1 ページ
CAT NI T E R A INTERMEDIATE C T PAPER 3 I MAINTAINING FINANCIAL V RECORDS E (INTERNATIONAL) T E BPP is the official provider of training materials for the ACCA's CAT qualification. This X Interactive Text forms part of a suite of learning tools, which also includes CD-ROMs for tuition and computer based assessment, and the innovative, internet-based Learn T Online. This text has been specifically written to the current syllabus and Teaching Guide. • Clear language and presentation ••ThiNganHang.comtechniquesPlenty of questions, examples and quizzes to demonstrate and practiseSyllabus and teaching guide • A question and answer bank prepared by BPP Learning Media authors FOR EXAMS IN DECEMBER 2008 AND JUNE 2009 ThiNganHang.com
2 ページ
First edition 2003 Sixth edition June 2008 ISBN 9780 7517 4831 4 (Previous ISBN 9780 7517 3578 9) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library All our rights reserved. No part of this publication may be Published by reproduced, stored in a retrieval system or transmitted, in BPP Learning Media Ltd any form or by any means, electronic, mechanical, BPP House, Aldine Place photocopying, recording or otherwise, without the prior London W12 8AA written permission of BPP Learning Media Ltd. www.bpp.com/learningmedia We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past Printed in the United Kingdom examination questions. The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, unless where otherwise stated. ThiNganHang.com Your learning materials, published by BPP © Learning Media Ltd, are printed on paper BPP Learning Media Ltd sourced from sustainable, managed forests. 2008 ii ThiNganHang.com
3 ページ
Contents Page Introduction How to use this Interactive Text v Approach to examining the syllabus vi Analysis of past papers vi The computer based examination vii Tackling multiple choice questions viii Part A Basic bookkeeping 1 Assets, liabilities and the accounting equation 3 2 Statement of financial position and income statement 23 3 Recording and summarising transactions 41 4 Posting transactions, balancing accounts and the trial balance 61 Part B Advanced accounting procedures 5 Accounting concepts and standards 95 6 Control accounts and the correction of errors 113 7 Accruals and prepayments, receivables and irrecoverable debts 151 8 Cost of goods sold and the treatment of inventories 171 9 Non-current assets and depreciation 193 10 Extended trial balance 223 11 The accounts of sole traders 243 Part C Incomplete records and other accounts 12 Incomplete records 257 13 Partnerships 287 Exam question bank 297 Exam answer bank 309 List of key terms 325 Index 327 Review form and free prize draw ThiNganHang.com Contents iii ThiNganHang.com
5 ページ
How to Use this Interactive Text Aim of this Interactive Text To provide the knowledge and practice to help you succeed in the examination for Paper 3 Maintaining Financial Records. To pass the examination you need a thorough understanding in all areas covered by the syllabus and teaching guide. Recommended approach (a) To pass you need to be able to answer questions on everything specified by the syllabus and teaching guide. Read the text very carefully and do not skip any of it. (b) Learning is an active process. Do all the questions as you work through the text so you can be sure you really understand what you have read. (c) After you have covered the material in the Interactive Text, work through the Question Bank, checking your answers carefully against the Answer Bank. (d) Before you take the exam, check that you still remember the material using the following quick revision plan. (i) Read through the chapter topic list at the beginning of each chapter. Are there any gaps in your knowledge? If so, study the section again. (ii) Read and learn the key terms. (iii) Look at the exam alerts. These show the ways in which topics might be examined. (iv) Read the chapter roundups, which are a summary of the fast forwards in each chapter. (v) Do the quick quizzes again. If you know what you're doing, they shouldn't take long. This approach is only a suggestion. You or your college may well adapt it to suit your needs. Remember this is a practical course. (a) Try to relate the material to your experience in the workplace or any other work experience you may have had. (b) Try to make as many links as you can to other papers at the Introductory and Intermediate levels. ThiNganHang.com Introduction v ThiNganHang.com
6 ページ
