Introductory accounting and finance

1486 Words3 Pages

Contents Page

Page 3 ~ Section A – Trading, Profit and loss account

Page 4 ~ Section B – Balance Sheet

Page 5 ~ Section C

Page 6 ~ Section D

Page 7 ~ Section E

Page 8 ~ Section F

Page 9 ~ Section G

Page 10 ~ Section H

Page 11 ~ Bibliography

Trading, Profit & Loss account

for Mr. Stanley relating to trading during

£ £ £

Sales 125000

Less Cost of Sales

Opening Stock 10430

Add Purchases 67634

78064

Less returns outward 48 78016

Add Carriage Inward 2120

80136

Less Closing Stock 11250 68886

GROSS PROFIT 56114

Less Expenses

Salaries 28400

Postage & Stationary 98

Rent & Rates (2900-860) 2040

Packaging 3217

Bad debt 126

Provision for Bad Debt 60

Insurance 1220

Electricity (953+263) 1216

Depreciation (3000 + 1680) 4680 41057

Carriage Outward 2850 43907

NET PROFIT 12207

This is a balance sheet for Mr. Stanley as at 31st December 2002.

£ £ £

Fixed Assets

Fixtures & Fittings (15,000 + 8,400) 23,400

Less Depreciation (3,000 + 1,680) 4,680

18,720

Current Assets

Stock 11,250

Debtors 3,200

Less Prov.for bad debt 150 3,050

Bank 590

Add Prepayments 860 1,450

Cash 165

15,915

Less Current Liabilities

Creditors 6,765

Accruals 263

Working Capital 7,028 8,887

27,607

Financed By

Capital 25,000

Add Net Profit 12,027

Less Drawings 9,600

27,607

C. Give an explanation of the accounting treatment for invoices that have been unpaid and unrecorded at the date of the preparation of the final accounts.

This is known as an accrual of expenses, an accrual occurs when expenses that have occurred during an accounting period are not included in the trial balance, they are unpaid and unrecorded. When this occurs the accounting treatment in the profit and loss account would be to add the outstanding amount to the expense in question showing the full amount of expense used up in that accounting period.

In the balance sheet however an accrual is classed as a current liability. This is because the firm owes the outstanding amount and is expected to pay this debt in the short term. The outstanding amount will therefore appear under current liabilities in the Balance Sheet under the heading ACCRUALS. The reasons for making these adjustments is to ensure that the profit and loss account records the cost that has been incurred for that particular accounting period instead of simply the amount that has been paid.

An example of an accrual ~ during the accounting period of January 1st 2002 and December 31st 2002 a phone bill is incurred for the months June to September however it goes unpaid and is not incorporated into the telephone account. This means that adjustments have to be made so that it can be included in the final accounts for that accounting period.

D. Mr. Stanley had paid a proportion of the rates for the following accounting period. Explain how this impacted on the preparation of the accounts for the current accounting period.

A prepayment is when an amount is paid in advance of the accounting period in which it is actually due.

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