X is a small cloth merchant, who has not kept full double entry records. His position as on 1st January 2014 stood as follows: Cash in hand ~ 760; Balance at Bank ~ 6,950; Stock ~... X is a small cloth merchant, who has not kept full double entry records. His position as on 1st January 2014 stood as follows: Cash in hand ~ 760; Balance at Bank ~ 6,950; Stock ~ 12,600; Sundry Debtors ~ 4,500; Furniture ~ 2,000 and Sundry Creditors ~ 4,310. His position at the end of 2014 was as: Cash in hand ~ 470; Balance at Bank, as per Bank Pass Book ~ 5,930; Stock ~ 16,700; Sundry Debtors ~ 6,320; Furniture ~ 2,000; Mobike ~ 4,000; and Sundry Creditors ~ 5,300. During the year, he had withdrawn ~ 400 per month for his personal expenses and purchased a new mobike for his business use for ~ 4,000. A cheque of ~ 1,000 issued on 29.12.2014 was presented for payment on 12.1.2015. Prepare a Statement, showing his trading result for the year ended 31st December, 2014 and a Balance Sheet as on 31st December, 2014 after (a) providing 10% depreciation on furniture and 20% depreciation on mobike; (b) writing-off ~ 320 as actual bad debts; and (c) making a 5% provision for likely bad debts. Read more

Steps to Solve

1. Compile Financial Data

Gather all provided financial data at the start and end of 2014. This may include details such as assets, liabilities, income, and expenses.

2. Calculate Gross Profit

Calculate gross profit by taking the total sales revenue and subtracting the cost of goods sold (COGS).

$$ \text{Gross Profit} = \text{Total Sales} - \text{COGS} $$

3. Account for Other Income and Expenses

Add other income and then subtract all operating expenses (including depreciation and bad debts) from the gross profit to find the net profit or loss.

$$ \text{Net Profit} = \text{Gross Profit} + \text{Other Income} - \text{Total Expenses} $$

4. Prepare the Trading Statement

Compile the gross profit and deduction of expenses to finalize the Trading Statement, listing income and expenses clearly.

5. Calculate Current Assets and Liabilities for Balance Sheet

At the end of 2014, identify and calculate current assets (like cash and inventory) and current liabilities (like accounts payable).

6. Prepare the Balance Sheet

List all assets and liabilities in the Balance Sheet format:

$$ \text{Total Assets} = \text{Equity} + \text{Total Liabilities} $$

Verify if the accounting equation is balanced.

7. Review and Adjust

Ensure to adjust any final figures based on provisions for bad debts or any other necessary adjustments before finalizing documents.