/ IGCSE

Accounting Notes
Subject Code: (O Level – 7707) / (IGCSE – 0452)
Article No. 104
2020 Edition

Muhammad Nauman Malik

FCMA, MS Accounting (Gold Medalist), MBA (Finance), PIPFA, DCMA,
B.Com (Gold Medalist)
Keynesian Institute of Management & Sciences (KIMS)

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Title Accounting Notes O Level / IGCSE

Author Muhammad Nauman Malik
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 CONTENTS
CHAPTER 1 ACCOUNTING BASICS 10
QUESTION 1 ................................................................................................................................... 10
QUESTION 2 ................................................................................................................................... 10
QUESTION 3 ................................................................................................................................... 10
QUESTION 4 ................................................................................................................................... 10
QUESTION 5 ................................................................................................................................... 11
QUESTION 6 ................................................................................................................................... 11
QUESTION 7 ................................................................................................................................... 11
QUESTION 8 ................................................................................................................................... 11
QUESTION 9 ................................................................................................................................... 11
QUESTION 10 ................................................................................................................................. 11
QUESTION 11 ................................................................................................................................. 12
QUESTION 12 ................................................................................................................................. 12
QUESTION 13 ................................................................................................................................. 12
QUESTION 14 ................................................................................................................................. 13
QUESTION 15 ................................................................................................................................. 13
QUESTION 16 ................................................................................................................................. 13
QUESTION 17 ................................................................................................................................. 13
QUESTION 18 ................................................................................................................................. 14
CHAPTER 2 BOOKS OF ORIGINAL ENTRY 15
QUESTION 1 ................................................................................................................................... 15
QUESTION 2 ................................................................................................................................... 15
QUESTION 3 ................................................................................................................................... 16
QUESTION 4 ................................................................................................................................... 16
QUESTION 5 ................................................................................................................................... 16
QUESTION 6 ................................................................................................................................... 17
QUESTION 7 ................................................................................................................................... 17
QUESTION 8 ................................................................................................................................... 17
QUESTION 9 ................................................................................................................................... 18
QUESTION 10 ................................................................................................................................. 18
QUESTION 11 ................................................................................................................................. 18
QUESTION 12 ................................................................................................................................. 18
QUESTION 13 ................................................................................................................................. 18
QUESTION 14 ................................................................................................................................. 18
QUESTION 15 ................................................................................................................................. 19
QUESTION 16 ................................................................................................................................. 19
QUESTION 17 ................................................................................................................................. 19
QUESTION 18 ................................................................................................................................. 20
QUESTION 19 ................................................................................................................................. 20
CHAPTER 3 BANK RECONCILIATION STATEMENTS 23
QUESTION 1 ................................................................................................................................... 23
QUESTION 2 ................................................................................................................................... 23
QUESTION 3 ................................................................................................................................... 23
QUESTION 4 ................................................................................................................................... 23
QUESTION 5 ................................................................................................................................... 23
QUESTION 6 ................................................................................................................................... 24
QUESTION 7 ................................................................................................................................... 24
 QUESTION 8 ................................................................................................................................... 25
QUESTION 9 ................................................................................................................................... 25
QUESTION 10 ................................................................................................................................. 25
QUESTION 11 ................................................................................................................................. 26
QUESTION 12 ................................................................................................................................. 26
QUESTION 13 ................................................................................................................................. 26
QUESTION 14 ................................................................................................................................. 26
QUESTION 15 ................................................................................................................................. 26
QUESTION 16 ................................................................................................................................. 27
QUESTION 17 ................................................................................................................................. 27
QUESTION 18 ................................................................................................................................. 27
CHAPTER 4 ACCOUNTING FOR NON CURRENT ASSETS 28
QUESTION 1 ................................................................................................................................... 28
QUESTION 2 ................................................................................................................................... 28
QUESTION 3 ................................................................................................................................... 28
QUESTION 4 ................................................................................................................................... 29
QUESTION 5 ................................................................................................................................... 29
QUESTION 6 ................................................................................................................................... 29
QUESTION 7 ................................................................................................................................... 30
QUESTION 8 ................................................................................................................................... 30
QUESTION 9 ................................................................................................................................... 31
QUESTION 10 ................................................................................................................................. 31
QUESTION 11 ................................................................................................................................. 33
QUESTION 12 ................................................................................................................................. 33
QUESTION 13 ................................................................................................................................. 34
QUESTION 14 ................................................................................................................................. 34
QUESTION 15 ................................................................................................................................. 34
QUESTION 16 ................................................................................................................................. 34
QUESTION 17 ................................................................................................................................. 35
QUESTION 18 ................................................................................................................................. 35
QUESTION 19 ................................................................................................................................. 36
QUESTION 20 ................................................................................................................................. 36
QUESTION 21 ................................................................................................................................. 36
QUESTION 22 ................................................................................................................................. 37
QUESTION 23 ................................................................................................................................. 37
QUESTION 24 ................................................................................................................................. 37
CHAPTER 5 BAD AND DOUDTFUL DEBTS 40
QUESTION 1 ................................................................................................................................... 40
QUESTION 2 ................................................................................................................................... 40
QUESTION 3 ................................................................................................................................... 40
QUESTION 4 ................................................................................................................................... 40
QUESTION 5 ................................................................................................................................... 41
QUESTION 6 ................................................................................................................................... 41
QUESTION 7 ................................................................................................................................... 41
QUESTION 8 ................................................................................................................................... 41
QUESTION 9 ................................................................................................................................... 42
QUESTION 10 ................................................................................................................................. 43
QUESTION 11 ................................................................................................................................. 43
QUESTION 12 ................................................................................................................................. 43
QUESTION 13 ................................................................................................................................. 44
QUESTION 14 ................................................................................................................................. 44
CHAPTER 6 FINANCIAL STATEMENTS OF SOLE TRADERS 46
QUESTION 1 ................................................................................................................................... 46
QUESTION 2 ................................................................................................................................... 46
QUESTION 3 ................................................................................................................................... 46
QUESTION 4 ................................................................................................................................... 47
QUESTION 5 ................................................................................................................................... 47
QUESTION 6 ................................................................................................................................... 47
QUESTION 7 ................................................................................................................................... 47
QUESTION 8 ................................................................................................................................... 48
QUESTION 9 ................................................................................................................................... 48
QUESTION 10 ................................................................................................................................. 48
QUESTION 11 ................................................................................................................................. 48
