Cr Final figure for
31-Dec loss balance sheet
2007 7,000 70 Dr 6,930 (net)
2008 8,000 10 Dr 7,920 (net)
2009 6,000 20 Cr 5,940 (net)
2010 7,000 10 Dr 6,930 (net)

21.3X
Bad Debts
2007 2007
31 Dec Debtors 298 31 Dec Profit and loss a/c 298
2008 2008
2009 2009
2010 2010
Provision for Doubtful Debts

2007 2007
31 Dec Balance c/d 100 31 Dec Profit and loss a/c 100
2008 2008
31 Dec Balance c/d 130 1 Jan Balance b/d 100
31 Dec Profit and loss a/c 30
130 130
2009 2009
31 Dec Profit and loss a/c 15 1 Jan Balance b/d 130
31 Dec Balance c/d 115
130 130
2010 2010
31 Dec Balance c/d 150 1 Jan Balance b/d 115
31 Dec Profit and loss a/c 35
150 150
2011
1 Jan Balance b/d 150
Accounting
Profit and Loss Accounts

for the years ended 31 December (extracts)
2007 £ £
Bad debts 298
Provision for doubtful debts 100
2008
Bad debts 386
2009 2009
Bad debts 344 Provision for doubtful debts 15
2010
Bad debts 477

Balance Sheet as at 31 Decemeber (extracts)
£ £
2007 Debtors 12,000
2008 Debtors 15,000
2009 Debtors 14,000
2010 Debtors 18,000
21.4X (a)
The Journal
Date Debit Credit
£ £
Apr 30 Bad Debts 500
A. Carter 500
Being bad debt written off
(b) Double entry for the creation of a Provision for Doubtful Debts
Debit: Profit and Loss Account
Credit: Provision for Doubtful Debts Account
(c) The prudence concept requires that the financial statements provide a ‘true and fair’
view of the business at the date of the balance sheet. In addition profits should also
reveal a correct and true figure. Therefore any anticipated losses need to be
accounted for in the profit and loss account. Providing for a ‘provision for doubtful
debts’ anticipates any potential loss should a debtor fail to pay. By deducting the
Accounting
provision from the debtors in the balance sheet a more accurate figure of debtors is
given.

Answers
Chapter 22: Accruals, prepayments and other

adjustments for financial statements
22.1
(a) C Homer
Rent Account
2008 2008
Dec-31 Bank 1,600 Dec-31 Profit and loss 2,000
Dec-31 Owing c/d 400
2,000 2,000
2009
Jan-01 Owing b/d 400
(b) Insurance Account

2008 2008
Dec-31 Bank 900 Dec-31 Profit and loss 635
Dec-31 Prepaid c/d 265
900 900
2009
Jan-01 Prepaid b/d 265
(c) Motor Expenses Account

2008 2008
Accounting
Dec-31 Bank 7,215 Dec-31 Profit and loss 7,381

7,381 7,381
2009
(d) Rates Account

2008 2008
Jan-01 Bank 750 Dec-31 Profit and loss 1,500
Jul-01 Bank 1,125 Dec-31 Prepaid c/d 375
1,875 1,875
2009
(e) Rents Receivable Account

2008 2008
Dec-31 Profit and loss 4,800 Apr-15 Bank 2,000
Dec-31 In advance c/d 1,600 Dec-15 Bank 4,400
6,400 6,400
2009
Jan-01 In advance b/d 1,600

22.2
(a) T Norton
General Expenses Account
2009 2009
Dec-31 Owing c/d 56
671 671
2010
Jan-01 Owing b/d 56
(b) Telephone Account

2009 2009
Dec-31 Bank 980 Dec-31 Profit and loss 1,097
1,097 1,097
2010
(c) Commission Received Account

2009 2009
Dec-31 Profit and loss 3,231 Dec-31 Bank 3,056
3,231 3,231
2010
(d)
Accounting
Carriage Outwards Account
2009 2009
788 788
2010
(e) Insurance Account

2009 2009
Jan-01 Bank 1,080 Dec-31 Profit and loss 1,440
Oct-01 Bank 1,080 Dec-31 Prepaid c/d 720
2,160 2,160
2010

22.3X
(a) T Dale
Stationery Account
2008 2009
01 Jul Stock b/d 290 30 Jun Profit and loss 800
2009 2009
30 Jun Cash and bank 855 30 Jun Stock c/d 345
1,145 1,145
(b) General Expenses Account

2008
01 Jul Owing b/d 64
2009 2009
30 Jun Cash and bank 590 30 Jun Profit and loss 616
30 Jun Owing c/d 90
680 680
(c) Rent and Rates Account

2008
01 Jul Owing b/d:
Rent 160
Rates 205
2009 2009
30 Jun Cash and bank 3,890 30 Jun Profit and loss 3,635
30 Jun Owing c/d 360 30 Jun Rent prepaid 250
and c/d
4,250 4,250
Accounting
(d) Motor Expenses Account

2008
01 Jul Owing b/d 180
2009 2009
30 Jun Cash and bank 4,750 30 Jun Profit and loss 4,945
30 Jun Owing c/d 375
5,125 5,125
(e) Commission Receivable Account

