acca f3 financial accounting(int) june2015 - … · 1 accounting practise center (a.p.c) acca f3...

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Accounting Practise Center (A.P.C) www.globalapc.com

ACCA F3

Financial Accounting(INT)

June2015

[Sample study note]

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© Lesco Group Limited, April 2016

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or

transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or

otherwise, without the prior written permission of Lesco Group Limited.

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Content Exam:

Chapter1 Basis of accounting

(Revision)Chapter1 Questions practice:

Chapter 2 How can we prepare financial statements?

Revision to books of prime entry

Chapter3 Prepare the FS with incomplete records

Revision to incomplete records:

Chapter4 Controlling the booking system

Revision to Correction of errors and suspense account .

Chapter 5 Accounting for payroll

Revision of Accounting for payroll

Chapter6 Single financial statements for limited liability companies

Chapter7 Capital Structures: 错误!未定义书签。

Chapter 8 Sales tax and Taxation

Revision of limited liability company account

Chapter9 cash flow statement

Revision of statement of cash flows

Chapter10 IAS 2 Inventory

Revision of inventory:

Chapter 11 Non-current assets

Revision of Non Current assets

Chapter 12 Irrecoverable debts and allowances

Revision of Irrecoverable debts and allowances

Chapter 13 Accruals and prepayments

Revision of accruals and prepayment

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Chapter 14 Regulatory framework & Conceptual framework

Regulatory framework

Conceptual framework

Revision of conceptual framework:

Chapter15 Interpretation of Financial Statements

Revision of Ratios:

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Exam:

FORMAT OF THE EXAM

This exam can be sat as a written or computer based exam.

The exam is 2 hours long with no reading time.

50 questions with 100 marks available and Pass mark is 50.

All questions are worth 2 marks each.

Both computational and non-computational questions.

All questions are compulsory.

2 sections: [New exam format since 2014]

Section A: 35 questions worth 70 marks

Section B: 2 questions worth 30 marks

For the exam structure information, pls visit this video produced by ACCA:

https://www.youtube.com/watch?v=qUsoR0alSdA

https://www.youtube.com/watch?v=qUsoR0alSdA

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Chapter1 Basis of accounting

Basis of accounting

1, different types of businesses

Sole trader

One person owns and runs the business.

The sole trader and the business are legally the same entity and therefore the sole trader

is personally liable for any business debts.

Partnership

Two or more persons owns and runs the business.

The partners and the business are legally the same entity and therefore the partners are

jointly liable for any business debts.

Limited liability company

Shareholders and a number of appointed directors own and run the business.

A company is a legal entity in its own right, and therefore the shareholders only have

limited liability for any business debts.

2, Different Types of accounts

Management accounts

These are producedwhen a business wants them. They are produced for internal use and

will not, usually be seen by external people. Management accounts can be prepared using

the company’s own internal policies.

Financial accounts

These accounts are usually produced annually. They are based on historical information

and are rarely used internally. Financial accounts are used by external users for several

reasons:

-Investors

-Lenders

-Employees

-Government

-Public

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3,Basic accounting equation;

Asset=Liability + Equity

Principles:

1, DR must have a CR

2, the balance for DR&CR should equal

Eg:

I put $20,000 cash into the business.

DR cash 20,000

CR Capital 20,000

I Withdraw $3,000 from the business for my own use

DR Drawings 3,000

CR Cash 3,000

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(Revision)Chapter1 Questions practice:

1, Which of the following will best describe a sole trader?

A: A business is owned and operated by one person that is incorporated

B: A business is owned by two or more people that is unincorporated

C: A business is owned by shareholders and run by an appointed board of directors

D: A business is owned and operated by one person that is unincorporated

Answer:

1: D

A: Company

B: partnership

C: company

2, Which one of the following would be an example of an advantage of a partnership

over a sole trader?

