1
Jean Smith, who retails wooden ornaments, has been so busy since she commenced business
on 1 April 2005 that she has neglected to keep adequate accounting records. Jean’s opening
capital consisted of her life savings of £15,000 which she used to open a business bank account.
The transactions in this bank account during the year ended 31 March 2006 have been summarised
from the bank account as follows:
Receipts:
£
Loan from John Peacock, uncle 10,000
Takings 42,000
Payments:
Purchases of goods for resale 26,400
Electricity for period to 31 December 2005 760
Rent of premises for 15 months to 30 June 2006 3,500
Rates of premises for the year ended 31 March 2006 1,200
Wages of assistants 14,700
Purchase of van, 1 October 2005 7,600
Purchase of holiday caravan for Jean Smith’s private use 8,500
Van licence and insurance, payments covering a year 250
According to the bank account, the balance in hand on 31 March 2006 was £4,090 in Jean Smith’s
favour.
While the intention was to bank all takings intact, it now transpires that, in addition to cash
drawings, the following payments were made out of takings before bankings:
£
Van running expenses 890
Postages, stationery and other sundry expenses 355
On 31 March 2006, takings of £640 awaited banking; this was done on 1 April 2006. It has been discovered
that amounts paid into the bank of £340 on 29 March 2006 were not credited to Jean’s
bank account until 2 April 2006 and a cheque of £120, drawn on 28 March 2006 for purchases, was
not paid until 10 April 2006. The normal rate of gross profit on the goods sold by Jean Smith is
50% on sales. However, during the year a purchase of ornamental goldfish costing £600 proved to
be unpopular with customers and therefore the entire stock bought had to be sold at cost price.
Interest at the rate of 5% per annum is payable on each anniversary of the loan from John
Peacock on 1 January 2006.
Depreciation is to be provided on the van on the straight line basis; it is estimated that the van
will be disposed of after five years’ use for £100.
The stock of goods for resale at 31 March 2006 has been valued at cost at £1,900.
Creditors for purchases at 31 March 2006 amounted to £880 and electricity charges accrued due
at that date were £180.
Trade debtors at 31 March 2006 totalled £2,300.
Required:
Prepare a trading and profit and loss account for the year ending 31 March 2006 and a balance
sheet as at that date.
(Association of Accounting Technicians)