AS Accounting

Unit 1

Past Examination Paper

June 2009

By the end of this lessonBy the end of this lessonHave marked

your answers to all questions

Write notes on areas to improve

Decide on three improvement

targets

You will

(a) Explain three reasons for keeping accounting records.

Q1

6 marks

Possible reasons include:

• Legal requirement – business records are required to be kept for up to 5 years

• Helps preparation – e.g. Double entry entered automatically by one entry

• To determine how profitable a business is

• To help determine a valuation for the business

• To provide record of a transaction that in the future may need clarification

• To keep track of where money is going (to check its not being stolen)

(b) Explain the following termsQ1

6 marks

Accrued expenses: An expense that should have been paid in the current accounting period but has not been paid in that accounting period and therefore is still owing. Treated as a current liability and added onto the expense paid in the Income Statement.

Prepaid expenses: An expense that relates to a future accounting period and that has been paid in the current accounting period. Treated as a current asset and deducted from the expense paid in the Income Statement.

Depreciation: The reduction in the economic value of an asset over time caused by wear and tear or obsolescence. Treated as an expense in the Income Statement and deducted from the asset in the Balance Sheet.

Q2 (a) Enter the difference in the trial balance totals in the suspense account below. Make any necessary entries in the suspense account to correct the errors

Suspense account31 May Dis rec 200

31 May Rent received 700

900

Calculate balance b/d – difference between debit and credit balances

31 May Bal b/d 399

31 May General exps 36

31 May Dis all 65

31 May Wages 200

31 May Drawings 200

900

(1) Need to increase the amount of discount received – Dr Suspense Cr Discount (as dis received is income therefore increase it is achieved by crediting the account)

(3) Discount allowed is an expense account, therefore to increase it we need to Dr dis all Cr Suspense

(4) This error does not affect the suspense account as the correct amounts have been entered, just to the wrong account. The correction will be Dr motor repairs Cr P&M

(5) Rent received is an income account and therefore the entry should have been to credit the account. Thus Dr Suspense 700 Cr rent received 700

(6) Need to remove the entry from the wages account so Dr wages Cr Suspense. Then need to make actual entry Dr drawings (expense a/c) Cr suspense

(2) Expense account undercast by 36 – Dr general expenses Cr Suspense

10 marks

Q2 (b) Complete the following table to identify the amount, if any, by which the net profit of Joshua Rose would be affected by the correction of the errors of page 4

7 marks

Error Increase NP Reduce NP No effect on NP

(1)

(2)

(3)

(4)

(5)

(6)

(1) Discount rec is income, there has been more income therefore NP will increase

(2) The amount of total expenses is to be increased, therefore reducing NP

(3) Discount allowed is an expense, this correction will therefore increase total expenses

(4) No amounts need to be changed, just correction to the t-accounts

(5) Rent received account should have been credited, but it has been debited so we need to credit it by 700 which increase NP as this is income

(6) Cr Wages account, thus increasing total wages amount and total expenses, and reducing NP

2003665

No effect750

200

Q3 (a) Prepare a profit and loss account for Abdul Miraz for the year ended 31 April 2009.

Key points:

• REMEMBER to give final accounts their title...EASY marks!!

• Label TB in qu...Dr column = asset or expense Cr column = liability or income

Profit and Loss account of A Mira for the year ended 30/04/09Gross profit 76510 Discount allowed 310 General expenses 12420 Add accrued 400 12820 Motor expenses 18730 MV depreciation 3280 Rent and rates 24700 Less prepayment 1340 23360 Total expenses 58500New profit 18010

13 marks

Q3 (b) Prepare a balance sheet for A Miraz at 30 April 2009

Key points:

• Current assets need to be in order of inverse liquidity (least liquid first)

Balance sheet of A Miraz at 30 April 2009

ASSETS

Fixed assets

Premises 95000

Motor vehicles 16400

Provision for depreciation (3280+3280) 6560 9840

104840

Current assets

Prepayments 1340

Debtors 8790

Stock 24850 34980

139820

Q3 (b) Prepare a balance sheet for A Miraz at 30 April 2009

21 marks

Balance sheet of A Miraz at 30 April 2009

LIABILITIES

Ownership

Capital 71500

Net profit 18010

Less drawings 18180

71670

Long-term liabilities

Mortgage on premises 37500

Current liabilities

Accruals 400

Bank loan 4100

Bank 14630

Creditors 11860 30990

139820

Key points:

• Drawings need to be increased by £2000, bank needs to be reduced by £2000

• Bank loan is repayable in the next accounting period and therefore is a current liability

(a) Prepare a sales ledger control account for May 2009

9 marks

Q4

Sales Ledger Control a/c

Balance b/d 33459

Sales 48144

Discount received 1136

82739

Returns Inward 1635

Bank 42912

Discount allowed 992

Bank (DC) 169

Contra 214

Balance c/d 36817

82739

(b) Explain how the balance on James Shea’s sales ledger control account verifies the accuracy of his sales ledger.

2 marks

Q4

The total of the individual debtors balances should match with the balance brought down of £36 817 on the sales ledger control account.

(c) Explain two types of error that would not be identified by preparing a sales ledger control account.

6 marks

Q4

Possible errors:

• Error of commission – failure to make the correct entries. Due to (for example) mixing up debtors names ..Harish is mistaken for Harris

• Original error – £200 has been entered in the Sales Day Book (instead of £2000) and the incorrect £200 is also entered in the debtors account

• Error of omission – transaction completely omitted, this would not cause disagreement as no double entry has been made

• Compensating error– by chance two separate mistakes cancel each other out because they happen to be the same number

Remember there are 4 types of error that may not be detected when comparing the sales ledger control account closing balance with the closing total on the debtors schedule