ACCOUNTING FOR BUSINESS 1

SEMESTER 1

Tutorial questions for tutorial to be held in week 3

1. Outline some key differences between a Sole Trader and a Limited Company if considering forming a
new business

2. Prepare a Balance Sheet/(Statement of Financial Position) from the following list of assets and
liabilities, using the accounting equation to deduce the owner’s capital as the missing item.

£
Amounts due from customers (trade receivables) 5,000
Cash in hand 800
Inventory (stock of goods held for resale) 20,000
Plant and machinery 65,400
Amounts due to suppliers but not paid 3,500
Vehicles 4,000
Three-year loan from a local authority 40,000

Explain how the Balance Sheet prepared above would change for each of the following transactions:
(not required to prepare new Income Statement/Balance Sheet)

(a) The full amounts of £5,000 due from customers are received
(b) The principal on the local authority loan of £1,000 is repaid
(c) Amounts of £2,000 due to suppliers are paid
(d) Office furniture is purchased on credit amounting to £5,000
(e) The owner inherits £10,000 from his grandmother and invests this in the business

3. The following information has been gathered from the accounting records of Jonathan's Hair Stylists.

Assets and liabilities at 30 September Year 8

£
Cash in till register 55
Overdraft with the bank 684
Borrowings from a relative 12,000
Trade receivables (amounts due from credit customers) 100
Hairdressing supplies (shampoos, conditioners, etc.) 450
Buildings, furniture, equipment 66,000

Revenue and expenses for the year ended 30 September Year 8

Amounts charged for hairdressing services 40,400
Wages to employees 16,500
 Interest on borrowings 1,080
Interest on overdraft 123
Hairdressing supplies used in period 5,400
Costs of administration 2,060
Costs of advertising 950

From the information above prepare an Income Statement for the year ended 30 th September year
8 and Balance Sheet/(SOFP) as at 30th September Year 8 and calculate:
(a) the amount of net profit for the year at 30 September Year 8;
(b) the amount of owners capital at 30th September year 8
(c) the amount of the owners capital at 1st October Year 7

4. Classify each of the items in the following list as an asset, a liability, or neither an asset nor a
liability. Explain whether each item identified as an asset or a liability would meet the conditions for
recognition of the item in the Balance Sheet.

(a) An advance in salary paid to an employee.

(b) Cash held in the cash register of a shop.
(c) A customer (trade debtor) who has recently been declared bankrupt by the courts.
(d) Items of inventory (stock) of finished goods that have been returned from a customer as
being below the quality expected.
(e) A dollar loan made to a business by a US bank.
(f) The cost of providing management training for key personnel.
(g) An amount spent on undertaking market research to determine the best marketing strategy
for a new product.
(h) A guarantee given by a company to a bank that it will meet the overdraft of a senior employee of
the company if that employee defaults on the payments to the bank.

5. Explain how the following transactions would affect the Accounting equation through changes in the
Income Statement/Balance sheet and prepare the Income Statement and Balance Sheet/(SOFP) at
the year end. (Note that there is a blank worksheet provided to assist in preparing the IS/BS)

Month ended October 20XX

1 Mohamed sets up a plumbing business. He calls the business Mo’s Plumbers. He pays £3,000 into the
business bank account
2 The business gets a bank loan of £1,000 to be repaid in 2 years time
3 Mo’s Plumbers buys a set of plumbing tools from Harry paying by bank transfer £1,600.
4 Mo’s Plumbers buys a small van from Motor Trader for £2,000. Mo’s Plumbers pays £500 by bank transfer
and the balance is on credit payable over two months
5 Mo’s Plumbers provides plumbing services for £1,600 and receive £900 by bank transfer from one customer
with the remaining customers owing the amounts due.
6 Mo’s Plumbers pays electricity bills £50
7 Mo’s Plumbers pays rent of £150
8 Mo’s plumbers pay Motorvan Trader £1,000 for the amount due to them in respect of the van purchased
previously
9 Customers pay £500 by bank transfer for plumbing services received in (5) above.
 ASSETS = LIABILITIES Total OWNERS CAPITAL
No Van Tools Trade Cash at bank = Motor Bank Revenue Expenses Owner’s
receivable Trader loan (I.S) (I.S) capital
s
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