Lcci Passport to Sucess Level 1 Book-Keeping Answer

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Level 1 Book-keeping
Solutions Booklet

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London Chamber of Commerce and Industry (LCCI) International Qualifications are provided by EDI, a leading international awarding body.

Passport to Success
Level 1 Book-keeping

Solutions Booklet

The initials LCCI and the words LONDON CHAMBER OF COMMERCE AND INDUSTRY are registered trademarks belonging to the London Chamber of Commerce and Industry and are used under licence. Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked the Publishers will be pleased to make the necessary arrangements at the first opportunity. © EDI 2008 First published in 2008. All rights reserved. Apart from any use permitted under UK copyright law, no part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or held within any information storage and retrieval system, without permission in writing from the publisher or under licence from the Copyright Licensing Agency Limited. Further details of such licences (for reprographic reproduction) may be obtained from the Copyright Licensing Agency Limited, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Cover photo: www.fotolia.com

TABLE OF CONTENTS

1. 2. 3. 4.

The Accounting Equation and the Balance Sheet Double entry system for assets, liabilities and capital Recording double entry for stock The double entry system for Expenses and Revenues and the Effect of Profit (or loss) and drawings upon capital

1 4 7 11

5. 6. 7. 8. 9.

Balancing accounts and the Trial Balance Trading and Profit & Loss Accounts: An introduction The Balance Sheet Final Accounts with further considerations The Division of the Ledger and Books of Original Entry

16 25 28 31 38 39 41 44 48 53 56 59 62 68 71 75 77 81 82

10. Bank Facilities 11. Cash Books 12. The Sales and Purchases Day Books 13. The Returns Day Books 14. The Journal 15. The Petty Cash Imprest System 16. Adjusting for accruals and prepayments 17. Depreciation of Fixed Assets 18. Bad Debts 19. Bank Reconciliation Statements 20. Capital and Revenue Expenditure 21. Errors in the accounts and their corrections 22. Control Accounts 23. Final Accounts and year end adjustments

Chapter 1 The Accounting Equation and the Balance Sheet
Answers to ‘Think about it’ Questions
Page 5 – Why are liabilities shown on the right hand side of the balance sheet and not on the left? Because based on the accounting equation it has to be on the same side as capital.

Answers to Activities
Activity 1.1 (a) (b) (c) (d) L A A

A (e) L (f) A (g) C
Activity 1.2 ASSETS £ 5 000 4 200 4 100 3 500 6 900 CAPITAL £ 3 000 2 500 2 800 2 400 4 100 LIABILITIES £ 2 000 1 700 1 300 1 100 2 800

(a) (b) (c) (d) (e)

Solutions to Target Practice Questions Question 1
(a) (b) (c) (d) (e) (f) ‘…assets less liabilities equals capital’. assets liabilities debtor creditor Balance Sheet

1

Question 2
ASSETS £ 3 100 800 2 200 LIABILITIES £

Shop fittings Cash register Stock of goods Creditors Loan – T Armani Bank

1 000 1 800 870 6 970 2 800

Capital = Assets – Liabilities Capital = 6970 – 2800 = £4170

Question 3
M Williams Balance Sheet at 30 June 20X6

£
Cash at Bank Stock of goods Fixtures and Fitting Debtors Motor vehicles 2 614 5 860 1 900 3 750 4 200 18 324 Creditors Loan – D Wong Capital (missing item)

£ 4 150 3 600 10 574 _____ 18 324

Question 4
Transactions (a) The owner borrows £5000 from L Pole and the money is put into the business’ bank account. A debtor pays the business £250 by cheque. The owner buys a motor vehicle on credit £6200. The owner withdraws £160 from the business’s bank account for his personal use. The business sells goods on credit for £840. The owner puts a further £3000 in cash into the business. The money is put...
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