2008
01 Jul Owing b/d 80
2009 2009
30 Jun Profit and loss 915 30 Jun Cash and bank 850
30 Jun Owin c/d 145
995 995

22.4 C Cainen
Trading and Profit and Loss Account
for the year ended 31 December 2009
£ £
Sales 18,590
Opening stock 2,050
13,220
Less Closing stock 3,910
9,310
Gross Profit 9,280
Less Expenses
Rent (640 2 160) 480
Wages and salaries (2,140 1 290) 2,430
Insurance (590 2 190) 400
Bad debts 270
Telephone (300 1 110) 410
General Expenses 180 4,170
Net Profit 5,110
22.5 K Tyler
£ £
Sales 54,190
Less Sales returns 200 53,990
Opening stock 8,620
Accounting
39,180
Gross Profit 26,930
Less Expenses
Wages and salaries (£4,960 1 £510) 5,470
Rent and rates (£1,200 2 £160) 1,040
Discounts allowed 290
Lighting expenses (£580 1 £170) 750
Computer running expenses (£1,210 2 £140) 1,070
Depreciation : Motor vehicles 700 11,800
Net Profit 15,130

22.6X J Sears
Sales 80,000
Less Sales returns 1,000
79,000
90,000
Less Purchase returns 1,240
88,760
Gross Profit 14,240
Less Expenses
Telephone (200 2 20) 180
Bad debts 40
Provision for doubtful debts (1,960 3 10% 2 160) 36
Depreciation:
Store fittings 800
Motor van 1,200 9,906
Net Profit 4,334
J Sears
Cost Depreciation Net Book
Value
Accounting
Fixed Assets
Store fittings 8,000 800 7,200
Motor van 6,000 1,200 4,800
14,000 2,000 12,000
Current Assets
Stock 24,000
Debtors 1,960
Prepaid expenses 20
Bank 600
26,384
Creditors 1,400
Expenses owing 450 1,850
36,534
Financed by:
Capital
Balance 1.1.2010 35,800
40,134
Less Drawings 3,600
36,534

Answers
Chapter 23: Incomplete records

23.1
(a) Total Debtors
Balances b/d 2,760 Cash 14,610
Sales (difference) 14,940 Balances c/d 3,090
17,700 17,700
Total Creditors
Cash 9,390 Balances b/d 1,080
Balances c/d 1,320 Purchases (difference) 9,630
10,710 10,710
(b) K Rogers
Trading Account for the year ended 31 October 2009
£ £
Sales 14,940
Less Cost of Goods sold
Opening Stock 2,010
Add Purchases 9,630
11,640
Gross Profit 5,460
23.2X Total Debtors

2008 2009
Accounting
1 Jun Balance b/d 5,670 31 May Bank 45,112
2009
31 May Sales 45,550 31 May Balance c/d 6,108
51,220 51,220
Total Creditors
2008
1 Jun Balances b/d 3,410
2009 2009
31 May Bank 29,375 31 May Purchases 30,091
31 May Balances c/d 4,126
33,501 33,501
Trading Account for the year ended 31 May 2009

£ £
Sales 45,550
Less Cost Of Goods Sold
41,681
Gross Profit 17,294

23.3 (a) Capital is £62,550
(b) D Lewinski
£ £
Fixed assets
Plant 36,000
Fixtures 3,600
39,600
Current assets
Stock 13,500
Debtors 9,300
Bank 6,000
Cash 1,350
30,150
Creditors 7,200
62,550
Financed by:
Capital
Cash introduction 60,000
78,550
62,550
23.4 J Marcano
Statement of Affairs as at 31 August 2009
£ £
Accounting
Fixed assets
Fixtures 3,500
Motor Van 3,500
7,000
Current assets
Stock 16,740
Debtors 11,890
Bank 2,209
Cash 115
30,954
28,002

Statement of Affairs as at 31 August 2009
£ £ £
Fixed assets
Fixtures 5,500
Less Depreciation 300 5,200
Motor Van 3,500
Less Depreciation 700 2,800
8,000
Current assets
Stock 24,891
Debtors 15,821
Bank 72
Cash 84
40,868
Trade creditors 6,002
Expenses owing 236
Bank overdraft 165 6,403
42,465
Capital
Balance as at 31/08/2009 28,002
Add Cash introduced 12,800
Add Net profit (C) 9,223
(B) 50,025
Less Drawings 7,560
(A) 42,465
(A) Found as the figure to make balance sheet totals agree 42,465.
Accounting
(B) Less 7,560 5 (A) 42,465, therefore (B) is 50,025.
(C) Missing figure to total 50,025 5 9,223.
23.5X
(a) Dr Total Debtors Account Cr
2008
1 Apr Balances b/d 2,980
2009 2009
31 Mar Sales 11,520 31 Mar Cash 10,820
31 Mar Balances 3,680
(difference) c/d
14,500 14,500
Dr Total Creditors Account Cr

2008
1 Apr Balance b/d 1,880
2009 2009
31 Mar Cash 7,780 31 Mar Purchases 8,120
31 Mar Balance (difference) c/d 2,220
10,000 10,000

