Theory question 109
Final Accounts of a Sole Trader9. The following balances were extracted from the books of Bolly – J Enterprises on 31st December, 1998.
Freehold property: N50,000
Capital: N81,445
Trade debtors: N28,750
Trade creditors: N26,150
Furniture and fittings (cost N22,500): N16,250
Rent: N950
Electricity: N675
Provision for bad debts (1/1/98): N288
Office equipment (cost N20,000): N15,500
Stock (1/1/98): N7,750
General expenses: N2,350
Rates: N625
Cash in hand: N137
Bank overdraft: N4,475
Bank charges: N373
Purchases: N60,750
Sales: N74,000
Carriage inwards: N395
Salaries: N1,700
Discount allowed: N485
Discount received: N332
Additional information:
(a) Closing stock N6,635 (b) Salaries in arrears N875 (c) Prepaid expenses: rent N150; rates N138 (d) Provision for bad debts to be reduced to N225 (e) All fixed assets are to be depreciated at 5% on cost.
You are required to prepare a: (i) Trial Balance as at 31st December, 1998, and (ii) Trading, Profit and Loss Account for the year ended 31st December, 1998.
Show the model answer
(i) Trial balance: Debit – freehold 50,000; debtors 28,750; furniture 16,250; rent 950; electricity 675; office equipment 15,500; stock 7,750; general expenses 2,350; rates 625; cash 137; bank charges 373; purchases 60,750; carriage inwards 395; salaries 1,700; discount allowed 485; total 186,690. Credit – capital 81,445; creditors 26,150; provision for bad debts 288; bank overdraft 4,475; sales 74,000; discount received 332; total 186,690.
(ii) Trading: opening stock 7,750 + purchases 60,750 + carriage inwards 395 − closing stock 6,635 = cost of sales 62,260; sales 74,000; gross profit 11,740.
Profit and loss: add discount received 332 and decrease in provision 63 (288 − 225) = 12,135. Expenses: rent 800 (950 − 150); electricity 675; general expenses 2,350; rates 487 (625 − 138); bank charges 373; salaries 2,575 (1,700 + 875); discount allowed 485; depreciation 5% on cost: freehold 2,500, furniture 1,125, office equipment 1,000; total 12,370.
Net loss = 12,370 − 12,135 = 235.
Assets, expenses and drawings are debits; capital, liabilities, income and provisions are credits.