Chris runs a shop in Bristol, Shoe Shop. The shop sells fashionable shoes and accessories. On...

  

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Chris runs a shop in Bristol, Shoe Shop. The shop sells fashionable shoes and accessories. On June 30th 2015 his business assets and liabilities were: £ 125 Cash Bank balance (overdraft) Trade receivables Trade payables Inventory (at cost) Capital Chris decided to expand the business and sell clothes. On July 1st he: (1) Arranges to rent the adjoining shop premises. His total monthly rent is now £625 per calendar month. (See list of transactions for payment of rent). 11,000 16,750 14,625 40,575 31,825 (2) Borrows £20,000 from his bank, and uses it to buy a van for the business. This is a special business loan, which is repayable in three years time and carries interest at 13%. (3) Pays £6,250 out of his personal bank account to have the new premises refitted. His summarised transactions for the rest of the year are as follows (they are not in chronological order): (4) Bought stock on credit, £489,625. (5) Bought stock for cash, £16,550. (6) Sold stock which cost £63,000, for £84,000 cash. (7) Paid creditors £477,225 by cheque. (8) Sold stock which cost £394,500, for £526,000 on credit. (9) Collected £517,750 from his debtors. (10) Returned some damaged goods to his suppliers. These cost £8,500, but Chris had not yet paid for them. (11) Paid the following (by cheque): Rent (see (1)) Shop wages Interest (see (2)) Electricity Telephone Other expenses Holiday £ 7,500 35,000 2,600 4,500 1,750 3,050 1,000 LSE (12) Personal drawings were £500 per month. Shop takings were banked daily. On June 30th 2012 cash in the till was still £125. Required: 1. Double-entry accounts reflecting the above transactions (Hint: as a constant float of £125 is maintained in the shop till, you may treat cash transactions as movements on the business's bank account.) You should show all workings clearly. 2. A trial balance at June 30th 2012. 3. Chris does not maintain any books of account - these transactions were obtained from bank statements and invoice files, and memory. Set out briefly the main problems inherent in operating a business in this rather haphazard manner. (N.B. You are not required to prepare a statement of financial position or income statement. However the suggested solution will include these statements for completeness). Chris runs a shop in Bristol, Shoe Shop. The shop sells fashionable shoes and accessories. On June 30th 2015 his business assets and liabilities were: £ 125 Cash Bank balance (overdraft) Trade receivables Trade payables Inventory (at cost) Capital Chris decided to expand the business and sell clothes. On July 1st he: (1) Arranges to rent the adjoining shop premises. His total monthly rent is now £625 per calendar month. (See list of transactions for payment of rent). 11,000 16,750 14,625 40,575 31,825 (2) Borrows £20,000 from his bank, and uses it to buy a van for the business. This is a special business loan, which is repayable in three years time and carries interest at 13%. (3) Pays £6,250 out of his personal bank account to have the new premises refitted. His summarised transactions for the rest of the year are as follows (they are not in chronological order): (4) Bought stock on credit, £489,625. (5) Bought stock for cash, £16,550. (6) Sold stock which cost £63,000, for £84,000 cash. (7) Paid creditors £477,225 by cheque. (8) Sold stock which cost £394,500, for £526,000 on credit. (9) Collected £517,750 from his debtors. (10) Returned some damaged goods to his suppliers. These cost £8,500, but Chris had not yet paid for them. (11) Paid the following (by cheque): Rent (see (1)) Shop wages Interest (see (2)) Electricity Telephone Other expenses Holiday £ 7,500 35,000 2,600 4,500 1,750 3,050 1,000 LSE (12) Personal drawings were £500 per month. Shop takings were banked daily. On June 30th 2012 cash in the till was still £125. Required: 1. Double-entry accounts reflecting the above transactions (Hint: as a constant float of £125 is maintained in the shop till, you may treat cash transactions as movements on the business's bank account.) You should show all workings clearly. 2. A trial balance at June 30th 2012. 3. Chris does not maintain any books of account - these transactions were obtained from bank statements and invoice files, and memory. Set out briefly the main problems inherent in operating a business in this rather haphazard manner. (N.B. You are not required to prepare a statement of financial position or income statement. However the suggested solution will include these statements for completeness).

Answer rating: 100% (QA)

To provide a comprehensive response I will provide the doubleentry accounts reflecting the transactions followed by a trial balance at June 30th 2012 and an explanation of the problems inherent in ope... View the full answer