Chapter 4- Financial Statements other considerations

Question 1

In relation to the business of a sole trader, the government and its agencies need to be able to…

Answer 1

• Establish tax levels

- Produce national statistics

Question 2

Double entry for sales returns (goods returned to business)

Answer 2

For a credit transaction:

• Dr Sales
• Cr Trade receivables

For a cash transaction:

• Dr Sales
• Cr Cash

Question 3

Double entry for purchase returns (goods returned from business to supplier)

Answer 3

For a credit transaction:

• Dr Trade receivables
• Cr Purchases

For a cash transaction:

• Dr Cash
• Cr Purchases

Question 4

When purchasing goods on credit there’s two separate double entries

Answer 4

On purchase:

• Dr Purchases
• Cr Payables

On settlement:

• Dr Payables
• Cr Cash

Question 5

The double entry to record an invoice raised to a credit customer…

Answer 5

• Dr Receivables

- Cr Revenue

Question 6

Double entry for £30,000 of goods purchased on credit and there is a 5% discount for early payment which they are expecting to use, but they end up paying after the early payment deadline

Answer 6

On purchase:

• Dr Purchases £28,500
• Cr Payables £28,500

On settlement:

• Dr Payables £28,500
• Cr Cash £30,000
• Dr Purchases £1,500

Question 7

Double entry for £30,000 of goods purchased on credit and there is a 5% discount for early payment which they aren’t expecting to use, but they end up paying before the early payment deadline

Answer 7

On purchase:

• Dr Purchases £30,000
• Cr Payables £30,000

On settlement:

• Dr Payables £30,000
• Cr Cash £28,500
• Cr Purchases 1,500

Question 8

For sales discounts, any difference between expected proceeds + those actually received are adjusted through…

Answer 8

Revenue

Question 9

Gross Salary =

Answer 9

Net salary + Income tax (PAYE) + employee’s NICs

Question 10

Employer Pays

Answer 10

Gross salary and employer’s NICs