Although Janet Lambert has run a small business for many years, she has never kept adequate accounting records. However, a need to obtain a bank loan for the expansion of the business has necessitated the preparation of ‘final’ accounts for the year ended 31 August 2012. As a result, the following information has been obtained after much careful research: 1 Janet Lambert’s business assets and liabilities are as follows:

2 All takings have been banked after deducting the following payments:

Note: Takings have been the source of all amounts banked. 3 Bank payments during the year ended 31 August 2012 have been summarised as follows:

4 It has been established that a gross profit of 331 /3% on cost has been obtained on all goods sold. 5 Despite her apparent lack of precise accounting records, Janet Lambert is able to confirm that she has taken out of the business during the year under review goods for her own use costing £600. Required:

(a) Prepare a computation of total purchases for the year ending 31 August 2012.

(b) Prepare an income statement for the year ending 31 August 2012 and a statement of financial position as at that date, both in as much detail as possible.

(c) Explain why it is necessary to introduce accruals and prepayments into accounting.

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As at Inventory Accounts receivable for sales Accounts payable for purchases Rent prepaid Electricity accrued due Balance at bank Cash in hand 1 September 2011 8,600 3,900 7,400 300 210 2,300 360 31 August 2012 16,800 4,300 8,900 420 160 1,650 330