‘A credit customer who is now unable to repay the amount owed to the business is known as Irrecoverable debt / Bad debt. Journal entry when irrecoverable debt is written off Irrecoverable debt dr 5 Trade receivables ( name ) Cr 500 When an Irrecoverable debt pays a certain amount to the business at a later date it is known as Irrecoverable debt recovered / bad debt recovered . journal entry for this is Bank / cash dr 200 Iirecoverable debt recovered Cr 200 Ledger postings Trade receivables A verable y Wables Ac Irrecoverable debt Ac_—_Irrecoverable debt received Ac Trade Receivables Income} Income 50q Statement Statement So 20Bank charges Dishonoured chq Error in cash bo: mor Credit bal - business owns this money chy Debit bal - business owes this money to the bank Unpresented chq- undeposited cha received Chq given to supplier not yet debited Error in bankPurchase ledge. control account Sales ledger control account Bal bd Bal bd ‘| pata ; Bal bd (overpayment (Money owed to | (Overpayment/ B (Mone eee the business) _ | Return not recorded/ /return not recorded (Money owt uA Discount not yet given) _/discount not recorded} c ' Interest on Bee tcnlowed Dishonoured chq ‘overdue amount Bank arged Bank oC ro FQ B20 © Ba Qe ahiy ‘sna | Control accounts4 items needed for inco y mplete records financial statements : 3) closing bank balance ) purchase 4) opening capital balance 1 les Trade rei Trade receivables cd Money received from customers = 3000! Ba’ 200 Cash sales = 1000 2) purchases Trade payable bd = 3000 Trade payable cd = 2000 Money paid to suppliers = 2000 Purchase returns = 100 Incomplete records |3) closing bank balance =1600 4) opening capital balance = 5000 Non current assets = 10000 Opening bank balance =2000 Current assets = 2000 Payments = 200 Current liabilities = 3000 300 Non current liabilities =4000 800 Receipts = 500 _ 400 Assets= capital + liabilities Capital = assets - liabilities Closing balance = opening balance + receipts = 12000- 7000 - payments = 5000 2000+900-1300= 1600Gross profit margin = gross profit * 100 Gross profit Sales mark up= gross profit *100 Gross profit margin=20% _, Cost OF sales Cost of sales = 20000 Gross profit mark up =20% Cost cost sales =20000 —— % Actual a pcttal 100 Sa = QeoceXto® 129 © Sales_—_24000 [2C— a2. 80 = 20000 Bo 100 =-COS 20000 Fs GP 20 GP SeaQen= 15°00 Opening inventory = 3000 Opening inventory =2000 Closing inventory =2000 ~~ Closing inventory = 3000 Purchase =? @ Purchase = ? 3 = COS = opening inventory + purchases COS 7 oss Fae - closing inventory ot ° oO = - o 20000= 2000+ purchases - 3000 2600 9 = 3205+ FD Purchase = 21000 [Joes a8Stock turnover ratio = COS — Average inventory oles Opening inventory =2000 Closing inventory =3000 Stock turnover ratio = 2 ee 25> ea ‘urchase 250° Sooo => eae @os = OLl+~ Pp eam Boose - 20° e+ p_ goes Goo0o = imElectricity (7.000) “y Other operating expenses (5400) Depreciation: Profit Premises (3000) and loss , ee, Part Fixtures and fittings (3500) (6500) Interest on loan (six months) (400) Profit for the year Add: interest on drawings: Andreas 1200 Tygo 850 Less: interest on capits Appropriation andreas (5% x $60000) (3000) Part J rye0 (5% x $40.00) (2000) Partners’ salaries:* Andreas z (20000) Tygo (10000) Shares of profit:Andreas and T : na lygo Statement of financial position at 31 December 29 ber 2015 Cost eta depreciation Net book S R Value Non-current assets: > Premises 60000 (3000) 57000 cixtures and fittings 28000 (3500) 24500 88000 (6500) 81500 Current assets: inventory 18000 Trade receivables 5460 Cash and cash equivalents 94000 ; siiinintoreier icdieinaliien 117 460 Total assets: oe ae 1S 960 Capital and liabilities Capital accounts: Andreas Tygo Current accounts: Andreas Tygo Total capital a Non-current liaLimited company : can sell shares to the general public . Incorporated business Sources of finance : 1) Ordinary shares : shares sold to the public giving ownership rights. Right to vote. May get annual dividends. Dividend amount is not fixed. 2) preference shares : shares sold to the public but do not give ownership rights. Do not give voting rights . Fixed dividend every year. They received dividends before the ordinary shareholders received dividends, but receive the dividend after debenture holders get their interest payments. 