IGCSE Accounting Paper-1: Specimen Questions with Answers 223 - 224 of 338
Passage
Kamran is a trader who maintains a three column cash book.
He had the following transactions for November 2019.
Nov 2: Purchased goods worth $ 500 for cash.
Nov 7: Received a cheque from Abrar, $ 400 in full settlement of his debt of $ 415
Nov 12: Issued a cheque to Rabia, $ 291 for settlement of her account less 3 % cash discount.
Nov 16: Deposited $ 300 into the bank
Nov 18: Sold an old furniture for cash in $ 800
Nov 22: Withdrawn cash, $ 250 for personal use
Nov 26: Cash sales, $ 320 of which $ 120 was paid directly into the bank
Nov 30. Cash in excess of $ 2000 was deposited into the bank
Question 223 (5 of 5 Based on Passage)
Write in Short
Short Answer▾Which type of entries are those on 16th and 30th November? (Marks 1)
Contra Entries
Explanation
- A Contra Entry is an entry for a transaction that affects both cash and bank A/c. If one of the accounts is debited, the other will be credited and vice versa. Examples- Cash deposited into bank or Cash withdrawn from bank.
- On 30 Nov, Kamran՚s bank statement showed a bank balance of $ 220. He compared the cash book with the bank statement found that transactions relating to 7,12 and 30 November had not been recorded by the bank
Passage
Avinash financial year ends on 31 December. On 31 December 2018, he prepared a trial balance and found an excess of $ 7600 on the debit side. The difference was credited to the Suspense A/c and later on the following errors were detected-
(I) Sale of Old furniture $ 1400 were credited to Sales A/c
(II) Purchases book was overcast by $ 600
(III) Goods returned to Anupam $ 3000 recorded in Sales Return Book, however Anupam՚s A/c was correctly debited
(IV) Bought goods from Aviral $ 1000 was recorded in Sales book.
However, the same was correctly posted to the credit of Aviral՚s A/c.
(V) Installation Cost of Plant $ 500 debited to Wages A/c
(VI) Capital introduced $ 1500 had been correctly entered in the cash book but debited in the drawings A/c
Question 224 (1 of 2 Based on Passage)
Describe in Detail
Essay▾Complete the following statement to calculate the correct profit for the year. Where an error does not affect the profit, indicate with a tick in the no effect column. (Marks 12)
Avinash
Statement of Correction of Profit for the year ended 31 December 2018
| No Effect | Increase $ | Decrease $ | $ | |
| Draft Profit | 22000 | |||
| Error (I) | ||||
| Error (II) | ||||
| Error (III) | ||||
| Error (IV) | ||||
| Error (V) | ||||
| Error (VI) | ||||
| Corrected Profit |
Explanation
Avinash
Statement of Correction of Profit for the year ended 31 December 2018
| No Effect | Increase $ | Decrease $ | $ | |
| Draft Profit | 22000 | |||
| Error (I) | 1400 | |||
| Error (II) | 600 | |||
| Error (III) | 6000 | |||
| Error (IV) | 2000 | |||
| Error (V) | 500 | |||
| Error (VI) |  | |||
| 7100 | 3400 | 3700 | ||
| Corrected Profit | 25700 |
- Error I- Sales A/c was wrongly credited instead of Furniture A/c. The profit was increased by the increased sales, so it needs to be decreased.
- Error II- Overcast of Purchase Book had previously reduced the profits. The correction would increase the profits.
- Error III- Excess Sales Returns had decreased profits. The correction would increase the profits.
- Error IV- Increased Sales (by $ 1000) and reduced purchases (by $ 1000) had wrongly increased the profits by $ 2000. So, the profits need to be reduced by $ 2000.
- Error V- Wages A/c was wrongly debited instead of Plant A/c. Wages being a revenue expenditure reduces profits. So, the profits need to be increased.
- Error VI- Neither capital nor drawings are recorded in P&L A/c. So, it had not affected the profits.