Arjun is a sole trader.
Arjun drew up a trial balance on 31 January 2020. The debit and credit totals did not match, and the resulting difference was entered in a suspense account.
Arjun then found the following errors:
1 The January total of the discount received column in the cash book, $135, had been credited to the commission receivable account.
2 $200 received from the sale of fittings (net book value $150) had been entered on the correct debit side but had been credited to the purchases and fittings account.
3 Cash drawings, $40, had been debited correctly but had been credited to the purchases account.
4 The $73 total in the cleaning analysis column of the petty cash book had been posted to both the cleaning account and the office expenses account.
5 The purchase of equipment, $575, had been credited to the equipment repairs account. The bank account had been credited correctly.
6 A cheque payment for office expenses, $90, had not been recorded at all.
7 A cheque for $69 sent to Simone had been posted to Simon’s account.
(a)[9]
Prepare journal entries to amend errors 1, 2 and 3. Narratives are required.
(b)[4]
Prepare the suspense account, showing the original trial balance difference as the balancing figure.
(c)[4]
Complete the following table by putting a tick (✓) in the correct column to show how each error would affect Arjun’s capital.
(d)[3]
State three advantages to Arjun of operating as a sole trader.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.