Unit 3 Accounting

Practice Revision Questions

Practice 1
Ian Nash operates a business called Nash Home Improvements, which sells doors, locks and other
items used in home renovations. The following data applied to the business at 1 January 2014:

 Accrued Salaries $4 000

 Creditor—ACME Supplies $24 960
 Bank (DR balance) $13 000
 Total Debtors $31 400
 Stock on Hand $74 600
 Loan—That Bank $48 000 (repayable at a rate of $8 000 per year)
 Creditor—Eastern Imports $16 640
 GST Clearing (CR balance) $5 000
 Display Counters $100 000
 Accumulated Depreciation of Display Counters $20 000
 Mortgage Loan (interest only, repayable in 5 years) $480 000
 Buildings $740 000
 Drawings of Stock $2 000
 Prepaid Insurance $2 000.

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1.1 Prepare the Balance Sheet as at 1 January 2014.

NASH HOME IMPROVEMENTS

Balance Sheet as at 1 January 2014
Current Assets $ $

Non-current Assets

Total Assets
Current Liabilities

Non-current Liabilities

Owner’s Equity

Total Owner’s Equity

Total Equities

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Practice 2
At the end of March 2014 the following journals were provided.

ACE Sales—Purchases Journal

Date Creditor Invoice Stock GST Total
2014 Number Creditors
Mar. 5 EP Trading X3456 13 920 1 392 15 312
14 HT Ltd Y37 17 400 1 740 19 140
31 Total 31 320 3 132 34 452

ACE Sales—Sales Journal

Date Debtor Invoice Cost Sales GST Total
2014 Number of Debtors
Sales
Mar. 3 Mountain Council A678 18 360 36 000 3 600 39 600
16 Northern SC A679 13 440 24 000 2 400 26 400
31 Total 31 800 60 000 6 000 66 000

ACE Sales—Cash Receipts Journal

Date Details Rec. Bank Disc. Debtors Cost of Sales GST Sundries
2014 No. Exp. Sales
Mar. 3 Sales 503 6 600 3 360 6 000 600
8 Northern SC 504 36 828 372 37 200
9 Sales 505 9 900 5 040 9 000 900
11 Sales 506 13 200 6 720 12 000 1 200
16 Interest 507 120 120
31 Total 66 648 372 37 200 15 120 27 000 2 700 120

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ACE Sales—Cash Payments Journal
Date Details Chq Bank Disc. Creditors Wages Office Drawings GST Sundries
2014 No. Rev. Exp.

Mar. GST Clearing 9209 8 200 8 200

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3 Rent 9210 8 580 780 7 800

9 EP Trading 9211 59 388 1 212 60 600

12 Mortgage 3 000

12 Mortgage 9212 3 588 588

Interest

12 Wages 9213 3 300 3 300

13 Freight 9214 1 320 120 1 200

16 Drawings 9215 4 800 4 800

19 Stationery 9216 1 386 1 260 126

22 Wages 9217 1 650 1 650

31 Total 92 212 1 212 60 600 4 950 1 260 4 800 1 026 20 788

2.1 Post the transactions in the above journals to the following General Ledger accounts and
balance the relevant accounts.

General Ledger
Creditors Control
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 132 000

Debtors Control
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 49 000

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 Discount Expense
2014 Cross Reference $ 2014 Cross Reference $

Sales
2014 Cross Reference $ 2014 Cross Reference $

GST Clearing
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 8 200

Stock Control
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 85 000

Cash at Bank
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 105 000

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 Cost of Sales
2014 Cross Reference $ 2014 Cross Reference $

Discount Revenue
2014 Cross Reference $ 2014 Cross Reference $

2.2 Show how the following Debtor and Creditor Subsidiary ledgers would appear after all
relevant information has been posted for the month.

Subsidiary Ledgers
Debtor—Northern SC
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 13 000

Creditor—EP Trading
2014 Cross Reference $ 2014 Cross Reference $
Mar. 1 Balance 72 000

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Practice 3
Explain how the column headed, ‘Cost of Sales’ in the Cash Receipts Journal is used in the reporting
process.

