Introduction to Business accounting

Introduction to Business accounting

Question 1
The following is the trial balance of Dave Brown a retailer.

Trial Balance as at 31st December 2011

Dr Cr£
Sales

 
190,200
Purchases
84,300
Trade debtors
28,0
Trade creditors
17,000

Advertising
1,650
Wages and salaries
42,000
Insurance
1,300
Heating and lighting
1,800
General expenses
13,450
Motor vehicles at cost
20,000
Accumulated depreciation – motor vehicles
8,000

Computer equipment at cost
14,000
Accumulated depreciation – computer equipment
7,000

Provision for doubtful debts
700

Drawings
24,000
Bank account
3,000
Capital account
31,600

Inventory as at 1st January, 2011
21,000

254,500
254,500

Additional information

(i) Inventory at 31st December, 2011 is £70,000.

(ii) At 31st December, 2011 rates owing of £2,000 and prepaid insurance of £400.

(iii) Depreciation on Motor vehicles and computer equipment is charged at rate of 25% on cost.

(iv) Bad debts of 10% of trade debtors are to be written off and it is decided to adjust the doubtful debts provision to 5% of trade debtors.

Required:

Prepare Dave Brown’s Income Statement for the year ended 31st December, 2011 and Balance Sheet.

50 marks

Question 2

(a) What are the potential problems and limitations of financial ratio analysis? 20 marks

(b) Explain what information the Income Statement (profit and loss account) provides? 15 marks

(c) Explain what information the Statement of Financial Position (Balance Sheet) provides? 15 marks

 

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