I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

314

 

1 

By using the trade receivables control account to calculate sales as a balancing figure. 

2 A 

PAYABLES 

CONTROL 

 

 

$ 

 

 

$ 

Bank 

 

65,000  Opening payables 

 

75,000 

Discounts received 

 

3,000  Purchases (bal. fig.) 

 

58,000 

 

 

 

 

Closing payables 

 

  65,000 

 

 

              

 

 

133,000 

 

 

133,000 

3 

 

Mark-up is the profit as a percentage of cost 

 

 

Gross profit percentage is the profit as a percentage of sales 

4 A DEBIT 

P/L 

a/c 

  CREDIT 

Cost 

of 

sales 

 

Assuming that the goods were not insured. 

5 

Where a large amount of receipts and payments are made in cash. 

6 B DEBIT 

Cash 

  CREDIT 

Drawings 

7 

B 

Profit = movement in net assets – capital introduced + drawings 

 

 

= (80,000 – 70,000) – 5,000 + 25,000 

  

= 

30,000 

8 D 

 

 

$  

Sales 

 

90,000 

Cost of sales (bal. fig.) 

 

75,000 

Profit  











20

×90,000

120

 

 

15,000 

 

 

 

 

 

Now try ... 

 

Attempt the questions below from the Practice Question Bank 

 

Qs 68 – 72   

 

 

 

 

 

 

 

 

 

ANSWERS TO QUICK QUIZ 

BPP Tutor Toolkit Copy

---

 

 

315 

C H A P T E R 

 

 

TOPIC LIST 

SYLLABUS 

REFERENCE 

1  Preparation of final accounts  

F1(d), F2(a)

 

 

 

 

Preparation of 

financial statements 

for sole traders

We have now reached our goal of preparing the final accounts of a 

sole trader! 

We will deal with the preparation of a trial balance and then 

making adjustments to produce final accounts. 

This chapter also acts as a revision of what we have covered to 

date. Use this period to review all the work covered to date. If you 

have any problems with the examples and questions, thoroughly 

revise the appropriate chapter before proceeding to the next part. 

 

BPP Tutor Toolkit Copy

---

PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

316

 

 

Study Guide 

Intellectual level 

 

 

F 

Preparing basic financial statements 

 

 

 

1  Statements of financial position 

 

 

 

(d)  Prepare a statement of financial position or extracts as 

applicable from given information. 

S 

 

 

2  Statements of profit or loss and other comprehensive 

income 

 

 

 

(a)  Prepare a statement of profit or loss and other 

comprehensive income or extracts as applicable from given 

information. 

S 

 

 

 

 

 

 

1

   Preparation of final accounts 

You should now be able to prepare a set of final accounts for a sole trader from a trial balance after 

incorporating period-end adjustments for depreciation, inventory, prepayments, accruals, irrecoverable 

debts, and allowances for receivables. 

1.1 Adjustments to accounts 

You should now use what you have learned to produce a solution to the following exercise, which 

involves preparing a statement of profit or loss and statement of financial position. We have met 

Newbegin Tools before, but now we add a lot more information. 

QUESTION 

Adjustments to accounts

 

The financial affairs of Newbegin Tools prior to the commencement of trading were as follows. 

NEWBEGIN TOOLS 

STATEMENT OF FINANCIAL POSITION AS AT 1 AUGUST 20X5 

 

 $ 

 $ 

Non-current assets 

 

Motor vehicle 

   2,000

Shop fittings 

     3,000

 

   5,000

Current assets 

 

Inventories 

   12,000

Cash 

     1,000

 

   18,000

Capital 

   12,000

Current liabilities 

 

Bank overdraft 

 2,000 

Trade payables 

 4,000 

 

     6,000

 

   18,000

At the end of six months the business had made the following transactions. 

(a) 

Goods were purchased on credit at a list price of $10,000. 

(b) 

Trade discount received was 2% on list price and there was a settlement discount received of 5% 

on settling debts to suppliers of $8,000. These were the only payments to suppliers in the period. 

(c) 

Closing inventories of goods were valued at $5,450. 

(d) 

All sales were on credit and amounted to $27,250. 

BPP Tutor Toolkit Copy

---

CHAPTER 18  

//

  PREPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS 

 

317 

(e) 

Outstanding receivables balances at 31 January 20X6 amounted to $3,250, of which $250 were 

to be written off. An allowance for receivables is to be made amounting to 2% of the remaining 

outstanding receivables. 

(f) 

Cash payments were made in respect of the following expenses. 

 

 

 

$ 

(i) 

Stationery, postage and wrapping 

500

(ii) Telephone 

charges 

200

(iii) Electricity 

600

(iv) 

Cleaning and refreshments 

150

(g) 

Cash drawings by the proprietor, Alf Newbegin, amounted to $6,000. 

(h) 

The outstanding overdraft balance as at 1 August 20X5 was paid off. Interest charges and bank 

charges on the overdraft amounted to $40. 

Prepare the statement of profit or loss of Newbegin Tools for the six months to 31 January 20X6 and a 

statement of financial position as at that date. Ignore depreciation. 

ANSWER 

STATEMENT OF PROFIT OR LOSS 

FOR THE SIX MONTHS ENDED 31 JANUARY 20X6 

 

$ 

$ 

Revenue 

   27,250

Cost of sales 

 

 Opening 

inventory 

 12,000 

 

Purchases (Note 1) 

   9,800 

 

 21,800 

 Closing 

inventory 

   5,450 

 

   16,350

Gross profit  

   10,900

Other income – discounts received (Note 2) 

        400

 

   11,300

Expenses 

 

 

Electricity (Note 3) 

 600 

 

Stationery, postage and wrapping 

 500 

 

Irrecoverable debts written off 

 250 

 

Allowance for receivables (Note 4) 

 60 

 Telephone 

charges 

 200 

 

Cleaning and refreshments 

 150 

 

Interest and bank charges 

  40 

 

   1,800

Profit for the period 

   9,500

Notes 

1 

Purchases at cost $10,000 less 2% trade discount. 

2 

5% of $8,000 = $400. 

3 

Expenses are grouped into sales and distribution expenses (here assumed to be electricity, 

stationery and postage, irrecoverable debts and allowance for receivables), administration 

expenses (here assumed to be telephone charges and cleaning) and finance charges. 

4 

2% of $3,000 = $60. 

The preparation of a statement of financial position is not so easy, because we must calculate the value 

of payables and cash in hand. 

(a) 

Payables as at 31 January 20X6 

 

The amount owing to payables is the sum of the amount owing at the beginning of the period, 

plus the cost of purchases during the period (net of all discounts), less the payments already 

made for purchases. 

BPP Tutor Toolkit Copy

---