QUESTION 12 ................................................................................................................................. 48
QUESTION 13 ................................................................................................................................. 48
QUESTION 14 ................................................................................................................................. 49
QUESTION 15 ................................................................................................................................. 49
QUESTION 16 ................................................................................................................................. 49
QUESTION 17 ................................................................................................................................. 49
QUESTION 18 ................................................................................................................................. 49
QUESTION 19 ................................................................................................................................. 50
QUESTION 20 ................................................................................................................................. 50
QUESTION 21 ................................................................................................................................. 50
QUESTION 22 ................................................................................................................................. 50
QUESTION 23 ................................................................................................................................. 51
QUESTION 24 ................................................................................................................................. 51
QUESTION 25 ................................................................................................................................. 52
QUESTION 26 ................................................................................................................................. 52
QUESTION 27 ................................................................................................................................. 52
QUESTION 28 ................................................................................................................................. 53
QUESTION 29 ................................................................................................................................. 53
QUESTION 30 ................................................................................................................................. 54
CHAPTER 7 PARTNERSHIP ACCOUNTS 57
QUESTION 1 ................................................................................................................................... 57
QUESTION 2 ................................................................................................................................... 57
QUESTION 3 ................................................................................................................................... 58
QUESTION 4 ................................................................................................................................... 59
QUESTION 5 ................................................................................................................................... 59
QUESTION 6 ................................................................................................................................... 60
QUESTION 7 ................................................................................................................................... 60
QUESTION 8 ................................................................................................................................... 61
QUESTION 9 ................................................................................................................................... 61
QUESTION 10 ................................................................................................................................. 61
QUESTION 11 ................................................................................................................................. 61
QUESTION 12 ................................................................................................................................. 61
QUESTION 13 ................................................................................................................................. 62
QUESTION 14 ................................................................................................................................. 62
QUESTION 15 ................................................................................................................................. 62
QUESTION 16 ................................................................................................................................. 63
QUESTION 17 ................................................................................................................................. 63
QUESTION 18 ................................................................................................................................. 64
QUESTION 19 ................................................................................................................................. 64
 QUESTION 20 ................................................................................................................................. 64
CHAPTER 8 CAPITAL & REVENUE 68
QUESTION 1 ................................................................................................................................... 68
QUESTION 2 ................................................................................................................................... 68
QUESTION 3 ................................................................................................................................... 68
QUESTION 4 ................................................................................................................................... 69
QUESTION 5 ................................................................................................................................... 69
QUESTION 6 ................................................................................................................................... 69
CHAPTER 9 CORRECTION OF ERRORS 71
QUESTION 1 ................................................................................................................................... 71
QUESTION 2 ................................................................................................................................... 71
QUESTION 3 ................................................................................................................................... 71
QUESTION 4 ................................................................................................................................... 72
QUESTION 5 ................................................................................................................................... 73
QUESTION 6 ................................................................................................................................... 73
QUESTION 7 ................................................................................................................................... 74
QUESTION 8 ................................................................................................................................... 74
QUESTION 9 ................................................................................................................................... 74
CHAPTER 10 CONTROL ACCOUNTS 75
QUESTION 1 ................................................................................................................................... 75
QUESTION 2 ................................................................................................................................... 75
QUESTION 3 ................................................................................................................................... 75
QUESTION 4 ................................................................................................................................... 75
QUESTION 5 ................................................................................................................................... 76
QUESTION 6 ................................................................................................................................... 76
QUESTION 7 ................................................................................................................................... 77
QUESTION 8 ................................................................................................................................... 77
QUESTION 9 ................................................................................................................................... 77
QUESTION 10 ................................................................................................................................. 78
QUESTION 11 ................................................................................................................................. 79
QUESTION 12 ................................................................................................................................. 79
CHAPTER 11 ACCOUNTS FROM INCOMPLETE RECORDS 81
QUESTION 1 ................................................................................................................................... 81
QUESTION 2 ................................................................................................................................... 81
QUESTION 3 ................................................................................................................................... 82
CHAPTER 12 ACCOUNTS OF NON PROFIT ORGANISATIONS 84
QUESTION 1 ................................................................................................................................... 84
QUESTION 2 ................................................................................................................................... 84
QUESTION 3 ................................................................................................................................... 85
QUESTION 4 ................................................................................................................................... 85
QUESTION 5 ................................................................................................................................... 85
QUESTION 6 ................................................................................................................................... 85
QUESTION 7 ................................................................................................................................... 86
QUESTION 8 ................................................................................................................................... 86
QUESTION 9 ................................................................................................................................... 86
QUESTION 10 ................................................................................................................................. 86
QUESTION 11 ................................................................................................................................. 86
QUESTION 12 ................................................................................................................................. 87
CHAPTER 13 MANUFACTURING ACCOUNTS 89
QUESTION 1 ................................................................................................................................... 89
QUESTION 2 ................................................................................................................................... 89
QUESTION 3 ................................................................................................................................... 89
QUESTION 4 ................................................................................................................................... 90
QUESTION 5 ................................................................................................................................... 90
QUESTION 6 ................................................................................................................................... 90
QUESTION 7 ................................................................................................................................... 90
QUESTION 8 ................................................................................................................................... 90
QUESTION 9 ................................................................................................................................... 91
QUESTION 10 ................................................................................................................................. 91
QUESTION 11 ................................................................................................................................. 91
QUESTION 12 ................................................................................................................................. 92
QUESTION 13 ................................................................................................................................. 92
QUESTION 14 ................................................................................................................................. 92
QUESTION 15 ................................................................................................................................. 93
CHAPTER 14 COMPANY ACCOUNTS 94
QUESTION 1 ................................................................................................................................... 94
QUESTION 2 ................................................................................................................................... 95
QUESTION 3 ................................................................................................................................... 95
QUESTION 4 ................................................................................................................................... 95
QUESTION 5 ................................................................................................................................... 95
QUESTION 6 ................................................................................................................................... 97
QUESTION 7 ................................................................................................................................... 98
QUESTION 8 ................................................................................................................................... 98
QUESTION 9 ................................................................................................................................... 99
QUESTION 10 ................................................................................................................................100
QUESTION 11 ................................................................................................................................100
