INTRODUCTION TO ACCOUNTING

Introduction to Accounting

Jerry Mann Profit & Loss Account as at 30 April 2011

                                                                                                                £                  £

Receipts from customers (cash sales of goods)                                                   85,000

Cost of good sold

Payments to suppliers for additional stock of goods                         40,000

Closing stock                                                                                       (2,400)                

Gross profit                                                                                                         47,400

Administration costs

Utilities bills paid (electricity and telephone)            6,000

Add telephone accruals          500                 6,500

Business rates paid to 31 March 2011                                                 2,400

Van running costs paid                                                                        4,000

Postages and packing paid                                                                   2,600

Sundry expenses                                                                                  6,000

Prepayment

Advertisement                                                                                     (3,000)

(24,500)               

Supplier accruals                                                                                  5,000

Nat profit before taxation                                                                                   27,900

Tax at 30%                                                                                        (8,370)                 

Net profit after income tax                                                                                 19,530

Notes to the income statement

The cost of sales was calculated by subtracting the closing stock from purchased goods, which was 40,000 – 2,400

The tax rate was assumed 30%

 

Jerry Mann Balance Sheet as at 30 April 2011

                                                                                                              £

Current assets

Cash at hand(1)                                                                               26,000

Inventory                                                                                           2,400

Prepaid expenses                                                                               3,000

Total current assets                                                                      31,400

Fixed assets

Motor van                                                                                        12,000

Computer                                                                                          4,000

Total fixed assets                                                                           16,000

Total assets                                                                                    47,400

 

Liabilities

Bank overdraft                                                                                  4,600

Accruals                                                                                            5,500

                                                                                                         37,300

Owner’s equity

Capital                                                                                              17,770

Net profit after tax                                                                        19,530

37,300

Notes and assumption for cash

(1) Cash account

Dr	Cr
Receipts from customers    85,000	Payments to suppliers        40,000
	electricity and telephone      6,000
	Business rates paid               2,400
	Van running costs paid         4,000
	Postages and packing paid     2,600
	Sundry expenses                   6,000
85,000	61,000
	26,000

 

It is assumed that business rates that would increase shall be paid the next year.
Total costs if Megan invites four friends

Activity 1                          Activity 2                        Activity 3

£                                                £                                                  £

Fare/ person                  7.20    Fuel cost                     25           fare/ person                         3.50

Room/ person            24         Cottage cost             300           entry cost/ person               50

Food / person             20         Tour guide charge      80           lunch/ person                        6

Wine / person              3          Food cost                 100           supper/ person                      5

Total cost / person     54.2      Total cost: venue 2 505        drinks/ person                        15    

× 4                                           ÷ 4            total cost/ person                79.50

Total cost: venue 1 216.8          Cost pr person      126.25                                                × 4

Total cost: venue 3             318

Total costs if Megan took seven friends

                    Activity 1                          Activity 2                        Activity 3

£                                                £                                                  £

Fare/ person                 7.20     Fuel cost                   50           fare/ person                          3.50

Room/ person            27.40    Cottage cost             300           entry cost/ person               45

Food / person             20         Tour guide charge      80           lunch/ person                       6

Wine / person              3.40     Food cost                 175           supper/ person                      5

Total cost / person     58          Total cost: venue 2 605           drinks/ person                     15    

× 7                                          ÷ 7            total cost/ person                 74.50

Total cost: venue 1 406         Cost/ person            86.42                                                   × 7

Total cost: venue 3            521.50

Assumptions

            In the first calculation, they did not need a return ticket since we see them at her house and there is no mentioning of bus fare again. It has also been assumed that the cost per person in the inn rooms is 24, since a twin-room costs £ 48, and we are not told there were single rooms. It is also assumed that they preferred to go to an Italian restaurant. It is also assumed that in the first calculation, they shared the bottle of wine between the four, and if they were seven, they would share two bottles of wine.

Fixed and Variable Costs

            Fixed costs are those that do not change when other variables such as the number of people increases, and one has to pay the full amount whether few or not. There are some fixed costs in these events, the first being the cost of a twin room, where she has to pay for three of them, incurring an extra cost since one person has to sleep in a twin room alone. The other fixed cost is the guide charges, where she will have to pay for £ 80 while they are four, and pay the same while they are seven. The cost of cottage is fixed, where she has to pay £ 300 for four people, and would pay the same when they are eight. Another fixed cost is the cost of fuel, where she has to pay £ 25 for an extra car when they are seven, yet, there is a space for an extra person, which means she would pay the same if they were 8, 5, or 6.

Variable costs are those that change when other variables change, and they keep changing depending on the time, and other variables. In the three events, some of the variable costs include fare costs, where they will depend on the number of persons she has to invite, and when they are four, she pays less. Another cost is food, wine, drinks and supper, where the total amount depends on the number of people invited.