(b) A Hanson
Calculation of Capital as at 31 March 2008 and 31 March 2009
31.3.2008 31.3.2009
£ £
Bank 1,460 1,740
Office furniture 600 500
Stock 2,320 2,620
Cash 60 80
Debtors 2,980 3,680
7,420 8,620
Less Creditors 1,880 2,220
Capital 5,540 6,400
(c) £
Capital as at 31 March 2008 5,540
Add Net profit (B) 3,400
(A) 8,940
Less Drawings 2,540
Capital as at 31 March 2009 6,400
Note: By arithmetical deduction, (A) is £8,940. Thus £5,540 1 (B) 5 £8,940, i.e (B)
is £3,400.
23.6X
(a) (i) Total Debtors Account
Dec-01 Balances b/d 450 Nov 30 Bank 7,500
Sales 7,628 Nov 30 Balance c/d 578
Accounting
8,078 8,078
Calculation of Sales
£
Credit Sales 7,628
Cash Sales 200,552
Drawings 12 3 £1,500 18,000
226,180

(ii) Rent Account
Dec 01 Balance b/d 350 Nov 30 Profit and loss 8,760
Nov 30 Bank 8,900 Nov 30 Balance c/d 490
9,250 9,250
(iii) Loan Interest Account

Nov 30 Bank 600 Nov 30 Profit and loss 700
Nov 30 Balance c/d 100
700 700
Dec 1 Balance b/d 100
(b) he loan interest needs adjusting so that the amount incurred for the year is
T
ultimately charged to the profit and loss account i.e 7% 3 £10,000 5 £700.
According to the records only £600 has been paid, therefore the difference
between the amount due and paid (£700 2 £600 5 £100. £100 needs to be
accrued. The whole of the interest i.e. £700 is charged to the profit and loss
account. The interest owing £100 is shown as a current liability so giving a true
balance sheet. Without the adjustment the profit would be inaccurate.
Accounting

Answers
Chapter 24: Accounting for non-profit

making organisations
24.1 (a) A receipts and payments account is a summary of the cash book that shows
the sources and uses of money for a non-profit making organisation.
An income and expenditure account is the same as a business's proft and loss
account. However, any surplus is not classed as profit but is called 'surplus of
income over expenditure' any loss incurred is stated as 'excess of expenditure
over income'.
(b) Capital - is the total resources invested in a business by the owner(s) and is
represented by assets - liabilities. Accumulated fund - this is in effect the
same as the capital account in that it is the difference between an
organisation's assets and liabilities.
(c) Profit is the difference between the selling price of goods and their cost less any
expenses incurred in running the business. A surplus of income over expenditure
is the equivalent of a business's profit for a non-profit making organisation.
24.2
(a)
Horton Hockey Club
Receipts and Payments Account
for the year ended 30 June 2009
Receipts Payments
Bank balance b/f 2,715 Teams' travel expenses 1,598
Subscriptions 8,570 Groundsman wages 3,891
Donations 1,500 Postage and stationery 392
Accounting
Receipts from raffles 3,816 Rent of pitches and club house 4,800
Prizes for raffles 624
Bank balance c/f 4,877
16,601 16,601
(b)
Horton Hockey Club
Income and Expenditure Account
Income:
Subscriptions (8,570 1 160) 8,730
Donations 1,500
Profit on raffles (3,816 2 624) 3,192
13,422
Less Expenditure:
Teams' travel expenses 1,598
Groundsman's wages (3,891 1 75) 3,966
Postage and stationery 392
Rent of pitches and club house (4,800 1 400) 5,200
Surplus of income over expenditure 1,847

24.3X
(a)
Superball Football Club
Receipts and Payments Account for the year ended 31 May 2009
Receipts Payments
Cash & bank balnces b/d 905 Hire of transport 3,710
Subscriptions 8,124 Ground maintenance costs 1,156
Disco receipts 3,149 Groundsman's wages 5,214
Collections at matches 5,090 Committee expenses 906
Prize money 1,000 Costs of disco 1,112
Rent of ground 2,450
Cash & bank balances c/d 2,906
18,268 18,268
(b)
Superball Football Club

Income and Expenditure Account for the year ended 31 May 2009
Income:
Subscriptions (8,124 2 160 1 94) 8,058
Profit on disco (3,149 2 1,112) 2,037
Collections at matches 5,090
Prize money received 1,000
16,185
Less Expenditure:
Hire of transport (3,710 1 90) 3,800
Accounting
Ground maintenance costs 1,156
Groundsman's wages 5,214
Committee expenses (906 1 170) 1,076
Rent of ground (2,450 2 200) 2,250

24.4
(a) Accumulated fund as at 1 June 2007: £
Bar Stocks 88
Equipment 340
Bank Balance 286
714
(b)
Down Town Sports and Social Club
Bar Trading Account
Year Ended 31 May 2008
£ £
Bar Takings 463
Opening stock 88
Add Purchases 397
485
Less Closing Stock 101 384
Gross Profit 79
(c)
Down Town Sports and Social Club

