Dowen College – Welcome



NAME OF RESOURCE PERSON: AKIN K.O.

TERM/WEEK: 2019/2020 SUMMER TERM: WEEK 3

SUBJECT: FIN.ACCOUNTING

CLASS: SS1

TOPIC: INCOME STATEMENT OF A SERVICE BUSINESS

E-NOTES:

A service business is one which provides a service e.g. tailoring, hairdressing, transport, banking, insurance, school.

A trading business is one which buys and sells goods e.g. Nestle, Nigerian Breweries , Dowen College tuck shop, Shoprite etc.

Income statement is a statement of revenue receipts and revenue expenditure for the period ended.

Sources of income of a service business include the following but not exhaustive: fees from clients, commission receivable, rent receivable etc.

Expense or cost of running a service business: property tax, general expenses, printing and stationery, loan interest, wages and salary, insurance, light and heat etc.

ILLUSTRATION 1: Candy provided the following information at the end of her financial year on 30 September 2003:

$

Capital at 1 October 2002 198,000

Fees received from clients 82,300

Staff wages 49600

Rent and rates 7420

Insurance 3830

Commission received 4810

Light and heat 2180

Office expenses 1730

Drawings 18750

➢ State whether Candy’s business is trading or a service business. Give a reason for your answer.

➢ Prepare Candy’s income statement for the year ended 30 September 2003.

➢ Prepare Candy’s capital account on 30 September 2003.Balance the account and bring down the balance on 1 October 2003.

Solution to illustration 1

a)It is a service business because it does not trade in goods but it renders service to clients .No record of purchases ,sales and inventory.

b) steps in solving the practice question

✓ Identify sources of income of the business I .e fees from clients, commission received

✓ Identify running cost or business expense I .e staff wages ,rent and rates ,light and heat, office expense ,please exclude drawings because it is a private expense(in conformity business entity principle)

✓ Add all income and subtract all business expenses in order to determine profit for the year or net profit

Candy income statement for the year ended 30 September 2003

$ $

Income:

Fees received from clients 82,300

Commission received 4,810

Total income 87,110

Less revenue expenditure (expenses):

Staff wages 49600

Rent and rates 7420

Insurance 3830

Light and heat 2180

Office expense 1730 (64,760)

Profit or net profit for the year 22,350

c) Capital account-Candy

|DATE |DETAILS |$ |DATE |DETAILS |$ |

|30/SEPT/2003 |DRAWINGS |18750 |1/OCT/2002 |BALANCE B/D |198,000 |

|30/SEPT/2003 |BALANCE C/D |201,600 |30/SEPT/2003 |INCOME TATEMENT(PROFIT FOR |22,350 |

| | | | |THE YEAR) | |

| | | | | | |

|TOTAL | |220,350 |TOTAL | |220,350 |

| | | |1/OCT/2003 |BALANCE B/D |201,600 |

| | | | | | |

➢ NOTES: Normal balance of capital account is credit balance

➢ Items that will increase capital are additional capital, profit for the year.

➢ Items that will decrease capital are net loss, drawings

➢ Items that will increase capital are credited while items that decrease capital are debited.

➢ The difference in sum total of the two sides is balance carry down i .e credit side=198000+22350=220350.debit side=18750. Balance c/d =220350-18750=201600.Balance c/d will become balance b/d on opposite side using the the next date.

ILLUSTRATION TWO: Fortune earns fees from her insurance business .Fees received from clients during 31 DECEMBER 2018 $12,000.Fees are invoiced when work is completed. Trade receivables for fees were 31/12/2017 $2700, 31/12/2018 $4200.prepare fees account or calculate fees earned by FORTUNE FOR THE YEAR ENDED 31/12/2018.

