Chapter 7
Correction of Errors (II): Errors Affecting Trial Balance Agreement
QUESTION 1
Tom Tong runs a stationery business. The trial balance as at 31 December 2010 did not agree. Mr Tong
opened a suspense account to record the trial balance difference. The draft net profit for the year amounted to
$88,888. The following errors were subsequently found:
(i)
Drawings of $10,000 by cheque and $5,000 worth of goods in December 2010 had both been omitted
from the books.
(ii)
A payment of $11,200 by cheque to settle the account of a trade creditor, Paul Ho, had been posted to
Paul Hung’s account as $11,020.
(iii) Rates of $7,600 paid in October 2010 were entered in the cash book, but no entry had been made in the
rates account.
(iv)
The total of the purchases day book had been entered in the purchases account as $38,838 instead of
the correct figure of $38,388.
(v)
Purchases of office stationery for resale amounting to $380 had been debited to the purchases account.
(vi)
Discounts allowed for the month of November 2010 amounting to $1,600 had been posted to the credit
side of the discounts received account.
(vii) An amount of $3,000 owed by Mr Yu had been written off as a bad debt in the previous year. Half of
the amount was recovered on 30 October 2010. No entry had been made in the books.
(viii) A debit note from Smith Limited for $880 had been wrongly entered in the returns outwards journal as
$1,080 and correctly entered in Smith Limited’s account.
(ix)
A second-hand motor vehicle was purchased for $10,000 on 1 December 2010. Two days later, it was
sold for half the price because it was defective. The sale proceeds of the motor vehicle were only
posted to the returns outwards journal. No other entries had been made.
(x)
On 1 August 2010, a fire broke out at Tom’s warehouse and inventory costing $50,000 was destroyed.
Although the insurance company paid $34,000 by cheque to settle the claim, no entry in respect of the
compensation received had been made by the company as at 31 December 2010.
Required:
(a)
Prepare journal entries in Tom Tong’s books, including narrations, to correct the above errors.
(17.5 marks)
(b)
Calculate the revised net profit for the year ended 31 December 2010.
(5.5 marks)
(Calculations to the nearest dollar)
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
108
© Pearson Education Asia Limited 2010
Answer:
(a)
The Journal
Date
2010
Dec 31
"
"
"
"
"
"
31
31
31
31
31
31
Details
Dr
(i)
Drawings
Bank
Purchases
Correction of error: Omission of drawings by cheque and of
goods.
(ii) Paul Ho
Paul Hung
Suspense
Correction of error: Settlement of Paul Ho’s account wrongly
posted to Paul Hung’s account.
(iii) Rates
Suspense
Correction of error: Omission of entry in the rates account.
(iv) Suspense ($38,838 – $38,388)
Purchases
Correction of error: Overstated purchases posted from the
purchases day book.
(v) No journal entry is required.
(vi) Discounts allowed
Discounts received
Suspense
Correction of error: Incorrect posting of discounts allowed to the
discounts received account.
(vii) Bank
Bad debts recovered ($3000
"
"
"
31
31
31
$
10,000
5,000
0.5
0.5
0.5
0.5
11,020
180
0.5
0.5
0.5
0.5
11,200
7,600
7,600
450
450
1,600
1,600
3,200
1,500
109
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
1,500
1
 )
2
Correction of error: Omission of bad debts recovered from Mr Yu.
(viii)Returns inwards
Returns outwards
Suspense
Correction of error: Returns inwards incorrectly entered in the
returns outwards account with an incorrect figure.
(ix) Bank
Profit and loss — Loss on disposal
Motor vehicles
Returns outwards
Suspense
Correction of error: Sale of a motor vehicle at half of the purchase
price with sale proceeds posted to the returns outwards account.
(x) Bank
Profit and loss — Insurance compensation
Correction of error: Omission of compensation from the insurance
company for inventory lost in a fire.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Cr
$
15,000
0.5
0.5
880
1,080
1,960
5,000
5,000
10,000
5,000
5,000
34,000
34,000
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
© Pearson Education Asia Limited 2010
(b)
Calculation of Revised Net Profit for the year ended 31 December 2010
$
Draft net profit
Add Drawings of goods omitted
Purchases overstated ($38,838 – $38,388)
Bad debts recovered omitted
Insurance compensation omitted
Less Rates omitted
Discounts allowed recorded as discounts received ($1,600  2)
Returns inwards recorded as returns outwards ($1,080 + $880)
Loss on disposal of a motor vehicle
Disposal of a motor vehicle recorded as returns outwards
Revised net profit
(i)
(iv)
(vii)
(x)
5,000
450
1,500
34,000
(iii)
(vi)
(viii)
(ix)
(ix)
7,600
3,200
1,960
5,000
5,000
$
88,888
40,950
129,838
(22,760)
107,078
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
QUESTION 2
William Lau is a sole trader. His junior accounts clerk prepared the draft balance sheet below for him:
William Lau
Balance Sheet as at 31 December 2011
$
Non-current assets
Machinery
Inventory
Lorries
Cost
87,000
29,600
125,600
242,200
Current assets
Bank overdraft
Accounts receivable
Prepayments
$
Accumulated
depreciation
26,700
—
59,800
86,500
$
Net book
value
60,300
29,600
65,800
155,700
(25,000)
35,500
2,000
12,500
Less Current liabilities
Loan from John Chan (repayable in 2013)
Suspense
Accruals
Accounts payable
Net current assets
57,000
4,500
4,400
43,200
(109,100)
(96,600 )
59,100
Financed by:
Capital
Balance as at 1 January 2011
Add Net profit for the year
32,400
26,700
59,100
Subsequently, the accountant found the following errors:
(i)
A purchase invoice for $500 was correctly entered in the purchases journal, but was debited to the
trade creditor’s account as $5,000.
(ii)
Machinery costing $21,000 was sold for $8,000 by cheque. The machinery had an accumulated
depreciation of $10,000. This transaction had not been recorded.
(iii) The inventory as at 31 December 2011 was undercast by $2,700.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
110
© Pearson Education Asia Limited 2010
(iv)
William took cash amounting to $1,000 for his holiday expenses. The accounts clerk recorded only the
cash withdrawn. No other entry was made.
