Grade 10 To 12 Principles of Accounts Notes

CONTENTS
BALANCE SHEET.................................................................................................................................................................. 4
BALANCE SHEET ITEMS ...................................................................................................................................................... 4
ASSETS ................................................................................................................................................................................ 4
CURRENT ASSETS................................................................................................................................................................ 4
LIABILITIES .......................................................................................................................................................................... 4
LONG TERM LIABILITIES ..................................................................................................................................................... 5
CURRENT LIABILITIES .......................................................................................................................................................... 5
FORMAT FOR A BALANCE SHEET........................................................................................................................................ 5
EXAMINATION QUESTIONS ................................................................................................................................................ 6
SUBSIDIARY BOOKS ............................................................................................................................................................ 9
Types of subsidiary books ................................................................................................................................................10
EXAMINATION QUESTIONS ..............................................................................................................................................11
SOLUTIONS TO THE EXAMINATION QUESTION ...............................................................................................................13
TRIAL BALANCE.................................................................................................................................................................14
FINAL ACCOUNTS .............................................................................................................................................................17
TRADING ACCOUNT..........................................................................................................................................................17
PROFIT AND LOSS ACCOUNTS ..........................................................................................................................................17
LEDGER .............................................................................................................................................................................22
BAD DEBTS AND PROVISION FOR BAD DEBTS..................................................................................................................25
INCREASED FOR PROVISION FOR BAD DEBTS ..................................................................................................................26
Accounting treatment .......................................................................................................................................................26
DECREASED PROVISION FOR BAD DEBTS .........................................................................................................................26
DEPRECIATION OF FIXED ASSETS .....................................................................................................................................28
Causes of depreciation .....................................................................................................................................................28
Methods of depreciation ...................................................................................................................................................29
Straight line method/equal installment ...........................................................................................................................29
Two methods of calculating .............................................................................................................................................29
REDUCING BALANCE /DIMINISHING BALANCE METHOD ................................................................................................29
Accounting treatment. .....................................................................................................................................................29
Disposal of fixed assets ....................................................................................................................................................29
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PREPAYMENTS/ ACCRUALS ..............................................................................................................................................34
TRIAL BALANCE AND ITS LIMITATIONS ............................................................................................................................37
ERRORS REVEALED BY THE TRIAL BALANCE .....................................................................................................................39
CLEARING OF THE SUSPENSE ACCOUNT ..........................................................................................................................40
QUESTIONS FOR PRACTICE...............................................................................................................................................42
SOLUTION TO THE EXAM QUESTIONS..............................................................................................................................43
BANK RECONCILIATION ....................................................................................................................................................45
EXAMINATION PRACTICE .................................................................................................................................................46
RECEIPTS AND PAYMENTS ...............................................................................................................................................48
EXAMINATION QUESTION ................................................................................................................................................51
CONTROL ACCOUNTS .......................................................................................................................................................52
PREPARATION OF A DEBTORS’ LEDGER CONTROL ACCOUNT .........................................................................................52
PREPARATION OF A CREDITORS CONTROL ACCOUNT .....................................................................................................54
REASONS FOR DEBIT BALANCES IN THE CREDITORS LEDGER ..........................................................................................55
EXAMINATION PRACTICE .................................................................................................................................................55
CAPITAL EXPENDITURE AND REVENUES EXPENDITURE ...................................................................................................59
ADJUSTMENTS TO FINAL ACCOUNTS ...............................................................................................................................60
DOUBLE ENTRY RULE OF ADJUSTMENTS TO FINAL ACCOUNTS ......................................................................................60
1. CLOSING STOCK (INVENTORY) .................................................................................................................................60
2. A) ARREARS (expenses) ............................................................................................................................................60
3. PREPAYMENTS..........................................................................................................................................................61
4. BAD DEBTS AND PROVISION FOR BAD DEBTS..........................................................................................................62
TYPES OF PROVISION FOR BAD DEBTS .............................................................................................................................62
1. CREATION OF PROVISION FOR BAD DEBTS ..............................................................................................................62
2. INCREASE IN THE PROVISION FOR BAD DEBTS ........................................................................................................62
3. DECREASE IN PROVISION FOR BAD DEBTS ...............................................................................................................63
DEPRECIATION OF FIXED ASSETS .....................................................................................................................................63
Causes of depreciation .....................................................................................................................................................63
Methods of depreciation .................................................................................................................................................63
STRAIGHT LINE METHOD/EQUAL INSTALLMENT .............................................................................................................63
REDUCING BALANCE /DIMINISHING BALANCE METHOD ................................................................................................63
DRAWINGS IN KIND NOT RECORDED IN THE BOOKS OF ACCOUNTS...............................................................................64
PARTNERSHIP ACCOUNTS ................................................................................................................................................65
PARTNERSHIP CAPITAL ACCOUNT ....................................................................................................................................65
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MANUFACTURING ACCOUNTS .........................................................................................................................................75
Manufacturing Costs ........................................................................................................................................................75
CLASSIFICATION OF MANUFACTURING COSTS ................................................................................................................75
INCOMPLETE RECORDS/ SINGLE ENTRY ...........................................................................................................................84
CALCULATION OF SALES ...................................................................................................................................................84
CALCULATING THE PURCHASES .......................................................................................................................................85
CALCULATING THE OPENING AND CLOSING CAPITAL......................................................................................................85
OPENING CAPITAL (Capital at Start) .................................................................................................................................85
CLOSING CAPITAL (Capital at the End) .............................................................................................................................85
DETERMINING THE TRADER’S ANNUAL PROFIT ...............................................................................................................85
SOLE TRADER ....................................................................................................................................................................92
Examination Questions ....................................................................................................................................................92
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BALANCE SHEET
- The balance is a statement that shows the financial position of the business at a given time
- It is the statement of Assets, Liabilities at a given time.
- It is also known as a statement of financial position.
- A balance sheet has two sides with equal values.
- These values are assets, liabilities and capital.
The Accounting Equation in summary is:-
ASSETS = CAPITAL + LIABILITIES
BALANCE SHEET ITEMS
ASSETS
- Assets are properties of the business

- They are also said to be properties that belong to the business
- There are two types of assets namely; Fixed assets and Current assets
These assets are not easily converted into cash or they are not near cash assets
- The examples of fixed assets are
Premises
Buildings
Machinery
Equipment
Motor vehicles
Furniture
Fixtures and fittings etc.
CURRENT ASSETS
These are assets which do not stay in the business for a long time.
These assets can easily be converted into cash or they are near cash assets
The examples of current assets are
Stock – unsold goods in the business
Debtors - People or firms which owe the business money
Cash at Bank – Money kept by the business at the bank
Cash in hand - This is the money being kept in the business or money in your hands
LIABILITIES
- These are amounts of money that the business owes to other businesses.
- Or they are Owings by the business
- There are two types of liabilities namely; long term liabilities and current liabilities
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LONG TERM LIABILITIES
-These are liabilities (Owings) which take the business a long time to repay.
-They take at least 1year or more to repay
-The examples long term liabilities are Mortgage and Loan
CURRENT LIABILITIES
- These are liabilities which take the business a short time to repay.
-They take the business less than one year to repay.
-The examples are Creditors and Bank overdraft
FORMAT FOR A BALANCE SHEET

BALANCE SHEET AS AT 31ST DECEMBER 2013
FINANCED BY
Capital XX,XXX
Add: Net Profit XX,XXX
XX,XXX
LESS: drawings X,XXX
XX,XXX
Add: Long term liabilities
Loan
Mortgage X,XXX
X,XXX
XX,XXX
CAPITAL EMPLOYED XXX,XXX
FIXED ASSETS
Land and buildings XX,
Motor Car XXX
Furniture X,XXX
Total Fixed Assets XX,XXX
CURRENT ASSETS
Stock X,XXX
Debtors XX,XXX
Cash at Bank X,XXX
Cash in hand XXX
Total Current Assets XX,XXX
LESS CURRENT LIABILITIES

Creditors X,XXX
Working Capital XXX,XXX
Net Assets
XXX,XXX
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EXAMINATION QUESTIONS
1. The following is a simplified balance sheet of S. Sameta as at 30th November 2008.

Assets Liabilities
Land and Buildings 33 000 000 Capital 48 000 000
Fixtures and Equipment 9 500 000 Creditors 6 500 000
Stock 8 000 000
Debtors 3 500 000
Cash at Bank 500 000
54 500 000 54 500 000
You are required to re-draft the balance sheet after taking into account the following transactions
which took place after the above balance sheet had been prepared. No ledger accounts required.
a. Sameta received K600 000 from his debtors. This sum was banked.
b. Roberts bought K800 000 worth of stock on credit from Sameta.
c. The land and buildings were revalued at K45 000 000.
d. Sameta received a loan from his father M. Sameta amounting to K4 000 000, out of which he
paid off K3 000 000 of his debts, receiving a discount of 2 ½ %. The remainder of the loan
was banked.
e. Sameta sold one-quarter (%) of his total stock on credit for K5 500 000.
f. He sold some of his fixtures for K500 000. This sum was banked. The book value of these
fixtures was K800 000.
2. (a) (i) How is the working capital calculated?

(ii) What will be the effect on the day to day operations of a business which has a lack of working
capital?
(b) SKM is a retailer. You are required to state how the following transactions would affect the
amount of SKM’s capital and the amount of this working capital
i. Trade creditors were paid K 500 000
ii. A cash register was bought on credit for K400 000
iii. SKM withdrew K 600 000 from the business bank account to pay for his brother’s wedding
expenses
iv. SKM received a credit note for K100 000 in respect for goods he had returned to the supplier
because of defects
v. Motor vehicles were depreciated by K1000 000
vi. Goods costing K300 000 were sold for K250 000 cash
Give your answers in the following format
ITEM EFFECT ON CAPITAL EFFECT ON WORKING CAPITAL

(i) ……………………….. ……………………………………
(ii) ………………………… ……………………………………
(iii) ………………………… ……………………………………
(iv) ………………………… …………………………………….
(v) ………………………… ……………………………………
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(vi) ……………………….. ……………………………………
And so on
3. The following lists of balances were taken from the ledger of Kachiliko at 27 June 2010
K’000
Capital (1 January 2010) 8 000
Drawings 2 200
Delivery Van (at Cost 1 January 2010) 4 000
Creditors 1 200
Debtors 1 400
Cash at bank 1 760
Cash in hand 40
Stock (27 June 2010) 2 300
Kachiliko’s net profit for the period 1 January 2010 to 27June 2010 was K2 500 000. Just before the
end of the six months’ trading period ended 20th June 2010, the following transactions took place:
a) Goods costing K200 000 were sold on credit for K250 000
b) K60 000 less 5% cash discount, was paid by cheque to creditors
c) Kachiliko withdrew K150 000 from the bank for personal use
d) K10 000 was paid in cash for petrol for the van
e) It was decided at this stage to depreciate the delivery van at the rate of 20% per annum on its
cost
You are required to prepare a balance sheet to show Kachiliko’s financial position including his
working capital at 30 June 2010. Also show adjustments to the balance sheet your recalculation of
Net profit and cash at bank.
4. The recording of book keeping and accounting transaction requires consideration of the basic
accounting concepts and principles. Write down the effect of the following transactions on the dual
aspect concepts i.e. Assets, Capital and Liabilities
S/N Transaction Asset Liabilities Capital
1. Started business with cash K50 000 cash
2. Bought goods on credit K2 000 000
3. Bought office furniture by cash K80 000
4. Paid rent by cheque K 45 000 000
5. Proprietor brings into the business a further K 1500
000 payment by cheque
6. Bought Motor Van on credit from Toyota Zambia
K20 000 000
7. Paid Toyota Zambia by cheque
8. We paid a creditor, Banda K4 000 cash
9. Cash deposit into the bank account K4 000 0000
10. Returned some of the goods bought on credit to a
credit supplier
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5. For each of the items (i) to (v) below identify the one which is different from the other and explain
the difference.
(i) Prepaid rent, debtors, stock, and bank overdraft.
(ii) Land and buildings, plant and machinery, stock of raw materials, office equipment.
(iii) Raw materials, carriage on raw materials, factory overheads, direct wages.
(iv) Debentures, general reserves, ordinary share capital, preference share capital.
(v) Creditors, electricity owing, prepaid rent receivable, mortgage loan.
6. After the preparation of a firm's Balance Sheet, it was discovered that the following errors had been
made in the books of accounts.
(i) Furniture bought on credit for K450 000 had been entered in the Purchases Book.
(ii) Machinery disposed of for K600 000 had been included in the Sales Account.
(iii) A cheque for K990 000 from a debtor for goods sold to him at K1 000 000 on credit had not
been recorded in the books.
(iv) Goods worth K250 000 sold to a customer but not yet delivered had been included in the
closing stock.
(v) Motor Vans standing at K10 000 000 should have been depreciated at 20%.
(vi) The firm should have provided for discounts on debtors total of K550 000 at10%
(vii) Goods amounting to K150 000 taken by the owner of the business had been included in the
sales figure.
Required:
In order to adjust for each of the errors above, state which items in the Balance Sheet should be
increased or decreased.
Error Item(s)to be increased Item (s) to be decreased
(i)
(ii)
SOLUTION
(i) Working capital = current assets – Current liabilities
(ii) The business will fail to pay its creditors, day to day expenses of the business, and any other
daily operations demanding the use of business resources. This business can be forced into
liquidation because of its insolvent or the business will come into a stand still.
(b)
Item Effect on Capital Effect on Working Capital
i. No Effect No Effect
ii. No Effect Decrease (400 000)
iii. Will Decrease (500 000) Decrease (500 000)
iv. No Effect No Effect
v. Decrease (1000 000) No Effect
vi. Decrease (50 000) Decrease (50 000)
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SUBSIDIARY BOOKS
Subsidiary books are books used to record daily transactions of the business.
Other names:-
- Day books
- Journals
- Books of prime entry
- Books of original entry
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Types of subsidiary books
- Sales day book
- Purchases day book
- Sales returns day book
- Purchases returns day book
- Cash book
- Petty cash book
- General journal/ journal proper
No. Name of journals Function Account Account Source document

