The paper "Analysis of Crosby’ s Cutters Business" is a great example of a business assignment. The owner of business reviews the income statement prepared by you and asks, “ Why do you report a profit of only $30 000 when cash collections of $100 000 were received and cash payments for the period totalled only $50 000 for expenses? ” How would you respond to the owner’ s question? . In a sole proprietor business the owner establishes the business. It is the owner who carries on and operates the business. The owner is the manager and controls the business in terms of planning to coordinate and to make decisions. The owner of the business may report less profit because of making drawings from the business.
Drawings are not treated as expenses in the preparation of profit and loss account of a business, this is because the owner and the business are one and the same that is no perpetual succession. For example, a person who operates a retail shop may take some of the items for sale like cooking fat and use it for his own purpose without paying for it.
This is not treated as an expense or a debt because it has been withdrawn by the owner. This is according to the international financial standards and international accounting standards. Question 3 J. Stott submits to you draft accounts for the year ended 30 June 2013, and a balance sheet as at that date. Towards the end of the financial year, his accountant resigned and he had completed the records himself. He thinks that errors have occurred and asks your help. An examination of the accounting records reveals the following: 1. Rent due from customers See and Els amounting to $800 is not included in the accounts. 2. A payment of $1300 for new office furniture has been incorrectly debited to the Sundry Expenses account.
The furniture had been purchased late in June 2013. 3. Commission due to sales representatives for the month of June, $1400, has been overlooked. 4. Repairs to Stott's private motor vehicle, $840, have been debited to the Vehicle Expenses account. 5. A payment of $11 000 on 1 July 2012 for additions to buildings has been debited to Repairs and Maintenance. 6. A fire insurance policy covering buildings was taken out on 30 April 2013, the annual premium of $720 being paid in advance on this date and debited to the Prepaid Insurance account. 7. The interest of $600 on the investments held by the business was due but has not been received. 8. No depreciation has been recognised for the year ending 30 June.
The draft balance sheet shows the following: Depreciation is to be calculated as follows: Buildings: 2% on the cost Office furniture and equipment: 20% on cost. Required A. Ignoring GST, show the journal entries required to make the necessary adjustments/corrections listed.
(18 marks) B. Calculate the effect (increase or decrease) of each of the adjustments on the profit figure of $20 300 as shown in the draft accounts. (4 marks) Total for Question 3: 22 marks Answer on following pages, please. A. Date Details Debit Credit 30 June 2013 Rent omitted: income account Debtors account $800 $800 June 2013 Office furniture Sundry expenses $1,300 $1,300 June 2013 Sales expenses Income account $1,400 $1,400 July 2013 Drawings account Vehicle expenses account $840 $840 July 2012 Buildings account Repairs and maintenance $11,000 $11,000 June 2013 Insurance expenses account Prepaid insurance account $120 $120 June 2012 Accrued income Debtors account $600 $600 June 2013 Depreciation account Accumulated depreciation account(buildings) Depreciation account Accumulated depreciation account(furniture) $1,820 $2,360 $1,820 $2,360