Introduction to accounting tutorial questions

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1. Where business comes to life Where business comes to life Where business comes to life AC110 Introduction to Accounting Tutorial 3 Chap 5: Preparing basic financial statements Chap 6: Error and corrections to accounting records and financial statements 1

2. Where business comes to life AGENDA Chapter 5 selected questions Chapter 6 selected questions

3. Where business comes to life CHAPTER 5

4. Where business comes to life 3. Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a total of £89,436 excluding VAT and purchases goods from suppliers for a total of £86,790 including VAT. What is the net amount shown in Gerrard Ltd's VAT account at the end of April? A £3,422 debit B £2,452 debit C £3,422 credit D £2,452 credit Answer is C

5. Where business comes to life 5. A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of £7,200, credit sales of £16,500 and received £15,300 from his credit customers. The balance on his trade receivables account at the end of May was: A) £1,500 B) £3,900 C) £8,700 D) £11,100

6. Where business comes to life 5. A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of £7,200, credit sales of £16,500 and received £15,300 from his credit customers. The balance on his trade receivables account at the end of May was: A) £1,500 B) £3,900 C) £8,700 D) £11,100 Dr Trade Receivables Cr Balance b/f Sales 2,700 16,500 19,200 Cash at Bank Balance c/f 15,300 3,900 19,200

7. Where business comes to life 5. A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of £7,200, credit sales of £16,500 and received £15,300 from his credit customers. The balance on his trade receivables account at the end of May was: A) £1,500 B) £3,900 C) £8,700 D) £11,100 Answer is B Dr Trade Receivables Cr Balance b/f Sales 2,700 16,500 19,200 Cash at Bank Balance c/f 15,300 3,900 19,200

8. Where business comes to life 8. Val had an opening trade payables balance of £3,450 on 1 December. During the month of December, they sold goods totalling £6,780 to customers on credit, purchased goods totalling £5,100 from suppliers on credit and made cash purchases of £400. They also received £3,900 from credit customers and made payments to credit suppliers of £4,200. What was the balance on Val's trade payables account at the end of December? A £4,350 B £6,330 C £4,750 D £2,550

9. Where business comes to life 8. Violet had an opening trade payables balance of £3,450 on 1 December. During the month of December, they sold goods totalling £6,780 to customers on credit, purchased goods totalling £5,100 from suppliers on credit and made cash purchases of £400. They also received £3,900 from credit customers and made payments to credit suppliers of £4,200. What was the balance on Val's trade payables account at the end of A £4,350 B £6,330 C £4,750 D £2,550 Dr Trade Payables Cr Cash at bank Balance c/f 4,200 4,350 8,550 Balance b/f Purchases 3,450 5,100 8,550

10. Where business comes to life 8. Violet had an opening trade payables balance of £3,450 on 1 December. During the month of December, she sold goods totalling £6,780 to customers on credit, purchased goods totalling £5,100 from suppliers on credit and made cash purchases of £400. She also received £3,900 from credit customers and made payments to credit suppliers of £4,200. What was the balance on Violet's trade payables account at the end of December? A £4,350 B £6,330 C £4,750 D £2,550 Answer is A Dr Trade Payables Cr Cash at bank Balance c/f 4,200 4,350 8,550 Balance b/f Purchases 3,450 5,100 8,550

11. Where business comes to life 9. The following are balances on the accounts of London, a sole trader, as at the end of the current financial year and after all entries have been processed and the profit for the year has been calculated. £ Non-current assets 85,000 Trade receivables 7,000 Trade payables 3,000 Bank loan 15,000 Accumulated depreciation, non-current assets 15,000 Inventory 4,000 Accruals 1,000 Prepayments 2,000 Bank overdraft 2,000 What is the balance on London's capital account? A £59,000 B £66,000 C £62,000 D £64,000

12. Where business comes to life 9. The following are balances on the accounts of London, a sole trader, as at the end of the current financial year and after all entries have been processed and the profit for the year has been calculated. £ Non-current assets 85,000 Trade receivables 7,000 Trade payables 3,000 Bank loan 15,000 Accumulated depreciation, non-current assets 15,000 Inventory 4,000 Accruals 1,000 Prepayments 2,000 Bank overdraft 2,000 What is the balance on London's capital account? A £59,000 B £66,000 C £62,000 D £64,000 Debit Credit 85,000 7,000 3,000 15,000 15,000 4,000 1,000 2,000 2,000 98,000 36,000

13. Where business comes to life 9. The following are balances on the accounts of London, a sole trader, as at the end of the current financial year and after all entries have been processed and the profit for the year has been calculated. £ Non-current assets 85,000 Trade receivables 7,000 Trade payables 3,000 Bank loan 15,000 Accumulated depreciation, non-current assets 15,000 Inventory 4,000 Accruals 1,000 Prepayments 2,000 Bank overdraft 2,000 What is the balance on London's capital account? A £59,000 B £66,000 C £62,000 D £64,000 Answer is C (98-36=62) Debit Credit 85,000 7,000 3,000 15,000 15,000 4,000 1,000 2,000 2,000 98,000 36,000

14. Where business comes to life Additional question 1 Sandra's bakery business has the following account balances at 30 September 20x18: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000 and a bank overdraft of £1,090. Sandra's capital account as at 30 September 20x18 is: £33,360. £35,540. c) £38,360. d) £38,660.

