Preparing the Trading and Profit and Loss Account in the General Ledger

Prepare the trading and profit and loss accounts in the general ledger

Contents Introduction 3 Procedure for posting to general ledger accounts 3 Preparing financial reports for management 16 Sales returns and purchases returns 26 Discounts allowed 27 Discounts received 28 Feedback to activities 30

This learning guide is based on the following resource(s): Textbook Duncan A (2006) Introductory Accounting, National Core Accounting Publications, Bondi

Note A new edition of this textbook was being published at the same time as this resource. Where possible, we have provided a second Key to resources to this new edition.

Prepare the trading and profit and loss accounts in the general ledger 1 © NSW DET 2006 2006/053/12/2006 LRR 4807/5096

Key to resources

Resource Textbook (2006 edition)

1 Chapter 16 ‘Closing entries’, sections 16.1 to 16.6 2 Chapter 16, section 16.7, p 498 3 Chapter 16, section 16.7, p 499

Resource Textbook (2007 edition)

1 Chapter 14 ‘Closing entries’, sections 14.1 to 14.6 2 Chapter 14, section 14.7, pp 448 – 450 (periodic inventory) 3 Chapter 14, section 14.7, pp 451 – 453 (perpetual inventory)

2 Prepare the trading and profit and loss accounts in the general ledger © NSW DET 2006 2006/053/12/2006 LRR 4807/5096

Introduction After the balance day adjustments have been prepared in the general journal, they are posted to their respective accounts in the general ledger.

Procedure for posting to general ledger accounts Net profit or loss is then found in the general ledger with the following procedure: 1 Open a trading account in the general ledger and find gross profit by transferring sales and cost of goods sold. 2 Transfer gross profit to the profit and loss account and transfer all income and expense accounts to the profit and loss account to find net profit or loss. 3 Transfer the balance of the profit and loss account representing net profit or loss to the capital account. 4 Transfer the balance of the drawings account to the capital account.

After the completion of these steps the accounts with balances in the general ledger will be assets, liabilities and owner’s equity (capital). These accounts will be used to prepare the balance sheet. All income and expense accounts will have been transferred to trading and profit and loss accounts and finally are reflected in the capital account as the net profit or loss.

Now go to Resource 1

The Key to resources is located at the beginning of this learning guide.

Note the closing journal entries in the example for Strategic Enterprises. This example, however, is for periodic inventory. Note that the closing inventory of $160 000 is brought to account under the periodic inventory method.

The main focus in your studies is on perpetual inventory. The following comprehensive example for In Sufficient is based on perpetual inventory.

Example

The trial balance of In Sufficient as at 30 June 20x7 disclosed:

$ $ Inventory 30 600 Accounts receivable 10 800 Bank 22 400 Plant and equipment 182 600 Accumulated depreciation – plant and equipment 33 000 Accounts payable 10 200 GST clearing account 6 000 Drawings 22 600 Capital 228 400 Sales 349 000 Commission income 400 Cost of goods sold 267 000 Advertising 11 800 General salaries 51 800 Electricity and phone 18 800 General expenses 6 400 Discount allowed 2 200

627 000 627 000

Balance day adjustments are required for: $ General salaries due not paid 1 200 Advertising paid in advance 1 600 Bad debt (including GST) to be written off 1 100 Commission income due—not received 300 Depreciation charge for year—plant and equipment 34 200

Required (a) Prepare general journal entries for the balance day adjustments. (b) Open the general ledger. (c) Post the balance day adjustments to the general ledger. (d) Prepare closing general journal entries. (e) Post the closing general journal entries to the general ledger. (f) Extract an adjusted trial balance.

Solution

Balance day adjustment general journal entries

General journal of In Sufficient Date Account Folio Debit $ Credit $

20x7 June 30 General salaries 1 200 Expenses accrued 1 200 Salaries due – not paid Expenses prepaid 1 600 Advertising 1 600 Advertising paid in advance Bad debts 1 000 GST clearing account 100 Accounts receivable control 1 100 Bad debt written off Income accrued 300 Commission income 300 Income due – not received Depreciation – Plant and equipment 34 200 Accumulated depreciation – 34 200 Plant and equipment Depreciation charge for year

General ledger – In Sufficient

Inventory

20x7 June 30 Balance 30 600

Accumulated depreciation – Plant and equipment 20x7 June 30 Balance 33 000 Dep – Plant and equipment 34 200 67 200

GST clearing account

20x7 20x7 June 30 Account receivable 100 June 30 Balance 6 000 Balance c/d 5 900 6 000 6 000

