May/June 2024

What task does a book-keeper carry out?

Books of prime entry

A business has been sent a bank statement. The statement includes the entries shown below. Which of these items would be listed in the debit column of the bank statement?

Bank reconciliation

On 31 May, a business’s bank statement showed a credit balance of $1790. When the bank statement was checked against the cash book, the following items were found. The bank had mistakenly charged $35. Cheques not yet presented totalled $550. Deposits not yet credited totalled $250. What was the cash book balance?

Bank reconciliation

Which item would not be recorded in a sales ledger control account?

Control accounts

Nadia gave the following details for July. 1 July sales ledger control account balance debit $1750 credit $215 During July: total sales journal $5500 total sales returns journal $360 cheques received from credit customers $4840 irrecoverable debt written off $280 interest charged on credit account $5 On 1 August, the account had no credit balance. What was the debit balance brought down on the sales ledger control account on 1 August?

Control accounts

Samir operates a car hire business. He took cash payments for car hire. He also obtained the proceeds from selling an old vehicle. What kind of receipts were these?

Capital and revenue expenditure and receipts

The ledger account below was recorded in a trader’s books. Rent receivable account shows: 31 December 2020 balance c/d $600 1 January 2020 balance b/d $400 31 December bank $3600 What entry was recorded in the income statement for the year ended 31 December 2020 for rent receivable?

Other payables and other receivables

Mandeep writes off his motor vehicles at a rate of $20\%$ by using the straight-line method. In the year of purchase, a full year’s depreciation is charged. On 1 January 2017, Mandeep purchased a motor vehicle for $20000. He then acquired a second motor vehicle on 1 June 2020 for $10000. What amount was charged as depreciation on motor vehicles for the year ended 31 December 2020?

Accounting for depreciation and disposal of non-current assets

Why would a trader set up a provision for doubtful debts?

Irrecoverable debts and provision for doubtful debts

Why is inventory measured at the lower of cost and net realisable value?

Valuation of inventory

At the close of the financial year, Cindy measured her inventory at cost. This figure wrongly included damaged goods with a cost of $300. Cindy assessed that these goods would fetch $100 if sold. What effect would correcting the inventory valuation have?

Valuation of inventory

Which of the statements is correct?

Accounting principles

Which type of business is not a service business?

Manufacturing accounts

A trader was drawing up her statement of financial position at 30 June 2021. She had four bank loans. Loan details: 1 repayable 1 December 2021 $5000 2 repayable 1 December 2022 $10000 3 repayable 1 September 2023 $8000 4 repayable 1 December 2025 $6000 What total amount of loans should be included as non-current liabilities at 30 June 2021?

Other payables and other receivables

What is included in a partnership appropriation account?

Partnerships

Rajid and Sunil set up a partnership on 1 January 2019, but they did not make a partnership agreement. The information below was given. Capital brought in on 1 January 2019: Rajid $40000, Sunil $20000 Withdrawals during the year ended 31 December 2019: Rajid $5000, Sunil $3500 Division of work: 50% each They planned to create a partnership agreement for later years. Which item would be most advantageous to Rajid in 2020?

Partnerships

A company provided the following details. issued and paid up share capital: \$30000 general reserve: \$4500 long-term bank loan: \$800 retained earnings: \$3500 6% debentures: \$2500 What is the total equity?

Limited companies

Which of the following are common to both debentures and preference shares? The features to consider are: no voting rights, a fixed rate of return, and included in capital employed.

Limited companies

AB Sports Club operates a cafe9 for the benefit of its members. The treasurer drew up draft financial statements that indicated a deficit of \$700 and an accumulated fund of \$4600. He later found that the cafe9 closing inventory had been valued too highly by \$50. What would the deficit and the accumulated fund be after the inventory valuation was corrected?

Clubs and societies

Which accounting statement, prepared by the treasurer of a sports club, gives a summary of all money received and all money paid out over the financial year?

Clubs and societies

When the financial year finished, a manufacturing business still had rent outstanding for its factory. It then made an adjustment to its financial statements to reflect this. What effects did this adjustment have?

Accounting principles

What does the term direct cost mean for a manufacturer?

Manufacturing accounts

In which book of prime entry is cash discount received recorded by a trader?

