Introduction to Business accounting
The following is the trial balance of Dave Brown a retailer.
Trial Balance as at 31st December 2011
Wages and salaries
Heating and lighting
Motor vehicles at cost
Accumulated depreciation – motor vehicles
Computer equipment at cost
Accumulated depreciation – computer equipment
Provision for doubtful debts
Inventory as at 1st January, 2011
(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.
Prepare Dave Brown’s Income Statement for the year ended 31st December, 2011 and Balance Sheet.
(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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