Kevin is a trader in leather goods who conducts his business in a London street market. He trades on both cash and credit terms. At the start of a week he had a stock which cost £1,200, £400 in his bank account and debts owed to him by past customers totalling £1,120. He had no assets other than his barrow [worth £800] and no liabilities. During the week he sells goods for cash at £2,250 and makes credit sales of £2,400. His purchases of stock amount to £2,300 and he pays for them in cash. He receives £480 cash from past credit customers and makes some more cash sales of £270. At the end of the week he still has his barrow, and a stock of goods which cost him £1,360. His bank balance stands at £880, and the amount owed to him by credit customers has risen to £3,040. Kevin had drawings of £220.
Required:
1. Work out a profit figure for Kevin's trading for the week.
Have you used all the information you have been given?
2. Prepare Kevin's balance sheet as at the end of the week.
(Hint: You will need to calculate opening capital).
answers to testing your understanding -2
(1)
£ £
Sales
4,920
Opening Stock
1,200
Add:
Purchases
2,300
3,500
Less:
Closing Stock
(1,360)
Cost of goods sold
2,140
Gross Profit
£2,780
(2)
Capital Employed
Opening Capital
3,520
+ Profits
2,780
- Drawings
(220 )
£6,080_
Workings you must calculate the opening capital position
Capital Employed = Net Assets
Opening Capital + Profits - Drawings = Net Assets
Opening Capital = Opening Net Assets = Stock 1,200 + Bank £400
+ debtors £1,120 + Barrow £800 = £3,520
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