Final Account Prep

Question 1

Margin is based on?

Answer 1

Sales figure

Question 2

What saying helps you to remember what margin is based on ?

Answer 2

Margin is included in the selling price

Question 3

When calculating figures using margin what does the selling price always equal?

Answer 3

100%

Question 4

Mark up is based on?

Answer 4

Cost of sales figure

Question 5

When calculating mark up what is always equal to 100%?

Answer 5

Cost of sales

Question 6

What saying can help you to remember what mark up is based on?

Answer 6

Mark Up is on top of cost

Question 7

What is the margin calculation for Sales to cost of sales?

Answer 7

Sales x cost of sales% = cost of sales figure

Example -
45,000 x 80% = 36,000

Question 8

What is the margin calculation for Cost of sales to sales

Answer 8

Cost of sales/cost of sales % = Sales

Example -

36,000/80% = 45,000

Question 9

What is the calculation to work out margin % ?

Answer 9

Gross profit/Selling price X 100% = Margin %

Example -

9,000/45,000 x 100 = 20%

Question 10

What is the Mark Up calculation to work out Cost of sales to Sales?

Answer 10

Cost of Sales X Overall % = Sales

Example -

45,000 x 120% = 54,000

Question 11

What is the Mark Up calculation to work out Sales to Cost of sales?

Answer 11

Sales/Overall% = Cost of sales

Example -

54,000/120% = 45,000 (100%)

Question 12

What is the calculation to work out Mark Up %?

Answer 12

Gross profit/Cost of sales X 100% = Mark Up %

Example -

9,000/45,000 x 100 = 20%

Question 13

What missing figures can be found using either Mark up or Margin calculations along with gross profit and cost of sales calculations?

Answer 13

1 - Sales
2 - Cost of sales and then either opening/closing inventory, purchases
3 - inventory losses

Question 14

Using the information provide below calculate the figures for
1 - Closing inventory
2 - Cost of sales
3 - Gross profit

Sales - £65,250 (145%)
Opening inventory - £3,120
Purchases - £46,310
Purchase returns - £0

Answer 14

1 - Closing inventory = 4,430
2 - Cost of sales = 45,000
3 - Gross profit = 20,250

Question 15

Give 4 possible reason for a difference between the physical inventory count and the closing inventory figure in the accounts

Answer 15

1 - Fire
2 - Flood
3 - Theft
4 - owner take for own use

Question 16

A physical inventory count has been performed and there is a closing inventory costing £3,000

Using the below figures calculate if this agrees with the accounting records

Sales - £95,000
Sales margin - 40%
Opening inventory - £2,120
Purchases - £58,810

Answer 16

Accounting closing inventory - £3,930
Difference of - £930

Question 17

What final accounts do sole traders have to file?

Answer 17

A statement of profit or loss
A statement of financial position

Question 18

What does the statement of profit or loss show

Answer 18

It shows a business’s income and expenses and therefore how a business has performed over a certain period.

Question 19

What is the fundamental profit or loss calculation?

Answer 19

Income - expenses = profit/loss

Question 20

What happens to the income and expense accounts at the end of the company’s accounting period?

Answer 20

They are cleared down and transferred to the P&L account, the overall P&L is then transferred to the statement of financial position and can be seen in the financed by section

Question 21

What is the format of the SPL profit or loss calculation?

Answer 21

Sales revenue
- Cost of sales
= Gross profit
+ Other income
- Expenses
= Profit or loss for the period

Question 22

What are the calculations for Adjustments to arrive at the net figure for the inclusion in trading accounts for
1 - Sales revenue
2 - Purchases

Answer 22

1 - Sales - sales returns
2 - purchases - purchase returns + carriage inwards

Question 23

Using the information below calculate the adjustments to arrive at the net figures for
1 - Sales revenue
2 - Purchases

Sales - £1,000
Opening inventory - £200
Purchases - £450
Purchase returns - £30
Closing inventory - £50
Carriage in - £25
Sales returns - £20

Answer 23

Sales revenue - £980
Purchases - £445

Question 24

In the SPL trading account section how would you calculate cost of sales?

Answer 24

Opening inventory + purchases - Closing inventory

Question 25

In the SPL trading account section how would you calculate gross profit or loss?

Answer 25

Sales - cost of sales

Question 26

In the SPL what could count as other income?

Answer 26

1 - Discounts received
2 - Interest received
3 - Commission received
4 - Rent received
5 - Gain on disposal of non current asset
6 - Allowance for doubtful debt adjustment (only if there is a decrease and so on credit side)
7 - Any other kind of income (for example rebates)

Question 27

In the SPL what could count as an expense?

Answer 27

1 - Depreciation charged
2 - allowance for doubtful debts adjustment (if it increases and so on the debit side)
3 - Loss on disposal of non current asset
4 - Irrecoverable debt
5 - Carriage outwards

Question 28

What does the statement of financial position show?

Answer 28

It shows the assets, liabilities and capital of the business at the end of the accounting period

Question 29

What is the accounting equation?

