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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

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
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)
(b)
(c)
(d)
1.8

Accounting

(Any one from the above would be acceptable as an answer)

Materiality
Business entity
Money measurement
Prudence

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)
(b)
(c)
(d)
(e)
(f)

Purchases
Office equipment
Bank loan
Cash in hand
Motor vehicle
Loan from financial company

2.2X Wrong:

2.3

Assets
Money owing to bank

Account to be Debited

Accounting

asset
asset
liability
asset
asset
liability
Liabilities
Motor van
Stock of goods

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
(a) Bank
(b) Purchases
(c) Motor car
(d) Cash
(e) Motor expenses
(f) Computer equipment
2.5

-

Account to be credited
Capital
Cash
Bank
Uncle Joe loan
Cash
Cash

Max Morgan
Bank Account

Jan-01
Jan-15

Capital
Sales

30,000
500

Jan-05
Jan-07
Jan-27
Jan-30

Purchases
S/H Van
Computer
Equipment
Purchases

2,770
4,800
2,100
1,090

Capital Account
Jan-01

Bank

30,000

Purchases Account
Jan-05
Jan-30

Bank
Bank

2,770
1,090

Jan-07

Bank

4,800

Van Account
Cash Account
Jan-09
Jan-29

2

© Pearson Education Ltd 2010

Sales
Sales

680
325

Jan-10
Jan-22

Office Furniture
Motor Expenses

110
92

Sales Account
Jan-09
Jan-15
Jan-29

Cash
Bank
Cash

680
500
325

Office Furniture Account
Jan-10

Cash

110
Motor Expenses Account

Jan-22

Cash

Jan-27

Bank

92
Computer Equipment Account
2,100

2.6X
Jane Mellor
Cash Account
May 1
May 20

Capital
Sales

22,000
328

May 3
May 22

Bank
Stationery

20,000
72

Cash

22,000

Capital Account
May-01
Bank Account
May 3
May 25

Cash
Sales

20,000
560

May 7
May 10

Rent
Purchases

May 15

Display units

May 23

Purchases

May 31

S/H Van

500
1,700
400
400
3,000

May 7

Bank

May 10
May 23

Bank
Bank

Accounting

Rent Account
500
Purchases Account
1,700
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

© Pearson Education Ltd 2010

3

Answers
Chapter 3: Double entry for credit transactions
3.1

Account to be Debited

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
(a) Computer equipment
(b) Stationery
(c) Purchases
(d) Daswami & Co
(e) Purchases
(f) Sales returns
(g) Cash
(h) J. Leung
3.3

Account to be Credited

(a) Purchases

Account to be credited
J. Kershaw
Cash
J. Leung
Sales
Bank
Daswani & Co
Sales
Purchase Returns

Kendrick Products
Cash Account

Accounting

Jan-01

Capital

20,000

Jan-05
Jan-24

Bank
Stationery

18,000
45

Cash

20,000

Capital Account
Jan-01
Purchases Account
Jan-02
Jan-07
Jan-09

T. Peters
J. Leigh
Bank

2,543
349
592

Jan-18

Purchase Returns

Jan-26

Bank

2,383

Jan-05

Cash

18,000

T. Peters Account
160

Jan-02

Purchases

2,543

Purchases
T. Peters

592
2,383

Purchases

349

P. Lamond
D. Gurkan

210
1,008

Bank Account
Jan-09
Jan-26

J. Leighs Account
Jan-07
Sales Account
Jan-16
Jan-26
P. Lamond Acccount
Jan-16

Sales

210

Jan-30

Sales Returns

60

Purchase Returns Account
Jan-18
4

© Pearson Education Ltd 2010

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

Apr 14
Apr 28

Purchases
C. Chang

2,300
950

Apr 30

Ash Car Sales

5,400

3.4X Mark & Co
Bank Account
Apr 1

Capital

40,000

Capital Account
Apr 01

Bank

40,000

Purchases Account
Apr 3
Apr 5
Apr 14

E. Shah
C. Chang
Bank

Apr 20

E. Shah

845
950
2,300
920
E. Shah Account

Apr 16

Purchase returns

72

Apr 03

Purchases

845

Apr 20

Purchases

920

Purchases

950

Bank

950

Apr 05

Accounting

C. Chang Account
Apr 28

Motor Van Account
Apr 09

Ash Car Sales

Apr 30

Bank

10,400
Ash Car Sales Account
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

Motor Expenses

40

Cash Account
Apr 23

Sales

Apr 29

Sales

369

Apr 26

Curtis & Co Account
420
Motor Expenses Account
Apr 26

Cash

40

© Pearson Education Ltd 2010

5

Answers
Chapter 4: Balancing of accounts and
preparation of a Trial Balance
4.1
Capital
May-01

Bank

2,500

K Gibson
D Ellis
C Mendez
Balance c/d

76
370
87
2,367
2,900

Rent
Stationery
Rent
Balance c/d

120
60
120
200
500

Balance c/d

240

Bank
May-01
May-09
May-10

Capital
C Bailey
H Spencer

2,500
250
150

May-12
May-12
May-31
May-31

2,900
Jun-01

Balance b/d

2,367
Cash

May-06

Sales

500

Jun-01

Balance b/d

200

May-08
May-19

Cash
Cash

120
120
240

Jun-01

Balance b/d

240

May-08
May-15
May-19
May-31

500

Accounting

Rent
May-31

240

Stationery
May-15

Cash

60
Purchases

May-02
May-02
May-02
May-18
May-18

D Ellis
C Mendez
K Gibson
D Ellis
C Mendez

540
87
76
145
234
1,082

Jun-01

Balance b/d

1,082

May-31

Balance c/d

1,496

May-31

Balance c/d

1,082

1,082

Sales
May-04
May-04
May-04
May-06
May-25
May-25
May-25

C Bailey
B Hughes
H Spencer
Cash
C Bailey
B Hughes
H Spencer

430
62
176
500
90
110
128
1,496

Jun-01

Balance b/d

1,496

1,496

6

© Pearson Education Ltd 2010

H Spencer
May-04
May-25

Sales
Sales

176
128
304

Jun-01

Balance b/d

154

May-12
May-31

Bank
Balance c/d

370
315
685

May-10
May-31

Bank
Balance c/d

150
154
304

May-02
May-18

Purchases
Purchases

540
145
685

Jun-01

Balance b/d

315

May-02
May-18

Purchases
C Mendez

Jun-01

Balance b/d

87
234
234
234

D Ellis

C Mendez
May-31
May-31

Bank
Balance c/d

87
234
234

K Gibson
May-12

Bank

76

May-02

Purchases

76

C Bailey
May-04
May-25

Sales
Sales

430
90
520

Jun-01

Balance b/d

270

May-09
May-31

Bank
Balance c/d

250
270
520

Balance c/d

172

B Hughes

Jun-01

Sales
Sales
Balance b/d

62
110
172

May-31

172

172

Accounting

May-04
May-25

Trial Balance as at 31 May 2010
Dr

Cr
£

Capital
Bank
Cash
Rent
Stationery
Purchases
Sales
H Spencer
D Ellis
C Mendez
C Bailey
B Hughes

£
2,500

2,367
200
240
60
1,082
1,496
154
315
234
270
172
4,545

4,545

© Pearson Education Ltd 2010

7

4.2X (a)
Bank Account
August 1
August 14
August 20

Capital
Sales
Sales

August 28

Sales

22,000
980
1,300

August 1
August 7
August 7

Rent
Shop fittings
Purchases

1,800
3,230
5,000

2,000

August 9

Cash

1,000

August 30

Salaries

2,100

August 30

Balance c/d

26,280
Sept 1

Balance b/d

13,150
26,280

13,150

Cash Account
August 9

Bank

1,000

Sept 1

Balance b/d

1,000
809

August 30

Balance c/d

4,280

August 9
August 16
August 30

Stationery
Sundry expenses
Balance c/d

163
28
809
1,000

August 1
August 20
August 28

Bank
Bank
Bank

980
1,300
2,000
4,280

Sept 1

Balance b/d

4,280

Balance c/d

10,700

Sales Account

4,280
Purchases Account

Accounting

August 7
August 10
August 25
September 1

Bank
Book Supplies
Delta Books
balance b/d

5,000
4,200
1,500
10,700

August 30

10,700

10,700
Shop Fittings Account

August 7

Bank

3,230
Capital Account
August 1

Bank

22,000

Rent Account
August 1

Bank

1,800
Stationery Account

August 9

Cash

August 16

Cash

April 30

Bank

163
Sundry Expenses Account
28
Salaries Account
2,100
Book Supplies Accounts
August 10

Purchases

4,200

Purchases

1,500

Delta Books Account
August 25

8

© Pearson Education Ltd 2010

4.2X (b)
Jenny Moore
Trial Balance as at 31 August 2010
Dr

Cr

£ 
13,150
809

Bank
Cash
Sales
Purchases
Shop Fittings
Capital
Rent
Stationery
Sundry expenses
Salaries
Book Supplies
Delta Books

10,700
3,230
1,800
163
28
2,100

31,980

£
 
4,280
 
 
22,000
 

4,200
1,500
31,980

4.3
Bank
Capital
L Clark
K Allen

(1)

Balance b/d

15,000
440
76

(9)
(11)
(27)
(27)
(27)
(28)
(30)
(30)

Rent
Rates
Bowman Furnishers
Howe Homes
W Hunt
Motor Vehicles
Bates Motors
Balance c/d

15,516

500
190
532
460
2,070
3,000
5,000
3,764

Accounting

(1)
(30)
(30)

15,516

3,764
Capital

(30)

Balance c/d

15,000

(1)

Bank

15,000

(1)

Balance b/d

15,000

Howe Homes
(27)

Bank

460

(3)

Purchases

460

(3)
(20)

Purchases
Purchases

620
220
840

(1)

Balance b/d

780

Balance c/d

500

Sales returns
Bank

40
440
480

J Bond
(17)
(30)

Purchases returns
Balance c/d

60
780
840

Rent
(9)

Bank

500

(1)

Balance b/d

500

(12)

Sales

480

(30)

L Clark

480

(23)
(30)

© Pearson Education Ltd 2010

9

R Gee
(12)

Sales

1,170

(1)

Balance b/d

1,170

(30)

Balance c/d

1,170

Purchses Returns
(30)

Balance c/d

88
 
88

(17)
(17)

Bowman Furnishers
J Bond

28
60
88

(1)

Balance b/d

88

Balance c/d

8,000

Motor Vehicles
(25)
(28)

Bates Motors
Bank

5,000
3,000
8,000

(30)

Balance b/d

8,000

(30)

8,000

Stationery
(29)

Cash

(30)

Balance b/d

56

(30)

Balance c/d

56

Balance c/d

3,930

56
Purchases

(3)
(3)
(3)
(3)
(20)
(20)
(20)
 

Bowman Furnishers
Howe Homes
W Hunt
J Bond
J Bond
W Hunt
Bowman

(1)

Balance b/d

(17)
(27)

Purchases returns
Bank

320
460
1,800
620
220
270
240
3,930

(30)

3,930

3,930

Accounting

Bowman Furnishers
28
532
560

(3)
(20)

Purchases
Purchases

320
240
560

Purchases
Purchases

1,800
270
2,070

(7)
(12)
(12)
(12)
(26)

Cash
L Clark
K Allen
R Gee
Cash

(1)

Balance b/d

480
480
96
1,170
175
2,401
2,401

Balance c/d

190

W Hunt
(27)

Bank

2,070

(3)
(20)

2,070
Sales
(30)

Balance c/d

2,401

2,401
Rates

10

© Pearson Education Ltd 2010

(11)

Bank

190

(1)

Balance b/d

190

(30)

K Allen
(12)

Sales

96

(23)
(30)

Sales returns
Bank

20
76
96

Balance c/d

400

Balance c/d

60

96
Wages
(14)

Cash

400

(1)

Balance b/d

400

(23)
(23)
 

K Allen
L Clark

(30)

Balance b/d

(30)

Bank

5,000

(7)
(26)
 
 

Sales
Sales

480
175

(1)

Balance b/d

(30)

Sales Returns
20
40
60

(30)

60

60
Bates Motors
(25)

Motor vehicles

5,000

Cash
(14)
(29)
(30)

Wages
Stationery
Balance c/d

655

400
56
199
655

199

Trial Balance as at 30 April 2010
£
3,764
3,930

Bank
Purchases
Capital
J Bond
Sales
Rent
Rates
R Gee
Wages
Purchases returns
Sales returns
Motor vehicles
Stationery
Cash

Cr
£

Accounting

Dr

15,000
780
2,401
500
190
1,170
400
88
60
8,000
56
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
© Pearson Education Ltd 2010

11

(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
Drawings
General expenses
Sales
Purchases
Debtors
Creditors
Bank
Cash
Plant and equipment
Heating and lighting
Rent

