ACCOUNTING STARTER PACK

1. Assets – resources owned by the business; what the business OWNS

Example: Cash, Bank, Inventory, Equipment, Land, Premises, Trade Receivables

Non Current Assets

Non Currents assets are Long term assets. These assets bought to use in
business not for resale.

Current Assets
Currents assets are short term assets. These are the assets which are either in
the form of cash or which can be turned into cash relatively easily.

2. Liabilities – resources owed by the business; what the business OWES to

other people Example: Trade Payables, Bank Overdraft, Loan

Non Current Liabilities

Non Currents liabilities are Long term liabilities which will be repaid after one
year.

Current Liabilities
Currents liabilities are short term liabilities which will be paid by one year.

3. Owners Equity – resourced owed by the business; what the business

OWES to the owner of that business Note: Capital,Drawings, Profit.

Assets Liabilities Income Expense

Current assets Current Liabilities Sales (Revenue) Rent expense
Petty Cash Trade Payable Commission received Wages
Cash Other Payables Interest Received Commission expense
Bank Accrued Expenses Rent Received Interest expense
Trade Receivables Prepaid income Discount received Bad Debts expense
Other receivables Bank overdraft Salaries
Prepaid expense Loan Office expenses
Accrued Income Sundry expenses
Insurance expenses
Fixed/Non-current Non-current Motor vehicles
Assets Liabilities expense
Premises Long term loan Carriage inwards
Equipment Carriage outwards
Office equipment Discount allowed
Machinery General expense
Motor Vehicle Purchases

1
Question 1

List the groups of account.

Group of
Account

Question 2

Match a suitable definition for the account group.

Things that is valuable or useful own Liability

by company
The amount of money that a person or Owner Equity
company owes
The money that company spend on Assets
The money that a company receives Expenses
from its activities
The investment by owner in business Revenue

Question 3

Fill the blanks with group of account.

____________: what the company owns of value (e.g. cash, equipment)

____________: what the company owes to other (e.g. loans)

____________: that portion of the total assets that the owner or stockholder fully
own

____________: money the company earns from sales, and interest and
dividends on marketable securities

____________: money the company spends to produce goods or services (e.g.

utilities, office supplies)

2
Question 4

Here is a list of assets and liabilities and references to capital. Identify which
items are assets, liabilities, capital.

a) Vehicle Asset b) Inventory

c) Shop fittings d) Trade receivables

e) Cash at bank f) Bank overdraft

g) Bank loan h) Trade payables

i) Owner’s investment j) Machinery

in the business

k) Cash in hand l) Loan from a friend

m) Equipment n) Owner’s stake

business

o) Amounts owing to p) Amounts owed by

supplier customer

q) Furniture r) Cash at bank

s) Land t) Fittings

Question 5

Write a suitable group of account for the accounts below. Write

Assets, Liabilities, Owner Equity, Expenses or Revenue.

No Accounts Group
1 Premises
2 Purchases
3 Sales
4 Capital
5 Salary
Trade payable/ Trade
6 payable
7 Mortgage
8 Cash
9 Bank

3
10 Loan
11 Stationery
12 Trade receivables / Trade receivable
13 Machine
14 Furniture
15 Fixtures & fittings
16 Vehicle
17 Utility bills
18 Interest received
19 Commission received
20 Wages
21 Buildings
22 Insurance
23 Rent received
24 Postage
25 Carriage inwards
26 Land
27 Carriage outwards
28 Repair and maintenances expenses
29 Office equipment
30 Overdraft bank
31 Rent expenses
32 Drawings
33 Investment
34 Fixed deposits
35 Interest on investment
36 Interest on loan
37 Service revenue
38 Delivery van
39 Commission paid
40 Bank

4
Question 6
For each of the accounts below, indicate whether it is an asset, liability, expense,
revenue or owner`s equity type of account. There is only one correct answer in each
case. Mark your choice with a tick.

Account Asset Liability Expense Revenue Equity

    
Insurance
    
Bank Charges
    
Bank Loan
    
Telephones bills
    
Cleaning
    
Trade payable
    
Donations Received
    
Trade receivable
    
Depreciation
    
Electricity and Gas
    
Fixtures and Fittings at Cost
    
Fundraising Income
    
Interest Earned
    
Interest Paid
    
Motor Vehicles at Cost
    
Postage
    
Premises at Cost
    
Printing
    
Bad Debts
    
Purchases
    
Rent Received
    
Repair and Renewals
    
Salaries
    
Sales
    
Sponsorship Receipts
    
Stationery
    
Stock/ Inventory
    
Commision Received
Bank A/c     

5
Question 7

a) Which of the items in the following list are liabilities and which of them are
assets?
(a) Loan from A. Sangster (d) Bank overdraft
(b) We owe a supplier (e) Inventory of goods held for sale
(c) Equipment (f ) Loan to F. Wood

b) Classify the following items into liabilities and assets:

(a) Motor vehicles (f) Owing to bank

(b) Premises (g) Cash in hand
(c) Accounts payable (h) Loan from D. Jones
(d) Inventory (i) Machinery
(e) Accounts receivable

c) State which of the following are wrongly classified:

Assets Liabilities
Loan to C. Smith Delivery van
Mortgage on office building Accounts payable
Accounts receivable Office supplies
Warehouse Computer
Our business website Cash in hand

d) Which of the following are shown under the wrong headings?