Explanation

Practice 4
J Wotzko runs a business, Babykins, which sells baby wear and equipment. Her business uses a
computerised accounting package and it produces the following Trial Balance on 30 June 2014.

Trial Balance at 30 June 2014

Ledger account Debit Credit
$ $
Freight Inwards 4 200
Bank 7 350
Cost of Sales 319 000
Stock Control 219 200
Capital— J Wotzko 176 050
Wages Expense 126 450
Sales 682 000
Accumulated Depreciation of Fittings 25 600
Creditors Control 132 000
Debtors Control 161 700
Fittings 110 600
Drawings 70 100
Discount Expense 1 750
GST Clearing 840
Loan Interest Expense 1 540
Discount Revenue 200
Loan—Which Bank 80 000
Prepaid Shop Rent Expense 48 000
Administration Expenses 26 800
$1 096 690 $1 096 690

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Additional information
 Depreciation of Fittings was $6 400 for the year
 Wages owing on 30 June 2014 were $2 200
 A payment of $1000 for administration expenses was wrongly recorded in the Wages Expense
account. There should be an adjustment here also for the GST as Administration Expense
would attract GST.
 A physical stocktake showed that there was stock on hand of $224 000.
 C Evans, a debtor, was declared bankrupt and their debt of $4 600 was written off.
 She gave her parents a digital photo frame, which has a cost price of $400 and would normally
sell for $650.
 The Shop Rent of $48 000 was paid in advance on 1 March 2014 for a six-month period.
 The business had to pay the $80 000 loan off at $24 000 per year.

4.1 Show the General Journal entries to record the above balance day adjustments and
corrections on 30 June 2014. (Narrations are not required.)

General Journal
Date Particulars General Ledger Subsidiary Ledger
2014 Debit Credit Debit Credit

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4.2 Prepare a Income Statement for the period ending 30 June 2014.

BABYKINS
Income Statement for the year ending 30 June 2014
$ $

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Practice 5
Explain how the First In, First Out (FIFO) system of inventory costing would be applied when
determining the cost of sales.

Explanation

Practice 6
Thomas operates a business selling dog kennels. The business has assets of $400 000 and current
and non-current liabilities of $160 000. His private net assets are worth $340 000. Explain with
reference to a qualitative characteristic whether he should include his private assets and value the
business at $520 000.

Explanation

Qualitative characteristic

Practice 7
These are the cash journals for CM Trading for the month ending 31 March 2014. The Bank balance
at 1 March 2014 was $13 200 CR.

Cash Receipts Journal

Date Details Bank Debtors Cost of Sales GST Sundries
2014 Sales

Mar. 31 Totals 620 400 118 000 100 000 404 000 40 400 58 000

The Sundries column consists of receipt of a Loan from That Bank for $36 000, Commission Revenue
of $2 000 and a Capital contribution by Claude Marasco of $20 000.

Cash Payments Journal

Date Details Bank Creditors Drawings Office Stock GST Sundrie
2014 Exp. s

Mar. 31 Totals 343 700 152 000 40 000 12 000 80 000 12 700 47 000
The Sundries column consists of the purchase of a Vehicle for $35 000, and Loan Interest payment of
$12 000.

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Prepare a classified Cash Flow Statement for the month ending 31 March 2014.

CM TRADING
Cash Flow Statement for the month ending 31 March 2014

Cash Flows from Operating Activities $ $

Net Cash Inflow from Operating Activities

Cash Flows from Investing Activities

Net Cash Outflows from Investing Activities

Cash Flows from Financing Activities

Net Cash Inflows from Financing Activities

Net Cash Inflows for the month ending 31 March 2014

Bank Balance at 1 March 2014

Bank Balance as at 31 March 2014

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Practice 8
CM Trading paid its staff on a Thursday each fortnight. On the first pay day in July 2014 it paid
salaries of $35 600 with Cheque #901, dated 8 July. This amount included salaries owing on 30 June
2013 of $4 400.
Show how the Cash Payments Journal would appear on 8 July to record this cheque payment.

Cash Payments Journal

Date Details Chq Bank Disc. Creditors Wages Stock GST Sundries
2014 No. Rev.

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