Debited Credited
1 Sales day book Records credit sales Debtor/ Sales Sales invoice/
buyer/ Outgoing invoice/ duplicate invoice
Customers
2 Purchases day book Record credit purchases purchases Creditor/ Purchases/ income invoice/ original invoice
seller/
suppliers
3 Sales returns day Record goods returned to Sales returns Debtors Duplicate credit note
book the business by the
customers
4 Purchases returns Record goods returned to Creditor Purchases Original credit note
day book the supplier by the returns
business
5 Cash book Record cash and bank Receipts, cash sale, cheque counter foil, Cheque,
transactions deposit slip, withdrawal slip, statement,
6 Petty cash Record small payments of Petty cash voucher
the business.
7 General journal/ Corrections of errors/
journal proper record credit sale and
purchase of fixed assed/
bad debts written off
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1. All entries in the books of accounts are supported by documentary evidence after which they are
posted to respective accounts. Study the table below and complete it by filling in the gaps.
Source document Name of subsidiary book Account debited Account credited

Original Invoice (i) (ii) (iii)
Duplicate invoice (iv) (v) (vi)
Duplicate credit note (vii) (viii) (ix)
Original credit note (x) (xi) (xii)
2. For each of the-following transactions name the Subsidiary Book, the account to be debited and the
account to be credited.
Give your answers in form of a table as shown below following the example given.
Example: Bought goods on credit from Jameson Mwinga and Bros, K800 000.
Subsidiary Book Account Debited Account Credited

Purchases Journal Purchases Jameson Mwinga
i.
ii.
iii.
iv.
i. Received an invoice for K360 000 from Lusaka Wholesalers Ltd for goods bought on credit.
ii. The proprietor took K300 000 from the bank for his private use.
iii. Withdrew K700 000 cash from bank for office use.
iv. Received a credit note for K450 000 from Suppliers Ltd for returned soiled goods.
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3. Complete the tale below showing the functions of the subsidiary books, name of subsidiary book and
the document(s) from which details are entered
Function of the subsidiary book Name of a subsidiary book Document(s) from which details are
entered
To record details of credit (i) (ii)
purchases
(iii) Sales day book ( sales (iv)
journal)
To record details of purchases (v) Original credit note
returns( returns outwards)
(vi) Sales returns journal (returns (vii)
inwards journal)
(viii) (ix) Cash receipts, till slips, incoming
cheques, cheque counterfoils
(x) Petty cash book (xi)
4. For each of the transactions given below give the source document from which the details are
obtained.
i. Delivered goods to C. Moono sold on credit for K1 450 000.
ii. Returned damaged goods valued at K250 000 to F. Mwaingana.
iii. C. Moono was undercharged by K260 000 on goods sold to him on credit.
iv. Purchased a motor van K60 000 000 on credit from Auto World Ltd.
v. Sold goods for cash K500 000.
vi. C. Chirwa was given an allowance for repair of damaged goods for K350 000.
5. State the source document for each of the following transactions

a. Bought goods on credit from SKM………………………
b. Sold goods by cash……………………………………………….
c. Deposited cash into the Bank…………………………………
d. Paid JKK by cheque………………………………………
e. Returned goods to the supplier…………………………………
f. Sold goods on credit……………………………………………..
g. A customer returned goods to us………………………………..
h. Paid our water bill by cash………………………………………
i. Withdrew money by cheque…………………………………….
j. Received cash from a debtor…………………………………….
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SOLUTIONS TO THE EXAMINATION QUESTION
Q1
Source document Name of subsidiary Account debited Account credited
book
Original Invoice Purchases Journal/ Purchases Creditor/ supplier
day book
Duplicate invoice Sales Journal /day book Customers/ Sales
debtors
Duplicate credit note Purchases Returns Suppliers / Purchases Returns
Journal/ day Book Creditors
Original credit note Sales Returns Journal/ Sales Returns / Customers or Debtors
day book Returns Inwards
Q2
Subsidiary Book Account Debited Account Credited
i. Purchases Journal Purchases Lusaka Wholesalers
ii. Cash book Drawings Bank
iii. Cash book Cash Bank
iv. Purchases Returns Journal Suppliers Purchases returns
Q3
Function of the subsidiary book Name of a subsidiary book Document(s) from which details are
entered
To record details of credit (i)purchases day book (ii)purchases invoice/ original
purchases invoice/incoming invoice
(iii)to record credit sales Sales day book ( sales (iv)sales invoice/ original invoice/
journal) outgoing invoice
To record details of purchases (v)purchases returns day Original credit note
returns( returns outwards) book
(vi)to record details of sales Sales returns journal (returns (vii) duplicate credit note
returns inwards journal)
(viii)record cash/ bank transaction (ix)Cash Book Cash receipts, till slips, incoming
cheques, cheque counterfoils
(x)record small payments of the Petty cash book (xi)petty cash voucher
business
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TRIAL BALANCE
- A trial balance is a list of balance extracted from the ledger accounts at a specific date.
- It is list of debit and credit balances extracted from the ledger used to check for arithmetic accuracy.
- It facilitates the preparation of the Final Accounts
Preparation of the Trial Balance
- It is prepared from the ledger accounts balances
- It important to consider the accounts to be debited and credited when preparing the trial balance as
follows:-
Debit Balances
- Expenses (rent, discount allowed, carriage outwards, carriage inwards, returns inwards)
- Assets (debtors, machinery, fixture and fittings, premises, land)
- Cost (purchases)
Credit Balance
- Liabilities (creditors, bank overdraft, loans, mortgage)
- Again (income) (rent received, discount received)
- Capital
Format of the Trial Balance
Trial balance as at ………………………………..
Details Dr Cr
Capital Xxx
Sales Xxx
Rent received Xxx
Discount received Xxx
Returns outwards Xxx
Creditors Xxx
Bank overdraft Xxx
Loan Xxx
Mortgage Xxx
Provision for bad debts Xxx
Provision for depreciation Xxx
Purchases Xxx
Debtors Xxx
Carriage inwards Xxx
Carriage outwards Xxx
Returns inwards Xxx
Stock Xxx
Machinery Xxx
Fixtures and Fittings Xxx
Premises Xxx
Bad debts Xxx
Drawings Xxx
Cash in hand Xxx
Cash at bank Xxx
Rate Xxx
Insurance Xxx
Salaries and wages Xxx
xxx Xxx
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1. From the following list of balances extracted from Kangwa C’s business. Prepare his Trial balance as
at December 2015.
Plant and Machinery ---------------------------------------------------------- 21 450

Motor vehicle ------------------------------------------------------------------ 26 000
Premises ------------------------------------------------------------------------ 80 000
Wages ------------------------------------------------------------------------- 42 840
Purchases ----------------------------------------------------------------------- 119 856
Sales ----------------------------------------------------------------------------- 179 744
Rent received ----------------------------------------------------------------- 3 360
Telephone expenses --------------------------------------------------------- 36 100
Creditors --------------------------------------------------------------------- 27 200
Debtors ------------------------------------------------------------------------ 30 440
Bank overdraft --------------------------------------------------------------- 2 216
Capital ----------------------------------------------------------------------- 131 250
Drawing ---------------------------------------------------------------------- 10 680
General expenses ----------------------------------------------------------- 3 584
Lighting and Heating ----------------------------------------------------- 2 960
Motor Expenses ------------------------------------------------------------- 2 360
2. Mubanga K’s Trial Balance as at 31st MARCH 2006

DR CR
Salaries 1 770000
Debtors/Creditors 1 820000 490000
Discounts 295200 130000
Rent and rates 320000
Purchases and sales 3 110000 6570000
Drawings 850000
Capital 1 750000
Bank 815200
Cash 60000
Stock 840000
Sundry expenses 110000
Repairs 220000
Office equipment 360000
9755000 9755200
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The following transactions took place after the extraction of the above Trial Balance hence were not taken
into account.
March 31 Bought goods by cheque K45 000
March 31 Paid cash for car repairs K25 000
March 31 Sold goods by cheque K350 000
March 31 Cash sales K120 000
March 31 Bought goods on credit K250 000
You are required: To re-draft the Trial Balance to show how it would appear after recording the
transactions which were not taken into account.
Q3 The following trial balance was prepared by Chabala B an incompetent accounts clerk on 30 th 30th
June, 2012
Details Dr Cr
Purchases K356,000
Sales 500,000
Insurance 5,600
Salaries and wages 2,900
Stationery 34,000
Rates 2,100
Sundry expenses 3,900
Carriage outwards 1,100
Carriage inwards 2,050
Stock 1.7.2011 78,000
Debtors 84,000
Creditors 39,000
Cash at bank 8,960
Cash at hand 800
Buildings 200,000
Machinery 60,000
Motor Vehicle 39,800
Drawings 45,000
Capital 390,810
1,297,220 553,900
You are required to redraft the trial balance as at 30th June, 2012
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FINAL ACCOUNTS
Final Accounts are the accounts prepared at the end of the financial period to ascertain financial position of
the business. Final accounts consist of the following
- Trading Account (also known as Income Statement)

- Profit and Loss Account (also known as Income Statement)
- Balance Sheet (also known as Statement of Financial Position)
TRADING ACCOUNT
- It is prepared to ascertain the gross profit/loss of the business at the end of the financial period.
- Gross profit is the difference between sales revenue and purchases (cost of the goods sold)
Trading Accounts Items
- Sales
- Purchases
- Opening stock
- Closing stock
- Carriage inwards
- Returns inwards
- Returns outwards
PROFIT AND LOSS ACCOUNTS

- It is prepared to determine the Net Profit/Loss of the business during the financial period.
- Net profit is the difference between gross profit and expenses
Profit and loss items
- Gross profit
- Again
- Expenses
EXAMPLE
1. The following information relates to Hanyinda’s books on 31/12/2013
Sales 200 000

Purchases 80 000
Returns outwards 2 000
Stock 1/01/2013 20 000
Carriage inwards 4 000
Closing stock 10 000
Advertising 9 000
Drawings 18 000
Discount Received 23 000
Discount Allowed 11 500
Land and Buildings 150 000
Furniture 20 000
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Cash at bank 13 000
Debtors 26 000
Creditors 18 000
Cash in hand 7 000
Motor car 34 000
Commission received 8 500
Stationery 12 000
Wages and salaries 16 500
Capital 79 500
Mortgage 90 000
You are required to prepare
a. Trading and profit and loss account for the year ended 31/12/2013
b. The balance sheet as at 31/12/2013
SOLUTIONS
HANYINDA
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31/12/2013
DETAILS (K) (K) (K)
Sales 200 000
Less cost of sales
Opening Stock 20 000
Purchases 80 000
Add: carriage inwards 4 000
Total purchases 84,000
Less: Returns outwards 2,000
Net Purchases 82,000
Total stock available 102,000

Less: Closing Stock
10,000
Cost of Sales 92,000
Gross Profit
Add Other Income 108,000