7,000
500
 
29,000
6,800
 
15,100
200
5,000
1,500
2,400
67,500

4.6

£
20,000

38,500

9,000
 

67,500

Trial Balance of S Higton as at 30 June 2010
Dr

Cr
£

Accounting

Capital
Sales
Stationery
General expenses
Motor expenses
Cash at the bank
Stock 1 July 2009
Wages and salaries
Rent and rates
Office equipment
Purchases
Heating and lighting
Rent received
Debtors
Drawings
Creditors
Motor vehicle
Interest received
Insurance

12

© Pearson Education Ltd 2010

1,200
2,745
4,476
1,950
7,668
9,492
10,500
6,000
81,753
2,208
 
10,353
4,200
 
7,500
 
3,444
153,489

£
19,956
119,439

2,139

10,230
1,725
153,489

4.7X

Trial Balance of Ms Anita Hall as at 31 December 2010
Dr
Plant and machinery
Motor vehicles
Premises
Wages
Purchases
Sales
Rent received
Telephone, printing and stationery
Creditors
Debtors
Bank overdraft
Capital
Drawings
General Expenses
Lighting and heating
Motor expenses
Motor vehicle

£
21,450
26,000
80,000
42,840
119,856

Cr
£

179,744
3,360
3,600
27,200
30,440
2,216
131,250
10,680
3,584
2,960
2,360
343,770

343,770

(b) Error of commission

(c) Error of omission

(d) Error of original entry

(e) Complete reversal of entries

(f) Error of principle

Accounting

4.8X (a) Error of principle

© Pearson Education Ltd 2010

13

Answers
Chapter 5: Value Added Tax
5.1
(a)

C Black
Curzon Road
Stockport
To: J Booth
89 Andrew Lane
Stockport

INVOICE No 947T

Date: 1 March 2011
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
70.00
470.00

VAT at 17.5%
VAT Reg No. 542 4483 95

(b)

J Booth's Books
C Black
2011
01-Mar
C Black's Books
J Booth

Accounting
14

Purchases

2011
01-Mar

Sales

470

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

© Pearson Education Ltd 2010

2010

Name of Customer

Jan 2
Jan 6
Jan 7

D Woolham & Co
C Crawford
S Brocklehurst

Jan 9
Jan 13
Jan 18
Jan 21
Jan 24
Jan 29
Jan 31

L Price & Partners
D Woolham & Co
L Price & Partners
C Crawford
C Crawford
S Brocklehurst
L Price & Partners

Net

VAT

Total

£
230.00
348.00
1,980.00

£
40.25
60.90
346.50

£
270.25
408.90
2,326.50

520.00
56.00
200.00
340.00
44.00
846.00
722.00
5,286.00

91.00
9.80
35.00
59.50
7.70
148.05
126.35
925.05

611.00
65.80
235.00
399.50
51.70
994.05
848.35
6,211.05

470

5.3
(a) Cost of 22 reams of paper at £3.75
Input VAT is 17.5%
Customer Charged
Amount before VAT is added,

100
£235  ______
117.5

Therefore, output VAT is
Amount of VAT due to HMRC, £35.00  £14.44
(b) Net Amount
£40.00
£ 2.00
£53.28
£ 3.20

VAT
£7.00
£0.35
£9.32
£0.56

£82.50
£14.44
£96.94
£235.00 including VAT
£200.00

17.5
£82.50  ____
100

£35.00
£20.56

Total
£47.00
£ 2.35
£62.60
£ 3.76

5.4
(a) Ivy & Co
VAT Account

2010
Apr-30
May-31
Jun-30
Jun-30

Purchases Day Book
Purchases Day Book
Purchases Day Book
Balances c/d

8,750
7,350
9,625
2,380
28,105

Cr

2010
Apr-30
May-31
Jun-30

Sales Day Book
Sales Day Book
Sales Day Book

Jul-01

Balance b/d

9,205
8,400
10,500
28,105
2,380

Accounting

Dr

(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
VAT Account

Dr
2010
Oct 31
Nov 30
Dec 31
Dec 31

Purchases Day Book
Purchases Day Book
Purchases Day Book
Balances c/d

6,580
6,895
9,100
13,300
35,875

2010
Oct 31
Nov 30
Dec 31

Cr
Sales Day Book
Sales Day Book
Sales Day Book

13,125
10,850
11,900
35,875

Jan 01

Balance b/d

13,300

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

© Pearson Education Ltd 2010

15

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
£

Accounting

May 1
May 2
May 8
May 17
May 23
May 28

Balance b/forward
Invoice No. 7821
Invoice No. 7955
Credit Note No. 304
Invoice No. 8204
Cheque

£

43.75
35.00
10.20
74.50
51.50

Balance
£
101.50
145.25
180.25
170.05
244.55
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.

16

© Pearson Education Ltd 2010

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
(2) If spent on extra wages for
Security guards  Revenue

Adds to the value of fixed assets

7.2

Used up in the short term

Capital
(a)
(b)
(c)
(d)
(e)

New stationery and brochures
New pickup truck
New lathe
Delivery costs
Electricity

(f) Wages

- lathe
- wiring
- electricity costs
- Re: Improvements
- Other

£
18,000
5,200
200
1,800
20,000
-

Revenue
£
411
2,100
45,000

45,200

47,511

Accounting

Cairns Engineering Co

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.

© Pearson Education Ltd 2010

17

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)

Accounting

18

© Pearson Education Ltd 2010

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

Answers
Chapter 8: Books of original entry and ledgers – Sales day
book and sales ledger including VAT
8.1

(a)
(b)
(c)
(d)
(e)
(f)

Sales day book / sales ledger / personal account
Cash book / general ledger / nominal account
Purchases day book / purchases ledger / personal account
Cash book / general ledger / nominal account
Sales returns day book / sales ledger / personal account
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.

8.3
Date
2010
Nov-02
Nov-03
Nov-09
Nov-11
Nov-13
Nov-18
Nov-23
Nov-30

Details
T Bates
D Cope
F Chan
T Bates
B Ho
D Cope
M Saka & Sons
F Chan

Sales Day Book
Folio

Goods
£
186.00
166.00
12.00
54.00
66.00
32.00
20.00
320.00
856.00

VAT
£
32.55
29.05
2.10
9.45
11.55
5.60
3.50
56.00
149.80

Accounting

Nominal accounts: record expenses, income and capital.

Total
£
218.55
195.05
14.10
63.45
77.55
37.60
23.50
376.00
1005.80

© Pearson Education Ltd 2010

19

Sales Ledger
Cr

T Bates Account

Dr
Nov-02  
Nov-11  
Dr
Nov-03  
Nov-18  
Dr
Nov-09  
Nov-30 
Dr
Nov-13
Dr
Nov-23  

Sales
Sales

218.55
63.45
D Cope Account
195.05
37.60
F Chan Account
14.10
376.00
B Mo Account
77.55
M Saka & Sons Account
23.50

Sales
Sales
Sales
Sales
Sales
Sales

Cr

Cr

Cr
Cr

General Ledger
Dr
Dr

8.4X

Accounting

Date
2011
Jul 1
Jul 5
Jul 8
Jul 14
Jul 19
Jul 26
Jul 28
Jul 31

Details

Sales Account
Nov-30

Credit sales for the month

Cr
856.00

VAT Account
Nov-30

Sales day book: VAT

149.80

Cr

Sales Day Book
Folio
Goods

Hall Products
Ash & Co
K. Meakin
A. Ballearic
Hall Products
G. Huang
A. Ballearic
J. Stead

520.00
62.00
18.00
110.00
880.00
126.00
42.00
98.00
1,856.00

VAT
91.00
10.85
3.15
19.25
154.00
22.05
7.35
17.15
324.80

Total
611.00
72.85
21.15
129.25
1,034.00
148.05
49.35
115.15
2,180.80

Sales Ledger
Hall Products Account

Dr
Jul 1  
Jul 19  
Dr
Jul 5  
Dr
Jul 8  
Dr
Jul 14
Jul 28

20

© Pearson Education Ltd 2010

Sales
Sales
Sales
Sales
Sales
Sales

611.00
1,034.00
Ash & Co Account
72.85
K. Meakin Account
21.15
A. Ballearic Account
129.25
49.35

Cr

Cr
Cr
Cr

Dr
Jul 26
Dr
Jul 31

Sales
Sales

G. Huang Account
148.05
J Stead Account
115.15

Cr
Cr

General Ledger
Dr

Sales Account
Jul 31 Credit sales for the month

Dr

VAT Account
Jul 31 Sales day book : VAT

Cr
324.80

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

8.5

Cr
1,856.00

© Pearson Education Ltd 2010

21

Answers
Chapter 9: Purchases day book and
purchase ledger including VAT
9.1

White Bros
Purchases Day Book

Date
2010
May-01
May-07
May-16
May-23
May-26
May-28
May-31

Details
Bould & Co
Harlow & Brown
J Adams Ltd
Bould & Co
J H Products
Harlow & Brown
P Yeung Ltd

Goods
£
104.00
48.00
234.00
170.00
320.00
62.00
446.00

VAT
£
18.20
8.40
40.95
29.75
56.00
10.85
78.05

Total
£
122.20
56.40
274.95
199.75
376.00
72.85
524.05

1384.00

242.20

1626.20

Purchase Ledger
Dr

Bould & Co Account
May-01
May-23

Dr

Purchases
Purchases

Harlow and Brown Account
May-07
May-28

Accounting

Cr

Dr

Cr
Purchases
Purchases

56.40
72.85

Purchases

274.95

J Adam Ltd Account
May-16

Dr

Cr

J H Products Account
May-26

Dr

Cr
Purchases

376.00

Purchases

524.05

P Yeung Account
May-31

122.20
199.75

Cr

General Ledger
Dr
May-31

Purchases Account
Credit purchases
for the month

Dr
May-31

22

© Pearson Education Ltd 2010

1384.00
VAT Account

Purchases Day
Book : VAT

Cr

242.20

Cr

9.2

Bakers Electrical Co
Purchases Day Book

Date
2010
Jul-03
Jul-08
Jul-12
Jul-17
Jul-21
Jul-23
Jul-25
Jul-30

Details
Peak Electrical
Leigh Electrics
Thomas Motors
Naik & Sons
Peak Electrical
W D Services
Leighs Electrics
Naik & Sons

Goods
£
722.00
84.00
274.00
160.00
158.00
46.00
210.00
178.00

VAT
£
126.35
14.70
47.95
28.00
27.65
8.05
36.75
31.15

Total
£
848.35
98.70
321.95
188.00
185.65
54.05
246.75
209.15

1832.00

320.60

2152.60

Purchases Ledger
Peak Electrical Ltd Account
Jul-03
Jul-21
Dr

Cr
Purchases
Purchases

Leigh Electrics Account
Jul-08
Jul-25

Dr

Cr
Purchases
Purchases

98.70
246.75

Purchases

321.95

Thomas Motors Account
Jul-12

Dr

Cr

Naik & Sons Account
Jul-17
Jul-30

Dr

Cr
Purchases
Purchases

188.00
209.15

Purchases

54.05

W D Services Account
Jul-23

848.35
185.65

Accounting

Dr

Cr

General Ledger
Dr
Jul-31

Purchases Account
Credit purchases
for the month

Dr
Jul-31

1832.00
VAT Account

Purchases Day
Book : VAT

Cr

Cr

320.60

© Pearson Education Ltd 2010

23

9.3X Tasty Foods
Purchases Day Book
Date
2010
Aug 1
Aug 6
Aug 10
Aug 14
Aug 22
Aug 27
Aug 29
Aug 30

Details

Goods
£
62.00
48.00
224.00
136.00
98.00
166.00
84.00
366.00
1,184.00

Barker Foods Ltd
Fern Bros
Ash Catering Co
Barker Foods Ltd
Farm Produce
Fern Bros
Leigh & Sons
Ash Catering Co

VAT
£
10.85
8.40
39.20
23.80
17.15
29.05
14.70
64.05
207.20

Total
£
72.85
56.40
263.20
159.80
115.15
195.05
98.70
430.05
1,391.20

Purchases Ledger
Dr

Barker Foods Ltd Account
Aug 1
Aug 14

Dr

Purchases
Purchases

72.85
159.80

Purchases
Purchases

56.40
195.05

Fern Bros Account
Aug 6
Aug 27

Dr

Cr

Ash Catering Co Account

Cr

Aug 10

Purchases

263.20

Aug 30

Purchases

430.05

Dr

Farm Products Account

Dr

Leigh & Sons Account

Aug 22

Accounting

Cr

Aug 29

Cr
Purchases

Cr
Purchases

98.70

General Ledger
Dr
Aug 31

Purchases Account
Credit purchases
for the month

Dr
Aug 31

VAT Account
Purchases Day
Book : VAT

© Pearson Education Ltd 2010

Cr

1,184.00

207.20

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

24

115.15

Cr

Answers
Chapter 10: Sales returns day book and purchase
returns day book
10.1
Sales Day Book
Date
2010
Jun-01
Jun-01
Jun-09
Jun-09
Jun-23
Jun-30