Approach to examining the syllabus Paper 3 is a two-hour paper. It can be taken as a written paper or a computer based examination. The questions in the computer based examination are objective test questions – multiple choice, number entry and multiple response. (See page vii for frequently asked questions about computer based examinations.) Important note Past papers refer to 'doubtful debts' and the 'provision for doubtful debts'. From the December 2005 examination, these have been referred to as 'receivables allowances' or 'allowances for receivables' and this is the terminology we use in this text. The written examination consists of three sections, structured as follows: Number of marks Section A: 20 compulsory multiple choice questions of two marks each 40 Section B: Compulsory short form questions of between two and five marks 15 each Three compulsory written questions of 15 marks each 45 Total 100 Analysis of past papers Section A of your exam has 20 MCQs covering the whole syllabus. Section B Question 1 will have 4 or 5 short discussion questions on topics such as explaining the meaning of going concern or why control account are used. Section B Question 3, 4 and 5 will require more in-depth calculation. Topics examined to date are: Topic Dec June Dec June Dec Jun Dec June 2007 2007 2006 2006 2005 2005 2004 2004 Non current assets and • • • deprecation Control account reconciliation • • • • • Accounts of sale traders • • • • • • Partnership accounts • • • Bank reconciliation • • Inventory valuation and • • adjustments Incomplete records • Trial balance and correction of • • ThiNganHang.comerrorsQuestions and answers for all of these sittings can be downloaded from the ACCA website, together with examiner’s comments on the paper. vi Introduction ThiNganHang.com
7 ページ
The Computer Based Examination The ACCA has introduced a computer based examination (CBE) for CAT Papers 1–4 (in addition to the conventional paper based examination for papers 3 and 4). Computer based examinations must be taken at an ACCA CBE Licensed Centre. How does CBE work? • Questions are displayed on a monitor • Candidates enter their answer directly onto the computer • Candidates have two hours to complete the examination • When the candidate has completed their examination, the computer automatically marks the file containing the candidate's answers • Candidates are provided with a certificate showing their results before leaving the examination room • The CBE Licensed Centre uploads the results to the ACCA (as proof of the candidate's performance) within 48 hours Benefits • Flexibility as a CBE can be sat at any time. • Resits can also be taken at any time and there is no restriction on the number of times a candidate can sit a CBE. • Instant feedback as the computer displays the results at the end of the CBE. • Results are notified to ACCA within 48 hours. • Extended closing date periods (see ACCA website for further information) CBE question types • Multiple choice – choose one answer from four options • Multiple response 1 – select more than one response by clicking the appropriate tick boxes • Multiple response 2 – select a response to a number of related part questions by choosing one option from a number of drop down menus • Number entry – key in a numerical response to a question CAT CBE ThiNganHang.comYou will have two hours in which to answer a number of questions, which are worth a total of 100 marks. See the ACCA website for a demonstration and up to date information (www.acca.org.uk/colleges/cbe_demo). Introduction vii ThiNganHang.com
8 ページ
Tackling Multiple Choice Questions MCQ's are now part of all CAT exams. Papers 1 and 2 are examined by CBE, Papers 3 and 4 can be taken by CBE or by a written paper which is 40% MCQs. Paper 5 is now 50% MCQ's and Papers 6-10 are 20% MCQs. All MCQs carry 2 marks. The MCQs in your exam contain four possible answers. You have to choose the option that best answers the question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam. You may wish to follow the approach outlined below, or you may prefer to adapt it. Step 1 Skim read all the MCQs and identify what appear to be the easier questions. Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read the question thoroughly. You may prefer to work out the answer before looking at the options, or you may prefer to look at the options at the beginning. Adopt the method that works best for you. Step 3 Read the four options and see if one matches your own answer. Be careful with numerical questions as the distracters are designed to match answers that incorporate common errors. Check that your calculation is correct. Have you followed the requirement exactly? Have you included every stage of the calculation? Step 4 You may find that none of the options matches your answer. • Re-read the question to ensure that you understand it and are answering the requirement • Eliminate any obviously