Answer 29

Assets - Liabilities = capital

Question 30

What are the 2 sections the statement of financial position can be broken down into?

Answer 30

• Net assets
• Financed by section

Question 31

What is a current asset?

Answer 31

These are short term normally less than 12 months which regularly change as a business trades

Question 32

What is a non current asset?

Answer 32

These are items owned long term, normally longer than 12 months. These are not bought with the intention of selling on and are to be used by the business.

Question 33

What is net current asset?

Answer 33

This is also referred to as working capital and is calculated as current assets - current liabilities = net assets

Question 34

What is net assets?

Answer 34

This is the total of all assets both current and non current less the total of all liabilities again both current and non current?.

(Non current assets + current assets) - (non current liabilities + current liabilities)

Question 35

Why must net assets equal capital/equity?

Answer 35

Because the net assets are financed by the owner/ owners of the business through capital/ equity

Question 36

On the statement of financial position what 2 figures could have to be calculated for inclusion?

Answer 36

1 - trade receivables
2 - bank and cash

Question 37

In the Statement of financial position what is the Calculation to get the trade receivables inclusion figure?

Answer 37

Sales leader control account - allowance for doubtful debt = trade receivables

Question 38

In the statement of financial position what is the calculation for the inclusion figure for bank and cash

Answer 38

Bank + cash

If the bank has a debit balance, the bank and cash balances are added together to give a combined bank and cash figure. It’s important to be careful regarding which side of the trial balance the bank account is on.

Question 39

Accruals and prepayments are included in the statement of financial position, for both expense and income state if it’s a debit or a credit

Answer 39

Prepayment - expense (Debit)
Prepayment - income (Credit)

Accrual - expense (Credit)
Accrual - income (Debit)

Question 40

For the statement of financial position state if prepayments & Accruals are a current asset or current liability and if this is a debit or credit

Answer 40

Prepayments - Current asset (debit)
Prepayments - Current liability (Credit)

Accruals - Current asset (Credit)
Accruals - Current liability (Debit)

Question 41

What order should assets be placed in for the statement of financial position?

Answer 41

Traditionally assets should be listed in increasing order of liquidity. This means that you have the least liquid items first, working up to the most liquid.

For example:
- Inventory
- trade receivables
- bank and cash

Question 42

How should the financed by section appear in the statement of financial position for a sole trader?

Answer 42

Opening capital
+ capital introduced
+ profit for the year
- loss for the year
- drawings
= closing capital

Question 43

Example in a capital account for a sole trader what effect a credit and debit has on the account

Answer 43

Credit - items on the credit side increase the balance and therefore the liability to the owner
Debit - items on the debit side decrease the balance and therefore the liability to the owner

Question 44

What are the 4 steps for preparing a statement of financial position?

Answer 44

1 - Allocate to the relevant section (asset/ liability, current/ non current)
2 - net figures (trade receivables & bank and cash)
3 - complete the proforma
4 - complete the remainder of the statement of financial position (financed by section)

Question 45

Limited companies must produce financial statements in accordance with which 3 regulations?

Answer 45

1 - the companies act 2006
2 - Financial reporting standards (FRS)
3 - International financial reporting standards (IFR)

It depends on the size of the company as to which of IFR or FRS the company’s financial statements are governed by

Question 46

What is IAS 1?

Answer 46

Covers the preparation and presentation of financial statements and requires that companies comply with the accounting principles of going concern and accruals basis. IAS 1 also requires that financial statements meet the requirements of fair representation and compliance with international financial reporting standards IFR.

fair representation means -
1 - select and apply accounting policies
2 - produce information that is relevant, reliable, comparable and can be understood
3 - Provide any additional information that could aid the understandably of the statements

Question 47

What is the definition of a partnership and what act gives this definition?

Answer 47

The relation which exists between persons in business with view to profit

Partnership act 1890

Question 48

What is a partnership agreement?

Answer 48

This sets out guidelines in which a partnership will operate. This agreement is set out when the partnership is first set up and if one isn’t set up then it automatically defaults back to what the partnership act 1890 lays out.

For example if an agreement wasn’t set up, then the partnership act states that profits will be split equally between partners. This means it doesn’t matter if one person has invested more capital the profits will still be split equally and this is why it is important to have a partnership agreement set up at the start of the partnership.

Question 49

What items might a partnership agreement cover?

Answer 49

• capital (how much capital each partner must contribute)
• Drawings (if there will be any restrictions placed on partners taking drawings out of the business)
• profit share ratio (how the profits will be shared)
• interest on capital (if and at what rate interest will be paid to partners on their capital balance)
• interest on drawings (if and at what rate partners will be charged interest on drawings they take)
• retirement of a partner (procedures to be followed when a partner retires)
• Salaries/ commission ( if salaries and commission will be paid and weather this will be paid monthly or annually)

Question 50

What is the main difference between the financed by section for a sole trader and that of a partnership?

Answer 50

Partnership will have multiple current and capital accounts