Preparation of financial statements of sole traders (AS Level) flashcards

Topic 6: Preparation of financial statements of sole traders

Rates paid $6,240; $380 prepaid at the start; $290 owing at the end. Rates charge?

6,240 + 380 + 290 = $6,910.

Rent received $9,900, of which $825 relates to next year. Income, and how is $825 shown?

Income $9,075. The $825 is income received in advance, an other payable under current liabilities.

Wages owing $560 at the start; paid $41,300; owing $735 at the end. Charge?

41,300 − 560 + 735 = $41,475. The $735 credit balance is an other payable.

Cost $21,000 at 20% reducing balance. Year 2 charge?

20% × (21,000 − 4,200) = 20% × 16,800 = $3,360, not $4,200 again.

Receivables $36,500; write off $500; provision 2%. Provision?

2% × 36,000 = $720, not $730: write off irrecoverable debts first.

Receivables $29,500; 4% provision; last year's provision $1,320. Income statement entry?

New provision $1,180, a decrease of $140, shown as income.

Equipment bought for $9,600 has been depreciated by $7,050. It is sold for $2,800. Result?

Carrying amount $2,550. Profit on disposal $250.

The owner takes home stock that cost the business $385. Entry?

Debit drawings $385, credit purchases $385 (business entity).

Goods on sale or return were recorded as sales at $1,560, priced at cost plus 30%; not accepted. Inventory value?

1,560 ÷ 1.3 = $1,200 at cost. Revenue and trade receivables both fall by $1,560.

A debt of $820 written off last year is received in full. Entries?

Debit the customer, credit irrecoverable debts recovered $820; then debit bank, credit the customer $820. The $820 is income.

Other payable vs trade payable

Trade payables are amounts owed to credit suppliers of goods. Other payables are accrued expenses and income received in advance.