Balance b/d 5 900

20x7 20x7 June 30 Trading 349 000 June 30 Balance 349 000

Cost of goods sold

20x7 20x7 June 30 Balance 267 000 June 30 Trading 267 000

General salaries

20x7 20x7 June 30 Balance 51 800 June 30 Profit and loss 53 000 Expenses accrued 1 200 53 000 53 000

Accounts receivable

20x7 20x7 June 30 Balance 10 800 June 30 Bad debts 1 100 Balance c/d 9 700 10 080 10 080

20x7 Jul 1 Balance b/d 9 700

Plant and equipment 20x7

June 30 Balance 182 600

Accounts payable

Capital

20x7 20x7 June 30 Profit and loss 43 100 June 30 Balance 228 400 Drawings 22 600 Balance c/d 162 700 228 400 228 400

20x7 July 1 Balance b/d 162 700

Drawings

20x7 20x7 June 30 Balance 22 600 June 30 Capital 22 600

Commission income

20x7 20x7 June 30 Profit and loss 700 June 30 Balance 400 Profit and loss 300 700 700

Advertising

20x7 20x7 June 30 Balance 11 800 June 30 Expenses prepaid 1 600 Profit and loss 10 200 11 800 11 800

Electricity and telephone

20x7 20x7 June 30 Balance 18 800 June 30 Profit and loss 18 800

General expenses

Expenses accrued

20x7 June 30 General salaries 1 200

Bad debts

20x7 20x7 June 30 Accounts receivable 1 000 June 30 Profit and loss 1 000

Depreciation – Plant and equipment

20x7 June 30 Accumulated depr Plant and equipment 34 200 20x7 Profit and loss 34 200 June 30

Discount allowed

Expenses prepaid

20x7 June 30 Advertising 1 600

Income accrued

20x7 June 30 Commission income 300

Trading account

20x7 20x7 June 30 Cost of goods sold 267 000 June 30 Sales 349 000 Profit and loss account 82 000 349 000 349 000

Profit and loss account

20x7 20x7 June 30 Advertising 10 200 June 30 Trading account 82 000 General salaries 53 000 Commission income 700 Electricity and phone 18 800 Capital account 43 100 General expenses 6 400 Discount allowed 2 200 Bad debts 1 000 Depreciation plant 34 200 and equipment 125 800 125 800

Closing general journal entries

General journal of In Sufficient Date Account Folio Debit $ Credit $

20x7 June 30 Sales 349 000 Trading account 349 000 Balance transferred Trading account 267 000 Cost of goods sold 267 000 Balance transferred Trading account 82 000 Profit and loss 82 000 Gross profit transferred Commission income 700 Profit and loss account 700 Balance transferred Profit and loss account 125 800 Advertising 10 200 General salaries 53 000 Electricity and phone 18 800 General expenses 6 400 Discount allowed 2 200 Bad debts 1 000 Depreciation plant and equipment 34 200 Balance transferred Capital 43 100 Profit and loss account 43 100 Net loss transferred Capital 22 600 Drawings 22 600 Balance transferred

In Sufficient Adjusted trial balance as at 30 June 20x7 Debit $ Credit $ Inventory 30 600 Accounts receivable 9 700 Bank 22 400 Plant and equipment 182 600 Accumulated depreciation – plant and equipment 67 200 Accounts payable 10 200 GST clearing account 5 900 Capital 162 700 Expenses accrued 1 200 Expenses prepaid 1 600 Income accrued 300 247 200 247 200

Commentary 1 The balance day adjustments have affected expense and income balances. In addition two asset accounts (expenses prepaid and income accrued) and one liability account (expenses accrued) have been introduced. 2 The closing general journal entries have closed off all the income and expense accounts, after the balance day adjustments, to trading and profit and loss accounts. 3 The balance of profit and loss account (a loss in this case) and drawings have been transferred to the capital account. 4 Then the accounts left open in the general ledger with balances make up the adjusted trial balance. The accounts are assets, liabilities and owner’s equity (capital).

Activity 1

Note: Feedback to all activities is provided at the end of this document.

The trial balance of Jack Straw as at 30 June 20x8 disclosed:

$ $ Inventory 58 565 Accounts receivable 18 245 Cash at bank 11 200 Petty cash 1 000 Land and buildings 239 941 Accumulated depreciation buildings 2 600 Motor vehicles 25 400 Accounts payable 9 280 GST clearing 8 102 Rent income 4 275 Sales 329 643 Cost of goods sold 195 875 Advertising 2 862 Office salaries 38 915 Rates and taxes 8 052 Light and power 10 329 Office cleaning 5 293 Bad debts 909 Drawings 17 314 Capital 280 000

633 900 633 900

Balance day adjustments are required for:  additional bad debt to be written off—$165 including GST  allowance for doubtful debts of 5% to be created after the bad debt write-off  rent income received in advance is $575

 depreciation of buildings of $2 600 and of motor vehicles of $5 080 is to be provided.