Solution: fees received during 31/12/2018 $12000

Less fees owing in previous year 31/12/2017 or 1/1/2018 $(2700)

Add fees owing at the end of 31/12/2018 $4200

Fees earned by Fortune 31/12/2018 $13500

OR FEES ACCOUNT

|DATE |DETAILS |$ |DATE |DETAILS |$ |

|1/1/2017 |BAL B/D(OWING AT START OF |2700 |31/12/2018 |BANK/CASH |12000 |

| |A PERIOD) | | | | |

| | | |31/12/2018 |BAL C/D(OWING AT END |4200 |

| | | | |OF A PERIOD) | |

|31/12/2018 |TRANSFER TO INCOME |13500 | | | |

| |STATEMENT(FEES EARNED) | | | | |

|TOTAL | |16200 |TOTAL | |16200 |

|1/1/2019 |BAL B/D |4200 | | | |

ASSIGNMENT:

➢ Distinguish between a service and trading business.

➢ Khalid earns fees and commissions from his insurance business. His capital account at November 1, 2008 showed$3000 credit. A summary of the bank columns in his cash book for the year ended 31 October 2009 showed:

|DETAILS |BANK |DETAILS |BANK |

|CLIENTS-FEES RECEIVED |12000 |RENT |9600 |

|CLIENTS-COMMISSION RECEIVED |32000 |STAFF WAGES |8800 |

| | |OFFICE EXPENSES |6400 |

| | |MOTOR EXPENSES |3600 |

| | |DRAWINGS-KHALID |25000 |

| | | | |

| | | | |

Fees are invoiced when work is completed. Trade receivables for fees were:

✓ 1 November 2008 $2600

✓ 31October 2009 $4100

Required

➢ Calculate the fees earned by Khalid for the year ended 31 October 2009.

➢ From the information above and your answer to the question above, prepare Khalid’s income statement for the year ended 31 October 2009.

➢ Prepare Khalid’s capital account for the year ended 31 October 2009 and bring down the balance at November 1, 2009.

➢ Suggest 2 ways in which Khalid might reduce or eliminate the deficit on his capital account (that is a debit balance on capital account.

DEADLINE OR DUE DATE OF SUBMISSION: 17/APRIL/2019 BY 1; 20P.M.

Send answers to the following emails:

PERSONAL EMAIL:akintobi2897@

DEPARTMENTAL E MAIL: business-studies@.ng.

NAME OF RESOURCE PERSON : MR. AKIN K.O.

TERM/WEEK: 2019/2020 SUMMER TERM: WEEK 3

SUBJECT: FIN.ACCOUNTING

CLASS: SS1

TOPIC: INCOME STATEMENT OF A TRADING BUSINESS

E-NOTES:

An income statement consists of two sections:

A trading account in which the gross profit of the business is calculated.

A profit and loss account in which profit from operation, net profit or profit for the year is calculated. Income statement is part of double entry.

A balance sheet or statement of financial position of the business: a classified summary of asset, capital and liabilities at a certain date .The balance sheet is not part of double entry.

Terms used in trading , profit and loss account(Income statement):

Sales revenue: proceeds from trading stock or inventory.

Sales returns or return inward: trading stock earlier sold later return probably due to defects or wrong order. It is usually deducted from sales revenue in trading section of income statement.

Purchases: goods bought for resale in ordinary course of business.

Carriage inward: transport cost on purchases. It is usually added to purchases in trading section only.

Opening inventory or stock: value of unsold goods at start of a period.

Closing inventory or stock: value of unsold goods at the end of a period.

Purchases returns or return inward: trading stock previously bought later returned by customer to the supplier. It is usually deducted from purchases in trading section of income statement.

Goods withdrawn for private use or personal use (stock drawings): inventory withdrawn from the business for private use.

Discount allowed: cash discount granted to a credit customer for not exceeding period of credit. It appears on debit side of profit and loss section of income statement as expense.

