Category: Accounting-Question and Answer

The following information is available for the year ended 31 December 20X6 for a trader who does not keep proper accounting records:

	$
Inventories at 1 January 20X6	9,500
Inventories at 31 December 20X6	11,250
Purchases	159,250

Gross profit percentage on sales = 40%

Based on this information, what was the trader’s sales figure for the year?

Answer

	$
Cost of sales
Opening inventory	9,500
Purchases	159,250
Less: closing inventory	(11,250)
	157,500

Margin = (sale –cost)/sale = 40%

Sales = 157,500 x 100/60 = $262,500

On 31 December 20X2 the inventory of V was completely destroyed by fire. The following information is available:

1.Inventory at 1 December 20X2 at cost $7,100

2.Purchases for December 20X2 $12,400

3.Sales for December 20X2 $16,200

4.Standard gross profit percentage on sales revenue 25%

Based on this information, which of the following is the amount of inventory destroyed?

Answer

Margin = (sale –cost)/sale = 25% or

	$
Sales (100%)	16,200
Cost of sales (75%)	12,150
Gross profit (25%)	4,050
	$
Opening inventory	7,100
Purchases	12,400
	19,500
Calculated closing inventory (bal fig)	(7,350)
Cost of sales	12,150
Calculated closing inventory	7,350
Actual closing inventory	–
Destroyed by fire	7,350

A sole trader who does not keep full accounting records wishes to calculate her sales revenue for the year.

The information available is:

1. Opening inventory   $4,250
2. Closing inventory   $6,000
3. Purchases   $22,750
4. Standard gross profit percentage on sales revenue   40%

Which of the following is the sales figure for the year calculated from these figures ?

Answer

Cost of sales= opening inventory + purchase – closing inventory

= $4,250 + $22,750 – $6,000 = $21,000

Sales   100%

Cost of sales   60%

Gross profit   40%

Margin = (sale –cost)/sale = 40%

Sales = $21,000 /60% = $35,000

Selena fixes prices to make a standard gross profit percentage on sales of 30%.

The following information for the year ended 31 January 20X5 is available to compute her sales total for the year.

		$
Inventory:	1 February 20X4	60,750
	31 January 20X5	65,425
Purchases		148,850
Purchases returns		10,300

What is the sales figure for the year ended 31 January 20X5?

Answer

Cost of sales

	$
Opening inventory	60,750
Purchases	148,850
Less: purchases returns	(10,300)
	199,300
Less: closing inventory	(65,425)
	133,875

Margin = (sale –cost)/sale = 30%

Sales = 133,875 x 100/70 = $191,250

Selena does not keep proper accounting records, and it is necessary to calculate her total purchases for the year ended 31 January 20X5 from the following information:

		$
Trade payables:	31 January 20X4	32,600
	31 January 20X5	42,813
Payment to suppliers		222,100
Cost of goods taken from inventory by Selena for her personal use		250
Refunds received from suppliers		600
Discounts received		2,800

What is the figure for purchases that should be included in Selena’s financial statements?

Answer

PURCHASES CONTROL ACCOUNT
	$		$
Payments to suppliers	222,100	Opening balance	32,600
Discounts received	2,800	Goods taken	250
Closing balance	42,813	Refunds received	600
	–	Purchases (bal fig)	234,263
	267,713		267,713

A sole trader’s business made a profit of $65,000 during the year ended 31 March 20X7. This figure was after deducting $200 per week wages for himself. In addition, he put his home telephone bill through the business books, amounting to $800 plus sales tax at 15%. He is registered for sales tax and therefore has charged only the net amount to his statement of profit or loss and other comprehensive income.

His capital at 1 April 20X6 was $13,000. What was his capital at 31 March 20X7?

Answer

	$
Capital at 1 April 20X6	13,000
Add: profit (after drawings)	65,000
Less: sales tax element(800 x 16%)	(128)
Capital at 31 March 20X7	77,872

A fire on 30 September 20X4 destroyed some of a company’s inventory and its inventory records.

The following information is available:

	$
Inventory 1 September 20X4	79,500
Sales for September 20X4	153,000
Purchases for September 20X4	103,000
Inventory in good condition at 30 September 20X4	53,500

Standard gross profit percentage on sales is 35%

Based on this information, what is the value of the inventory lost?

Answer

Margin = (sale –cost)/sale = 35% ,so cost = sale x 65%

	$
Opening inventory	79,500
Purchases	103,000
Closing inventory	(53,500)
Cost of sale	129,000
Notional cost of sales (153,000 x 65%)	(99,450)
Inventory lost	29,550

A sole trader fixes her prices by adding 50 per cent to the cost of all goods purchased. On 31 July 20X5 a fire destroyed a considerable part of the inventory and all inventory records.

