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Hi Sir
balance
Drawing 7800
irrecoverable debt 877
allowance for receivable 130
depreciation equipment 500 (no other information
receivable 12120the allowance is to be increase by 40
for the income statement ,
1-I subtract the drawing in the cost of sales but in the answer they ignore the drawing, I dont understand, I though It comes in the income statement before the gross profit.
2- for the depreciation, as they were not others information on how to use it, I put in the cost of sales but in the answer it is coming after the gross profit, again why?
for the statement for financial position,
for receivable,
12120 – 877- 40-170= 11073
but he answer for receivable is 11950 ( 12120 -40 – 130), without irrecoverable debt, why ?though I was ok for the income statement but all this is really confusing. help please!!!!!
I cannot give you a complete answer without seeing the whole question (you have not said what the question was asking for).
With regard to the drawings – drawings do not affect the Statement of profit or loss if they are cash drawings. Only if they are drawings of goods.
With regard to receivables, it does not seem as though the answer is correct, but again I would need to see the complete question to be sure.
Sir it is a very long question, income statement and statement of financial position. I just want to know which amount to include in a financial position as drawing.
I dont if it is a cash drawing or not it is just drawing and it he answer is decrease liabilities. for the receivable I think I right, there’s not information on irrecoverable just in the balance and still I think it is for the current year.it is bpp 17.1
If nothing is said, then you always assume that drawings are cash drawings.
They are not relevant for the Statement of profit or loss. In the Statement of financial position they are subtracted from the capital.For depreciation is doesn’t really matter whether it is before or after gross profit – the final profit will be the same. (It depends on the business – if it is a manufacturing business, then depreciation of the machines will be part of cost of sales. If they are simply a retail business (and do not make their own goods) then it is not part of cost of sales, and it comes after gross profit.
With regard to the receivables. I guess that the balances you have given are balances from the trial balance. If there are irrecoverable debts in the actual trial balance, then it means the entry has already been made and so receivables have already been reduced by the irrecoverable. Therefore on the Statement of financial position we show simply the receivables less the allowance for receivables. In the Statement of profit or loss we have the cost of the irrecoverable and the cost of increasing the allowance.
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