Reference no: EM131802193

Shoe Shop - Double-entry bookkeeping

Mia runs a shop in Prizren. The shop sells fashionable shoes and accessories. On June 30^th 2011 his business assets and liabilities were:

Mia decided to expand the business and sell clothes.

On July 1^st 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).

(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 Mia had not yet paid for them.

(11)   Paid the following (by cheque):

(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. Mia 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.

You are required to prepare a statement of financial position or income statement.