Her trading account for the year ended 31 July 20X5 included the following figures:

	$	$
Sales		70,314
Opening inventory at cost	45,900
Purchases	62,300
	108,200
Closing inventory at cost	(51,150)
		(57,050)
Gross profit		13,264

Using this information, what inventory loss has occurred?

Answer

Markup on Cost  50%

Markup = ( sale – cost) / cost = 50%

Sale = cost + cost x 50% = 150 % x cost

So cost = sale / 150%  = $70,314 / 150% = $46,876

Loss of inventory = $57,050 – $46,876 = $10,174

A sole trader fixes his prices to achieve a gross profit percentage on sales revenue of 25%. All his sales are for cash. He suspects that one of his sales assistants is stealing cash from sales revenue.

His trading account for the month of July 20X5 is as follows:

	$
Recorded sales revenue	39,000
Cost of sales	30,000
Gross profit	9,000

Assuming that the cost of sales figure is correct, how much cash could the sales assistant have taken?

Answer

Margin = (sale –cost)/sale = 25%, so we can find sale

Cost of sales = $30,000

Therefore sales should be = $30,000 x 100/75 = $40,000

Theft = $40,000 – 39,000  = $1,000

A business has compiled the following information for the year ended 31 December 20X2:

	$
Opening inventory	96,550
Purchases	247,250
Closing inventory	105,675

The gross profit as a percentage of sales is always 20%

Based on these figures, what is the sales revenue for the year?

Answer

	$
Opening inventory	96,550
Purchases	247,250
Closing inventory	(105,675)
Cost of sales	238,125

Sales revenue = 238,125 / 0.8 = 238,125 x 100/80 = $297,656

More Explanation

Gross Profit = sale – cost of sale

Markup on Cost  20%

Markup = ( sale – cost) / cost = 20%

• gross profit = cost x 20%
• Sale = cost + cost x 20% = 120 % x cost

Gross profit = sale – cost = cost + cost x 20% – cost = cost x 20%

Margin 20% (gross profit percentage on sales revenue of 20%)

Margin = (sale –cost)/sale = 20%

• gross profit = sale x 20%
• Gross profit = sale – cost => sale x 20% = sale – cost , so Sale

= cost / 0.8 = cost / (80/100) = cost x 100 / 80

The trial balance of Z failed to agree, the totals being:

debit $209,050

credit $204,925

A suspense account was opened for the amount of the difference and the following errors were found and corrected:

1. The totals of the cash discount columns in the cash book had not been posted to the discount accounts. The figures were discount allowed $975 and discount received $1,275.
2. A cheque for $4,750 received from a customer was correctly entered in the cash book but was posted to the control account as $2,275.

What will be the remaining balance on the suspense be after the correction of these errors?

1/

Suspense Account

Dr. Suspense Account…. ……………….975

Cr. AR………………………………………………………..…975

Dr. AP…………………………………………. 1,275

Cr. Suspense Account……………………………….1,275

Adjusting Entry

Dr. discount allowed……………………975

Cr. Suspense Account……………………………….. 975

Dr. Suspense Account…………………1,275

Cr. Discount received………………………………1,275

2/

Suspense Account

Dr. Cash…………………………………….. 4,750

Cr. AR…………………………………………………………. 2,275

Cr. Suspense Account…………………………………2,475

Adjusting Entry

Dr. Suspense Account………………2,475

Cr. AR………………………………………………………….. 2,475

Answer

Suspense account	$
Opening balance(credit $204,925-debit $209,050)	4,125	credit
Discount allowed	975	credit
Discount received)	(1,275)	debit
Transposition of cash received	(2,475)	debit
Remaining balance on the suspense	1,350	credit

A company’s trial balance failed to agree, the out of balance difference of $6,250 being posted to a suspense account.

Subsequent investigation revealed the difference was due to one side of an entry to record the purchase of machinery for $6,250, by cheque, failing to post to the plant and machinery account.

Make journal entries to correct the error.

Answer

Wrong entry / Suspense Account

Dr. Suspense Account………..6,250

Cr. Bank…………………………..….6,250

Adjusting Entry

Dr. Plant and machinery…..6,250

Cr. Suspense account………………6,250

A suspense account was opened when a trial balance failed to agree. The following errors were later discovered.

• A gas bill of $1,680 had been recorded in the gas account as $960.
• A discount of $200 given to a customer had been credited to discounts received.
• Interest received of $280 had been entered in the bank account only.