Required (a) General journal entries for the balance day adjustments (b) The trading and profit and loss accounts as they would appear in the general ledger (c) An adjusted trial balance after the balance day adjustments and the transfer of drawings and net profit or loss to the capital account

Activity 2

The trial balance of Jim Gillett as at 30 June 20x7 disclosed:

$ $ Inventory 49 570 Accounts receivable 16 660 Allowance for doubtful debts 330 Cash at bank 4 970 Land and buildings 198 000 Accumulated depreciation – Buildings 3 100 Motor vehicles 27 900 Accounts payable 6 780 GST clearing 2 370 Commission income 2 380 Sales 309 860 Cost of goods sold 178 630 Cartage outwards 3 410 Salaries and wages 43 920 Insurance 6 450 Light and power 10 330 Telephone and Internet 2 570 Bank charges 170 Drawings 15 200 Capital 232 960

557 780 557 780

Balance day adjustments are required for:  commission income due, not received $370  bad debt to be written off $660 including GST  allowance for doubtful debts to be adjusted to 3% of accounts receivable(after bad debt write-off)  holiday pay to be provided $880  a physical stocktake revealed inventory on hand $49 470  depreciation buildings $3 100 and motor vehicles $5 580 to be provided.

Required (a) General journal entries for the balance day adjustments (b) The trading and profit and loss accounts as they would appear in the general ledger (c) An adjusted trial balance after the balance day adjustments and the transfer of drawings and net profit to the capital account

Preparing financial reports for management The two key financial reports for management are the income statement and the balance sheet. There is another financial report—the statement of cash flows—however, that statement will be the subject of future studies.

Income statement

The income statement is prepared from the details in the general ledger for the trading account and profit and loss account. The income statement restates the information in the trading and profit and loss accounts and puts that information into a format more useful to management. It shows the results of the business operations for a given period. Recall that the following steps occurred for the preparation of the trading account and profit and loss account. 1 Balance day adjustments are recorded in the general journal. 2 The balance day adjustments are posted into the general ledger. 3 Closing general journal entries are recorded in the general journal. 4 The closing general journal entries are posted to the general ledger, including the trading and profit and loss accounts. 5 Net profit or loss is transferred to the capital account from the profit and loss account.

Look at the income statement shown in the textbook under section 16.7 for W Kenny. This income statement is prepared for a business using periodic inventory. If W Kenny was using perpetual inventory, the income statement would appear as per the one which follows.

Income statement of W Kenny for year ended 30 June 20x7

Sales (net) 117 900 Less: Cost of goods sold 62 498 Gross profit 55 402 Add: Other operating income 306 Discount received 306 Total income 55 708 Less: Operating expenses 34 220 Marketing 7 300 Advertising 1 400 Cartage outwards 1 500 Sales commission 4 400 Administration 22 980 Insurance 800 Depreciation 7 000 General expenses 3 500 Salaries and wages 11 680 Financial 3 940 Discount allowed 720 Doubtful debts 220 Interest on mortgage 3 000

Net profit 21 488

Note: The heading of the income statement is for a given period. Also note particularly the sub-headings under the main heading of ‘operating expenses’. The sub-headings are:  marketing (also known as selling and distribution)—includes any expense related to selling goods or services  administration (also known as general and administration)—includes all expenses not involved in marketing or finance  financial—includes the expenses incurred in obtaining or maintaining funds to operate the business.

Note also that the amounts shown in the income statement include any adjustment required by the balance day adjustments.

Activity 3

Prepare a classified income statement from the solution for the previous example for In Sufficient.

Balance sheet

Recall that, after the transfer of net profit or loss from the profit and loss account to the capital account and the transfer of drawings to the capital account, the remaining accounts with balances in the general ledger are assets, liabilities and owner’s equity (capital).

These accounts form the balance sheet. The balance sheet sets out the financial position of the business as at a specified date, hence the heading is as at a given date.

In the balance sheet for W Kenny in the textbook, note that the heading should read ‘as at 30 June 20x7’ and not ‘for the year ended’.

The balance day adjustments affecting assets and liabilities, eg accrued salaries and prepaid advertising, are reflected in the balance sheet.

