PREPARATION OF SOLE TRADERS FINANCIALS HOMEWOK ANSWERS

LECTURE EXAMPLE 2
The following is an extract of Bond’s trial balance at 31 December 20X7:
Receivables 39,800
Allowance for receivables 1.1.X7 1,320
Inventory 19,220
Purchases 120,000
Year-end adjustments include the following:
􀂝 An irrecoverable debt of $1,200 is to be written off
􀂝 A general allowance for receivables of 3% is to be maintained
􀂝 Closing inventory is $15,426

What is the cost of sales and irrecoverable debts expense in the income
statement?
Cost of sales Irrecoverable debt
123,974 1,038

Opening stock 19220

+ Purchases 120000
- Closing stock (15426)
COST OF SALES 123,794

IRRECOVERABLE DEBT A/C

Receivables 1200 Allowance for receivables 162
DECREASE
Bal c/d 1,038
1200 1200

Receivables a/c
Bal b/d 39800 Irrecoverable debt 1200
BAL C/D 38,600
39800 39800

Allowance for Receivables a/c

Irrecoverable debt 162 Bal b/d 1.1.x7 1320
DECREASE
Bal c/d 1158
1320 1320
Bal b/d 1.1.x8 1158

General provision for receivables 20x7 (new) = 3% x 38,600 = 1,158

Old provision 20x6 = 1320
- New provision 20x7 = (1158)
DECREASE in provision = 162