Goods
£
180.00
60.00
140.00
330.00
780.00
440.00
1930.00

Details
J Alcock
P Twigg
Bell Products
Travis Ltd
B Seddon
P Twigg

(Page 7)
VAT
£
31.50
10.50
24.50
57.75
136.50
77.00
337.75

Total
£
211.50
70.50
164.50
387.75
916.50
517.00
2267.75

VAT
£
2.10
8.75
10.85

Total
£
14.10
58.75
72.85

Sales Returns Day Book
Date
2010
Jun-12
Jun-28

Details

Goods
£
12.00
50.00
62.00

J Alcock
Travis Ltd

Dr
Jun-01

J Alcock Account
Sales

Dr
Jun-01
Jun-30

Sales

70.50
517.00
Cr

164.50
387.75

Jun-28

Cr
Sales returns

B Seddon Account
Sales

14.10
Cr

Travis Ltd Account
Sales

Dr
Jun-23

Sales returns

Bell Products Account

Dr
Jun-09

Jun-12

Cr

P Twigg Account
Sales
Sales

Dr
Jun-09

211.50

Accounting

Sales Ledger

58.75
Cr

916.50
General Ledger

Dr

Sales Account
Jun-30

Dr
Jun-30

Sales Returns Account
Total SRDB

Dr
Jun-30

Cr
Total SDB

Cr

62.00
VAT Account

Total SRDB

1930.00

10.85

Jun-30

Cr
Total SDB

337.75
© Pearson Education Ltd 2010

25

10.2
Purchases Day Book
Date
2010
May-01
May-05
May-05
May-14
May-19
May-19
May-19
May-31
May-31

Details

Goods
£
120.00
80.00
220.00
60.00
300.00
280.00
80.00
56.00
172.00
1368.00

J Yau Ltd
S Wager
Ash Bros
J Yau Ltd
D Wong
Rughani & Co
Ash Bros
A Davies
Rughani & Co

VAT
£
21.00
14.00
38.50
10.50
52.50
49.00
14.00
9.80
30.10
239.40

Total
£
141.00
94.00
258.50
70.50
352.50
329.00
94.00
65.80
202.10
1607.40

VAT
£
5.25
7.35
12.60

Total
£
35.25
49.35
84.60

Purchase Returns Day Book
Date
2010
May-09
May-27

Details

Goods
£
30.00
42.00
72.00

J Yau Ltd
D Wong

Purchase Ledger
Dr

Accounting

May-09

J Yau Ltd Account
Purchase returns

Dr

35.25

May-01
May-14

Purchases
Purchases

S Wager Account
May-05

Dr

Dr

Purchases

94.00

Purchases
Purchases

258.50
94.00

Cr

D Wong Account
Purchase returns

Dr

49.35

May-19

Cr
Purchases

352.50

Purchases
Purchases

329.00
202.10

Purchases

65.80

Rughani & Co Account
May-19
May-31

Dr

Cr

A Davies Account
May-31

141.00
70.50
Cr

Ash Bros. Account
May-05
May-19

May-27

Cr

Cr

General Ledger
Dr
May-31

Purchases Account
Total PDB

Dr

Purchase Returns Account
May-31

Dr
May-31
26

© Pearson Education Ltd 2010

Cr

1368.00
Cr
Total PRDB

72.00

Total PRDB

12.60

VAT Account
Total PDB

239.40

May-31

Cr

10.3X Anderson's Ltd (b)
Purchases Day Book
Date
2010
Jan 2
Jan 5
Jan 19

Details
Naylor's Ltd
Roberts & Sons
R. James & Co

Goods

VAT

Total

1,300.00
668.00
1,512.00
3,480.00

227.50
116.90
264.60
609.00

1,527.50
784.90
1,776.60
4,089.00

Purchase Returns Day Book
Date
2010
Jan 13
Jan 30

Details

Goods

VAT

Total

Naylor's Ltd
R. James & Co

84.00
400.00
484.00

14.70
70.00
84.70

98.70
470.00
568.70

Sales Day Book
Date
2010
Jan 12
Jan 26
Jan 26
Jan 28
Jan 28

Details

Goods

VAT

Total

Marlow (Fancy
Gifts)
J. Jeynes
Birch Bros
F & J Shah
Marlow (Fancy
Gifts)

656.00

114.80

770.80

2,468.00
340.00
5,000.00
380.00

431.90
59.50
875.00
66.50

2,899.90
399.50
5,875.00
446.50

8,844.00

1,547.70

10,391.70

Goods

VAT

Total

60.00

10.50

70.50

60.00

10.50

70.50

Details
Marlow (Fancy
Gifts)

Jan 30

Accounting

Sales Returns Day Book
Date
2010

10.3X (a) (c) (e)
Sales Ledger
J. Jeynes Account
Jan-01
Jan-26
Feb-01

Balance b/d
Sales
Balance b/d

1,490.00
2,899.90
4,389.90

Jan-31

Balance c/d

4,389.90
4,389.90

4,389.90
Marlow (Fancy Goods) Account

Jan-01
Jan-12
Jan-28

Balance b/d
Sales
Sales

552.00
770.80
446.50
1,769.30

Feb-01

Balance b/d

1,698.80

Jan-01
Jan-28

Balance b/d
Sales

780.00
5,875.00
6,655.00

Feb-01

Balance b/d

6,655.00

Jan-26

Sales

Jan-30
Jan-31

Sales Returns
Balance c/d

70.50
1,698.80
1,769.30

F & J Shah Account
Jan-31

Balance c/d

6,655.00
6,655.00

Birch Bros Ltd Account
399.50
© Pearson Education Ltd 2010

27

10.3X (a) (c) (e)
Purchase Ledger
R.  James & Co. Account
Jan-30
Jan-31

Purchase Returns
Balance c/d

470.00
2,906.60
3,376.60

Jan-01
Jan-19

Balance b/d
Purchases

1,600.00
1,776.60
3,376.60

Feb-01

Balance b/d

2,906.60

Jan-01
Jan-02

Balance b/d
Purchases

900.00
1,527.50
2,427.50

Feb-01

Balance b/d

2,328.80

Jan-01
Jan-05

Balance b/d
Purchases

490.00
784.90
1,274.90

Feb-01

Balance b/d

1,274.90

Naylor's Ltd Account
Jan-13
Jan-31

Purchase Returns
Balance c/d

98.70
2,328.80
2,427.50

Roberts & Sons Account
Jan-31

Balance c/d

1,274.90
1,274.90

10.3X (d)
General Ledger
Dr

Cr

Sales Account
Jan-31

Dr

Total Sales for
January

Cr

Sales Returns Account

Jan-31

Total SRDB

Jan-31

Total Purchases
for January

60.00

Accounting

Purchases Account
3,480.00
Purchases Return Account
Jan-31
Dr
Jan-31
Jan-31
Jan-31

Total PRDB

484.00

Jan-31
Jan-31

Total PRDB
Total SDB

84.70
1,547.70

*Feb-01

Balance b/d

1,632.40
1,012.90

Cr

VAT Account
Total PDB
Total SRDB
Balance c/d

609.00
10.50
1,012.90
1,632.40

* The balance on the VAT account shows that Anderson's Ltd owe £1,012.90 to HMRC

10.4





28

8,844.00

© Pearson Education Ltd 2010

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
Add Purchases not received by us

Add Returns not received by supplier
Balance per Supplier's Statement

1,387.68
68.42
54.62
1,510.72

Answers
Chapter 11: Cash books
11.1
Cash Book
Cash
(1)
(4)
(6)
(8)
(10)
(14)
(15)
(30)
(31)
(1)

Capital
Sales
T Thomas
Sales
J King
J Walters
(Loan)
Bank
J Scott
Sales
Balances b/d

Bank
4,000

Cash
(2)
(4)
(12)
(15)
(20)

Fixtures
Rent
Wages
Cash
Stationery

500

(22)

J French

277

(28)
(31)

Drawings
Balances c/d

225
188
308
300

200
66
791

5,273

216

4,247

Bank
660

140
275
200
60
166
100
216

4,247

791

5,273

11.2X
Cash Book

2010

Cash

Bank

76.32

Cr

2010

Cash

Bank

Feb 1

Balance b/d

2,376.50

Feb 2

Electricity

Feb 6

D Hill

300.00

Feb 4

Motor
expenses

15.00

156.00

Feb 6

A Jackson

275.00

Feb 7

Stationery

3.70

Feb 6

H Wardle

93.20

Feb 12

Palmer & Sons
- purchases

723.50

Feb 10

Sales

Feb 14

500.00

Feb 16

217.00
53.00

Feb 17
Feb 17

Wright
Brothers
Drawings
Post office re:

86.20

Feb 22
Feb 26

D Whitman loan
J Smith
Sales

Feb 28

Balance c/d

590.60

Accounting

Dr

57.10

50.00

Telephone a/c

140.60

Mr S Jepson

133.42
Mar-01

Balances b/d

43.72

Feb 23

Petrol

Feb 27

Brownsons of
M/cr

Feb 28

Salaries

Feb 28

Balance c/d

4,405.30

21.00
899.00
2,400.00
43.72
133.42

Mar-01

Balances b/d

4,405.30
590.60

© Pearson Education Ltd 2010

29

11.3
Cash Book
Disct
(1)
(3)
(5)
(9)

Capital
Sales
N Morgan
S Cooper

(14)
(20)
(31)

L Curtis
P Exeter
Sales

Cash

Bank
6,000

407
10
20

210
380

2
32

407

115
78
88
6,871

Disct
(1)
(2)
(4)
(7)
 
(12)
(16)
(31)

Fixtures
Purchases
Rent
S Thompson
& Co
Rates
M Monroe
Calances c/d

Cash

Bank
950
1,240

200
4

76
410

6
10

114
93
407

4,195
6,871

General Ledger
Discounts Allowed
(31)

Cash Book

32
Discounts Received
(31)

Cash Book

10

11.4X
M Pinero
Cash Book

Dr

Accounting

Disct
(1)
(2)

Balance b/d
Capital

(4)
(5)
(8)
(15)
(18)

Sales
Cash
Sales
Bank
L Graham

(18)
(18)
(22)
(28)
(30)

B Crenshaw
H Green
T Weiskopf
Cash
Balance c/d

Cash
58

Bank
1,000

220
200
500
400
4

76

7
11

133
209
204
755
6,049

22

1,382

Disct
(1)
(3)
(5)
(6)
(6)
(6)
(12)
(15)
(16)
(20)
(26)
(28)
(31)
(31)

8,422

Dr

© Pearson Education Ltd 2010

Cash Book

Discounts Allowed Account
Cash Book

22

Cash

Bank
1,470
780

200
2
6
10

78
234
390
77
400
120
210
150
755
4,920

18

(31)

30

Balance b/d
Office
fixtures
Bank
B Barnes
T Horton
T Jackin
Motor
Expenses
Cash
Drawings
Wages
Insurance
Bank
Motor Van
Balance c/d

General Ledger
Discounts Received Account

Dr

(31)

Cr

20
1,382

8,422

Cr
18
Cr

Answers
Chapter 12: Petty cash and the imprest system
12.1

£

Date

Details

2.00

Total
£

Jun 01
Jun 01
Jun 01
Jun 03
Jun 04
Jun 06
Jun 10
Jun 14
Jun 16
Jun 19
Jun 21
Jun 23
Jun 27
Jun 29

Balance b/d
Cash
Window cleaner
Postage stamps
Petrol
Stationery
Jean Ford stamps
Office cleaner
Parcel postage
Magazine
Computer disks
Petrol
Refreshments
Office cleaner

p

10.00
7.60
37.60
9.75

32
33
34
35
8
36
37
38
39
40
41
42

20.00
1.35
3.00
7.95
14.10
4.20
20.00
135.55

Jun 30

Balance c/d

Jul 01

Balance b/d

Jul 01

Cash

152.00
16.45
133.55

VAT

Postage

Cleaning

Number

p

2010
18.52
131.48

Voucher

£

p

£

p

£

p

Motor
Expenses
£ p

Stationery
£

p

Sundry
Expenses
£ p

10.00
7.60
5.60
1.45

32.00
8.30
20.00
1.35
3.00

1.05
2.10

6.90
12.00

4.20

20.00
10.20

8.95

50.00

44.00

15.20

7.20

16.45
152.00

Amount required to restore imprest = Float required

Accounting

Receipts

£
150.00

Less Cash in hand 16.45
Amount required 133.55

© Pearson Education Ltd 2010

31

Singh's Estate Agents - Petty Cash book

12.2X
Receipts

Date

Voucher

Details

Total

VAT

Postage

Cleaning

£

£

£

£

11.66
7.40
8.60
20.00
4.23

1.66

£
23.40
76.60

3.50

2010
15 Oct
15 Oct
16 Oct
17 Oct
18 Oct
20 Oct
20 Oct
23 Oct
23 Oct
25 Oct
27 Oct
28 Oct

Balance
Cash
Envelopes and files
Tea, Coffee and milk
Special delivery
Office cleaner
Cleaning materials
M Lloyd Stationery
Postage stamps
Travel expenses
Flowers
Photocopy paper

