Day: April 9, 2020

The following information relates to a hardware merchant, who is not registered for VAT and who makes all purchases on credit.

at 31 December 1996         at 31 December 1995

Stock:                  £10,600                                  £10,300
Debtors:             £5,400                                    £4,800
Creditors:          £5,900                                    £6,300

Transactions during 1996:

• Amount received from debtors £127,600
• Amount paid to creditors £93,200
• Cash sales £23,200
• Discount allowed to debtors £2,400
• Bad debts written off £800
• Increase in provision for doubtful debts £250
• Refunds received from creditors £80

The gross profit earned by the merchant during 1996 was?

Select ONE answer:

1. £38,820
2. £38,870
3. £61,750
4. £62,180

 

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct

• • • • • • Debtors

• Dr Balance b/d £4,800
  Dr Sales £131,400
  Dr Totals £136,200
  • • • • • Cr Bank £127,600
            Cr Discount Allowed £2,400
            Cr Bad Debts £800
            Cr Balance b/d £5,400
            Cr Total £136,200

             

• Total Sales = Cash Sales + Credit Sales = £23,200 + £131,400 = £154,600

• • • • • Creditors

• Dr Bank £93,200
  Dr Balance c/d £5,900
  • • • • • Cr Balance b/d £6,300
            Cr bank 80
            Cr Purchases credit £92,720
            Cr Totals £99,100

             

• Cost of Sales = Opening Stock + Purchases – Closing Stock = £10,300 + £92,720 – £10,600 = £92,420
• Gross profit = Sales – Cost of sales = £154,600 – £92,420 = £62,180

 

 

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