wrong answers • Consider which of the remaining answers is the most likely to be correct and select the option Step 5 If you are still unsure make a note and continue to the next question Step 6 Revisit unanswered questions. When you come back to a question after a break you often find you are able to answer it correctly straight away. If you are still unsure have a guess. You are not penalised for incorrect answers, so never leave a question unanswered! After extensive practice and revision of MCQs, you may find that you recognise a question when you sit the exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the requirement and options carefully – do not assume that it is identical. ThiNganHang.com viii Introduction ThiNganHang.com
11 ページ
Assets, liabilities and the accounting equation Chapter topic list 1 Introduction: accounting fundamentals 2 What is a business? 3 Asset and liabilities 4 A business is separate from its owner(s) 5 The accounting equation 6 The business equation 7 Accounts payable and accounts receivable 8 Double entry book-keeping ThiNganHang.com 3 ThiNganHang.com
12 ページ
Study guide reference Syllabus reference 1 (c) Explain and illustrate the dual aspect convention 1b (d) Apply the accounting equation (and derivatives thereof) 1a 4 (a) (i) Explain and apply the basic principles of accounting: – business entity – double entry 1 Introduction: accounting fundamentals The purpose of Chapters 1 to 4 of this Interactive Text is to introduce the fundamentals of accounting, particularly the principles of double entry bookkeeping. It is essential that you understand the topics discussed in the next few chapters, as they form the basis for your studies of financial accounting at C level of the CAT qualification. If you have studied for the CAT Paper 1, or the equivalent, you will have covered much of the material in these first four chapters. Exam focus The material in these first few chapters is very important. Many of the topics are mentioned specifically in point the Paper 3 Teaching Guide. • Quickly flick though the contents of each chapter to check your familiarity with the material. • If you are at all uncertain about any of it, go through the relevant section in detail. You may in any case find it a big help to go through these chapters as revision. You will then be ready to tackle Part B of this Interactive Text. Remember any of these topics can be examined, usually by a MCQ or as part of Question 1 of Section 3. 2 What is a business? FAST FORWARD A business may be defined in various ways. Its purpose is to make a profit for its owner(s). Profit is the excess of income over expenditure. Before tackling the nuts and bolts of accounting, it is worth considering what we mean when we talk about a business. Some ideas are listed below. • A business is a commercial or industrial concern which exists to deal in the manufacture, resale or supply of goods and services. • A business is an organisation which uses economic resources to create goods or services which ThiNganHang.com•• customers will buy.A business is an organisationA business invests money in resources (eg it buys buildings, machinery etc; it pays employees) inproviding jobs for people to work in. order to make even more money for its owners. This last definition – investing money to make more money – introduces the important idea of profit. Business entities vary in character, size and complexity. They range from very small businesses (the local shopkeeper or plumber) to very large multinationals. But the objective of earning profit is common to all of them. Key term Profit is the excess of income over expenditure. When expenditure exceeds income, the business is running at a loss. 4 1: Assets, liabilities and the accounting equation ⏐ Part A Basic bookkeeping ThiNganHang.com
13 ページ
One of the jobs of an accountant is to measure income, expenditure and profit. This is not always straightforward: it can be an inexact science, although the accounting fundamentals of double entry bookkeeping make sure that there is a firm set of principles underlying everything an accountant does. Learning how to account for a business involves building up a clear picture of what a business consists of. We shall start with what a business owns and what it owes – its assets and liabilities. 3 Assets and liabilities FAST FORWARD A business owns assets and owes liabilities. Assets are items belonging to a business and used in the running of the business. They may be non- current (machinery, office premises) or current (inventory, receivables, cash). Liabilities are sums of money owed by a business to outsiders such as a bank or a supplier. 