1
Study the following and answer the questions below.
The trial balance of Mary Harris (Gowns) as at 31 December 2008 showed a difference which was
posted to a suspense account. Draft final accounts for the year ended 31 December 2008 were prepared
showing a net profit of £47,240. The following errors were subsequently discovered:
l Sales of £450 to C Thomas had been debited to Thomasson Manufacturing Ltd.
l A payment of £275 for telephone charges had been entered on the debit side of the telephone
account as £375.
l The sales journal had been undercast by £2,000.
l Repairs to a machine, amounting to £390, had been charged to machinery account.
l A cheque for £1,500, being rent received from Atlas Ltd, had only been entered in the cash book.
l Purchases from P Brooks, amounting to £765, had been received on 31 December 2008 and
included in the closing stock at that date, but the invoice had not been entered in the purchases
journal.
Questions:
(a) (i) Give the journal entries, without narratives, necessary to correct the above errors.
(ii) Show the effect of each of these adjustments on the net profit in the draft financial statements
and the correct profit for the year ended 31 December 2008.
(b) (i) State briefly the purpose of the journal, giving a suitable example of its use.
(ii) State why it is necessary to distinguish between capital and revenue expenditure.
(Midland Examining Group: GCSE)