Year Ended 31 May 2008
£ £
Income
Subscriptions (135 1 14) 149
Accounting
Net proceeds of jumble sale 91

Net proceeds of dance 122
Gross profit from bar 79
441
Less Expenditure
Wages 198
Hire of rooms 64
Loss on sale of equipment (92 2 80) 12
Depreciation : equipment 30 304
Surplus of income over expenditure 137

24.5X
(a)
Sevenoaks College Drama Society
Trading Account
Year Ended 31 December 2010
£ £
Sale of refreshments 1,200
Opening stock 100
Add Purchases 845
945
Less Closing Stock 165 780
Gross Profit 420
(b)
Year Ended 31 December 2010
Income £ £
Subscriptions 1,600
Profit on sale of refreshments 420
Ticket sales 4,000
6,020
Expenditure
Hire of costumes (1,500 - 650) 850
Rent of theatre 750
Administrative expenses 440
*Depreciation of scenery 2,000 4,040
Accounting
(c)
£ £ £
Fixed Assets
Scenery (at valuation) 12,500
Current Assets
Stock of refreshments 165
Subscriptions in advance 90
Bank Overdraft 595 685
(520)
11,980
Represented by
Accumulated Fund 10,000
Add Surplus of income over expenditure 1,980
11,980
* Workings - Scenery - Balance as at 1 January 2010 7,500

Add Purchase of new scenery 7,000
14,500
Less Value as at 31 December 2010 14,000
Depreciation 2,000

24.6X (a) Accumulated fund – this is a form of capital account for a non-profit making
organisation and represents the net worth of club. It can be found by
deducting liabilities from the assets.
A surplus is the amount that income exceeds expenditure and is the same as
the profit made by a business.
(b) In the balance sheet subscriptions in arrears would appear under Current
Assets and rent of cricket pitch accrued under Current Liabilities.
(c) (i) Receipts and payments account – is a summary of the cash book for a
club or society and details all cash received and payments made.
(ii) Current Assets.
(iii) Payment for the purchase of a fixed asset.
(iv) Depreciation of a fixed asset.
(d) Since the donation is a substantial amount it would be added to the
accumulated fund in the balance sheet. The reason for this is that the
donation is not a regular income but a one off receipt and as such should
not be shown on the income expenditure account.
Accounting

Answers
Chapter 25: Manufacturing accounts

25.1
E Smith
Manufacturing and Trading Account
for the year ended 31 March 2009
£ £
Stock of raw material 1.4.2008 2,400
Carriage inwards 321
24,061
Less Stock of raw materials 31.3.2009 2,620
Cost of raw materials consumed 21,441
Manufacturing wages 13,280
Prime cost 34,721
Add factory overhead expenses
Power 6,220
Other expenses 1,430 9,950
44,671
Add Work in progress 1.4.2008 955
45,626
Less Work in progress 31.3.2009 870
Production cost of goods completed c/d 44,756
Sales 69,830
Stock finished goods 1.4.2008 6,724
Accounting
Add Production cost of goods completed b/d 44,756
51,480
Less Stock finished goods 31.3.2009 7,230 44,250
Gross profit 25,580

25.2X P Lucas
Manufacturing, Trading and Profit and Loss Account
for the year ended 30 September 2009
£ £ £
Stock of raw materials 1.10.2008 8,460
Carriage inwards 2,720 41,440
49,900
Less Stock of raw materials 30.9.2009 10,970
Manufacturing wages 20,970
Prime cost 59,900
Factory Overhead Expenses
Power 6,120
Factory expenses 12,650
Depreciation: Plant and machinery 7,560 26,330
86,230
Add Work-in-progress 1.10.2008 3,070
89,300
Less Work-in-progress 30.9.2009 2,460
Production cost of goods completed c/d 86,840
Sales 174,610
Stock of finished goods 1.10.2008 12,380
Add Production cost of goods completed b/d 86,840
99,220
Less Stock of finished goods 30.9.2009 14,570 84,650
Gross profit c/d 89,960
Less Expenses:
Accounting
Salesmen's salaries and expenses 26,420

Office and administration expenses 25,910
Delivery van expenses 5,890
Advertising 5,080
Depreciation:
Delivery van expenses 3,040
Office equipment 807 3,847 67,147
Net Profit 22,813

25.3X
(a)
Joey Peterson
Manufacturing Account for the year ended 30 June 2010
£ £
Stock of raw materials 1.7.2009 81,600
395,600
Less Stock of raw material 30.6.2010 94,500
Direct Wages (450,000 1 8,900) 458,900
Direct factory power 40,000
Prime cost 800,000
Add Indirect manufacturing cost
Factory rent and rates 96,000
Indirect factory wages 98,600
Insurance (66,900 2 6,900) 3 __ 13  20,000
Depreciation : Plant and Machinery 50,000 279,000
1,079,000
Add Work in progress 1.7.2009 125,300
1,204,300
Less Work in progress 30.6.2010 154,300
Production Cost 1,050,000
(b)
Trading Account for the year ended 30 June 2010