3.1 Assets Key term An asset is something valuable which a business owns or has the use of. Examples of assets are factories, office buildings, warehouses, delivery vans, lorries, plant and machinery, computer equipment, office furniture, cash, goods held in store awaiting sale to customers. 3.1.1 Non-current and current assets Some assets are held and used in operations for a long time. An office building might be occupied by administrative staff for years; similarly, a machine might have a productive life of many years before it wears out. These are usually referred to as non-current assets. Other assets are held for only a short time. The owner of a newsagent's shop, for example, will have to sell his newspapers on the same day that he gets them, and weekly newspapers and monthly magazines also have a short shelf life. The more quickly a business can sell the goods it has in store, the more profit it is likely to make. We usually call these current assets. 3.2 Liabilities Key term A liability is something which is owed to somebody else. 'Liabilities' is the accounting term for the debts of a business. Debts are owed to payables. Here are some examples of liabilities. Liability Description ThiNganHang.comA bank loan or bank overdraft The liability is the amount which must eventually be repaid to the bank. Amounts owed to suppliers for A boat builder might buy some timber on credit from a timber goods purchased but not yet merchant, which means that the boat builder does not have to pay for paid for the timber until some time after it has been delivered. Until the boat builder pays what he owes, the timber merchant will be his liability (or payable) for the amount owed. The balance is often referred to as an 'account payable' or 'payable'. Taxation owed to the A business pays tax on its profits but there is a gap in time between government when a business earns its profits and becomes liable to pay tax and the time when the tax bill must eventually be paid. The government is the business's liability (or payable) during this time. Part A Basic bookkeeping ⏐ 1: Assets, liabilities and the accounting equation 5 ThiNganHang.com
14 ページ
4 A business is separate from its owner(s) FAST FORWARD For accounting purposes it is important to keep business assets and liabilities separate from the personal assets and liabilities of the proprietor(s). So far we have spoken of assets and liabilities 'of a business'. We shall see that, in accounting terms, a business is always a separate entity from its owner(s); but there are two aspects to this question: the strict legal position and the convention adopted by accountants. The law recognises a company as a separate legal entity, but recognises no distinction between a business carried on as either a sole trader or partnership and the owner(s) of the business. Suppose that Fiona Smith sets herself up in business as a hairdresser trading under the business name 'Hair by Fiona'. The law recognises no distinction between Fiona, the individual, and the business known as 'Hair by Fiona'. Any debts of the business which cannot be met from business assets must be met from Fiona's private resources. In many countries, the law recognises no distinction between the business of a sole trader or partnership and its owner(s). Question Terms Distinguish between the terms 'enterprise', 'business', 'company' and 'firm'. Answer An entity is the most general term, referring to just about any organisation in which people join together to achieve a common end. In the context of accounting it can refer to a multinational conglomerate, a small club, a local authority and so on. A business is also a very general term, but it does not extend as widely as the term 'entity': for example, it would not include a charity or a local authority. But any organisation existing to trade and make a profit could be called a business. A company is an entity constituted in a particular legal form, usually involving limited liability for its members. Companies need not be businesses; for example, many charities are constituted as companies. A firm is a much vaguer term. It is sometimes used loosely in the sense of a business or a company. Some writers, more usefully, try to restrict its meaning to that of an unincorporated business (ie a business not constituted as a company, for example a partnership). Exam focus You will not be asked in the exam about the accounts of limited companies. Your syllabus only covers sole point traders and partnerships. ThiNganHang.com4.1 The accounting conventionThe crucial point to grasp, however, is that a business must always be treated as a separate entity from its owners when preparing accounts. This applies whether or not the business is recognised in law as a separate entity, so it applies whether the business is carried on by a company, a sole trader or by a partnership. Exam focus In the December 2005 exam, there was a two mark part in Question 1 of Section B asking you to explain point the business entity concept. 6 1: Assets, liabilities and the accounting equation ⏐ Part A Basic bookkeeping ThiNganHang.com