(v)
In November 2011, the business bought goods on credit from Y Y Ltd for $2,560. Y Y Ltd also owed
the business $3,000. These transactions were correctly recorded in the accounts. The two accounts of
Y Y Ltd were to be settled by a contra entry on 31 December 2011.
(vi)
A trade debtor, Alan Au, was declared bankrupt during the year. The business immediately wrote off
his debts of $1,920. However, in November 2011, Alan repaid his debts by cheque. The accounts clerk
did not make any entry for the repayment in the books.
(vii) Goods costing $5,000 were stolen. As compensation, the insurance company paid for half of the
inventory lost by cheque. No entry was made for the compensation received.
(viii) An electricity bill for $500 was received but was not paid until February 2012. No entry in respect of
the bill was made in the books at the year end.
Required:
Prepare the following:
(a)
Journal entries to correct the above errors (narrations are not required)
(10 marks)
(b)
Suspense account
(1.5 marks)
(c)
Statement to calculate the revised net profit
(3.5 marks)
(d)
Revised balance sheet (in vertical form)
(9 marks)
Answer:
(a)
The Journal
Details
Dr
(i)
Suspense
Accounts payable ($500 + $5,000)
(ii)
Bank
Accumulated depreciation: Machinery
Profit and loss — Loss on disposal
Machinery
(iii) Inventory
Profit and loss — Closing inventory
(iv) Drawings
Suspense
(v)
Y Y Ltd (accounts payable)
Y Y Ltd (accounts receivable)
(vi) Alan Au
Bad debts
Bank
Alan Au
(vii) Bank
Profit and loss — Insurance compensation
(viii) Electricity
Accruals
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Cr
$
5,500
$
5,500
0.5
0.5
21,000
0.5
0.5
0.5
0.5
2,700
0.5
0.5
1,000
0.5
0.5
2,560
0.5
0.5
8,000
10,000
3,000
2,700
1,000
2,560
1,920
1,920
0.5
0.5
0.5
0.5
2,500
0.5
0.5
500
0.5
0.5
1,920
1,920
2,500
500
111
© Pearson Education Asia Limited 2010
(b)
2011
Dec 31 Accounts payable
(i)
Suspense
$
2011
5,500
Dec
"
5,500
31 Balance b/f
31 Drawings
$
4,500
1,000
5,500
(iv)
0.5 0.5
0.5
(c)
Statement of Revised Net Profit for the year ended 31 December 2011
$
Draft net profit
Add Inventory undercast
Bad debts recovered
Insurance compensation
Less
Loss on disposal of machinery
Electricity accrued
Revised net profit
(iii)
(vi)
(vii)
2,700
1,920
2,500
(ii)
(viii)
3,000
500
$
26,700
0.5
0.5
0.5
0.5
7,120
33,820
0.5
(3,500 )
30,320
0.5
0.5
(d)
William Lau
Balance Sheet as at 31 December 2011
$
$
Accumulated
Cost
depreciation
66,000 (W1)
16,700 (W2)
125,600
59,800
191,600
76,500
Non-current assets
Machinery
Lorries
Current assets
Inventory ($29,600 + $2,700)
Accounts receivable ($35,500  $2,560)
Prepayments
$
Net book
value
49,300
65,800
115,100
32,300
32,940
2,000
67,240
Less Current liabilities
Accounts payable ($43,200 + $5,500  $2,560)
Accruals ($4,400 + $500)
Bank overdraft ($8,000 + $1,920 + $2,500  $25,000)
Net current assets
Less Non-current liabilities
Loan from John Chan
Financed by:
Capital
Balance as at 1 January 2011
Add Net profit for the year
Less Drawings
46,140
4,900
12,580
0.5 each
0.5 each
0.5
0.5
0.5
0.5
0.5
0.5
(63,620 )
3,620
118,720
0.5
(57,000 )
61,720
0.5
0.25
32,400
30,320
62,720
(1,000 )
61,720
0.5
0.5
0.5
0.25
Workings:
(W1) $87,000  $21,000 = $66,000
(W2) $26,700  $10,000 = $16,700
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
112
© Pearson Education Asia Limited 2010
QUESTION 3
The trial balance of Wang Tai Enterprise as at 31 December 2010 failed to agree and the difference was
credited to a suspense account. The draft net profit for the year amounted to $206,740.
Subsequent checking of the records revealed the following:
(i)
A debt of $1,100 owed by Hang Lung Ltd proved to be irrecoverable but no record was entered in the
books. The existing allowance for doubtful accounts, $1,600, should have been adjusted to 3% of
accounts receivable. Accounts receivable as at 31 December 2010 amounted to $76,400.
(ii)
A van costing $156,000 was acquired on 1 October 2010 for business use. This amount was debited to
the purchases account. The firm’s policy is to depreciate vans at 20% per annum on cost.
(iii) Salaries and wages were overcast by $1,740.
(iv)
Carriage inwards of $560 was wrongly credited to the carriage outwards account.
(v)
A piece of equipment costing $30,000 was sold during the year. However, the sale proceeds of $7,200
were credited to the sales account and no other entries were made. The net book value of the
equipment was $8,140.
(vi)
An electricity accrual of $4,750 was wrongly adjusted at the year end as a prepayment.
(vii) The closing inventory was undervalued by $750.
(viii) The firm sold goods with a list price of $9,100 to Formal Co with a 15% trade discount. It also granted
a 7.5% cash discount to Formal Co for the early settlement of its debt. However, $9,100 was recorded
in the books and no entry was made for the cash discount.
(ix)
A credit purchase of $6,240 was correctly entered in the trade creditor’s account but was entered in the
purchases account as $6,420.
(x)
The returns outwards journal was overcast by $710.
Required:
(a)
Prepare the necessary journal entries to correct the above errors. (Narrations are not required.)
(16.5 marks)
(b)
Draw up the suspense account.
(3 marks)
(c)
Prepare a statement to correct the draft net profit for the year ended 31 December 2010.