A: Partnerships are required file financial statements

B: Shared expertise amongst the partnership

C: the partnership and the business are separate legal entities

D:Partnerships don't have to pay tax

Answer: B

A: no FS required.

C:no separate legal entity because its not incorporated entity

D: have to pay tax

3, Limited liability companies must prepare and file financial statements each year.

Is this comment true or false?

A: True

B: False

Answer: A

4, Management accounts are best described as monthly accounts prepared for internal

use which have a set format prescribed by accounting standards

Is this comment right or wrong?

A:right

B:wrong

Answer: B

5, The accounting equation can be written as:

A: Assets-liabilities=opening capital+profit+drawings

B: Assets+liabilities+drawings=opening capital-profits

C: closing assets-closing liabilities-opening capital +drawings=profit

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D: Liabilities=Assets-drawings+openingcapital+profit

Answer: C

Equity= share capital + retained earnings-drawing

6, The business entity concept is best described as?

A: a business and its owner are a dual entity

B: a sole trader that owns two different businesses

C: a sole trader that owns a business that sells two different products

D: a business is a separate entity from its owner

Answer: D

A: owner is not an entity [entity incurs business transactions]

B: not 2 businesses

C: can sell many products you want

7, A sole trader puts $3,600 of cash into the business bank account. Which elements of

the accounting equation will change due to this transaction?

A: liabilities and capital

B: Assets and capital

C: Profit and drawings

D: Assets and drawings

Answer: B: DR cash 3600 CR equity 3600

8, A sole trader purchases a new computer for use in the business for $6,000 cash.

What will the impact on assets be?

A: increase $6,000

B: Decrease by $6,000

C: No change

D: Increase by $9,000

Answer: C

DR PPE 6000 CR cash 6000

9,what is the double entry for a business selling goods on credit for $8,900?

DR $

CR $

Answer: DR receivable 8900 CR sales[income] 8900

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10 :Fill the blank:

______________________ and _______________________ are examples of non-current liabilities.

Answer:

Long term loan

Deferred tax liability

Deferred payment

11: Working capital is another term for net assets. True or false?

Answer: False.

Net asset= equity

Working capital= net current assets[current assets-current liabilities]

12 Fill in the two missing words.

Return is a ……………………………….. for ………………………………… in a business. 2 Marks

Answer:

Return is a reward for investment in a business.

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Chapter 2 How can we prepare financial statements?

double bookkeeping

statement of financial position & statement of profit or loss

Step1: transaction and source document

Step2: books of prime entry

Step3: ledger & balance off the account

Step4: trial balance

Step5: year end adjustment journal

Step6: FS(SOFP & P/L)

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Step 1: Source of documents

Quotation.A business makes a written offer to a customer to produce or deliver goods or

servicesfor a certain amount of money.

Sales Order Note. A customer writes out or signs an order for goods or services he

requires.

Purchase Order Note. A business orders from another business goods or services, such

as material supplies.

Goods received note. A list of goods that a business has received from a supplier. This is

usually prepared by the business’s own warehouse or goods receiving area.

Goods dispatched note. A list of goods that a business has sent out to a customer.

Invoice. The invoice is a request for the customer to pay what he owes.

When a business sells goods or services on credit to a customer, it sends out an invoice. The

details on the invoice should match the details on the sales order.

When a business buys goods or services on credit it receives an invoice from the supplier.

The details on the invoice should match the details on the purchase order.

Statement of account.A document sent out by a supplier to a customer listing all invoices,

credit notes and payments received from the customer showing how much the customer

still needs to pay for supplier.

Debit note.

A document sent by a customer to a supplier in respect of goods returned or an

overpayment made. It is a formal request for the supplier to issue a credit note.

In simple words, for customer, “please give me money.”

Credit note.

A document sent by a supplier to a customer in respect of goods returned or overpayments

made by the customer. It is a ‘negative’ invoice.

A creditnote is issued in various situations to correct a mistake, such as when

(1) aninvoice amount is overstated,

(2) correctdiscount rate is not applied,

(3) they do not meet the buyer's specifications and are returned.