The headings must be in the format shown, that is: Current assets—cash or assets generally convertible into cash within 12 months Non-current assets—assets to be kept beyond 12 months Total assets Current liabilities—liabilities expected to be paid within 12 months Non-current liabilities—liabilities expected to be paid beyond 12 months Total liabilities Net assets Owner’s equity (not capital as shown) Capital Add: Profit Less: Drawings

Note that under owner’s equity the capital account for the period is restated, that is:

Capital

Drawings xxxx Opening balance xxxx Profit and loss (net profit) xxxx

Activity 4

Prepare a balance sheet from the adjusted trial balance of the previous example for In Sufficient.

Activity 5

Prepare an income statement and balance sheet from the solution to Activity 1.

Activity 6

Nightingale trial balance as at 30 June 20x7

Debit $ Credit $ Sales 98 000 Commission income 4 000 Cost of goods sold 37 500 Advertising 2 000 Discount allowed 1 500 Discount received 500 Selling expenses 2 600 Office wages 1 750 Stationery 400 Insurance 800 Electricity 800 Cash at bank 16 000 Accounts receivable 18 000 Inventory 22 000 Land 40 000 Buildings 80 000 Accumulated depreciation – Buildings 20 000 Delivery vans 50 000 Accumulated depreciation – Delivery vans 10 000 Accounts payable 6 200 GST clearing account 7 800 Mortgage – Due 30 June 20x9 20 000 Capital – J Hopkins 108 850 Drawings 2 000 275 350 275 350

Additional information  Advertising of $400 was prepaid.  Office wages owing are $1 600.  Depreciation on delivery vans was $10 000.  Depreciation on building was $6 000.  Allowance for doubtful debts to be 5% of accounts receivable.  A physical stocktake disclosed an inventory value of $21 700.

Required (a) General journal entries for the balance date adjustments (b) Closing general journal entries (c) Trading account (d) Profit and loss account (e) Balance sheet

Activity 7

Seal and Co. Trial balance as at 30 June 20x7 Debit $ Credit $ Capital 137 900 Drawings 4 000 Bank 6 000 Inventory 17 200 Account receivable 26 000 Accounts payable 9 000 GST clearing 5 000 Land and buildings at cost 224 000 Fixtures and fittings at cost 11 000 Office equipment at cost 22 000 Accumulated dep – Office equipment 2 300 Motor vehicles at cost 44 000 Accumulated dep. – Motor vehicles 5 200 Mortgage on freehold – Due 30 June 20x8 108 000 Sales 472 760 Cost of goods sold 247 900 Rent income 5 000 Salaries – Sales 43 000 Advertising 4 400 Salaries – Office 44 000 Insurance 1 700 Discount allowed 2 400 Discount received 2 240 General wages 46 000 Commission – Sales 3 000 Telephone 1 360 Bad debts 240 Motor vehicle expenses 4 700 Office expenses 6 500 753 400 753 400

Additional information relating to 30 June 20x7  Rent income received in advance $600  General wages due and unpaid $1 200  Insurance paid in advance $500  Depreciation of motor vehicles $8 800 and of office equipment $1 100  Accounts receivable considered doubtful to the extent of 4%  Provision for long service leave $5 000 (due after 30th June 20x8)

Required (a) General journal entries for the balance day adjustments (b) Closing general journal entries (c) Income statement (d) Balance sheet

Activity 8

Acme Trading Trial balance as at 30 June 20x7 Debit $ Credit $ Capital 29 956 Drawings 200 Sales 7 580 Travelling expenses for sales people 320 Wages – Sales 2 400 Inventory 6 000 Electricity 600 Cost of goods sold 1 420 Interest income 160 Interest expense 96 Rates 100 Buildings 6 000 Accounts receivable 4 600 Accounts payable 4 500 GST clearing account 1 600 Allowance for doubtful debts 140 Insurance 200 10% Commonwealth bonds – Due 30th June 20x9 2 000 Bank 1 200 Loan from Blue Rory – Due 30th June 20x9 1 200 Machinery 20 000 $45 136 $45 136

Additional information  Provide for depreciation on machinery of $2 000 and buildings of $300.  Bad debt is to be written off: $220 including GST.  Provision for doubtful debts is to be adjusted to 5% of current trade accounts receivable (after bad debt write-off).  Accrued wages at 30th June 20x7 were $70.  Insurance paid in advance is $60.  Accrued interest income on bonds is $40.

Required (a) General journal entries for balance day adjustment (b) Income statement (c) Balance sheet.

Sales returns and purchases returns Some businesses will use separate general ledger accounts to record when a business either receives goods back from a customer (sales returns) or returns goods to a supplier (purchase returns). If they do use separate general ledger accounts, these accounts will need to be offset against the original sales general ledger account or purchases general ledger account at the end of the reporting period for the business (usually each year).