Books of prime entry

A business applies a 20% mark up when setting its selling prices. Over the year, it recorded purchases of \$3500, and its inventory fell from \$7000 to \$2000. What was the revenue for the year?

Valuation of inventory

What is required to prepare a statement of affairs?

Incomplete records

A trader supplied the information below. cash purchases during the year: \$14600 credit purchases during the year: \$10800 trade payables at year end: \$1400 What was the trader’s trade payables turnover?

Calculation and understanding of accounting ratios

George gave the figures below. non-current assets: \$1500 inventory: \$1200 trade receivables: \$1800 trade payables: \$800 His liquid (acid test) ratio was $1.2:1$. What amount of bank overdraft did he have?

Calculation and understanding of accounting ratios

A trader has had the following ratios worked out. profit margin: year 1 = 15%, year 2 = 20% return on capital employed (ROCE): year 1 = 9%, year 2 = 6% What accounts for these changes?

Interpretation of accounting ratios

William works as a trader. He has received an order from James for goods to be supplied on credit. At what point should William treat the revenue as having been earned?

Accounting principles

The analysis columns in a petty cash book give the following totals: postage $20 and stationery $31. In what way should these totals be posted to the ledger?

Books of prime entry

What business documents are excluded from the books of prime entry?

Books of prime entry

A trader maintains the following ledger account (heat and light account). What does the balance on 1 January, year 2 indicate?

Capital and revenue expenditure and receipts

Which statement concerning a trial balance is correct?

The trial balance

Trevor drew up his financial statements for the year ending 31 December 2020. He later realised that he had failed to enter a cash payment of $240 for insurance covering the 12 months ending 30 November 2021. What effect did this error have on his statement of financial position?

Capital and revenue expenditure and receipts

A $68 insurance payment has been recorded in the insurance account as $86. Which double entry will correct this?

Correction of errors

In what ways does a trader make use of the information given in financial statements?

Interested parties

What would cause the cash book balance to be lower than the balance shown on the bank statement?

Bank reconciliation

A business bank statement showed a credit balance of $280 on 31 December. On that date, there were unpresented cheques totalling $312. A standing order of $20 had been recorded as $22 on the bank statement by mistake. What was the balance in the bank column of the cash book on 31 December?

Bank reconciliation

A business maintains a full set of accounting records. Which source of information is not used when making entries in control accounts?

Control accounts

Which item would not be included in the purchases ledger control account?

Control accounts

The cost of repairing machinery was posted to the debit side of the machinery account. What effect did this error have?

Capital and revenue expenditure and receipts

On 1 January 2018, Elzevir bought a motor vehicle for $8000. Depreciation is charged at $40\% using the reducing balance basis. Which journal entry would record the depreciation for the year ended 31 December 2019?

Accounting for depreciation and disposal of non-current assets

A trader disposed of one of his vehicles. What journal entry is made to remove the total depreciation on the vehicle disposed of?

Accounting for depreciation and disposal of non-current assets

Why does it matter to align costs with revenues?

Accounting principles

Devendra prepared this journal entry: irrecoverable debts $714 (debit), Tobias $714 (credit). Which statement is correct?

Irrecoverable debts and provision for doubtful debts

Alex bought goods that cost $1000. She intended to resell them with a mark-up rate of $25\%. By the year end, the goods had not been sold and were discovered to be damaged. Alex judged that they could be sold for $600. What value ought to be reported for these goods in the year-end financial statements?

Valuation of inventory

After the income statement had been prepared, the following balances were still shown in the records of a business: loan from XYY Finance $10000$ wages due $620$ rent prepaid $240$ trade receivables $3300$ trade payables $4650$ motor vehicles $8000$ provision for depreciation of motor vehicles $2000$ What was the total amount of liabilities?

The trial balance

‘Unlimited liability’ is one disadvantage of running a business as a sole trader. Which explanation correctly describes unlimited liability?

Sole traders

Which item counts as a current asset?

The trial balance

In which section of the accounting records of a partnership business is interest on drawings recorded?

Partnerships

T Limited was set up on 1 April 2019. In all, $220\,000$ shares of $2$ each were issued, and shareholders were required to pay $75\%$ of the share value at once, with the remaining $25\%$ due on 1 April 2020. By 1 June 2019, the holders of $190\,000$ shares had paid the amount owing. Calculate the paid up capital on 1 June 2019.