Assets Liabilities
Cash at bank Loan from J. Graham
Fixtures Machinery
Accounts payable Motor vehicles
Building
Inventory

e) A business provided the following information.

Property 125,000 a) Calculate the value of the assets
Inventory 32,500
Trade payables 8,430 b) Calculate the value of the liabilities
Bank overdraft 2,200
Cash 125 c) Use the accounting equation to
Machinery 12,600 calculate the owner`s equity
Delivery van 5,800

6
 1. State the meaning of
(i) assets .................................................................................................................................
.....................................................................................................................................
(ii) liabilities .............................................................................................................................
...................................................................................................................................
(iii) capital .................................................................................................................................

......................................................................................................................................
12/O/N/18

2. State the meaning of owner’s equity.

.......................................................................................................................................

.......................................................................................................................................
11/O/N/17

3. Complete the table below using a tick (✓) to indicate if each item is an asset or a
liability. The first has been completed as an example.

Asset Liability
Inventory
Motor vehicle
Trade payables
Trade receivables
Bank loan
Cash
12/M/J/14
4. Complete the following table indicating with a tick (✓) whether each item is an asset,
liability, income or expense.

asset liability income expense

bank loan
insurance
equipment
depreciation charge

12/M/J/17

7
 1. Assets (what it owns)
2. Liabilities (what it owes to other)
3. Owner's Equity (the difference between assets and liabilities) – Capital

The accounting equation (or basic accounting equation) offer us a simple way to
understand how these three amounts relate to each other. The accounting
equation for a sole proprietorship is:

ASSET LIABILITIES

8
Fill the blanks

Question 1 Total Assets Total liabilities Capital

$ $ $
Business A 80 000 20 000 60 000
Business B 42 000 11 000 31 000
Business C 57 000 33 000 24 000
Business D 650 000 160 000 490 000
Business E 190 000 20 000 170 000
Business F 740 000 558 000 82 000

Question 2 Total Assets Total liabilities Capital

$ $ $
Business A 220 000 30 000 190 000
Business B 912 000 86 000 826 000
Business C 325 000 52 000 273 000
Business D 560 000 77 000 483 000
Business E 917 000 52 000 865 000
Business F 262 000 42 000 220 000

Total Assets Capital Total Liabilities

Question 3
A = C + L
$ $ $
1 Owner withdrew cheque $4000
for private use 36 000 26 000 10 000
2 Purchased new vehicle $16 000 52 000 26 000 26 000
on credit (+16 000) (+16 000)
3 Repaid $2000 of a loan from the 50 000 26 000 24 000
bank. The funds were taken from (- 2 000) (-2 000)
the business’s bank account
50 000
4 Purchased some machinery for (+7 000) 26 000 24 000
$7000 and paid by cheque
5 Paid Payable $5000 by cheque 45 000 26 000 19 000
6 Sold some equipment worth 45 000 26 000 19 000
(-3 000)
$3000 and received a cheque for (+3 000)
this amount

9
 Question 4

Complete the gaps in the following table:

Assets Liabilities Capital

a) 20,000 3,400 ?
b) 23,000 8,800 ?
c) 19,200 ? 3,200
d) 8,100 ? 6,500
e) ? 7,900 17,300
f) ? 18,500 51,900

Assets Liabilities Capital

a) 55,000 16,900 ?
b) ? 17,200 34,400
c) 36,100 ? 28,500
d) 119,500 15,400 ?
e) 88,000 ? 62,000
f) ? 49,000 110,000

Answer all the questions

1) The Basic accounting equation is

A) Asset=Expense +Income
B) Assets= Cash + Capital
C) Assets= Capital + Liabilities D)
Assets= Expenses + Capital

2) Find out the value of assets if: Liabilities$5000 and Capital$1000

A) $ 4000
B) $ 6000
C) $ 7000
D)$ 3000

3) Calculate the amount of cash if: Total assets$10,000 Total liabilities$10,000 Total
Capital$5000
A) $ 6000
B) $ 10,000
C) $ 5000
D) $ 1000

10
4) Capital increases if ______ increases
A) Expenses
B) Drawings
C) Interest on Drawings
D) Revenue

5) Capital of a business decreases if there is an increase in

A) Drawings
B) Income
C) Gains
D) Fresh capital

6) If the total liabilities of a business decrease by $ 5000 what will be the effect on
total asset? (assuming the amount of capital remain same)
A) Remain constant
B) Decrease by $5000
C) Increase by $5000
D) Increase by $10,000

7) If the business's owner withdraws cash for his/her private use what will be the
effect on capital?
A) Increase in capital
B) Remain the same
C) Decrease in capital
D) No effect on capital

8) Payment of expenses will ______ the assets

A) Increase
B) Reduce
C) apportion
D) Overstate

9) What is the accounting equation?

A) assets = capital – liabilities
B) capital = assets + liabilities
C) capital = assets – liabilities
D) liabilities = capital + assets

10) State the accounting equation.

..........................................................................................................................................

11/M/J/17

11
Exercise 1

1st Transaction Mr. Aamir started a business with 250000 cash

2nd Transaction He Purchased a building worth of 100000. He paid 50000 cash

3rd Transaction He gives services to a customer. The customer paid 25000 cash
and balance 20000 will pay later.

