Really stuck here and I know the answer must be so easy but I think i'm reading too much into it.
Question:
A sole trader just opened a small business and introduced second-hand tools into the business, the tools with a cost value of £800 are allocated for hire and the tools with a cost value of £700 are allocated as tools for resale.
Tools for hire are assets of the business although that all depends on the sort of lease agreement entered into (where does the risk and reward of ownership lie? Will the tools have any value at the end of the agreement? Does the person hiring the tools have a right to keep them at the end of the term or renew for a second period at minimum cost?).
Tools for resale go to inventory.
In both instances are you talking about cost or value??? Do you mean fair value?
Is this an exam question?
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks, it is an activity that I have to complete, I think it maybe need to go into the capital introduced and noted in the journal, hopefully unless anyone can correct me
Yes, the flip side of the transactions that I've already described in the capital account so the triple entry would be
Cr Capital account
Dr Inventory
Dr Non Current Assets
A triple entry is two double entries bolted together
You could also write them as
Cr Capital
Dr Inventory
Cr Capital
Dr Non Current Assets
Those probably won't be the right account names for your scenario. i.e. the inventory account may be called stock or a particular type of stock. The scenario is also likely to use a cost of sales account. all depends on the full wording of the complete scenario.
Sure that the above taken in conjunction with the full question and your prior learning will point you in the right direction.
Good luck,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The first one is correct, thats the double entry for the tools that are to be hired out.
No to the second one unless that is a badly named stock account, what are your other options for the debit side?
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thank you, so looks like the first one is ok on the hire of tools the second
tools with a cost value of £700 are allocated as tools for resale.
The only 2 options i seem to have on the debit side for the date in question is Capital (bank) and Capital ( Cash),
on the credit side for this is
Purchases of hardware
Postage, telephone & stationery
Purchases of tools
These are to be entered into the Books of Prime Entry and the entry goes into the cash books part. It doesn't seem to make sense as the only debit side is 2 capital entries
I can see completely why you are confused and its not your fault.
That is an awful question seemingly written either by someone who doesn't understand what they are writing or else someone trying to be clever rather than help the student.
They don't give you enough information on the accounts. i.e tools could be an asset or it could be an inventory item. It can only be one or the other, not both.
As Joanne says, what textbook are you using? Looking at that question it might be time to get a better book (I'm hoping now this isn't from one of the texts that I've previously recommended!).
If you are using a training provider then get them to give you more information about what those T accounts are (make them explain it so that they know that their question is sub standard).
As an aside the best of a bad bunch is Purchase of Tools which was your original idea so well done to you for going for that one but that doesn't get away from that not being the right phrasing of the question or options.
kindest regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Or - how about posting the actual page with the question on here as an attachment and we can have a look at it? Would really help us to help you if we know a bit more, Jo.
Lol Shaun - pretty sure it wont be from those books you recommended.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