Limited companies

Which of these items would be included in the statement of changes in equity for X Limited for the year ending 30 June 2020?

Limited companies

A company’s financial year finishes on 31 March. Trade receivables were $45\,000$ on 31 March 2021 and $41\,000$ on 31 March 2022. A bad debt of $1000$ has still not been written off at 31 March 2022. The provision for doubtful debts is to stay at $5\%$. What is the impact of the irrecoverable debt and the change to the provision for doubtful debts on the profit for the year ended 31 March 2022?

Irrecoverable debts and provision for doubtful debts

For the year ended 30 April 2019, a club obtained members’ subscriptions amounting to $12\,600. The extra information was as follows. - Subscriptions paid in advance on 30 April 2018: $1\,300 - Subscriptions outstanding on 30 April 2018: $800 - Subscriptions outstanding on 30 April 2019: $1\,100 What figure was shown in the income and expenditure account for subscriptions for the year ended 30 April 2019?

Clubs and societies

Which of the following statements about a society’s accumulated fund are correct?

Clubs and societies

A manufacturing business supplied the information below. - Cost of raw materials: $186\,000 - Direct wages: $75\,000 - Machinery depreciation: $45\,000 - Factory supervisor’s salary: $32\,000 - Factory rent: $24\,000 - Machinery repairs: $18\,000 What is the prime cost of manufacturing?

Manufacturing accounts

Sam’s work in progress was $6\,500 at the beginning of the year and $11\,200 at the end of the year. While preparing his manufacturing account, Sam failed to include the adjustment for work in progress. What effect would this omission have on the cost of production and the gross profit?

Manufacturing accounts

Jameel’s financial year finishes on 31 December. At the start of 1 January 2021, he carried forward a debit balance on his stationery account. What does this balance mean?

The trial balance

During Roshan’s first year of trading, sales amounted to $55\,000$. The gross profit margin was $20\%$. Closing inventory stood at $3\,200$. Calculate the purchases for the year.

Valuation of inventory

Miriam does not keep a complete set of accounting records. The only figures known are the year’s purchases and the asset and liability values at the end of the year. Which financial statements can be prepared from this information?

Incomplete records

Abhinav gave the information below. Purchases: - Year ended 31 December 2019: $112\,500 - Year ended 31 December 2020: $124\,000 Cost of sales: - Year ended 31 December 2019: $115\,500 - Year ended 31 December 2020: $120\,000 Inventory: - 1 January 2019: $7\,000 - 31 December 2019: $4\,000 - 31 December 2020: $8\,000 Calculate the rate of inventory turnover for the year ended 31 December 2020.

Calculation and understanding of accounting ratios

Miranda’s gross margin declined from $25\%$ in year 1 to $15\%$ in year 2. What could have led to this?

Interpretation of accounting ratios

Ralph intends to compare the accounting ratios of his business with those of his brother’s business. What factor could stop Ralph from making a meaningful comparison?

Inter-firm comparison

Which statement gives the correct description of the principle of realisation?

Accounting principles

In August, Alex issued credit notes and entered them in the appropriate book of prime entry. At the end of August, how was the total from this book of prime entry recorded in the nominal ledger?

Books of prime entry

Which business documents provide the information used to record entries in the cash book?

Business documents

What is the double entry to record payment by cheque to a credit supplier?

Books of prime entry

An accounts clerk made two mistakes that cancelled one another out. Which type of error was this?

Correction of errors

The totals in a trial balance failed to match, so $200$ was entered on the debit side of a suspense account. The book-keeper then examined the records and discovered the following two mistakes. 1. A sales invoice for $700$ had been entered in the sales journal as $770$. 2. The sales journal had been added up incorrectly. What mistake was made when the sales journal was totalled?

Correction of errors

A trader withdrew some goods from the business for personal use. He debited the purchases account by the cost price of the goods, $200$, and credited the sales account with the selling price, $300$. Which entries did he pass to correct the mistake?

Correction of errors

In what way does a trader use the information given by financial statements?

Interested parties

What could cause the cash book balance to be lower than the bank statement balance?