(8.5 marks)
(Calculations to the nearest dollar)
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
113
© Pearson Education Asia Limited 2010
Answer:
(a)
The Journal
Details
(i)
(ii)
Dr
Bad debts
Hang Lung Ltd
Profit and loss
Allowance for doubtful accounts [($76,400 – $1,100)  3% – $1,600]
Vans
Purchases
Depreciation: Vans
Accumulated depreciation: Vans ($56,000  20% 
3
12
(iii) Suspense
Salaries and wages
(iv) Carriage inwards
Carriage outwards
Suspense
(v) Sales
Equipment disposal
Equipment disposal
Equipment
Accumulated depreciation: Equipment ($30,000 – $8,140)
Equipment disposal
Profit and loss — Loss on disposal
Equipment disposal
Or
Sales
Accumulated depreciation: Equipment
Profit and loss — Loss on disposal
Equipment
(vi) Electricity
Prepayments
Accruals
(vii) Inventory
Profit and loss — Closing inventory
(viii) Sales ($9,100  15%)
Discounts allowed ($9,100  85%  7.5%)
Formal Co
(ix) Suspense
Purchases ($6,420 – $6,240)
(x) Returns outwards
Suspense
Cr
$
1,100
$
1,100
659
659
56,000
56,000
0.5
0.5
0.5
7,800
0.5
7,800
)
0.5
0.5
0.5
0.5
1,740
1,740
560
560
1,120
7,200
7,200
30,000
30,000
21,860
21,860
940
940
7,200
21,860
940
30,000
9,500
4,750
4,750
750
750
1,365
580
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
1
1
1
1
0.5
0.5
0.5
0.5
0.5
0.5
1,945
180
180
710
710
0.5
0.5
0.5
0.5
0.5
0.5
(b)
Salaries and wages
Purchases
(iii)
(ix)
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Suspense
$
1,740
Difference as per trial balance (balancing
180
figure)
Carriage inwards
(iv)
Carriage outwards
(iv)
Returns outwards
(x)
1,920
114
$
90
560
560
710
1,920
0.5
0.5 0.5
0.5
0.5
0.5
© Pearson Education Asia Limited 2010
(c)
Statement of Corrected Net Profit for the year ended 31 December 2010
$
Net profit as per draft accounts
Add Purchases overstated
Salaries and wages overcast
Closing inventory undervalued
Purchases overstated
Less
Bad debts omitted
Allowance for doubtful accounts understated
Depreciation understated
Carriage inwards understated
Carriage outwards understated
Sales overstated
Loss on disposal of equipment
Electricity understated
Sales overstated
Discounts allowed omitted
Returns outwards overcast
Corrected net profit
(ii)
(iii)
(vii)
(ix)
156,000
1,740
750
180
(i)
(i)
(ii)
(iv)
(iv)
(v)
(v)
(vi)
(viii)
(viii)
(x)
1,100
659
7,800
560
560
7,200
940
9,500
1,365
580
710
$
206,740
158,670
365,410
(30,974)
334,436
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
QUESTION 4
Paul Shum operates a business that sells aquarium equipment. The bookkeeper prepared a trial balance as at
31 March 2010:
Dr
$
Accounts payable
Accounts receivable
Office expenses
Allowance for doubtful accounts, 1 April 2009
Bad debts
Capital, 1 April 2009
Carriage inwards
Bank
Drawings
Furniture and fittings, at cost
Inventory, 1 April 2009
Office equipment, at cost
Purchases
Rent and rates
Sales
Returns inwards
Selling and distribution expenses
Wages and salaries
Accumulated depreciation: Office equipment
Furniture and fittings
Suspense account
165,000
31,218
5,300
9,900
1,686,017
2,300
430,500
24,000
891,000
310,060
810,000
603,500
165,000
1,567,387
9,060
149,010
289,000
3,889,548
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Cr
$
155,214
115
168,750
303,750
3,130
3,889,548
© Pearson Education Asia Limited 2010
Additional information:
(i)
Inventory as at 3l March 2010 was valued at $253,233.
(ii)
A bad debt of $1,300, which was written off in May 2009, was recovered. The cheque was received on
10 January 2010. No entry had yet been made in respect of this transaction.
(iii) The allowance for doubtful accounts was to be maintained at 5% of accounts receivable.
(iv)
Depreciation was to be charged as follows:
Office equipment — 10% per annum on cost
Furniture and fittings — 20% per annum on net book value
(v)
The following adjustments were to be made on 31 March 2010:
Accrued rent and rates
Accrued carriage inwards
Prepaid wages
(vi)
$1,650
$125
$1,290
Errors that caused the suspense account balance were as follows:
1
A trade debtor’s balance of $2,200 had been entered twice in the accounts receivable ledger.
2
Office expenses had been overcast by $800.
3
Carriage inwards had been overcast by $30.
4
Sales of $1,400 had been correctly entered in the sales account but had been entered in the trade
debtor’s account as $1,500.
Required:
(a)
Show the journal entries required to correct the above errors. (Narrations are not required.)
(4 marks)
(b)
Prepare a corrected trial balance as at 31 March 2010.
(c)
Draw up an income statement for Paul Shum's business for the year ended 31 March 2010.
(9 marks)
(d)
Draw up a balance sheet as at the same date.