QUESTION 12 ................................................................................................................................100
QUESTION 13 ................................................................................................................................100
QUESTION 14 ................................................................................................................................101
QUESTION 15 ................................................................................................................................101
QUESTION 16 ................................................................................................................................101
QUESTION 17 ................................................................................................................................101
QUESTION 18 ................................................................................................................................102
QUESTION 19 ................................................................................................................................102
QUESTION 20 ................................................................................................................................102
QUESTION 21 ................................................................................................................................102
QUESTION 22 ................................................................................................................................103
QUESTION 23 ................................................................................................................................103
QUESTION 24 ................................................................................................................................103
QUESTION 25 ................................................................................................................................103
QUESTION 26 ................................................................................................................................104
CHAPTER 15 RATIO ANALYSIS 108
QUESTION 1 ..................................................................................................................................108
QUESTION 2 ..................................................................................................................................108
QUESTION 3 ..................................................................................................................................108
QUESTION 4 ..................................................................................................................................108
QUESTION 5 ..................................................................................................................................109
QUESTION 6 ..................................................................................................................................109
QUESTION 7 ..................................................................................................................................109
QUESTION 8 ..................................................................................................................................109
QUESTION 9 ..................................................................................................................................110
QUESTION 10 ................................................................................................................................110
QUESTION 11 ................................................................................................................................111
QUESTION 12 ................................................................................................................................111
QUESTION 13 ................................................................................................................................111
QUESTION 14 ................................................................................................................................112
QUESTION 15 ................................................................................................................................112
QUESTION 16 ................................................................................................................................112
QUESTION 17 ................................................................................................................................113
QUESTION 18 ................................................................................................................................113
QUESTION 19 ................................................................................................................................113
QUESTION 20 ................................................................................................................................114
QUESTION 21 ................................................................................................................................114
QUESTION 22 ................................................................................................................................114
QUESTION 23 ................................................................................................................................115
QUESTION 24 ................................................................................................................................115
QUESTION 25 ................................................................................................................................115
QUESTION 26 ................................................................................................................................115
QUESTION 27 ................................................................................................................................116
QUESTION 28 ................................................................................................................................116
QUESTION 29 ................................................................................................................................117
QUESTION 30 ................................................................................................................................117
QUESTION 31 ................................................................................................................................118
QUESTION 32 ................................................................................................................................118
QUESTION 33 ................................................................................................................................118
QUESTION 34 ................................................................................................................................119
QUESTION 35 ................................................................................................................................119
QUESTION 36 ................................................................................................................................120
QUESTION 37 ................................................................................................................................120
QUESTION 38 ................................................................................................................................121
QUESTION 39 ................................................................................................................................121
QUESTION 40 ................................................................................................................................121
QUESTION 41 ................................................................................................................................121
QUESTION 42 ................................................................................................................................122
QUESTION 43 ................................................................................................................................122
QUESTION 44 ................................................................................................................................122
QUESTION 45 ................................................................................................................................123
QUESTION 46 ................................................................................................................................123
QUESTION 47 ................................................................................................................................123
QUESTION 48 ................................................................................................................................124
QUESTION 49 ................................................................................................................................124
QUESTION 50 ................................................................................................................................124
QUESTION 51 ................................................................................................................................124
QUESTION 52 ................................................................................................................................125
QUESTION 53 ................................................................................................................................125
QUESTION 54 ................................................................................................................................125
QUESTION 55 ................................................................................................................................126
QUESTION 56 ................................................................................................................................126
QUESTION 57 ................................................................................................................................126
QUESTION 58 ................................................................................................................................126
QUESTION 59 ................................................................................................................................127
 QUESTION 60 ................................................................................................................................127
QUESTION 61 ................................................................................................................................128
QUESTION 62 ................................................................................................................................129
CHAPTER 16 ACCOUNTING CONCEPTS 132
QUESTION 1 ..................................................................................................................................132
QUESTION 2 ..................................................................................................................................132
QUESTION 3 ..................................................................................................................................132
QUESTION 4 ..................................................................................................................................132
QUESTION 5 ..................................................................................................................................133
QUESTION 6 ..................................................................................................................................133
QUESTION 7 ..................................................................................................................................133
QUESTION 8 ..................................................................................................................................133
QUESTION 9 ..................................................................................................................................133
QUESTION 10 ................................................................................................................................134
QUESTION 11 ................................................................................................................................134
QUESTION 12 ................................................................................................................................134
QUESTION 13 ................................................................................................................................134
QUESTION 14 ................................................................................................................................135
QUESTION 15 ................................................................................................................................135
QUESTION 16 ................................................................................................................................135
QUESTION 17 ................................................................................................................................136
QUESTION 18 ................................................................................................................................136
QUESTION 19 ................................................................................................................................136
QUESTION 20 ................................................................................................................................136
QUESTION 21 ................................................................................................................................137
QUESTION 22 ................................................................................................................................139
QUESTION 23 ................................................................................................................................139
QUESTION 24 ................................................................................................................................140
QUESTION 25 ................................................................................................................................140
QUESTION 26 ................................................................................................................................141
QUESTION 27 ................................................................................................................................142
QUESTION 28 ................................................................................................................................143
QUESTION 29 ................................................................................................................................143
QUESTION 30 ................................................................................................................................143
QUESTION 31 ................................................................................................................................143
QUESTION 32 ................................................................................................................................143
CHAPTER 17 COMMAND WORDS 145
CHAPTER 18 INTERNATIONAL STANDARDS – TERMINOLOGY 146
Chapter 1 10 Accounting Basics
Read & Write Publications