Bank reconciliation

A business bank statement recorded a credit balance of $280 on 31 December. On that date, cheques totalling $312 had not yet been presented. A standing order for $20 had been shown wrongly as $22 on the bank statement. What balance should appear in the bank column of the cash book on 31 December?

Bank reconciliation

A business maintains a full set of accounting records. What is not used as a source of information for posting entries to control accounts?

Control accounts

Which item would not be recorded in the purchases ledger control account?

Control accounts

The machinery account was debited with the cost of repairing the machinery. What effect did this error have?

Capital and revenue expenditure and receipts

On 1 January 2018, Elzevir bought a motor vehicle for $8000. Depreciation is charged at $40\%$ using the reducing balance basis. Which journal entry should be used to record depreciation for the year ended 31 December 2019?

Accounting for depreciation and disposal of non-current assets

A trader disposed of one of his vehicles. What journal entry should be made to eliminate the accumulated depreciation on the vehicle that was sold?

Accounting for depreciation and disposal of non-current assets

Why does it matter to align costs with revenues?

Accounting principles

Devendra made the journal entry below: Debit: irrecoverable debts $714 Credit: Tobias $714 Which statement is correct?

Irrecoverable debts and provision for doubtful debts

Alex bought goods for $1000. She intended to sell them on at a mark-up of $25\%$. By the year end, these goods had not been sold and were discovered to be damaged. Alex assessed that they would be worth $600 if sold. What amount should be reported for these goods in the year-end financial statements?

Valuation of inventory

After the income statement had been completed, the business's books showed these remaining balances: loan owed to XYY Finance $10\,000$ accrued wages $620$ prepaid rent $240$ trade receivables $3\,300$ trade payables $4\,650$ motor vehicles $8\,000$ provision for depreciation of motor vehicles $2\,000$ What was the total liabilities figure?

Other payables and other receivables

'Unlimited liability' is one of the drawbacks of trading as a sole trader. Which statement correctly explains unlimited liability?

Sole traders

Which item counts as a current asset?

Sole traders

In the accounting records of a partnership business, where is interest on drawings recorded?

Partnerships

T Limited was established on 1 April 2019. In total, $220\ 000$ shares of $2 each$ were issued, and the shareholders were required to settle $75\%$ of the share value at once, with the remaining $25\%$ payable on 1 April 2020. By 1 June 2019, the holders of $190\ 000$ shares had met the amount payable. What was the paid up capital on 1 June 2019?

Limited companies

Which items would be shown in the statement of changes in equity of X Limited for the year ended 30 June 2020?

Limited companies

A company’s financial year finishes on 31 March. At 31 March 2021, trade receivables amounted to $45\ 000$. At 31 March 2022, trade receivables amounted to $41\ 000$. An irrecoverable debt of $1000$ had still not been written off at 31 March 2022. The provision for doubtful debts is to remain at $5\%$. What effect will the irrecoverable debt and the change to the provision for doubtful debts have on the profit for the year ended 31 March 2022?

Irrecoverable debts and provision for doubtful debts

During the year ended 30 April 2019, a club collected subscriptions from members amounting to $12\,600$. The information below was available. At 30 April 2018: subscriptions paid in advance $1\,300$, subscriptions in arrears $800$. At 30 April 2019: subscriptions paid in advance $-$, subscriptions in arrears $1\,100$. What amount was shown in the income and expenditure account for subscriptions for the year ended 30 April 2019?

Clubs and societies

Which of the following statements about the accumulated fund of a society are correct?

Clubs and societies

A manufacturing company supplied the information below. Raw material cost $186\,000$. Direct wages totalled $75\,000$. Depreciation of machinery was $45\,000$. The factory supervisor’s salary amounted to $32\,000$. Factory rent came to $24\,000$. Repairs to machinery cost $18\,000$. Calculate the prime cost of manufacturing.

Manufacturing accounts

At the beginning of the year, Sam’s work in progress was $6\,500$ and at the end of the year it was $11\,200$. When Sam drew up his manufacturing account, he did not include the adjustment for work in progress. What effect would this omission have on the cost of production and the gross profit?

Manufacturing accounts

Jameel’s financial year comes to an end on 31 December. On 1 January 2021, he carried forward a debit balance on his stationery account. What does this balance mean?