4th Transaction He Purchased Machine on Cash 75000

5th Transaction. He paid 50000 to Trade payable

Exercise 2
1. Mr. Waqar started a business with cash 500000

2. He purchased a building worth of 100000 on cash

3. He drawn 30000 for his personal use

4. He purchased a machine on credit worth of 100000

5. He paid 75000 to Trade payable

Exercise 3
Complete the table to state the effect of each of the following transactions made by Chung in April
2017. Where there is no effect write ‘No effect’. The first transaction has been completed as
an example.
Transaction Assets Liabilities Capital
$ $ $
Purchased goods on credit at a +500 +500 No effect
cost of $500
Sold goods on credit for $700 (cost
$400)
Paid Yang, a credit supplier, $2050
in full settlement of a debt of $2200
Purchased goods, $130, and paid
in cash
7110_s17_qp

12
Question:
Affleck`s Repair shop was started on May 1 by B. Affleck. A summary of May transaction
is presented below.
1. Invested RM10,000 cash to start the repair shop.
2. Purchased equipment for RM5,000 cash.
3. Paid RM400 cash for May office rent.
4. Paid RM500 cash for supplies.
5. Incurred RM250 of advertising cost in star paper on account.
6. Received RM4,100 in cash from customer for repair service.
7. Withdrew RM500 cash for personal use.
8. Paid part time employee salaries RM1,000
9. Paid utility bills RM140
10. Provided repair service on account to customer RM 850
11. Collected cash of RM120 for service billed in transaction (10).
Prepare a tabular analysis of the transaction, using the following column headings: Cash,
Accounts Receivable, Supplies, Equipment, Account Payable, and B. Affleck, Capital.

You may use this table to answer :-

Asset Liability Capital
cash Accounts Supplies Equipment Account B.Affleck,
No.
Receivable Payable Capital

13
 Double entry system of bookkeeping
means that every transaction has two
effects. (A giving and a receiving).
All transactions must have a debit and a
credit.

14
Question 1
The following table contains a list of some of the accounts. Complete the table by
indicating in which column the balance of each of the accounts should be shown.
Write ‘debit’ or ‘credit’ in the space provided.
No Accounts Group Debit / Credit
1. Premises
2. Purchases
3. Sales
4. Capital
5. Salary
6. Trade payable/ Creditor
7. Mortgage
8. Cash
9. Bank
10. Loan
11. Stationery
12. Trade receivables / Debtor
13. Machine
14. Furniture
15. Fixtures & fittings
16. Vehicle
17. Utility bills
18. Interest received
19. Commission received
20. Wages
21. Buildings
22. Insurance
23. Rent received
24. Postage
25. Carriage inwards
26. Land
27. Carriage outwards

15
 28. Repair and
maintenances expenses
29. Office equipment
30. Overdraft bank
31. Rent expenses
32. Drawings
33. Investment
34. Fixed deposits
35. Interest on investment
36. Interest on loan
37. Service revenue
38. Delivery van
39. Commission paid
40. Bank

Question 2

Complete the table below by stating which account should be debited and which
account credited for each of the transactions listed.

No. Transaction Debit Credit

a. Transferred business’s cash
to bank account
b. Owner withdrew cash for
personal use
c. Sold goods on credit
d. Received cash from a credit
customer
e. Sold some unwanted office
equipment for cash
f. A bank loan was arranged
and the funds were
transferred to the
business’s bank account
g. Purchased goods for resale
on credit

16
Question 3

Morad owns a retail business. He sells bicycles and cycling accessories. The
following transactions occurred during May:

Debit Credit
May 2 Purchased goods for resale on credit,
$17 400
6 Goods were sold for $8300 on credit

7 Morad withdrew a cheque for $750

for private use
8 Additional office furniture was
purchased for $1840; payment was
made by cheque
11 Rent was paid by cheque $840

13 Trade payables were paid $14 300

by cheque in part settlement of the
amount due
17 Goods were sold for $2930 and a
cheque for this amount was received
20 Morad repaid $1000 of the bank loan;
funds were transferred from the
business’s bank account
23 A cheque for $5800 was received
from credit customer in part
settlement of the amount due
25 Some unwanted office equipment was
sold for $250 and a cheque for this
amount was received

17
State the accounts to be debited and credited for the followings transaction
Question 4
Aug 1 Started the business with £7,400 cash
Debit _______________ Credit _______________
Aug 2 Paid £7,000 of the opening cash into a bank account
Debit _______________ Credit _______________
Aug 4 Bought goods on credit £410 from J.Watson
Debit _______________ Credit _______________
Aug 5 Bought a van by cheque £4,920
Debit _______________ Credit _______________
Aug 7 Bought goods for cash £362
Debit _______________ Credit _______________
Aug 10 Sold goods on credit £218 to L.Less
Debit _______________ Credit _______________
Aug 12 Returned goods to J.Watson £42
Debit _______________ Credit _______________
Aug 19 Sold goods on cash £54
Debit _______________ Credit _______________
Aug 22 Bought fixtures and fittings on credit from Firelights Ltd £820
Debit _______________ Credit _______________
Aug 24 F.Holmes lent us £1,500 paying us the money by cheque
Debit _______________ Credit _______________
Aug 29 We paid J.Watson his account by cheque £368
Debit _______________ Credit _______________
Aug 31 We paid Firelights Ltd by cheque £820
Debit _______________ Credit _______________