Discount received: cash discount received from a credit supplier as a result of paying within period of credit. It appears on the credit side of profit and loss account section of income statement. For example, goods bought on resale on credit from Ladega by Fortune on 1st March 2020 cost $1000.Terms of sale: 10% cash discount, if payment is made within 15 days of sale. Fortune paid the invoice on 10th of March 2020.Calculate discount that fortune received from Ladega and also amount paid by her.dicount=10/100*1000=$100. Amount paid=$1000-$100=$900.Note if fortune paid the invoice on 31st MARCH 2020,zero discount would be granted. She would pay the full invoice amount.

Carriage outward: transport cost on sales. It is selling and distribution cost appears in profit or loss section of income statement.

Gross profit or loss=(sales revenue less sales returns)-cost of sales

➢ Gross profit=net sales revenue($5000)-cost of goods sold($3000)=gross profit$2000

➢ Gross loss=net sales revenue(47000)-cost of goods sold($57000)=gross loss$10000

➢ Net purchase=purchases+ carriage inward-purchases returns-goods withdrawn for private use

➢ Cost of goods sold=opening inventory +net purchases-closing inventory

➢ Operating profit: profit before deducting loan interest

➢ Net profit or profit for the year=gross profit+ other income (e.g. discount received, commission received, rent received etc.-expenses (e.g. discount allowed, property tax, loan interest etc.

ILLUSTRATION 3

The following trial balance was extracted from the books of Felicia at 31st May 2008

|Account titles |Dr($) |Cr($) |

|Revenue(sales) | |95700 |

|Sales returns or return inwards |1000 | |

|Purchases |65000 | |

|Purchases returns(return outward) | |500 |

|Carriage inwards |1500 | |

|Inventory 1 June 2007 or opening stock |7100 | |

|Discount received | |400 |

|Discount allowed |900 | |

|Wages |11200 | |

|General expenses |2800 | |

|Property tax |600 | |

|Loan interest |500 | |

|Premises or building |80000 | |

|Fixtures and equipment |13900 | |

|Trade receivables or trade debtors |7500 | |

|Trade payables or trade creditor | |7800 |

|Cash at bank |3300 | |

|Cash in hand |100 | |

|Loan payable 2013 may(long term loan) | |10000 |

|Capital | |90000 |

|Drawings |9000 | |

|Total |204400 |204400 |

| | | |

| | | |

Additional information:

➢ The inventory at 31 May 2008 was valued at $7600

➢ During the year ended 31 May 2008, Felicia took goods costing $300 for her own use. No entries have been made in the accounting records.

➢ Prepare trading, profit or loss account or income statement for the year ended 31 May 2008.

➢ Prepare statement of financial position or balance sheet as at 31 May 2008.

✓ STEPS INVOLVED IN PREPARING INCOME STATEMENT:

✓ Identify trading items: sales, sales returns, purchases, carriage inward, purchase returns. Opening inventory in trial balance, closing inventory in additional information.

✓ Determine gross profit or loss=sales less sales return-cost of goods sold(opening inventory + purchases + carriage inward-purchase returns-goods for own use-closing inventory

✓ Identify other income e.g. discount received, add it to gross profit to get total income

✓ Identify expenses in profit or loss except loan interest i.e.wages,discount allowed, general expenses, property tax, add these expenses and deduct from total income to arrive at operating income that is income before deducting loan interest

✓ Determine net profit or profit for the year by deducting loan interest.

Samir income statement for the year ended 31 May 2008

$ $

SALES REVENUE 95700

LESS SALES RETURN 1000

NET SALES REVENUE 94700

LESS COST OF GOODS SOLD:

INVENTORY JUN 1 2007 7100

ADD PURCHASES 65000

ADD CARRIAGE INWARD 1500

LESS PURHASE RETURNS 500

LESS GOODS FOR OWN USE 300

LESS INVENTORY 31 MAY 2008 7600

COST OF GOODS SOLD (65200)

GROSS PROFIT 29500

ADD DISCOUNT RECEIVED 400

TOTAL INCOME 29900

LESS EXPENSES B4 DEDUCTING INTEREST:

DISCOUNT ALLOWED 900

GENERAL EXPENSES 2800

WAGES 11200

PROPERTY TAX 600 (15500)

OPERATING PROFIT OR PROFIT B4 INTEREST 14400

LESS LOAN INTEREST 500

NET PROFIT OR PROFIT FOR THE YEAR 13900

OR T –ACC0UNT OR HORIZONTAL METHOD

SAMIR INCOME STATEMENT FOR THE YEAR ENDED 31 MAY 2008

|ACCOUNT TITLES |DR($) |CR($) |

|SALES | |95700 |

|LESS SALES RETURN | |1000 |

|NET SALES | |94700 |

|OPENINING INVENTORY 1/JUNE/2007 |7100 | |

|ADD PURCHASES |65000 | |

|ADD CARRIAGE INWARD |1500 | |

|LESS PURHASE RETURNS |500 | |

|LESS GOODS WITHRAWN |300 | |

|LESS CLOSING INVENTORY31MAY2008 |7600 | |

|COST OF SALES OR GOODS SOLD |65200 | |

|GROSS PROFIT C/D |29500 | |

|TOTAL |94700 |94700 |

|GROSS PROFIT B/D | |29500 |

|ADD DISCOUNT RECEIVED | |400 |

|TOTAL INCOME | |29900 |

|LESS EXPENSES BEFORE LOAN INTEREST: | | |

|DISCOUNT ALLOWED |900 | |

|WAGES |11200 | |

|GENERAL EXPENSES |2800 | |

|PROPERTY TAX |600 | |

|PROFIT BEFORE INTEREST OR OPERATING PROFIT |14400 | |

|C/D | | |

|TOTAL |29900 |29900 |

|OPERATING PROFIT B/D | |14400 |

|LOAN INTEREST |500 | |

|NET PROFIT OR PROFIT FOR THE YEAR TO |13900 | |

|CAPITAL ACCOUNT | | |

|TOTAL |14400 |14400 |

TERMS IN BALANCE SHEET OR STATEMENT OF FINANCIAL POSITION:

Assets are divided into two types;

✓ Non-current assets ; are long term assets which are obtained for use rather than for resale .Examples of non-current assets include goodwill,premises.land,plantand machinery, furniture and fittings,fixtures,motor vehicle, delivery van etc.,

✓ Current assets are short term assets that can be turned into cash relatively easily. Examples of current assets include inventory, trade receivables cash at bank (dr),cash in hand, petty cash ,bill receivable, short term investment, prepaid expenses, accrued income or revenue(other receivable refers to both prepaid expenses and accrued income)

Liabilities are divided into 3 types. These are:

✓ Capital or owner’s equity means owner’s investment in the business and is the amount owed by the business to the owner.

✓ Non-current or long term liabilities: these are amount owed by a business that are due for repayment 1 year after the reporting date or balance sheet date.e.g. 5-year bank loan.

✓ Current liabilities are short term liabilities;payayable within a year after the reporting date.e.g.1-year bank loan,bankoverdraft or cash at bank (cr) ,trade payables, accrued expenses, income or revenue in advance(other payables refers to prepaid income and accrued expenses)

Hints on balance sheet preparation:

Asset=capital+liability

Non-current asset+current asset=opening capital +profit for the year +additional capital-drawings (expense drawings, goods for own use, cash drawings, fixed asset drawings or anything of value withdrawn from the business for personal use) +non-current liability+current liability.