The journal entry to offset the balance of the sales returns account to the sales account would be:

Debit Sales Credit Sales returns

Alternative treatment

You do not need to use separate general ledger accounts for returns. You can simply record them directly in the same general ledger accounts used when goods were sold or purchased (as a reduction to the account). So, for sales returns, they can be recorded in the sales account. For purchase returns, it will depend on what inventory method is being used (i.e., the perpetual or the periodic method). If you are using the periodic method, the original purchase would have been recorded as a debit entry in the Purchases account. So the purchase return will be recorded as a credit entry in the purchases account.

However, if you are using the perpetual method, the original purchase would have been recorded as a debit entry in the inventory account. Therefore, the return would be recorded as a credit entry in the inventory account.

To record these returns in the journals, they should be shown as a negative entry under the sales column in the Sales Journal or the inventory column in the purchases journal.

Example

SDJ Date Invoice Particulars Fol Accounts Sales GST General no receivable clearing

20xx $ $ $ $ Mar 17 100024 North East 550.00 500.00 50.00 Wholesalers Mar 18 C00895 North East (55.00) (50.00) (5.00) Wholesalers

Discounts allowed When goods are sold on credit, the customer will pay their account at a later date. In some cases, we may offer a discount to encourage an earlier payment. It is important to record these discounts as part of the receipt transaction. As a result, you will see cash receipt transactions that also include the discount allowed. The cash receipts journal may use a separate column (and general ledger account) to record the discount allowed.

CRJ Date Receipt Particulars Fol Bank Accounts Disc GST General no receivable allowed clear ing

20xx $ $ $ $ Mar 17 87652 South East 495.00 550.00 (50.00) (5.00) Retailers

However, the accounting standards require that the value of sales be recorded after offsetting any discounts allowed to customers. Therefore, the discounts allowed will need to be deducted from the sales account. If the receipt transaction is recorded using a discount allowed account, this offsetting transaction will be done at a later date—usually at the end of the reporting period for the business (usually each year). This is the method used in the recommended textbook. However, as an alternative, this offsetting transaction may be done at the same time that the receipt is recorded. In this case the discount allowed would be shown in the cash receipts journal as a negative entry in the sales column.

CRJ Date Receipt Particulars Fol Bank Accounts Sales GST General no receivable clearing

Either method is suitable. It is important to note that at the end of the reporting period, the value of the sales account to be recorded in the income statement would be the total of sales less any discounts allowed.

Discounts received When goods are purchased on credit, the business will pay the supplier’s account at a later date. In some cases, we may be offered a discount to encourage an earlier payment. It is important to record these discounts as part of the cash payment transaction. As a result, you will see cash payment transactions that also include the discount received. The cash payments journal may use a separate column (and general ledger account) to record the discount received.

CPJ Date Cheque Particulars Fol Bank Accounts Discount GST General no payable received clearing

However, the accounting standards require that the value of inventory (when using the perpetual inventory method) be recorded after offsetting any discounts received from suppliers. Therefore, the discounts received will need to be deducted from the inventory account. If the payment transaction is recorded using a discount received account, this offsetting transaction will be done at a later date—usually at the end of the reporting period for the business (usually each year). This is the method used in the recommended textbook. However, as an alternative, this offsetting transaction may be done at the same time that the payment is recorded. In this case, the discount received would be shown in the cash payments journal as a negative entry in the inventory column.

CPJ Date Cheque no Particulars Fol Bank Accounts Inventory GST General payable clearing

Either method is suitable. It is important to note that at the end of the reporting period, the value of the inventory account to be recorded in the balance sheet would be reduced by the effect of any discounts received.

Feedback to activities

Activity 1

General journal of Jack Straw

Date Account Fol Debit Credit $ $

20x6 June 30 Bad debts 150 GST clearing 15 Accounts receivable 165 Bad debt written off Doubtful debts 904 Allowance for doubtful debts 904 Allowance for doubtful debts 18245 – 165 × 5% Rent income 575 Income received in advance 575 Income received – not due Depreciation buildings 2 600 Depreciation motor vehicles 5 080 Accumulated depreciation – Buildings 2 600 Accumulated depreciation – Motor vehicles 5 080 Depreciation charge for year

Extract general ledger—Jack Straw Trading account Date Particulars Fol Amount Date Particulars Fol Amount 20x7 Cost of goods sold 195 875 20x7 Sales 329 643 June 30 June 30 Profit and loss 133 768 329 643 329 643

Profit and loss account Date Particulars Fol Amount Date Particulars Fol Amount 20x7 Advertising 2 862 20x7 Trading account 133 768 June 30 June 30 Office salaries 38 915 Rent income 3 700 Rates and taxes 8 052 Light and power 10 329 Office cleaning 5 293 Bad debts 1 059 Doubtful debts 904 Depreciation – 2 600 Building Depreciation – Motor 5 080 vehicle Capital (net profit) 62 374 137 468 137 468

