Sole trader and its adjustments

SOME STUDENTS, understandably, get nervous or anxious about examinations. It is extremely important to try your best to overcome these feelings. Your thorough preparation leading up to the examination and remaining calm in the examination room are very important factors to help you maintain your positive composure. Now that the examination is almost here, just pull on ways you devised to help you remember things.

WORKED EXAMPLE

Question: James Clarke is a trader. The following balances were extracted from his books on August 31, 2014.

Additional information:

1. Stock at August 31, 2014, was valued at $22,400.

2. At August 31, 2014, rates prepaid were $300.

3. Wages and salaries of $4,700 were accrued at August 31, 2014.

4. Accountancy fees of $3,000 are accrued at August 31, 2014.

5. Provision for doubtful debts of 4% of debtors at August 31, 2014 to be credited.

6. Fixture and equipment are to be depreciated by $4,000 for the year.

You are required to prepare: a. Trading profit and loss account for James Clarke for the year ended August 31, 2014.

b. Balance sheet for James Clarke as at August 31, 2014.

REASONING

Rates prepaid reduce the rates expense and are recorded under the current assets.

Accrued wages and salaries increase the expenses and are recorded under current liabilities.

Provision for doubtful debts is calculated on closing creditors.

WORKINGS

Wages and salaries $47,400 +4,700 accrued at August 31, 2014 = $52,100.

Rents and rates $14,700–300 rates prepaid at august 31, 2014 = $14,400.

Provision for doubtful debts:

Debtors $22,500x 4% = $900.

SOLUTION

a. James Clarke Trading and profit and loss account for the year ended August 31, 2014.

b. James Clarke Balance Sheet as at August 31, 2014.

This is all we have time for this week. Visit again next week when the presentations will continue. Remember, IF IT IS TO BE, IT IS UP TO ME (10 simple two-letter words).