(7 marks)
(10 marks)
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
Dr
Suspense
Accounts receivable
Suspense
Office expenses
Suspense
Carriage inwards
Suspense
Accounts receivable
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Cr
$
2,200
$
2,200
0.5
0.5
800
0.5
0.5
30
0.5
0.5
100
0.5
0.5
800
30
100
116
© Pearson Education Asia Limited 2010
(b)
Paul Shum
Corrected Trial Balance as at 31 March 2010
Dr
$
Accounts payable
Accounts receivable ($165,000 – $2,200 – $100)
Office expenses ($31,218 – $800)
Allowance for doubtful accounts, 1 April 2009
Bad debts
Capital, 1 April 2009
Carriage inwards ($2,300 – $30)
Cash
Drawings
Furniture and fittings, at cost
Inventory, 1 April 2009
Office equipment, at cost
Purchases
Rent and rates
Sales
Returns inwards
Selling and distribution expenses
Wages and salaries
Accumulated depreciation:
Office equipment
Furniture and fittings
Cr
$
155,214
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
162,700
30,418
5,300
9,900
1,686,017
2,270
430,500
24,000
891,000
310,060
810,000
603,500
165,000
1,567,387
9,060
149,010
289,000
3,886,418
168,750
303,750
3,886,418
0.5
0.5
(c)
Opening inventory
Add Purchases
Carriage Inwards
($2,270 + $125)
Paul Shum
Income Statement for the year ended 31 March 2010
$
$
310,060 Sales
603,500
Less Returns inwards
2,395
Less Closing inventory
Cost of goods sold
Gross profit c/d
Rent and rates ($165,000 + $1,650)
Wages and salaries ($289,000  $1,290)
Office expenses
Selling and distribution expenses
Bad debts
Depreciation:
Office equipment ($810,000  10%)
Furniture and fittings ($587,250  20%)
Increase in allowance for doubtful accounts
[($162,700  5%)  $5,300)]
Net profit
605,895
915,955
(253,233)
662,722
895,605
1,558,327
166,650
287,710
30,418
149,010
8,600
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
$
1,567,387
(9,060)
$
0.5 0.5
1,558,327 0.5 0.5
0.5
0.5
0.5
0.5
Gross profit b/d
1,558,327
895,605 0.5 0.5
0.5
0.5
0.5
0.5
81,000
117,450
0.5
2,835
51,932
895,605
0.5
0.5
0.5
895,605
117
© Pearson Education Asia Limited 2010
Non-current assets
Office equipment
Less Accumulated depreciation
Paul Shum
Balance Sheet as at 31 March 2010
$
$
Capital
810,000
Balance as at 1 April 2009
(249,750)
560,250 Add Net profit for the year
Furniture and fittings
Less Accumulated depreciation
891,000
(421,200)
$
Current assets
Inventory
253,233
Accounts receivable
162,700
Less Allowance for
doubtful accounts
(8,135) 154,565
($162,700  5%)
Prepaid expenses
1,290
Bank ($430,500 + $1,300)
431,800
$
1,686,017
51,932
1,737,949
(24,000)
1,713,949
Less Drawings
469,800
1,030,050
Current liabilities
Accounts payable
Accrued expenses
($1,650 + $125)
$
155,214
1,775
156,989
0.5 0.5
0.5 0.5
0.5 0.5
0.5
0.5 0.5
0.5
0.5
0.5
0.5
0.5
840,888
1,870,938
1,870,938
QUESTION 5
Johnny Chan, the accountant at Marco Computer Software Enterprise, prepared draft financial statements for
the year ended 31 March 2011. After the trial balance had been prepared, he discovered that the trial balance
did not agree and showed a debit shortfall of $55,200. The draft net loss for the year amounted to $6,530.
The following errors were found after investigation:
(i)
Five new computers costing $50,000 had been recorded in the purchases account. These computers
were used to replace the firm’s old computers. The computers were to be depreciated at a rate of 30%
per annum on cost. A full year of depreciation was to be charged in the year of purchase.
(ii)
A trade debtor settled his outstanding balance of $4,870 by cheque. However, it had been recorded in
the cash book as $4,800.
(iii) Closing inventory had been under-counted by 500 units. Each unit cost $5.
(iv)
Credit sales of $28,000 had been credited to both the sales account and a trade creditor’s account.
(v)
The owner used the business bank account to issue a cheque to pay for his son’s annual insurance
premium of $1,230. This amount had been debited to the insurance account and credited to the cash
book.
(vi)
An employee’s salary of $8,000, which was paid by cheque, had been omitted from the books.
(vii) A trade debtor had $8,750 that had been outstanding for six months. After investigation, this amount
was cancelled as no job has been done for this trade debtor. No entry had been made for the job
cancellation.
(viii) A discount allowed of $540 was debited to the returns inwards account.
(ix)
Goods returned by a trade debtor amounting to $870 had been recorded in the returns inwards account
only.
(x)
Cash of $38,000 deposited into the bank had been recorded in the cash book as $38,800.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
118
© Pearson Education Asia Limited 2010
Required:
(a)
Prepare the journal entries to correct the above errors. (Narrations are not required.)
(b)
Prepare a statement to correct the draft net loss for the year ended 31 March 2011.
(c)
Draw up the suspense account.
(11.5 marks)
(4 marks)
(2.5 marks)
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Dr
Cr
$
50,000
Computers
Purchases
Depreciation: Computers
Accumulated depreciation: Computers ($50,000  30%)
Bank ($4,870 – $4,800)
Suspense
Inventory (500  $5)
Profit and loss — Closing inventory
Accounts payable
Accounts receivable
Suspense
Drawings
Insurance
Salary
Bank
Sales
Accounts receivable
Discounts allowed
Returns inwards
Suspense
Accounts receivable
Cash ($38,800 – $38,000)
Bank
$
50,000
0.5
0.5
0.5
15,000
0.5
70
0.5
0.5
15,000
70
2,500
0.5
2,500
0.5
56,000
0.5
0.5
0.5
1,230
0.5
0.5
8,000
0.5
0.5
8,750
0.5
0.5
540
0.5
0.5
870
0.5
0.5
800
0.5
0.5
28,000
28,000
1,230
8,000
8,750
540
870
800
(b)
Statement of Corrected Net Loss for the year ended 31 March 2011
$
Net loss as per draft accounts
Add Purchases overstated
Closing inventory under-counted
Insurance overstated
Less
Depreciation understated
Salary omitted
Sales cancelled
Corrected net profit
(i)
(iii)
(v)
50,000
2,500
1,230
(i)
(vi)
(vii)
15,000
8,000
8,750
$
(6,530)
53,730
47,200
(31,750)
15,450
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
(c)
2011
Mar 31 Difference as per trial balance
"
31 Accounts receivable
(ix)
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Suspense
$
2011
55,200
Mar 31 Bank
870
"
31 Accounts payable
"
31 Accounts receivable
56,070
119
(ii)
(iv)
(iv)
$
70
28,000
28,000
56,070
0.5 0.5
0.5 0.5
0.5
© Pearson Education Asia Limited 2010
QUESTION 6
Eddy Tsui, the owner of Runner Sport Enterprise, is reviewing the draft final accounts for May 2010. He
discovered that the bank account had an overdraft balance, but the bank statement showed a positive balance
as at 31 May 2010.
Required:
(a)
Assume that the bank account in the ledger has been updated and that no errors were made in the
entries. Explain to Eddy why the bank statement balance and the ledger bank account balance may not
agree on the same day.
(2 marks)
On 31 May 2010, the bank current account balance was $34,210 (overdraft) and the bank statement balance
was $11,983. In addition, the trial balance did not agree. A suspense account was opened with a credit
balance of $1,778. The net profit shown in the draft profit and loss account was $42,130.
