Question

in-class exercise that confused me today:

The following trial balance for the year ended 31 December 2019:

	Debit (£)	Credit (£)
Capital		105,000
Drawings	95,000
Purchases	126,740
Sales		262,900
Inventory (1 Jan 2019)	10,500
Fixtures and Fittings at cost	64,000
Provision for depreciation: fixtures and fittings		6,400
Motor Car	20,000
Provision for depreciation: motor car		7,500
Rent	6,500
Heat and light	3,520
Wages and salaries	14,445
Motor expenses	3,250
Insurance	3,600
Bank	15,250
Cash	215
Loan (J. Lender)		15,000
Bad debts	325
Provision for doubtful debts		525
Accounts receivable	36,500
Accounts payable		2,500
Discounts allowed	100
Discounts received		120
	399,945	399,945

The business has also provided you with the following information which is not reflected in the trial balance above:

1. Inventory at 31 December 2019 has been valued at £12,300.

2. Loan interest is 5% per year on the £15,000 borrowed.

3. They made a payment of £1,500 for rent on 1 November 2019, which was for the quarter ended 31 January 2020.

4. Estimated cost of gas and electricity owing at the year-end was £150.

5. The wages for the last week in December, amounting to £450 had not yet been paid.

6. The business makes a provision for bad debts of 1% of the outstanding receivables at the year end.

7. Depreciation is charged on fixtures and fittings at 10% on cost and on motor vehicles at 25% using the reducing balance method.

The business has used the balance of £15,250 for the bank which is the balance per their accounting records. The balance shown on the business bank statement at 31 December 2019 is £15,580. You identify the following when comparing the bank statement to Kelly’s accounting records and note that the business has not produced a bank reconcilation:

1. Amounts received in the last few days of December 2019 totalling £220 did not clear in the bank until 2 January 2020.

2. the business paid a garage bill by cheque on 23 December for £550. The cheque had not been cleared through the bank at the year end.

Prepare the business’s income statement, statement of financial position for the year ended 31 December 2019 and a bank reconciliation as at 31 December 2019.

Answer 1