Capital and revenue expenditure and receipts

In Roshan’s first year of trading, sales came to $55\,000$. His gross profit margin was $20\%$. Closing inventory was $3\,200$. What were the purchases for the year?

Valuation of inventory

Miriam does not keep a complete set of accounting records. The only figures known are the year’s purchases and the asset and liability values at the year end. Which financial statements can be prepared from this information?

Incomplete records

Abhinav gave the information below. For the year ending 31 December 2019: purchases $112\,500$, cost of sales $115\,500$. For the year ending 31 December 2020: purchases $124\,000$, cost of sales $120\,000$. Inventory figures were: 1 January 2019 $7\,000$. 31 December 2019 $4\,000$. 31 December 2020 $8\,000$. What was the rate of inventory turnover for the year ending 31 December 2020?

Calculation and understanding of accounting ratios

Miranda’s gross margin decreased from $25\%$ in year 1 to $15\%$ in year 2. What could have led to this?

Interpretation of accounting ratios

Ralph would like to compare the accounting ratios for his business with those of his brother’s business. What factor would stop Ralph from making a valid comparison?

Inter-firm comparison

Which statement gives the correct description of the principle of realisation?

Accounting principles

During August, Alex issued credit notes and entered them in the appropriate book of prime entry. How was the total from this book of prime entry posted to the nominal ledger at the end of August?

Books of prime entry

What business documents are used as the sources of information for making entries in the cash book?

Business documents

What double entry should be used to record a cheque payment made to a credit supplier?

Books of prime entry

A book-keeper made two errors that offset one another. What type of error did he make?

Correction of errors

The totals of a trial balance did not match, so $200$ was entered on the debit side of a suspense account. The book-keeper then examined the records and discovered the following two errors. 1. A sales invoice for $700$ had been entered in the sales journal as $770$. 2. The sales journal had been totalled wrongly. What mistake was made in totalling the sales journal?

Correction of errors

A trader removed some goods from the business for personal use. He credited the purchases account with the cost price of the goods, $200$, and credited the sales account with the selling price, $300$. Which entries did he make to put right the error?

Correction of errors

Addo is a trader who sells only on credit. His trade receivables on 1 April 2024 were: Nuru $920 Mahia $1145 Ava $1378 Rachel $215 Total $3658 The following transactions occurred during April 2024: April 2 Goods were sold to Ava at a list price of $150$, with 6% trade discount deducted April 9 Ava sent a telephone transfer of $689$ April 12 Goods were sold to Nuru, $165$ April 13 A cheque for $627$ was received from Mahia, settling an invoice of $660$ in full April 19 $760$ was received from Nuru by electronic transfer. Nuru had taken off 5% cash discount April 20 Nuru returned goods worth $30$ April 21 Goods were sold to Mahia, list price $480$, trade discount 5%, cash discount 5% if the invoice is paid within 30 days April 30 Rachel has gone bankrupt and Addo chooses to write off the amount owed by her as irrecoverable

Books of prime entry

Paul carries on business as a trader. He uses a three-column cash book and has drawn up draft financial statements for the year ended 31 March 2024. He later uncovered these five mistakes in the accounting records for the year ended 31 March 2024: 1 A purchase invoice, $140$, was debited to the office equipment account. 2 Cash discount received, $18$, was entered in the bank payments column of the cash book. 3 Carriage inwards, $82$, was credited to the carriage outwards account. 4 A payment for insurance, $375$, was debited to the bank account and credited to the insurance account. 5 The bank receipts column of the cash book for February 2024 had been undercast by $90$.

Correction of errors

Zahra and Panya hold the shares in, and act as directors of, Q Limited. The directors of Q Limited have given the following trial balance. Q Limited Trial balance on 31 January 2024 Debit / Credit totals: Revenue $78 000 (credit) Purchases $38 200 Rent and insurance $10 600 Directors’ salaries $19 000 General expenses $3 420 Advertising $5 400 Dividends paid $2 500 Fittings at cost $18 000 Provision for depreciation of fittings $5 400 (credit) Inventory at 1 February 2023 $2 950 Cash at bank $915 Trade payables $2 288 (credit) Ordinary share capital $13 000 (credit) Retained earnings $2 297 (credit) Further information: 1 Inventory at 31 January 2024 was valued at $4720. 2 Depreciation on fittings is to be charged at 10% per annum using the straight-line method. 3 Payment for advertising, $75, is outstanding at 31 January 2024. 4 No dividends were outstanding at 31 January 2024.