FELICIA BALANCE SHEET or STATEMENT OF FINANCIAL POSITIO AS AT 31 MAY 2008

$ $

NON CURRENT ASSETS:

PREMISES 80000

FIXTURES AND EQUIPMENT 13900

93900

CURRENT ASSETS:

INVENTORY 31 MAY 2008 7600

TRADE RECEIVABLES 7500 +

BANK(DR) 3300

CASH 100 18500

TOTAL ASSET 112400

NON CURRENT LIABILITIES:

LOAN PAYABLE 2013 MAY 31 10000

CURRENT LIABILITIES: +

TRADE PAYABLE 7800

OWNER’EQUITY OR CAPITAL:

Opening capital 1/06/2007 90,000

Add profit for the year 13900

103900

Less drawings (9000+300) 9300 +

Owner’s capital at 31/5/2008 94600

Owner’s capital +liabilities 112,400

ASSIGNMENT:

1.Explain the difference between the following terms and how they are recorded in an income statement:

➢ Gross profit and profit for the year

➢ Carriage inwards and carriage outwards

➢ Discount allowed and discount received

➢ Purchases returns and sales returns

2.Bethany trial balance at 31 July 2009 was as follows:

|ACCOUNT TITLES |DEBIT($) |CREDIT($) |

|CAPITAL AUGUST 1,2008 | |70,000 |

|DRAWINGS |4100 | |

|PREMISES |50000 | |

|FIXTURES AND FITTINGS |10600 | |

|OFFICE EQUIPMENT |4900 | |

|BANK CHARGES |300 | |

|LIGHT AND HEAT(ELECTRICITY) |2500 | |

|RATES AND INSURANCE |5100 | |

|REPAIRS AND INSURANCE |3080 | |

|OPERATING EXPENSES |2070 | |

|CARRIAGE INWARDS |7500 | |

|CARRIAGE OUTWARDS |2950 | |

|COMMISSION RECEIVABLE | |4000 |

|REVENUE OR SALES | |62000 |

|PURCHASES |36000 | |

|SALES RETURNS |2000 | |

|PURCHASES RETURNS | |3000 |

|INVENTORY JUNE 1 2008 |7000 | |

|BANK |1330 | |

|TRADE RECEIVABLES |2230 | |

|TRADE PAYABLES | |2660 |

|TOTAL |141660 |141660 |

| | | |

| | | |

• ADDITIONAL INFORMATION:

• Inventory on 31 July 2009 was valued at $6100.

• Prepare Bethany’s income statement for the year ended 31 July 2009 and statement of financial position as at 31 July 2009.

• Bethany is considering whether or not extend her premises. The cost would be $30,000.This would improve her working conditions but would not affect operating profit. Advise Bethany on whether or not she should proceed with this plan.

OR QUESTION 4 PAGE 108 IGCSE ACCOUNTING COURSE BOOK BY CATHERINE COUCOM.

DEADLINE OR DUE DATE OF SUBMISSION: 24/APRIL/2019 BY 1;20 P.M.

Send answers to the following emails:

PERSONAL EMAIL:akintobi2897@

DEPARTMENTAL E MAIL: business-studies@.ng.

NAME OF RESOURCE PERSON: AKIN K.O.

TERM/WEEK: 2019/2020 SUMMER TERM: WEEK 4

SUBJECT: FIN.ACCOUNTING

CLASS: SS1

TOPIC: MANUFACTURING ACCOUNT, TRADING AND PROFIT OR LOSS ACCOUNT

E-NOTES:

➢ Manufacturing: conversion of raw materials into finished product.

➢ Purposes of manufacturing account: to compute cost of finished goods produced during a financial year.

➢ Direct material; ingredient used in making finished product and that can be traced to it in an economical feasible way. For example, a furniture maker will need wood, nails, polish. A Bread maker will need flour, yeast etc.

➢ Direct labour means cost of wages of people directly involved in making finished products. Examples include bakers, carpenters, machine operators or factory operative wages, tailor depending on nature of business.

➢ Direct expenses means any expense which a manufacturer can directly link with the product being manufactured. Examples include hire of special equipment to complete a manufacturing process, it may be that, for every item produced, a manufacturer has to pay fee known as royalty to the person who originally invented the product.