CHAPTER 1 ACCOUNTING BASICS

QUESTION 1
Explain the meanings of ‘asset’ [2]
IGCSE May 14 P12 Q2 (a), IGCSE Mar 15 P12 Q2 (a), IGCSE May 15 P12 Q2 (b), IGCSE Nov
16 P12 Q3 (a), IGCSE May 17 P11 Q2 (b)
SOLUTION
Mark Scheme
Asset is something which the business owns or something which is owed to the business (1)

QUESTION 2
Define a non-current asset. [1]
IGCSE Mar 17 P22 Q2 [a (iii)]
SOLUTION
Mark Scheme
Assets which are purchased for use not for resale
Assets whose values do not fluctuate frequently
Assets which will be kept by the business for more than 12 months
Assets which are acquired to aid the business earn revenue
Any two statements (1) each

QUESTION 3
State the difference between a non-current asset and a current asset. [2]
OL Nov 96 P1 Q7 (b), IGCSE Nov 16 P12 Q3 (b)
SOLUTION
Mark Scheme
Non-current asset – any reasonable definition (1) eg an item held for more than 12 months, an
item which is not for resale.
Current asset – any reasonable definition (1) eg short term, an item which can be turned into
cash quickly.
TEACHER’S SOLUTION
(i) Non-current assets are acquired for use within the business whereas current assets may
be acquired for resale purposes (e.g. inventory of goods)

(ii) Non-current assets are expected to be held within the business for a period more than
one year whereas current assets are either cash or expected to be converted into cash
within one accounting period.

(iii) Non-current assets as held for more than one year, so are subject to depreciation whereas
current assets are not.