Question 5
July 1 Started a business with £20,000 in the bank
Debit _______________ Credit _______________
July2 D.Rupert lent us £5,000 in cash
Debit _______________ Credit _______________
July 3 Bought goods on credit from B.Brown £1,530 and I.Jess £4,162
Debit _______________ Credit _______________
July 4 Sold goods for cash £1,910
Debit _______________ Credit _______________

18
July 6 Took £200 cash and paid it in to the bank account
Debit _______________ Credit _______________
July 8 Sold goods on credit to H.Rise £1,530
Debit _______________ Credit _______________
July 10 Sold goods on credit to P.Taylor £341
Debit _______________ Credit _______________
July 11 Bought goods on credit from B.Brown £94
Debit _______________ Credit _______________
July 12 H.Rise returned goods to us
Debit _______________ Credit _______________
July 14 Sold goods on credit to G.Pate £535 and R.Sim £262
Debit _______________ Credit _______________
July 15 We retuned goods to B.Brown £94
Debit _______________ Credit _______________
July 17 Bought van on credit from Aberdeen card Ltd £9,100
Debit _______________ Credit _______________
July 18 Bought office furniture on credit from J.Winter Ltd £1,800
Debit _______________ Credit _______________
July 19 We returned goods to I.Jess for £130
Debit _______________ Credit _______________
July 20 We bought goods for cash £770
Debit _______________ Credit _______________
July 24 We sold goods for cash £110
Debit _______________ Credit _______________
July 25 Paid money owing to B.Brown by cheque £1,924
Debit _______________ Credit _______________
July 26 Goods returned to us by G.Pate £34
Debit _______________ Credit _______________
July 27 Returned some of the office furniture costing £180 to J.Winter Ltd
Debit _______________ Credit _______________
July 28 the owner put a further £2,500 into the business by cash
Debit _______________ Credit _______________
July 29 Paid Aberdeen Car Ltd £9,100 by cheque
Debit _______________ Credit _______________
July 31 Bought office furniture for cash £365
Debit _______________ Credit _______________

19
Question 6
Jan1 – Started business with £20,000 as cash
Debit _______________ Credit _______________
Jan2 – Bought goods on credit from T.Peter for £2,543
Debit _______________ Credit _______________
Jan5 – put £18,000 cash into a bank account
Debit _______________ Credit _______________
Jan7 – Bought goods on credit from J.Leigh for £349
Debit _______________ Credit _______________
Jan9 – Bought goods by cheque for £592
Debit _______________ Credit _______________
Jan16 – Sold goods on credit to P.Lamond for £210
Debit _______________ Credit _______________
Jan18 – Returned goods to T.Peter received £160
Debit _______________ Credit _______________
Jan24 – Bought stationary and paid £45 cash
Debit _______________ Credit _______________
Jan26 – Paid cheque to T.Peter for £2,383
Debit _______________ Credit _______________
Jan 27 – sold goods on credit to D.Gurkan for £1,008
Debit _______________ Credit _______________
Jan20 – P.Lamond returned goods to us, we give him £60
Debit _______________ Credit _______________
Jan31 – Bought a van on credit from Harper motor for £5,250
Debit _______________ Credit _______________

Question 7
1 July Started Business with £20,000 cash
Debit _______________ Credit _______________
1 July Opened a bank account and deposited £19,000 cash into the account
Debit _______________ Credit _______________
7 July Paid rent for premises, £500 by cheque
Debit _______________ Credit _______________
7 July Bought goods for resale and paid £3,000 by cheque

Debit _______________ Credit _______________

12 July Paid £2,000 cheque for a van
Debit _______________ Credit _______________

20
14 July Sold some inventory for £600 cash
Debit _______________ Credit _______________
24 July Bought fixtures and paid £800 cheque
Debit _______________ Credit _______________
28 July Paid for motor expenses £65 cash
Debit _______________ Credit _______________
30 July Sold goods for £2,000 cash and put the money into the bank.
Debit _______________ Credit _______________

Question 8
May1 – Bought goods on credit for £220 from D.Small
Debit _______________ Credit _______________
May2 – Bought goods on credit for £410 from A.Lyon & son
Debit _______________ Credit _______________
May5 – Sold goods on credit to D.Hughes for £60
Debit _______________ Credit _______________
May6 – Sold goods on credit to M.Spencer for £45
Debit _______________ Credit _______________
May10 – Returned £15 goods to D.Small
Debit _______________ Credit _______________
May11 – Goods sold for cash for £210
Debit _______________ Credit _______________
May12 – Goods bought for £150 cash
Debit _______________ Credit _______________
May19 – M.Spencer returned £16 goods to us
Debit _______________ Credit _______________
May21 – Sold £175 worth of goods
Debit _______________ Credit _______________
May22 – Paid £205 cash to D.Small
Debit _______________ Credit _______________
May30 – D.Hughes paid the amount owing by him £60 in cash
Debit _______________ Credit _______________

21
 Question 9
To Increase and Decrease the balance in the following accounts, would you Debit
the account or would you Credit the account? Tick ( / ) the correct answer.