Sales 2,000,000
Accounting
Stock of finished goods 1.7.2009 115,440
Add Production Cost 1,050,000
1,165,440
Less Stock of furnished goods 30.6.2010 85,440 1,080,000
Gross Profit 920,000
25.4X
(a) (i) Cost of raw materials consumed £560,000
(ii) Prime cost £1,280,000
(iii) Total factory overheads £740,000
(iv) Value of closing stock of work in progress £80,000
£3,000,000
(b) (i) Selling price of one engine 1 £2,000,000 1 50% 5 _____________
 1,000 engines 
  
5 £3,000
(ii) Total gross profit 5 750 engines 3 £1,000 5 £750,000
(iii) Value of closing stock of finished goods based on factory cost of
production : 250 engines 3 £2,000 5 £500,000

Answers
Chapter 26: Partnership accounts

26.1 (a)
Stead and Jackson
Appropriation Account
£
Net profit 45,000
Less Salary: Jackson 5,000
40,000
Balance of profits shared:
1
__
Stead 2
20,000
1
__
Jackson 2
20,000 40,000
(b)
Capital Accounts
Stead Jackson Stead Jackson
2010
Dec 31 Balance b/d 24,000 16,000
(c)
Current Accounts
Stead Jackson Stead Jackson
2010 2010
Accounting
Dec 31 Drawings 15,000 19,000 Dec 31 Balance b/d 2,300 3,500

Dec 31 Balances c/d 7,300 9,500 Dec 31 Salary 5,000
Dec 31 Share of profits 20,000 20,000
22,300 28,500 22,300 28,500
2011
Jan 1 Balance b/d 7,300 9,500
26.2X (a)
Wain, Brown and Cairns
Appropriation Account for the year ended 31 March 2010
£ £
Net profit 60,000
Less: Salaries
Wain 10,000
Brown 8,000 18,000
42,000
Balance of profits shared:
Wain 50% 21,000
Brown 30% 12,600
Cairns 20% 8,400 42,000

(b)
Capital Accounts
Wain Brown Cairns Wain Brown Cairns
2010
Mar 31
Balance b/d 30,000 50,000 70,000
Current Accounts
Wain Brown Cairns Wain Brown Cairns
2010 2010
Mar 31 12,000 15,050 14,980 Mar 31 2,400 3,100 5,700
Drawings Balance b/d
Mar 31 21,400 8,650 — Mar 31 Salaries 10,000 8,000 —
Balances c/d
Mar 31 Share 21,000 12,600 8,400
of profits
Mar 31 880
Balances c/d
33,400 23,700 14,980 33,400 23,700 14,980
2010 2010
Apr 1 — — 880 Apr 1 21,400 8,650 —
Balance b/d Balance b/d
26.3
Simpson and Young
Tradign and Profit and Loss Appropriation Account
£ £
Sales 254,520
Accounting
Less Cost of sales:
202,980
Gross profit 70,540
Less Expenses:
Wages and salaries (32,700  500) 33,200
Rent, Rates and insurance (3,550  250) 3,300
Electricity 980
Stationery and printing 420
General office expenses 1,700
Depreciation: Motor van (20% of 16,000) 3,200
Office equipment (10% of 5,600) 560 46,840
Net profit 23,700
Less interest on capital:
Simpson (10% of 50,000) 5,000
Young (10% of 20,000) 2,000 7,000
16,700
Share of profits:
Simpson 3/5ths
Young 2/5ths 10,020
6,680 16,700
Simpson and Young
Cost Accumulated Net Book
Depreciation Value
£ £ £
Fixed assets
Buildings 28,000 28,000
Office equipment 8,400 3,360 (W1) 5,040
Motor vans 16,000 8,200 (W2) 7,800
52,400 11,560 40,840
Current assests
Stock 19,000
Debtors 28,000
Prepayments 250
Less Current liabilites
Creditors 15,200
Accruals 500 15,700
79,640
Financed by:
Capital accounts Simpson Young Total
Balance b/f 50,000 20,000 70,000
Current accounts
Balance b/f 640 300
Add Share fo profit 10,020 6,680
Add Interest on capital 5,000 2,000
15,660 8,980
Less Drawings 10,000 5,000
Accounting
5,660 3,980 9,640

79,640
(W1) Provision for depreciation on office equipment:

8,400  5,600  560  3,360
(W2) Provision for depreciation on motor vans:
16,000  11,000  3,200  8,200

26.4X
(a)
Michael and Morgan
Profit and Loss Account (Including Appropriation)
for the year ended 30 September 2009
£ £
Gross Profit 385,000
Add Discounts Received 15,000
400,000
Less Expenses
Administrative Expenses 6,790
Advertising (7,375  125) 7,500
Rent and rates (12,000 2 1,500) 10,500
Wages and salaries (135,000  5,000) 140,000
Depreciation - Shop fittings * 12,000 176,790
Net Profit 223,210
Less Salary - Michael 30,000
193,210
Share of profits: Michael 2/5ths 77,284
Morgan 3/5ths 115,926
193,210
2
(b)
Michael — Current Account
Oct 01 Balance b/d 1,500 Sep 30 Salary 30,000
Sep 30 Drawings 9,650 Sep 30 Profit share 77,284
Sep 30 Balance c/d 96,259 Sep 30 Advertising 125
107,409 107,409
Oct 01 Balance b/d 96,259
Accounting
(c)
Michael and Morgan
Balance Sheet Extract as at 30 September 2009
Michael Morgan Total
Capital Accounts Balance 50,000 40,000 90,000
Current Accounts
Balance (1,500) 2,000
Add Share of Profits 77,284 115,926
Add Salary 30,000 2
Add Advertising 125 2
105,909 117,926
Less Drawings 9,650 8,200
96,259 109,726 205,985
295,985
* Workings £
Shop fittings : Cost 76,000
Less : Depreciation to date 28,000
48,000
Reducing Balance Method 5 25% 3 £48,000 5 £12,000