80
81
82
83
84
78
85
86
87
88

31 Oct Balance

c/d

01 Nov Balance

b/d

Accounting

7.00

4.43

Less Cash in hand

13.80

Amount required

86.20

20.00
3.60

0.63

89.70
13.80
103.50

10.00
7.40

0.74
1.40

01 Nov Cash

© Pearson Education Ltd 2010

£

Sundry
Expenses
£

8.60

7.00
16.42
4.99
9.40

Amount required to restore the imprest = Float required 100.00

32

Stationery

b/d

103.50
13.80
86.20

Travel
Expenses
£

16.42
4.25
8.00
15.60

23.60

16.42

18.00

11.65

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
Dec-31

(Totals so far)
J Walters

2,328
54

2010
Dec-31
Dec-31

(Totals so far)
Bank charges
Balance c/d

2,382

497
22
1,863
2,382

(b)
Bank Reconciliation Statement as at 31 December 2010
Balance per cash book
Add Unpresented cheque
Less Bankings not yet on bank statement (249 1 178)

1,863
115
1,978
427

Balance per bank statement

1,551

Accounting

OR
Bank Reconciliation Statement as at 31 December 2010
Balance per bank statement
Add Bankings not yer on bank statement (249 1 178)
Less Unpresented cheque

1,551
427
1,978
115

Balance per cash book

1,863

13.2X
(a)
Preston & Co
Cash Book

Dr
Dec 31
Dec 31

Balance b/d
BGC: P Todd

9,155
270
9,425

Jan 1

Balance b/d

Dec 31
Dec 31

Cr
Bank charges
Balance c/d

110
9,315
9,425

9,315

© Pearson Education Ltd 2010

33

(b)
Preston & Co
Bank Reconciliation Statement as at 31 December 2010
£
9,315
575

Balance as per cash book
Add Unpresented cheque

9,890
Less Bankings not yet on bank statement ( 945 1 300 1 890)

2,135

Balance per bank statement

7,755

OR
Preston & Co
Bank Reconciliation Statement as at 31 December 2010
£
7,755
2,135

Balance as per bank statement
Add Bankings not yet on bank statement ( 945 1 300 1 890)

9,890
Less Unpresented cheque

575

Balance per cash book

9,315

13.3
(a)
Cash Book - James Baxter

Accounting

2010
Mar-31
Mar-31

BGC - A May
Balance c/d

£
929
2,003

2010
Mar-31
Mar-31
Mar-31

£
2,804
100

Balance b/d
Standing order
- Oak plc
Bank charges

28
2,932

2,932

(b)
James Baxter
Bank Reconciliation Statement as at 31 March 2010
£
2,003
160

Bank overdraft per cash book
Add Banking not entered on bank statement

2,163
Less Unpresented cheque

490

Bank overdraft per bank statement

1,673

OR
James Baxter
Bank Reconciliation Statement as at 31 March 2010

34

© Pearson Education Ltd 2010

Balance per bank statement
Less Banking not entered on bank statement

£
1,673
160
1,513
490

O/D

Add Unpresented cheque
Balance per cash book

2,003

O/D

O/D

13.4X
(a)
E Flynn
Cash Book
2010
Dec-06
Dec-20
Dec-31
Dec-31
Dec-31

J Hallworth
C Walters
P Miller
K Saunders
Balance c/d

155
189
211
180
4,007

2010
Dec-01
Dec-10
Dec-19
Dec-29
Dec-30
Dec-31

Balance b/d
P Wood
M Roberts
P Phillips
s/o Mercantile
Bank charges

3,872
206
315
84
200
65

4,742

4,742

(b)
E Flynn
Bank Reconciliation Statement as at 31 December 2010
Bank overdraft per cash book
Add Bank lodgements not yet entered on bank statement

4,007
211
4,218

Less Unpresented cheque

84

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.
Apr-01
Apr-07
Apr-13
Apr-20
Apr-30
Apr-22

Narrative
Balance b/d
Sales banked
Sales banked
Sales banked
Sales banked
CT - M Bell

£
8,000
800
550
650
750
1,230

Date
Apr-02
Apr-08
Apr-15
Apr-15
Apr-20
Apr-28
Apr-30
Apr-30

Narrative
F Bashir (10123)
M Tyler (10124)
H Joshi (10125)
DD / MTC
DD / Pre. Ins
Bank charges
Dishonoured cheque
Balance c/d

11,980
May-01

Balance b/d

£
1,200
1,300
1,250
250
80
120
280
7,500

Accounting

(b)  Date

11,980

7,500

(c)
Real Kitchen Suppliers
Bank Reconciliation Statement as at 30 April 2010
Balance as per cash book
Add: Unpresented cheque - 10125

£

£
7,500
1,250

Less: cash not yet credited

8,750
750

Balance per bank statement

8,000

© Pearson Education Ltd 2010

35

Answers
Chapter 14: The journal
14.1
The Journal
Date
2010
Jan-01
Jan-05
Jan-08
Jan-15
Jan-29

Details

Dr
£
4,000

Computer Equipment
Data Systems Ltd
Drawings
Purchases
Bad debts
J Oddy
Motor vehicle
Bank

Cr
£
4,000

120
120
220
220
15,500
15,500

Office furniture and fittings

250

J Street

250

Accounting

14.2X
(a) Fixtures
(b) Drawings

Dr
Dr

1,809
500

(c) Drawings

Dr

(d) Office
equipment

Purchases

Cr
Cr

1,809
500

100

Cash

Cr

100

Dr

500

K Lamb

Cr

500

(e) J Harper

Dr

65

Fixtures

Cr

65

(f)

Dr

68

J Brown

Cr

68

Dr

2,190

Super Offices

Cr

2,190

(a) J Harkness
(b) Machinery

Dr
Dr

678
4,390

J Harker
L Pearson

Cr
Cr

678
4,390

(c) Motor Van

Dr

10,800

Motor expenses

Cr

10,800

Bad debts

(g) Office
equipment

J Harper

14.3

(d) E Fletcher

Dr

9

(e) Sales

Dr

257

Dr
Dr

699
189

Sales

Cr

9

Commissions
received

Cr

257

K Webb
Bank

Cr
Cr

699
189

14.4X
(a) H Weld
(b) Cash
(c) B Maxim

Dr

443

(d) K Innes

Dr

10

(e) H Mersey*

Dr

178

B Gunn

Cr

443

Purchases

Cr

10

Cash

Cr

178

*Needs double the amount to first cancel out the error and then replace it with the
correct amount.
36

© Pearson Education Ltd 2010

14.5X
(a)
Journal
Sep 30

Sep 30

Dr
750

Drawings
Purchases
Bring correction of error of omission
L Patel
A Patek

Cr
750

500
500

Being correction of your error of commission

(b)
Dr
Sep 30
Sep 30

Suspense Account
Balance b/d
Farmer & Co

340
170
510

Sep 30
Sep 30

Cr
Sales
Pointer Bros

240
270
510

(c) Before discovery of the errors in the Trial Balance the debit side was deficient
by £340.

Accounting

(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
One from the above list.

© Pearson Education Ltd 2010

37

Answers
Chapter 15: Sales ledger and purchase ledger
control accounts
15.1
Dr

Sales Ledger Control Account

2010
Oct-01
Oct-31

Balance b/d
SDB

Nov-01

Balance b/d

12,340
124,790

2010
Oct-31
Oct-31
Oct-31
Oct-31

SRDB
Bank & cash
Discount allowed
Balance c/d

137,130

Cr
2,847
116,225
3,638
14,420
137,130

14,420

15.2X
Dr
2010
Feb 1
Feb 28
Feb 28

Sales Ledger Control Account
Balance b/d
SDB
Bank : dishonoured
cheques

33,950
347,480
791

2010
Feb 28
Feb 28
Feb 28
Feb 28
Feb 28

Accounting

Feb 28

Bad Debts
Purchase ledger
set offs
Balance c/d

382,221
Mar 1

Balance b/d

332,920
4,497
11,095
977
1,400
31,332
382,221

31,332

15.3
Dr
2010
Jul-31
Jul-31
Jul-31
Jul-31

Purchase Ledger Control Account
PRDB
Bank
Discount received
Balance c/d

1,575
26,150
550
19,375
47,650

2010
Jul-01
Jul-31

© Pearson Education Ltd 2010

Balance b/d
PDB

Cr
19,450
28,200

47,650
Aug-01

38

Bank & cash
Discount allowed
SRDB

Cr

Balance b/d

19,375

15.4X
Dr
2010
Jan 31
Jan 31
Jan 31
Jan 31
Jan 31

Purchase Ledger Control Account
PRDB
Bank
Discount received
Sales ledger set offs
Balance c/d

2,835
45,070
990
2,000
34,875
85,770

2010
Jan 31
Jan 31

Balance b/d
PDB

Cr
35,010
50,760

85,770
Feb 1

Balance b/d

34,875

15.5X
(a)
Dr
2009
Jan 1
Dec 31
Dec 31

Sales Ledger Control Account
Balance b/d
SDB
Returned cheque

65,000
453,900
750

2009
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31

519,650

Cr
RIDB
Bank
Discount All
Bad Debts
Purchase ledger
set offs
Balance c/d

6,430
432,000
7,540
650
1,650
71,380
519,650

Accounting

(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.
(c) The closing balance of the sales ledger control account would appear under current
assets in the balance sheet.

© Pearson Education Ltd 2010

39

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
Less cost of goods sold
Purchases
Less closing stock
Gross Profit
Less Expenses
Rent
Wages and salaries
Printing and stationery
Electricity expenses
General expenses

84,665
15,085

4,595
28,865
2,940
2,485
1,295

Net Profit

16.2X

Accounting

40,180

Charles Drew
Trading and Profit and Loss Account for the year ending 31 December 2010
Sales
Less cost of goods sold
Purchases
Less closing stock
Gross Profit
Less Expenses
Wages
Rent
Office expenses
Motor expenses
Electricity expenses
Net Profit

© Pearson Education Ltd 2010

69,580
64,190

24,010

£

40

£
133,770

96,547
18,495

11,229
5,330
1,620
922
1,350

£
128,452

78,052
50,400

20,451
29,949

G Singh
Trading and Profit and Loss Account for the year ended 31 December 2010
£
Sales
Less Cost of goods sold:
Purchases
Less Closing stock
Gross Profit
Less Expenses
Wages
Motor expenses
Rates
Insurance
General expenses

58,516
10,192

14,224
11,300

R Cairns
Trading and Profit and Loss Account for the year ended 30 June 2010
£
Sales
Less Cost of goods sold
Purchases
Less closing stock
Gross Profit
Less Expenses
Wages
Rates
Printing and Stationery
Electricity
Insurance
Sundry Expenses
Motor expenses

71,409
11,498

9,492
2,000
562
1,266
605
1,518
3,109

Net Profit

16.5X

48,324
25,524

8,600
2,080
2,680
444
420

Net Profit

16.4X

£
73,848

£
99,082

59,911
39,171

Accounting

16.3

18,552
20,619

J Leung
Trading and Profit and Loss Account for the year ended 31 March 2010
£
Sales
Less Cost of goods sold
Purchases
Less closing stock
Gross Profit
Less Expenses
Rent and rates
Insurance
Electricity expenses
Motor expenses
Salaries and wages
General expenses
Net Profit

133,171
42,828

6,708
1,312
2,219
2,429
26,855
3,466

£
153,080

90,343
62,737

42,989
19,748

© Pearson Education Ltd 2010

41

Answers
Chapter 17: The Balance Sheet
17.1

G Singh
Balance Sheet as at 31 December 2010
£
Fixed Assets
Buildings
Motor vehicle
Current Assets
Stock
Debtors
Cash at bank
Cash in hand
Less Current Liabilities
Creditors

£

£

20,000
12,000

20,000
12,000

32,000

32,000

10,192
7,800
6,616
160

24,768

6,418

6,418

Net current assets

18,350
50,350

Financed by
Cash introduced

48,000
11,300

Add Net profit for the year

59,300
8,950

Less Drawings

50,350

Accounting

17.2X

R Cairns
Balance Sheet as at 30 June 2010
Fixed assets
Premises
Computer equipment
Motor vehicle
Current assets
Stock
Debtors
Cash at bank
Cash in hand
Less Current liabilities
Creditors
Net current assets
Financed by:
Capital introduced
Add Net profit for the year
Less Drawings

£

£

£

145,000
8,000

-

145,000
8,000

16,500

-

16,500

169,500

-

169,500

11,498
9,498
6,541
-

27,537

3,618

3,618
23,919
193,419
185,000
20,619
205,619
12,200
193,419

42

© Pearson Education Ltd 2010

17.3

J Leung
Balance Sheet as at 31 March 2010
£
Fixed Assets
Buildings
Equipment
Motor van

£

£

120,400
17,028
15,050

120,400
17,028
15,050

152,478

152,478

Current Assets
Stock
Debtors
Cash at bank

42,828
29,283
4,876

76,987

Less Current Liabilities
Creditors

13,975

13,975

Working Capital

63,012
215,490

Financed by
Capital
Net profit

212,736
19,748
232,484
16,994

Less Drawings

215,490

17.4X

Sarah Joshi
Trading and Profit and Loss Account for the
year ended 31 May 2010

Net Profit

85,691
14,998

3,000
822
3,473
605
12,465
1,319
578

£
103,658

Accounting

£
Sales
Less Cost of goods sold
Purchases
Less closing stock
Gross Profit
Less Expenses
Rent
General expenses
Motor expenses
Printing and stationery
Wages and salaries
Heating and lighting
Insurance