Discount received
Commission received
23, 000
Total other income 8, 500
Total Gross Profit
31, 500
Less: Expenses
Advertising 139,500
Discount Allowed 9,000
Stationery 11,500
Wages and Salaries 12,000
16,500
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Total Expenses
49,000
Net Profit 90, 500
HANYINDA
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31/12/2013
DETAILS COST DEP/APP NBV
FIXED ASSETS
Land and building 150 000 - 150 000
Motor car 34 000 - 34 000
Furniture 20 000 - 20 000
Total Fixed Assets 204 000 204 000
CURRENT ASSETS
Stock 10 000
Debtors 26 000
Cash at bank 13 000
Cash in hand 7 000
Total Current Assets 56 000
LESS:- CURRENT ASSETS 18 000

Creditors
Working capital 38 0000

Net Assets
242 000
FINANCED BY
Capital
Add:- Net Profit
79 500
Less:- Drawings 90 500
170 000
Add:- Long Liabilities 18 000
Mortgage 152 000
Capital Employed 90 000
242 000
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1. The following were extracted from the books of PJT Supermarket on 30th September 2010
K'000 K'000
Sales 306,000
Carriage On Sales 28,300
Purchases 147,600
Carriage On Purchases 12,800
Stock At 1 October 2009 13,400
Rent Rates and Insurance 6,900
Motor Vehicle Expenses 2,700
Office Expenses 17,400
Advertising Costs 11,800
Provision For Bad Debts 360
Cash at Bank 7,140
Motor Vehicle At Cost 15,500
Provision For Depreciation 3,100
Debtors 38,000
Creditors 15,500
Drawings 12,320
Capital at 1 October 2009 40,000
364,960 364,960
You are required to prepare
a. Trading and profit and loss account for the year ended 30/09/2010
b. The balance sheet as at 30/09/2010
2. The following trial balance was extracted from the books of B. popo for the year ended 30th June,
2013.
Trial balance as at 30th June 2013
Dr Cr
Purchases and sales 50 000 100 000
Carriage inwards 500
Machinery 200 000
Discount allowed 1 000
Bank loan 40 000
Returns inwards 300
Returns outwards 600
Cash at bank 10 000
Stock at o1/o7/12 5 000
Debtors and creditors 3 000 1 500
Carriage outwards 400
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Discount allowed 200
Machinery repairs 250
Premises 300 000
Capital 427 450
570 200 570 200
Stock on 30th June was valued at K700
Required:
From the trial balance given above you are required to prepare a trading and profit and loss accounts
for the year ended 30th June, 2013.
3. A firm prepared its end of year final accounts and the Gross profit and Net Profit were at K24 000
and Net profit K15 000. The following error were later discovered
1. Rates prepaid of K500 were not taken into account
2. The closing stock was undervalued by K570
3. A sale of K1 250 was omitted from the sales Journal
4. Provision for bad debts was supposed to be reduced by K200. This was not done
5. A page in the purchases day book was under casted by K600
6. A loss on sale of the assets K500 was not included in the profit and loss account
7. Returns inwards of K100 were completely omitted from the final accounts
Required.
Prepare the statement under a correct heading to show
a. The correct Gross Profit for the year ended 31 December 2009
b. The correct net Profit for the year ended 31 December 2009
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LEDGER
Examples
1. The account of Bwalya in the books of the Zambezi Trading co. shows a debit balance of K16 000 on
January 1 2009. The following transactions took place during the half year of 2009
12 Feb. Bwalya purchases goods on credit to the value of K84 000
22 Feb. Bwalya returned goods worth K14 000 as not up to Sample and was given
credit note for the
Same.
28 Feb. Bwalya forwarded a cheque in settlement of his account, deducting 5% discount in
respect of the February purchase for payment within one month
15 March goods to the gross value of K42 000 were sent to Bwalya. He received 16 ⅔% trade
discount
26 March Bwalya paid by cheque for the goods received by him in 15th March 2009
28 March Bwalya’s cheque received from him on 26th March 2009 is returned dishonoured from
the bank
5 June Bwalya was charged K1500 interest in connection with dishonoured cheques
You are required to write up Bwalya’s account in the books of Zambezi Trading Co. and balance it as
at 30thJune 2009
Solution
Bwalya’s account in Zambezi 's Books

K K
1-Jan Balance 16,000
12-Feb Sales 84,000
22-Feb sales returns 14,000
22-Feb Bank 66,500
28-Feb discount Allowed 3,500
15-Mar Sales 35,000
26-Mar Bank 35,000
28-Mar dishonored Cheque 35,000
5-Jun interest charged 1,500
30-Jun Balance 52,500
171,500 171,500
2. The following details relate to SKM trading for the year ended 31st December, 2008 for
Electricity.
1st January 2008 credit balance K450,000
th
12 February 2008 paid by cash K300,000
th
20 june , 2008 paid by cheque 600,000
th
30 September, 2008 paid by cheque K700,000
st
31 December, 2008 credit balance K200,000
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Required to
Prepare the Electricity account
(Showing clearly how much should be transferred to the profit and loss account.)
SOLUTION
DATE DETAILS FOLIO DEBIT CREDIT
2008
01 Jan Balance owing 450,000
12 feb cash 300,000
20 June Bank (½) 600,000
30Sept Bank 700,000
31Dec Profit& Loss 1,350,000
31Dec Balance owing c/d 200,000
1,800,000 1,800,000
1 Jan Balance b/d 200,000
1. SKM and JKK are two traders. On 1 July 2009 SKM owes JKK K150 000 and during the month the
following transactions took place between them
July 7 JKK sod goods to SKM for K50 000
July 10 JKK received a cheque from SKM for the amount owing on July 1 less 10% discount
July 14 JKK sold goods to SKM for K200 000, Less 5% trade discount
July 17 JKK allowed SKM to return damaged goods and consequently sent him a Credit Note
for K10 000 after deduction of trade discount
July 21 SKM paid JKK cash K48 000 Discount Allowed to him K2 000
July 29 SKM paid JKK by cash K170 000 Less Discount K10 000
You are to show the account of SKM on the ledger of JKK.
2. The following-Account appeared in the Purchases Ledger of Manguka. M. Anold Account
Date Details F DR CR
2009 K K
June 1 Balance b/f 800 000
6 Bank 720 000
6 Discount 80 000
23 Purchases 1 400 000
25 Returns Outwards 100 000
29 Furniture 450 000
i. State the meaning of the balance on June 1.
ii. Explain the transactions that gave rise to the entries from June 6 to June 29, 2009.
iii. What type of discount was on June 6?
iv. What was the closing balance on June 30th and on which side of the account did it appear?
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3. A trader had the following details relating to the Postage Account for the year ended 31 May 2008.
2007
June 1 Stock of used stamps K280 000
Sept 25 Bought postage stamps worth K900 000 by cash
2008
Jan 20 Bought postage stamps worth K700 000 on credit from ZAMTEL Ltd
March 5 Bought postage stamps by cheque K500 000
May 31 Value of used stamps for the year was K1 950 000
Prepare the Postage Account for the year, clearly showing the transfer to Profit and Loss Account.
3. B Chembe is a customer of T Twaambo. From the following information prepare T Twaambo's

Account in B Chembe's ledger for the month of September 2008 and balance off the account 2008
Sept 1 Balance due to T Twaambo K710 000

6 B Chembe bought goods from T Twaambo valued at K900 000 less 20% trade
discount.
14 B Chembe returned some of the goods bought on September 6 with a list price of
K300 000.
20 B Chembe paid T Twaambo the amount due on September 1 by cheque less 2% cash
discount.
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BAD DEBTS AND PROVISION FOR BAD DEBTS
Debts which cannot be recovered is referred to be bad so it becomes a direct business expenses
Reasons
Death, running away, bankrupt, runs mad, not credit worth
Accounting treatment
Add: bad debts to the list of expenses in the profit and loss account
Note: if the bad debts appear in the adjustment, it should be treated as follows
 Add: it to the list of expenses in the profit and loss account

 Subtract same amount of bad debts from the debtors in the balance sheet
EXAMPLES
1. Wakumelo had debtors amounting to K3,200 at the end of the Year 31december 2003. She decided
to create a provision for bad and debts of 5% each year. On 31December 2004 debtors were K2,800
while at the end of 2005 debtors were K3,700,000. Prepare the provisions for bad debts A/C for the
three years 2003, 2004 and 2005, show clearly the transfer to the profit and loss account and the
balances for each year.
SOLUTIONS
PROVISIONS FOR BAD DEBITS ACCOUNTS
DATE DETAILS FOLIO DEBIT CREDIT
31/12/2003 Profit and loss 160
31/12/2003 Balance c/d 160
160 160
1/1/2004 Balance b/d
160
31/12/2004 Profit and Loss 20
31/12/2004 Balance c/d 140
160 160
1/1/2005 Balance b/d 140
31/12/2005 Profit and loss (½) 45
31/12/2005 Balance( ½) c/d 185
185 185
1/12006 Balance b/d 185
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INCREASED FOR PROVISION FOR BAD DEBTS
This is where the amount for bad debts from previous year is smaller than the one in the current year.
This arises where the newly calculate provision is bigger than the one already in the books of
accounts
1. debit profit and loss account( deducting it from gross profit as an expense)
2. credit the provision for bad debts account
3. deduct the current provision from the debtors in the balance sheet
2. A business started trading on 1 January 2008. During the two year ended 31 December 2008, 2009,
the following debts were written off to the bad debts account on the dates stated
31 December 2008 K240 000 31 December 2009 K380 000
On the same dates there had been a total of debtors remaining of K40 500, in 2008 and K47 300 for
2009. it was decided to make a provision for doubtful date of K550 in 2008 and K600 in 2009. You
are required to show the necessary ledger accounts in the books of the firm. Prepare the extracts of
the profit and loss account and balance sheet for two years 2008/2009
Solution
Bad debts account
Date Details f Dr Cr
2008 K000 K000
31/12 Debtors 240
31/12 Profit/loss 240
240 240
Provision Bad debts account

2008 K000 K000
01/01 Balance b/f 550
balance c/d 600
600 600
01/01/09 Balance b/f 600
DECREASED PROVISION FOR BAD DEBTS

The provision under the adjustment will be smaller than one in the trial balance or previous year
1. add: the decrease( difference) to the list of incomes in the profit and loss account
2. reduce: debtors in the balance sheet by the current provision( newly calculated)
3. debit: the provision for bad debts account with a difference
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3. At 31 December 2008, a firm has a provision for bad debts of K1200 in the year to 2009, the firm
suffered irrecoverable debts of K1500. The debtors were K19 400. The firm maintains a 5%
provision for doubtful debts and bad debts. Show the bad debts account, provision for bad debts
account, extracts of the profit and loss account and balance sheet
SOLUTION
Bad debts account
2008
31/12 debtors 1500
1500 1500
Provision Bad debts account

2008 K000 K000
01/01 Balance b/f 1200
balance c/d 970
1200 1200
Profit and loss account extract
Gross profit xxx
Add; income
Provision for bad debts 230
Less expenses
Bad debts 1500
Balance sheet extract
Current assets K
Debtors 19400
Less p/bad debts 970
18430
1. B Walubita had a debtor's total of K1 600 at the end of his financial year, ending 31 December 2005.
He decided to create a provision for doubtful debts at the rate of 5% each year.
On 31 December 2006 his debtors figure amounted to K1 400 while at end of 2007 the debtors value
amounted to K1 850.
Show the provision for Bad and Doubtful Debts Account for the Three years 2005 to 2007, clearly
showing both transfers to Profit and Loss Account and balances carried forward for each year.
2. In the books of chanda, a provision for bad debts on 1 January stands at K1 750 000. During the year,
the firm suffered K2 500 00 as bad debts written off. The debtors figure as at 31 December 2008 was
K 36 000 000. Show the necessary ledger accounts in the books of the firm. Prepare the extracts of
the profit and loss account and balance sheet. The provision is to be maintained at 5%
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3. A business started trading on 1 January 2008. During the two year ended 31 December 2008, 2009,
the following debts were written off to the bad debts account on the dates stated
31 December 2008 K240 000
31 December 2009 K380 000
On the same dates there had been a total of debtors remaining of K40 500, in 2008 and K47 300 for
2009. It was decided to make a provision for doubtful date of K550 in 2008 and K600 in 2009.
You are required to
i. Show the necessary ledger accounts in the books of the firm.
ii. Prepare the extracts of the profit and loss account and balance sheet for two years 2008 and
2009
4. On 1 January 2006, there was a balance of K500 in the provision for bad debts account and it was
decided to maintain a provision of 5% of the debtor at each year end
2006 K12 000
2007 K8 000
2008 K10 000
You are to Show the bad debts account, provision for bad debts account, extracts of the profit and
loss account and balance sheet
5. On 1 January 2009 a business had a provision for doubtful debts with a credit balance of K1 500 000.
The business maintained the provision of 5% of the debtors outstanding at the end of each year. At 31
December were as follows
2009 K24 000 000
2010 K32 000 000
For the two years 2009/2010 you are to show provision for bad debts account, extracts of the profit
and loss account and balance sheet
DEPRECIATION OF FIXED ASSETS