In simple words, for supplier, “I’ll give you money.”

http://www.investorguide.com/definition/credit.html

http://www.investorguide.com/definition/credit.html

http://www.businessdictionary.com/definition/mistake.html

http://www.businessdictionary.com/definition/invoice.html

http://www.businessdictionary.com/definition/overstated.html

http://www.businessdictionary.com/definition/discount-rate.html

http://www.businessdictionary.com/definition/specification-spec.html

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Remittance advice

A document sent to a supplier alongside any payment sent to them. It details which

invoices are being made.

In the real practice, the supplier sent you the invoice telling you how much you should pay

and after the payment you can send them back a remittance advice telling them about the

payment information:

Account Number :

Currency:

Invoice Number :

Invoice Amount:

Receipt.A written confirmation that money has been paid. This is usually in respect of cash

sales, eg a till receipt from a cash register.

NOTE:

Data about sales transactions recorded in an accounting system comes from:

1,sales invoice

2,credit notes

3,payments by customers(cheque or remittance advice)

4,receipts(seller’s copy) in cash sales

Data about purchase transactions recorded in an accounting system comes

from:

1,purchase invoice

2,credit note

3,payments to suppliers(cheque or remittance advice)

4,receipts(purcahser’s copy) in cash purchases

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Step 2, Books of prime entry

Main business transactions are summarised into books of prime entry for later posting to

the ledgers.

Why?

We can use journals to record all business transactions but the volume is HUGE

especially for big companies.

Then what we do is to post all trasnactions into the books and only record the total

figure from each books to ledger account.

The common books of prime entry and the types of transaction recorded in them are:

Sales Day Book (SDB) Records credit sales to customers

Sales Returns Day Book (SRDB) Records the return of credit sales

Purchases Day Book (PDB) Records credit purchases from suppliers

Purchases Returns Day Book (PRDB) Records the return of credit purchases

Cash Payments Book (CPB) Records all payments made at the bank

Cash Receipts Book (CRB) Records all receipts made at the bank

Petty Cash Book Records all receipts and payments ofcash in hand

Journal Other transactions (Depreciation etc)

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Sales day book

Date Invoice no. Customer Net Sales Tax Gross

Sales Returns Day Book

Date Credit note Customer Net Sales Tax Gross

Purchase day book

Date Invoice no. supplier Net purchase Tax Gross

Purchase Returns Day Book

Date Credit note supplier Net purchase Tax Gross

Cash Receipt Book

Date

Narrative Bank Receivab

les

Cash

sales

Capital Discount

Allowed

Cash payment Book

Date

Narrative Bank Payables Rent Van Disocunt

Received

Petty cash book

Receipt Date Narrative Cash Postage

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Step3，post to Ledger

All SFP elements such as ASSETS, LIABILITIES, EQUITY would have a closing balance

carried forward to next year’s opening balance.

But P/L elements such as income and expense would not have a closing balance.

Examples of accounts included in the nominal ledger：

•Plant and machinery at cost (non-current asset)

• Motor vehicles at cost (non-current asset)

• Plant and machinery, provision for depreciation (liability)

• Motor vehicles, provision for depreciation (liability)

• Proprietor's capital (liability)

• Inventory – raw materials (current asset)

• Inventory – finished goods (current asset)

• Total receivables (current asset) often called sales ledger control account

• Total payables (current liability) often called purchase ledger control account

• Wages and salaries (expense item)

• Rent (expense item)

• Advertising expenses (expense item)

• Bank charges (expense item)

• Motor expenses (expense item)

• Telephone expenses (expense item)

• Sales (income)

• Total cash or bank overdraft (current asset or liability) often called cash control

account

• Petty cash (current asset)

Step4: Trial Balance

DR CR

Bank

Capital

Sales

Purchases

Payable

Rent

Van

Receivable

Petty cash

Stamps

Total

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Step5: adjustment

Year end inventory journal

Step6: financial statements:

Jimmy’s statement of profit or loss for year ended 30/11/2010

$ $

Sales

-Cost of sales

Opening inventory

+purchases

-closing inventory

Gross profit

Other income

-expenses

Rent

Stamps

Profit before interest and tax

Interest expense

Profit for the year

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Jimmy statement of financial position as at 30/11/2010

Cost

$

Accumulated

depreciation

$

Carrying value

$

Non current assets

Van

Current assets

Inventory

Trade receivable

Cash at bank

Petty cash

Total assets

Capital

Opening capital

Profit/loss

Drawings

Non-current liabilities

Current liabilities

Trade payables

Total capital and

liabilities

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Since we’ve looked at how to prepare the financial statements and the petty cash book

we can then have a detailed look at the “imprest system concept” within the petty cash

book.

In practical world, we always need to keep a float amount of money within the business

so that we can use these money to buy bits and pieces, eg, biscuits whenever we want

without withdrawing from the bank each time.

So for the imprest system: (3steps/characteristics)

Step1: decide the float amount:$100;

Step2: receipt will be recorded in petty cash book as $100; payment for expenditure

will be recorded in petty cash book as well and any expenditure and receipt must have

a voucher. float amount=cash in tin +vouchers

$100 = $90 + $10

Step3: The amount used is restored on a regular basis to the float amount.

DR petty cash $10

CR Bank $10

Bal b/f(float) 100 vouchers 17

Bal c/f(float) 100

Bank 17

117

117

Bal b/f(float) 100

Receipt Date Narrative Cash Postage

100 12.11.2010 Cash receipt

13.11.2010 Stamps 10 10

Total 10 10

DR CR Petty cash

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Revision to books of prime entry

1In which books of prime entry should discounts received to be recorded?

A:purchase day book

B:cash book

C:sales day book

D:journal

Answer: B

Purchase/sales day book: net/gross purchase/sales + tax

Cash book: receipt/payment/discounts

Journal: other things not posting into the books.

2Which of the followings are books of prime entry?

1,sales day book

2,journal

3,norminal ledger

4,cash book

A:all of the above

B:1,3&4

C:1,2&4

D:2,3&4

Answer: C.

We post the total figures from books to nominal ledger and hence 3 isn’t correct.

Journals are used to record all business transactions and hence yes.

3,Jenny uses the imprest method of accounting for petty cash. She counted the petty

cash and there was $66 in hand(petty cash tin).

There were also the following petty cash vouchers/receipts:

$

Sundry purchases 22

Loan to sales manager 10

Purchase of staff drinks 19

Sundry sales receipts 47

What is Jenny’s imprest amount?

A: $164

B: $50

C: $62

D: $70

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Answer: D

Imprest=maximum limit of petty cash to keep

Imprest system ?

Sundry purchases (22)

Loan (10)

Staff drinks purchase (19)

Receipts from customers(sundry) 47

Cash in hand 66

So: 66 -47 +19+10+22=70

4, Johnkeeps his petty cash records using an imprest system. The total petty cash float

is made up monthly to $450. During the month of January, the following expenses were

paid from petty cash:

Milk: $52

Postage stamps: $100

Window cleaner: $50

By mistakes the milk was recorded as $25 and as a result a cheque for $175 was

written to top up the petty cash float. The error made will result in the following:

A: an understatement of expenses of $27 and the petty cash balance being $75 less

than it should be.

B:an understatement of expenses of $27 and the petty cash closing balance being $27

less than it should be.

C:an imbalance in the trial balance of $27 and the petty cash balance being $27 less

than it should be.

D:an imbalance in the trial balance of $95 and the petty cash balance being $75 less

than it should be.