15. Where business comes to life Additional question 1 Sandra's bakery business has the following account balances at 30 September 20x18: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000 and a bank overdraft of £1,090. Sandra's capital account as at 30 September 20x18 is: £33,360. £35,540. c) £38,360. d) £38,660. Debit Credit Ovens 38,000.00 Inventories 4,100.00 Payables 2,650.00 Loan 5,000.00 Bank overdraft 1,090.00 Captial   ? 42,100.00 42,100.00

16. Where business comes to life Additional question 1 Sandra's bakery business has the following account balances at 30 September 20x18: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000 and a bank overdraft of £1,090. Sandra's capital account as at 30 September 20x18 is: £33,360. £35,540. c) £38,360. d) £38,660. Answer is A

17. Where business comes to life Additional question 2 If sales (including VAT) amounted to £28,200 and purchases (excluding VAT) amounted to £18,000, the balance on the VAT account, assuming all items are subject to VAT at 20%, would be: A) 1,100 debit B) 1,100 credit C) 1,682.10 debit D) 1,682.10 credit

18. Where business comes to life Additional question 2 If sales (including VAT) amounted to £28,200 and purchases (excluding VAT) amounted to £18,000, the balance on the VAT account, assuming all items are subject to VAT at 20%, would be: A) 1,100 debit B) 1,100 credit C) 1,682.10 debit D) 1,682.10 credit Output = 4700 =28200*20/120 Input = 3600 =18000*0.2 1100

19. Where business comes to life Additional question 2 If sales (including VAT) amounted to £28,200 and purchases (excluding VAT) amounted to £18,000, the balance on the VAT account, assuming all items are subject to VAT at 20%, would be: A) 1,100 debit B) 1,100 credit C) 1,682.10 debit D) 1,682.10 credit Answer is B Output = 4700 =28200*20/120 Input = 3600 =18000*0.2 1100

20. Where business comes to life CHAPTER 6

21. Where business comes to life 1. Which three of the following situations are likely to result in a suspense account being used to record a transaction? A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% prompt payment discount. A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%. A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700. A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which the bookkeeper was unsure where to record the credit entry. A payment made to a supplier for £90.25 in respect of an invoice for £95 on which a prompt payment discount of 5% was expected to be taken. Answer is A, C and D

22. Where business comes to life 4 . Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn. On comparing this with the transaction report downloaded from the electronic banking system, the accountant discovers the following: 1 A payment of £57 made by Epsilon on 29 December 20X3 has not yet cleared its bank. 2 An electronic funds transfer of £92 from a customer, which was paid into the bank on 24 December 20X3, has been dishonoured by the customer’s bank on 31 December 20X3. The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is: £473 debit £714 credit £657 credit £473 credit Answer is C

23. Where business comes to life 5. Smyths's draft profit for the year is £324,700. After the draft profit was calculated, the following issues were discovered. Debts of £6,800 should have been written off as irrecoverable at the year end, but the journal entry was not posted. The accounting system had automatically calculated and recorded depreciation, but the standing data was found to be incorrect. The depreciation rate for cars should have been updated to 20% straight-line at the start of the year, but was left as 25% straight-line in error. The balance on the car cost account at the year end was £24,000. There were no additions or disposals of cars in the year. What is Smyths's corrected profit for the year after accounting for the above issues? A £323,500 B £319,100 C £313,100 D £316,700 Answer is B

24. Where business comes to life 7. The following information relates to a bank reconciliation. The balance in the cash at bank account before taking the items below into account was £8,970 overdrawn. 1 Bank charges of £550 on the bank statement have not been entered in the cash at bank account. 2 The bank has credited the account in error with £425 which belongs to another customer. 3 Electronic payments totalling £3,275 made shortly before the year end have been entered in the cash at bank account but have not been cleared for payment. 4 Cash receipts totalling £5,380 have been correctly entered on the debit side of the cash at bank account but have not been paid in at the bank. What was the overdrawn balance as shown by the bank statement? A) £6,990 B) £10,650 C) £11,200 D) £11,625 Answer is C