Subsequently, you found the following:
(i)
The payment to a trade creditor of $3,204 had been recorded in the trade creditor’s account correctly
but two payment entries were made in the bank account.
(ii)
A discount allowed was wrongly recorded in the cash book as $24 instead of $42.
(iii) Rent of $100,000 was paid by cheque on 30 May 2010. The cheque was presented for payment on
6 June 2010.
(iv)
An insurance premium payment of $39,450 was made from the bank account through autopay on
27 May 2010. No entry was made in the books.
(v)
Cheques from trade debtors were deposited into the bank in May but were not shown in the May 2010
bank statement. They were:
(vi)
Jacky Sports House
$6,843
Martin Outlet
$2,333
A cheque for $8,230 received from Fortune Sports Shop was dishonoured. No record was made in the
books.
(vii) A cheque for $67,300 was received from Sky Shop. Entries had been made in the books, but the
cheque was dated 1 September 2010.
(viii) Petty cash of $5,000 was withdrawn from the bank. An entry was made in the petty cash book only.
(ix)
Credit purchases of $64,240 from Mary Sports Co were debited to the purchases account and credited
to the bank account.
(x)
A cheque issued to Kicker Shoes Co for $8,005 was wrongly written as ‘EIGHT THOUSAND AND
FIVE CENTS ONLY’. The cheque was rejected by the bank and a penalty of $100 was charged. No
entries were made in the books.
(xi)
Inventory costing $7,000 held on 31 May 2010 was not recorded in the books.
(xii) Eddy withdrew $9,000 from the bank account for his private use. The amount was debited to the salary
account and credited to the bank account.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
120
© Pearson Education Asia Limited 2010
Required:
(b)
Prepare the necessary journal entries for the items above. (Narrations are not required.)
(c)
Draw up the suspense account.
(d)
Prepare a statement to correct the net profit.
(e)
Calculate the correct ledger bank balance as at 31 May 2010.
(f)
Prepare a bank reconciliation statement as at 31 May 2010.
(12 marks)
(2 marks)
(3.5 marks)
(5 marks)
(2.5 marks)
Answer:
(a)
It is not uncommon for a bank statement balance to not agree with the ledger bank account balance.
The reasons are as follows:
Unpresented cheques: Cheques sent but not yet been presented to the bank by the payees by the end of
the period. Cheques may be unpresented if they are still held by the payees, are
being processed in the cheque clearing system, or were lost in the post, etc.
(1 mark)
Uncredited cheques: Cheques may have been kept by the firm or may have been deposited but have
not yet been processed by the bank by the end of the period.
(1 mark)
(b)
The Journal
Details
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
Dr
Bank
Suspense
Discounts allowed
Suspense
No journal entry is required.
Insurance
Bank
No journal entry is required.
Fortune Sports Shop
Bank
Sky Shop
Bank
Suspense
Bank
Bank
Mary Sports Co
Bank
Kicker Shoes Co
Bank charges
Bank
Inventory
Profit and loss — Closing inventory
Drawings
Salary
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Cr
$
3,204
$
3,204
0.5
0.5
18
0.5
0.5
18
0.5
39,450
39,450
0.5
0.5
0.5
8,230
8,230
0.5
0.5
67,300
0.5
0.5
5,000
0.5
0.5
64,240
0.5
0.5
67,300
5,000
64,240
8,005
100
0.5
0.5
0.5
0.5
7,000
0.5
0.5
9,000
0.5
0.5
8,005
100
7,000
9,000
121
© Pearson Education Asia Limited 2010
(c)
Suspense
$
2010
5,000
May 31 Balance as per trial balance
"
31 Bank
(i)
"
31 Discounts allowed
(ii)
5,000
2010
May 31 Bank (viii)
$
1,778
3,204
18
5,000
0.5 0.5
0.5
0.5
(d)
Statement of Corrected Net Profit for the year ended 31 May 2010
$
Net profit as per draft accounts
Add Closing inventory understated
Salary overstated
Less
Discounts allowed understated
Insurance omitted
Bank charges omitted
Corrected net profit
(xi)
(xii)
7,000
9,000
(ii)
(iv)
(x)
18
39,450
100
$
42,130
16,000
58,130
(39,568)
18,562
0.5
0.5
0.5
0.5
0.5
0.5
0.5
(e)
Calculation of Correct Bank Balance as at 31 May 2010
$
Overdraft balance as per cash book before corrections
Add Cheque payment credited twice
Payment overstated
Dishonoured cheque
Less
Insurance premium autopay
Dishonoured cheque
Post-dated cheque
Petty cash
Bank charges
Overdraft balance as per cash book
$
(34,210)
(i)
(ix)
(x)
3,204
64,240
8,005
(iv)
(vi)
(vii)
(viii)
(x)
39,450
8,230
67,300
5,000
100 (120,080)
(78,841)
75,449
41,239
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
(f)
Bank Reconciliation Statement as at 31 May 2010
$
Balance as per bank statement
Add Uncredited cheques:
Jacky Sports House
Martin Outlet
(v)
(v)
Unpresented cheque:
Rent
Overdraft balance as per cash book
6,843
2,333
$
11,983
9,176
21,159
0.5
0.5
0.5
Less
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
(iii)
122
(100,000)
(78,841)
0.5
0.5
© Pearson Education Asia Limited 2010
QUESTION 7
Rose Enterprise sells computer accessories in North Point. Its draft final accounts for the year ended 30 April
2011 showed a net profit of $615,971. There was a difference between the debit side and the credit side of
the trial balance. A suspense account was opened to record this.
During subsequent investigations, the following errors were discovered:
(i)
A car costing $100,000 and acquired on 1 May 2010 for use in the business was debited to the
purchases account. It is the firm’s policy to depreciate cars at 20% per annum based on net book value.
(ii)
When a physical inventory was taken at the year end, one of the stock sheets was undercast by $516.
(iii) Equipment costing $5,000 was purchased on 1 May 2010. It was depreciated at 10% per annum on
cost. However, the more realistic reducing-balance method at 20% per annum should have been
applied starting from 1 November 2010. The new method of depreciation was not yet applied.
(iv)
A commission expense of $610 was credited to the commission revenue account as $160.
(v)
The sum of $3,000 spent by Rose, the owner of Rose Enterprise, on her holiday was charged to the
firm’s general expenses account.