Jack Straw Adjusted trial balance as at 30 June 20x8 Debit $ Credit $ Inventory 58 565 Accounts receivable 18 080 Allowance for doubtful debts 904 Cash at bank 11 200 Petty cash 1 000 Land and buildings 239 941 Accumulated depreciation – Buildings 5 200 Motor vehicles 25 400 Accumulated depreciation – Motor vehicles 5 080 Accounts payable 9 280 GST clearing 8 087 Income received in advance 575 Capital (280 000 + 62 374 – 17 314) 325 060 354 186 354 186

Activity 2

General journal of Jim Gillett Date Details Folio Debit $ Credit $ 20x7 June 30 Income accrued 370 Commission income 370 Income due – not received Bad debts 600 GST clearing 60 Accounts receivable 660 Bad debt written off Doubtful debts 150 Allowance for doubtful debts 150

Adjustment to allowance Holiday pay 880 Provision for holiday pay 880 Providing for holiday pay Perpetual inventory variance 100 Inventory 100 Adjusting inventory to physical stocktake Cost of goods sold 100 Perpetual inventory variance 100 Balance transferred Depreciation – Buildings 3 100 Depreciation – Motor vehicles 5 580 Accum depreciation – Building 3 100 Accum depreciation – M/vehicles 5 580 Depreciation charge for year

Extract general ledger– Jim Gillett Trading account Date Particulars Fol Amount Date Particulars Fol Amount 20x7 Cost of goods sold 178 730 20x7 Sales 309 860 June 30 June 30 Profit and loss account 131 130 309 860 309 860

Profit and loss account Date Particulars Fol Amount Date Particulars Fol Amount 20x7 Cartage outwards 3 410 20x7 Trading account 131 130 June 30 June 30 Salaries and wages 43 920 Commission income 2 750 Insurance 6 450 Light and power 10 330 Telephone and internet 2 570 Bank charges 170 Bad debts 600 Doubtful debts 150 Holiday pay 880 Depreciation – Buildings 3 100 Depreciation – Motor 5 580 vehicles Capital (net profit) 56 720 133 880 133 880

Trial balance of Jim Gillett as at 30 June 20x7 Debit $ Credit $ Inventory 49 470 Accounts receivable 16 000 Allowance for doubtful debts 480 Cash at bank 4 970 Income accrued 370 Land and buildings 198 000 Accumulated depreciation – Buildings 6 200 Motor vehicles 27 900 Accumulated depreciation – Motor vehicles 5 580 Accounts payable 6 780 GST clearing 2 310 Provision for holiday pay 880 Capital (232 960 + 56 720 – 15 200) 274 480 296 710 296 710

Activity 3

In Sufficient Income statement for year ended 30 June 20x7 $ $ $ Sales 349 000 Less: Cost of goods sold 267 000 Gross profit 82 000 Add: Other income Commission income 700 Total income 82 700 Less: Operating expenses 125 800 Marketing 10 200 Advertising 10 200 Administration 112 400 General salaries 53 000 Electricity and phone 18 800 General expenses 6 400 Depreciation – Plant & equipment 34 200 Financial 3 200 Discount allowed 2 200 Bad debts 1 000 Net loss 43 100

Activity 4 In Sufficient Balance sheet as at 30 June 20x7

$ $ $ Current assets 64 600 Inventory 30 600 Accounts receivable 9 700 Bank 22 400 Expenses prepaid 1 600 Income accrued 300 Non-current assets 115 400 Plant and equipment 182 600 Less: Accumulated depreciation 67 200 115 400 Total assets 180 000 Current liabilities 17 300 Accounts payable 10 200 GST clearing account 5 900 Expenses accrued 1 200 Non-current liabilities _ Total liabilities 17 300 Net assets 162 700

Owner’s equity 162 700

Capital 1st July 20x6 228 400 Less: Loss 43 100 185 300 Less: Drawings 22 600

Activity 5 Jack Straw Income statement for year ended 30 June 20x8

$ $ $ Sales 329 643 Less: Cost of goods sold 195 875 Gross profit 133 768 Add: Other income 3 700 Rent income 3 700 Total income 137 468 Less: Operating expenses 75 094 Marketing 2 862 Advertising 2 862 Administration 70 269 Office salaries 38 915 Rates and taxes 8 052 Light and power 10 329 Office cleaning 5 293 Depreciation – Buildings 2 600 Depreciation – Motor vehicles 5 080 Financial 1 963 Bad debts 1 059 Doubtful debts 904 Net profit 62 374