➢ Factory overheads or indirect factory expenses means all operating cost incurred in the factory that cannot be linked to the products produced in an economically feasible way. Examples include factory rent and rates, factory heat and light, factory machinery repairs, depreciation of factory machinery, depreciation of factory loose tools ,factory fuel and lubricants ,indirect factory wages; factory supervisors, cleaners ,insurance of factory machine and building etc.

➢ Work in progress; partially made finished goods e.g. .incomplete trousers, tables, chairs etc.

➢ Finished goods means completely manufactured e.g. goods awaiting to be sold or to be used as an input in other manufacturing process.

➢ A manufacturer has types of inventory; raw materials and consumables, work in progress and finished goods.

➢ Sometimes, a manufacturer may purchase some finished goods for the following reasons: when the producer lacks the resources to produce the items, it is cheaper to buy the goods rather than make the goods and when production does not meet demand.

PREPARATION OF MANUFACTURING, TRADING, PROFIT OR LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2017(template)

COST OF RAW MATERIAL AVAILABLE FOR USE:

OPENING STOCK OF RAW MATERIALS XXX(It may represent any figure)

ADD PURCHASE OF RAW MATERIAL XXX

ADD CARRIAGE ON RAW MATERIAL XXX

LESS PURCHASE RETURNS ON RAW MATERIAL XXX

RAW MATERIAL AVAILABLE FOR USE XXX

LESS CLOSING INVENTORY OF RAW MATERIALS XXX

COST OF RAW MATERIAL USED OR CONSUMED XXX

ADD:

DIRECT FACTORY WAGES(OPERATIVES) OR LABOUR XXX +

FACTORY DIRECT EXPENSES E.G ROYALTY XXX XXX

PRIME OR DIRECT FACTORY COST XXX

FACTORY OVERHEAD:

FACTORY FUEL XXX

FACTORY INSURANCE XXX

FACTORY SUPERVISOR WAGES OR INDIRECT FACT.LABOUR XXX

DEPRECIATION OF FACTORY MACHINERY XXX

DEPRECIATION OF FACTORY LOOSE TOOLS XXX

FACTORT RENT AND RATE XXX

FACTORY GENERAL EXPENSES XXX

FACTORY LIGHT AND HEAT XXX +

XXX

XXX

ADD OPENING WORKIN PROGRESS XXX

LESS CLOSING WORK IN PROGRESS XXX

COST OF FINISHED GOODS MANUFACTURED (PRODUCTION) XXX

TRADING SECTION:

SALE OR REVENUE FINISHED GOODS XXX

LESS COST OF SALES OF FINISHED GOODS:

OPENING STOCK OF FINISHED GOODS XXX

ADD PURCHASE OF FINISHED GOODS (IF ANY) XXX

ADD COST OF PRODUCTION OF FINNISHED GOODS XXX

ADD CARRIAGE ON FINISHED GOODS (IF ANY) XXX

LESS PURCHASE RETURNS OF FINSHED GOODS XXX

COST OF SALES OF FINISHED GOODS (XXX)

GROSS PROFIT ON TRADING XXX

ADD OTHER INCOME XXX

LESS:

ADMINISTATION EXPENSES XXX

SELLILING AND DISTRIBUTION EXPENSES XXX

FINANCIAL CHAGES E.G INTEREST ON LOAN, BANK CHARGES XXX

NET PROFIT OR PROFIT FOR THE YEAR XXX

ILLUSTRATION 4

The following information was provided by Adebayo Manufacturing Company on 30 APRIL 2006.

Raw materials: $

Inventory May 1 2005 14900

Inventory April 30 2006 15300

Purchases 181200

Carriage on purchases 3300

Factory wages:

Direct (factory operative) 166100

Indirect (factory supervisors) 93800

Royalties 10000

Factory insurance 2070

Factory rent and rates 2930

Factory general expenses 6350

Depreciation of factory machinery 9500

Work in progress:

May 1 2005 8790

April 30 2006 8640

Revenue 661500

Purchase of finished goods 15500

Inventory of finished goods:

May 1 2005 31000

April 30 2006 23250

You are required to prepare manufacturing and trading account for the year ended 30 April2006.