(vi)
Mr Chow, a trade debtor who owed the firm $8,800, was declared bankrupt and could only repay
30 cents on every dollar owed to the firm. No entries were made in the books.
(vii) The April 2011 electricity bill of $5,000 was credited to a trade creditor’s account. No other entries
were made.
(viii) In September 2010, goods with a selling price of $1,800 were spoiled by water. They were sold at half
price for cash. Six months later, an insurance company paid the firm $1,000 as compensation. No
entries were made for any of the above events.
(ix)
Cash sales of $815 appeared in the cash book but were not posted to the general ledger.
(x)
The bookkeeper was instructed to record a bad debt recovery of $1,975 written off in the last financial
year and to increase the allowance for doubtful accounts by $1,977. By mistake, however, he recorded
the bad debts recovered as $1,977 and decreased the allowance for doubtful accounts by $1,975.
Receipt of the payment by the debtor was correctly recorded.
Required:
(a)
Prepare the journal entries to correct the above errors. (Narrations are not required.)
(b)
Prepare a statement of adjusted net profit for the year ended 30 April 2011.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
123
(15 marks)
(7 marks)
© Pearson Education Asia Limited 2010
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Dr
Cr
$
100,000
Cars
Purchases
Depreciation: Cars ($100,000  20%)
Accumulated depreciation: Cars
Inventory
Profit and loss — Closing inventory
$
100,000
20,000
0.5
20,000
0.5
516
0.5
0.5
516
Depreciation: Equipment [$5,000  (20% – 10%) 
6
12
250
]
Accumulated depreciation: Equipment
Commission revenue
Commission expense
Suspense
Drawings
General expenses
Bad debts ($8,800  70%)
Bank ($8,800  30%)
Accounts receivable
Accounts payable
Suspense
Electricity
Accrued expenses
Cash
Sales
Bank
Profit and loss — Insurance compensation
Suspense
Sales
Bad debts recovered
Accounts receivable
Profit and loss
Allowance for doubtful accounts ($1,977 + $1,975)
0.5
0.5
0.5
250
0.5
770
0.5
0.5
0.5
3,000
0.5
0.5
160
610
3,000
6,160
2,640
0.5
0.5
8,800
5,000
5,000
5,000
5,000
900
0.5
0.5
0.5
0.5
0.5
1,000
0.5
0.5
0.5
0.5
815
0.5
0.5
900
1,000
815
2
2
3,952
3,952
0.5
0.5
0.5
0.5
(b)
Statement of Adjusted Net Profit for the year ended 30 April 2011
$
Net profit before adjustments
Add Car purchase charged to purchases
Inventory undercast
Drawings charged to general expenses
Sales omitted
Insurance compensation omitted
Sales omitted
Less
Depreciation on car omitted
Depreciation on equipment understated
Commission expense wrongly recorded as commission revenue
Bad debts omitted
Electricity omitted
Bad debts recovered overstated
Allowance for doubtful accounts understated
Adjusted net profit
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
124
(i)
(ii)
(v)
(viii)
(viii)
(ix)
100,000
516
3,000
900
1,000
815
(i)
(iii)
(iv)
(vi)
(vii)
(x)
(x)
20,000
250
770
6,160
5,000
2
3,952
$
615,971
106,231
722,202
(36,134)
686,068
0.25
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.25
© Pearson Education Asia Limited 2010
QUESTION 8
The following is Alice & Co’s balance sheet as at 31 December 2010. The firm’s depreciation policy is to
charge a full year’s depreciation in the year that non-current assets are purchased. Land and buildings are to
be depreciated at 10% per annum on a straight-line basis. Furniture and fixtures are to be depreciated at 15%
per annum on a straight-line basis.
Alice & Co
Balance Sheet as at 31 December 2010
Cost
$
935,300
310,200
185,300
1,245,500
Non-current assets
Land and buildings
Furniture and fixtures
Vans
Current assets
Inventory
Accounts receivable
Prepayments
Bank
Suspense
Accumulated
depreciation
$
303,300
128,000
72,800
431,300
Net book
value
$
632,000
182,200
112,500
814,200
130,200
82,900
43,800
82,799
1,203
340,902
Less Current liabilities
Accounts payable
Accruals
Net current assets
120,300
52,000
(172,300)
168,602
982,802
Financed by:
Capital
Balance as at 1 January 2009
Add Net profit for the year
869,000
133,099
1,002,099
(19,297)
982,802
Less Drawings
The following errors were found:
(i)
A purchase invoice amounting to $29,530 was wrongly debited to the purchases account as $39,530.
(ii)
A cheque for $14,897 received from a trade debtor was correctly recorded in the bank account, but was
not recorded in the trade debtor’s personal account.
(iii) The firm issued a cheque for $7,300 to settle a trade creditor’s account. The payment was correctly
recorded in the bank account, but no entry was made in the trade creditor’s account.
(iv)
Fire insurance was undercast by $5,300.
(v)
A credit purchase for $76,090 was omitted from the books.
(vi)
A cheque for $29,400 received from a trade debtor was correctly entered in the bank account but was
posted to the trade debtor’s personal account as $42,900.
(vii) Payment of office rent of $38,500 was incorrectly entered in the land and buildings account.
Depreciation on land and buildings was affected accordingly.
(viii) Wages for the repair of furniture and fixtures amounting to $22,000 were recorded in the repairs and
maintenance account. It was later found that one-fourth of the time was spent on the installation of new
fixtures. No entry was made in the books.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
125
© Pearson Education Asia Limited 2010
(ix)
The inventory cost in one of the inventory sheets was undercast by $3,210.
Required:
(a)
Prepare the journal for Alice & Co to correct the above errors. (Narrations are not required.) (11 marks)
(b)
Prepare the suspense account.
(3 marks)
(c)
Prepare a statement to correct the net profit for the year ended 31 December 2010.
(5 marks)
(d)
Prepare the corrected balance sheet as at 31 December 2010.