70,693
32,965

22,262
10,703

© Pearson Education Ltd 2010

43

Balance Sheet as at 31 May 2010
Fixed Assets
Buildings
Computer equipment
Motor vehicle
Current Assets
Stock
Debtors
Cash at bank
Less Current Liabilities
Creditors
Net current assets / working capital
Less Long-term liabilities
Financed By:
Capital
Add Net profit
Less Drawings

£

£

£

180,000
3,600

-

180,000
3,600

19,800

-

19,800

203,400

-

203,400

14,998
11,398
13,850

40,246

4,343

4,343
35,903
239,303
237,240
10,703
247,943
8,640

Accounting

239,303

44

© Pearson Education Ltd 2010

Answers
Chapter 18: Financial statements:
other considerations
18.1

K Jepson
Trading account for the year ended 31-Dec-10
£
Sales
Less cost of goods sold
Opening stock
Add purchases
Add carriage inwards

12,463
47,536
1,206

Less closing stock

61,205
13,480

Gross profit

47,725
22,011

Jane Li
Trading and Profit and Loss Account for the year ended 31 March 2010
£
Sales
Less Cost of Goods Sold
Opening Stock
Add Purchases
Add Carriage Inwards

29,686
66,429
2,020

Less Closing Stock

98,135
33,307

Gross profit

£
98,280

Accounting

18.2X

£
69,736

64,828
33,452

© Pearson Education Ltd 2010

45

18.3

J Mann
Trading and Profit and Loss Account for the year ended 31 July 2010
£
Sales
Less sales returns
Less cost of goods sold
Opening stock
Add Purchases
Add carriage inwards
Less purchase returns
Less Closing stock
Gross Profit
Less Expenses
Salaries and wages
Rent
Motor Expenses
General expenses
Carriage outwards

11,949
65,100
3,570
80,619
1,176
79,443
8,883

10,521
3,066
6,552
882
1,659

Emily Hart
Trading and Profit and Loss Account for the year ended 31 December 2010
£

Accounting

Less Cost of Goods Sold
Opening Stock
Add Purchases
Add Carriage Inwards
Less Purchase Returns
Less Closing Stock
Gross Profit
Less Expenses
Wages
Rent and rates
General expenses
Carriage outwards
Printing and stationery
Net Profit

© Pearson Education Ltd 2010

22,680
16,590

Sales
Less sales returns

46

70,560
39,270

Net Profit

18.4X

£
110,859
1,029
109,830

34,732
122,683
400
157,815
3,000
154,815
32,984

£
189,050
2,850
186,200

121,831
64,369

21,875
2,800
684
931
525

26,815
37,554

S Shah
Trading and Profit and Loss Account for the year ended 30 June 2010
£

£
178,560
1,968
176,592

Sales
Less sales returns
Less cost of goods sold
Opening stock
Add Purchases
Add carriage inwards

22,733
113,990
2,976
139,699
3,091
136,608
28,320

Less purchase returns
Less Closing stock
Gross Profit
Less Expenses
Salaries and wages
Rent and rates
Insurance
Motor Expenses
Telephone and internet
Electricity
Carriage outwards
General expenses

108,288
68,304

37,075
2,918
749
4,250
4,198
1,594
1,920
3,014

55,718

Net Profit

12,586

Balance Sheet as at 30 June 2010
£
Fixed Assets
Buildings
Computer equipment
Motor vehicles
Current Assets
Stock
Debtors
Cash at bank
Less Current Liabilities
Creditors
Net Current Assets (Working Capital)
Less long-term liabilities
Long-term loans
Financed by
Capital account
Balance b/f
Add net profit for the year
Less Drawings

£

80,000
3,360
17,280
100,640

£

Accounting

18.5

80,000
3,360
17,280
100,640

28,320
37,402
4,627

70,349

32,618

32,618
37,731
138,371
Nil
138,371

137,305
12,586
149,891
11,520
138,371
© Pearson Education Ltd 2010

47

18.6X

J Collins
Trading and Profit and Loss Account for the year ended 31 March 2010
£
Sales
Less Cost of sales
Opening stock
Add Purchases
Carriage inwards

£

15,104
46,224
936
62,264
19,992

Less Closing stock
Gross Profit
Less Expenses
Salaries and wages
Carriage outwards
Rent
Rates
Printing and stationery
Travel expenses
Telephone
Sundry expenses

11,788
1,304
1,824
1,080
810
490
756
2,808

Net Profit

£
74,400

42,272
32,128

20,860
11,268

Balance Sheet as at 31 March 2010
£
Fixed Assets
Fixtures and fittings
Computer equipment

Accounting

Current Assets
Stock
Debtors
Cash at bank
Cash in hand
Less Current Liabilities
Creditors
Net Current assets
Financed by:
Capital
Add net profit

48

© Pearson Education Ltd 2010

Less Drawings

£

2,400
9,600
12,000

£
2,400
9,600
12,000

19,992
18,308
15,504
480

54,284

12,180

12,180
42,104
54,104
51,376
11,268
62,644
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
Year 1

Depreciation*

£

£

6,000

6,000

1,250

Year 1

Depreciation 40% 3
£6,000

3,600

4,750
Year 2

Depreciation

1,250

Year 2

Depreciation 40% 3
£3,600

3,500
Year 3

Depreciation

1,250

Depreciation

1,250

1,440
2,160

Year 3

Depreciation 40% 3
£2,160

2,250
Year 4

2,400

864
1,296

Year 4

Depreciation 40% 3
£1,296

1,000

519
777

6,000 2 1, 000

Accounting

*Depreciation 5 _____________
5 £1,250
4
19.2
Machine
(a) Straight Line

(b) Reducing Balance

Cost
Year 1

Depreciation*

£

£

75,000

75,000

11,070

Year 1

Depreciation 20% 3
£75,000

63,930
Year 2

Depreciation

11,070

60,000
Year 2

Depreciation 20% 3
£60,000

52,860
Year 3

Depreciation

11,070

Depreciation

11,070
30,720

12,000
48,000

Year 3

Depreciation 20% 3
£48,000

41,790
Year 4

15,000

9,600
38,400

Year 4

Depreciation 20% 3
£38,400

7,680
30,720

75,000 2 30,720

*Depreciation 5 _______________
5 £11,070
4

© Pearson Education Ltd 2010

49

19.3X
(a)
Reducing Balance
Cost
Year 1
 
Year 2
 
Year 3
 
Year 4
 

£
19,200
9,600
9,600
4,800
4,800
2,400
2,400
1,200
1,200

Depreciation 50% of 19,200
Depreciation 50% of 9,600
Depreciation 50% of 4,800
Depreciation 50% of 2,400

(b)
Straight Line
Cost
Year 1
 
Year 2
 
Year 3
 
Year 4
 

£
19,200
4,500
14,700
4,500
10,200
4,500
5,700
4,500
1,200

Depreciation
Depreciation
Depreciation
Depreciation

Accounting

19,200 2 1,200 5 18,000 4 4 5 4,500

19.4X
Computer Equipment
(a) Straight Line
Cost
Year 1

Depreciation

 
Year 2

Depreciation

3,600
1,000

 
Year 2

 
Year 3

Depreciation

2,600
1,000

 
Year 3

 
Year 4

Depreciation

1,600
1,000

 
Year 4

 
Depreciation  4,600 2 600  £1,000
*___________________________________
​ 
   

  ​
4

50

© Pearson Education Ltd 2010

(b) Reducing Balance
£
4,600
* 1,000

600

Cost
Year 1

 

Depreciation 25% 3
4,600
Depreciation 25% 3
3,450
Depreciation 25% 3
2,588
Depreciation 25% 3
1,941

£
4,600
1,150
3,450
862
2,588
647
1,941
485
1,456

19.5X
(a)
Reducing Balance
£
Cost
Year 1

72,900
Depreciation 33​ __13 ​% of 72,900

24,300

 
Year 2

48,600
Depreciation 33​ __13 ​% of 48,600

16,200

 
Year 3

32,400
Depreciation 33​ __13 ​% of 32,400

10,800

 
Year 4

21,600
Depreciation 33​ __13 ​% of 21,600

7,200

 
Year 5

14,400
Depreciation 33​ __13 ​% of 14,400

4,800

 

9,600

(b)
Straight Line
£
Cost

72,900
Depreciation

 
Year 2

60,240
Depreciation

 
Year 3

12,660
12,660
47,580

Depreciation

 

12,660

Accounting

Year 1

34,920

Year 4

Depreciation

Year 5

Depreciation

12,660
22,260

 

12,660
9,600

72,900 2 9,600 5 63,300 4 5 5 12,660

© Pearson Education Ltd 2010

51

19.6
Dumper
(a) Reducing Balance

(b) Straight Line
£

Cost
Year 1

18,000
Depreciation 40% 3
£18,000

 
Year 2
 
Year 3

Year 1

 

Depreciation

 
Year 2

13,000
Depreciation

 
Year 3

Depreciation

3,888

 

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

5,000

2,592

18,000 2 3,000

© Pearson Education Ltd 2010

5,000
8,000

Depreciation  ______________
​ 
     ​ 
 £5,000
3

52

5,000

4,320
6,480

Depreciation 40% 3
£6,480

18,000

7,200
10,800

Depreciation 40% 3
£10,800

£
 

3,000

Answers
Chapter 20: Double entry for depreciation and
disposal of a fixed asset
20.1
(a)
Motor Car Account

Dr
2001
Jan-01

Cr

£
12,500

Bank

£

(b)
2001
Dec-31
2002
Dec-31

Provision for Depreciation - Motor Car Account

Cr

Balance c/d

£
2,500

2001
Dec-31

Profit and loss a/c

Balance c/d

4,500

2002
Jan-01
Dec-31

Balance b/d
Profit and loss a/c

2,500
2,000
4,500

2003
Jan-01
Dec-31

Balance b/d
Profit and loss a/c

4,500
1,600
6,100

2004
Jan-01

Balance b/d

6,100

4,500
2003
Dec-31

Balance c/d

6,100
6,100

£
2,500

Accounting

Dr

(c)
Profit and Loss Account (extracts) for the year ended 31 December
2001

Depreciation

£
2,500

2002

Depreciation

2,000

2003

Depreciation

1,600

(d)
Balance Sheet (extracts) as at 31 December
2001
Motor Car

Cost
£
12,500

Total Depreciation
£
2,500

Net book value
£
10,000

2002
Motor Car

12,500

4,500

8,000

2003
Motor Car

12,500

6,100

6,400

© Pearson Education Ltd 2010

53

20.2X
(a)

Straight Line Method

Dr

Machinery Account

2001
Nov 01

Bank

Dr

Balance c/d

2004
Oct 31

Accounting

2004
Oct 31

(c)

5,400
5,400

2002
Oct 31

Cr

Profit and loss a/c

£
1,800

Nov 1
2003
Oct 31

Balance b/d

1,800

Profit and loss a/c

1,800
3,600

Nov 1

Balance b/d

3,600

2004
Oct 31

Profit and loss a/c

1,800
5,400

Nov 1

Balance b/d

5,400

Reducing Balance Method
Machinery Account

2001
Nov 01

2003
Oct 31

3,600
3,600

Balance c/d

Dr

2002
Oct 31

£
1,800

Balance c/d

2003
Oct 31

Dr

£

Provision for Depreciation - Machinery Account

2002
Oct 31

(b)

Cr

£
18,000

Cr

£
18,000

Bank

£

Provision for Depreciation - Machinery Account
Balance c/d

Balance c/d

Balance c/d

£
1,800

3,420
3,420

4,878
4,878

2002
Oct 31

Cr

Profit and loss a/c

£
1,800

Nov 1
2003
Oct 31

Balance b/d

1,800

Profit and loss a/c

1,620
3,420

Nov 1

Balance b/d

3,420

2004
Oct 31

Profit and loss a/c

1,458
4,878

Nov 1

Balance b/d

4,878

Straight Line Method
Profit and Loss Account (extracts) for the year ended 31 October