Answers
Chapter 27: Limited company accounts

27.1
(a) C Blake Ltd
Appropriation Account for the year ended 31 December 2009
£ £
Net profit b/d 11,340
Less Appropriations
Transfer to General Reserve 1,500
Dividends payable:
Preference dividend 10% (£10,000 3 10%) 1,000
Ordinary dividend 12.5% (£60,000 3 12.5%) 7,500 10,000
Retained profits carried forward to next year 1,340
(b) C Blake Ltd

Fixed Assets £ £ £
Buildings at cost 50,000
Equipment at cost 45,000
Less Accumulated depreciation 4,500 40,500
90,500
Current Assets
Stock 8,800
Debtors 4,120
Accounting
Bank (balancing figure) 9,660

Cash 2,160
24,390
Less Creditors: amounts falling due within one year
Creditors 3,550
Dividends payable (£1,000 1 £7,500) 8,500 12,050 12,340
102,840
Less Creditors: amounts due after more than one year
Debentures 30,000
72,840
Financed by:
Share Capital
Called-up share capital
60,000 ordinary £1 shares 60,000
10,000 preference £1 shares 10,000 70,000
Revenue reserves
General reserve 1,500
Profit and loss account 1,340 2,840
72,840
Note: The Authorised Share Capital is 90,000 £1 ordinary shares and 10,000 - 10% preference shares.

27.2X
(a)
Reynolds Ltd
Profit and Loss Appropriation Account for the year ended 30 September 2010
£ £
Net profit 70,000
Add Retained profits b/f from last year 30,000
100,000
Less Appropriations:
General reserve 8,000
Dividends payable:
Ordinary shares — (150,000 3 6p) Paid 9,000
— (150,000 3 14p) Proposed 21,000
Preference shares — (7% 3 50,000) Proposed 3,500 41,500
Retained profits carried to next year 58,500
(b)
Reynolds Ltd
Balance Sheet as at 30 September 2010 (Extract)
£ £
Financed by:
Called-up share capital
Preference shares 50,000
Ordinary shares 150,000
200,000
Revenue Reserves
General Reserve (45,000 1 8,000) 53,000
Profit and loss account 58,500 111,500
Accounting
311,500
Note: The Authorised Share Capital is 200,000 £1 ordinary shares and 50,000 - 7% preference shares.

27.3 Chang Ltd
Sales 316,810
227,387
Gross profit 118,565
Less Expenses
Rent (4,300 2 300) 4,000
Lighting expenses 1,549
Bad debts 748
Provision for doubtful debts (938 2 861) 77
Deprecation: Machinery (55,000 3 10%) 5,500 98,830
Net profit 19,735
Add Retained profits b/f from last year 34,280
54,015
Less Proposed dividend 10,000
Retained profits c/f to next year 44,015

Fixed Assets
Premises 65,000
Machinery 55,000
Accounting
Less Aggregated depreciation (15,800 1 5,500) 21,300 33,700

Current Assets 98,700
Stock 29,142
Debtors 21,784
Prepayments 300
Bank 23,101
73,389
Less Creditors falling due wihtin one year
Dividend payable 10,000
Creditors 17,493
Expenses owing 581 28,074
144,015
Financed by:
Capital and reserves
Called -up share capital 100,000
Revenue reserves
Profit and loss account 44,015
144,015

27.4X
(a)
Wayland Limited
Appreciation Account for the year ended 31 December 2010
£ '000's £ '000's
Net profit 250
Add Profit and Loss Balance 1st January 2010 195
445
Less Appropriations
Transfer to general reserve 25
Preference dividend (6% 3 250,000) 15
Ordinary dividend 2 (Interim Dividend) 20
2 (8% 3 750,000) 60 120
Retained profits carried forward 325
(b)
Wayland Limited
Cost Aggregate Net Book
Depreciation Value
£ '000's £ '000's £ '000's
Fixed Assets
Land and buildings 1,500 — 1,500
Fixtures and fittings 50 10 40
Motor vehicles 85 15 70
1,635 25 1,610
Current Assets
Stock 165
Accounting
Debtors 103
Bank 107 375
Current Liabilities
Creditors 135
Value added tax 25
Dvidends Payable:
Preference shares 15
Ordinary shares 60 235
Working capital 140
1,750
Creditors: amounts falling due after one year 5% 250
debentures
1,500
Capital and Reserves
Called up capital
Ordinary shares 750
6% Preference shares 250 1,000
Capital reserves
Share premium 100
Revenue Reserves
General reserve 75
Profit and loss account shareholders' funds 325 400
1,500

