Reference no: EM133048166

Question - The sales day book is understated by £3,000.

(a) The trial balance of David Smith as at 31 May 2021 does not balance. The difference of £5,400 has been credited to a suspense account. The following errors were subsequently discovered:

Purchases received from Sampson and Co amounting to £1,147, had been received on 31 May 2021 and included in the closing inventory at that date. Unfortunately, the invoice had not been entered in the purchases day book.

Motor repairs of £585 have been charged to the motor vehicles account.

A payment of £425 in respect of electricity has been debited to the electricity account as £575.

A cheque for £2,250 received from Thames Ltd, a receivable, has been correctly entered in the cash book but no entry has been made in Thames' account.

Required -

(i) Show the journal entries (excluding narratives) to correct the above errors.

(ii) Write up the suspense account after the correction of above errors.

(b) Raj Bounce's trade receivables at 1 January 2019 amounted to £435,000. He maintains an allowance for doubtful debts of 4% of the debts outstanding at the year end. 2019 £ 2020 £ Accounts receivable as at 31 December (before writing off bad debts) 545,200 521,800 Bad debts written off in the year 16,750 15,400

Required -

(i) Calculate the amount to be included in the statement of profit or loss for each of the two years ended 31 December 2020 in respect of the allowance for doubtful debts. State clearly whether the amounts increase or reduce profit.

(ii) Explain the accounting entries that would be made if a debt that has been written off is subsequently paid by the customer.