Warren owns and manages a small business, which sells pet supplies to high street shops and market
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Question:
Warren owns and manages a small business, which sells pet supplies to high street shops and market traders. Warren sells to customers on credit at 30 days credit terms. (Warren manages all aspects of the business, including delivery and collection of the pet supplies.) The business accounts are balanced at the end of each month, and the transactions are posted daily.
On 1 March the balances on his accounts were as follows:
Account name | Debit (£) | Credit (£) |
Capital | 88,000 | |
Van | 30,000 | |
Van – accumulated depreciation | 6,000 | |
Bank | 17,280 | |
Receivables control | 55,850 | |
Payables control | 9,130 | |
103,130 | 103,130 |
On 1 March, the debit balances on the receivables ledger accounts were as follows:
Receivables ledger accounts | £ |
Adam | 12,000 |
Mercy | 27,930 |
Sherwood | 15,920 |
On 1 March, the credit balances on the payables ledger accounts were as follows:
Payables ledger accounts | £ |
Bran | 4,000 |
Gary | 2,350 |
Wendela | 2,780 |
During March, the following transactions took place:
No. | Date | Amount (£) | Transaction |
1 | 2 March | 6,000 | Receives payment from customer Adam in part settlement of amounts outstanding |
2 | 3 March | 2,500 | Warren sells goods to customer Adam on 30 days credit terms |
3 | 6 March | 2,000 | Warren pays by bank transfer part of the amount outstanding on the account of supplier Gary |
4 | 7 March | 1,800 | Warren pays the business rent from his personal bank account |
5 | 10 March | 27,930 | Warren receives payment from customer Mercy in full settlement of the amount outstanding |
6 | 15 March | 1,500 | Warren purchases goods from supplier Bran on 30 days credit terms |
7 | 17 March | 11,000 | Warren sells goods to customer Mercy on 30 days credit terms |
8 | 18 March | 500 | Warren buys a laptop computer for use in the business paying from the business bank account |
9 | 25 March | 2,780 | Warren pays by bank transfer the full amount outstanding on the account of supplier Wendela |
10 | 30 March | 2,000 | Warren pays supplier Bran in part settlement of amounts outstanding |
Required:
- a. Set out Warren’s general ledger accounts and the receivables and payables ledger accounts at 1 March.
- b. Continuing on, post to the relevant accounts the 10 transactions that took place in March. Remember that postings are made daily. (No entries are required for any new depreciation for the period.)
- c. Balance off the general ledger accounts and the receivables and payables ledger accounts. Make sure that the balance on the receivables control account agrees with the total of the balances on the personal accounts in the receivables ledger. Do the same for the payables control account and the personal accounts in the payables ledger. Show all relevant details for all T-accounts.
- d. Present the trial balance at 1 April.
- e. What do you notice about Warren’s management of receivables and payables? What advice would you give him regarding his receivables? What question might you ask him in respect of payables? (The limit for your answer to (e) is 150 words.)
Related Book For
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain
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