Increase Decrease
No. Accounts Debit Credit Debit Credit
Trade payable/ Trade
1. payable

2. Cash

3. Bank

4. Trade receivable

5. Capital

6. Furniture

7. Insurance expenses

8. Commission received

9. Service revenue

10. Drawings

11. Office equipment

12. Delivery van

13. Transport expenses

14. Rent received

15. Interest expenses

16. Discount received

17. Loan

18. Purchases

19. Sales

20. Inventory

21. Premises

22
Question 10
Complete the table below.

No. Transaction Debit Credit

1. Brought in cash into business.

2. Bought goods by cash.

3. Sold goods and received cheque.

4. Bought a computer by credit from Kabali Ltd.

5. Received interest by cash.

6. Received commission by cheque.

7. Sold goods by credit to John.

8. Paid for advertising by cash.

9. Took cash for personal use.

10. Returns goods to trade payable.

11. Received defected goods from trade receivable.

12. Paid salary by cheque.

13. Apply a loan from HSBC bank and received.

14. Bought goods by credit.

15. Paid debts to trade payable.

16. Received cash from trade receivable.

17. Paid utility bills by cash.

18. Brought in furniture into a business.

19. Sold old furniture and received cash.

20. Bought an equipment and paid by cheque

23
Question 11a
Ajay began business.
2018
Jan 1 He opened a business bank account and invested $ 80 000 as capital.
1 He paid rent of premises, $ 400, by cheque
2 Fixtures and equipment costing $ 30 000 were bought and paid by cheque.
3 A short-term loan of $ 10 000 was received from AB Loans,
3 He paid insurance, $ 250, by cheque
5 A motor vehicle costing $ 9 000 was bought and paid by cheque.
5 He paid motor expenses, $50, by cheque
6 A long term-term loan of $ 5 000 was received from Bank.
7 Part of the premises were rented out to another business and a cheque
for $95 was received

Enter these transactions in Ajay’s ledger.

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
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.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

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Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
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 Date Details $ Date Details $
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.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

25
Question 11b
2018
Jan 21 Ajay sold goods, $ 245, on credit to Xavier Traders.
22 Xavier Traders returned damaged goods, $55, to Ajay.
23 Ajay purchased goods, $ 820, on credit from Varun.
25 Xavier Traders paid their account by cheque.
27 Ajay returned faulty goods, $ 44, to Varun.
30 Ajay gave Varun a cheque for $700 on account
Enter these transactions in Ajay’s ledger.

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
26
 Date Details $ Date Details $
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Question

27
Interpreting ledger accounts and their balances
Xavier Traders Account

Date Details F $ Date Details F $

2017 2017
Mar 1 Balance b/d 122 Mar 9 Cash 122
8 Sales 650 12 Returns 98
20 Sales 820 29 Bank 550
31 Balance c/d 822
1592 1592
Apr 1 Balance b/d 822

Explain each entry in the account of Xavier Traders and state where the double
entry for each item will be found
Date Explanation Double entry
Mar 1

12

20

29

31

28
 TRIAL BALANCE
List of the balances on the accounts in the ledger at certain date.

Purpose
1) The trial balance can help in locating arithmetical errors. however, the
balancing of the trial balance is not proof that the entries in the ledger
accounts are completely free from errors.
2) A trial balance is useful if preparing financial statements.

THE TRIAL BALANCE and ERRORS

1) Error of commission
A business transaction posted to wrong account of the right class ex: Credit sales
to Baker is posted to Bake accounts instead of Baker accounts.
2) Error of complete reversal
A debit entry posted on credit side and vice – versa.

3) Error of Omission
A business transaction is totally omitted from the books.

4) Error of Original Entry

A business transaction incorrectly recorded in the book of prime entry.

5) Error of Principle
A business transaction posted to wrong class of the account. Ex: Motor expenses
is debited to motor vehicles account instead of motor expenses account.
6) Compensating Errors
Two or more efforts that cancel each other out.

Complete the table below using a tick (/) to indicate if each error would affect the balancing of the
trial balance
Affects balancing of Does not affect
trial balance balancing of trial balance
Inventory, $160, at a customer’s premises at the year end
on a sale or return basis, had been forgotten and not
included in the financial statements.
The sales account had been under cast by $1000.
Goods, $250, taken by owner for her own use, had not
been recorded in the books of account.
A cheque from a Trade receivable, Alice, had been
credited to the account of Alicia.
A payment for vehicle repairs, $300, had been credited to
the vehicle repair account.

29
As the business grows, so does the number of ledger accounts, so it becomes
necessary to divide the ledger into different sections.

Division of the ledger into specialist Areas.

Dividing the ledger into section makes it more convenient to use as the same type
of accounts can be kept together and the task of maintaining the ledger can be
divided between several people (segregation of duties). The ledger is usually
divided into the following specialised areas:

SALES LEDGER - this is also referred to as the Trade Receivables ledger.

All the personal accounts of Trade Receivables are kept in
the sales ledger.

PURCHASES LEDGER - this is also referred to as the Trade Payables ledger. All
the personal accounts of Trade payables are kept in the
Purchases ledger.

NOMINAL LEDGER - this is also referred to as the General Ledger. Apart from
the cash account, the bank account and the accounts of
Trade Receivables and Trade Payables, all the remaining
accounts are kept in the nominal ledger. This ledger will
contain accounts of assets, liabilities, expenses, incomes,
sales, purchases and returns. Assets accounts are known as
REAL ACCOUNTS. Accounts for expenses, income and
capital are known as NOMINAL ACCOUNTS.