What was the original balance on the suspense account?

Answer

SUSPENSE ACCOUNT
	$		$
Balance	840	Gas bill (1,680 – 960)	720
Interest	280	Discount (2 x 200)	400
	1,120		1,120

Journal Entry and Adjusting Entry

Transaction	Suspense Account & wrong entry	Adjusting Entry
Gas	Dr. Gas………………………… 960	Dr. Gas……………………720
	Dr. Suspense Account…..720	Cr. Suspense Account…………720
	Cr. Cash / Payable……………….1,680
Discount allowed	Dr. Suspense Account…..400	Dr. Discount allowed…200
	Cr. Discounts received…………200	Dr. Discount received…200
	Cr. AR………………………………….200	Cr. Suspense Account………….400
Interest	Dr. Bank………………………..280	Dr. Suspense Account…280
	Cr. Suspense account……………280	Cr. Interest income…………….280

ABC Co has total assets of $162,500 and profit for the year of $37,500 recorded in the financial statements for the year ended 31 December 20X4. Inventory costing $12,500, with a resale value of $18,750, was received into the warehouse on 3 January 20X5 and included in the inventory value that was recorded in the financial statements at 31 December 20X4.

What would the total assets figure in the Statement of Financial Position, and the adjusted profit for the year figure, be after adjusting for this error?

Answer

$162,500 – $12,500  = $150,000. (Total assets)

$37,500 – $12,500 = $25,000. (Profit for the year)

The following balances have been extracted from the nominal ledger accounts of XYZ Company, but the figure for bank loan is unknown. There are no other accounts in the main ledger.

	$
Payables	6,750
Capital	16,500
Purchases	40,000
Sales	75,000
Other expenses	27,500
Receivables	8,250
Purchase returns	500
Non-current assets	30,000
Cash in bank	4,500
Bank loan	Unknown

What is the credit balance on the bank loan account?

Answer

Debit balances	$	$
Purchases	40,000
Non-current assets	30,000
Receivables	8,250
Other expenses	27,500
Bank	4,500
		110,250
Credit balances
Payables	6,750
Capital	16,500
Sales	75,000
Purchase returns	500
		98,750
Bank loan (credit balance)		11,500

The following are balances on the accounts of David, 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	21,250
Receivables	1,750
Trade payables	750
Bank loan	3,750
Allowance for depreciation, non-current assets	3,750
Inventory	1,000
Accruals	250
Prepayments	500
Bank overdraft	500

What is the balance on David’s capital account?

Answer

	Debit	Credit
	$	$
Non-current assets	21,250
Receivables	1,750
Trade payables		750
Bank loan		3,750
Allowance for depreciation, non-current assets		3,750
Inventory	1,000
Accruals		250
Prepayments	500
Bank overdraft	–	500
	24,500	9,000

Capital = $24,500 – $9,000= $15,500

A business statement of profit or loss and other comprehensive income for the year ended 31 December 20X6 showed a net profit of $20,900. It was later found that $4,500 paid for the purchase of a motor van had been debited to motor expenses account. It is the company’s policy to depreciate motor vans at 25 per cent per year, with a full year’s charge in the year of acquisition.

What would the net profit be after adjusting for this error?

Answer

	$
Draft net profit	20,900
Add: purchase price	4,500
Less: additional depreciation (4,500 x 25%)	(1,125)
Adjusted profit	24,275

The following attempt at a bank reconciliation statement has been prepared by ABC Co:

	$
Overdraft per bank statement	9,650
Add: deposits not credited	10,300
	19,950
Less: unpresented cheques	825
Overdraft per cash book	19,125

Assuming the bank statement balance of $9,650 to be correct, what should the cash book balance be?

Answer

	$
Overdraft	(9,650)
Outstanding lodgements	10,300
	650
Unpresented cheques	(825)
Overdraft per cash book	(175)

The following bank reconciliation statement has been prepared by a trainee accountant:

	$
Overdraft per bank statement	965
Less: unpresented cheques	2,290
	1,325
Add: deposits credited after date	4,173
Cash at bank as calculated above	5,498

What should be the correct balance per the cash book?

Answer

	$
Overdraft	(965)
Unpresented cheques	(2,290)
	(3,255)
Outstanding lodgements	4,173
Cash at bank	918

The following bank reconciliation statement has been prepared by a trainee accountant:

BANK RECONCILIATION 30 SEPTEMBER 20X3
	$
Balance per bank statement (overdrawn)	9,210
Add: lodgements credited after date	12,810
	22,020
Less: unpresented cheques	10,905
Balance per cash book (credit)	11,115

Assuming the amounts stated for items other than the cash book balance are correct, what should the cash book balance be?