Depreciation is: wear and tear of fixed asset or losing of value of fixed assets
Causes of depreciation
 Usage of an asset
 Obsolescence /passage of time
 Weather conditions
 Friction
 Accident
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Methods of depreciation
 Straight line/equal installment
 Diminishing balance/reducing balance method
 Revaluation
Straight line method/equal installment

Two methods of calculating
 Fixed percentage worked on the cost price of an asset e.g. 10% on the cost price of a fixed asset e.g.
machinery
 Scrap value method
o Cost price of the asset
o Estimated number of years, it will last
o Scrap value
𝑪𝒐𝒔𝒕 𝒑𝒓𝒊𝒄𝒆−𝑺𝒄𝒓𝒂𝒑 𝑽𝒂𝒍𝒖𝒆
Depreciation =
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒚𝒆𝒂𝒓𝒔 ( 𝑻𝒊𝒎𝒆)
REDUCING BALANCE /DIMINISHING BALANCE METHOD

Depreciation is calculated on the book value or scrap value
Note; the increase of depreciation as the years increases is called Accumulated depreciation
Accounting treatment.
 The current year depreciation is added to the list of expenses in the profit and loss account as
depreciation
 subtract accumulated depreciation (current + previous depreciation) from cost price of an asset
(fixed)
Disposal of fixed assets

 It is a sale of fixed asset
Accounting entries
a. in asset account
 debit: asset disposal
account
 credit :asset account
b. provision for
depreciation
 debit :accumulated
depreciation account
 credit: asset disposal
account
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c. amount received on disposal
 debit: cash book
 credit : asset account
d. the difference(i.e. amount needed to balance the asset account) should be transferred to the
profit and loss account as profit or loss
 debit balance shows that there is a profit on the sales of that asset and should be credited to the profit
and loss account
 credit balance shows that there is a loss on the sale of that asset and should be debited to the profit
and loss account
Examples
1. On January 2006, machinery was purchased at cost of K8 000 000. Depreciation is to be charged at
the rate of 10% per annum by straight line method. On 3rd January 2008 the machine was disposed of
at K7 000 000. You are to show the machinery account for 2006/7/8, provision for depreciation for
three years, disposal of fixed asset account and profit and loss extract
Machinery account
2006 K000 K000
01/01 Cash 8000
31/12 Balance c/d 8000
2007 8000 8000
01/01 Balance b/d 8000
31/12 Balance c/d 8000
2008 8000 8000
01/01 Balance b/d 8000
03/01 disposal 8000
8000 8000
Provision for depreciation account
Date details F Dr Cr
2006 Profit/loss b/f 800 000
2007 Profit/loss 800 000
Balance c/d 1 600 000
1 600 000 1 600 000
2008 Balance b/d 1 600 000
03/01 disposal 1 600 000
1 600 000 1 600 000
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Disposal account
Date details F Dr Cr
2008 K000 K000
01/01 Machinery 8000
2007 Cash 7000
Depreciation 1600
Profit/Loss 600
8600 8600

Gross profit xxx
Add; income
Profit on disposal of asset 600 000
2. SKM Company purchased then motor cars on January 2006 at a cost of K5000 each. The company
writes off depreciation on cars at the rate of 20% per annum on the original cost. On 1st January 2008
two motor car were sod foe a total price of K5600, on the same date another car was purchased at a
cost of K7000: write up the motor car account, for three years, provision for depreciation for three
years, disposal of fixed asset account and profit and loss extract
Machinery account
Date details f Dr Cr
2006 K000 K000
01/01 Cash 50000
31/12 Balance c/d 50000
2007 50000 50000
01/01 Balance b/d 50000
31/12 Balance c/d 50000
2008 8000 8000
01/01 Balance b/d 50000
03/01 Cash/bank 7000
Disposal 10000♠
31/12 Balance 47000
2009 57000 57000
01/01 balance 47000
♠ Two machines were disposed off which cost K5000each and it is credited because it is
reducing the number of machines
Provision for depreciation account
Date details f Dr Cr
2006 Profit/loss b/f 10000
2007 Profit/loss 10000
Balance c/d 20000
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20000 20000
2008 Balance b/d 20000
03/01 Disposal 4000
31/12 Balance 25400
2009 29400 29400
01/01 25400
Note Depreciation for nine cars one costing K7000 and eight costing K5000 each
Total depreciation for two machines sold. Debited because the car which has accumulated that
depreciation has been removed from the business hence credited in disposal a/c
Disposal account
Date Details F Dr Cr
K000 K000
03/01/2008 Machinery 10000
Cash 4000
Depreciation 5600
Profit/Loss 400
10000 10000

Gross profit xxx
Less expenses
Loss on disposal of asset 400
Cost of two machines sold K5000 each
1. Angela’s ltd has the following ledger balance at January 2006
 Motor Vehicle K100 000:

 Provision for depreciation K440 000.
Depreciation is provided at the rate of 20% of the cost of the motor vehicles. Full year depreciation
is charged in the year of purchase but no depreciation is charged in the year of disposal. A vehicle
bought for K30 000 in august 2003 was sold for K9000 on 1 November 2006. Write up and balance
the following ledger accounts for the year ended 31st December 2006
1. motor vehicle account

2. provision for depreciation
3. motor vehicle disposal account
4. profit and loss extract
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2. The following extract is taken from ray’s balance sheet.
Balance sheet as at 31 august 2008
Fixed asset COST DEP NBV
Fixtures 24000 9000 15000
Motor van 8000 4800 3200
On 30 November 2008 ray sold the motor van for K3500 cash, Ray do not provide for depreciation in
the year of sale. Prepare (a) disposal account (b) profit and loss extract for the year 2008
4. A machine was bought on January 1 2005 for K2 000 000 and another on October 2006 for K2 200
000. The first machine was sold on 30th June 2007 for K1 800 000. The business financial year ends
on 31st December each year. The machines are to be depreciated at 10% using straight line method,
machines being depreciated for each proportion of a year you are required to prepare:
a. Machinery account for 2005/6/7
a) Provision for depreciation for 2005/6/7
b) Machinery disposal account for 2005/6/7
c) Profit and loss extract for 2005/6/7
3. Chitambo Milling maintains its fixed assets at cost and depreciation is shown in the
Provision for Depreciation Account.
On 1st January 2009, the following appeared:
Plant K30 000 000
Provision for depreciation K9 000 000
1st April 2009, bought additional plant for K8 000 000 cash.
1st July 2009, sold plant costing K5 000 000. This plant was bought on 1st January
2008. It was sold for K4 250 000 cash.
Depreciation has been provided at the rate of 10% on cost. No depreciation is to be provided on the
asset sold during the year and a full year's depreciation is to be provided on any asset bought during
the year. The accounting year of the company ends on 31st December.
Required:
i. Plant Account
ii. Provision for Depreciation Account
iii. Plant disposal Account for the year ended 31st December 2009.
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PREPAYMENTS/ ACCRUALS
Examples
1. The following balances appeared in the Balance Sheet of P. Daka:
3 April, 2005
Wages and salaries accrued K 6 000
Rent and rates prepaid K 2 000
1 May, 2005
The cash book for the year to 30 April 2006 showed the following payments made by cheque:
Wages and salaries K 125 800
Rent and rates K 20 000
On 30 April 2006 the Balance Sheet included the following balance:
Rent and rates accrued K 2 200
Wages and salaries K 7 900
Required:
(i) Wages and salaries account
(ii) Rent and rates account
Balance off the accounts and bring down the balances.
Solutions
Wages and salaries account
01/5/05 Balance b/f 6 000
30/ 04/06 Bank 125 800
30/ 04/06 Profit and loss 127 700
30/ 04/06 Balance c/d 7 900
133 700 133 700
01/05/06 Balance b/d 7 900
Rent and Rates account

01/5/05 Balance b/f 2 000
30/ 04/06 Bank 20 000
30/ 04/06 Profit and loss 24 200
30/ 04/06 Balance c/d 2 200
24 200 24 200
01/05/06 Balance b/d 2 200
2. Mr. S. Butala commenced trading on 1 October, 2003 and took over premises from that date at an
annual rental of K2 400 000 payable quarterly at the end of each quarter.
On 1 May, 2004 he sublet part of the premises at an annual rental of K600 000.
Butala's financial year ended on 30 September, 2004 and by that date he had made the following
payments by cheque in respect of rent.
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2 January, 2004 600 000
28 March, 2004 600 000
30 June, 2004 600 000
The following amounts had also been received by cheques from the sub tenant.
1 May, 2004 150 000
1 August, 2004 150 000
Required:
Prepare separate accounts for:
(i) Rent payable.
(ii) Rent received.
Balance them on 30 September, 2004 showing the appropriate transfers to the Profit and Loss
Account.
RENT PAYABLE ACCOUNT

Jan 2 2004 Bank 600 000
March 28 Bank 600 000
June 28 Bank 600 000
Sept 30 Profit and Loss 2 400 000
Sept 30 Balance 600 000
2 400 000 2 400 000
Oct 1 2004 Balance 600 000
RENT RECEIVABLE ACCOUNT

May 1 2004 Bank 150 000
Aug 1 2004 Bank 150 000
Sept 30 2004 Profit and loss 250 000
Sept 30 2004 Balance c/d 50 000
300 000 300 000
Oct 1 2004 Balance 50 000
1. From the following information given below you are required to

a. Calculate the charge to the profit and loss account for the year ended 31 December 2009, in respect
for rent, rates, and Insurance
b. State the amount of accruals or prepayment for rent, rates, and insurance as at 31 December 2009
The accrual and prepayments as at 31 December 2008 were as follows
Rent Accrued K2000
Rates Prepaid K1 500
Insurance Prepaid K1 800
st
Payment made during the year ended 31 December 2009 were as follows
i. Rent was paid from January paid from January 2009 to March 31 2010 was K3 000 000
ii. Rates was at the rate of K300 per month and it was paid up to 30th June 2009
iii. Insurance was at the rate of K200 per Month and it was paid up to 31st May 2009
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2. Enter the following in the insurance account of a SKM whose financial year ends on 30th June
2008
30th June insurance prepaid amounted to K230 000
1 October fire insurance premium of K240 000 was paid by cheque for the year to 30th
September 2009
2009
12 January a cheque of K300 000 was issued for the yearly motor vehicles insurance to 31
December 2009
18 April K60 000 was paid in cash in respect to Burglary insurance for the year to 31 march
2010
Balance the insurance account as at 30 June 2009
3. SKM commenced trading on 1 January 2008 and took over premises from that date an annual rental of
K2 400 000 payable quarterly at the end of each quarter.
On 1 may 2009, he sublet part of the premises at annual rental of K600 000. SKM’s financial year
ended on 30 September 2009, and by that date he had made the following payment by cheque in
respect of rent
2 January 2009 K600 000
28 March 2009 K600 000
30 June 2009 K600 000
The following amounts had also been received by cheque from the sub –Tenant.
1 may 2009 K150 000
1 August K150 000
Required:
Prepare separate account for:
i. Rent payable account
ii. Rent receivable account
Balance them on 30 September 2009 showing the appropriate transfer to the profit and loss account
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TRIAL BALANCE AND ITS LIMITATIONS
LIMITATION OF THE TRIAL BALANCE
A trial balance proves only the arithmetical accuracy of a set of accounts; some errors, because of their
nature, are not shown up by a trial balance. These are:
Error not revealed by trial balance

a) Error of omission;
b) Reversal of entries;
c) Error of commission;
d) Error of principle;
e) Error of original entry;
f) Compensating error;
When an error not shown by a trial balance is found, it must be corrected by means of a journal entry, and
then passed through the appropriate accounts.
(a) Error of Omission
This means that a business transaction has been completely omitted from the accounts: thus there is
no debit or credit entry. The trial balance will balance because the same amount has been omitted
from both the debt side of one account and the credit side of another.
Correcting the error of Omission
Credit sales of K100,000 to SKM omitted from the accounting records.
The journal proper
SKM 100 000
Sales 100 000
Being the correction of error of omission
(b) Error of Complete reversal Entries

Here a transaction has been entered in the correct accounts and for the correct amount, but is recorded
on the wrong side of both accounts. For example, the purchase of a machine by cheque has been
entered as:
Dr. Bank
Cr. Machinery
This should of course, be entered the other way round; but the error will not show in the trial balance
because there has been both a debit and credit entry for the same amount.
Example: Receipt of K300, 000 cash from Chota a debtor, entered in error on the credit side of the
cash book and debited to Chota’s account.
Correcting the error of Complete Reversal
The journal proper
Bank 600 000
Chola 600 000
Being the correction of error where Chola was
debited instead of credited
The figure is doubled because one K300 000 is for correction of the error and the other K300 000 is
for cancelling the wrong posting which was entered there as an error
(c). Error of commission

In this error a transaction has been entered in the same class of account e.g. personal account: for
example, the sale of goods on credit to Mwansa is entered in error to Mwanza account. The
arithmetic of Bookkeeping is correct, but Mwanza will not be pleased at being charged for goods he
has never seen and does not want. This kind of error can often be revealed by sending out statements
of accounts to customers: this makes sure that the customer who has been charged for goods not
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supplied will soon let you know. Keeping an accurate book keeping system is better than letting
others find the error for you, however.
Example
Credit sales of K650, 000 entered to the account of Mwanza instead of Mwansa.
Correcting the error
The journal proper

Mwansa 650 000
Mwanza 650 000
Being the correction of error where Mwanza was
debited in error
(d). Error of Principle

This arises where an item is entered in the wrong class of account. For example, the cost of a van be
kept separate from the costs of running it, such as money spent on petrol, oil and repairs, and a
business will have both a Van account and a Van Running Expense Account; it would be an error of
principle if both the cost of the van and the running expenses were combined in the same
account.(Although the trial balance would still be arithmetically correct.)
Correcting the error of Principle
Example
Motor Vehicle expenses of K100 000 debited in error to motor vehicle account.
The Journal Proper
Motor vehicle A/c 100 000
Motor vehicle Expenses 100 000
Being the correction of error where Motor
Vehicle Expenses were debited in error
(e). Error of Original entry.

