+1 862 207 3288 Accounting
Madeleine runs a small business called Softly Special making specialist soft furnishings
such as cushions and quilts. Softly Special has been in business for a number of years
and is not VAT registered.
Madeleine has asked you to draw up an income statement and a statement of financial
position for the year ending 31 January 2015. You have been provided with the
following information:
x A cash book plus a set of general ledger accounts (see Appendix). These show
transactions for the year to 31 January 2015. You discover that Madeleine has
written off an irrecoverable debt of £200 during the year, but has not included this in
the general ledger account. Madeleine also has other debts of £150, £115 and £85
that she is doubtful about being settled, but she does not want to write them off yet.
x You discover that an incorrect figure was posted from the cash book to the
receivables account. The figure in the cash book was correct, but the receivables
was £1,700 too low.
x The bank statement shows a credit closing balance of £22,058. It lists a payment of
£200 (which investigation has shown is for materials) that has not been posted to
any of her accounts. Other payments of £308 and receipts of £900 have not cleared
the bank yet, so do not show in Madeleine’s bank statement. Finally, a receipt has
been entered into the cash book as £760 but shows in the bank statement as £670.
Investigation shows that the correct figure of £670 was entered into the sales
account.
x Madeleine depreciates her computers on a straight line basis (expecting zero
residual balances) over four years and her machinery at 30% reducing balance.
x Rent is paid in advance at £2,400 per quarter. The next payment is due on 1 March
2015.
x There is an outstanding bill for £50 stationery, which was purchased in December
2014, that has not been recorded in the accounts. The invoice was received after
the year end.
x An inventory check has shown that the inventory at 31 January 2015 is valued at
£2,580.
x Madeleine has a supplier who is also a customer. The supplier bought some goods
from her after the year end. Madeleine has sent an invoice for £250 and received
an invoice for £350 for goods purchased by Madeleine, also after the year end.
Required:
Prepare a report for the board of directors that covers the following:
(a) An initial trial balance for Softly Special for the year ending 31
January 2015, which includes the written off debt, and identifies the
suspense account balance. (4 marks)
(b) Journals to set up a provision for the debts that Madeleine is
doubtful about receiving and to correct the error in the receivables
account. (2 marks)
Page 3 of 6
(c) A bank reconciliation for Softly Special as at 31 January 2015 and
journals to make all amendments that are necessary to the ledger
accounts, including the cash book. (3 marks)
(d) An extended trial balance. You should use the adjustments columns
for the journals prepared in (a) to (c) to account for depreciation,
accruals, prepayments and inventory.
(e) An income statement for the year ended 31 January 2015 and a
statement of financial position at that date for presentation to
Madeleine.
(f) The supplier who bought goods for £250 and sold goods to
Madeleine for £350 has suggested that she should complete a
contra journal and then settle the invoice.
(i) Explain to Madeleine how a contra journal will affect her
accounts and those of her customer / supplier.
(ii) Produce the contra journal for Madeleine.
Appendix
Debit Capital Credit Debit Machines Credit
Date Details £ Date Details £ Date Details £ Date Details £
1.2.14 Bal b/d 55,000 1.2.14 Bal b/d 17,000
Debit Receivables Credit Debit Payables Credit
Date Details £ Date Details £ Date Details £ Date Details £
1.2.14 Bal b/d 4,160 31.1.15 Bank 41,300 31.1.15 Bank 9,580 1.2.14 Bal b/d 4,350
31.1.15 Sales 42,500 31.1.15 Returns in 1,700 31.1.15 Returns out 1,350 31.1.15 Materials 10,200
31.1.15 Irr. debts 200
Debit Admin expenses Credit Debit Rent paid Credit
Date Details £ Date Details £ Date Details £ Date Details £
31.1.15 Bank 3,560 31.1.15 Bank 10,400
Debit 3Drawings Credit Debit Computers Credit
Date Details £ Date Details £ Date Details £ Date Details £
31.1.15 Bank 25,000 1.2.14 Bal b/d 10,000
31.1.15 Bank 5,000
Page 5 of 6
Debit Sales Credit Debit Materials Credit
Date Details £ Date Details £ Date Details £ Date Details £
31.1.15 Returns in 1,700 31.1.15 Receivables 42,500 31.1.15 Payables 10,200 31.1.15 Returns out 1,350
31.1.15 Bank 20,510 31.1.15 Bank 3,420
Debit Machines’ accumulated depreciation Credit Debit Computers’ accumulated depreciation Credit
Date Details £ Date Details £ Date Details £ Date Details £
1.2.14 Bal b/d 10,140 1.2.14 Bal b/d 4,250
Debit Inventory Credit Debit Wages Credit
Date Details £ Date Details £ Date Details £ Date Details £
1.2.14 Bal b/d 3,080 31.1.15 Bank 23,200
Bank
Total Total
Date Details £ Receivables Sales Date Details £ Payables Materials Computers Sundry
1.2.14 Bal b/d 39,500 31.1.15 Payables 9,580 9,580
31.1.15 Receivables 43,000 43,000 31.1.15
Admin
expenses 3,560 3,560
31.1.15 Sales 20,600 20,600 31.1.15 Rent paid 10,400 10,400
31.1.15 Drawings 25,000 25,000
31.1.15 Computers 5,000 5,000
31.1.15 Materials 3,420 3,420
31.1.15 Wages 23,200 23,200
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