1
The following table shows the cumulative effects of a succession of separate transactions
on the assets and liabilities of a business. The first column of data gives the opening position.
Transaction: A B C D E F G H I
Assets £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Land and buildings 500 500 535 535 535 535 535 535 535 535
Equipment 230 230 230 230 230 230 230 200 200 200
Stocks 113 140 140 120 120 120 120 120 119 119
Trade debtors 143 143 143 173 160 158 158 158 158 158
Prepaid expenses* 27 27 27 27 27 27 27 27 27 27
Cash at bank 37 37 37 37 50 50 42 63 63 63
Cash on hand 9 9 9 9 9 9 9 9 9 3
1,059 1,086 1,121 1,131 1,131 1,129 1,121 1,112 1,111 1,105
Liabilities
Capital 730 730 730 740 740 738 733 724 723 717
Loan 120 120 155 155 155 155 155 155 155 155
Trade creditors 168 195 195 195 195 195 195 195 195 195
Accrued expenses* 41 41 41 41 41 41 38 38 38 38
1,059 1,086 1,121 1,131 1,131 1,129 1,121 1,112 1,111 1,105
Required
:
Identify clearly and as fully as you can what transaction has taken place in each case. Give two
possible explanations for transaction I. Do not copy out the table but use the reference letter for
each transaction.
(Association of Accounting Technicians)
*Authors’ Note: You have not yet been told about ‘prepaid expenses’ and ‘accrued expenses’.
Prepaid expenses are expenses that have been paid in advance, the benefits of which will only be
felt by the business in a later accounting period. Because the benefit of having incurred the
expense will not be received until a future time period, the expense is not included in the calculation
of profit for the period in which it was paid. As it was not treated as an expense of the period
when profit was calculated, the debit in the account is treated as an asset when the balance sheet
is prepared, hence the appearance of the term ‘prepaid expenses’ among the assets in the question.
Accrued expenses, on the other hand, are expenses that have not yet been paid for benefits
which have been received. In F, £8,000 was paid out of the bank account of which £3,000 was used
to pay off some of the accrued expenses.