Answer

	$
Bank statement	(9,210)
Deposits credited after date	12,810
Unpresented cheques	(10,905)
Balance per cash book (o/d)	(7,305)

The following information relates to a bank reconciliation.

(i) The bank balance in the cash book before taking the items below into account was $2,243 overdrawn.

(ii) Bank charges of $138 on the bank statement have not been entered in the cashbook.

(iii) The bank has credited the account in error with $107 which belongs to another customer.

(iv) Cheque payments totaling $819 have been entered in the cashbook but have not been presented for payment.

(v) Cheques totaling $1,345 have been correctly entered on the debit side of the cashbook but have not been paid in at the bank.

What was the balance as shown by the bank statement before taking the above items into account?

Answer

Cash book	$	Bank statement	$
Balance	(2,243)	Balance (bal fig)	(2,800)
Bank charges	(138)	Credit in error	(107)
		Unpresented cheques	(819)
	–	Outstanding deposits	1345
	(2,381)		(2,381)

The bank statement on 31 August 20X9 showed an overdraft of $6,400. On reconciling the bank statement, it was discovered that a cheque drawn by your company for $640 had not been presented for payment, and that a cheque for $1,040 from a customer had been dishonoured on 30 August 20X9, but that this had not yet been notified to you by the bank.

What is the correct bank balance to be shown in the statement of financial position at 31 August 20X9 ?

Answer

	$
Balance per bank statement	(6400)
Unpresented cheque	(640)
Dishonoured cheque (affects cash book only)	–
	(7040)

A business had a balance at the bank of $5,000  at the start of the month. During the following month, it paid for materials invoiced at $2,000  less trade discount of 20% and cash discount of 15%. It received a cheque from a customer in respect of an invoice for $400, subject to cash discount of 5%.

What was the balance at the bank at the end of the month?

Answer

	$
Opening bank balance	5,000
Payment ($2,000 – $400 ) x 85%	(1,360)
Receipt ($400 – $20)	380
Closing bank balance	4,020

The cash book shows a bank balance of $22,700  overdrawn at 31 August 20X7. It is subsequently discovered that a standing order for $500  has been entered twice, and that a dishonoured cheque for $1,800  has been debited in the cash book instead of credited.

What is the correct bank balance?

Answer

	$
Balance	(22700)
Standing order	500
Dishonoured cheque (1,800 x 2)	(3600)
correct bank balance (o/d)	(25800)

Your cash book at 31 December 20X5 shows a bank balance of $2,260 overdrawn. On comparing this with your bank statement at the same date, you discover the following.

1.A cheque for $228 drawn by you on 25 December 20X5 has not yet been presented for payment.

2.A cheque for $368 from a customer, which was paid into the bank on 23 December 20X5, has been dishonoured on 31 December 20X5.

What is the correct bank balance to be shown in the statement of financial position at 31 December 20X5?

Answer

Correct bank balance

= $(2,260)o/d – $368 dishonoured cheque = $(2,628) o/d

The accountant at XYZ Co has prepared the following reconciliation between the balance on the trade payables ledger control account in the general ledger and the list of balances from the suppliers ledger:

	$
Balance on general ledger control account	17,142
Credit balance omitted from list of balances from payables ledger	(32)
	17,110
Undercasting of purchases day book	25
Total of list of balances	17,135

What balance should be reported on XYZ Co’s statement of financial position for trade payables?

Answer

	Control account	List of balances
	$	$
Balance/total	17,142	17,135
Credit balance omitted	–	32
Undercasting of day book	25	–
	17,167	17,167

The balance on ABC Co’s payables ledger control account is $63,108. The accountant at ABC Co has discovered that she has not recorded:

A settlement discount of $108  received from a supplier; and

A supplier’s invoice for $1,244.

What amount should be reported for payables on ABC Co’s statement of financial position?

Answer

Balance per ledger	$63,108
Discount	($108)
Invoice	$1,244
Corrected balance	$64,244

 

At 1 May 20X8, the payables ledger control account showed a balance of $35,580.

At the end of May the following totals are extracted from the subsidiary books for May:

	$
Purchases day book	45,950
Returns outwards day book	6,873
Returns inwards day book	3,310
Payments to payables, after deducting $358 cash discount	49,090

It is also discovered that:

(a)The purchase day book figure is net of sales tax at 20%; the other figures all include sales tax.

(b)A customer’s balance of $605 has been offset against his balance of $913 in the payables ledger.