54

© Pearson Education Ltd 2010

2002

Depreciation - Machinery

£
1,800

2003

Depreciation - Machinery

1,800

2004

Depreciation - Machinery

1,800

Balance Sheet (extracts) as at 31 October
2002
Machinery

Cost
£
18,000

Total Depreciation
£
1,800

Net Book Value
£
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

2002

Depreciation - Machinery

£
1,800

2003

Depreciation - Machinery

1,620

2004

Depreciation - Machinery

1,458

Balance Sheet (extracts) as at 31 October
2002
Machinery

Cost
£
18,000

Total Depreciation
£
1,800

Net Book Value
£
16,200

2003
Machinery

18,000

3,420

14,580

2004
Machinery

18,000

4,878

13,122

Computer equipment
disposals

9,500

Accounting

20.3
(a)
Computer Equipment Account
2001
Jan-01

Balance b/d

9,500

2004
Jan-01

(b)
Provision for Depreciation : Computer Equipment Account
2001

2001
Computer
equipment

Dec-31

Balance c/d

1,900

Jan-01

2002
Dec-31

Balance c/d

3,800

2002
Jan-01
Dec-31

Balance b/d
Profit and loss

1,900
1,900
3,800

2003
Jan-01
Dec-31

Balance b/d
Profit and loss

3,800
1,900
5,700

2004
Jan-01

Balance b/d

5,700

3,800
2003
Dec-31

Balance c/d

5,700
5,700

2004
Jan-01

Computer equipment
disposals

5,700

1,900

© Pearson Education Ltd 2010

55

(c)
Computer Equipment Disposals Account
2004
Jan-01
Dec-31

Computer
Profit and loss

2004
Jan-01
Jan-01

9,500
450
9,950

Depreciaiton
Bank

5,700
4,250
9,950

(d)
Profit and Loss Account (extracts) for the year ended 31 December
2001

Depreciation - Computer Equipment

£
1,900

2002

Depreciation - Computer Equipment

1,900

2003

Depreciation - Computer Equipment

1,900

(e)
Balance Sheet (extracts) as at 31 December
2001
Computer Equipment

Cost
£
9,500

Total Depreciation
£
1,900

Net book value
£
7,600

2002
Computer Equipment

9,500

3,800

5,700

2003
Computer Equipment

9,500

5,700

3,800

Provision for depreciation

9,700

Bank

1,850

20.4X

Accounting

(a)
Motor Van Disposals Account
Motor Van

12,000

Profit and loss : loss on sale
12,000

450
12,000

(b)
Machinery Disposals Account
Machinery
Profit and loss : profit on sale

27,900

2,770

Provision for depreciation

19,400

Bank

11,270

30,670

30,670

(c)
Fixtures Disposals Account
Fixtures

8,420

Provision for depreciation
Bank
Profit and loss : loss on sale

8,420
56

© Pearson Education Ltd 2010

7,135
50
1,235
8,420

(d)
Buildings Disposals Account
Buildings

200,000

Profit and loss : profit on sale

59,000

Provision for depreciation

110,000

Bank

149,000

259,000

259,000

20.5
(a)

Straight Line Method

 ​ _________________
  
  ​ 
No. of Years

35,000 2 11,000
   ​ 
 £6,000 per annum
 ​ ______________

Cost 2 Scrap Value

4

(b)
Provision for Depreciation - Vehicles Account

2005
Mar-31
2006
Mar-31

Balance c/d

Balance c/d

£
7,000

12,600
12,600

2005
Mar-31

Profit and loss

7,000

Balance b/d

7,000

Apr-01
2006
Mar-31

Profit and loss

5,600
12,600

Apr-01

Balance b/d

12,600

WORKINGS

Year ended 31/03/05
20% 3 35,000  £7,000 per annum

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.

Cr

Accounting

Dr

20.6X
(a)
RIALTO TRADERS
Plant and Machinery Account
2007
May 1

Balance b/d

500,000

2007
Dec 31
2008
Apr 30

500,000
2008
May 1

Balance b/d

Plant and machinery
disposals

200,000

Balance c/d

300,000
500,000

300,000

© Pearson Education Ltd 2010

57

(b)
Motor Vehicles Account
2007
May 1
2008
Feb 1
May 1

Balance b/d

200,000

Bank

100,000
300,000

Balance b/d

300,000

2008
Apr 30

Balance c/d

300,000
300,000

(c)
Provision for Depreciation - Plant and Machinery Account
2007
Dec 31
2008
Apr 30

Plant and MachineryDisposals

150,000

Balance c/d

80,000
230,000

2007
May 1

Balance b/d

200,000

2008
Apr 30

Profit and Loss

30,000
230,000

May 1

Balance b/d

80,000

(d)
Plant and Machinery - Disposal Account
2007
Dec 31

Plant and Machinery

200,000

2007
Dec 31
Dec 31
Dec 31

Accounting

200,000

58

Provision for
Depreciation
Bank
Profit and Loss

150,000
40,000
10,000
200,000

(e) (i) Concept 1 – Consistency
Concept 2 – Accruals

© Pearson Education Ltd 2010

(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
(a)

Hart & Partners
Dr

Bad Debts Account

2009
May-16
Jul-31
Nov-09

S Bayley
J Carter
T Roche

2009
Dec-31

550
223
467
1,240

Dr

Profit & loss

Provision For Doubtful Debts Account

Cr

Profit & loss

520

Profit and Loss Account for the year ended 31 December 2009 (extracts)
Gross profit
Less Expenses
Bad debts written off
Provision for doubtful debts

(c)

1,240
520

1,760

26,000
520

25,480

Balance Sheet as at 31 December 2009 (extract)
Current Assets
Debtors
Less Provision for doubtful debts

21.2

1,240

1,240
2009
Dec-31

(b)

Cr

Date
31-Dec
2007
2008
2009
2010

Total debtors
7,000
8,000
6,000
7,000

Profit and
loss
70
10
20
10

Dr/Cr
Dr
Dr
Cr
Dr

Accounting

21.1

Final figure for
balance sheet
6,930 (net)
7,920 (net)
5,940 (net)
6,930 (net)

© Pearson Education Ltd 2010

59

21.3X
Bad Debts
2007
31 Dec
2008
31 Dec

Debtors
Debtors

298

2007
31 Dec

Profit and loss a/c

298

386

2008
31 Dec

Profit and loss a/c

386

Profit and loss a/c

344

Profit and loss a/c

477

2009
31 Dec

Debtors

344

2009
31 Dec

2010
31 Dec

Debtors

477

2010
31 Dec

Provision for Doubtful Debts
2007
31 Dec
2008
31 Dec

100

Balance c/d
Balance c/d

130

2007
31 Dec

Profit and loss a/c

100

2008
1 Jan
31 Dec

Balance b/d
Profit and loss a/c

100
30
130

2009
1 Jan

Balance b/d

130

130
2009
31 Dec
31 Dec

Profit and loss a/c
Balance c/d

15
115

130

130
2010
31 Dec

Balance c/d

150

2010
1 Jan
31 Dec

Balance b/d
Profit and loss a/c

115
35
150

2011
1 Jan

Balance b/d

150

Accounting

150

60

Profit and Loss Accounts
for the years ended 31 December (extracts)
2007
Bad debts
Provision for doubtful debts
2008
Bad debts
Provision for doubtful debts
2009
Bad debts
2010
Bad debts
Provision for doubtful debts

© Pearson Education Ltd 2010

£
298
100

£

386
30
344
477
35

2009
Provision for doubtful debts

15

Balance Sheet as at 31 Decemeber (extracts)
Debtors
Less Provision for doubtful debts

£
12,000
100

11,900

2008

Debtors
Less Provision for doubtful debts

15,000
130

14,870

2009

Debtors
Less Provision for doubtful debts

14,000
115

13,885

2010

Debtors
Less Provision for doubtful debts

18,000
150

17,850

2007

£

21.4X (a)
The Journal
Date
Apr 30

Bad Debts
  A. Carter
Being bad debt written off

Debit

Credit

£
500

£
500

(b) Double entry for the creation of a Provision for Doubtful Debts
Debit: Profit and Loss Account
Credit: Provision for Doubtful Debts Account

Accounting

(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
provision from the debtors in the balance sheet a more accurate figure of debtors is
given.

© Pearson Education Ltd 2010

61

Answers
Chapter 22: Accruals, prepayments and other
adjustments for financial statements
22.1
(a)

C Homer
Rent Account
2008
Dec-31
Dec-31

Bank
Owing c/d

1,600
400
2,000

2008
Dec-31

Owing b/d

400

Profit and loss
Prepaid c/d

635
265
900

Profit and loss

7,381

Insurance Account
2008
Dec-31

Bank

900

2008
Dec-31
Dec-31

900
2009
Jan-01

Prepaid b/d

(c)
2008
Dec-31
Dec-31

Accounting

265

Motor Expenses Account
Bank
Owing c/d

7,215
166
7,381

2008
Dec-31

7,381
2009
Jan-01

(d)

Owing b/d

Bank

Jul-01

Bank

2009
Jan-01

Prepaid b/d

(e)

750

2008
Dec-31

Profit and loss

1,125

Dec-31

Prepaid c/d

1,500
375
1,875

375

Rents Receivable Account
2008
Dec-31
Dec-31

© Pearson Education Ltd 2010

166

Rates Account
2008
Jan-01

1,875

62

2,000
2,000

2009
Jan-01

(b)

Profit and loss

Profit and loss
In advance c/d

4,800
1,600
6,400

2008
Apr-15
Dec-15

Bank
Bank

2,000
4,400
6,400

2009
Jan-01

In advance b/d

1,600

22.2
(a)

T Norton
General Expenses Account
2009
Dec-31
Dec-31

Bank
Owing c/d

615
56
671

2009
Dec-31

671
671

2010
Jan-01

(b)

Profit and loss

Owing b/d

56

Telephone Account
2009
Dec-31
Dec-31

Bank
Owing c/d

980
117
1,097

2009
Dec-31

1,097
1,097

2010
Jan-01

(c)

Profit and loss

Owing b/d

117

Bank
Owing c/d

3,056
175
3,231

Commission Received Account
Profit and loss

3,231

2009
Dec-31
Dec-31

3,231
2010
Jan-01

Owing b/d

(d)

175

Accounting

2009
Dec-31

Carriage Outwards Account
2009
Dec-31
Dec-31

Bank
Owing c/d

666
122
788

2009
Dec-31

788
788

2010
Jan-01

(e)

Profit and loss

Owing b/d

122

Insurance Account
2009
Jan-01
Oct-01

Bank
Bank

2010
Jan-01

Prepaid b/d

1,080
1,080
2,160

2009
Dec-31
Dec-31

Profit and loss
Prepaid c/d

1,440
720
2,160

720

© Pearson Education Ltd 2010

63

22.3X
(a)

T Dale
Stationery Account
2008
01 Jul
2009
30 Jun

Stock b/d
Cash and bank

(b)

290
855
1,145

2009
30 Jun
2009
30 Jun

Profit and loss
Stock c/d

Cash and bank
Owing c/d

(c)

590
90
680

2008
01 Jul
2009
30 Jun

Owing b/d
Profit and loss

616

Rent and Rates Account

2009
30 Jun
30 Jun

Cash and bank
Owing c/d

3,890
360

2009
30 Jun
30 Jun

Owing b/d:
Rent
Rates
Profit and loss
Rent prepaid
and c/d

4,250

Accounting

64

680

2008
01 Jul

(d)

160
205
3,635
250
4,250

Motor Expenses Account

2009
30 Jun

Cash and bank

4,750

30 Jun

Owing c/d

375
5,125

(e)

2008
01 Jul

Owing b/d

2009
30 Jun

Profit and loss

180
4,945
5,125

Commission Receivable Account
2008
01 Jul
2009
30 Jun

Owing b/d
Profit and loss

80
915
995

© Pearson Education Ltd 2010

345
1,145

General Expenses Account

2009
30 Jun
30 Jun

64

800

2009
30 Jun
30 Jun

Cash and bank
Owin c/d

850
145
995

C Cainen
Trading and Profit and Loss Account
for the year ended 31 December 2009
£
Sales
Less cost of goods sold
  Opening stock
  Add Purchases
 
  Less Closing stock
 
Gross Profit
Less Expenses
  Rent (640 2 160)
  Wages and salaries (2,140 1 290)
  Insurance (590 2 190)
  Bad debts
  Telephone (300 1 110)
  General Expenses
Net Profit

22.5

£
18,590

2,050
11,170
13,220
3,910
9,310
9,280
480
2,430
400
270
410
180

4,170
5,110

K Tyler
Trading and Profit and Loss Account for the year ended 31 December 2010
Sales
Less Sales returns
Less cost of goods sold
  Opening stock
  Add Purchases
 
  Less Closing stock
Gross Profit
Less Expenses
  Wages and salaries (£4,960 1 £510)
  Motor expenses
  Rent and rates (£1,200 2 £160)
  Discounts allowed
  Lighting expenses (£580 1 £170)
  Computer running expenses (£1,210 2 £140)
  General expenses
  Depreciation : Motor vehicles
Net Profit

£
54,190
200
8,620
30,560
39,180
12,120

5,470
2,120
1,040
290
750
1,070
360
700

£
53,990

Accounting

22.4

27,060
26,930

11,800
15,130

© Pearson Education Ltd 2010

65

22.6X

J Sears
Trading and Profit and Loss Account
for the year ended 31 December 2010
Sales
Less Sales returns

80,000
1,000
79,000

Less Cost of goods sold:
  Opening stock
  Add Purchases
 
Less Purchase returns
 
Less Closing stock
Gross Profit
Less Expenses
  Wages and salaries (7,200 1 450)
  Telephone (200 2 20)
  Bad debts
  Provision for doubtful debts (1,960 3 10% 2 160)
  Depreciation:
   Store fittings
   Motor van
Net Profit

