Please Create a basic profit and loss account for...

This activity requires you to prepare a profit and loss account for Orchestra Supplies Business, summarising the results of the businesss first year of trading.

Orchestra Supplies Business

During the first year of trading, the following transactions occurred:

• instruments costing 1,400,000 were sold on credit terms for 2,000,000
• more instruments were purchased on credit terms for 1,500,000
• wages and other expenses of 300,000 were paid in cash
• cash totalling 1,250,000 was received from debtors
• cash totalling 1,400,000 was paid to creditors
• interest (paid cash) on the long-term loan was 10%.

At the end of the year, the directors decided to make a provision for bad debts of 5% of the year end debtors figure.

Closing stock (valued at cost) was 400,000.

An allowance for depreciation is to be made as follows:

• buildings, 2% of cost = 17,000
• furniture and fittings, 10% of cost = 10,000
• motor van, 20% of cost = 4,000.

Task

Prepare a profit and loss account, for Orchestra Supplies Business, for the first year of trading (using the flat format). You will need to apply your understanding of accruals accounting in distinguishing between income/expenditure and cash received/paid and also distinguishing between purchases and cost of goods sold.

Simply examine the profit and loss account for a general impression and identify any significant features or characteristics you observe.

• Did the business make a profit?
• Was it a large profit?
• What other features stand out (if any)?
• How easy did you find it to evaluate the financial performance of the business? If easy or hard why?

Activity output

• a profit and loss account and some comments for Orchestra Supplies Business.