Prepare final accounts for Sole Traders & Partnerships

Question 1

How is the profit and loss section of Statement of Profit or Loss determined?

Answer 1

Gross Profit + sundry income - expenses = Net Profit

Question 2

In a Statement of Financial Position, how are net assets determined?

Answer 2

Net current assets
+ non-current assets
- non-current liabilities
= net assets

Question 3

In a Statement of Financial Position, how are net current assets determined?

Answer 3

Current assets
- Current liabilities
= Net current assets

Question 4

In a Statement of Financial Position, how are proprietors funds determined?

Answer 4

Net assets
\+ Opening capital
\+ Net profit for the year
- Drawings
= Proprietors funds

Question 5

What is the order of current assets in the Statement of Financial Position?

Answer 5

Inventory
+ Trade receivables
- Allow for Doubtful debts

Question 6

How is the trade account section of the statement of profit or loss determined?

Answer 6

Revenue less cost of goods sold (opening inventory + purchases - closing inventory) equals gross profit

Question 7

What is the double entry for introduction of capital?

Answer 7

Dr Bank
Cr Partners Capital Account

This is because the entity is receiving the benefit and the partners capital record needs to show what he’s introduced - as this is what’s owed to him

Question 8

How is partnership profits share determined?

Answer 8

Net Profit taken from Statement of Profit or loss is shared in the ratio of profit share determined in the partnership agreement

Question 9

How is the appropriation of profit structured?

Answer 9

Net profit
- Salaries to partners
- Interest on Capital
\+ Interest on Drawings
- Share remainder between all partners following share ratio

Question 10

How are drawings accounted for in a partnership?

Answer 10

Cr Bank
Dr Partnership Current Account

This is because the benefit is being received by the partner. All transactions other than capital introduced, regarding partners, go through the current account

Question 11

How is a profit handled in the ledger accounts?

Answer 11

Dr P&L
Cr Partners Current Account

This is because the profit is transferred from the accounting period and distributed between the partners

Question 12

How is the admission of a new partner handled in the ledger accounts?

Answer 12

Step 1
Set temporary good will account up for old partners

Step 2
Introduce new partner and his capital

Step 3
Eliminate good will by separating among all partners including new

Question 13

How is good will accounted for in the ledger accounts?

Answer 13

Goodwill is added onto the capital account to increase the value of the old partners investment

Dr Goodwill (Asset to entity)
Cr Partners Capital Accounts (Capital to entity)

Question 14

What are the steps taken to retire a partner in the accounts?

Answer 14

Step 1
Transfer the current account balance to the capital account

Step 2
Recognise the goodwill that had been built up in the partnership

Step 3
Transfer balance due to partner from bank

Step 4
If lack of cash open loan account due to partner to make up shortfall

Question 15

With incomplete records - net asset method how would profit be determined?

Answer 15

Difference between opening net asses and closing net assets

Capital introduced + Profit - drawings

Question 16

With incomplete records - cash and bank accounts, how would a missing figure be determined?

Answer 16

With open and closing balances entered and all known figures entered then the difference is the missing balancing figure

Question 17

Ask x

Answer 17

Answer