Jack Straw Balance sheet as at 30 June 20x8

$ $ $ Current assets 87 941 Inventory 58 565 Account receivable 18 080 Less: Allowance for doubtful debts 904 17 176 Cash at bank 11 200 Petty cash 1 000 Non-current assets 255 061 Land and buildings 239 941 Less: Accumulated depreciation 5 200 234 741 Motor vehicles 25 400 Less: Accumulated depreciation 5 080 20 320 Total assets 343 002 Current liabilities 17 942 Accounts payable 9 280 GST clearing account 8 087 Income received in advance 575 Non-current liabilities – Total liabilities 17 942 Net assets 325 060

Capital 280 000 Add: Profit 62 374 342 374 Less: Drawings 17 314

Activity 6

General journal Nightingale Products Balance day adjustments Date Details Fol Debit $ Credit $

20x7 June 30 Expenses prepaid 400 Advertising 400 Advertising paid – not due Office wages 1 600 Expenses accrued 1 600 Office wages due – not paid Depreciation – Delivery vans 10 000 Depreciation – Buildings 6 000 Accumulated depreciation –Delivery vans 10 000 Accumulated depreciation – Buildings 6 000 Depreciation charge for year Doubtful debts 900 Allowance for doubtful debts 900 Allowance for doubtful debts created Inventory variance 300 Inventory 300 Adjusting inventory to physical stocktake Cost of goods sold 300 Inventory variance 300 Balance transferred

Nightingale Products Closing journal entries Date Details Folio Debit $ Credit $

20x7 June 30 Sales 98 000 Trading account 98 000 Balance transferred Trading account 37 800 Cost of goods sold 37 800 Balance transferred Trading account 60 200 Profit and loss account 60 200 Gross profit transferred Discount received 500 Commission income 4 000 Profit & loss 4 500 Balance transferred Profit and loss 27 950 Advertising 1 600 Discount allowed 1 500 Selling expenses 2 600 Office wages 3 350 Stationery 400 Insurance 800 Electricity 800 Depreciation – Delivery vans 10 000 Depreciation – Buildings 6 000 Doubtful debts 900 Balances transferred Profit and loss 36 750 Capital 36 750 Net profit transferred Capital 2 000 Drawings 2 000 Balance transferred

Nightingale Products Trading account Date Particulars Fol Amount Date Particulars Fol Amount 20x7 Trading account 37 800 20x7 Sales 98 000 June 30 June 30 Profit & loss 60 200 98 000 98 000

Profit and loss account Date Particulars Fol Amount Date Particulars Fol Amount 20x7 Advertising 1 600 20x7 Trading Account 60 200 June 30 June 30 Discount allowed 1 500 Discount Received 500 Selling expenses 2 600 Commission Income 4 000 Office wages 3 350 Stationery 400 Insurance 800 Electricity 800 Depreciation – Del vans 10 000 Depreciation – Buildings 6 000 Doubtful debts 900 Capital (Net profit) 36 750 64 700 64 700

Nightingale Products Balance sheet as at 30 June 20x7 $ $ $ Current assets 55 200 Inventory 21 700 Accounts receivable 18 000 Less: Allowance for doubtful debts 900 17 100 Cash at bank 16 000 Expenses prepaid 400 Non-current assets 124 000 Land 40 000 Buildings 80 000 Less: Accumulated depreciation 26 000 54 000 Delivery vans 50 000 Less: Accumulated depreciation 20 000 30 000 Total assets 179 200 Current liabilities 15 600 Accounts payable 6 200 GST clearing account 7 800 Expenses accrued 1 600 Non-current liabilities 20 000 Mortgage 20 000 Total liabilities 35 600 Net assets 143 600

Capital 108 850 Add: Net profit 36 750 145 600 Less: Drawings 2 000

Activity 7 General journal Seal and Co Balance day adjustments

Date Details Folio Debit $ Credit $

20x7 June 30 Rent income 600 Income received in advance 600 Rent income received – not due General wages 1 200 Expenses accrued 1 200 General wages due – not paid Expenses Prepaid 500 Insurance 500 Insurance paid – not due Depreciation – Motor vehicle 8 800 Depreciation – Office equipment 1 100 Accum deprec – Motor vehicle 8 800 Accum deprec – Office equipment 1 100 Depreciation charge for year Doubtful debts 1 040 Allowance for doubtful debts 1 040 Allowance for doubtful debts created Long service leave 5 000 Provision long service leave 5 000 Providing for long service leave