20,000
70,000
90,000
1,240
88,760
24,000

64,760
14,240

7,650
180
40
36
800
1,200

9,906
4,334

J Sears
Balance Sheet as at 31 December 2010

Accounting

Cost
Fixed Assets
  Store fittings
  Motor van
Current Assets
  Stock
  Debtors
  Less Provision for doubtful debts
  Prepaid expenses
  Bank

1,960
196

Less Current Liabilities
Creditors
Expenses owing
Net current assets

1,400
450

Financed by:
Capital
Balance 1.1.2010
Add Net profit
Less Drawings

66

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8,000
6,000
14,000

Depreciation

Net Book
Value

800
1,200
2,000

7,200
4,800
12,000

24,000
1,764
20
600
26,384

1,850
24,534
36,534

35,800
4,334
40,134
3,600
36,534

Answers
Chapter 23: Incomplete records
23.1
(a)

Total Debtors
Balances b/d
Sales (difference)

2,760
14,940
17,700

Cash
Balances c/d

14,610
3,090
17,700

Total Creditors
Cash
Balances c/d

(b)

9,390
1,320
10,710

Balances b/d
Purchases (difference)

1,080
9,630
10,710

K Rogers
Trading Account for the year ended 31 October 2009
£
Sales
Less Cost of Goods sold
Opening Stock
Add Purchases

2,010
9,630
11,640
2,160

Less Closing Stock
Gross Profit

23.2X

£
14,940

9,480
5,460

2008
1 Jun
2009
31 May

Balance b/d
Sales

5,670
45,550
51,220

2009
31 May

Bank

45,112

31 May

Balance c/d

6,108
51,220

Balances b/d

3,410

Accounting

Total Debtors

Total Creditors

2009
31 May
31 May

Bank
Balances c/d

29,375
4,126
33,501

2008
1 Jun
2009
31 May

Purchases

30,091
33,501

Trading Account for the year ended 31 May 2009
£
Sales
Less Cost Of Goods Sold
Opening Stock
Add Purchases
Less Closing Stock
Gross Profit

11,590
30,091
41,681
13,425

£
45,550

28,256
17,294
© Pearson Education Ltd 2010

67

23.3 (a) Capital is £62,550
(b)

D Lewinski
Balance Sheet as at 30 June 2009
£
Fixed assets
Plant
Fixtures

£
36,000
3,600
39,600

Current assets
Stock
Debtors
Bank
Cash

13,500
9,300
6,000
1,350
30,150

Less Current Liabilities
Creditors
Net current assets

7,200
22,950
62,550

Financed by:
Capital
Cash introduction
Add Net profit

60,000
18,550
78,550
16,000

Less Drawings

62,550

23.4

J Marcano
Statement of Affairs as at 31 August 2009

Accounting

£
Fixed assets
  Fixtures
  Motor Van
Current assets
  Stock
  Debtors
  Bank
  Cash

£
3,500
3,500
7,000

16,740
11,890
2,209
115
30,954

Less Current liabilities
  Creditors

9,952

21,002
28,002

68

© Pearson Education Ltd 2010

Statement of Affairs as at 31 August 2009
£
Fixed assets
  Fixtures
  Less Depreciation
  Motor Van
  Less Depreciation

£
5,500
300
3,500
700

Current assets
  Stock
  Debtors
  Bank
  Cash

£

5,200
2,800
8,000

24,891
15,821
72
84
40,868

Less Current liabilities
  Trade creditors
  Expenses owing
  Bank overdraft
Net current assets

6,002
236
165

6,403
34,465
42,465

Capital
  Balance as at 31/08/2009
  Add Cash introduced
  Add Net profit

(C)
(B)

  Less Drawings

28,002
12,800
9,223
50,025
7,560

(A)

Found as the figure to make balance sheet totals agree 42,465.

(B)

Less 7,560 5 (A) 42,465, therefore (B) is 50,025.

(C)

Missing figure to total 50,025 5 9,223.

42,465

Accounting

(A)

23.5X
(a)

Total Debtors Account

Dr
2008
1 Apr
2009
31 Mar

Balances b/d

Cr

2,980

Sales

11,520

2009
31 Mar
31 Mar

Cash
Balances
(difference) c/d

14,500

Dr

2009
31 Mar
31 Mar

14,500

Total Creditors Account

Cash
Balance (difference) c/d

7,780
2,220
10,000

10,820
3,680

2008
1 Apr
2009
31 Mar

Cr
Balance b/d

1,880

Purchases

8,120

10,000
© Pearson Education Ltd 2010

69

(b)

A Hanson
Calculation of Capital as at 31 March 2008 and 31 March 2009
31.3.2008
£
1,460
600
2,320
60
2,980
7,420
1,880
5,540

Bank
Office furniture
Stock
Cash
Debtors
Less Creditors
Capital

(c)
Capital as at 31 March 2008
Add Net profit

(B)
(A)

31.3.2009
£
1,740
500
2,620
80
3,680
8,620
2,220
6,400

£
5,540
3,400
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

Accounting

Dec-01

Balances b/d
Sales

450
7,628
8,078

Calculation of Sales
Credit Sales
Cash Sales
Drawings 12 3 £1,500

£
7,628
200,552
18,000
226,180

70

© Pearson Education Ltd 2010

Nov 30
Nov 30

Bank
Balance c/d

7,500
578
8,078

(ii)

Rent Account
Dec 01
Nov 30

Balance b/d
Bank

Nov 30
Nov 30

Bank
Balance c/d

(iii)

Nov 30
Nov 30

Profit and loss
Balance c/d

8,760
490
9,250

Nov 30

Profit and loss

700

Dec 1

Balance b/d

700
100

Loan Interest Account
600
100
700 

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

(b)

350
8,900
9,250

© Pearson Education Ltd 2010

71

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

Accounting

Receipts
Bank balance b/f
Subscriptions
Donations
Receipts from raffles

2,715
8,570
1,500
3,816

Payments
Teams' travel expenses
Groundsman wages
Postage and stationery
Rent of pitches and club house

1,598
3,891
392
4,800

General expenses

419

Prizes for raffles

624

Bank balance c/f

4,877

16,601

16,601

(b)
Horton Hockey Club
Income and Expenditure Account
for the year ended 30 June 2009
Income:
Subscriptions (8,570 1 160)
Donations
Profit on raffles (3,816 2 624)
Less Expenditure:
Teams' travel expenses
Groundsman's wages (3,891 1 75)
Postage and stationery
Rent of pitches and club house (4,800 1 400)
General expenses
Surplus of income over expenditure
72

© Pearson Education Ltd 2010

8,730
1,500
3,192
13,422
1,598
3,966
392
5,200
419

11,575
1,847

24.3X
(a)
Superball Football Club
Receipts and Payments Account for the year ended 31 May 2009
Receipts
Cash & bank balnces b/d
Subscriptions
Disco receipts
Collections at matches
Prize money

905
8,124
3,149
5,090
1,000

Payments
Hire of transport
Ground maintenance costs
Groundsman's wages
Committee expenses
Costs of disco

3,710
1,156
5,214
906
1,112

Rent of ground

2,450

General expenses

814

Cash & bank balances c/d
18,268

2,906
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)
Profit on disco (3,149 2 1,112)
Collections at matches
Prize money received

8,058
2,037
5,090
1,000
16,185

Hire of transport (3,710 1 90)

3,800

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

General expenses
Surplus of income over expenditure

814

Accounting

Less Expenditure:

14,310
1,875

© Pearson Education Ltd 2010

73

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
Less Cost of goods sold
Opening stock

£
463

88

Add Purchases

397
485

Less Closing Stock

101

384
79

Gross Profit

(c)
Down Town Sports and Social Club
Income and Expenditure Account
Year Ended 31 May 2008
£

Accounting

Income
Subscriptions (135 1 14)
Net proceeds of jumble sale
Net proceeds of dance

149
91
122

Gross profit from bar

79
441

Less Expenditure
Wages

© Pearson Education Ltd 2010

198

Hire of rooms

64

Loss on sale of equipment (92 2 80)

12

Depreciation : equipment

30

Surplus of income over expenditure

74

£

304
137

24.5X
(a)
Sevenoaks College Drama Society
Trading Account
Year Ended 31 December 2010
£
Sale of refreshments
Less cost of goods sold
  Opening stock

100

  Add Purchases

845

£
1,200

945
  Less Closing Stock

165

780
420

Gross Profit

(b)
Income and Expenditure Account
Year Ended 31 December 2010
Income
Subscriptions
Profit on sale of refreshments
Ticket sales

£

£
1,600
420
4,000
6,020

Expenditure
850

Rent of theatre

750

Administrative expenses

440

*Depreciation of scenery

2,000

4,040

Surplus of income over expenditure

Accounting

Hire of costumes (1,500 - 650)

  1,980

(c)
Balance Sheet as at 31 December 2010
£
Fixed Assets
Scenery (at valuation)
Current Assets
Stock of refreshments
Less Current Liabilities
Subscriptions in advance
Bank Overdraft

£

£
12,500

165
90
595

685
(520)
11,980

Represented by
Accumulated Fund
Add Surplus of income over expenditure

* Workings - Scenery - Balance as at 1 January 2010
Add Purchase of new scenery
Less Value as at 31 December 2010
Depreciation

10,000
1,980
11,980
7,500
7,000
14,500
14,000
2,000
© Pearson Education Ltd 2010

75

Accounting

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.

76

© Pearson Education Ltd 2010

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
Add Purchases
Carriage inwards
Less Stock of raw materials 31.3.2009
Cost of raw materials consumed
Manufacturing wages
Prime cost
Add factory overhead expenses
Rent and rates
Power

2,300
6,220

Other expenses

1,430

£
2,400
21,340
321
24,061
2,620
21,441
13,280
34,721

Less Work in progress 31.3.2009

9,950
44,671
955
45,626
870

Production cost of goods completed c/d

44,756

Sales

69,830

Add Work in progress 1.4.2008

Less Stock finished goods 31.3.2009
Gross profit

6,724
44,756
51,480
7,230

Accounting

Less Cost of goods sold
Stock finished goods 1.4.2008
Add Production cost of goods completed b/d

44,250
25,580

© Pearson Education Ltd 2010

77

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
Add Purchases
  Carriage inwards

38,720
2,720

Less Stock of raw materials 30.9.2009
Cost of raw materials consumed
Manufacturing wages
Prime cost
Factory Overhead Expenses
  Power
  Factory expenses
  Depreciation: Plant and machinery

6,120
12,650
7,560

Add Work-in-progress 1.10.2008
Less Work-in-progress 30.9.2009
Production cost of goods completed c/d
Sales

86,840
99,220
14,570

Accounting

Less Stock of finished goods 30.9.2009
Gross profit c/d
Less Expenses:
  Salesmen's salaries and expenses

26,420

  Office and administration expenses

25,910

Net Profit

78

© Pearson Education Ltd 2010

26,330
86,230
3,070
89,300
2,460
86,840

12,380

Add Production cost of goods completed b/d

   Office equipment

41,440
49,900
10,970
38,930
20,970
59,900

174,610

Less Cost of goods sold:
Stock of finished goods 1.10.2008

  Delivery van expenses
  Advertising
  Depreciation:
   Delivery van expenses

£
8,460

84,650
89,960

5,890
5,080
3,040
807

3,847

67,147
22,813

25.3X
(a)
Joey Peterson
Manufacturing Account for the year ended 30 June 2010
£
Stock of raw materials 1.7.2009
Add Purchases
Less Stock of raw material 30.6.2010
Cost of raw materials consumed
Direct Wages (450,000 1 8,900)
Direct factory power
Prime cost
Add Indirect manufacturing cost
Factory rent and rates
Indirect factory wages
General expenses

96,000
98,600
14,400

Insurance (66,900 2 6,900) 3 __​ 13 ​

20,000

Depreciation : Plant and Machinery

50,000

Add Work in progress 1.7.2009
Less Work in progress 30.6.2010

£
81,600
314,000
395,600
94,500
301,100
458,900
40,000
800,000

279,000
1,079,000
125,300
1,204,300
154,300

Production Cost

1,050,000

(b)
Trading Account for the year ended 30 June 2010

Less Stock of furnished goods 30.6.2010

2,000,000

Accounting

Sales
Less Cost of goods sold
Stock of finished goods 1.7.2009
Add Production Cost

115,440
1,050,000
1,165,440
85,440

Gross Profit

1,080,000
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

© Pearson Education Ltd 2010

79

Answers
Chapter 26: Partnership accounts
26.1

(a)
Stead and Jackson
Appropriation Account
for the year ended 31 December 2010
£
45,000
5,000
40,000