Limited companies

Ahmed runs a trading business and prepares his financial statements to 31 December each year. He had some spare office space, so he chose to use part of it for inventory storage and to lease the remainder to Bilal. Bilal began renting the office space from Ahmed on 1 January 2023. The yearly rental amount is $4800. In 2023, Bilal paid these rent amounts into Ahmed’s bank account: 1 April $3600 30 September $2400 Ahmed disposed of old office equipment for $1350 on 3 January 2023, selling it on credit to Rahat. The equipment had originally cost $3200 on 1 January 2021. Ahmed charges depreciation at 25% per annum by the reducing balance method. He does not charge depreciation in the year when the asset is sold.

Accounting for depreciation and disposal of non-current assets

Stella began trading as a retailer on 1 April 2023. She deals in only one kind of good. She has not maintained a complete set of accounting records, but she has supplied the information below. 1 Exactly half of Stella’s purchases were for cash and the other half were on credit. For the year ended 31 March 2024, Stella paid $34 250 to credit suppliers. On 31 March 2024, credit suppliers were still owed $2960. 2 In contrast to her rivals, Stella received cash for all of her sales. Stella’s mark-up was 32%. 3 The following sums were paid for expenses during the year to 31 March 2024: Rent and insurance $6750 Wages $8300 Other expenses $1815 4 At 31 March 2024, $300 was still owing for wages and $500 had been paid in advance for rent. 5 Insurance is $2400 per annum. On 1 April 2023, Stella paid $3000 for insurance covering the next 15 months. 6 Other expenses included $120 spent on vases and flowers. One third of these were for Stella’s own home. Stella regards business costs below $150 as revenue expenditure. 7 Inventory was valued at $6420 on 31 March 2024.

Incomplete records

Lottie operates as a trader. The end of her financial year falls on 30 April. She maintains her petty cash book under the imprest system. The imprest amount is $150. The totals of the payments analysis columns in her petty cash book for April 2024 are as follows: Cleaning $21 Stationery $47 Sundry expenses $44 In April 2024, Lottie was refunded $15 for damaged stationery, and this money went into petty cash. The petty cash book is classified as a book of prime entry. On 30 April 2024, Lottie disposed of a motor vehicle for $6000 on credit to Y Limited. She originally bought it on 1 May 2021 for $12 000. Lottie charges depreciation on vehicles at 25% using the reducing balance method. No depreciation is charged in the year the asset is sold. Lottie sells 3 different types of goods. Her inventory at 30 April 2024 is as follows: Type A: number of units 60, purchase price per unit $14, net realisable value per unit $20, carriage inwards per unit $1 Type B: number of units 85, purchase price per unit $17, net realisable value per unit $24, carriage inwards per unit $0 Type C: number of units 30, purchase price per unit $21, net realisable value per unit $22, carriage inwards per unit $2 Lottie pays $360 per annum for insurance. On 1 May 2023, insurance of $60 was prepaid. On 1 August Lottie paid $360 by bank transfer for the year 1 July 2023 to 30 June 2024.

Accounting for depreciation and disposal of non-current assets

Toyah runs a factory that manufactures dolls’ houses. Her financial year ends on 31 January. On 31 January 2024, the balances in her ledger accounts were as follows: Inventory at 1 February 2023: raw materials $12 400, work in progress $16 970, finished goods $14 825 Revenue $390 100 Purchases of raw materials $143 000 Wages: factory operatives $51 000, factory supervisor $19 000, sales staff $30 000 Factory electricity $16 000 Rates and insurance $16 200 General factory expenses $6 155 Factory machinery at cost $120 000 Factory machinery - provision for depreciation $52 500 Further information: Inventory at 31 January 2024: raw materials $11 205, work in progress $17 682, finished goods $13 480 Rates and insurance are to be shared $rac{2}{3}$ to the factory and $rac{1}{3}$ to the office. At 31 January 2024, unpaid general factory expenses amounted to $235. Factory machinery is depreciated at 25% per annum using the reducing balance method. During the year ended 31 January 2024, the factory made 6936 dolls’ houses. Idir, who competes with Toyah, has decided to stop trading. He has offered to sell his finished goods inventory to Toyah at a reduced price if she pays in cash immediately. The total price of those items is $9600. Toyah has $1415 cash at bank.

