1(a) The following trial balance was extracted from the books of M Jackson on 30 April 2007. From
it, and the note below it, prepare his trading and profit and loss account for the year ending
30 April 2007, and a balance sheet as at that date.
Dr Cr
£ £
Sales 18,614
Purchases 11,570
Stock 1 May 2006 3,776
Carriage outwards 326
Carriage inwards 234
Returns inwards 440
Returns outwards 355
Salaries and wages 2,447
Motor expenses 664
Rent 576
Sundry expenses 1,202
Motor vehicles 3,400
Fixtures and fittings 600
Debtors 4,577
Creditors 3,045
Cash at bank 3,876
Cash in hand 120
Drawings 2,050
Capital 13,844
35,858 35,858
Note
:
Closing stock amounted to £4,000. Depreciation is to be charged at rates of 10% on cost for Fixtures
and Fittings and 25% on cost for Motor Vehicles. Bad debts of £800 are to be written-off.
(b) Michael has indicated that he thinks that the debtor amounts that have been written-off will
be paid eventually. He is also querying why adjustments are made in the financial statements
for bad debts and depreciation. Write a short note to him, making appropriate references to
accounting concepts, outlining why these adjustments are made.