QUESTION 4
State what is meant by a liability. Give one example of a liability. [2]
IGCSE May 14 P12 Q2 (a), IGCSE Nov 16 P12 Q3 (c), IGCSE Nov 16 P13 Q2 (b), IGCSE
May 17 P11 Q2 (b)
SOLUTION
Mark Scheme
Liability is something which a business owes to a third party (1)
Chapter 1 11 Accounting Basics
Read & Write Publications

QUESTION 5
Define a non-current liability. [1]
IGCSE Mar 17 P22 Q2 [a (iv)]
SOLUTION
Mark Scheme
Liabilities which are not due for repayment within 12 months

QUESTION 6
State the difference between a non-current liability and a current liability. [2]
IGCSE Nov 16 P12 Q3 (d)
SOLUTION
Mark Scheme
Non-current liability
Any reasonable definition (1) e.g. long term debt
Current liability
Any reasonable definition (1) e.g. an amount owed to be paid within a year

QUESTION 7
Define capital. [1]
IGCSE May 14 P12 Q2 (a), IGCSE Mar 17 P22 Q2 [a (v)]
SOLUTION
Mark Scheme
Owner’s capital are Funds and resources provided for a business by the owner of that business
OR amount owed by the business to the owner (1)

QUESTION 8
State the accounting equation. [1]
IGCSE Nov 11 P12 Q2 (b), IGCSE May 13 P12 Q2 (a), IGCSE Nov 14 P12 Q2 (a), IGCSE
May 15 P12 Q2 (a), IGCSE May 16 P11 Q2 (a), IGCSE May 17 P11 Q2 (a)
SOLUTION
Mark Scheme
Assets = capital (equity) + liabilities
OR Capital = assets – liabilities (1)
OR liabilities = assets – capital (1)

QUESTION 9
Explain what is meant by a service business. Give one example of a service business. [2]
IGCSE Nov 11 P13 Q2 (b)

SOLUTION
Mark Scheme
(i) A service business provides services, not goods. (1)
(ii) Any acceptable example, e.g. travel agent, professionals, insurance. (1)
QUESTION 10
Explain the difference between a trading business and a service business. [4]
OL May 08 P2 Q4 (b), IGCSE Nov 16 P13 Q2 (f), IGCSE May 17 P11 Q2 (j)

SOLUTION
Mark Scheme
 A trading business is involved with buying and selling goods. (2)
Chapter 1 12 Accounting Basics
Read & Write Publications

 A service business provides services/which benefits others (2)

 A trading business produces a trading account (1) and a service business does not.(1)
 A trading business holds inventory. (1) A service business holds no inventory. (1)
(Accept examples which are appropriate)
TEACHER’S SOLUTION
A trading business is involved with buying and selling goods.
A service business is engaged in providing services to others

QUESTION 11
State what is meant by the term book-keeping. [4]
IGCSE May 16 P12 Q2 (f)
SOLUTION
Mark Scheme
The recording of all financial transactions in the books of account (1)
QUESTION 12
Explain the difference between book-keeping and accounting. [4]
OL May 08 P2 Q4 (a), IGCSE May 13 P12 Q2 (b), OL May 14 P22 Q1 (a), OL May 18 P23 Q1
(d)
SOLUTION
Mark Scheme
Bookkeeping involves preparing accounts from source documents or prime entry records (1),
Accounting involves identifying, measuring and communicating financial information (1)
Bookkeeping is the process of recording data (1) whereas Accounting provides information for
decision making (2)
Book-keeping refers to the maintaining of all double entry records/recording transactions (1)
Accounting refers to the preparation (and interpretation) of financial statements (1)
TEACHER’S SOLUTION
Bookkeeping is the detailed recording of all financial transactions of a business whereas
Accounting is about preparing financial statements at regular intervals from the bookkeeping
records.
Bookkeeping is the process of recording a firm’s financial transactions and is supported by
documentary evidences.
Accounting on the other hand starts once the book-keeper finishes his work and that mainly
measures, summarizes and then communicates this information recorded by book keeper in the
form of accounting reports using acknowledged methods and techniques which may ultimately be
used for decision making.
QUESTION 13
State two reasons why book-keeping records are maintained. [2]
OL May 17 P22 Q1 (f)
SOLUTION
Mark Scheme
 A record of all transactions
 Detailed record of each customer, supplier, expense or income.
 Reference can easily be made to the detail in each account.
 Financial statements can be prepared at regular intervals.
 The profit can be ascertained.
 Aid management and decisions can be made.
2 points x (1) mark
TEACHER’S SOLUTION
Chapter 1 13 Accounting Basics
Read & Write Publications

 Book-keeping enables to ensure recording of all transactions.

 It enables checking transactions through the use of a trial balance and control accounts.
 It enables the production of the income statement and statement of financial position to
be compiled more easily.
 It shows the amount due to individual customers and suppliers thus avoiding overpayment.
 Helps guard against errors and fraud.

QUESTION 14
Explain the difference between Ledger and an account.
TEACHER’S SOLUTION
A ledger is a book of accounts to maintain a classified record of all the financial (monetary)
transactions of a business. In the ledger one page or sometimes more than one page, contain a
record of transactions relating to a particular item or person. This record is known as an account.
Ledger is therefore a book to keep all accounts at a single place.