15 ページ
Question Separate entity Fill in the missing words to make sure you understand the concept of the business as a separate entity and how the law differs from accounting practice. A business is a ........................................ entity, distinct from its ........................................ . This applies to ........................................ businesses. However, the law only recognises a ........................................ as a legal entity separate from its ........................................ . The liability of shareholders to the company ........................................ to the amount the company asks them to pay for their shares. Answer The missing words are: separate; owners; all; company; owners; limited. 5 The accounting equation FAST FORWARD Assets = Capital + Liabilities is the accounting equation. Since a business is a separate entity from its owners, it follows that: (a) The business can owe money to, or be owed money by, its owners. (b) The assets and liabilities of the business are separate from the assets and liabilities of the owners. This is the basis of a fundamental rule of accounting, which is that the assets and liabilities of a business must always be equal (the accounting equation). Let's demonstrate this with an example, which we will build up during this chapter. Exam focus This topic is likely to be examined in a MCQ. point 5.1 Example: The accounting equation On 1 September 20X8, Courtney Wilder decides to open up a stall in the market, to sell West Indian fruit and vegetables. He has saved up some money and has $1,000 to put into his business. When the business is set up, an 'accountant's picture' can be drawn of what it owns and what it owes. The business begins by owning the cash that Courtney has put into it, $1,000. But does it owe anything? The answer is yes. The business is a separate entity in accounting terms. It has obtained its assets, in this example cash, from its owner, Courtney Wilder. It therefore owes this amount of money to its owner. If Courtney ThiNganHang.comchanged his mind and decided not to go into business after all, the business would be dissolved by the'repayment' of the cash by the business to Courtney.The money put into a business by its owners is capital. As long as that money is invested, accountants will treat the capital as money owed to the proprietor by the business. Key term Capital is an investment of money (funds) with the intention of earning a return. A business proprietor invests capital with the intention of earning profit. The business owes the capital and the profit to the proprietor. Capital invested is therefore a form of liability. Adapting this to the idea that liabilities and assets are always equal amounts, we can state the accounting equation as follows. Part A Basic bookkeeping ⏐ 1: Assets, liabilities and the accounting equation 7 ThiNganHang.com
16 ページ
Formula to The accounting equation 1 learn Assets = Capital + Liabilities For Courtney Wilder, as at 1 July 20X8: Assets = Capital + Liabilities $1,000 cash $1,000 owed to Courtney $0 5.2 Example continued: different assets Courtney Wilder uses some of the money invested to purchase a market stall from George Sobers, who is retiring from his fruit and vegetables business. The cost of the stall is $600. He also purchases some fruit and vegetables from a trader in the wholesale market, at a cost of $340. This leaves $60 in cash, after paying for the stall and goods for resale, out of the original $1,000. Courtney keeps $30 in the bank and draws out $30 in small change. He is now ready for his first day of market trading on 3 September 20X8. How does the accounting equation look now? Solution The assets and liabilities of the business have now altered, and at 3 September, before trading begins, the state of his business is as follows. Assets = Capital + Liabilities $ Stall 600 $1,000 $0 Fruit and veg 340 Cash at bank 30 Cash in hand 30 1,000 5.3 Example continued: Profit explained Let us now suppose that on 3 September Courtney has a very successful day. He is able to sell all of his fruit and vegetables, for $500 cash. Since Courtney has sold goods costing $340 to earn revenue of $500, we can say that he has earned a profit of $(500 – 340) = $160 on the day's trading. How do we reflect this in the accounting equation? Solution Profit, like capital, belongs to the owners of a business: it's why they invested in the first place. In this case, the $160 belongs to Courtney Wilder. However, so long as the business retains the profits, and does not pay anything out to its owners, the retained profits are accounted for as an addition to the ThiNganHang.comproprietor's capital: they become part of that capital. Assets = Capital + Liabilities $ $ Stall 600 Capital Fruit and vegetables 0 introduced 1,000 Cash in hand and Retained at bank $(30 + 30 + 500) 560 profit 160 1,160 1,160 $0 So we could expand the accounting equation as follows. 