Question

Jane Allen is a sole trader running a small chemist shop. She provides you with the following balances from her ledger accounts at 30 June, 2020. The adjusting entries have already been completed and the list of accounts is in no particular order.

Account title 2020 J Allen, Capital 180 000 Office Equipment 21 500 Cost of Goods Sold 124 870 Accumulated Depn – Office Equip 5 900 Salaries Expense Payable 1 240 Inventory 95 412 Inventory Shortage Expense 160 Discount Received 680 Shop Fixtures and Fittings 25 980 Accum Depn – Shop Fixtures and Fittings 12 800 Salaries Expense 64 200 Accounts Receivable 29 320 Depn Expense – Shop Fixtures and Fittings 4 400 J Allen, Drawings 55 000 Telephone Expense 9 050 Accounts Payable 7 950 Sales Revenue 238 146 Prepaid Insurance 650 Cash at Bank 19 562 Insurance Expense 1 200 Depreciation Expense – Office Equip 1 568 Electricity Expense 4 450 Sales Returns and Other Allowances 283

Required: Prepare an Income Statement and notes for the year ended 30 June, 2020. You should show net figures for ‘Sales Revenue’, ‘Cost of Sales’ and ‘Depreciation Expense’ and provide a ‘Note’ for each of these lines.

Answer 1

Trail balance
Capital		180000
office equipment	21500
Cost of goods sold	124870
Accumulated depn-office equipment		5900
Salaries expense payable		1240
Inventory	95412
Inventory Shortage expense	160
Discount received		680
Shop fixtures and fittings	25980
Accumulated depn- Shop fixtures and fittings		12800
Salaries expense	64200
Accounts receuvable	29320
Depn expense-Shop fixtures and fittings	4400
J Allen Drawings	55000
Telephone expense	9050
Accounts payable		7950
Sales revenue		238146
Prepaid insurance	650
Cash at bank	19562
Insurance expense	1200
Depreciation expense-Office equip	1568
Electricity expense	4450
Sales returns and other allowances	283

Income statement

	Note No	Amount
Sales	1	237863
Cost of Goods sold	2	125030
Gross margin		112833
Less: operating expenses
Salaries expense		64200
Telephone expense		9050
Depreciation expense	3	5968
Insurance expense		1200
Elecricity expense		4450
Total operating expenses		84868
Other income:
Discount received		680
Net operating income		28645

NOtes

1	Sales
	Sales revenue	238146
	Less: Sales returns and other allowances	283
	Net sales	237863
2	Cost of Goods sold
	Cost of goods sold	124870
	Add: Inventory shortage expense	160
	Total cost og goods sold	125030
3	Depreciation expense
	Depn expense-Shop fixtures and fittings	4400
	Depreciation expense-Office equip	1568
	Total depreciation expense	5968