CASH BOOK - these contain the main cash book and the petty cash book

30
 CASH BOOK

Cash book is the only book of original entry which is given ruling in such a way
that it could act at the same time as a book of original entry and as a ledger account.
Format of a Bank Column Cash Book
Dr Cr

Date Particular Cash Bank Date Particular Cash Bank

(r) (r) (r) (r)

Trade Discount: It is an allowance or deduction given by the supplier to the

retailer on the catalogue price or list price.
It is given to encourage him to buy in bulk.
It is given so that retailer could make some profit.
Note: It is not recorded in the books either by the seller or the buyer.
Cash Discount: It is an allowance or deduction given by the receiver of cash to
the payer of cash for prompt payment.
It is of two types discount allowed and discount received.
It is given to encourage the payer to pay on or before the due date.
Note: This discount is recorded in the Cash Book. Discount allowed is
recorded at the debit side and discount received on the credit side.
1. Note: Discount columns are never balanced. It is just totalled.

Note: Every month the Total’s of discount allowed column is transferred to

debit side of Discount allowed account in General ledger and the total of
discount-received column is transferred to the credit side of Discount
received account in the General ledger.
2. Contra Entry: When a transaction effects both cash and bank accounts at
the same time, such entries are called as Contra Entries.

3. Dishonoured Cheques: Cheques that are returned (rejected) by the bank

are termed dishonoured cheques.
Cheques can become dishonoured for the following reasons:
 The drawer (payer) has insufficient funds in his account
 The cheque contains errors such as missing signature or wrong
amounts.

Illustration 1
31
Enter following transactions in the Bank column cash Book of M/s Tea Traders for April 2016

Date Details Amount ($)

2016
April 01 Commenced business with Cash 60,000
01 Opened Bank account with SBI 45,000
05 Purchased Goods by Cash 7,000
10 Purchased Office Machine for cash 5,000
15 Sold Goods on credit to Manjula 6,000
18 Cash Sales 10,000
22 Paid Wages by cheque 300
25 Cash withdrawn from Bank for personal use 3,000
30 Rent paid by Cheque 2,000

M/s Tea Traders

Cash Book
Date Details Cash Bank Date Details Cash Bank

32
Illustration 2

a) Prepare Bank Column Cash Book from the following information for December 2016

Date Details Amount ($)

2016
Dec 1 Cash in hand 10,500
1 Bank Overdraft 9,500
4 Paid Wages 400
6 Cash Sales 10,000
9 Cash deposited into Bank 5,000
13 Purchased Goods and paid by cheque 6,000
15 Cash deposited into Bank 4,000
18 Paid Trade Expenses by cheque 1,200
22 Rent paid 2,300
25 Received Cash from Rahul 1,500
27 Commission paid 2,000
29 Salary paid 3,500
31 Bought Goods by Cheque 3,000

b) Posting of Debit side of Bank column Cash Book

Sales Account

Date Particulars L.F Amount Date Particulars L.F Amount

(r) (r)

2006

Dec. 6 Cash 10,000

Rahul Account

Date Particulars L.F Amount Date Particulars L.F Amount

(r) (r)

2006

Dec. 25 Cash 1,500

33
(b) Posting of credit side of Bank column Cash Book
Purchases account
Date Particulars L.F Amount Date Particulars L.F Amount
(r) (r)

2006
Dec.13 Bank 6,000
Dec.31 Bank 3,000

Wages Account

Date Particulars L.F Amount Date Particulars L.F Amount

(r) (r)

2006

Dec. 4 Cash 400

Trade Expenses Account

Date Particulars L.F Amount Date Particulars L.F Amount
(r) (r)

2006
Dec.18 Bank 1,200

Commission Account
Date Particulars L.F Amount Date Particulars L.F Amount
(r) (r)

2006
Dec. 27 Cash 2,000

Salary Account

Date Particulars L.F Amount Date Particulars L.F Amount

(r) (r)

2006

Dec.29 Cash 3,500

Rent Account
Date Particulars L.F Amount Date Particulars L.F Amount
(r) (r)
2006

Dec. 22 Cash 2,300

34
Calculation of Cash Discount
If a sale (or purchase) took place on 1 june 2017 and the net invoice price (after
trade discount) is r 1 200 and the terms of accounts are ‘10% 7 days ; 5% 30
days’, the discount would be calculated as follows:
Term : ‘10% 7 days Term : 5% 30 days’
Discount:
Payment:

BANK OVERDRAFT

3 coloum cash BOOK

DISH cheque

35
 PETTY CASH BOOK
 The petty cash book is used to record low-value (petty) cash payments. These
may include postage and stationery, cleaning, travelling expenses, and even small
payments to Trade payables.

 Purpose of the petty cash book:

1. It list the transactions for transferring to ledger accounts
2. Acts as a ledger for petty cash transactions.

 Petty Cash Voucher is the document used in all petty cash transactions showing
the purpose for which the money is required, the date and the signature of the
person receiving cash.

 Imprest System of Petty Cash is the system of maintaining petty cash where the
petty cashier starts each period with a fixed amount of money known as the float
amount or imprest amount.

 A petty cash book is a book of prime entry and also a ledger.

 The totals of the expenses found in the petty cash book are posted to the nominal
ledgers of these expenses at the end of each period usually at the end of each
month.

Advantages Of Petty Cash Book:

1) The number of entries in the main cashbook is reduced.
2) The main cashier’s burden is reduced.
3) The chances of mistakes in recording is minimised.
4) Posting become more easy with the Total’s Analysis Columns.

Advantages of using Analysis columns:

It let us know the money spent on each different nature of small expense. The
double entry for each analysis column by transferring the totals of the analysis
columns to their respective accounts which are available in the General ledger.