This is where the original amount is incorrectly entered and yet double entry is completed using
incorrect figures.
Example: A sale of goods by cash for K82000 was entered in both books as K28000.
Correcting the error of original entry.
The journal proper

Cash 54 000
Sales 54 000
Being the correction of error where K28 000 was
recorded instead of K28 000
(f). Compensating Error.

These are errors which cancel out each other in the trial balance. For example, if the sales overcastted
by K10000 and the purchases are also overstated by the same amount, such errors will not affect the
agreement of the trial balance assuming that these are the only errors.
Example: The sales account is overcast by K100, 000 as also is the wages account.
Correcting the error.
The journal proper
Sales 100 000
Wages 100 000
Being the correction of error both accounts were
overcastted.
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ERRORS REVEALED BY THE TRIAL BALANCE
These errors contravene the rule of double entry and so affect the agreement of the trial balance. The trial
balance totals will not be equal. These are:
(a) Arithmetic errors: these are a result of wrong calculation.
(b) Error of single entry: where only one aspect of the transaction is recorded, i.e only the debit or
credit is recorded leaving out the other.
(c) Error of transposition: where a correct amount is entered in one account and interchange position as
you enter in the other account e.g K456 entered as 465 in one account.
(d) Error in the trial balance: are errors made when extracting a trial balance such as error of omission,
transposition etc.
When a trial balance fails to agree an attempt must be made to locate the errors quickly. If this proves
impossible however, the trial balance must be” balanced” by placing the difference to a suspense account.
e.g.
Trial balance as at 31st December 2007
Dr Cr.
K K
Totals 59 940 60 000
Suspense Account 60
60 000 60 000
A Suspense Account is now opened in the general ledger:
Suspense Account
Date Details Folio Dr. K Cr. K
31/5/07 Difference from trial balance 60
60
1. EXAMPLE ON ARITHMETIC ERRORS (ERRORS OF UNDER CAST AND OVERCAST)
These are single sided errors which affect a particular journal or account i.e. the totals are either over
added or under added.
Example. Purchases account is under cast by K100 000
This entry will be corrected by journal entry as follows:
Date Details F Dr. (K) CR. (K)
Purchases 100 000
Suspense 100 000
Being correction of under cast on
Purchases Account
2. EXAMPLE ON ERROR OF SINGLE ENTRY/ERRORS IN POSTING
These are errors where double entry is not completed e.g. where a transaction is posted to
the same side of both accounts or where an entry is made on the debit side but no corresponding
credit entry is made.
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Example: Cash received K400 000 from H Musonda a debtor has not been entered in
Musonda’sAccount.
This entry will be corrected by journal entry as follows:
Date Details Folio Dr. (K) Cr. (K)
Suspense 400 000
H Musonda 400 000
Being correction of omission of receipt of
cash in Musonda’s Account.
CLEARING OF THE SUSPENSE ACCOUNT

When errors have been discovered, the suspense account has to be cleared. Like other errors these errors
must be corrected by the use of the journal. Since these errors usually affect one account the other account
will be the suspense Account.e.g.
A Book keeper extracted a trial balance on 31st December 2011 which failed to agree by K330 000, a
shortage on the credit side of the trial balance. A Suspense Account was opened for the difference.
In January 2012, the following errors were discovered:
a. Sales Day Book had been under cast by K100 000
b. Sales of K250 000 to J Chola had been debited in error to J Choolwe’saccount
c. Rent had been under cast by K70 000
d. Discount received Account had been under cast by K300 000
e. A sale of motor vehicle at book value had been credited in error to Sales Account K360 000
You are required to:
i. Show the journal entries to correct the errors
ii. ii. Draw the Suspense Account after the errors have been corrected
iii. If the net profit had previously been calculated at K6.8m for the year ending 31st
December 2011. Show the calculation of the corrected net profit.
Solution
1. JOURNAL ENTRIES
Dr. Cr.
K’000
K’000
Suspense 100
Sales 100
Being correction of an under cast in Sales Account.
J Chola 250
J Choolwe 250
Being correction of a Sale to J Chola debited in J Choolwe’s
Account.
Rent 70
Suspense 70
Being correction of an under cast in Rent Account
Suspense 300
Disc Received 300
Being correction of an under cast in Discount Received.
Sales 360
Motor Vehicle 360
Being correction of a sale of a motor Vehicle wrongly credited to
Sales A/C
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SUSPENSE A/C
Dr. Cr.
K’000 K’000
Balance b/d 330
Sales 100
Rent 70
Disc Received 300
400 400
CORRECTED NET PROFIT FOR THE YEAR ENDED 31 December 2011

K’000 K’000
Net profit 6 800
Add: Sales under cast 100
Add: Disc Received under cast 300
400
7200
Less: Sales overstated 360
Rent Undercast 70
430
Net profit of the Year 6770
1. After the preparation of a firm's Balance Sheet, it was discovered that the following errors had been
made in the books of accounts.
(i) Furniture bought on credit for K450 000 had been entered in the Purchases Book.
(ii) Machinery disposed of for K600 000 had been included in the Sales Account.
(iii) A cheque for K990 000 from a debtor for goods sold to him at K1 000 000 on credit had not been
recorded in the books.
(iv) Goods worth K250 000 sold to a customer but not yet delivered had been included in the closing
stock.
(v) Motor Vans standing at K10 000 000 should have been depreciated at 20%.
(vi) The firm should have provided for discounts on debtors total of K550 000 at10%
(vii) Goods amounting to K150 000 taken by the owner of the business had been included in the sales
figure.
Required:
In order to adjust for each of the errors above, state which items in the Balance Sheet should be
increased or decreased.
(i)
(ii)
[9 ½ Marks: 2010 Q1B]
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2. On 31st March2008, the Trial Balance of Mwendabai failed to agree. The debit balance totalled K188
100, while the credit side balance totaled K191 300. The following errors were later discovered:
i. The Sales Book total of K113 200, had been posted to the ledger as K112 000.
ii. Discount allowed amounting to K45 000 had been posted from the Cash Book to the wrong side
of the Discount Allowed Account.
iii. A payment of K18 000 for repairs to the firm's delivery van, correctly recorded in the Cash Book
had been debited in the Delivery Van's Account.
iv. A debt of K360 000 due from R. Tweende was considered irrecoverable. This amount had been
recorded in the Bad Debts Account but no other entry had been made.
v. The Purchases Day Book total had been overstated by K100 000.
Required to:
a. State the Suspense Account Opening balance. [2]
b. Show the journal entries, with correct narrations, necessary to correct the above errors. [15]
[ECZ 2011 Q1]
3. Maninka extracted a Trial Balance and drew up the final accounts for the year ended 31December 2003.
There was a shortage of K2 920 000 on the credit side of the Trial Balance and a Suspense Account was
opened for the difference.
On January 2004 the following errors made in 2003 were located:
1. K550 000 received from sales of old office equipment had been entered in the Sales Account.
2. Purchases Day Book has been overcast by K600 000.
3. A private purchase of K1 150 000 had been included in the business purchases.
4. Bank charges K380 000 entered in the cash book had not been posted to the bank charges
account.
5. A sale of goods to B. Kachepa K6 900 000 was correctly entered in the sales day, book but
entered in the personal account as K9 600 000.
Required
(a) Write up the Suspense Account showing the correction of the errors. [8]
(b) Adjust the net profit which was originally calculated for 2003 as K113 700 000[12]
QUESTIONS FOR PRACTICE

4. Show the journal entries needed to correct the following errors:
a. Purchases K1, 500 on credit from Ray had been entered in Roy’s account.
b. A cheque of K100 000 paid for printing had been entered in the cash column of the cash book
instead of in the bank column.
c. Sale of goods K400 00 on credits to Kambole had been entered in error in Kambone’s account.
d. Purchase of goods on credit SKM K890 000 entered in the correct accounts in error as K89000.
e. Cash paid to Musonda K64 000 entered on the debit side of the cash book and the credit side of
Musonda’s account.
f. A sale of fittings £320 had been entered in the Sales account.
g. Cash withdrawn from bank K 200 000 had been entered in the cash column on the credit side of
the cash book, and in the bank column on the debit side.
h. Purchase of goods K1, 182 000 has been entered in error in the Furnishings account.
5. i. Show the journal entries necessary to correct the following errors:

(a) A sale of goods K 500 000to Mulenga had been entered in Malanga’s account.
(b) The purchase of a machine on credit from Toyota Zambia for K6 000 000 had been completely
omitted from our books.
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(c) The purchase of a computer for K550 000 had been entered in error in the Office Expenses
account.
(d) A sale of K201 000 to SKM had been entered in the books, both debit and credit, as K102 000
(e) A receipt of cash from Musonda K68 000 had been entered on the credit side of the cash book
and the debit side of Musonda’s account.
(f) Discounts Allowed K48 000 had been entered in error on the debit side of the Discounts Received
account.
6. Journal entries to correct the following are required, but the narratives can be omitted.
a. Rent Received K300 000 have been credited to the Commissions Received account.
b. Bank charges K 700 000 have been debited to the Business Rates account.
c. Completely omitted from the books is a payment of Motor Expenses by cheque K800 000.
d. A purchase of a fax machine has been entered in the Purchases account.
e. Returns inwards K216 000 have been entered on the debit side of the Returns Outwards account.
f. A loan from Barclays Bank K 2,000 000 has been entered on the credit side of the Capital
account.
Loan interest of K400 000 has been debited to the Van account. Q1. A book keeper extracted a trail
balance on 31 December, 2014 which failed to agree by 330 a shortage on the credit side of the
trial balance. A suspense account was opened for the deference.
7. .1n January 2015 investigation showed that;

(i) Sales day book had been under cast by K100.
(ii) Sales of K250 to Kapasa had been debited in error to Kapeso’s account
(iii) Rent account had been under casted by K70
(iv) Discount received had been under cast by K300
(v) The sale of a motor vehicle at book value had been credited in error to sales
account K 360.
(a) Show the journal entries necessary to correct the errors.
(b) Draw up a suspense account after the described above have been corrected.
(c) If the net profit had previously been calculated at K7900 for the year ended 31 st December
2014, show the calculation for the corrected Net Profit.
ECZ 2005: Q2]
SOLUTION TO THE EXAM QUESTIONS

Q1.
(i) Furniture and net profit
(ii) Net profit and machinery
(iii) Bank Net profit /Debtors
(iv) Closing stock/ net profit
(v) Motor Vans/ net profit
(vi) Debtors/ net profit
(vii) Drawings Net Profit
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Q2.
(a) The opening balance is K3 200
(b) The Journal Proper
Dr Cr
i. Suspense 1 200
Sales 1 200
Being the correction of error of under cast
ii. Discount allowed 90 000
Suspense 90 000
Being correction of error of posting wrong
side of account
iii. Repairs 18 000
Delivery Van 18 000
Being correction of error of principle
iv. Suspense 360 000
R Tweende 360 000
Being a debt written off for K360 000
v. Suspense 100 000
Purchases 100 000
Being the correction of overcast
Q3.
SUSPENSE ACCOUNT
Jan 1 2004 Balance b/f 2 920 000
Jan 31 2004 Purchases 600 000
Jan 31 2004 Bank Charges 380 000
Jan 31 2004 B Kachepa 2 700 000
3 300 000 3 300 000
ADJUSTED PROFIT STATEMENT

