(a) The following trial balance was extracted from the books of M. Jackson on 30 April 2013. From it, and the note below it, prepare his income statement for the year ending 30 April 2013, and a statement of financial position as at that date.

Closing inventory amounted to £4,000. Depreciation is to be charged at rates of 10 per cent on cost for fixtures and fittings and 25 per cent on cost for motor vehicles. Bad debts of £800 are to be written off.

(b) Michael has indicated that he thinks that the accounts receivable amounts that have been written off will be paid eventually. He is also querying why adjustments are made in the financial statements for bad debts and depreciation. Write a short note to him, making appropriate references to accounting concepts, outlining why these adjustments are made.

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Sales Purchases Inventory 1 May 2012 Carriage outwards Carriage inwards Returns inwards Returns outwards Salaries and wages Motor expenses Rent Sundry expenses Motor vehicles Fixtures and fittings Accounts receivable Accounts payable Cash at bank Cash in hand Drawings Capital Dr 11,570 3,776 326 234 440 2,447 664 576 1,202 3,400 600 4,577 3,876 120 2,050 35,858 Cr 18,614 355 3,045 13,844 35,858