Net profit
Less Salary: Jackson
Balance of profits shared:
1
__
Stead
2
Jackson

20,000

1
__

20,000

2

40,000

(b)
Capital Accounts
Stead

Jackson
2010
Dec 31 Balance b/d

Stead

Jackson

24,000

16,000

Stead

Jackson

2,300
20,000
22,300

3,500
5,000
20,000
28,500

7,300

9,500

(c)
Current Accounts

Accounting

2010
Dec 31 Drawings
Dec 31 Balances c/d

Stead

Jackson

15,000
7,300

19,000
9,500

22,300

28,500

2010
Dec 31 Balance b/d
Dec 31 Salary
Dec 31 Share of profits
2011
Jan 1 Balance b/d

26.2X (a)
Wain, Brown and Cairns
Appropriation Account for the year ended 31 March 2010
£
Net profit
Less: Salaries
Wain

10,000

Brown

8,000

Balance of profits shared:
Wain 50%

80

© Pearson Education Ltd 2010

£
60,000

18,000
42,000

21,000

Brown 30%

12,600

Cairns 20%

8,400

42,000

(b)
Capital Accounts
Wain

Brown

Cairns
2010
Mar 31
Balance b/d

Wain

Brown

Cairns

30,000

50,000

70,000

Wain

Brown

Cairns

2,400

3,100

5,700

10,000

8,000

21,000

12,600

8,400

Current Accounts
Wain
2010
Mar 31
Drawings
Mar 31
Balances c/d

Brown

Cairns

12,000

15,050

14,980

21,400

8,650

2010
Mar 31
Balance b/d
Mar 31 Salaries
Mar 31 Share
of profits
Mar 31
Balances c/d

33,400
2010
Apr 1
Balance b/d

23,700

14,980
880

2010
Apr 1
Balance b/d

880
33,400

23,700

14,980

21,400

8,650

26.3
Simpson and Young
Tradign and Profit and Loss Appropriation Account
for the year ended 30 June 2010

Opening stock

18,000

Add Purchases

184,980
202,980
19,000

Less Closing stock
Gross profit
Less Expenses:
Wages and salaries (32,700  500)
Rent, Rates and insurance (3,550  250)
Electricity
Stationery and printing
Motor expenses
General office expenses
Depreciation: Motor van (20% of 16,000)
Office equipment (10% of 5,600)
Net profit
Less interest on capital:
Simpson (10% of 50,000)
Young (10% of 20,000)
Share of profits:
Simpson 3/5ths
Young 2/5ths

33,200
3,300
980
420
3,480
1,700
3,200
560

5,000
2,000

10,020
6,680

£
254,520

Accounting

£
Sales
Less Cost of sales:

183,980
70,540

46,840
23,700

7,000
16,700

16,700
© Pearson Education Ltd 2010

81

Simpson and Young
Balance Sheet as at 30 June 2010
Cost

Fixed assets
  Buildings
  Office equipment
  Motor vans
Current assests
  Stock
  Debtors
  Prepayments
  Cash at bank
Less Current liabilites
  Creditors
  Accruals
Net current assets
 
Financed by:
Capital accounts
  Balance b/f

Accounting

Current accounts
  Balance b/f
  Add Share fo profit
  Add Interest on capital
 
  Less Drawings
 

£

Accumulated
Depreciation
£

28,000
8,400
16,000
52,400

3,360
8,200
11,560

19,000
28,000
250
7,250

54,500

15,200
500

15,700

Young
20,000

Total
70,000

640
10,020
5,000
15,660
10,000
5,660

300
6,680
2,000
8,980
5,000
3,980

9,640
79,640

8,400  5,600  560  3,360

(W2) Provision for depreciation on motor vans:

82

© Pearson Education Ltd 2010

28,000
5,040
7,800
40,840

Simpson
50,000

(W1) Provision for depreciation on office equipment:

(W1)
(W2)

38,800
79,640

 

Net Book
Value
£

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
£

£
385,000
15,000
400,000

Gross Profit
Add Discounts Received
Less Expenses
Administrative Expenses
Advertising (7,375  125)
Rent and rates (12,000 2 1,500)
Wages and salaries (135,000  5,000)
Depreciation - Shop fittings *
Net Profit
Less Salary - Michael

6,790
7,500
10,500
140,000
12,000

Share of profits: Michael 2/5ths
        Morgan 3/5ths

176,790
223,210
30,000
193,210

77,284
115,926
193,210
2

(b)
Balance b/d
Drawings
Balance c/d

1,500
9,650
96,259
107,409

Sep 30
Sep 30
Sep 30

Salary
Profit share
Advertising

30,000
77,284
125
107,409

Oct 01

Balance b/d

96,259

Accounting

Michael — Current Account
Oct 01
Sep 30
Sep 30

(c)
Michael and Morgan
Balance Sheet Extract as at 30 September 2009
Michael
50,000

Morgan
40,000

(1,500)

2,000

Add Share of Profits

77,284

115,926

Add Salary

30,000

2

Capital Accounts Balance
Current Accounts
Balance

Add Advertising
Less Drawings

125

2

105,909

117,926

9,650

8,200

96,259

109,726

Total
90,000

205,985
295,985

* Workings
Shop fittings : Cost
Less : Depreciation to date

£
76,000
28,000
48,000

Reducing Balance Method 5 25% 3 £48,000 5 £12,000
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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
Less Appropriations
Transfer to General Reserve
Dividends payable:

£
11,340

1,500
1,000
7,500

Preference dividend 10% (£10,000 3 10%)
Ordinary dividend 12.5% (£60,000 3 12.5%)

10,000
1,340

Retained profits carried forward to next year
C Blake Ltd
Balance Sheet as at 31 December 2009

(b)

Fixed Assets
Buildings at cost
Equipment at cost
Less Accumulated depreciation

£

£
45,000
4,500

£
50,000
40,500
90,500

Accounting

Current Assets
Stock
Debtors
Less Provision for doubtful debts

8,800
4,120
350

Bank (balancing figure)
Cash

3,770
9,660
2,160
24,390

Less Creditors: amounts falling due within one year
Creditors
Dividends payable (£1,000 1 £7,500)

3,550
8,500

12,050

12,340
102,840

Less Creditors: amounts due after more than one year
30,000

Debentures

72,840
Financed by:
Share Capital
Called-up share capital
60,000 ordinary £1 shares
10,000 preference £1 shares
Revenue reserves
General reserve
Profit and loss account

60,000
10,000
1,500
1,340

70,000

2,840
72,840

Note: The Authorised Share Capital is 90,000 £1 ordinary shares and 10,000 - 10% preference shares.

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27.2X
(a)
Reynolds Ltd
Profit and Loss Appropriation Account for the year ended 30 September 2010
£
Net profit
Add Retained profits b/f from last year
Less Appropriations:
General reserve
Dividends payable:
Ordinary shares — (150,000 3 6p) Paid
— (150,000 3 14p) Proposed
Preference shares — (7% 3 50,000) Proposed
Retained profits carried to next year

£
70,000
30,000
100,000

8,000
9,000
21,000
3,500

41,500
58,500

(b)
Reynolds Ltd
Balance Sheet as at 30 September 2010 (Extract)
£
Financed by:
Called-up share capital
Preference shares
Ordinary shares

50,000
150,000
200,000
53,000
58,500

111,500
311,500

Accounting

Revenue Reserves
General Reserve (45,000 1 8,000)
Profit and loss account

£

Note: The Authorised Share Capital is 200,000 £1 ordinary shares and 50,000 - 7% preference shares.

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27.3

Chang Ltd
Trading and Profit and Loss Account
for the year ended 31 December 2010
Sales
Less Cost of goods sold:
Opening stock
Add Purchases

316,810
25,689
201,698

Less Closing stock

227,387
29,142

Gross profit
Less Expenses
  Wages and salaries (54,207 1 581)
  Rent (4,300 2 300)
  Lighting expenses
  Bad debts
  Provision for doubtful debts (938 2 861)
  General expenses
  Deprecation: Machinery (55,000 3 10%)

198,245
118,565

54,788
4,000
1,549
748
77
32,168
5,500

98,830

Net profit
Add Retained profits b/f from last year

19,735
34,280

Less Proposed dividend
Retained profits c/f to next year

54,015
10,000
  44,015

Balance Sheet as at 31 December 2010

Accounting

Fixed Assets
  Premises
  Machinery
  Less Aggregated depreciation (15,800 1 5,500)
Current Assets
  Stock
  Debtors
  Less Provision for doubtful debts

65,000
55,000
21,300

33,700
98,700

29,142
21,784
938

  Prepayments
  Bank

20,846
300
23,101
73,389

Less Creditors falling due wihtin one year
  Dividend payable
  Creditors
  Expenses owing
Net current assets

10,000
17,493
581

28,074
45,315
144,015

Financed by:
Capital and reserves
  Called -up share capital
Revenue reserves
  Profit and loss account

100,000
44,015
144,015

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27.4X
(a)
Wayland Limited
Appreciation Account for the year ended 31 December 2010
£ '000's
Net profit
Add Profit and Loss Balance 1st January 2010
Less Appropriations
  Transfer to general reserve
  Preference dividend (6% 3 250,000)
  Ordinary dividend 2 (Interim Dividend)
          2 (8% 3 750,000)
Retained profits carried forward

25
15
20
60

£ '000's
250
195
445

120
325

(b)
Wayland Limited
Balance Sheet as at 31 December 2010
Cost

  Motor vehicles
Current Assets
  Stock
  Debtors
  Bank
Current Liabilities
  Creditors
  Value added tax
  Dvidends Payable:
   Preference shares
   Ordinary shares
  Working capital

£ '000's

Net Book
Value
£ '000's

1,500
50


10

1,500
40

85

15

70

1,635

25

1,610

165
103
107

375

Accounting

Fixed Assets
  Land and buildings
  Fixtures and fittings

Aggregate
Depreciation
£ '000's

135
25
15
60

235
140
1,750

Creditors: amounts falling due after one year 5%
debentures

250
1,500

Capital and Reserves
  Called up capital
   Ordinary shares
   6% Preference shares
Capital reserves
  Share premium
Revenue Reserves
  General reserve
  Profit and loss account shareholders' funds

750
250

1,000
100

75
325

400
1,500
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Answers
Chapter 28: Analysis and interpretation
of financial statements
N Ltd

28.1 (a) M Ltd
(i) Current ratio
£200,000
________
4:1
£50,000

£130,000
________
2:1
£65,000

(ii) Acid test ratio
£200,000 2 £100,000
___________________
2:1
£50,000

£130,000 2 £64,000
__________________
1:1
£65,000

(iii) Stockturn
£288,000
______________________
 2.6 times
£120,000 1 £100,000 4 2

£187,500
____________________
 3.0 times
£60,000 1 £64,000 4 2

(iv) Debtors : Sales ratio
£60,000
________
 12 months  2 months
£360,000

£62,500
________
 12 months  3 months
£250,000

(v) Creditors : Purchases ratio
£50,000
________
 12 months  2.2 months
£268,000

£65,000
________
 12 months  4 months
£191,500

(vi) Gross profit %
£72,000
________
 100%  20%

Accounting

£360,000

£62,500
________
 100%  25%
£250,000

(vii) Net profit %
£43,200
________
 100%  12%
£360,000

£35,000
________
 100%  14%
£250,000

(viii) Rate of return on shareholders' sunds
£43,200
________
 100%  12.3 %
£350,000

£35,000
________
 100%  13.7%
£255,000

(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%)

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(a)
Cruise Furnishings

Holmes Supplies

(i) Gross profit margin

600
_____
 100  33 __1 %

600
_____
 100  25%

(ii) Net profit margin

150
_____
 100  8.33%
1,800

160
_____
 100  6.67%

(iii) Current ratio

210
____
 3.18 : 1
66

180
____
3:1

1,800

3

2,400
2,400
60

(b) Rate of stock tunover for Cruise Furnishings
1200
_____
 10 Times a year
120

(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
210 2 111
__________
 1.5 : 1
66

Holmes
180 2 120
__________
1:1
60

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

28.2

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.

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28.3X (a)
Year Ended
28.02.2009

29.02.2010

Net Profit Margin
Net profit
16,000
26,000
_________
​ 
​ 35,000  
​ ____
​ 100   ​  45.71% ​ ______
  
​ ____
​ 100   ​  50%
   
​ 
 ____
​ 100   ​  ______
52,000
Sales

1

1

1

(b)
Mark — up
21,600
35,500
____________
​  Gross Profit 
 ​ 
 ____
​ 100   ​  _______
​ 

 ​ 
 100  161.19% ​ ________ 
 ​ 
 100  215.15%
Cost of Sales

1

*13,400

*2,900 1 14,500 2 4,000 5 13,400

**16,500

**4,000 1 19.500 2 7,000 5 16,500

(c)
Rate of stock turnover
13,400

16,500

Cost of sales
​ _____________

 ​ ​ 
  ________________
  
   ​ ​ _________________
  
   ​
2,900 1 4,000 4 2
4,000 1 7,000 4 2
Average Stock

 3.88 times  3 times

(d)

Accounting

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?

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Answers
Chapter 29: Computers and
accounting systems
29.1

To:
From:
Date:
Re:

Director of Finance
Administrative Assistant
June 2010
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.

29.2

Accounting

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.
• 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.
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.

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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

Accounting

Adverse effects:
• cost and disruption on installation
• 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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