8 1: Assets, liabilities and the accounting equation ⏐ Part A Basic bookkeeping ThiNganHang.com
17 ページ
Formula to The accounting equation 2 learn Assets = (Capital introduced + Retained profits) + Liabilities 5.4 Increase in net assets Key term Net assets = Total assets – Total liabilities We can rearrange the accounting equation to help us to calculate the total capital balance, which we have seen is the sum of capital introduced plus retained profit. Assets − Liabilities = Capital Net assets = Capital At the beginning and then at the end of 3 September 20X8 Courtney Wilder's financial position was as follows. Net assets = Capital (a) At the beginning of the day: $(1,000 − 0) = $1,000 (b) At the end of the day: $(1,160 − 0) = $1,160 Increase in net assets 160 = Retained profit for day 160 We can now state various principles. • At any point in time, a business's net assets represent the capital introduced by the owner plus the business's retained profit to that point in time. • At a later point in time, the increase in the business's net assets represents the additional profit made in the intervening period. • Total net assets at that later point represent the capital introduced by the owner plus the business's increased retained profit. For example: $m $m $m 1 Jan Net assets 170 = Capital introduced 20 + Retained profit 150 1 Jan-31 Dec Increase in net assets 34 = Profit made in year 34 31 Dec Total net assets 204 = Capital introduced 20 + Total retained profit 184 5.5 Drawings Key term Drawings are amounts of money taken out of a business by its owner. 5.6 Example continued: drawings ThiNganHang.comSince Courtney Wilder has made a profit of $160 from his first day's work, he might well feel fully justified in drawing some of the profits out of the business. After all, business owners, like everyone else, need income for living expenses. We will suppose that Courtney decides to pay himself $100, in what he thinks of as 'wages', as a fair reward for his day's work. But because he is the business's owner, the $100 is not an expense to be deducted before the figure of profit is arrived at. In other words, it would be incorrect to calculate the profit earned by the business as follows. $ Profit on sale of fruit and vegetables 160 Less 'wages' paid to Courtney as drawings 100 Profit earned by business (incorrect) 60 This is because any amounts paid by a business to its proprietor are treated by accountants as withdrawals of profit (drawings), and not as expenses incurred by the business. In the case of Courtney's Part A Basic bookkeeping ⏐ 1: Assets, liabilities and the accounting equation 9 ThiNganHang.com
18 ページ
business, the true position is that the profit earned is the $160 surplus on sale of fruit and vegetables, but the profit retained in the business is $(160 – 100) = $60. $ Profit earned by business 160 Less profit withdrawn by Courtney 100 Profit retained in the business 60 The drawings are taken in cash, and so the business loses $100 of its cash assets. After the drawings have been made, the accounting equation would be restated. Assets = Capital + Liabilities $ $ Stall 600 Capital introduced 1,000 Fruit and vegetables 0 Profit earned 160 Cash $(560 − 100) 460 Less drawings (100) 1,060 1,060 $0 The increase in net assets since trading operations began is now only $(1,060 − 1,000) = $60, which is the amount of the retained profits. So profits are capital as long as they are retained in the business. When they are paid out as drawings, the business suffers a reduction in capital. We can therefore restate the accounting equation again. Formula to The accounting equation 3 learn Assets = Capital introduced + (Earned profit – Drawings) + Liabilities These examples have illustrated that the basic equation (Assets = Capital + Liabilities) always holds good. Any transaction affecting the business has a dual effect as shown in the table below. Asset = Capital + Liabilities Increase Increase or Increase Increase or Increase Decrease or Decrease Increase or Decrease Decrease or Decrease Decrease