Question

Justin is a sole trader and has just completed his first year of
trading. You have been asked to assist him with the preparation of the
first years accounts to 30th November 2016. The following information
has been provided.

 On the 1st December 2015 Justin injected £5,000 of capital into the business

 At the same date a business loan of £2,000 was agreed with the bank.
The interest on the loan of 10% is payable annually in arrears with
the full £2,000 repayable in 5 years.

 Justin withdrew cash from the business account to purchase a van at
a cost of £4,000.

 Justin used his personal debit card to purchase £1,000 of inventory.

 During the year Justin recorded total sales of £49,000 and incurred
costs of £25,600.

 Of these costs £1,120 relates to van insurance, which relates to the
14 months to 21st January 2017.

 As at 30th November Justin believes he is still owed £3,500 in
respect of services provided and believes the business owes its
creditors £2,630.

 The equipment purchased during the year is to be classified as
revenue expenditure and the depreciation is charged on the van on a
straight line basis over 5 years, with full year being charged in the
year of acquisition and non in the year of disposal.

 At the end of the year Justin has a small amount of inventory valued at £950.

 Justin believes a 5% general provision against doubtful debts would
be prudent. He has not yet received a bill for the ban service which
he believes will be approximately £120.

 Each month Justin has withdrawn £1,500 from the business bank
account as his salary. This has not been recorded in any of the above.

Required

Prepare the statement of profit and loss and the statement of
financial position for Justin’s sole trader business for the 12 months
ended 30th November 2016.

Answer 1

Trail Balance
Account name	Debit	Credit
Owner's Capital		6,000.00
Cash	7,530.00
Loan Payable		2,000.00
Interest on Loan	200.00
Accrued Interest		200.00
Van	4,000.00
Sales		49,000.00
Accounts Receivable	3,500.00
Van Insurance	960.00
Prepaid Insurance	160.00
Cost of Goods Sold	24,530.00
Accounts payable		2,630.00
Inventory	950.00
Bad Debt	175.00
Provision for Doubtful Debt		175.00
Ban Service Expenses	120.00
Accrued Expenses		120.00
Salaries	18,000.00
	60,125.00	60,125.00

Income Statement
Revenue		49,000.00
Total Revenue		49,000.00
Expenses
Cost of Goods Sold	24,530.00
Salaries and Wages	18,000.00
Finance Cost	200.00
Depreciation	4,000.00
Other expesnes	1,255.00
Total expenses		47,985.00
Net Income		1,015.00

Balance sheet
Assets		Liabilities
Current Assets		Current Liability
Cash	7,530.00	Accrued Interest	200.00
Accounts Receivable(net)	3,325.00	Accounts payable	2,630.00
Prepaid Insurance	160.00	Accrued Expenses	120.00
Inventory	950.00	Long Term Loan	2,000.00
		Total Liability	4,950.00
		Owners's Equity
		Owner's Capital	6,000.00
		Retained Earnings	1,015.00
		Total Owner's Equity	7,015.00
Total Assets	11,965.00	Total Liabilities and Owner's Equity	11,965.00

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Also please give your positive rating.