ASSESSMENT

Assessment



Assessment

MM's Hardware

Until recently, Maria Martinez has worked as a successful local 'handyman' for a number of years and has developed a loyal clientele. Unfortunately, she is now finding physical activity more difficult and recently decided to invest some of her savings in a new, small retail business which would take advantage of her valuable experience, contacts and knowledge. Two and a half months ago, on Tuesday 1 July 20X4, Maria opened to the public a small shop called 'MM's Hardware' which sells tools and home improvement hardware as well as hires tools out. Most of Maria's business has been for cash but she has given credit to a few customers she knows well. Maria has also taken advantage of the offer of credit from 2 wholesalers.

Maria is not computer literate and only keeps the minimum of financial records she thinks are needed to run her business and honour her legal responsibilities. She uses a small exercise book in the shop to record all financial transactions except for cash sales which are recorded on till slips generated by a cash register. On Saturdays after closing the shop, starting from the 12 July 20X4, Maria totals up the till slips (cash register receipts) for the week and deposits her week's cash received into her business bank account, ensuring she always retains a cash balance of £400 in the shop. Maria makes payments either by cash or by cheques drawn on her business bank account. She makes all her cash payments from her cash float as she does not keep a petty cash account.

Maria has a son, Ricardo, who has recently been awarded a Professional Certificate in Accounting from a leading UK university. Ricardo is about to start a training contract with an accounting practice in order to complete his professional qualification, but currently has time available to help his mother run her business. Ricardo has offered to produce double-entry bookkeeping records for Maria on Excel. He has convinced his mother of the importance of using double-entry bookkeeping in order to produce 'true and fair' accounts. Maria is aware that she only needs to provide accounts once a year for tax purposes but thinks it might be a good idea to produce final accounts for the first two months of her new business so that she can assess how MM's Hardware is progressing.

Ricardo has gone through all of Maria's records in fine detail and has produced the following list of the financial records of MM's Hardware for its first two months of trading.

Date

Accounting transactions

1.7.20X4

Opened business bank account and paid in £8,000 of own money.

Introduced £400 of own money as opening cash balance to be kept in the shop.

Introduced own second-hand tools into the business. Those tools with a cost value of £721 were allocated for hire, while those with a cost value of £600 were allocated as tools for resale.

Bought, by cheque, hardware for resale: £995.

Bought, by cash, stationery: ...