Answers
Chapter 28: Analysis and interpretation

of financial statements
28.1 (a) M Ltd N Ltd
(i) Current ratio
£200,000
________ £130,000
________
£50,000
4:1 £65,000
2:1
(ii) Acid test ratio

£200,000 2 £100,000
___________________ £130,000 2 £64,000
__________________
£50,000
2:1 £65,000
1:1
(iii) Stockturn
£288,000
______________________ £187,500
____________________
£120,000 1 £100,000 4 2
 2.6 times £60,000 1 £64,000 4 2
 3.0 times
(iv) Debtors : Sales ratio

£60,000
________ £62,500
________
£360,000
 12 months  2 months £250,000
 12 months  3 months
(v) Creditors : Purchases ratio

£50,000
________ £65,000
________
£268,000
 12 months  2.2 months £191,500
 12 months  4 months
(vi) Gross profit %

£72,000
________ £62,500
________
£360,000
 100%  20% £250,000
 100%  25%
Accounting
(vii) Net profit %

£43,200
________ £35,000
________
£360,000
 100%  12% £250,000
 100%  14%
(viii) Rate of return on shareholders' sunds

£43,200
________ £35,000
________
£350,000
 100%  12.3 % £255,000
 100%  13.7%
(b) Briefly N Ltd gives a better return to shareholders because of (viii) above.
Reasons include:
• M Ltd's current ratio is higher. This indicates that M Ltd is in a better liquidity
position.
• N Ltd’s stock turnover is higher than that of M Ltd. This shows that N Ltd manages
its sales performance more effectively.
• The gross profit percentage of N Ltd is 5% higher than that of M Ltd. This is due to
better purchasing and selling prices. Net profit margins differ by a smaller margin
of 2% suggesting, that M Ltd has tighter control of its overhead expenses when
compared with its sales volume (8% compared with 11%)

28.2 (a)
Cruise Furnishings Holmes Supplies

600 600
(i) Gross profit margin _____
1,800
 100  33 __1 %
3
_____
2,400
 100  25%
(ii) Net profit margin 150
_____ 160
_____
1,800
 100  8.33% 2,400
 100  6.67%
(iii) Current ratio 210
____ 180
____
66
 3.18 : 1 60
3:1
(b) Rate of stock tunover for Cruise Furnishings

1200
_____
120
 10 Times a year
(c)
Profitability
Both businesses are making good net profits, Cruise £150,000 and Holmes
£160,000. However, both the gross profit percentage and net profit percentage
for Cruise is better than Holmes, with the net profit percentage being 8.33% for
Cruise against Holmes 6.67%. This could be due to Cruise selling goods at a higher
price and their cost of sales being lower.
Liquidity
The current ratio for both Cruise and Holmes are very similiar with Cruise being
slightly higher at 3.18 : 1 against Holmes 3 : 1. If we calculate the acid test, i.e, we
remove stock from the calculation,
Cruise Holmes
210 2 111
__________ 180 2 120
__________
66
 1.5 : 1 60
1:1
then Cruise is in a stronger position since it could raise £1.50 for every £1 owed
compared to Holmes who could raise £1 for every £1 of debt.
Conclusion
Accounting
Whilst Holmes has a greater turnover than Cruise the company is not as
profitable. In terms of liquidity again Cruise is in a stronger position which may in
part be due to Holmes long term liabilities of £2,070,000.

28.3X (a)
Year Ended
28.02.2009 29.02.2010
Net Profit Margin

Net profit 16,000 26,000
_________
     
Sales
   100     ______
 ____
1
 35,000  1
 100     45.71%  ______
 ____ 52,000
    100     50%
 ____
1
(b)
Mark — up
21,600 35,500
  Gross Profit 
____________
Cost of Sales
 100     _______
 ____
  
1
 
*13,400
   100  161.19%  ________ 
     
 100  215.15%
**16,500
*2,900 1 14,500 2 4,000 5 13,400 **4,000 1 19.500 2 7,000 5 16,500
(c)
Rate of stock turnover
Cost of sales 13,400 16,500
 _____________
Average Stock
    ________________
         _________________
  
2,900 1 4,000 4 2
   
  
4,000 1 7,000 4 2
 3.88 times  3 times
(d)
Overall the profitability of the business is improving with the Net Profit % increasing
from 45.71% to 50%. Mark-up has also increased considerably from 161.19% to 215.15%.
However, the stock is taking longer to sell/turnover a decrease from 3.88 to 3 times
a year. This is possibly due to the business stock in hand increasing from £2,900 at the
beginning of the first financial year to £7,000 at the end of February 2010?
Accounting

Answers
Chapter 29: Computers and

accounting systems
29.1
To: Director of Finance
From: Administrative Assistant
Date: June 2010
Re: Proposed Integrated Computerised Accounting System
Points in favour of the new system:

