Incomplete Records — Structured Questions (Cambridge International IGCSE Accounting): Exam Questions

State two advantages of maintaining double entry records.

Lionel started trading on 1 July 2022. He paid $15 000 of his own personal money into the business bank account. He did not keep full accounting records but has supplied the following information at 30 June 2023.

1. Cash sales of $90 000 were made and paid into the bank. No other money was received. Lionel marks up his goods by 50%.
2. Payments from the bank:

1. Purchases returns amounted to $3000.
2. Inventory at 30 June 2023 was valued at $4175.
3. One third of the motor expenses paid were for Lionel’s private car.
4. A full year’s depreciation at 25% is to be charged on the van using the reducing balance method.
5. Lionel withdrew $1000 each month from the business cash, for personal use. The remaining cash drawn from the bank was used to pay wages.

REQUIRED

Prepare Lionel’s income statement for the year ended 30 June 2023.

Lionel Income Statement for the year ended 30 June 2023

Prepare Lionel’s capital account for the year ended 30 June 2023. Balance the account and bring down the balance at 1 July 2023.

Lionel Capital account

State one reason why Lionel should keep double-entry bookkeeping records.

Lionel currently makes cash sales only. He would like to start selling on credit and is considering whether to offer a 10% trade discount to regular customers or a 3% discount for payment within 21 days.

REQUIRED

Advise Lionel whether he should offer the 10% trade discount or the 3% cash discount. Justify your answer.