Theory question 103
Incomplete Records3. Danladi is in business as a painter and decorator. He does not keep proper accounting records. The following information relates to his business.
Balances as at 1st January, 1994
Equipment and loose tools: N15,000
Debtors: N1,750
Stocks and Work in Progress: N6,450
Prepaid rent: N300
Creditors: N1,260
Accrued electricity bill: N120
Enquiries provided the following about the business for the year ended 31st December, 1994.
(a) He received N25,840 for decorating work while N960 was still owed to him;
(b) He draw cheques for: Suppliers N8,320; Rent and rates N180; New decorating Equipment N6,000; Sundry business expenses N170; Electricity N240
(c) He owed N560 for decorating materials and N20 for electricity.
(d) His equipment was valued at N18,000 and stock at N5,850 on 31st December, 1994
You are required to prepare his Trading, Profit and Loss Account for the year ended 31st December, 1994.
Show the model answer
Workings: income from work = 25,840 + 960 owed at end − 1,750 owed at start = 25,050.
Purchases of materials = 8,320 + 560 − 1,260 = 7,620.
Rent and rates = 180 + 300 prepaid at start = 480.
Electricity = 240 + 20 owing − 120 accrued at start = 140.
Depreciation of equipment = 15,000 + 6,000 − 18,000 = 3,000.
Trading account: opening stock/WIP 6,450 + purchases 7,620 = 14,070 − closing stock 5,850 = cost of sales 8,220; sales/work done 25,050; gross profit 16,830.
Profit and loss: rent 480, electricity 140, sundry expenses 170, depreciation 3,000 = 3,790; net profit 13,040.
Turn cash paid and received into amounts earned and incurred by adjusting for opening and closing debtors, creditors, prepayments and accruals.