Jim's Bank Account for the Year to 30 April 2008: We will start by calculating the balance of the business bank account, using the transactions provided. Opening Balance: Jim initially deposited €150,000 into his business bank account on 1 May 2007. Transactions: Receipts: Cash Sales (May 2007 to April 2008): €96,000 Credit Sales (Business customers): €19,600 (Note: This amount is not yet received as it is on credit, but it will be included in the Income Statement and not the bank balance at this stage.) Bank receipts from credit customers (amount owed at 30 April 2008): €6,800 Total Receipts:€96,000 (Cash Sales) + €6,800 (credit customer payments) = €102,800 Payments/Expenditures: Lease Payment (Paid in advance for five years): €50,000 Shop Fitting: €10,000 Assistant’s Wages: €250 per month × 12 months = €3,000 Telephone expenses: €800 Heat & Light expenses: €1,000 Jim’s withdrawals for personal expenditure: €1,000 × 12 months = €12,000 Accounting Fee (after the year-end): €200 Amount owing to the electricity company for April (unpaid): €150 (not yet paid, so won’t be included in the bank calculation) Total Payments:€50,000 (Lease) + €10,000 (Shop Fitting) + €3,000 (Wages) + €800 (Telephone) + €1,000 (Heat & Light) + €12,000 (Personal Withdrawals) + €200 (Accounting fee) = €76,000 Bank Balance Calculation: Opening Balance: €150,000 Add Receipts: €102,800 Subtract Payments: €76,000 Bank Balance at 30 April 2008:€150,000 + €102,800 - €76,000 = €176,800 2. Jim’s Income Statement for the Year to 30 April 2008: To prepare the Income Statement, we need to calculate Jim’s revenues and expenses. Revenues: Sales Revenue: Cash Sales: €96,000 Credit Sales (on account): €19,600 Total Sales Revenue: €96,000 + €19,600 = €115,600 Cost of Goods Sold (COGS): Purchases: €60,000 (Cost of goods purchased from manufacturers) Less: Stock at 30 April 2008: €5,600 Add: Opening Stock (assumed to be zero at the start): €0 COGS:€60,000 - €5,600 = €54,400 Gross Profit: Gross Profit:Sales Revenue - Cost of Goods Sold = €115,600 - €54,400 = €61,200 Operating Expenses: Wages (Assistant): €3,000 Telephone Expenses: €800 Heat & Light Expenses: €1,000 Accounting Fees: €200 Depreciation (Shop Fitting and Lease): Depreciation of Shop Fitting: €10,000 ÷ 5 years = €2,000 Depreciation of Lease: €50,000 ÷ 5 years = €10,000 Total Depreciation: €2,000 (fitting) + €10,000 (lease) = €12,000 Total Operating Expenses:€3,000 (Wages) + €800 (Telephone) + €1,000 (Heat & Light) + €200 (Accounting Fees) + €12,000 (Depreciation) = €17,000 Net Profit Before Tax: Net Profit Before Tax:Gross Profit - Operating Expenses = €61,200 - €17,000 = €44,200 Provision for Bad Debts: There is a bad debt of €1,200 which Jim expects to be uncollectible from a business customer in liquidation. This amount needs to be deducted from the income. Net Profit After Bad Debts:€44,200 - €1,200 = €43,000

Jim's Bank Account for the Year to 30 April 2008: We will start by calculating the balance of the business bank account, using the transactions provided. Opening Balance: Jim initially deposited €150,000 into his business bank account on 1 May 2007. Transactions: Receipts: Cash Sales (May 2007 to April 2008): €96,000 Credit Sales (Business customers): €19,600 (Note: This amount is not yet received as it is on credit, but it will be included in the Income Statement and not the bank balance at this stage.) Bank receipts from credit customers (amount owed at 30 April 2008): €6,800 Total Receipts:€96,000 (Cash Sales) + €6,800 (credit customer payments) = €102,800 Payments/Expenditures: Lease Payment (Paid in advance for five years): €50,000 Shop Fitting: €10,000 Assistant’s Wages: €250 per month × 12 months = €3,000 Telephone expenses: €800 Heat & Light expenses: €1,000 Jim’s withdrawals for personal expenditure: €1,000 × 12 months = €12,000 Accounting Fee (after the year-end): €200 Amount owing to the electricity company for April (unpaid): €150 (not yet paid, so won’t be included in the bank calculation) Total Payments:€50,000 (Lease) + €10,000 (Shop Fitting) + €3,000 (Wages) + €800 (Telephone) + €1,000 (Heat & Light) + €12,000 (Personal Withdrawals) + €200 (Accounting fee) = €76,000 Bank Balance Calculation: Opening Balance: €150,000 Add Receipts: €102,800 Subtract Payments: €76,000 Bank Balance at 30 April 2008:€150,000 + €102,800 - €76,000 = €176,800 2. Jim’s Income Statement for the Year to 30 April 2008: To prepare the Income Statement, we need to calculate Jim’s revenues and expenses. Revenues: Sales Revenue: Cash Sales: €96,000 Credit Sales (on account): €19,600 Total Sales Revenue: €96,000 + €19,600 = €115,600 Cost of Goods Sold (COGS): Purchases: €60,000 (Cost of goods purchased from manufacturers) Less: Stock at 30 April 2008: €5,600 Add: Opening Stock (assumed to be zero at the start): €0 COGS:€60,000 - €5,600 = €54,400 Gross Profit: Gross Profit:Sales Revenue - Cost of Goods Sold = €115,600 - €54,400 = €61,200 Operating Expenses: Wages (Assistant): €3,000 Telephone Expenses: €800 Heat & Light Expenses: €1,000 Accounting Fees: €200 Depreciation (Shop Fitting and Lease): Depreciation of Shop Fitting: €10,000 ÷ 5 years = €2,000 Depreciation of Lease: €50,000 ÷ 5 years = €10,000 Total Depreciation: €2,000 (fitting) + €10,000 (lease) = €12,000 Total Operating Expenses:€3,000 (Wages) + €800 (Telephone) + €1,000 (Heat & Light) + €200 (Accounting Fees) + €12,000 (Depreciation) = €17,000 Net Profit Before Tax: Net Profit Before Tax:Gross Profit - Operating Expenses = €61,200 - €17,000 = €44,200 Provision for Bad Debts: There is a bad debt of €1,200 which Jim expects to be uncollectible from a business customer in liquidation. This amount needs to be deducted from the income. Net Profit After Bad Debts:€44,200 - €1,200 = €43,000