Seal and Co Closing general journal entries Date Details Folio Debit $ Credit $ 20x7 June 30 Sales 472 760 Trading account 472 760 Balance transferred Trading account 247 900 Cost of goods sold 247 900 Balance transferred Trading account 224 860 Profit and loss account 224 860 Gross profit transferred Rent income 4 400 Discount received 2 240 Profit and loss account 6 640 Balances transferred Profit and loss account 173 940 Salaries – Sales 43 000 Advertising 4 400 Salaries – office 44 000 Insurance 1 200 Discount allowed 2 400 General wages 47 200 Commission – Sales 3 000 Telephone 1 360 Bad debts 240 Motor vehicle expenses 4 700 Office expenses 6 500 Depreciation – Motor vehicle 8 800 Depreciation – Office equipment 1 100 Doubtful debts 1 040 Long service leave 5 000 Balances transferred Profit and loss account 57 560 Capital 57 560 Net profit transferred Capital 4 000 Drawings 4 000 Balance transferred

Seal and Co Income statement for year ended 30th June 20x7 $ $ $ Sales 472 760 Less: Cost of goods sold 247 900 Gross profit 224 860 Add: Other operating income 6 640 Rent income 4 400 Discount received 2 240 Total income 231 500 Less: Operating expenses 173 940 Marketing 50 400 Salaries – Sales 43 000 Advertising 4 400 Commission - Sales 3 000 Administration 119 860 Salaries office 44 000 Insurance 1 200 General wages 47 200 Telephone 1 360 Motor vehicle expenses 4 700 Office expenses 6 500 Depreciation – Motor vehicle 8 800 Depreciation – Office equipment 1 100 Long service leave 5 000 Financial 3 680 Discount allowed 2 400 Bad debts 240 Doubtful debts 1 040 Net profit 57 560

Seal and Co Balance sheet as at 30 June 20x7 $ $ $ Current assets 42 660 Inventory 17 200 Account receivable 26 000 Less: Allowance for doubtful debts 1 040 24 960 Expenses prepaid 500 Non-current assets 283 600 Land and buildings 224 000 Fixtures and fittings 11 000 Office equipment 22 000 Less: Accumulated depreciation 3 400 18 600 Motor vehicles 44 000 Less: Accumulated depreciation 14 000 30 000 Total assets 326 260 Current liabilities 21 800 Accounts payable 9 000 GST clearing 5 000 Bank (overdraft) 6 000 Income received in advance 600 Expenses accrued 1 200 Non-current liabilities 113 000 Mortgage on freehold 108 000 Provision long service leave 5 000 Total liabilities 134 800 Net assets 191 460

Capital 137 900 Add: Net profit 57 560 195 460 Less: Drawings 4 000

Activity 8

General journal Acme Trading Co Balance day adjustments Date Details Folio Debit $ Credit $

20x7 June 30 Depreciation – Machinery 2 000 Depreciation – Buildings 300 Accumulated depreciation –Machinery 2 000 Accumulated depreciation – Buildings 300 Depreciation charge for year Bad debts 200 GST clearing account 20 Accounts receivable 220 Bad debt written off Doubtful debts 79 Allowance doubtful debts 79 Adjusting allowance for doubtful debts $4 600 – 220 = $4 380 x 5/100 = $219 - $140 = $79 Wages – Sales 70 Expenses accrued 70 Wages due – not paid Expenses prepaid 60 Insurance 60 Insurance paid – not due Income accrued 40 Interest income 40 Income due – not received

Acme Trading Co Income statement for year ended 30 June 20x7

$ $ $ Sales 7 580 Less: Cost of goods sold 1 420 Gross profit 6 160 Add: Other operating income 200 Interest income 200 Total income 6 360 Less : Operating expenses 6 305 Marketing 2 790 Travelling expenses 320 Wages sales 2 470 Administration 3 140 Electricity 600 Rates 100 Insurance 140 Depreciation – Machinery 2 000 Depreciation – Buildings 300 Financial 375 Interest expense 96 Bad debts 200 Doubtful debts 79 Net profit 55

Acme Trading Balance sheet as at 30 June 20x7

$ $ $ Current assets 11 461 Inventory 6 000 Account receivable 4380 Less: Allowance for doubtful debts 219 4161 Bank 1 200 Expenses prepaid 60 Income accrued 40 Non-current assets 25 700 Buildings 6 000 Less: Accumulated depreciation 300 5 700 Machinery 20 000 Less: Accumulated depreciation 2 000 18 000 10% Commonwealth bonds 2 000 Total assets 37 161 Current liabilities 6 150 Accounts payable 4 500 GST clearing account 1 580 Expenses accrued 70 Non-current liabilities 1 200 Loan from Blue Rory 1 200 Total liabilities 7 350 Net assets 29 811

Capital 29 956 Add: Profit 55 30 011 Less: Drawings 200