QUESTION 15
Explain the two ways of preparing an account.

TEACHER’S SOLUTION
A ledger is a book of accounts to maintain a classified record of all the financial (monetary)
transactions of a business. In the ledger one page or sometimes more than one page, contain a
record of transactions relating to a particular item or person. This record is known as an account.
Ledger is therefore a book to keep all accounts at a single place.

QUESTION 16
(i) Name an alternative format to ‘T’ accounts. [1]
(ii) State one benefit of this format compared with ‘T’ accounts. [2]
OL Nov 10 P22 Q1 (a)
OR
(i) Name an alternative format for the preparation of ledger accounts. [1]
(ii) State one advantage of using this alternative format. [1]
OL May 18 P22 Q1 (f)

SOLUTION
Mark Scheme
(i) Running balance format (1)
(ii) Balance of account always available. (2)
Format used in computerised accounting. (2)

TEACHER’S SOLUTION
(i) Running balance format or three column ledger
(ii) After each transaction the accounts balances are available
In computerised accounting accounts are usually prepared using this format
Easily understood by non-specialists
QUESTION 17
Define a trial balance. [3]
IGCSE Nov 10 P13 Q4 (a), IGCSE May 15 P12 Q2 (f)
SOLUTION
Mark Scheme
Chapter 1 14 Accounting Basics
Read & Write Publications

A trial balance is a list of balances (1) on the accounts in the books / ledgers / records (1) at a
particular date (1) used to check the accuracy of accounts. Allow “check accuracy” if linked with
“list of balances”.
QUESTION 18
State two uses of a trial balance [2]
OR
State one reason why a trial balance is prepared. [1]
OL Nov 08 P2 Q1 (b), IGCSE May 10 P12 Q4 (a), IGCSE May 12 P13 Q3 (a), IGCSE Nov 13
P13 Q2 (e), IGCSE May 15 P12 Q2 (g), IGCSE Mar 16 P12 Q3 (a), IGCSE Nov 16 P12
Q2 (b)
SOLUTION
Mark Scheme
 Confirms arithmetical accuracy of the double-entry (1)
 Assists in the preparation of financial statements (1)
 Can trace or identify errors.

TEACHER’S SOLUTION
1. Trial balance verifies the arithmetical accuracy of balances contained in ledger accounts.
2. It facilitates preparation of financial statements.
Chapter 2 15 Books of Original Entry
Read & Write Publications

CHAPTER 2 BOOKS OF ORIGINAL ENTRY

QUESTION 1
Name two of the books of prime (original) entry which a business may maintain. [2]
IGCSE May 14 P11 Q2 (b), IGCSE Nov 15 P12 Q2 (b), IGCSE Nov 16 P13 Q2 (e), IGCSE
May 17 P12 Q2 (f)
OR
List four books of account that a businessperson should keep. [2]
OL Nov 96 P1 Q6, IGCSE Nov 15 P12 Q2 (b), IGCSE Mar 16 P12 Q2 (i)
SOLUTION
Mark Scheme
book of prime (original) entry source document
cash book cheque counterfoil/bank statement/till roll,
petty cash book receipt/voucher
sales journal sales invoice
sales returns journal credit note issued
purchases journal purchase invoice
purchases returns journal credit note received
general journal invoice for non-current asset, purchased on credit or other
suitable document

TEACHER’S SOLUTION
(i) Sale Journal to record credit sales.
(ii) Purchase Journal to record credit purchases
(iii) Returns in Journal to record sales returns
(iv) Returns out Journal to record purchases returns.

QUESTION 2
Write down advantages of maintaining books of original entry (prime entry). [2]
IGCSE Nov 14 P12 Q3 (c), IGCSE May 15 P11 Q2 (b), IGCSE May 16 P11 Q2 (g), IGCSE
Nov 16 P13 Q2 (d)

SOLUTION
Mark Scheme
 Reduces the number of entries in the ledger
 Acts as an aid for posting to the ledger
 Helps to gather and summarise accounting information
 Facilitate preparation of control accounts
 Groups together similar types of transactions
 Allows work to be divided between several people
Any 1 reason (2)

TEACHER’S SOLUTION
The following are the advantages of maintaining books of original entry.
(i) Future references to transactions become easy as transactions of similar nature are
recorded in one journal
(ii) Mistakes in ledger accounts can be easily detected.
(iii) Chronological recording of transactions reduces the chances of frauds.
(iv) Journals show all the transactions in detail so it is not necessary to rewrite them in detail in
the ledger so ledger accounts may be kept brief and uncluttered.
Chapter 2 16 Books of Original Entry
Read & Write Publications

(v) If records are lost, then the ledgers and the books of original entry act as a back-up for each
other.
(vi) Handling of each type of journal by a different member of the staff prevents any one person
from having exclusive control on the accounting system. This makes frauds more difficult to
perpetrate and makes it more likely that errors would be identified.
(vii) In order to ensure no documents go unrecorded; source documents are normally preprinted
with consecutive numbers and are noted in day books while recording transactions.