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter12: Money And Banking

Section: Chapter Questions

Problem 10E

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Jim's Bank Account for the Year to 30 April 2008:

We will start by calculating the balance of the business bank account, using the transactions provided.

Opening Balance:

Jim initially deposited €150,000 into his business bank account on 1 May 2007.

Transactions:

Receipts:
- Cash Sales (May 2007 to April 2008): €96,000
- Credit Sales (Business customers): €19,600 (Note: This amount is not yet received as it is on credit, but it will be included in the Income Statement and not the bank balance at this stage.)
- Bank receipts from credit customers (amount owed at 30 April 2008): €6,800
Total Receipts:
€96,000 (Cash Sales) + €6,800 (credit customer payments) = €102,800
Payments/Expenditures:
- Lease Payment (Paid in advance for five years): €50,000
- Shop Fitting: €10,000
- Assistant’s Wages: €250 per month × 12 months = €3,000
- Telephone expenses: €800
- Heat & Light expenses: €1,000
- Jim’s withdrawals for personal expenditure: €1,000 × 12 months = €12,000
- Accounting Fee (after the year-end): €200
- Amount owing to the electricity company for April (unpaid): €150 (not yet paid, so won’t be included in the bank calculation)
Total Payments:
€50,000 (Lease) + €10,000 (Shop Fitting) + €3,000 (Wages) + €800 (Telephone) + €1,000 (Heat & Light) + €12,000 (Personal Withdrawals) + €200 (Accounting fee) = €76,000

Bank Balance Calculation:

Opening Balance: €150,000
Add Receipts: €102,800
Subtract Payments: €76,000

Bank Balance at 30 April 2008:
€150,000 + €102,800 - €76,000 = €176,800

2. Jim’s Income Statement for the Year to 30 April 2008:

To prepare the Income Statement, we need to calculate Jim’s revenues and expenses.

Revenues:

Sales Revenue:
- Cash Sales: €96,000
- Credit Sales (on account): €19,600 Total Sales Revenue: €96,000 + €19,600 = €115,600

Cost of Goods Sold (COGS):

Purchases: €60,000 (Cost of goods purchased from manufacturers)
Less: Stock at 30 April 2008: €5,600
Add: Opening Stock (assumed to be zero at the start): €0

COGS:
€60,000 - €5,600 = €54,400

Gross Profit:

Gross Profit:
Sales Revenue - Cost of Goods Sold = €115,600 - €54,400 = €61,200

Operating Expenses:

Wages (Assistant): €3,000
Telephone Expenses: €800
Heat & Light Expenses: €1,000
Accounting Fees: €200
Depreciation (Shop Fitting and Lease):
- Depreciation of Shop Fitting: €10,000 ÷ 5 years = €2,000
- Depreciation of Lease: €50,000 ÷ 5 years = €10,000 Total Depreciation: €2,000 (fitting) + €10,000 (lease) = €12,000

Total Operating Expenses:
€3,000 (Wages) + €800 (Telephone) + €1,000 (Heat & Light) + €200 (Accounting Fees) + €12,000 (Depreciation) = €17,000

Net Profit Before Tax:

Net Profit Before Tax:
Gross Profit - Operating Expenses = €61,200 - €17,000 = €44,200

Provision for Bad Debts:

There is a bad debt of €1,200 which Jim expects to be uncollectible from a business customer in liquidation. This amount needs to be deducted from the income.

Net Profit After Bad Debts:
€44,200 - €1,200 = €43,000

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