• Faster data input and automatic processing.
• Greater accuracy especially via automatic processing.
• Documentation such as invoices, credit notes, statements, remittance
advices produced automatically.
• Up-to-date information on customers’ accounts, etc. is readily
available.
• Provides management information.
• The system may be linked to the internet to allow for transactions
such as ordering goods to be carried out electronically.
• Provides access to the organisation’s bank account via the internet.
• More efficient and makes better use of resources.
Arguments against the new system

• The cost of the installation plus ongoing costs of maintenance and
updating software.
• Training costs of staff.
• Staff resentment of new system.
Accounting
• System downtime may be disruptive.
• Fraudulent access can seriously affect business operation and
profitability.
• Security measures that are necessary.
• Health and safety issues associated with using computers.
29.2 Measures a medium-sized company may adopt to safeguard the security of its
financial data and records would include:
• All company’s financial information should be regarded as confidential
except where legislation states otherwise. Staff should be made aware of this
requirement in the company’s code of conduct.
• Staff should be allocated passwords to monitor accessibility to specific areas
of work.
• Passwords need to be changed frequently.
• Installation of anti-virus computer packages to prevent the threat of fraud.
• Ensure data is saved and backed up regularly.
• Store back-up data in an off-site location if deemed necessary.
29.3X Refer to text, Sections 29.3 and 29.4.

29.4X (a) Benefits to a small business when it has the use of internet facilities would
include:
• access to web sites to obtain further information in many areas including
competitors, product ranges, location of customers/suppliers etc
• transactions such as ordering, purchasing, selling, making payments to
customers and staff, receiving monies etc., can all be carried out online
• the use of email for correspondence is quick, efficient and cost effective.
(b) A web designer would bring many benefits to a business as follows:
• development of initial user-friendly web site
• maintain an up-to-date web site
• develop online facilities for business to offer online ordering and purchasing
from suppliers and sales to customers
• promote a range of company products/services over a wider area which
could lead to increased sales and ultimately greater profits
• advertising and marketing benefits to a larger consumer market.
(c) The disadvantages of offering a web site service:
• keeping the web site up-to-date
• the cost of maintaining the web site
• ensuring that the web site is user friendly with appropriate easy to navigate
links.
29.5X Benefits of investing in a computerised accounting system would include:
• quick and easy to install
• capital outlays reasonable since packages are now much cheaper
• less time to carry out book-keeping/accounting transactions
• easier/less onerous work
• more financial information available for management
• greater accuracy
• can process documents, e.g. invoices, credit notes, statements, payslips etc
Adverse effects:
• cost and disruption on installation
Accounting
• training
• reluctance to change by staff
• security issues
• health risks
• problems if the system goes down.
29.6 Other business uses for a computerised accounting system would be:
• Payroll
• Book-keeping
• Budgeting
• Preparation of financial statements
• Cash management.

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Chapter 1: Introduction to accounting principles

© Pearson Education Ltd 2010 1

Chapter 2: Double entry for cash transactions

2.4X Account to be debited Account to be credited

2.5 Max Morgan

2 © Pearson Education Ltd 2010

© Pearson Education Ltd 2010 3

Chapter 3: Double entry for credit transactions

3.2X Account to be debited Account to be credited

3.3 Kendrick Products

3.4X Mark & Co

© Pearson Education Ltd 2010 5

Chapter 4: Balancing of accounts and

Jun-01 Balance b/d 240

6 © Pearson Education Ltd 2010

© Pearson Education Ltd 2010 7

8 © Pearson Education Ltd 2010

© Pearson Education Ltd 2010 9

(17) Purchases returns 28 (3) Purchases 320

10 © Pearson Education Ltd 2010

Trial Balance as at 30 April 2010

4.4 (a) Capital – credit

4.6 Trial Balance of S Higton as at 30 June 2010

Motor expenses 4,476

12 © Pearson Education Ltd 2010

4.8X (a) Error of principle

© Pearson Education Ltd 2010 13

Chapter 5: Value Added Tax

5.2X (a) & (b) & (c)

2010 Name of Customer Net VAT Total

14 © Pearson Education Ltd 2010

(b) Net Amount VAT Total

(b) All business records must be kept for 6 years.

© Pearson Education Ltd 2010 15

Chapter 6: Business documentation

6.3X Statement of Account to John Ashley Ltd

May 23 Invoice No. 8204 74.50 244.55

The amount outstanding by John Ashley Ltd is £193.05

16 © Pearson Education Ltd 2010

Chapter 7: Capital and revenue expenditure

7.2 Cairns Engineering Co

Brief description of capital and revenue expenditure - see text

7.3X (a) (i) Capital

© Pearson Education Ltd 2010 17

7.5X Capital (a), (c), (f)

18 © Pearson Education Ltd 2010

Chapter 8: Books of original entry and ledgers – Sales day

8.2X (a) (i) Purchase day book: purchase invoices

© Pearson Education Ltd 2010 19

8.4X Sales Day Book

Jul 26 G. Huang 126.00 22.05 148.05

20 © Pearson Education Ltd 2010

© Pearson Education Ltd 2010 21

Chapter 9: Purchases day book and

Dr J Adam Ltd Account Cr

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Year 5 Depreciation 33 __13 % of 14,400 4,800