Lesson Notes By Weeks and Term - Senior Secondary School 2

SUBJECT: FINANCIAL ACCOUNTING

CLASS:  SS 2

DATE:

TERM: 1st TERM

TOPIC: FINAL ACCOUNTS - FULLY WORKED EXERCISES

Illustration:

The following trial balance has been extracted from the ledgers of Mr. Johnson as at 31st

December, 2003.

                DR            CR

     â‚¦                ₦

Purchases / Sales                        142,448        233,120

Returns                                5,000            3,000

Discounts                                2,412            1,368

Debtors /Creditors                          38,600          23,280

Furniture and Fittings                            5,000

Carriage inwards                            2,500

Carriage outwards                            5,176

5% Loan from Co-operative Society                              15,000

Drawings                                  862

Land and Buildings                          40,000

Rents, Rates and Insurance                      11,946

Postages and Stationery                        2,426

Motor Vehicles                          20,000

Advertising                                3,704

Provision for doubtful debts                                      500

Salaries and Wages                          26,152

Bad Debts                                2,468

Cash in Hand                                  624

Cash at Bank                                6,108

Stock as at 1st January, 2003                      14,308

Equipment at cost                          97,400

Accumulated depreciation on Equipment                          43,300

Capital                                            107,566

                                427,134        427,134

Additional Information:

(a)    Stock at close N16,442

(b)    Outstanding expenses:

            Advertising        N354

            Salaries and wages    N848   

            Interest on loan    N750

(c)    Rent, Rates and Insurance paid in advance N426

(d)    Depreciation:

        Equipment 10% on cost

        Furniture and Fittings 5%

        Land and Buildings 10%

        Motor Vehicles 25%

(e)    Salaries and wages includes N3,600 paid to Mr. Johnson.

(f)    Records to typewriter bought on credit on 31st December, 2003 for N10,000 have not been made in the books.

(g)    Mr. Johnson decided on 31st December, 2003 to write off a further amount of N2,000 as bad debt.

(h)    Mr. Johnson’s children consumed goods worth N5,500 during the year.

(i)    Provisions for doubtful debts 5%: discount allowance 10%

Prepare:

2003. Trading, Profit and Loss Account for the year ended 31st December, 2003.
2004. A Balance Sheet as at that date.

EVALUATION

1. Explain the following:

    (a)     Cost of goods available for sale (b) Cost of goods sold (c) Gross profit

2. Write short notes on the following:

    (a)     Intangible assets  (b) Wasting assets

SOLUTION:

Mr. Johnson

Trading Profit and Loss Account for the year ended 31st December, 2003

                    ₦            ₦                    ₦    ₦

Opening Stock                    14,308    Sales          233,120   

Add: Purchases        142,448          Less: returns inwards   5,000

228,120

    Add: Carriage inwards    2,500

                144,948

     Less: children consumption   5,500

                139,448

     Less: returns outwards           3,000    136,448

                        150,756

     Less:Closing stock    16,442

Cost of Goods Sold            134,314

 Gross Profit c/d              93,806                       

                                                                 228,120                                  228,120

Discount Allowed                    2,412      Gross Profit            93,806

Carriage outwards                    5,176      Discount Received            1,368

Postage & Stationery                    2,426

Rent, Rates & Insurance (11,946-426)      11,520

Advertising (3,704 + 354)                4,058

Salaries & Wages (26152 + 848 – 3600)   23,400

Loan interest accrued                750

Increase in provision for doubtful debt 1,330

Provision for discounts allowed 

(10/100 x (36,600 – 1830)                3,477

Bad debts: 2468 + 2000                4,468

Depreciation:

Equipment         9,740

    Land and Building    4,000

    Motor Vehicle        5,000

    Furniture and fittings      250          18,990

Net Profit                      17,167

                          95,174                    95,174

Balance Sheet as at 31st December, 2003

                  ₦    FIXED ASSETS     CostDep.    NBVCapital        107,566                N        N    N

Add Net Profit        17,167    Land & Building    40,000         4,000    36,000

            124,733    Motor Vehicles    20,000         5,00015,000

                    Furniture & fittings5,000 250    4,750

Less: Drawings

(5,500 + 3,600 + 862)     9,962    Equipment    107,40053,040    54,360

            114,771        172,40062,290    110,110

CURRENT LIABILITIES:        CURRENT ASSETS:

5% Co-operative loan 15,000       Stock        16,442

Creditors        23,280        Debtors        38,600

Creditors for Typewriter    10,000        less: Bad Debts      2,000

Outstanding Expenses:                    36,600

Interest on loan    750        less: Provision for 

Salaries & wages    848        doubtful debts    1,830

Advertising        354                    34,770

50,232   less: Provision for

    discounts allowed      3,477           31,293

    Insurance Prepaid              426

    Cash at Bank        6,108

    Cash in Hand              624

                                  54,893

165,003                165,003

EVALUATION QUESTIONS

1. List six items each found in the asset and liability sides of the balance sheet of a sole proprietor.
2. State four reasons for charging depreciation.

GENERAL EVALUATION

1. Explain the following types of accounts and in each case, state the rules regarding the recording of transactions in their debit and credit sides: (a) personal accounts (b) real accounts (c) nominal accounts (d) liabilities account (e) asset account
2. State seven reasons why an accountant will consider end – of – year adjustments while preparing the final accounts
3. State five differences between book – keeping and accounting
4. List seven source documents that are used in preparing the cash book
5. Explain five differences between a trial balance and a balance sheet

READING ASSIGNMENT

Simplified and Amplified Financial Accounting, Page 185-202

WEEKEND ASSIGNMENT

1. The Salary of a shopkeeper who sells goods would be charged in the __________

    (a) balance sheet    (b) sales account    (c) profit and loss account   

    (d) trading account

2. The balance of the Sales Account is transferred to the Trading Account by _____

    (a) debiting the Profit and Loss Account    (b) debiting the Trading Account

    © debiting the Sales Account        (d) crediting the Sales Account

3. Discount allowed is a charge to _________---

    (a) Trading Account     (b) Balance Sheet    (c) Profit and Loss Account

    (d) Current Account

4. Patents and Trade-marks are classified under__________

    (a) fixed assets        (b) current assets    (c) intangible assets

    (d) wasting assets

5. Which of the following is a nominal account?

    (a) Machinery         (b) Debtors    (c) Goodwill      (c) Salaries

THEORY

1. Give five examples each of the following classes of account

    (a) Real accounts    (b) Nominal accounts        (c) Personal accounts

2. State five reasons why a trader would grant discounts to his customers.