QUESTION 3
State why it is useful for a business to maintain a sales journal. [2]
IGCSE May 14 P11 Q2 (c)
SOLUTION
Mark Scheme
 To reduce number of entries/detail in sales account
 Allows work to be shared between several people
 Provides list of credit sales Any 1 reason (2)

QUESTION 4
Give two uses of the general journal. [2]
OL Nov 13 P22 Q1 (c)
SOLUTION
Mark Scheme
 Correction of errors (1)
 Year-end transfers/from expenses account to Income Statement (1)
 Items which cannot be recorded in other journals (1)
 Bad debts written off (1)
 Depreciation of the year (1)
 Record drawings for inventory (1) [Any two uses maximum 2]
TEACHER’S SOLUTION
General journal is used to record items which cannot be recorded in other journals. Examples
include purchase or sale of non-current assets on credit, entries to close incomes and expenses
to Income Statement, entries to correct the mistakes, adjusting entries etc.
QUESTION 5
Businesses prepare many documents. In which of chaudhury's subsidiary books (books of original
entry) would you expect to find the details of the documents listed below? Write the number of
each document (i) to (v) against your answers.
(i) Cheque
(ii) Credit note
(iii) Sales invoice
(iv) Sales invoice received by Chaudhury
(v) Receipt (for payment received) [5]
OL May 96 P1 Q2 (b)
TEACHER’S SOLUTION
Document Book of prime entry
(i) Cheque Cash book
(ii) Credit note Returns outwards journal
(iii) Sales invoice Sales journal
(iv) Sales invoice received Purchases journal
(iv) Receipt (for payment received) Cash book
Chapter 2 17 Books of Original Entry
Read & Write Publications

QUESTION 6
State the purpose of each of the invoice, debit note, credit note and statement of account. [3]
IGCSE May 11 P21 Q1 (a), IGCSE Nov 15 P13 Q2 (a), IGCSE May 16 P11 Q3 (d)
SOLUTION
Mark Scheme
Invoice
A document from the suppliers when goods are sold (1)
Debit note:
A document from a customer asking for a reduction in the value of an invoice received by them.
(1)
Credit note:
A document sent to the customer showing the reduction of an invoice. (1)
Statement of account:
To notify the customer of the amount outstanding at the end of the month.
To provide the customer with a summary of the month’s transactions. (1)

QUESTION 7
Explain the difference between a debit note and a credit note. [3]
IGCSE May 11 P22 Q1 (b)
SOLUTION
Mark Scheme
A debit note may be issued by a customer to request a reduction in an invoice (1)
A credit note may be issued by a supplier to reduce an invoice for returns/overcharge etc (1)

QUESTION 8
State the purpose of the three documents.
(i) Invoice [2]
(ii) Cheque counterfoil [2]
(iii) Credit note [2]
OL May 09 P2 Q1 (b), OL May 11 P21 Q1(c)

SOLUTION
Mark Scheme
(i) The invoice is an official demand for payment,
It details the goods or services delivered
Will be sent to customers for sales or received from trade payables for purchases
Will be recorded in the sales journal or purchases journal
Details the terms of payment
(ii) A cheque will be raised to pay Henry and the counterfoil will be completed as a record of
the payment. (2/0)
(iii) A credit note is an advice that the trade receivables account will be credited (1)
Used when sales have been made but the goods are returned as incorrect or defective
Recorded in the sales returns journal or purchase returns journal

TEACHER’S SOLUTION
(i) The invoice is a bill prepared by seller of goods or services and submitted to the buyer
and contains a precise list of fees or charges
(ii) Cheque counterfoil is that part of a cheque book which is retained by Joe as a record of
the payment to Henry.
(iii) A document sent by a seller to its customer, stating that a certain amount has been
credited to his account mainly due to return of goods or for a price adjustment.
Chapter 2 18 Books of Original Entry
Read & Write Publications

QUESTION 9
State why a narrative should be shown as part of a journal entry. [2]
IGCSE May 10 P22 Q3 (a)
SOLUTION
Mark Scheme
A narrative explains the reasons for the entries which are to be made in the ledger.
QUESTION 10
Explain how the cash book is both a book of prime entry and a ledger account. [2]
OL Nov 04 P2 Q1 (c), IGCSE May 12 P21 Q1 (a)
SOLUTION
Mark Scheme
 The cash book is the book of original entry for cash and bank transactions, recorded from
source documents like cheques and receipts. (1)
 It contains ledger accounts for cash and bank. (1)

TEACHER’S SOLUTION
Cash book is a day book as transactions relating to cash are originally recorded in this book on
daily basis. Cash book is also a ledger account as it holds the bank and cash accounts which are
ledger accounts in their own right.
QUESTION 11
State the purpose of allowing a customer cash discount. [1]
OL May 19 P21 Q1 (e)
SOLUTION
Mark Scheme
To achieve prompt payment / payment within a specified period (1)
TEACHER’S SOLUTION
 To attract prompt payments from customers
 To improve cash flows (liquidity position)
QUESTION 12
Name the two accounts which are posted with the totals from a three column cash book. [2]
IGCSE May 15 P11 Q3 (c)
SOLUTION
Mark Scheme
 Discount allowed (1)
 Discount received (1)

QUESTION 13
State what is meant by a bank overdraft. [2]
IGCSE May 15 P11 Q3 (g)
SOLUTION
Mark Scheme
Paying more from the bank account then there is in it (1). This means that the business owes
the bank money (the bank is a current liability) (1).