ADEBAYO MANUFACTURING ACCOUNT FOR THE YEAR ENDED 30 APRIL 2006

$ $

OPENING STOCK OF RAW MATERIALS 1/05/05 14900

ADD PURCHASES OF RAW MATERIAL 181200

ADD CARRIAGE ON RAW MATERIALS 3300

COST OF RAW MATERIAL AVAILABLE FOR USE 199400

LESS CLOSING INVENTORY OF RAW MATERIALS30/04/06 15300

COST OF RAW MATERIAL USED/CONSUMED 184100

ADD DIRECT FACTORY WAGES 166100

ADD DIRECT EXPENSE: ROYALTY 10,000

PRIME OR DIRECT COST 360200

FACTORY OVERHEADS:

INDIRECT FACTORY WAGES 93800

INSURANCE 2070 +

RENT AND RATES 2930

GENERAL EXPENSES 6350

DEPRECIATION OF MACHINERY 9500 114650

478850

ADD OPENING WORK IN PROGRESS 1/05/05 8790

483640

LESS CLOSING WORK IN PROGRESS 30/04/06 8640

COST OF FINISHED GOODS PRODUCED/PRODUCTION COST 475000

ADEBAYO TRADING ACCOUNT FOR THE YEAR ENDED 30/04/06

$ $

REVENUE 661500

LESS COST OF GOODS SOLD OR SALES:

OPENING INVENTORY OF FINISHED GOODS 1/05/05 31000

ADD COST OF GOODS MANUFACTURED 475000

ADD PURCHASES OF FINISHED GOODS 15500

COST OF GOODS AVAILABLE FOR SALE 521500

LESS CLOSING INVENTORY OF FINISHED GOODS30/04/06 23250 (498250)

GROSS PROFIT ON TRADING 163250

NOTA BENE:

DIRECT MATERIAL +DIRECT WAGES+DIRECT EXPENSE=PRIME COST OR DIRECT COST

PRIME COST+ FACTORY OVERHEADS=COST OF PRODUCTION

DEPRECIATION-COST METHOD=%*COST OF FIXED ASSET

DEPRECIATION-REDUCING BALANCE METHOD= %( COST- PROVISION FOR DEPRECIATION IN TRIAL BALANCE)

DEPRECTION-REVALUATION METHOD=VALUE OF ASSET AT START+ACQUISITION OF NEW ASSET COST-VALUE AT END

INCREASE IN PROVISION FOR DOUBTFUL DEBT=EXPENSE IN PROFIT AND LOSS, HOWEVER, DECREASE IN PROVISION IS TREATED AS AN INCOME IN INCOME STATEMENT.

|ADJUSTING ITEMS |TREATMENT IN PROFIT AND LOSS |TREATMENT IN BALANCE SHEET | |

| |ACCOUNT | | |

|ACCRUED EXPENSE AT END(EXPENSE |ADD TO FIGURE OF SPECIFIC EXPENSE |CURRENT LIABILITY | |

|OWING AT END OF CURRENT ACCOUNTING|IN TRIAL BALANCE | | |

|PERIOD | | | |

|ACCRUED INCOME AT END OF CURRENT |ADD TO FIGURE OF SPECIFIC INCOME |CURRENT ASSET | |

|ACCOUNTING PERIOD(INCOME OWING AT |IN TRIAL BALANCE | | |

|END) | | | |

|PREPAID EXPENSE AT END OF CURRENT |DEDUCT FROM SPECIFIC EXPENSE IN |CURRENT ASSET | |

|ACCOUNTING PERIOD(EXPENSE PAID IN |TRIAL BALANCE | | |

|ADVANCE) | | | |

|PREPAID INCOME AT END OF A CURRENT|DEDUCT FROM SPECIFIC INCOME IN |CURRENT LIABILITY | |

|ACCOUNTING PERIOD(INCOME RECEIVED |TRIAL BALANCE | | |

|IN ADVANCE) | | | |

| | | | |

Inventory is usually valued at the lower of cost or net realisable value. Cost refers to purchase cost+plus any direct cost on purchases e.g. carriage while net realisable value refers to proceeds of sales less cost incurred in putting inventory in saleable conditions or costs of selling the inventory.

