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The treasurer of the Long Lane Football Club has prepared a receipts and payments account, but members have complained about the inadequacy of such an.

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Presentation on theme: "The treasurer of the Long Lane Football Club has prepared a receipts and payments account, but members have complained about the inadequacy of such an."— Presentation transcript:

1 The treasurer of the Long Lane Football Club has prepared a receipts and payments account, but members have complained about the inadequacy of such an account. She therefore asks an accountant to prepare a trading account for the bar, and an income and expenditure account and a balance sheet. The treasurer gives the accountant a copy of the receipts and payments account together with information on assets and liabilities at the beginning and end of the year.

2 Long Lane Football Club Receipts and Payments Account for the year ended 31 December 2006 ReceiptsPayments Bank balance at Payment for bar supplies38,620 Subscriptions received forWages: 2005 (arrears)1,400Groundsman and assistant19, ,350Barman8, (in advance)1,200Bar expenses234 Bar sales61,280Repairs to stands740 Donations received800Ground upkeep1,829 Secretary’s expenses938 Transport costs2,420 Bank balance at ,210 79,554

3 Additional information Inventory in the bar – at cost 4,4965,558 Owing for bar supplies3,2944,340 Bar expenses owing Transport costs-265

4 Additional information The land and football stands were valued at 31 December 2005 at: land $40,000; football stands $20,000; the stands are to be depreciated by 10 per cent per annum; The equipment at 31 December 2005 was valued at $2,500 and is to be depreciated at 20% per annum; Subscriptions owing by members amounted to $ 1,400 on 31 December 2005, and $ 1,750 on 31 December 2006.

5 The first step is to prepare Statement of Affairs as at Non-current assets Land40,000 Stands20,000 Equipment2,500 62,500 Current assets Inventory in bar4,496 AR for subscriptions1,400 Cash at bank524 6,420 Total assets 71,920

6 The first step is to prepare Statement of Affairs as at Current liabilities AP3,294 Bar expenses owing225 Total liabilities(3,519) Net assets65,401 Accumulated fund65,401

7 The second step is to prepare bar trading account for the year ending Sales61,280 Less: COGS: Inventory ,496 Add Purchases39,666 Less Inventory (5,558)(38,604) Gross profit22,676 Less: bar expenses345 Barman’s wages8,624(8,969) Net profit to Income and expenditure account 13,707

8 Explanations Question: How did we get the figure for the Purchases? Answer: Receipts and Payments account shows that “payment for bar supplies” is $38,620; (paid figure); However, in the notes we see “owing for bar supplies” for 2005 – $3,294 and 2006 $ 4,340 figures; We calculate the amount of purchases due for this year. Yet, the paid amount has last year’s unpaid purchases (which was actually paid this year) and not paid purchases for this year.

9 Explanations To calculate the amount of purchases for this year we from $38,620 deduct $3,294 (as this for last year which we should not mix) and add unpaid purchases of this year - $ 4,340. $38,620 - $3,294 + $ 4,340 = 39,666.

10 Explanations To calculate bar expenses we take the paid sum from Receipts and Payments account, which is $234; This sum contains $225 of expenses due for last year; so we deduct this amount in order to see how much we paid for this year. Then we add unpaid amount from extra information because we need the total sum due but not only the paid one. $234 - $225 + $336 = $345

11 Explanations To calculate the amount of subscription due to this year we do follow the same principle but take into account that we are dealing with an income not a liability; Any unpaid amount is our AR, while overpaid one is unearned revenue (thus a liability); Assume in Receipts and Payments account you see $16,950;

12 Explanations $16,950 consists of $1,400 which was due last year, so deduct we are calculating for this year only; In addition, there is another sum – 1,200 paid in advance for the next year; Again deduct as we need the subscription for this year; You get now $14350 – the sum you really received for this year. However, in the extra note they say that $1750 was not yet paid to us. Now we will add that to $14,350 to get the full sum;


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