Net profit (01.01.04 113 700 000
Add: Purchases a/c overcast 600 000
Drawings (entered as purchases) 1 150 000
1 750 000
115 450 000
Less: Sales a/c Overcast 550 000
Bank Charges 380 000
930 000
Net profit 31. 01.2004 114 520 000
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BANK RECONCILIATION
 This is the statement prepared by our business to verify our cash book balance with the bank
statement balance.
 The two bank accounts in the cash book and at the bank account keep the same record except that
entries are shown on the opposite side i.e the debit in the cash book are credits at the bank and vice
versa. Therefore balances are supposed to be the same but this is not usually the case dues to certain
factors:
 There those cheques entered in the cash book but do not yet appear on the bank statement.
 Items that appear on the bank statement but are not yet been recorded in the cash book.
 The bank statement should be prepared at intervals to verify the two bank balance.
Example
SKM’s cash book at 31st December 2011 showed a debit balance at the bank of K1 024 000 but the bank
statement of the same date had a credit balance of K262 000. After comparing the cash book with the bank
statement, the following differences were noted
i. An amount of K142 000 paid into the bank had not yet appeared on the statement
ii. Bank interest K60 000 in respect of an earlier overdraft had been charged by the bank
iii. Cheques issued for K560 000 had not been presented for payment
iv. A cheque for K800 000 which had been paid into the bank had been returned un paid because of lack of
funds. No action had been taken by SKM to deal with this item
v. Funds of K1 120 000 paid into the bank had been entered in the cash book as K1 000 000
vi. The bank had received a banker’s order payment of insurance of K480 000 which had not been
recorded by SKM
vii. The bank had received by direct credit transfer a payment K40 000 due to SKM from JKK.
You are required to
a. Up dated Cash Book
b. Prepare a bank Reconciliation Statement as at 31 December 2011 (13 Marks)
Solution
CASH BOOK BANK COLUMN
F Dr (K) CR. (K)
Balance b/f 1 024
000
Bank interest 60 000
Dishonoured Cheque (Bank) 800 000
Error Corrected 120 000
Insurance 480 000
Credit transfer 40 000
Balance c/d 156 000
1 340 000 1 340 000
BANK RECONCILIATION STATEMENT

Balance as per Revised Cash Book (156 000)
Add: Un presented Cheques 560 000
404 000
Less: Un credited Cheques 142 000
Balance as per Bank Statement 262 000
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EXAMINATION PRACTICE
1. The following are extracts from the cash book and the bank statement of Mpombo you are required to:
(a).Write the cash book up to date and state the new balance as on 31st December 2014.
(b). draw up a bank reconciliation statement as on 31st December 2014.
CASH BOOK
2014 Dec K 2014 Dec K

Dec 1 bal b/d 1740 Dec 8 A. Daily 349
7 T.J. Masters 88 15 R. Mason 33
22 J. Ellis 73 28 G. Small 115
31 K Wood 249 31 bal c/d 1831
31 M. Barrette 178
2328 2328
BANK STATEMENT
2014 K K K
Dec 1 bal b/d 1740
7 cheque 88 1828
11 A. Dalley 349 1479
20 R. Mason 33 1446
22 cheque 73 1519
31 credit transfer: J. Walters 1573
31 Bank charges 22 54 1551
2. SKM’s cash book (bank Columns) for May 2010 was as follows
Cr
Dr K'000 K’000
1-May Balance 1,200 5-May Musonda 540
12-May cash 450 19-May Mulenga 180
26-May Chanda 120 26-May JKK 100
31-May cash 150
The following bank Statement was received by SKM in early June

2010
Details Payments Receipts Balance

K’000 K’000 K’000
1-May Balance B/f 1,040
Error Corrected
1-May Contra 160 1,200
15-May cash 450 1,650
16-May Musonda 540 1,110
22-May Mulenga 180 930
28-May Chanda 120 1,050
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unpaid Cheque:
30-May Chanda 120 930
30-May Dividend 180 1,110
31-May Bank Charge 170 940
a) Bring the cash book up to date stating with the present balance as at 31st may 2010 [5 marks]
b) Prepare a statement under its correct title, to reconcile; the difference between your amended cash
book balance in the bank statement on 31st may 2010 [9 Marks ]
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RECEIPTS AND PAYMENTS
These are organization whose aim is not to make profit e.g charity organization, clubs, associations,
churches, government, NGOs etc
Accounts under nonprofit organization:
- Receipt and payments
- Income and expenditure
- Subscription account
- Balance sheet
Receipt and Payment
The treasurer of SKM Football Club had the following details from the summary Cash Book at 31st
December 2011. K
Bank balance at 1 December 2010 630 000
Cash Balance at 1 December 2010 100 000
Cash Receipts during the year 2011
Members Subscription for: 2010 140 000
2011 1 360 000
2012 200 000
Game gate takings 1 700 000
Annual social party Collections 1 340 000
The following expenses were made during the year 2011

K
Rent 2 340 000
Printing and stationery 180 000
Affiliation fees 120 000
Secretarial expenses. 370 000
Visitors refreshments during games 610 000
Annual social party expenses 1 020 000
Equipment Purchased 260 000
The treasurer also had the following details:

Amount due to the club 1 December 2010 31st December 2011
Members subscription 140 000 120 000
Game gate takings 780 000 530 000
Annual social party collections 160 000 -
Amounts owned by the club

Rent 720 000 540 000
Printing - 30 000
Secretarial Expenses 40 000 80 000
Visitors refreshments expenses 130 000 120 000
On 1 December 2010 the club’s equipment had a book value of K1 500 000. It was decided that 10% of total
book value of the equipment be written off at 31st December 2011.
(a) Show the summary receipts and payments account for the year and calculate the cash balance at bank
[8 ½)
(b) Prepare the income and expenditure account for the year ended 31st December 2011 [13 ½ )
(c) Prepare the balance sheet as at that date [13]
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SOLUTION
SKM’S FOOTBALL CLUB RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 31ST
DECEMBER 2011 ( ½ )
RECEIPTS K K
Balance b/f: Cash 630 000
Balance b/f Bank 100 000
Subscription ( 140 000+1 360 000 + 200 000) 1 700 000
Game Takings 1 700 000
Annual Social Party Collection 1 340 000
5 470 000
LESS PAYMENTS:
Rent 2 340 000
Printing and Stationary 180 000
Affiliation fee 120 000
Secretary expenses 370 000
Refreshment During games 610 000
Annual Social party Expenses 1 020 000
New Equipment 260 000
4 900 000
Bank/cash balance 570 000
SKM’S FOOTBALL CLUB INCOME AND EXPENDITURE FOR THE YEAR ENDED 31
DECEMBER 2011
INCOME K K
Subscription ( 1 360 000 + 120 000) (1) 1 480 000
Game Takings (1 700 000 + 530 000 – 780 000) (1 ½ ) 1 450 000
Annual Social party ( 1 340 000 - 160 000 +1 020 000) (1 ½ ) 160 000
Total Income 3 090 000
Less Expenditure
Rent ( 2 340 000 – 720 000 + 540 000) (1 ½ ) 2 160 000
Printing and Stationery (180 000 + 30 000 ) (1) 210 000
Affiliation fees 120 000
Secretarial expenses (370 000- 40 000 + 80 000) (1 ½ ) 410 000
Refreshment During the Games( 610 000-130 000+120 000) (1 600 000
½)
Depreciation of equipment 176 000
3 676 000
Deficit (586 000)
SKM’S FOOTBALL CLUB BALANCE SHEET AS AT 31ST DECEMBER 2011

Fixed Asset Cost Dep. NBV
Equipment (1 500 000 +260 000) ( 1 760 000 176 000 1 584 000
½)
Current Assets
Subscription owing 120 000
Game gate takings 530 000
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Cash at bank 570 000
1 220 000
Less: Current Liabilities
Rent Owing 540 000
Printing and stationery 30 000
Secretarial Expense 50 000
Refreshment creditors 80 000
Prepaid subscription 200 000
970 000
Working Capital 250 000
Net assets 1 834 000
Financed By;
Accumulated Fund (W1) 2 420 000
Less: deficit (586 000)
1 834 000
W1.
Accumulated Fund
Assets
Cash 630,000
Bank 100,000
Subscription 140,000
Games Takings 780,000
Annual Social Party 160,000
Equipment 1,500,000
3,310,000
Less Liabilities
Rent Owing 720,000
Secretarial Expenses 40,000
Visitors Refreshments Exp. 130,000
890,000
Accum.Fund. 01.01.11 2,420,000
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A Tens Club charges its members an annual subscription of K20 member. It accrues for subscription at the
end of each year and also adjusts for subscription received in advance.
a. On January 1 , 2013, 18 members had not yet paid their subscription for the year 2012
b. In December ,2012, 4 members pays K80 for the year 2013
c. During the year, 2013,it received K7420in cash for subscriptions:
K
For 2012 360
F0r 2013 6920
For 2014 140
7420
At 31 December, 2013, 11 members had not paid their subscriptions for 2013
Solution
date details f Dr Cr
2013 K K
Jan 1 Bal. b/d 360 80
bank 7420
income and expenditure 7220
bal. c/d 140 220
7720 7720
bal. b/d 220 140
EXAMINATION QUESTION
Q1. The Chingola Recreation club had the following details during the year ended 31 march, 2014
RECIPTS AND PAYMENTS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2014
Bank Balance B/D 40 000 Payments For Refreshments 230 500
Sales Of Refreshments 525 000 Stationery 62 700
Subscription 250 000 Rent 55 000
Donations 702 000 Prizes For Competitions 82 000
Balance C/D 513 200 Purchase Of A Computer 1 600 000
2 030 200 2 030 200
Balance b/d 513 200
The following information is also available;

31/03/13 31/03/14
Subscription in advance 78 000 21 200
Subscriptions in arrears 56 400 49 000
Stock of refreshments 27 000 32 500
Arrears on suppliers of refreshments 10 000 15 000
Printing machine (cost 500 000) 370 000 320 000
Required:
(i) Prepare the trading account for refreshments with the correct heading. 51/2
(ii) Prepare the subscriptions account.
(iii) Prepare the income and expenditure account for the year ended 31st March 2014 and the Balance
sheet at that date (show the calculation of the Accumulated Fund as at 1st April 2014).
(23)
Total : 35 marks
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CONTROL ACCOUNTS
The system of control accounts is applicable where more than one ledger is in use and the business has a lot of
customers and suppliers to deal with. For each ledger in use, there is a ledger clerk responsible and his or her
duty is to prepare a control account for that particular ledger.
Control accounts are form of trial balance for each ledger in use. They give control over the ledger by
making possible and easy to check its arithmetical accuracy. This means the particular ledger at fault is
known and Only the ledger with errors will be checked .
ADVANTAGES OF CONTROL ACCOUNTS

i. Used to locate errors easily.
ii. Fraud is made difficult. Transfers made [in an effort] to disguise fraud will have to pass the security
of the ledger clerk responsible.
iii. It makes it easy and quick to obtain the total of debtors and creditors by management without
checking individual accounts.
DEBTORS’ LEDGER
The debtors’ ledger contains personal accounts of each firm’s debtors. Where business has a lot of
customers, the ledger can be divided into section alphabetically or geographically. E.g. A- B debtors’ ledger
containing names of debtors whose initials [of surnames] begin with the letter A, B & D etc or
geographically according to towns or countries e.g. Lusaka debtors’ ledger, Kitwe debtors ledger. Each
debtor’s ledger will have its own control account.
DEBTORS LEDGER CONTROL ACCOUNTS