Illustration5

TYPE UNITS COST PER UNIT NET REALISABLE VALUE PER UNIT VALUATION

A 94 $20 $18 94*$18=1692

B 38 $15 $19 38*$15=570

2262

Revenue expenditure is the money spent on running a business on a day to day basis e.g. administration expenses ,selling expenses, financial charges, cost of maintaining and running fixed assets ,bad debt, increase in provision for doubtful debt ,depreciation and also purchase in trading section.

Capital expenditure is the money spent by a business on purchasing fixed or non-current asset and improving or extending non-current asset e .g all legal cost incurred in the purchase of fixed asset, carriage cost on delivery of fixed asset and cost of installing assets.

Capital receipt occurs when a capital is sold e. g capital injected by owner, sale of fixed asset, loan from bank.

Revenue receipt are sales or other income such as rent received, commission received, discount -

received ,bad debt recovered(recoverable debt)etc.

Matching or accrual principle: income earned should be matched with cost incurred.

Prudence or conservatism: when in doubt, asset, gains should not be overstated, however, losses, expenses should not be understated.

Depreciation, bad debt (irrecoverable debt), provision for doubtful debt(allowance for receivables),accruals and prepayment make use of matching and prudence principles.

ASSIGNMENT1:

➢ Explain the difference between direct costs and indirect costs.

➢ Explain the difference between prime cost and cost of production.

➢ Explain the meaning of the term ‘’work in progress”.

➢ Explain why a manufacturer may purchase finished goods as wee as raw materials.

ASSIGNMENT2:Akin is a manufacturer. He provided the following information for the year ended 31 May 2009.

$

June 1 2008: inventory of raw materials 4750

Work in progress 5600

May 31 2009: inventory of raw materials 4850

Work in progress 4300

For the year ended 31 May 2009:

Purchases of raw materials 49750

Direct factory wages 61940

Indirect factory wages 29660

Carriage on raw materials 3710

Factory direct expenses 2960

Factory indirect expenses 48930

➢ Calculate prime cost.

➢ Calculate factory overhead.

➢ Calculate the cost of production or cost of manufactured goods.

3. The financial year of Leeford Manufactures Ltd ends on 30 September. They supplied the following information.

$

At 1 October 2007:

Inventory of raw materials 41800

Inventory of finished goods 62300

Work in progress 18600

For the year ended 30 September 2008:

Purchases of raw materials 495800

Purchases of finished goods 4300

Revenue (sales) 824000

Wages:

Factory direct wages 52750

Factory indirect salaries 29760

Office and sales salaries 36890

Factory expenses 41840

At 30 September 2008:

Inventory of raw materials 43200

Inventory of finished goods

Work-in progress 17850

➢ Select the relevant figures and prepare the manufacturing account of Leeford Manufacturers ltd for the year ended 30September 2008.

➢ Select 2 of the items in the above list which should not appear in a manufacturing account and explain why they are not included.

4. Objective questions: page 299, question 1 to 3.Textbook: IGCSE ACCOUNTING BY CATHERINE COUCOM SECOND EDITION.

DEADLINE OR DUE DATE OF SUBMISSION: 24/APRIL/2019 BY 1;20 P.M.

Send answers to the following emails:

PERSONAL EMAIL:akintobi2897@

DEPARTMENTAL E MAIL: business-studies@.ng.

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