Manufacturing accounts

Akil completed a trial balance on 29 February 2024. The debit column totalled $83 640, while the credit column totalled $84 025. He then found these errors: 1. The January 2024 sales journal total, $3416, had been entered in the sales returns account on the credit side. 2. An insurance direct debit of $115 had been credited to both the bank account and the insurance account. 3. Discount allowed, $47, was credited to discount received. 4. A payment for office equipment of $52 was debited to stationery. 5. The February purchases journal had been overcast by $90. Before the errors were corrected, Akil’s draft profit for the year was $17 420.

Correction of errors

Tadeen and Yadid are lawyers who have worked in partnership for many years. The partners supplied the trial balance shown at 30 April 2024. Additional information: Rates and insurance include $1920 for the period 1 March 2024 to 28 February 2025. By 30 April 2024, salaries of $1800 were owing and unpaid. Irrecoverable receivables amounting to $670 must be written off. Depreciation on fittings and equipment is to be charged at 15% per annum by the straight line method. The partnership agreement states that interest on partner’s loan is 6% per annum, interest on drawings is 5%, interest on capital is 3% per annum, Yadid is to receive a salary of $10 000 per annum, and residual profits and losses are to be divided 60% to Tadeen and 40% to Yadid. The partners employ one lawyer together with office staff. The lawyer, Lakia, is paid $25 000 but has decided to leave. Tadeen and Yadid have identified a replacement lawyer, Raim. He has been practising law for 15 years and is well known locally. However, Raim wants to join the business as a partner rather than remain an employee and would expect 40% of the partnership’s residual profit each year.

Partnerships

Ajay is a retailer. He has supplied the following data: On 1 April 2023: inventory $5200, trade receivables $6875, cash at bank $1946, trade payables $5115 For the year ended 31 March 2024: revenue - credit sales $86 400, cash sales $10 600, purchases $51 300, expenses $23 750 On 31 March 2024: inventory $6500, trade receivables $9550, cash at bank $1200, trade payables $6000 Ajay has traded for 3 years and has built up a strong reputation. He has kept his selling price unchanged. His gross margin for the year ended 31 March 2024 is higher than in the previous years. Ajay is worried about the amounts of his inventory and trade receivables. He is thinking about lowering his selling price. Although Ajay’s gross margin has risen, his profit margin has decreased in each of the last two years. Sales revenue is Ajay’s only source of income.

Interpretation of accounting ratios

Lottie trades as a trader, and her financial year ends on 30 April. She records petty cash using the imprest system, with an imprest amount of $150. For April 2024, the totals in the payments analysis columns of her petty cash book are: Cleaning $21 Stationery $47 Sundry expenses $44 In April 2024, Lottie also received a refund for damaged stationery of $15, and this was paid into petty cash. On 30 April 2024, Lottie disposed of a motor vehicle by selling it on credit to Y Limited for $6000. She had bought the vehicle on 1 May 2021 for $12000. Depreciation on vehicles is charged at 25% using the reducing balance method, and no depreciation is charged in the year of disposal. Lottie sells 3 different types of goods, and her inventory at 30 April 2024 is shown below.

Books of prime entry

Toyah owns a factory that manufactures dolls’ houses. Her financial year ends on 31 January. At 31 January 2024, the balances in her ledger accounts included the following figures.

Manufacturing accounts

Akil drew up his trial balance on 29 February 2024. The debit total was $83640, whereas the credit total was $84025. He then found the following errors: 1 The January 2024 sales journal total of $3416 had been entered on the credit side of the sales returns account. 2 A direct debit for insurance, $115, had been posted to both the bank account and the insurance account. 3 Discount allowed, $47, had been credited to discount received. 4 A payment for office equipment, $52, had been posted to stationery instead. 5 The purchases journal for February had been overcast by $90.

Correction of errors

Tadeen and Yadid are lawyers who have worked in partnership for many years. The partners supplied the following trial balance at 30 April 2024.

Partnerships

Ajay runs a retail business. He has supplied the information below.

Interpretation of accounting ratios