(8 marks)
(Calculations to the nearest dollar)
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Dr
Suspense ($39,530 – $29,530)
Purchases
Suspense
Accounts receivable
Accounts payable
Suspense
Fire insurance
Suspense
Purchases
Accounts payable
Accounts receivable
Suspense ($42,900 – $29,400)
Office rent
Land and buildings
Accumulated depreciation: Land and buildings
Depreciation: Land and buildings ($38,500  10%)
Furniture and fixtures ($22,000 
1
4
Cr
$
10,000
$
10,000
0.5
0.5
14,897
0.5
0.5
7,300
0.5
0.5
5,300
0.5
0.5
76,090
0.5
0.5
13,500
0.5
0.5
14,897
7,300
5,300
76,090
13,500
38,500
38,500
0.5
0.5
0.5
3,850
0.5
3,850
)
5,500
Repairs and maintenance
Depreciation: Furniture and fixtures ($5,500  15%)
Accumulated depreciation: Furniture and fixtures
Inventory
Profit and loss — Closing inventory
0.5
5,500
825
0.5
0.5
825
0.5
3,210
0.5
0.5
3,210
(b)
Difference as per trial balance
Purchases
Accounts receivable
(i)
(ii)
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Suspense
$
1,203
Accounts payable
10,000
Fire insurance
14,897
Accounts receivable
26,100
126
(iii)
(iv)
(vi)
$
7,300
5,300
13,500
26,100
0.5 0.5
0.5 0.5
0.5 0.5
© Pearson Education Asia Limited 2010
(c)
Statement for Corrected Net Profit for the year ended 31 December 2010
$
Net profit before adjustments
Add Purchases overstated
Depreciation on land and buildings overstated
Repairs and maintenance overstated
Stock undercast
Less
Fire insurance undercast
Purchases omitted
Office rent understated
Depreciation on furniture and fixtures understated
Corrected net profit
$
133,099
(i)
(vii)
(viii)
(ix)
10,000
3,850
5,500
3,210
(iv)
(v)
(vii)
(viii)
5,300
76,090
38,500
825 (120,715)
34,944
0.5
0.5
0.5
0.5
0.5
22,560
155,659
0.5
0.5
0.5
0.5
0.5
(d)
Alice & Co
Corrected Balance Sheet as at 31 December 2010
Accumulated
Cost
depreciation
Non-current assets
$
$
Land and buildings (W1)
896,80
299,450
Furniture and fixtures (W2)
315,700
128,825
1,212,500
428,275
Current assets
Inventory ($130,200 + $3,210)
133,410
Accounts receivable ($82,900 – $14,897 + $13,500)
81,503
Prepayments
43,800
Bank
82,799
341,512
Current liabilities
Accounts payable ($120,300 – $7,300 + $76,090)
Accruals
Net current assets
Net book
value
$
597,350
186,875
784,225
0.5 each
0.5 each
0.5
0.5
0.5
0.5
Less
189,090
52,000
Financed by:
Capital
Balance as at 1 January 2010
Add Net profit for the year
Less
Drawings
Workings:
(W1)
(W2)
Land and buildings at cost ($935,300 – $38,50)
Accumulated depreciation: Land and buildings ($303,300 $3,850)
$
896,800
299,450
Furniture and fixtures at cost ($310,200 + $5,500)
Accumulated depreciation: Furniture and fixtures ($128,000 + $825)
315,700
128,825
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
127
0.5
0.5
(241,090)
100,422
884,647
0.5
869,000
34,944
903,944
(19,297)
884,647
0.5
0.5
0.5
© Pearson Education Asia Limited 2010
QUESTION 9
The trial balance of Terry Co as at 31 May 2011 failed to agree. Also, the total of balances of $83,240
extracted from the accounts payable ledger as at 31 May 2011 did not agree with the balance of the accounts
payable ledger control account of $81,440.
Upon investigation, the following errors were found:
(i)
A purchase of $8,360 by cheque from Edison Co was recorded in the purchases journal.
(ii)
A trade debtor returned goods of $1,500. No entries were made in the books.
(iii) S Wu, a trade debtor, was declared bankrupt. His outstanding debt of $24,000 could not be collected.
No entry was made in the books.
(iv)
An invoice for $58,000 issued to Park Limited was wrongly recorded in the sales journal as $5,800.
(v)
The purchase of a new computer costing $17,530 on credit for business use was recorded in the
purchases journal.
(vi)
A cash payment of $8,040 to a trade creditor was recorded in the cash book only.
(vii) Two units of goods costing $3,000 each were sent to Winner Ltd as samples free of charge. They were
recorded in the sales journal as $3,000 in total.
(viii) The discounts received account was undercast by $19.
(ix)
Credit purchases of $6,240 from L Liu were recorded in the purchases account only.
Required:
(a)
Prepare journal entries to correct the above errors. (Narrations are not required.)
(b)
Draw up the suspense account.
(c)
Prepare a statement to calculate the correct total of balances in the accounts payable ledger and draw
(2 marks)
up the accounts payable ledger control account for the necessary adjustments.
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
(11 marks)
128
(5 marks)
© Pearson Education Asia Limited 2010
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Dr
Cr
$
8,360
Edison Co
Bank
Returns inwards
Accounts receivable
Bad debts
S Wu
Park Limited ($58,000 – $5,800)
Sales
Computers
Purchases
Accounts payable
Other payables
Accounts payable
Suspense
Sales
Winner Ltd
Sample expenses ($3,000  2)
Purchases
Suspense
Discounts received
Suspense
L Liu
$
8,360
0.5
0.5
1,500
0.5
0.5
24,000
0.5
0.5
52,200
0.5
0.5
1,500
24,000
52,200
17,530
17,530
0.5
0.5
0.5
0.5
8,040
0.5
0.5
3,000
0.5
0.5
17,530
17,530
8,040
3,000
6,000
0.5
6,000
0.5
19
0.5
0.5
6,240
0.5
0.5
19
6,240
(b)
2011
May 31 Difference as per trial balance
(balancing figure)
"
31 Discounts received (viii)
"
31 L Liu
(ix)
Suspense
$
2011
May 31 Accounts payable
1,781
19
6,240
8,040
(vi)
$
8,040
0.5
0.5
0.5
0.5
8,040
(c)
Statement to Correct the Total of Balances of the Accounts Payable Ledger as at 31 May 2011
$
$
Total of balances before corrections
83,240
Add Purchases from L Liu omitted
(ix)
6,240
89,480
Less Accounts payable overstated
(i)
8,360
Non-trade creditor recorded in the accounts payable ledger
(v)
17,530
Payment to a trade creditor omitted
(vi)
8,040 (33,930)
Total of balances after corrections
55,550
2011
May 31 Purchases
"
31 Purchases
"
31 Balance c/d
(i)
(v)
Accounts Payable Ledger Control
$
2011
8,360
May 31 Balance b/d
17,530
55,550
81,440
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
129
$
81,440
0.5
0.5
0.5
0.5
0.5
0.5
0.5 0.5
0.5
0.5
81,440
© Pearson Education Asia Limited 2010
QUESTION 10
The following trial balance of Kowloon Enterprise was extracted from its books on 31 October 2010:
Dr
$
159,390
Accounts receivable
Accounts payable
Allowance for doubtful accounts, 31 October 2009
Bank loan, repayable in 2020
Capital, 1 November 2009
Carriage inwards
Carriage outwards
Cash at bank
Cash in hand
Discounts allowed
Discounts received
Drawings
Electricity
Fixtures and fittings
Accumulated depreciation: Fixtures and fittings
Inventory, 1 November 2009
Loan interest
Purchases
Rates
Rent
Repairs and maintenance
Returns outwards
Salaries
Sales
Suspense
Cr
$
107,558
8,400
37,800
116,138
1,000
1,138
33,579
5,754
9,471
10,340
17,514
2,730
64,000
13,000
85,417
1,890
286,902
4,501
7,980
2,180
3,640
10,940
397,511
1
694,387
694,387
Additional information:
(i)
Inventory as at 31 October 2010 was valued at $91,020.
