O-LevelAccountingSources and recording of data7707/22 · Oct/Nov 2020 · Q120 Marks

Dev owns a business selling furniture. The following transactions took place during August 2020. Transaction | Date | Details | $ --- | --- | --- | --- 1 | August 9 | Sold goods on credit to Petra | 675 2 | 14 | Petra returned damaged goods to Dev | 120 3 | 23 | Banked cash sales | 412 4 | 29 | Petra settled her outstanding balance at 1 August by credit transfer after taking a cash discount of 5% On 1 August 2020, the balance on credit customer Petra's sales ledger account was $940 debit. REQUIRED

(a)Complete the table to name each business document and book of prime entry for the following transactions in Dev's accounting records. Transaction | Business document | Book of prime entry --- | --- | --- 2 | | 3 | | 4 | | [6]
(b)Prepare the account of Petra for August 2020 as it would appear in Dev's sales ledger. Balance the account and bring down the balance on 1 September 2020. Dev Petra account Date 2020 | Details | $ | Date 2020 | Details | $ --- | --- | --- | --- | --- | ---[6]
(c)Identify the section of Dev's statement of financial position at 31 August 2020 in which the balance on Petra's account would appear.[1]
(d)Dev allows his credit customers a cash discount of 5% for prompt payment. He is considering reducing this to 2%. REQUIRED State one advantage and one disadvantage to Dev of this proposal.[2]
(e)Dev is considering turning his business into a limited company. REQUIRED Advise Dev whether or not he should form a limited company. Justify your answer with two advantages and two disadvantages of forming a limited company.[5]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

[1] (a) Transaction 2 Credit note
[1] (a) Transaction 2 Sales returns journal
[1] (a) Transaction 3 Paying-in slip
[1] (a) Transaction 3 Cash book
[1] (a) Transaction 4 Bank statement
[1] (a) Transaction 4 Cash book
[1] (b) Aug 1 Balance b/d $940
[1] (b) Aug 9 Sales $675
[1] (b) Aug 14 Sales returns $120
[1] (b) Aug 29 Bank $893
[1] (b) Aug 29 Discount allowed $47
[1] (b) Aug 31 Balance c/d $555
[1] (b) Sept 1 Balance b/d $555 OF
[1] (b) + (1) dates
[1] (c) Current assets (1) OF
[1] (d) Advantage: Increase profit for the year
[1] (d) Advantage: Increase cash inflow
[1] (d) Accept other valid responses Max (1)
[1] (d) Disadvantage: May lose customers/sales may fall
[1] (d) Disadvantage: Customers may take longer to pay
[1] (d) Accept other valid responses Max (1)
[1] (e) Advantages: Dev will have limited liability for the debts of the company
[1] (e) Advantages: The limited company will have a separate legal identity to Dev
[1] (e) Advantages: Dev will have access to different forms of finance/increase in capital employed
[1] (e) Accept other valid responses Max (2)
[1] (e) Disadvantages: The limited company will have greater regulation than Dev as a sole trader
[1] (e) Disadvantages: The accounting requirements of the limited company will be more complex than for Dev as a sole trader
[1] (e) Disadvantages: The financial statements of the limited company may be viewed by the public unlike those of Dev as a sole trader
[1] (e) Accept other valid responses Max (2)
[1] (e) Recommendation

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