Question

DULT : Génie Electrique et Informatique Industrielle Introduction to Finance (ITF) Assignment No 1 David Denton set up in business as a plumber a year ago, and he has asked you to act as his accountant. His instructions to you are in the form of the following letter: Dear Henry, I was pleased when you agreed to act as my accountant and look forward to your first visit to check my records. Your proposed fee of £250 per year is acceptable. I regret that the paperwork for the work done during the year is incomplete. I started my business on 1 January 2005, and put £6500 into a business bank account on that date. I brought my van into the firm at that time, and reckon that it was worth £3600 then. I have drawn £90 per week from the business bank account during the year. In my trade it is difficult to take a holiday, but my wife managed to get away for a while. The travel agent’s bill for £280 was paid out of the business account. I bought the lease of the yard and office for £6500 on 1 April. I borrowed £4000 on that day from Aunt Jane to help pay for the lease. I have agreed to pay her 10% interest per annum, but have been too busy to do anything about this yet. I was lucky enough to meet Miss Prism shortly before I set up on my own, and she has worked for me as an office organizer right from the start. She is paid a salary of £3000 per year. All the bills for the year have been carefully preserved in a tool box, and we analysed them last week. The materials I have bought cost me £9600, but I reckon there was £580 worth left in the yard on 31 December. I have not yet paid for them all, I think we owed £714 to the suppliers on 31 December. I was surprised to see that I had spent £4800 on plumbing equipment, but it should last me five years or so. Electricity bills received up to 30 September came to £1122, but motor expenses were £912, and general expenses £1349 for the year. The insurance premium for the year up to 31 March 2006 was £800. Miss Prism sent out bills to my customers for work done, but some of them are very slow to pay. Altogether the charges made were £29863, but only £25613 had been received by 31 December. Miss Prism thinks that 10% of the remaining bills are not likely to be paid. Other customers for jobs too small to bill have paid £3418 in cash for work done, but I only managed to bank £2600 of this money. I used £400 of the difference to pay the family’s grocery bills, and Miss Prism used the rest for further general expenses, except for £123 which was left over in a drawer in the office on 31 December. Kind regards, Yours sincerely, David. You are required to draw up a Profit and Loss Account for the year ended 31 December 2005, and a Balance Sheet as at that date.

Could you show calculations for only general expenses???????

Answer 1

Here is the calculation for general expenses

1,644 are the total general expenses

Explanation is as follows

Your proposed fee of £250 per year is acceptable.	Not part of general expenses
I started my business on 1 January 2005, and put £6500 into a business bank account on that date	Not part of general expenses
I brought my van into the firm at that time, and reckon that it was worth £3600 then	Asset. Not part of general expenses
I have drawn £90 per week from the business bank account during the year	Drawings (personal expenses). Not part of general expenses
The travel agent’s bill for £280 was paid out of the business account	Drawings (personal expenses). Not part of general expenses
I bought the lease of the yard and office for £6500 on 1 April.	Prepaid rent. Not part of general expenses
I borrowed £4000 on that day from Aunt Jane to help pay for the lease. I have agreed to pay her 10% interest per annum, but have been too busy to do anything about this yet	Borrowing (Balance sheet item) and interest expense. Not part of general expense
She is paid a salary of £3000 per year	Employee benefit expense. Not part of general expense
The materials I have bought cost me £9600, but I reckon there was £580 worth left in the yard on 31 December	Material Purchases. Not part of general expenses
I have not yet paid for them all, I think we owed £714 to the suppliers on 31 December	Balance sheet item. Not part of general expenses
I was surprised to see that I had spent £4800 on plumbing equipment, but it should last me five years or so	Not part of general expenses
Electricity bills received up to 30 September came to £1122, but motor expenses were £912, and general expenses £1349 for the year	£ 1,349 are part of General expenses
The insurance premium for the year up to 31 March 2006 was £800	Prepaid insurance
Altogether the charges made were £29863, but only £25613 had been received by 31 December	Accounts receivable
Miss Prism thinks that 10% of the remaining bills are not likely to be paid	Allowance for doubtful accounts
Other customers for jobs too small to bill have paid £3418 in cash for work done, but I only managed to bank £2600 of this money.	Revenue and cash impact
I used £400 of the difference to pay the family’s grocery bills, and Miss Prism used the rest for further general expenses, except for £123 which was left over in a drawer in the office on 31 December	Balance in above item is 3,418 - 2,600 = 818. Out of this 400 is drawings, 123 is still remaining as cash and the remaining, 295 is GENERAL EXPENSES