Photo AI
Incomplete Records On 1/1/2012, E - Leaving Cert Accounting - Question 7 - 2013
Question 7
Incomplete Records On 1/1/2012, E. Kelly purchased a business for €205,000 consisting of the following tangible assets and liabilities: Premises €174,000; Stock €14... show full transcript
Worked Solution & Example Answer:Incomplete Records On 1/1/2012, E - Leaving Cert Accounting - Question 7 - 2013
Step 1
Trading and Profit and Loss Accounts for the year ended 31/12/2012
Answer
Trading and Profit and Loss Account for the year ending 31/12/2012
Sales
Credits Sales: €32,000
Cash Sales: €94,000
Total Sales: €205,770
Less Cost of Sales:
Opening Stock: €14,000
Add Purchases: €51,000
Less Closing Stock: €15,600
Total Cost of Sales: €49,400
Gross Profit:
Total Sales - Total Cost of Sales:
€205,770 - €49,400 = €156,370
Less Expenses:
General Expenses: €22,500
Light and Heat: €4,600
Interest: €2,400
Insurance: €2,000
Charitable Organisation: €2,500
Rent: €22,680
Total Expenses: €56,680
Net Profit:
Gross Profit - Total Expenses:
€156,370 - €56,680 = €99,690
Step 2
Balance sheet as at 31/12/2012
Answer
Balance Sheet as at 31/12/2012
Assets
Tangible Fixed Assets:
Premises: €174,300
Stock: €15,600
Equipment: €30,000
Total Tangible Fixed Assets: €219,900
Current Assets:
Debtors: €32,000
Bank: €94,000
Total Current Assets: €126,000
Total Assets:
€219,900 + €126,000 = €345,900
Liabilities
Creditors:
Trade Creditors: €17,200
Electricity due: €640
Interest due: €2,400
Loan: €72,000
Total Liabilities: €92,240
Net Assets:
Total Assets - Total Liabilities:
€345,900 - €92,240 = €253,660
Step 3
What additional information would be available to Kelly if he used the 'double entry' system to record financial transactions?
Answer
The double entry system provides comprehensive and reliable accounting information. Key advantages include:
- Accountability: All transactions would be recorded with double entries, ensuring accuracy and traceability.
- Financial Position: It would offer a clearer view of Kelly's financial position through real-time balance sheets and profit/loss statements.
- Audit Trail: Easy tracking of all transactions for audit purposes.
- Error Detection: Facilitates identification of errors through balanced accounts.
- Budgeting and Forecasting: Better financial planning through accurate historical data.