Petty Cash Book (Format)

Date Particulars Folio Amount Date Particulars Voucher Amount Analysis of Payments
Received($) No, paid ($)

Postage General Travel Stationery Ledger

expenses Accounts

36
 Petty cash book
Date Details fo Total Date Details VO Total
received paid

Petty cash book

Date Details fo Total Date Details VO Total
received paid

37
Book of prime entry
- Also known as subsidiary book/ day book
- Type of book of prime entry
1. Cash book – record all cash/ cheque transaction
2. Petty cash book – record all petty/small cash transaction
3. Sales journal- record all credit sales of goods/ inventory only
4. Sales return journal – record all credit sales return of
goods/inventory only
5. Purchases journal- record all credit purchase of goods/ inventory
only
6. purchases return journal – record all credit purchase return of
goods/ inventory only
7. general journal- record other than above transaction
- Advantages of keeping BOPE
1. Simplifies and speeds up the process of recording transaction at the
end of each month, only total debits and total credit on each of
BOPE is transferred to correspond ledger account
2. It is easier to locate details about individual transaction according
to the type and the date they occurred.
3. It allows the delegation of work.

38
 BOOKS OF ORIGINAL ENTRIES

These are the books of first entry. The transactions are first recorded in these
books before being entered in the ledger books. These books are also called as
books of Prime entry or Subsidiary books. They are six in number.

1. Purchases Journal (or Purchases Book) used to record all credit purchases
of goods. It is written up from invoice.

2. Sales Journal (or Sales Book) is used to record all the credit sales of goods.
It is written up from the invoice.

3. Sales Returns Journal (or Return Inwards Book): It is used to record all
returns inwards. It is written up from the copies of the credit notes send to
customers.

4. Purchases Return Journal (or Returns Outwards Book): It is used to record

all purchases returns. It is written up from the credit notes received from the
suppliers.

5. General Journal (or Journal): This book is used to record all those items or
transactions that can not be recorded in any other book of original entry like
Correction of errors
Opening entries
Purchase or Sale of Assets on Credit etc.

6. Cash Book

Advantages of keeping books of original entry

• Accounts can be found more easily by the use of the cross referencing nature
of the books of original entry being kept.
• If records are lost then the ledgers and the books of original entry acts as a
backup for each other.
• Acts as a 'listing device' for posting totals to various accounts, thereby saving
labour.
• The commonly used books of original entry together with source document it
used to record transactions are:

39
Chapter 8
Question 1
Purchases Journal
Date Details Invoice No. r

PURCHASES LEDGER

GENERAL LEDGER

40
Question 2
Purchases Journal
Date Details Invoice No. r

PURCHASES LEDGER

GENERAL LEDGER

41
Question 3
Sales Journal
Date Details Invoice No. r

SALES LEDGER

GENERAL LEDGER

42
Question 4
Sales Journal
Date Details Invoice No. r

SALES LEDGER

GENERAL LEDGER

43
Question 5
FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE
Jan 12
Jan 19

FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE

Jan 9
Jan 18
Jan 27

Question 7
Purchases Journal
Date Details Invoice No. r

Sales Journal
Date Details Invoice No. r

44
Question 6
FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE
Oct 13
Oct 19
Oct 29

FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE

Oct 4

Question 8
Purchases Journal
Date Details Invoice No. r

Sales Journal
Date Details Invoice No. r

45
Question 9
FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE
Oct 12
Oct 18

FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE

Oct 7
Oct 26

Purchases Journal
Date Details Invoice No. r

Sales Journal
Date Details Invoice No. r

PURCHASES LEDGER

SALES LEDGER

46
GENERAL LEDGER

Question 10
FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE
June 5
June 19

FULL PRICE TRADE DISCOUNT NET AMOUNT CHARGE

June 8
June 23

Purchases Journal
Date Details Invoice No. r

Sales Journal
Date Details Invoice No. r

47
PURCHASES LEDGER

SALES LEDGER

GENERAL LEDGER

48
Question 11
Purchases Journal
Date Details Invoice No. r

Sales Journal
Date Details Invoice No. r

PURCHASES LEDGER

SALES LEDGER

GENERAL LEDGER
Capital Account

49
Bank Account

50
Trial balance as at 31 May 2014
Dr ($) Cr ($)

428 050 428 050

51
Question 12
Purchases Journal
Date Details Invoice No. $

Sales Journal
Date Details Invoice No. $

PURCHASES LEDGER

SALES LEDGER

GENERAL LEDGER
Capital Account

52
Bank Account

53
Trial balance as at 31 May 2014
Dr ($) Cr ($)

1 426 975 1 426 975

54
Chapter 9
Question 1

Purchases Return Journal

Date Details Credit note No. $

PURCHASES LEDGER

GENERAL LEDGER

55
Question 2

Purchases Return Journal

Date Details Credit note No. $

PURCHASES LEDGER

GENERAL LEDGER

56
Question 3

Sales Return Journal

Date Details Credit note No. $

SALES LEDGER

GENERAL LEDGER

57
Question 4

Sales Return Journal

Date Details Credit note No. $

SALES LEDGER

GENERAL LEDGER

58
Question 5

__________________ Journal
Date Details Invoice No. $

__________________ Journal
Date Details Invoice No. $

__________________ Journal
Date Details Credit note No. $

__________________ Journal
Date Details Credit note No. $

59
Question 6

__________________ Journal
Date Details Invoice No. $

__________________ Journal
Date Details Invoice No. $

__________________ Journal
Date Details Credit note No. $

__________________ Journal
Date Details Credit note No. $

60
Question 7

__________________ Journal
Date Details Invoice No. $

__________________ Journal
Date Details Invoice No. $

__________________ Journal
Date Details Credit note No. $

__________________ Journal
Date Details Credit note No. $

PURCHASES LEDGER

61
SALES LEDGER

GENERAL LEDGER

Bank Account

62
63
Trial balance as a
Dr (r) Cr (r)

