3. Verification of accounting records
A section of Accounting, 7707
Listing 10 of 107 questions
Nadia is a trader. Her financial year ends on 31 March. She extracted a trial balance at 31 March 2020. The debit and credit totals did not agree. The difference was entered into a suspense account. After Nadia prepared draft financial statements, she discovered the following errors. The purchases account was overcast by $110. $13 for discount allowed in February 2020 had been credited to the discount allowed account as $15. A payment for insurance, $220, was correctly recorded in the cash book, but was recorded as $202 in the insurance account. Commission received, $65, had been debited to the account for commission payable. The entry to the cash book had been correctly made. Cash drawings, $85, were correctly entered in the cash book but were credited to the drawings account. The cost of a vehicle repair, $190, had been debited to the motor vehicles account. A payment of $100 to Robert had been posted to the account of Roberta. REQUIRED Prepare the suspense account. Include the original difference on the trial balance as a balancing figure. Nadia Suspense account Date ………. ………. ………. ………. ………. ………. ………. ………. ………. Details .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Date ………. ………. ………. ………. ………. ………. ………. ………. ………. Details .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… .……………………… $ ……… ……… ……… ……… ……… ……… ……… ……… ……… Identify the type of error made in Error 6 Error 7 Complete the following statement to show the effect on the profit for the year of correcting errors 2–7. If there is no effect on profit write ‘nil’ in the ‘no effect’ column. Calculate the corrected profit for the year. Ignore depreciation of non-current assets. The first correction has been completed as an example. Nadia Statement of corrected profit for the year ended 31 March 2020 $ Draft profit for the year before corrections No Increase Decrease Effect in profit in profit $ $ Error 1 Error 2 Error 3 Error 4 Error 5 Error 6 Error 7 Corrected profit for the year At 31 March 2020 Nadia’s trade receivables owed $14 500. After the preparation of the draft financial statements for the year ended 31 March 2020, Nadia discovered the following. $300 owed by DD Supplies should have been written off as irrecoverable. A provision of doubtful debts of 2% of trade receivables should have been created. REQUIRED Prepare journal entries to record 1 and 2 above. Narratives are not required. Nadia Journal Date Details Debit $ Credit $ ……… ……… ……… ……… ……… ………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… …………………………………………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ……………… ………………
7707_s20_qp_22
THEORY
2020
Paper 2, Variant 2
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Mosi is a trader. The totals of his trial balance at 30 April 2022 did not agree and the difference was placed in a suspense account. Mosi later discovered the following errors. Commission received, $96, had been debited to the discount received account. The entry to the bank account was correctly made. The total of the sales journal for April 2022, $1258, was transferred to the sales account as $2185. A cheque payment for motor expenses, $77, had been omitted from the book-keeping records. A payment by electronic transfer, $135, was recorded as a payment in the petty cash book. An invoice received from Tracey, $160, was credited to the account for Stacey. REQUIRED Prepare the journal entries to correct errors 1–5. Narratives are not required. Prepare the suspense account. Include the original difference on the trial balance as a balancing figure. Mosi Suspense account Date Details $ Date Details $ Mosi’s original draft profit, before correcting the errors, was $39 970. REQUIRED Calculate Mosi’s corrected profit for the year ended 30 April 2022.
7707_s22_qp_22
THEORY
2022
Paper 2, Variant 2
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Amadi prepared the following trial balance which is not yet totalled and contains errors. Amadi Trial balance at 31 March 2023 Debit Credit $ $ Fittings and equipment at cost 30 000 Provision for depreciation of fittings and equipment 7 500 Trade receivables 6 100 Bank overdraft 3 106 Trade payables 3 485 Capital 20 000 Sales 73 250 Purchases 41 785 Discount received 1 990 Returns inwards 3 390 Carriage inwards 1 223 General expenses 6 430 Rent and rates 7 380 Drawings 9 500 Inventory at 1 April 2022 3 752 Inventory at 31 March 2023 3 965 REQUIRED Prepare a corrected trial balance at 31 March 2023. Show the remaining difference between the debit and credit totals as ‘suspense.’ Amadi then discovered the following errors. The general expenses account had been undercast by $200. A rent payment, $516, had been posted to the rent and rates account as $615. The total for discount received in the cash book for February 2023, $165, had been debited to the drawings account. No other entry for this total had been made. REQUIRED Prepare the suspense account. Amadi Suspense account Date Details $ Date Details $ REQUIRED Prepare the trading section of Amadi’s income statement for the year ended 31 March 2023. Amadi Income Statement (trading section) for the year ended 31 March 2023 $ $ Calculate Amadi’s gross margin, correct to two decimal places. Gross margin workings answer Amadi’s main competitor is Hector who owns his own business premises. Amadi and Hector have similar gross margins but Hector has a slightly higher profit margin. REQUIRED Explain whether or not Amadi should be satisfied with these results.
7707_s23_qp_22
THEORY
2023
Paper 2, Variant 2
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Questions Discovered
107