(c)A supplier’s account in the payables ledger, with a debit balance of $200, has been included on the list of payables as a credit balance.

What is the corrected balance on the payables ledger control account?

Answer

PAYABLES LEDGER CONTROL ACCOUNT
	$		$
Returns outwards	6,873	Balance b/f	35,580
Payments to payables	49,090	Credit purchases (45,950 x 1.20)	55,140
Discount received	358
Contra	605
Balance c/f	33,794		–
	90,720		90,720
		Balance b/f	33,794

Your company sold goods to ABC Co for $3,200 less trade discount of 10% and cash discount of 5% for payment within 15 days. The invoice was settled by cheque five days later.

Make entries to record both of these transactions ?

Answer

		$
Sales price		3,200
Less: 10% trade discount		320
Sale		2,880
Cash discount 5%	Discount allowed	144
Cash payment	Bank	2,736
		2,880

Journal Entry

Sale

Dr. trade receivable………….2,880

Cr. Sale………………………………………… 2,880

Payment

Dr. Bank…………………………… 2,736

Dr. Discount allowed……….. 144

Cr. Trade receivable………………………2,880

The following receivables ledger control account prepared by a trainee accountant contains a number of errors:

RECEIVABLES LEDGER CONTROL ACCOUNT
		$			$
20X5			20X5
01-Jan	Balance	153,500	31-Dec	Credit sales	75,250
31-Jan	Cash from credit customers	77,750		Discounts allowed	850
	Credit sales	38,550		Irrecoverable debts written off	8,000
	Contras against amounts due to suppliers in payables ledger	2163		Interest charged on overdue accounts	400
		–		Balance	148,913
		233,413			233,413

What should the closing balance on the control account be after the errors in it have been corrected?

Answer

RECEIVABLES LEDGER CONTROL ACCOUNT
	$		$
Opening balance	153,500	Cash from customers	77,750
Credit sales	75,250	Discounts allowed	850
Interest charged on  overdue accounts	400	Irrecoverable debts written off	8,000
		Contras	2,163
	–	Closing balance	140,387
	229,150		229,150

 

The following control account has been prepared by a trainee accountant:

RECEIVABLES LEDGER CONTROL ACCOUNT
	$		$
Opening balance	77,150	Cash received from credit customers	36,800
Credit sales	38,550	Discounts allowed to credit customers	350
Cash sales	22,025	Interest charged on overdue accounts	600
Contras against credit payables balances in ledger	1,150	Irrecoverable debts written off	1,225
		Allowance for receivables	700
	–	Closing balance	99,200
	138,875		138,875

What should the closing balance be when all the errors made in preparing the receivables ledger control account have been corrected?

Answer

RECEIVABLES LEDGER CONTROL ACCOUNT
	$		$
Opening balance	77,150	Cash received	36,800
Credit sales	38,550	Discounts allowed	350
Interest charged	600	Contra	1,150
		Irrecoverable debts	1,225
	–	Closing balance	76,775
	116,300		116,300

An inexperienced bookkeeper has drawn up the following receivables ledger control account:

RECEIVABLES LEDGER CONTROL ACCOUNT
	$		$
Opening balance	45,000	Credit sales	47,500
Cash from credit customers	57,000	Irrecoverable debts written off	375
Sales returns	2,000	Contras against payables	600
Cash refunds to credit customers	825	Closing balance (balancing figure)	57,400
Discount allowed	1,050		–
	105,875		105,875

What should the closing balance be after correcting the errors made in preparing the account?

Answer

RECEIVABLES LEDGER CONTROL ACCOUNT
	$		$
Opening balance	45,000	Cash from credit customers	57,000
Credit sales	47,500	Irrecoverable debts written off	375
Cash refunds	825	Sales returns	2,000
		Discount allowed	1,050
		Contras	600
	–	Closing balance	32,300
	93,325		93,325

A receivables ledger control account had a closing balance of $2,125. It contained a contra to the payables ledger of $100, but this had been entered on the wrong side of the control account.

What should be the correct balance on the control account?

Answer

$2,125 – (2 x $100) = $1,925

Your payables control account has a balance at 1 October 20X6 of $8,625 credit. During October, credit purchases were $19,600, cash purchases were $600 and payments made to suppliers, excluding cash purchases, and after deducting settlement discounts of $300, were $17,225. Purchase returns were $1,175.

What was the closing balance?

Answer

	$
Opening balance	8,625
Credit purchases	19,600
Discounts	(300)
Payments	(17,225)
Purchase returns	(1,175)
	9,525