Chapter 4 - preperation of financial accounts

Question 1

When a sales item is returned from the customer how are the accounts affected for..

1. an original credit transaction
2. an original cash transaction

Answer 1

1. ↓ Dr sales (income) , ↓ Cr trade recievables
2. ↓ Dr sales (income), ↓ Cr assets (cash)

Question 2

When a purchase returned to the supplier how are the accounts affected for..

1. an original credit transaction
2. an original cash transaction

Answer 2

1. ↓ Cr Purchases (expense), ↓ Dr Trade payables (liability)
2. ↓ Cr Purchases (expense), ↑ Dr Cash (asset)

Question 3

Show the ledger account entries for….. and explain how the are formed

1. A cash customer retunered £20 goods to a company
2. The company sent back £100 goods to its supplier than he had purchased on credit.

Answer 3

When an item is returned the purchase action is revereted on to the other side of the ledger account.

e.g return of a sale reduced income so the sales in recorned as a debit.

Question 4

What are the two types of discount trade is applied to?

Answer 4

1. Bulk → redcution given at point of sale (no seperate ledger account, automatically recorded at discount amount).
2. Discount for early payment → sale recordered at full price as dicount not guranteed. Seperate ledger account to record discount.

Question 5

For discount recieved apon pruchase due to an early payment what happens to debit and credits?

Answer 5

Appon purchase (before you have paid)

• Cr payables (liability)
• Dr purchases (expense)

Once money has been paid

• Dr payables (full balance) → _{<em>no money owed</em>}
• Cr cash (amount paid with discount)
• Cr discount recieved → (income) before discount

Question 6

For a discount allowed for a sale with an early payment what happens to debit and credits?

Answer 6

Appon sale (before you have recieved money)

• Dr revievables (asset)
• Cr sales (income)

Once money has been recieved

• Dr Cash (actual amount paid with discount)
• Dr disscount allowed → expense
• Cr recievable (full balance before discount)

Question 7

Payroll

1. What is net salary?
2. What is gross salary?
3. What are the 3 sections of tax paid to the government?

Answer 7

1. Amount paid to employee after tax
2. Total employee earns before tax → net salary + income tax + employees national insurance
3. Income tax (PAYE) , employees national insurance, employer national insurance (NICs)

Question 8

Payroll

1. What is the wage expense?

Answer 8

Gross tax + employers national insurance

(total paid by business)

Question 9

Payroll

What is the correct was to record a couble entry payroll?

Answer 9

1. Dr wages and salaries → gross salary + employers NICs
2. Cr cash → net salary
3. Cr income tax PAYE + employees NICs + employers NICs

Question 10

How is profit calculated from infmation on assets, liabilities and drawings?

Answer 10

Profit = change in net assets - drawings

• Change in net asset = (Opening asset - opening liability) - (closing asset - closing liability