3) Debentures : long term loans taken from non banking institutes . No voting rights, no ownership. Fixed interest rate every year . Debenture holders receive their interest before the preference shareholder and ordinary shareholders receive their dividendsee ee hon Statement of financial position ANE eifinabariyegs 9 (Cd _— <- Interest on debentures. 200 Ordinory Shams o- 9 Se a cs Shorr of 15 =aS Dalry _ cas _ + gure AS — sBht 20 Interest on debentures. (200+200). 400 Nak Cod xStatement of changes in equity Details Share capital. | General reserve.} Retained earning Total ena Opening balanc¢ Profit for the Year Dividends Transfer to general reserva ‘Closing balancesManufacturing Account for coos OTT ie year 61 T January 2014 $ $ Cost of materials used Opening inventory of raw materials Purchases of raw materials Closing inventory of raw materials Direct wages (136000 + 2200) Direct expenses Prime cost Factory overheads Wages of factory supervisors General factory expenses Rates & insurance (% « (6360 - 120)) Depreciation Plant & machinery (20% x (94000 - 33840) Loose tools (2650 + 310 ~ 2740) Opening work in progress Closing work in progress Cost of production 31400 } 19208 (1) 4680 (2) 12032 (1) —220 (1) 23500 124600 (1) 148 100 26100 722000 (1) 138200 (1) 16300 (1) 276500 (1) 87540 344040 (1)OF(b) Nasir Manufacturing Limited Income Statement for the year ended 31 January 2014 $ $ Revenue Cost of sales Opening inventory finished goods Cost of production Purchases finished goods Less Returns Less Closing inventory finished goods Gross profit Horizontal format acceptable 539 000 18 100 (1) 343 000 (1)OF 16900 (1) —200 (1) 16.700 377 800 12300 (1) 358.500 180.500 (1)OFstatement of financial position for manufacturing account non-current assets current assets closing inventory- raw material _— working progress finished goodsClubs and society Bad VoL 2oo Cace in eucaivable bythe business ea we Saeki omar |S ts ee Teams Girma Jone | Bonk “——r C Subscription amouth hort Sha. — ae thin aa a Bak RQebt \ooe cis 2 ies KCAmownt Yet the budinars con ie 2) Aol. so Cae Bak HA ee. Ban ba Cortstanding amount at 4h0| Cire sencaismeal ameousth cand af Ten aeao >Income statement from shop Income and expenditure account Sales Subscriptions *” ~ cost of sales + profit from shop ea Opening balance + ticket sales fro concert * + purchase - expense of the concert 0D. xn - closing Inventory x + wages shop keeper Expenses Profit from shop Salary Maintenance Depreciation Telephone Cc <) aa SurplusAccumulated funds = Assets - Liabilities — Non current assets Current assets Total assets ‘Non current liabilities irrent liabilitiesReceipts and payments Acc Receipts ( money comes in ) Subscription Sale of a non current asset Sales for shop Ticket sales for concert Payments ( money goes out ) Wages for shopkeeper Expense for the concert Salary TelephoneSales - cost of production = Gros g profit - fixed cost = net profit An alysis a Calculate Financial ratios Good/bad 1. Profitability ratio feason 1) Gross profit margin = Suggestion (GP/ Sale revenue) * 100 - judge the production expenses of the business. (variable costs ) GP increased reason : production cost has decreased, 2) Net profit margin (NP / Sales revenue) * 100 - judge the other expenses (fixed costs) Judge Dividend returns to 8) Return on capital employed = shareholders which could (net profit/ capital encourage them to invest more employed)*100 the business capital employed = equity + long term liabilities2. Liquidiy ratio judge ability of business to epay short term , liabilities 2014 2018 oe 4) Current ratio = current assots 25 ~gutert assets 18 44 rent labiltiog yi x x industry standard = 1.5/2 1 canyepay maynotrepay too much | cash. wasting resources current labilties 05 08 15 x, MM we industry standard -0.78/ 1; 1Efficiency ratios : 1) Stock turnover ratio Checks how fast the business can sell its inventory A. In days B. Times = Average inventory X 26 5 Cost of sales Cost of sales —Wverage inventory How many days it takes the business How frequently the business has to To sell its inventory replace its inventory a 2) Trade receivable turnover The number of days the credit customers take to repay the business =trade receivables & 9 cS A oo Credit sales 3) Trade payable turnover The number of days the business takes to repay its Credit suppliers =. Trade payables MS [65 ay Credit purchases