(a) The following trial balance was extracted from the books of M Jackson on 30 April 2007. From it, and the note below it, prepare his trading and profit and loss account for the year ending 30 April 2007, and a balance sheet as at that date.

Closing stock amounted to £4,000. Depreciation is to be charged at rates of 10% on cost for Fixtures and Fittings and 25% on cost for Motor Vehicles. Bad debts of £800 are to be written-off.

(b) Michael has indicated that he thinks that the debtor amounts that have been written-off will be paid eventually. He is also querying why adjustments are made in the financial statements for bad debts and depreciation. Write a short note to him, making appropriate references to accounting concepts, outlining why these adjustments are made.

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Dr Cr Sales 18,614 Purchases 11,570 Stock 1 May 2006 3,776 Carriage outwards 326 Carriage inwards 234 Returns inwards 440 Returns outwards 355 Salaries and wages 2,447 Motor expenses 664 Rent 576 Sundry expenses 1,202 Motor vehicles 3,400 Fixtures and fittings 600 Debtors 4,577 Creditors 3,045 Cash at bank 3,876 Cash in hand 120 Drawings 2,050 Capital 13,844 35,858 35,858