CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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SUMMARISING THE LEDGER ACCOUNTS
REVISION QUESTIONS C2
90
K Lemon
$ $
7 Jan. Sales …
Equipment
$ $
12 Jan. Bank …
Wages
$ $
18 Jan. Bank … 31 Jan. Income
statement
…
… …
Drawings
$ $
20 Jan. Cash … 31 Jan. Capital
account
…
… …
(b) Insert the missing fi gures into the following trial balance.
Trial balance of P Roberts as at 31 January
Debit ($) Credit ($)
Capital …
Bank …
Cash …
Purchases …
Payables …
Sales …
Receivables …
Equipment …
Wages …
Drawings …
… …
(c) Insert the missing fi gures into the income statement for January, given that closing
inventories are $200.
Income statement of P Roberts for the month ended 31 January
$ $
Sales …
Less: cost of goods sold
Purchases …
Closing inventories …
…
Gross profi t …
Less: expenses – wages …
Net profi t …
SUMMARISING THE LEDGER ACCOUNTS
91
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(d) Insert the missing fi gures into the statement of fi nancial position at 31 January.
Statement of fi nancial position of P Roberts as at
31 January
$ $
Assets
Non-current assets
Equipment …
Current assets
Inventories …
Receivables …
Cash …
…
…
Capital and liabilities
Opening capital …
Add: net profi t …
…
Less: drawings …
Current liabilities
Payables …
Bank overdraft … …
…
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Solution 1
1.1 Answer: (C)
This is a straightforward test of your knowledge of the types of errors that can exist.
If the wrong account is used, and this results in an incorrect statement of profi t,
then an error of principle has been made. Debiting the repairs and renewals account
results in an extra charge for expenses in the income statement, when the item should
be included as a non-current asset on the statement of fi nancial position.
1.2 Answer: (D)
A purchase return should be credited to the purchase returns account. If it has been
debited to an account (whether the correct account or not), and also debited to the
supplier’s account (which is correct), then two debit entries will have been made with
no corresponding credit. $96 (2 $48) will have been debited, and nothing cred-
ited. Thus, the debit side will exceed the credit side by $96.
1.3 Answer: (A)
(B) and (D) are incorrect as they would give a lower debit side. (C) is incorrect
because it would give a higher credit side.
1.4 Answer: (D)
An error of principle occurs where an entry is made in the wrong account, and that
account is of a different category from the correct account – thus affecting the view
given by the fi nancial statements. Offi ce equipment is a non-current asset, while sta-
tionery is an expense, so both profi t and non-current assets will be incorrect.
1.5 Answer: (C)
Assets and expenses have debit balances; liabilities, capital and revenue have credit
balances.
1.6 Answer: (C)
An error of principle is where one side of an entry has been recorded in the wrong
account, and where that account is classifi ed differently to the correct account. In
this case, debiting a non-current asset to the purchases account would result in the
profi t calculation being incorrect, and the value of assets shown on the statement of
fi nancial position being incorrect.
Solutions to Revision
Questions
4
SUMMARISING THE LEDGER ACCOUNTS
SOLUTIONS TO REVISION QUESTIONS C2
94
1.7 Answer: (A)
Stationery is an expense and should be used to reduce profi ts; therefore profi ts would
be overstated. Computer equipment is shown in the statement of fi nancial position,
and therefore the fi gure for non-current assets would be overstated.
Solution 2
(a)
Capital
$ $
31 Jan. Drawings 80 1 Jan. Bank 2,500
Balance c/d 3,420 Cash 500
31 Jan. Net profi t 500
3,500 3,500
1 Feb. Balance b/d 3,420
Bank
$ $
1 Jan. Capital 2,500 12 Jan. Equipment 3,000
30 Jan. Cash 200 18 Jan. Wages 50
31 Jan. Balance c/d 950 20 Jan. Purchases 350
28 Jan. J Martin 250
3,650 3,650
1 Feb. Balance b/d 950
Cash
$ $
1 Jan. Capital 500 20 Jan. Drawings 80
30 Jan. Bank 200
31 Jan. Balance c/d 220
500 500
1 Feb. Balance b/d 220
Purchases
$ $
2 Jan. J Martin 700 31 Jan. Trading account 1,050
20 Jan. Bank 350
1,050 1,050
J Martin
$ $
28 Jan. Bank 250 2 Jan. Purchases 700
31 Jan. Balance c/d 450
700 700
1 Feb. Balance b/d 450
SUMMARISING THE LEDGER ACCOUNTS
95
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Sales
$ $
31 Jan. Trading account 1,400 3 Jan. G Goddard 300
7 Jan. K Lemon 1,100
1,400 1,400
G Goddard
$
3 Jan. Sales 300
K Lemon
$
7 Jan. Sales 1,100
Equipment
$
12 Jan. Bank 3,000
Wages
$ $
18 Jan. Bank 50 31 Jan. Income statement 50
5 0 5 0
Drawings
$ $
20 Jan. Cash 80 31 Jan. Capital account 80
8 0 8 0
(b) Trial balance of P Roberts as at 31 January
Debit ($) Credit ($)
Capital 3,000
Bank 950
Cash 220
Purchases 1,050
Payables 450
Sales 1,400
Receivables 1,400
Equipment 3,000
Wages 50
Drawings 80
5,800 5,800
SUMMARISING THE LEDGER ACCOUNTS
SOLUTIONS TO REVISION QUESTIONS C2
96
(c) Income statement of P Roberts for the month ending 31 January
$ $
Sales 1,400
Less : cost of goods sold
Purchases 1,050
Less : closing inventories (200)
(850)
Gross profi t 550
Less : expenses – wages (50)
Net profi t 500
(d) Statement of fi nancial position of P Roberts as at 31 January
Assets $ $
Non-current assets
Equipment 3,000
Current assets
Inventories 200
Receivables 1,400
Cash 220
1,820
4,820
Capital and liabilities
Opening capital 3,000
Add : net profi t 500
3,500
Less : drawings (80)
3,420
Current liabilities
Payables 450
Bank overdraft 950 1,400
4,820
5
Further Aspects of Ledger
Accounting
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99
5
LEARNING OUTCOMES
When you have completed this chapter, you should be able to:
䉴 prepare accounts for indirect taxes, for example value added tax (VAT);
䉴 prepare accounts for payroll;
䉴 prepare accounts using accruals and prepayments;
䉴 explain the difference between, and prepare accounts for, bad debts and allowances
for receivables.
5.1 Introduction
In this chapter we continue looking at ledger accounts, and look at ones of special
signifi cance. These are
●
carriage costs,
●
sales tax (e.g. VAT in UK, TVA in France),
●
wages and salaries,
●
accruals and prepayments,
●
bad debts,
●
allowance for receivables,
●
the exchange of goods and services.
5.2 Accounting for specialised transactions
5.2.1 Carriage costs
Organisations may pay for carriage and delivery charges on items that they buy and/or sell.
Carriage and delivery charges on non-current assets are included with the cost of the
non-current asset, and are debited to that non-current asset’s account, along with the cost of
Further Aspects of
Ledger Accounting