25. Where business comes to life

26. Where business comes to life 9. Alpha received a statement from its credit supplier Beta, showing a balance to be paid of £8,950. Alpha's payables ledger for Beta shows a balance due to Beta of £4,140. Investigation reveals the following: 1. A bank transfer made to Beta of £4,080 has not been recorded by Beta. 2. Alpha has not adjusted the payables ledger for a £40 cash discount taken by Alpha but not allowed by Beta as payment was not made on time. 3. Goods costing £380 returned by Alpha have not been recorded by Beta. What discrepancy remains between Alpha's and Beta's records after accounting for these items? A £9,310 B £390 C £310 D £1,070 Answer is C

27. Where business comes to life 15. The following trade payables account contains some errors. All goods are purchased on credit. What would be the closing trade payables balance when the errors have been corrected? A £325,200 B £350,400 C £333,600 D £410,400 Answer is A

28. Where business comes to life 20 . In the trade payables of Magma plc, an invoice of £807 from Ferdinand has been recorded as a credit note. After correcting this error, the trade payables balance will be: A reduced by £807 B reduced by £1,614 C increased by £807 D increased by £1,614 Answer is D

29. Where business comes to life 21. Beta Ltd has calculated a draft gross profit of £150,000 and a draft net profit of £83,000 for the year ended 31 December 20X3. Two issues were then discovered: (1) Inventory costing £5,000, with a resale value of £7,500, was received into the warehouse on 2 January 20X4 but had been included in the closing inventory amount at 31 December 20X3. (2) £10,000 relating to staff training costs was incorrectly capitalised as part of the purchase cost of a new machine which had been purchased on 1 July 20X3. Beta Ltd depreciates machinery on a straight-line basis at a rate of 20% per annum. Depreciation should be included as an administrative expense in the year. After correcting these issues, what amounts should Beta Ltd report for gross profit and net profit? A Gross profit: £142,500; Net profit: £66,500 B Gross profit: £145,000; Net profit: £69,000 C Gross profit: £145,000; Net profit: £74,000 D Gross profit: £142,500; Net profit: £65,500 Answer is B

30. Where business comes to life 24. Catt plc has prepared its draft statement of profit or loss at 31 May 20X1 which shows a gross profit of £99,500. Catt plc has now discovered that at both the beginning and the end of the period, one line of inventory, the Sungsa , has been included at selling price: £1,240 at 31 May 20X1 and £3,720 at 1 April 20X0. The Sungsa is always sold at a mark-up of 25% by Catt plc. After correcting this error Catt plc’s gross profit for the year to 31 May 20X1 is: A £99,996 B £99,004 C £98,880 D £100,120

31. Where business comes to life 24. Catt plc has prepared its draft statement of profit or loss at 31 May 20X1 which shows a gross profit of £99,500. Catt plc has now discovered that at both the beginning and the end of the period, one line of inventory, the Sungsa , has been included at selling price: £1,240 at 31 May 20X1 and £3,720 at 1 April 20X0. The Sungsa is always sold at a mark-up of 25% by Catt plc. After correcting this error Catt plc’s gross profit for the year to 31 May 20X1 is: A £99,996 B £99,004 C £98,880 D £100,120 Answer is A

32. Where business comes to life 26. Hood plc has a draft net profit of £540,000 for the year ended 31 October 20X2. It discovered the following errors: (1) Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and fittings. Hood plc depreciates fixtures and fittings at 25% per annum. (2) An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a customer was debited to trade receivables and credited to sales. On correction of these errors Hood plc’s net profit will be: A £535,050 B £531,480 C £533,265 D £536,430

33. Where business comes to life 26. Hood plc has a draft net profit of £540,000 for the year ended 31 October 20X2. It discovered the following errors: (1) Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and fittings. Hood plc depreciates fixtures and fittings at 25% per annum. (2) An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a customer was debited to trade receivables and credited to sales. On correction of these errors Hood plc’s net profit will be: A £535,050 B £531,480 C £533,265 D £536,430 Answer is B

34. Where business comes to life 30. Topping plc’s initial trial balance for the year ended 31 October 20X9 has been prepared. It shows draft profit for the period of £58,147 and a credit balance on a suspense account of £738 in respect of accrued expenses. The bookkeeper was unsure of how to record the accrual and incorrectly debited £738 to prepayments and credited the suspense account. What is Topping plc’s profit for the period after this error has been corrected? A £59,623 B £57,409 C £58,885 D £56,671

35. Where business comes to life 30. Topping plc’s initial trial balance for the year ended 31 October 20X9 has been prepared. It shows draft profit for the period of £58,147 and a credit balance on a suspense account of £738 in respect of accrued expenses. The bookkeeper was unsure of how to record the accrual and incorrectly debited £738 to prepayments and credited the suspense account. What is Topping plc’s profit for the period after this error has been corrected? A £59,623 B £57,409 C £58,885 D £56,671 Answer is B

36. Questions? Where business comes to life