Answer: B

Correct:

Amount left= 450-52-100-50=248

So money should be drawn from bank: 450-248=202 (DR petty cash)

Wrong:

Amount left= 450-25(mistakes)-100-50=275

So money should be drawn from bank: 450-275=175 (DR petty cash)

So:

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Closing balance of petty cash: (amount left): 275-248=27more

Expense(milk): 25-52=27 (understate)

Trial balance: [C&D say imbalance are not correct!]

Correct situation:

DR CR

Petty cash 450

Bank 652(450+52+100+50)

Milk 52

Postage 100

Window 50

652 652

Wrong situation:

DR CR

Petty cash 450

Bank 627(450+25+100+50)

Milk 52 25

Postage 100

Window 50

625 625

5,Jeremy purchased some goods for resale. These goods had a list price of $3000 and

Jeremy was offered a discount of 10% if he paid within 30 days. Assuming he paid

within 30days, what was the correct entry to record the transaction?

A:debitpurcahses $3000, credit cash $2700 ,credit discounts allowed $300

B:debit purcahses$3000, credit cash $2700 ,credit discounts received $300

C:debit purcahses$3000, credit cash $3000

D:debitpurcahses $3000, credit cash $2700 ,credit cost of sales$300.

Answer: B

DR purchase 3000

CR cash 2700

CR income(discount received) 300

6, which of the following could appear on the credit side of receivable ledger control

account?

1,sales

2,discounts allowed

3,irrecoverable debts written off

4,cash receipts from customers

5,dishonouredcheques

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A:1,2,3,4

B:2,3,4

C:all

D:2,3,5

Answer: B

In what situations that the receivable balance would be reduced?

1: sales: increase receivable balance

2: Discount allowed: reduce receivable balance

3: irrecoverable debts written off: receivable balance

4: cash receipts from customers: DR cash Cr receivable: reduce receivable balance

5:dishonored cheque: increase receivable balance because there is no sufficient funds

from customers’ bank account and hence customer hasn’t paid for us yet.

7,Which of the following could appear on the debit side of a payables control account

1,purchases

2,cash paid

3,disoucnts received

4,interest paid on overdue accounts

A:1,4

B:2,3,4

C:2,3

D1,3,4

Answer: C

In what situations that the payable would be reduced?

1,purchases : DR purchase CR payabale and increase payable balance

2,cash paid : DR payable CR cash and hence decrease payable

3,disoucnts received: DR payable DR income-discount received : decrease payable

4,interest paid on overdue accounts: DR interest expense CR payable

8, where a customer is also a supplier this could lead to:

A:a debit entry on the receivables control account and a credit entry on the payables

control account of the same amount.

B:a credit entry on the receivables control account and a debit entry on the payables


C:a credit entry on the receivables control account and a debit entry on the payables

control account of a different amount.

D:a debit entry on the payables control account and a debit entry on the receivables

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Answer: B

A buys goods from B worth $100: DR purchases 100 CR payable 100

A sells goods to B worth $50 : DR receivable 50 CR sales 50

Contra: DR payable 50 CR receivable 50

(Instead of 2 transactions happening, why not net them off into 1?)

9, which of the followings Is the correct posting of sales day book totals?

A:credit payables, debit purchases, credit sales tax

B:debit receivables, credit sales, credit sales tax

C:credit receivables, debit sales, debit sales tax.

D:debit receivables, credit sales, debit sales tax

Answer: B

Sales day book

Date Invoice no. Customer Net Sales Tax Gross

DR receivable

CR sales

CR VAT liability (sales tax)

10,which one of the following best describes books of prime entry?

