SOLE TRADER ACCOUNTS Learner Note: Ensure that you know and understand all the adjustments completed in Grade 10. SECTION A: TYPICAL EXAM QUESTIONS HINTS Always identify the two accounts involved Classify the two accounts involved Identify the concepts Know the effect on the accounting equation Remember the BIG FIVE in accounting require reversals QUESTION 1: 66 Marks 40 Minutes (Adapted from New Generation Accounting) Complete the following table. The first adjustment has been done for you. Adjustment General Ledger Concept Effect on: Reversal Debit Credit Applied A O L Required 1. Bad debt written off. Bad debts Debtors Control Prudence - - 0 No 2. Depreciation on equipment. Page 1 of 6
Adjustment General Ledger Concept Effect on: Reversal Debit Credit Applied A O L Required 3. Interest charged on debtors account 4. The tenant owes rent for one month 5. Provision for bad debts to be increased 6. Telephone account has not been paid at year end 7. Interest on overdraft has been wrongly classified as bank charges 8. Commission Income received in advance at year-end 9. Packing materials on hand at the year-end per physical count 10. Interest on loan owed at Year-end. 11. Wages paid in advance at year-end. 12. A trading stock deficit is identified Page 2 of 6
SECTION B: SOLUTIONS AND HINTS Adjustment General Ledger Concept Effect on: Debit Credit Applied A O L Reversal Required 1. Bad debt written off. Bad debts Debtors control Prudence - - 0 No 2.Depreciation on equipment. Depreciation Accumulated dep- / - - 0 No reciation on Prudence equip- ment 3.Interest charged on Debtors account Debtors control Interest income + + 0 No 4. The tenant owes rent for one month Accrued income Rent income + + 0 Yes 5. Provision for bad debts to be increased Provision for bad debts adjustment Profvision for bad debts Prudence - - 0 No 6. Telephone account has not been paid at year end Telephone Accrued expenses 0 - + Yes 7. Interest on overdraft has been wrongly classified as bank charges Interest on over- draft Bank charges Materiality 0 -+ 0 No 8. Commission Income Received in advance at year-end Commission income Income received in advance 0 - + Yes Page 3 of 6
Consumable 9. Packing materials on stores hand at the year-end per on hand physical count Packing material / + + 0 Yes Materiality 10. Interest on loan owed at year-end. Interest on loan Accrued expenses 0 - + Yes 11. Wages paid in advance at year-end. Prepaid expenses Wages + + 0 Yes 12. A trading stock deficit is Trading stock Trading stock Identified deficit Prudence - - 0 No Learner Note: Always show calculations to earn part marks. SECTION C :ADDITIONAL CONTENT NOTES An adjusting journal entry is necessary in the books and financial statements to adhere to the matching principle. All adjustments must then be recorded in the General Journal and posted to the General Ledger. The following year-end adjustments were dealt with in Grade 10. Accrued income Accrued expense Prepaid expense Income received in advance Consumable stores on hand Trading stock deficit/surplus Depreciation Etc GRADE 11 Provision for bad debts Increase in provision for bad debts Decrease in provision for bad debts Page 4 of 6
SECTION D :HOMEWORK QUESTION 1 REQUIRED: 1. Adjusting journal entries. 2. Journal entry for the closing transfers of revenue and expenses. The following balances appeared, amongst others, in the pre-adjustment trial balance of Cells And ALL at year-end, 28 February 2010. The business uses the perpetual inventory system. Creditors control R69 000 Debtors control 62 800 Provision for bad debts 4 000 Equipment 86 000 Accumulated depreciation on equipment 33 600 Trading stock 88 600 Stationery 2 900 Bad debts 2 200 Packing material 6 800 Interest on fixed deposit 720 Rent income 7 800 Wages 28 800 Advertising 4 800 ADJUSTMENTS: 1. The following items were on hand at the year-end according to a physical Stocktaking; Trading stock R87 100 Packing material 1 860 Stationery 900 2. The account of IM Bad, R800, must be written of as irrecoverable. 3. The provision for bad debts is to be adjusted to 5% of the book debts. 4. Wages owed to an employee at the year end, R950. 5. The tenant has paid 1 month rent in advance. 6. Interest on the fixed deposit has been received for only nine months. 7. An amount of R420 has been recorded in respect of an advertisement which will appear in the newspaper in March 2010. 8. Depreciation on equipment is to be provided at 10% p.a. on the diminishing balance method. Page 5 of 6
Learner Note: As you attempt the homework, you need to ensure that you are able to answer the questions in the allocated time frames. If you get stuck, you should refer to either the additional notes or your class teacher. SECTION E: SOLUTIONS TO SESSION 16 HOMEWORK Fe b 2 8 Total B / f 140 000 PURCHASES Feb 28 Loss due to theft Creditors control / Bank 21 000 Trading a/c G J 2 450 G 158 550 J 161 000 161 000 Calculate cost of sales Opening stock 7 700 Purchases 158 550 Carriage on purchases 13 200 Custom duty (14 000 + 2 100) 16 100 Less: closing stock (4 200) Cost of sales 191 350 Number of racquets sold 22 + 400 + 60 12-7 = 463 TRADING ACCOUNT Feb 28 Opening stock GJ 7 700 Feb 28 Sales GJ 478 375 Purchases GJ 158 Closing stock GJ 4 200 550 Carriage on GJ 13 200 purchases Custom Duty GJ 16 100 Profit & loss a/c GJ 287 025 482 575 482 575 OPINION: Yes Very good mark up Only supplier Has monopoly The SSIP is supported by Page 6 of 6