Question

The following information has been extracted from the books of account of Tanya Marsh at 30 April 2016 2275 10 000 6 550 1 250 5 600 15 000 11 500 12 500 23 500 44 500 35 405 2 800 1 200 120 000 45 200 25 652 Bank overdraft Bank loan repayable February 2017 Carriage outwards Discounts allowed Discounts received Drawings Inventories at 1 May 2015 Motor vehicle expenses Premises Purchases Rent (expense) and rates Returns inwards Returns outwards Revenue Trade payables Trade receivables Additional information (1) Inventories at 30 April 2016 were valued at £20 540 (2) The carriage outwards account included £1400 which related to carriage inwards (3) An annual rates invoice of £2400 for the year ending 31 July 2016 remained unpaid (4) Rent (expense) totalling £1530 had been paid in advance for the month of May 2016 (5) Motor vehicle expenses included £300 which related to private insurance of Tanya's son's car (6) The motor vehicle expense account had been understated by £35 Prepare an extract from an income statement for Tanya Marsh to show the gross profit for the year ended 30 April 2016

Answer 1

Tanya Marsh Income Statement Extract For the Year Ended 30 April 2016 £120,000 £2,800 Revenue Less: Return inwards Net Revenue £117,200 Cost of Goods Sold: Inventory, 1 May 2015 Add: Purchases Add: Carriage inwards Less: Return outwards £11,500 E44,500 £1,400 £1,200 Net Purchases Cost of Goods Available for Sale Less: Inventory, 30 April 2016 Cost of Goods Sold E44,700 £56,200 £20,540 E35,660 E81,540 [Net Sale Revenue - Cost of Goods Sold] Gross Profit (117,200 - 35,660) EXPLANATION Discount received is a revenue receipt and charged to income statement as other operating revenues instead of deducting from inventory value; Similarly, discount allowed is charged to income statement as other operating expense instead of deducting from revenue to calculate net sales revenue. Accordingly, these lines are not included in the cost of goods sold