It is also known as the total debtors account, sales ledger control Account. It gives control over the debtors’
ledger or sections of the debtors’ ledger. The following are some of the items contained in the debtors’ ledger
control account and their sources.
ITEM SOURCE
Opening debtors balance List of balances drawn up at the end of the previous period
Credit sales Total from the sales journal
Cheques received Cashbook, Bank column [received side]
Cash received Cashbook, Cash column [received side]
Returns inwards Total from the returns inwards journal
Discount allowed Cashbook, Discount allowed column
Bad debts & bad debts recovered General journal
Bills receivable Bills received book
SetOffs [contra entries] General journal
Closing debtors List of debtors balance drawn up at the end of the period
PREPARATION OF A DEBTORS’ LEDGER CONTROL ACCOUNT

i. The total of the opening debit balances are debited, if they are any opening credit balances, they are
credited
ii. The total of the entries [items] which reduce the amount owed by debtors, are credited.
iii. The totals of the entries [items] which increases the amount owed by debtors are debited.
iv. The total of the closing balance is then calculated and compared with the balances in the sales ledger.
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Debtors Ledger Control Account
DATE Details F Cr. Dr.
20..Jan 1 Balances b/f xxx xxx
Sales xxx
Cash received xxx
Cheques received xxx
Bills received xxx
Dishonoured cheques (Bank) xxx
Bad debts xxx
Bad debts recovered xxx
Discount allowed xxx
Inter – ledger transfers (set Off) Contra entry c xxx
Interest charged on overdue accounts xxx
Undercharge xxx
st
Dec 31 Balance c/d xxx
xxxx xxxx
Jan 1st Balance b/d xxx
NOTE
i. Cash sales are not entered in the debtors ledger control account.
ii. The provision for bad debts is not entered in the debtors ledger control account.
iii. Reasons for credit balance in the debtors’ ledger - When the debtor pays more than he owes.
a. When a usual debtor pays for goods in advance and the period ends before those goods are
supplied to them.
b. When a debtor pays all that they owe and then later return some goods the found to be
unsatisfactory.
EXAM PLE
The following information appeared in the books of Debtor Ledger Control Account
Choongo. You are required to prepare and balance
the sales ledger control account for the month of Date Details F Dr Cr
August 2012 2006
Debtors at 1st August 930 000 Jan 1 Balance b/f 930 000 48 000
Cr. balances in the debtors ledger 1st August 48 000 Interest charged 9 300
Interest charged on overdue accounts 9 300 Cash 400 000
Cash received 400 000 Bank 320 000
Cheques received 320 000 Discount allowed 13 000
SOLUTI ON
Cash sales 170 000 Returns inwards 17 700
Discount allowed to debtors 13 000 Credit sales 575 000
Goods returned by debtors 17 700 Bad debts 24 400
Credit sales for August 575 000 Dishonoured Ch. 40 000
Bad debts written off 24 400 Balance c/d 731 200
Dishonoured cheques (Bank) 40 000 1554300 1554 300
Balance b/d 731 200
It is also known as the purchases ledger or the bought ledger. This is where accounts for a firm’s suppliers
[people who supplied goods or service on credit] are kept. It can also be divided geographically or
alphabetically
The Creditors Ledger Control Account OR purchases ledger control Account
This gives control over the creditors’ ledger or sections of the creditor’s ledger. The following are some of
the item contained in the account and their sources.
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ITEM SOURCE
1. Opening creditors’ balance List of creditors balance drawn up at the end of the
previous period.
2. Credit purchases Total from purchases journal
3. Cheque paid Cashbook, Bank column [payment side]
4. Cash paid Cashbook, Cash column [payment side]
5. Discount received Cashbook, discount received column
Inter-ledger transfers (Set
6. General journal
off)
7. Bills payable Bills payable book
8. Refund of over payment Cashbook
9. Returns outwards Total of returns outwards journal
10. Closing creditors balance List of creditors balances drawn up at the of the period
PREPARATION OF A CREDITORS CONTROL ACCOUNT

i. The total of the opening credit balances are credited. If there are any debit balances, they are debited.
ii. The total of the entries [items] which increases the amount owed to creditors, are credited.
iii. The totals of the entries [items] which reduce the amount owed to creditors, are debited.
iv. The total of the closing balance is then calculated and compared with the balances in the creditors’
ledger.
Creditors Ledger Control Account
Date Details F Dr. Cr.

Balances xxx xxxx
Credit purchase xxxx
Cash paid xxx
Cheques paid xxx
Purchases returns xxx
Discount received xxx
Dishonoured cheques (Bank) xxx
Undercharge xxx
Overcharge xxx
Inter – ledger transfer (set off) c xxx
Refund of overpayment xxx
Interest on over due accounts xxx
Bills payable xxx
Balance c/d ccc bbb
XXXX XXXX
Balance b/d bbb ccc
Note:
Cash purchases are not taken to the creditor’s ledger control accounts.
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REASONS FOR DEBIT BALANCES IN THE CREDITORS LEDGER
i. When the creditor is paid more than what was owed and it is not refunded before the end of period.
ii. When payment in advance is made to a creditor and the period ends before the goods are supplied.
iii. When a creditor is paid all the outstanding amount and then unsatisfactory goods returned to them.
EXAM PLE
The following information relating to sales
and debtors was extracted from the books of Creditors ledger control Accounts
Mwamba for the month of January 2012
Balances 1 January 144 500 Cr.
1 January 6 600 Dr. 2012
Purchases on credit 891 000
Discounts received 37 000 Jan 1 Balance b/f 6 600 144 500
Purchases for cash 1 245 000
Payments to creditors 520 000 Credit purchases 891 000
Purchases returns 33 000 Discount received 37 000
REQUIRED: Prepare the purchases ledger
control account for January 2012 Bank 520 000
Purchases returns 33 000
EXAMINATION PRACTICE Dec 31 Balance c/d 438 900
1 035 500 1 035 500

1. The following information relating to sales and debtors was extracted from the books of a firm for the
month of October 2012
Total debtors 1st October 2012 1 750
Sales for cash 15 200
Sales on credit 10 800
Total receipt from all customers 21 450
Discount allowed to credit customers 450
Sales returns from credit customers 400
Bad debts written off 200
Increase in the provision for bad debts 300
Debt balance in the sales ledger set off against purchases ledger balances 80
Sales ledger credit balances at 31 Oct 2012 120
The amount of 21 450 for total receipts from all customers includes 500 for a debt previously written
off as irrecoverable in 2012.
2. The following details are available from Steve’s books for the month of June 2011
K
June: 1 sales Ledger control account balance b/f 10 000
Purchases ledger control Account b/f 8 000
June:30 purchases fro the month 12 000
Sales for the month 16 000
Returns inwards 1 000
Payment to creditors 11 000
Receipts from Debtors 15 500
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Customers cheque returns unpaid by the bank 500
Discount Received 550
Discount Allowed 750
Transfer to debit balance from sales ledger to purchases during the month 400
Credit Balance in the sales ledger 30 June 2011 600
Debit balance in the purchases ledger 30 June 2011 200
Prepare the sales and purchases ledger control account for the month of June 2011
3. From the following details you are required to prepare the debtors and creditors ledger control
account for 2012
K
Jan 1
Purchases ledger balances 19,420
Sales ledger balances 28,227
Totals for the year 2012
Purchases journal 210,416
Sales journal 305,824
Returns outwards journal 1,452
Returns inwards journal 3,618
Cheques paid to suppliers 205,419
Petty cash paid to suppliers 62
Cheques and cash received from customers 287,317
Discounts allowed 4,102
Discounts received 1,721
Balances on the sales ledger set off against balances in the purchases ledger K 640
Dec 31 The list of balances from the purchases ledger shows a total of K20,210 and that from
the sales ledger a total of K38,374
4. Sales ledger balances, 1 July 2011 K

Debit 20,040
Credit 56
Purchases ledger balances, 1 July 2011
Debit 12
Credit 14,860
Activities during the half-year to 31 December 2011:
Payments to trade creditors 93,685
Cheques from credit customers 119,930
Purchases on credit 95,580
Sales on credit 124,600
Discounts allowed 3,480
Discounts received 2,850
Returns inwards 1,063
Sales ledger credit balances at 31 December 2011 37
Purchases ledger debit balances at 31 December 2011 26 ‘
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During the half year, debit balances in the sales ledger, amounting to K438, 000 were transferred to
the purchases ledger.
Required:
Prepare the sales ledger control account and the purchases ledger control account for the half-year to
31 December 2011.
5. You required to prepare a sales ledger control account from the following for the month of May:
2012 K
May 1 sales ledger balances 4,936
Totals for May:
Sales journal 49 916
Returns inwards journal 1 139
Cheques and cash received customers 46 490
Discount allowed 1 455
May 31 sales ledger balances 5 768
6. The final years of the Better Trading Company end on 30 November 2011. You have been asked to
prepare a Total Debtor Account and a Total Creditors Accounts in order to produced end of year
figures for debtors and creditors for the draft financial accounts.
You are able to obtain the following information for the financial year from books of original entry.
K
Sales cash 344 890
Credit 268 187
Purchases cash 14 440
Credit 496 600
Total receipts from customers 600 570
Total payment to suppliers 503 970
Discount allowed (all to credit customers) 5 520
Discount received (all from credit suppliers) 3 510
Refund given to cash customers 5 070
Set offs sales against purchases ledger 70
Increase in the provision for bad debts 90
Credit notes issued suppliers 4 140
Credit notes received from credit suppliers 1 480
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CAPITAL EXPENDITURE AND REVENUES EXPENDITURE
Capital expenditure
- This is money spent on buying of a fixed asset or adding value to the fixed assets or noncurrent assets
e.g motor van, building, plant, legal cost, etc.
Revenues Expenditure
-This is money spent on the day to day running of business e.g buying fuel, repairs, etc.
Explain what is meant by;

(i)Revenue expenditure (2 marks):
(ii) Capital expenditure (2 marks):
A list of various items of expenditure is given below. State which type of expenditure is capital or revenue?
a. Purchase of machinery for use in business: ………………………………………
b. The cost of installing the new machinery: ………………………………………
c. The cost of maintaining the machinery in good working order: ………………………………
d. The cost of extending the factory building to accommodate the new machines:
e. The cost of engaging cleaning constructors for the annual cleaning of the factory buildings:
f. Purchase of fuel for Motor vehicles: …………………………………………………………
g. New tyres for motor vehicles: …………………………………………………………………
h. Installing extra toilet: ………………………………………………………………………….
Solutions
Revenue Expenditure: Expenses on day-to-day running of the business

Capital Expenditure: Funds spent on the purchasing of or adding value to fixed assets.
(i) Capital expenditure
(ii) Capital expenditure
(iii) Revenue expenditure
(iv) Capital expenditure
(v) Revenue expenditure
(vi) Revenue expenditure
(vii) Revenue expenditure
(viii) Capital expenditure
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ADJUSTMENTS TO FINAL ACCOUNTS
Adjustments include:
1. Closing stock
2. Arrears and accruals (incomes and expenses)
3. Prepaid or paid in advance (income and expenses)
4. Bad debts and provision for bad debts
5. Depreciation
6. Drawings in kind
DOUBLE ENTRY RULE OF ADJUSTMENTS TO FINAL ACCOUNTS

Each and every adjustment must be treated twice. Either in
- Trading account and balance sheet
- Trading account and profit and loss
- The profit and loss account and balance sheet
1. CLOSING STOCK (INVENTORY)

These are unsold goods at the end of the trading period. It appears below the trail balance and
recorded at the cost price.
a) Closing stock is subtracted from the stock available for sale in the trading account. That is
,
Stock available for sale – closing stock = cost of sales
b) The same figure for closing stock is added to the list of current assets in the Balance
Sheet.
2. A) ARREARS (expenses)
Arrears are unpaid /not paid, outstanding/due /owing expenses or incomes at the end of the
trading period.
The other names for arrears are
- Amount due
- Accruals
- Outstanding
- Unpaid amount
- Not paid amount
- Owing
Expense arrears (unpaid expense)
(a) The amount not paid (due) must be added to the expense concern in the profit and loss account.
(b) The same amount must be added to the list of current liabilities in the balance sheet
Example:
The annual rental charge was K1200, Kobela managed to pay K900. The 300 (1200-900) is not paid ,
however the K300 must be added to the rent (900) in the profit and loss account and the same K300
must be added to the list of current liabilities in the balance sheet.
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b) ARREARS (INCOME)
This is an income which is not received at the end of the trading period.
(a) The amount not received must be added to the income concerned in the profit and loss
account.
(b) The same amount must be added to the current assets in the balance sheet
Example:
The annual charge for rent received was K2400. Kobela managed to pay K2000. The K400 (K2400-
K2000) was not received, hence income accrued:
The K400 must be added to the rent received (K2000) in the profit and loss account and the same
amount must be added to the list of current assets in the balance sheet.
3. PREPAYMENTS
Prepayments are amounts that are paid in advance at the end of the trading period. Prepaid can
either be expenses or income.
(a) Prepaid expenses
This is an expense which is not expired paid in advance or paid for next trading period.
(i) Expenses prepaid must be subtracted from the expenses concerned in the profit and
loss account.
(ii) The same expense prepaid must be added to the list of current assets in the balance
sheet.
Examples
The annual insurance charge is K1200. Kalumba paid K1500 towards insurance. The
K300 (K1500-K1200) is the amount which is paid in advance (prepaid) must be
subtracted from insurance figure (amount paid) k1500 to have the annual charge in the
profit and loss.
Insurance K1500
Less: amount prepaid K 300
K1200
The same value (figure) K300 must be added to the list of current assets in the balance sheet.
(iii) Income prepaid
This is the income which is received in advance e.g rent received prepaid
(a) The income prepaid must be subtracted from the income concerned in the profit
and loss account.
(b) The same amount must be added to the list of current liability.
Example:
Mrs Mwandu received rent from her tenant an amount of K2400. Her tenant
managed to pay K2800.
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Mrs Mwandu received K2800 as rent received instead of K2400, annual charge.
However K400 (K2800 – K2400) is a liability to Mrs Mwandu because this is not
yet used by her tenant.
(i) K400 must be subtracted from income concerned in the profit and loss
account
(ii) The same K400 must be added to the list of current liabilities.
4. BAD DEBTS AND PROVISION FOR BAD DEBTS.