A: books of prime entry are part of the double entry general ledger system

B:books of prime entry record transactions of the same type and the totals from the

books are periodically used to update the general ledger

C:businesses are required by the accounting standards to maintain books of prime

entry

Answer: B

A: first books—then ledger but not part of it

C: required by the accounting standards to prepare the FS not the books of prime entry

which has different forms/names

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11,

Payables ledger control a/c

$ $

Purchases 16,000 balance b/f 42,000

Contra 6,000 discounts received 500

Payment to suppliers 20,000

Balance c/f 500

42,500 42,500

What is the correct payable balance to be presented in the statement of financial

position? $_______

Answer: 31500

Opening payable (CR) 42,000

Purchases: DR purchase CR payable 16,000

Contra: DR payable CR receivable 6,000

Payments to suppliers: DR payable CR cash 20,000

Discounts received: DR payable CR income(discounts received) 500

Payable (closing) 42000+16000-6000-20000-500=31500

12, Tom sells goods on credit to Amy with a list price of $10,500. Amy received a 10%

trade discount from Tom as well as a further 3% discount if Amy paid within 14 days.

Assuming Amy paid within 7 days, what is the amount to be presented in the statement

of profit or loss of Tom for discounts allowed?

$____

Answer: 283.5

List price 10,500

Discount @10% (10%X10,5000 (1,050)

9,450

Early settlement discount @3% (9450X3%) (283.5)

DR CR

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13,

Your organisation sold goods to PQ for $800 less trade discount of 20% and cash discount of 5% for

payment within 14 days. The invoice was settled by cheque five days later. What is the double entry for

the cash discount allowed?

Answer:

DR Expense(Discount allowed) [$800 X (1-20%) X5%] 32

CR Receivables control account 32

14,

The following totals appear in the day books for March 2013.

Opening and closing inventories are both $3,000.

The gross profit for March 2013 is ........................................

Answer:

Sales (40,000-2,000(return inwards)) 38,000

Cost of sale

Opening inventory 3000

Purchases 20,000 – 4000(return outwards)

Closing inventory (3000)

(16,000)

Gross profit 22,000

Gross profit is not net profit so we don’t need to consider the tax effect.

Return Outwards:

Faulty or wrong goods that the business returns back to suppliers

Record in purchase return day book. [DR note]

Explanation: when you return goods back to suppliers, the amount you owe them

reduces as you do not have to pay for the wrong items. You will also have to open a new

ledger account for return outwards.

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Return Inwards:

Faulty or wrong goods that the customers return back to the business

Record in sales returns day book (CR note)

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Chapter3 Prepare the FS with incomplete records

Scenario: client may ask you to prepare the FS for them with the missing records, eg,

sales invoices are missing so that we can’t establish the credit sales; purchase invoices

are missing so that we cant establish the credit purchases for the year; closing

inventory is missing so that we can’t establish the gross profit.

The techniques to establish the missing records are: [ALP]

1, use accounting equation

2, use ledger accounts

3, use profit percentages

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Technique1, use accounting equation

Accounting equation:

Assets=liabilities+capital

So:

Assets-liabilities=capital

Net assets = opening capital+capitalintroduced+profit-drawings=closing capital

Missing profit:

Manny’s statement of financial position at 31 December 2011 shows that the business

has net assets of $5,000.

The statement of financial position at 31 December 2010 shows that the business has

net assets of $8,000.

Manny’s drawings for the year amounted to $2,500

She didn’t introduce any further capital in the year.

Required:

Calculate the profit for the year ended 31 December 2011.

Answer:

Op capital 5000

Capital introduced -

Profits [balancing] 5500

Drawings (2500)

Closing capital (net asset) 8000

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Technique2:, Use ledger accounts

1, credit sales are missing, use receivable control account

Opening balance on the trade receivables control account of Manny’s company was

$50,000.

there had been receipts from credit customers in the year of $45,000.

irrecoverable debts that have been written off equals to $5,000 and the closing balance

on the trade receivables control account was $55,000.

So what is the credit sales for the year?

Answer:

Way1:

DR receivable 50,000

Dr cash 45000 CR receivable 45000

DR P/L-irrecovable debt 5000 CR receivable 5000

SO: 50,000-45000-5000=0

But closing balance of receivable=55000 So it should be DR receivable 55000 CR sales 55000

Way2:

Or:

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