Question Transactions Consider each of the transactions below, and mark on the grid which area will be increased and which decreased by the transaction. We have done the first one for you. (a) The bank tells the business it no longer owes the bank $100 in bank charges. ThiNganHang.com(b)(c)(d)(e) The owner withdraws $500 from the business.A gas bill of $200 is received by the business.Cash is introduced into the business by its owner.The business finds it has been overcharged $50 for some furniture it bought on credit. (f) A car is bought by the business, for payment in 1 month's time. Transaction = Assets = Capital + Liabilities (a) Increase Decrease (b) (c) (d) (e) (f) 10 1: Assets, liabilities and the accounting equation ⏐ Part A Basic bookkeeping ThiNganHang.com
19 ページ
Answer Transaction Assets = Capital + Liabilities (a) Increase Decrease (b) Decrease Decrease (c) Decrease Increase (d) Decrease Decrease (e) Increase Increase (f) Increase Increase 6 The business equation FAST FORWARD P = I + D – C is the business equation. The business equation is a further elaboration of the accounting equation which gives a definition of profits earned. The example of Courtney Wilder has shown that the amount of profit earned in a time period can be related to the increase in the net assets of the business, the drawings of profits by the proprietor and the introduction of new capital. We know that: Accounting equation Assets = Capital + Liabilities 1 which is the same as: Assets = Capital + Liabilities 2 introduced + Retained profits which is the same as: Assets = Capital + Liabilities 3 introduced + Profit earned – Drawings As time goes on, retained profit (shown as profit earned less drawings) builds up the amount of capital in the business – it becomes part of the opening balance of capital. As we proceed through another period Formula tolearn ThiNganHang.comof trading, additional profit will (hopefully) be earned. So we should restate the accounting equation again:The accounting equation 4 Assets = Capital introduced + Liabilities + Profit retained in previous periods + Profit earned in current period – Drawings Let's see how this works in the case of Courtney Wilder. Part A Basic bookkeeping ⏐ 1: Assets, liabilities and the accounting equation 11 ThiNganHang.com
20 ページ
6.1 Example continued: more profit earned The next market day is on 10 September, and Courtney gets ready by purchasing more fruit and vegetables for cash, at a cost of $400. He had a family party to attend during the day, however, and so he decided to accept the offer of help for the day from his aunt, Sheila, whom he agrees to pay a wage of $50 at the end of the day. Trading on 10 September is again very brisk, and Courtney and Sheila sell all their goods for $760 cash. Courtney pays Sheila her wage of $50 and draws out $150 for himself. How do these transactions affect Courtney's capital? Solution The accounting equation before trading begins on 10 September, and after trading ends on 10 September, can be set out as follows. (a) Before trading begins Assets = Capital + Liabilities $ $ Stall 600 Capital introduced 1,000 Fruit and vegetables 400 Retained profit 60 Cash $(460 − 400) 60 1,060 1,060 $0 (b) After trading ends On 10 September, all the goods are sold for $760 cash, and Sheila is paid $50. The profit for the day is $310, computed as follows. $ $ Sales 760 Less: cost of goods sold 400 Sheila's wage 50 450 Profit 310 Courtney withdraws $150 of this profit for his personal use. Assets = Capital + Liabilities $ $ Stall 600 At beginning of 10 Sept 1,060 Fruit and vegetables 0 Profits earned on 10 Sept 310 Cash $(60 + 760 Less drawings (150) − 50 − 150) 620 1,220 1,220 $0 6.2 More capital introduced When a business is going well, the owner is very likely to invest more money in it in the expectation of ThiNganHang.comgenerating even more profit. We need to include this in our accounting equation too: in doing so, we willarrive at theassets of the business, drawings and new capital introduced.business equation, which allows us to compute profit from analysing the increase in net 6.3 Example: more capital introduced Suppose on 10 September, in addition to all the other transactions, Courtney decides to hire a van at a cost of $30 to transport the fruit and vegetables, paying for the hire out of cash from his own pocket. How would this affect the accounting equation at the end of 10 September? Solution After trading ends On 10 September, all the goods are sold for $760 cash, Sheila is paid $50 and the van cost $30. Profit for the day is $280: 12 1: Assets, liabilities and the accounting equation ⏐ Part A Basic bookkeeping ThiNganHang.com
コメント (0)
まだコメントはありません。最初のコメントを書きましょう！