QUESTION 14
Explain why there could be a credit balance on a bank account but not on the cash account. [2]
IGCSE Nov 14 P12 Q2 (c)
SOLUTION
Chapter 2 19 Books of Original Entry
Read & Write Publications

Mark Scheme
Businesses can withdraw more from bank than put in/can have overdraft (1) however they cannot
take more cash than is physically present (1)

QUESTION 15
State one reason why Arundhati maintains these three divisions of her ledger. [1]
IGCSE May 17 P12 Q2 (d)
OR
State one advantage of dividing the ledger into sales ledger, a purchases ledger and a nominal
(general) ledger. [2]
IGCSE May 12 P21 Q4 (a), IGCSE Nov 14 P22 Q1 (a), IGCSE May 16 P22 Q5 (a)
OR Explain why dividing the ledger into sections makes it easier to use. [2]
IGCSE Nov 10 P23 Q2 (f), IGCSE Nov 12 P22 Q4 (a), IGCSE May 13 P21 Q3 [f (i)], IGCSE
May 14 P12 Q3 [a (iii)], IGCSE Nov 15 P13 Q2 (b), IGCSE Nov 16 P12 Q2 (e)
SOLUTION
Mark Scheme
 Easier for reference as accounts of the same type are kept together
 helps to locate errors
 allows tasks to be divided between different people
 deters fraud and reduces the possibility of fraud
 allows checking procedures to be introduced
OR other suitable advantage any one for (1) mark

QUESTION 16
State two reasons for maintaining a petty cash book. [2]
IGCSE May 10 P21 Q1 (a), IGCSE May 13 P23 Q1 (a), IGCSE Nov 14 P23 Q1 (a), IGCSE
May 16 P22 Q1 (a)
OR
State one reason why Theba maintains a petty cash book in addition to her main cash book. [2]
IGCSE May 12 P13 Q4 (a)

SOLUTION
Mark Scheme
 To record small cash payments
 To remove small cash payments from the main cash book.
 To reduce the number of entries in the main cash book and the expenses in the ledger.
 To allow the chief cashier to delegate some of the work.
 To provides training for any junior staff members
OR other suitable reason.
Any 2 reasons (1) each.

QUESTION 17
Explain the imprest system of petty cash. [2]
IGCSE May 10 P21 Q1 (b), IGCSE May 11 P11 Q2 (d), IGCSE Nov 11 P22 Q1 (g), IGCSE
May 12 P13 Q4 (b), IGCSE May 13 P21 Q1 (b), IGCSE Nov 14 P23 Q1 (b)

SOLUTION
Mark Scheme
The petty cashier starts each month with the same amount of money. (1)
At the end of the period the amount spent is reimbursed the amount of the actual expenses so
the cash remaining is equal to the imprest amount. (1)
Chapter 2 20 Books of Original Entry
Read & Write Publications

QUESTION 18
State one advantage of the imprest system of petty cash. [1]
IGCSE May 10 P21 Q1 (c), IGCSE May 13 P21 Q1 (b), IGCSE Nov 14 P23 Q1 (c), IGCSE
May 15 P21 Q1 (a)

SOLUTION
Mark Scheme
 The chief cashier is aware of exactly how much is spent in each period.
 The chief cashier can control expenditure of petty cash
 The cash remaining and the total of the vouchers received should always be equal to the
imprest amount.
 Can help to reduce fraud
 Control/limit/keep track of petty cash expenditure
OR other suitable advantage.
Any 1 advantage (1)
QUESTION 19
Explain the use of Folio Columns.

TEACHER’S SOLUTION
Folio columns are shown on the left to the amounts (accounts of cash, bank and discounts)
columns. Folio columns contain the name and page number of other book on which second aspect
of the transaction is recorded. Use of folio columns in the cash book ensures that double entry for
recording the transaction is completed.

Book of Original Entry Source Document (s)

Sales invoice issued by the firm when selling
Sales journal
goods on credit

Purchases invoices received by the business

Purchases journal
from suppliers when buying goods on credit

Copies of credit notes sent or debit notes

Returns inwards journal received by the business to customers who
have returned the goods

Credit notes received or copies of debit notes

Returns outwards journal sent by the business from suppliers when
goods purchased are returned to them

Cheque counterfoils from the cheque book to

show payments through cheques,
Paying in slips as evidence of money paid into
Cashbook business own bank accounts,
Till rolls as evidence of cash being received,
Petty cash vouchers to indicate small amounts
of cash being paid etc.

General journal Everything else not covered by above

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