(ii)
Items prepaid: rent $100; rates $220; accruals: electricity $490; repairs $386
(iii)
A specific allowance or doubtful accounts of $990 was to be made for a trade debtor’s account, while a
general allowance for doubtful accounts of 5% was to be made for the remaining accounts receivable.
(iv)
Loan interest for the year was 10% of the sum borrowed.
(v)
Furniture and fittings were to be depreciated at 10% per annum on a straight-line basis.
(vi)
Errors that caused the suspense account balance were found as follows:
1
A sale of goods of $1,331 had been correctly entered in the sales journal, but had been recorded in
the trade debtor’s account as $3,331.
2
The salaries balance was wrongly listed in the trial balance. The correct figure should be $10,888.
3
Carriage inwards had been undercast by $253.
4
The petty cash balance of $1,800 had been omitted from the trial balance.
Required:
(a)
Show the journal entries required to correct the errors (i) to (iv). (Narrations are not required.)
(3.5 marks)
(b)
Prepare the corrected trial balance as at 31 October 2010.
(12.5 marks)
(c)
Draw up an income statement for the year ended 31 October 2010 and a balance sheet as at that date.
(18 marks)
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
130
© Pearson Education Asia Limited 2010
Answer:
(a)
The Journal
Details
(i)
(ii)
(iii)
(iv)
Dr
Cr
$
2,000
Suspense
Accounts receivable ($3,331 – $1,331)
Suspense
Salaries ($10,940 – $10,888)
Carriage inwards
Suspense
Suspense
$
2,000
52
52
253
253
1,800
0.5
0.5
0.5
0.5
0.5
0.5
0.5
(b)
Kowloon Enterprise
Corrected Trial Balance as at 31 October 2010
Dr
$
157,390
Accounts receivable ($159,390 – $2,000)
Accounts payable
Allowance for doubtful accounts, 31 October 2009
Bank loan, repayable in 2020
Capital, 1 November 2009
Carriage inwards ($1,000 + $253)
Carriage outwards
Cash at bank
Cash in hand
Discounts allowed
Discounts received
Drawings
Electricity
Fixtures and fittings
Accumulated depreciation: Fixtures and fittings
Inventory, 1 November 2009
Loan interest
Purchases
Rates
Rent
Repairs and maintenance
Returns outwards
Salaries ($10,940 – $52)
Sales
Petty cash
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Cr
$
107,558
8,400
37,800
116,138
1,253
1,138
33,579
5,754
9,471
10,340
17,514
2,730
64,000
13,000
85,417
1,890
286,902
4,501
7,980
2,180
3,640
10,888
397,511
1,800
694,387
131
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
694,387
© Pearson Education Asia Limited 2010
(c)
Kowloon Enterprise
Income Statement for the year ended 31 October 2010
$
$
Opening inventory
85,417
Sales
Add Purchases
286,902
Carriage inwards
1,253
288,155
Less Returns outwards
(3,640)
284,515
369,932
Less Closing inventory
(91,020)
Cost of goods sold
278,912
Gross profit c/d
118,599
397,511
Carriage outwards
1,138
Gross profit b/d
Discounts allowed
9,471
Discounts received
Electricity ($2,730 + $490)
3,220
Rates ($4,501 – $220)
4,281
Rent ($7,980 – $100)
7,880
Repairs and maintenance ($2,180 + $386)
2,566
Increase in allowance for doubtful
accounts ($8,810 – $8,400)
410
Salaries
10,888
3,780
Loan interest ($37,800  10%)
Depreciation: Fixtures and fittings
6,400
($64,000  10%)
Net profit
78,905
128,939
$
Non-current assets
Furniture and fittings
Less Accumulated depreciation
Current assets
Inventory
Accounts receivable
157,390
Less Allowance for
doubtful accounts
$
397,511 0.5 0.5
0.5
0.5
0.5
0.5
0.5
0.5
397,511
118,599 0.5 0.5
10,340 0.5 0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
128,939
Kowloon Enterprise
Balance Sheet as at 31 October 2010
$
$
Capital
64,000 Balance as at 1 November 2009
(19,400) Add Net profit for the year
44,600
Less Drawings
91,020
Non-current liabilities
Bank loan
{[($157,390 – $990)
 5%] + $990}
(8,810) 148,580
Prepaid expenses ($100 + $220)
320
Bank
33,579
Cash
5,754
Petty cash
1,800
NSS BAFS: Frank Wood’s Financial Accounting 1
Question Bank
Current liabilities
Accounts payable
Accrued expenses
($1,890 + $490 + $386)
281,053
325,653
$
$
116,138
78,905
195,043
(17,514)
177,529
37,800
107,558
0.5 0.5
0.5 0.5
0.5
0.5
0.5
0.5
0.5 0.5
2,766 110,324
0.5
0.5 0.5
0.5
0.5
325,653
132
© Pearson Education Asia Limited 2010