Priya runs a clothing business. She does not keep full accounting records. After investigation, the following information was established for the year ended...
Question 1 Report
Priya runs a clothing business. She does not keep full accounting records. After investigation, the following information was established for the year ended 31 March 2025.
Bank account summary
| Receipts | $ | Payments | $ |
|---|---|---|---|
| Balance b/d | 3 800 | Trade payables | 62 400 |
| Trade receivables | 78 200 | Wages | 15 600 |
| Cash sales banked | 14 000 | Rent | 7 200 |
| Electricity | 3 400 | ||
| Drawings | 6 000 | ||
| Balance c/d | 1 400 | ||
| Total | 96 000 | Total | 96 000 |
Other information
| 1 April 2024 ($) | 31 March 2025 ($) | |
|---|---|---|
| Inventory | 11 400 | 13 200 |
| Trade receivables | 9 600 | 12 000 |
| Trade payables | 7 200 | 8 400 |
Priya allows a uniform margin of 30% on all goods sold. Discount allowed during the year was $1 400.
(a) Prepare the total trade receivables account to find credit sales. [5]
(b) Calculate total sales for the year. [2]
(c) Prepare the total trade payables account to find credit purchases. [4]
(d) Calculate the cost of sales. [3]
(e) Calculate the gross profit and verify it is 30% of total sales. [4]
(f) State one advantage of using the margin method to check the accuracy of the sales figure. [2]
Answer Details
(a) Total Trade Receivables Account
This control account is used to find the missing credit sales figure.
| Dr | Cr | ||||
|---|---|---|---|---|---|
| Details | $ | Details | $ | ||
| Balance b/d | 9 600 [1] | Bank (receipts from receivables) | 78 200 [1] | ||
| Credit sales (balancing figure) | 82 000 [1] | Discount allowed | 1 400 | ||
| Balance c/d | 12 000 [1] | ||||
| Total | 91 600 | Total | 91 600 | ||
Credit sales = $78 200 + $1 400 + $12 000 - $9 600 = $82 000 [1]
(b) Total sales for the year
Total sales = Credit sales + Cash sales banked
= $82 000 + $14 000 = $96 000 [1][1]
(c) Total Trade Payables Account
| Dr | Cr | ||||
|---|---|---|---|---|---|
| Details | $ | Details | $ | ||
| Bank (payments to payables) | 62 400 | Balance b/d | 7 200 [1] | ||
| Balance c/d | 8 400 [1] | Credit purchases (balancing figure) | 63 600 [1] | ||
| Total | 70 800 | Total | 70 800 | ||
Credit purchases = $62 400 + $8 400 - $7 200 = $63 600 [1]
(d) Cost of sales
| Opening inventory | $11 400 [1] |
| Add: Purchases | $63 600 |
| $75 000 | |
| Less: Closing inventory | ($13 200) [1] |
| Cost of sales | $61 800 [1] |
(e) Gross profit and margin verification
Gross profit = Total sales - Cost of sales
= $96 000 - $61 800 = $34 200 [1]
Margin check: ($34 200 / $96 000) x 100 = 35.6% [1]
This does not equal the expected 30% margin. The discrepancy suggests possible errors in the records or unrecorded transactions. [1] The difference may indicate inventory losses, theft, unrecorded cash sales, or goods taken by the owner for personal use that have not been recorded. [1]
(f) Advantage of using the margin method
It provides a check on the accuracy of incomplete records [1] because if the actual margin differs from the expected (known) margin, it highlights potential errors, missing transactions, or losses such as theft that need further investigation. [1]
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