Question

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Explanation:

Reconstruct total sales and purchases

Using the Trading Account knowledge point

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Adjust expenses for accruals and prepayments

Adjusting expenses for the period:

• Sundry Expenses: Paid \(800\) + Closing owing \(300\) = \(1,100\)
• Wages and Salaries: Paid \(4,000\) + Closing accrued \(320\) - Opening accrued \(220\) = \(4,100\)
• Rates: Paid \(1,400\) + Opening prepaid \(100\) - Closing prepaid \(150\) = \(1,350\)
• Depreciation:
• Motor Vehicle: \(10,100 - 10,000 = 100\)
• Furniture and Fittings: \(5,600 - 5,400 = 200\)

Calculate cost of goods sold

Determining the cost of sales:

• Opening Stock: \(3,750\)
• Net Purchases: Total Purchases \(30,185\) - Returns Outward \(1,250\) - Goods Withdrawn for Friend \(500\) = \(28,435\)
• Goods Available: \(3,750 + 28,435 = 32,185\)
• Closing Stock: \(4,570\)
• Cost of Goods Sold: \(32,185 - 4,570 = 27,615\)

Prepare the trading section

Calculating gross profit:

• Gross Sales: \(42,170\)
• Less: Returns Inward: \(2,500\)
• Net Sales: \(39,670\)
• Less: Cost of Goods Sold: \(27,615\)
• Gross Profit: \(39,670 - 27,615 = 12,055\)

Prepare the profit or loss section

Calculating net profit:

• Total Income: Gross Profit \(12,055\) + Discount Received \(770\) = \(12,825\)
• Less Expenses:
• Motor Expenses: \(1,200\)
• Rent Paid: \(500\)
• Sundry Expenses: \(1,100\)
• Wages and Salaries: \(4,100\)
• Advertising Expenses: \(1,450\)
• Rates: \(1,350\)
• Discount Allowed: \(1,020\)
• Depreciation (Motor Vehicle): \(100\)
• Depreciation (Furniture): \(200\)
• Total Expenses: \(11,020\)
• Net Profit: \(12,825 - 11,020 = 1,805\)

Answer:

Statement of Profit or Loss for the year ended 31 December 2021

	GH¢	GH¢
Gross Sales	42,170
Less: Returns Inward	(2,500)
Net Sales		39,670
Cost of Sales
Opening Stock	3,750
Add: Net Purchases (\(30,185 - 1,250 - 500\))	28,435
Cost of Goods Available for Sale	32,185
Less: Closing Stock	(4,570)
Cost of Goods Sold		(27,615)
Gross Profit		12,055
Add: Discount Received		770
		12,825
Less: Expenses
Motor Expenses	1,200
Rent Paid	500
Sundry Expenses (\(800 + 300\))	1,100
Wages and Salaries (\(4,000 + 320 - 220\))	4,100
Advertising Expenses	1,450
Rates (\(1,400 + 100 - 150\))	1,350
Discount Allowed	1,020
Depreciation: Motor Vehicle	100
Depreciation: Furniture and Fittings	200
Total Expenses		(11,020)
Net Profit		1,805