64
Question 8

__________________ Journal
Date Details Invoice No. r

__________________ Journal
Date Details Invoice No. r

__________________ Journal
Date Details Invoice No. r

__________________ Journal
Date Details Invoice No. r

PURCHASES LEDGER

65
SALES LEDGER

GENERAL LEDGER

Bank Account

66
67
Trial balance as at 31 Oct 2014
Dr (r) Cr (r)

662 810 662 810

68
Bookkeeping:

The detailed recording of all the financial transactions of business is

known as bookkeeping.

Accounting:

Is using book-keeping records to prepare financial statements and to assist

in decision-making .

Double entry bookkeeping:

Is the detailed recording of all the financial transaction of a business.

Trading and profit and loss account/ Income statements:

The aim of the business is to make a profit. A Trading and Profit and loss Account
is prepared which shows the calculation of the profit or loss earned by the
business.

Statement of Financial Position:

The owner of a business needs to know the financial position of the business, so a
Balance sheet is prepared. This summarizes the position of a business (Assets and
Liabilities), in monetary terms on a certain date.

Financial statements : Purpose of financial statements:

1. .

2.

69
8.1 Introduction – Financial Statements part A
1. An income statements which consist of two sections;
a. A trading section in which the __________________of the business is
calculated.
b. A profit and loss section in which the ________________ of the
business is calculated.
 Trading section and profit and loss section of the income statements are part
of the double entry system.
2. A Statements of financial positions shows the assets and liabilities of the
business at a certain date.
 Statements of financial positions is not part of the double entry system.

IS SOFP SOFP

8.2 Trading section of the income statements

The trading section is concerned with buying and selling. To calculate GROSS PROFIT.

The formula for calculating gross profit is:

Gross Profit = Selling price of goods Cost of sales

Selling price =

Cost of sales =

Net Purchases =

Horizontal format:

70
 Vertical format

8.3 Profit and loss section of the income statements

The profit and loss section of an income statements is concerned with profits
and loses, gains and expenses. To calculate profit for the year
The formula for calculating profit for the year is:
Profit/loses for the year =
Horizontal format:

Vertical format

71
FULL INCOME STATEMENT

72
8.4 Transferring ledger account totals to the income statements
All the expenses and income account will be closed on last day of accounting
year and transfer to Income Statement.

Purchases Account
2018 2018
Jan 31 Total to date 50 000

Purchases Return Account

2018 2018
Jan 31 Total to date 300

Wages Account
2018 2018
Jan 31 Total to date 2 800

Closing inventory is $ 500

Inventory Account
2018 2018
Jan 1 Total to date 8 00

Drawing account will be closed on last day of accounting year and transfer to Capital
account

Drawings Account
2018 2018
Jan 31 Total to date 1 800

Capital Account
2018 2018
Jan 31 Balance b/d 20 000
Profit 3 200

73
8.5 Income statements of service business

A service business is one which does not buy and sells goods, such as an accountant,
an insurance company, a travel agents and so on. A service business`s income
statement doesn’t have trading account section as no goods are bought and sold. Only
the profit and loss section of the income statements and statements of financial
position are prepared.

Horizontal format:

Vertical format

74
 9.1 Introduction – Financial Statements Part B
A Statement of Financial Position shows the assets of a business and the liabilities
of a business on a certain date.

9.2 Assets
Assets are divided into two types. These are:

1. Non – Currents Assets

a) Tangible Non-Current Assets
Tangible non-current assets are long term assets which are obtained for use rather
that for resale. They help the business earn revenue.
In a statements of financial position, it is usual for the Non-current assets to be
arranged in increasing order of liquidity. This means that the most permanent assets
are shown first.
A Typical order for showing tangible non-current assets in a statement of financial
position to follows:
Land and buildings
Machinery
Fixtures and equipment
Motor vehicles

b) Intangible Non-Current Assets

Intangible non-current assets are long term assets which do not have material
substance. Such as goodwill, brand names and trademarks.

2. Current Assets
Currents assets are short term assets. These are the assets which are either in the
form of cash or which can be turned into cash relatively easily.

In a statements of financial position, it is usual for the current assets to be arranged

in increasing order of liquidity. This means that the assets furthest away from cash
are shown first.

A Typical order for showing tangible current assets in a statement of financial

position to follows:
Inventory
Trade Receivables
Bank
Cash

9.3 Liabilities
Liabilities are divided into three types. These are:

1. Capital - Capital represents the owner`s investments in the business and is the
amount owed by the business to the owner.
2. Non-current liabilities – are amounts owed by the business which are not due for
repayments within the next 12 months

75
3. Current liabilities – are short term liabilities
Horizontal format:

Vertical format

76
INCOME STATEMENTS

77
CHP 9 QUESTION 9

CHP 9 QUESTION 10

78
Statements of Financial Position

79
CHP 9 QUESTION 9

CHP 9 QUESTION 10

80
81