Ghani is preparing his financial statements. He provided the following information. 1 April 2013 Balances b/d Insurance $500 Dr Commission receivable $250 Cr Cash book entries 1 April 2013 to 31 March 2014: Insurance paid by cheque $4000 Commission received by cheque $1200 On 31 March 2014: 1 Insurance of $150 was prepaid 2 Commission receivable of $200 was due to Ghani. REQUIRED

1. (a)Prepare the following ledger accounts, for the year ended 31 March 2014, showing the transfer to the income statement. Balance the accounts and bring down the balances. Insurance account Date Details $ Date Details $ Commission receivable account Date Details $ Date Details $ [8]
2. (b)On reviewing his purchases account, Ghani found the following errors. 1 Goods purchased for cash, $450, had not been recorded in the books. 2 Goods purchased on credit from C Maxley, $950, had been recorded in the books as $590. 3 A purchase of a motor vehicle, $6000, had been recorded in the purchases account. 4 Goods purchased from Y Li, $820, had been credited to the purchases account and debited to Y Li's account. REQUIRED Prepare journal entries to correct the errors in 1 to 4 above. Narratives are not required. Journal Dr Cr $ $ [6]
3. (c)Complete the table below naming the type of error and the effect on the gross profit of correcting the error. The first item has been completed as an example. Type of error Effect on gross profit 1 Goods purchased for cash, $450, had not been recorded in the books. Omission Decrease $450 2 Goods purchased on credit from C Maxley, $950, had been recorded in the books as $590. 3 A purchase of a motor vehicle, $6000, had been recorded in the purchases account. 4 Goods purchased from Y Li, $820, had been credited to the purchases account and debited to Y Li's account. [6]