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Greetings sir,
I really do not understand how do we calculate 20.8 and 20.9. Whether we use a T account or formula. Please guide in detail.
As for 20.10, I made a Payable Control Account T account, but I did not understand according to the answer at the back how the drawings of $1,000 would be part of the Cr side of this T account.
It should be Dr Drawings , Cr Purchase Expense.Nothing to do with Payable (which is a liability account). So it cannot be Dr Drawings Cr Payable.
20.8 is neither t-accounts nor formulae.
It is testing on knowledge of Statements of Cash Flows. We know the change in the bank balance, we know the cash flows from investing activities and the cash flows from investing activities. so we can work back and calculate the cash flows from operating activities.
Having got that, we can work backwards adjusting for the depreciation and the increase in working capital and calculate the profit.20.9 is testing the accounting equation.
We know the capital at the start of the year.
We can calculate the profit for the year (taking the figure in the question and adding back the wages and the 400 for the telephone bill).
We know the drawings (the 100 per week plus the telephone of 400 plus sales tax).So using the accounting equation we can calculate the capital at the end of the year.
20.10 You are correct in saying that the drawings do not appear in the payables account. SO presumably you got a figure for purchases of 938,050 in the account.
You would debit this to purchases and then you would credit purchases with the drawings of 1,000.
That leaves 937,050 on purchases.How you arrive at that figure in the exam is irrelevant because nobody looks at your workings.
Presumably you did get the correct answer when you tried it yourself first?
20.8
I have not begun studying Cashflow. Will soon, then try this question again.
John Moffat wrote:20.10 You are correct in saying that the drawings do not appear in the payables account. SO presumably you got a figure for purchases of 938,050 in the account.
You would debit this to purchases and then you would credit purchases with the drawings of 1,000.<br>That leaves 937,050 on purchases.Could you please do the calculation step by step ?
20.10
Ok now I get it. Very well explained. I got 938,050. It did not strike me to use two t account as I am accustomed to questions being solved by one t account. So that was quite an eye opener question. Therefore I ignored the 1,000 Drawings – thought it was there just to confuse me, and I should focus on the rest.
20.9
I have already answered you step by step. Calculate the profit and the drawing the way that I explained.
Then use the accounting equation (which is explained in Chapter 2. of the free lectures notes and the lecture working though the chapter) to get the increase in capital.
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