George and Val set up a company together to trade as decorators. George owns a three-year-old van which he puts into the company instead of cash for share capital. Val puts in €2000 in cash and they agree the van is worth €2000. They have no premises as such. Materials are stored in their home garage or left in the van. In the first month of business the following transactions take place:
(a) They get an order worth €600 to decorate a small flat. The customer pays €300 in advance.
(b) They buy materials worth €125 on credit from Cork Building Merchants which are used in this job.
(c) When the job is finished the customer pays a further €100 but says they will have to wait another month for the balance of €200.
(d) They get an order to decorate a large house for €1200 plus materials. They buy €270 of materials on credit from the same builders' merchants.
(e) At the end of the month they have done 80 per cent of the work on the house-painting order and they pay themselves €500 each as salary.
Prepare a spreadsheet to show the transactions and then draw up a statement of profit or loss for the month and a statement of financial position as at the end of the month.
Next month:
(f) They complete the house job and receive €1200 from the customer plus €270 for the materials.
(g) They get a job painting some shop premises - the price is €500 including materials. They buy materials on credit from the usual supplier for €80.
(h) They complete the job and receive €500 cash.
(i) The next contract is to decorate a flat and they agree to do the job for €800 plus materials. They obtain €180 of materials, but the supplier says that they must clear their outstanding account before he will release the goods. They pay what was due at the end of the previous month.
(j) The van breaks down and is repaired for €90 which is paid in cash.
(k) They complete the job and bill the customer for €980. The customer pays €600 and offers to pay the balance plus €20 interest if they will wait two months for it.
(l) They visit their first client because he hasn't paid the €200 outstanding, but he is not available and a neighbour tells them that he has just gone bankrupt.
(m) They do no further business that month and pay themselves €500 each as salary at the end of the month.
Update the spreadsheet and then draw up a statement of profit or loss for the month and a statement of financial position as at the end of the month.