Bad debts are irrecoverable debts. These bad debts are expenses to the business and must be
debited in the profit and loss account.
Causes of bad debts:
- Death of debtors
- Debtors declared bankrupt
- A debtor runs mad or runs away.
Add: bad debts to the list of expenses in the profit and loss account
Note: if the bad debts appear in the adjustment, it should be treated as follows
 Add: it to the list of expenses in the profit and loss account
 Subtract same amount of bad debts from the debtors in the balance sheet
TYPES OF PROVISION FOR BAD DEBTS

Three types
1. Creation of provision for bad debts
2. Increase in the provision for bad debts
3. Decrease in the provision for bad debts
1. CREATION OF PROVISION FOR BAD DEBTS

This is the first provision for the organization. There is no existing provision in the accounting records of
the firm. Therefore, the year of creation, creates a base for either an increase or decrease. This provision
may either be a percentage of the debtors for that particular year or as a specific figure which can be
adjusted upwards (increase) or downwards (decrease).
1. debit profit and loss account( deducting it from gross profit as an expense)
2. credit the provision for bad debts account
3. deduct the current provision from the debtors in the balance sheet
2. INCREASE IN THE PROVISION FOR BAD DEBTS

This is where the amount for bad debts from previous year is smaller than the one in the current year.
This arises where the newly calculate provision is bigger than the one already in the books of accounts.
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a) Debit profit and loss account with the increase (deducting it from gross profit as an expense)
b) Debit the provision for bad debts account with the increase.
c) Deduct the current provision from the debtors in the balance sheet
3. DECREASE IN PROVISION FOR BAD DEBTS

The provision under the adjustment will be smaller than one in the trial balance or previous year
1. add: the decrease (difference) to the list of incomes in the profit and loss account
2. Reduce: debtors in the balance sheet by the current provision (newly calculated)
3. Debit: the provision for bad debts account with a difference.
DEPRECIATION OF FIXED ASSETS

Depreciation is: wear and tear of fixed asset or losing of value of fixed assets
Causes of depreciation
 Usage of an asset
 Obsolescence /passage of time
 Weather conditions
 Friction
Methods of depreciation
- Straight line methods/ fixed equal instalments
- Reducing balance method/ diminishing balance
- Revaluation
STRAIGHT LINE METHOD/EQUAL INSTALMENT

Two methods of calculating
 Fixed percentage worked on the cost price of an asset e.g. 10% on the cost price of a fixed asset
e.g. machinery
 Scrap value method
o Cost price of the asset
o Estimated number of years, it will last
o Scrap value
𝑪𝒐𝒔𝒕 𝑷𝒓𝒊𝒄𝒆−𝑺𝒄𝒓𝒂𝒑 𝑽𝒂𝒍𝒖𝒆
Depreciation =
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒀𝒆𝒂𝒓𝒔 (𝑻𝒊𝒎𝒆 )
REDUCING BALANCE /DIMINISHING BALANCE METHOD

Depreciation is calculated on the book value or scrap value
Note; the increase of depreciation as the years increases is called Accumulated depreciation
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Accounting treatment.
 The current year depreciation is added to the list of expenses in the profit and loss account as
depreciation
 Subtract accumulated depreciation (current + previous depreciation) from cost price of an asset
(fixed)
DRAWINGS IN KIND NOT RECORDED IN THE BOOKS OF ACCOUNTS

These are goods drawn by the owner of the business for personal use, without making any entries in
the books of accounts up to the time of preparing final accounts. This adjustment does not have a
ledger account adjustment. It is adjusted within the final account.
In the trading account, the amount of drawings not recorded is subtracted from the purchases figure.
In the balance sheet, the amount is added to the drawings recorded or it becomes the actual drawings
if there were no drawings figure in the question. The total drawings is then from the capital.
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PARTNERSHIP ACCOUNTS
Partnership exists where two or more persons carry a business together with a view to make profit.
Partnership is governed by the act of partnership act of 1980 which states that
 All partners are entitled to contribute equally to the firm’s capital
 Profits and losses must be shared equally
 Every partners is not entitled to salaries
When forming a partnership, some legal formalities are required e.g. article of partnership or partnership
deed which spells out the duties ad rights of partners. It includes
 Name of partnership
 Amount t of capital each partner has to contribute
 Salaries of partners
 Partners of drawings
 Rates interest
 Profits and losses sharing ratio
PARTNERSHIP CAPITAL ACCOUNT

(i) Capital accounts
When a partnership is being set at the beginning, partners have to agree the amount of capital
contribution to introduce. This could be in form of cash or other assets. Double entry would be:
DR. Asset account (whatever asset)
CR. Capital account of each partner separately
The capital will usually remain fixed for the duration of the business but could change under the
following circumstances:
- When partners in the process of conducting business introduce further capital.
- When a partner retires and capital is withdrawn.
- When assets are revalued.
(ii) Current accounts
Current accounts are used to deal with regular transactions between the partners and the firm.
These are matters that may not be dealt with in capital accounts. These may include:
- Share of profits
- Interest on capital
- Drawings
- Interest on drawings
- Partners salaries
For entitlements such as salaries, interest on capital and share of profits, Double entry is:
DR. Appropriation account
CR. Current Accounts of partners
For drawings
DR. Current Accounts of partners
CR. Cash book or Purchases account
For interest on drawings
DR. Current accounts of Partners
CR. Income statement (appropriation account)
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The balance of the current accounts at the end of each financial year will then represent the amount of
undrawn or withdrawn profits.
- A credit balance like in example represents amounts to be withdrawn by partners i.e. the
partners are payables to the firm.
- A debit balance will represent partners have withdrawn more than their entitlements, so they
are receivables to the firm.
(iii) The balance sheet
Partnership balance sheet as far as noncurrent and current assets are concerned will be same as sole
trader. The difference is under capital part
Example
Balance Sheet as at 31.12.2009(extract)
Financed by:
Capitals: Banda xxxx
Bwalya xxxx
xxxx
Current accounts: Banda xxxx
Bwalya xxxx
xxxx
If one partner had finished with a debit balance in current account, the balance will be shown in
brackets in balance meaning it should be deducted.
Example
Ronald and
Ronald and Simon own a grocery shop Simon’s
their financial year endedo31st profit and loss account for the year ended 31st
December dec 2009
2009. the following balances were taken from K K K
Net
their books on that date Profit 32840
capital: Ronald 60000 Interest on capital:
Simon 48000 Ronald 6000
partners salaries Ronald 9000 Simon 4800
Simon 6000 10800
drawings Ronald 12860 Salaries Ronald 9000
Simon 13400 Simon 6000
the firms net profit of the year was
K32840 15000
interest on capital is to be allowed at
10% 25800
per year .profits and losses are to be 7040
shared equally. From the following information Share of Profits
above prepare the firms profit and loss Ronald 3520
Appropriation account and the partners Simon 3520
current accounts 7040 7040
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CURRENT
ACCOUNTS
Ronald Simon
Date Details DR CR DR CR
31.01.09 share of profit 3520 3520
interest on capital 6000 4800
Salaries 9000 6000
Drawings 12860 13400
balance cld 5660 920
18520 18520 14320 14320
Balance
b/d 5660 920
Exercise
Banda and Bwalya have been in partnership just for one year
- They are sharing profits and losses equally.
- They are entitled to 10% on capitals per annum. Banda and Bwalya have K100,000 and K200,000 as
capitals respectively
- Banda is entitled to a salary of K3,000, and Bwalya K5,000.
- Interest is charged on partners drawings. Banda is charged K2,000 and Bwalya K1,500.
- Drawings during the year were Banda K6,000 and Bwalya K5,000.
- The net profit before the distribution as at 31.12.2009 amounted to K70,000 i.e. after preparing the
income statement which is same as sole trader.
Banda , Bwalya and Nonde are in partnership trading as Lusaka furnishers Limited. The share profits
and losses in the ratio 2:2:1 respectively
Banda is a qualified accountant hence he is given a salary of K90 000per year.
During the year ended 31st December 2009 the firm made a net profit of K900 000 and the partners
drawings were as follows
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Banda K80 000 Bwalya K70 000 Nonde K50 000
Interest is charged on partners drawings and capital at the rate of 5% per year the following information was available on January 1. 2009
Capital Account Current Account
Banda K600 000 K80 000
Bwalya K400 000 K70 000
Nonde K250 000 K50 000
K K Banda Bwalya Nonde

Net profit 900000 date details f Dr Cr Dr Cr Dr Cr
interest on drawings 1/109 balance 80000 70000 50000
Banda 4000 31/12 Intst. on capital 30000 20000 12500
Bwalya 3500 salaries 90000
Nonde 2500 share of profits 303000 303000 151500
10000 drawings 80000 90000 50000
910000 Intst. on drawing 4000 3500 2500
Less Appropriations balance 419000 319500 161500
interest on capital 503000 503000 393000 393000 214000 214000
Banda 30000 419000 319500 161500
Bwalya 20000
Nonde 12500
Salaries Banda 90000
152500
757500
share of profits
Banda 303000
Bwalya 303000
Nonde 151500
757500 757500
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Exercise
Steve and Hope are in partnership sharing profits and losses in the ratio 3:2.Under the terms of the partnership
agreement, the partners are entitled to interest on capital at 5% per annum.
Hope is entitled to a salary of K450000. Interest is charged on drawings at 5 percent per annum and the amounts of
interest are SteveK40000 and Hope K30000.
The net profit of the firm, before interests and salary for the year ended 30 June 2009 was K2580000.
The partners capital at 1 July 2008 were Steve K3 000000 and Hope K1 000 000.
At 1 July 2008, there was a credit balance of K128000 on Hope’s current account while Steve’s current account
balance was K50000 debit.
Drawings for the year to 30 June 2009 amounted to K1200 000 and K1500000 for Steve and Hope respectively.
Required: Prepare, for the year to 30 June 20X7:
(a) The partnership appropriation account
(b) The partner’s current account.
APPLICATION QUESTIONS
Kabwita and Bupe are in partnership, trading under the name of Kaputula General Dealers. Their trial
balance as at 31 December 2012 is shown below.
TRIAL BALANCE as at 31 December 2012
Dr Cr
Capital: Kabwita 10 000
Bupe 4 000
Drawings: Kabwita 1 750
Bupe 1 250
Current Accounts: Kabwita 500
Bupe 300
Debtors and Creditors 4 520 5 422
Office Salaries 1 500
Stock (1 Jan 2012) 6 334
Purchases and Sales 10 472 22 232
Returns in and outwards 361 547
Cash at Bank 2 783
Freehold Premises 6 500
Motor vehicles 1 600
Provision for Depreciation on fixtures and Fittings 560
Stationery 157
Sundry expenses 200
Motor vehicle expenses 387
Insurance 60
Discounts 248 426
Wages 3 918
Provision for bad debts 125
Bad debts 72
44 112 44 112
The partnership agreement provides that:
Profits and losses shall be shared in the proportions Kabwita ¾ and ¼ .
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Bupe shall be awarded K1 046 salary per annum.
Partners shall receive 5% interest on Capital
The following additional information was available at the end of the year.
(i ) The value of the unsold stock was K4 400 000
(ii) The sundry expenses includes rates prepaid K71 000
(iii) Depreciate fixtures and fittings by 15% on diminishing balance method; and motor vehicles by 10%.
(iv ) K40 000 insurance was still owing.
(v) ⅔ of the wages are for the warehouse and ⅓ for the office.
(vi ) Adjust the provision for bad debts at 31 December 2012 to 5% of Debtor.
You are required to prepare:

(a) The trading, Profit and Loss Account for the year ended 31 December 2012.
(b) The profit and Loss Appropriation Account for the year ended 31 December 2012
(c) Separate Current Account for the partners as at 31 December 2012
(d) The Balance Sheet as at 2012
SOLUTIONS
Kabwita and Bupe General Dealer’s trading, profit and loss account for the year ended 31/12/06
Sales 22 232
Less: returns inwards 361
21 871
Opening Stock 6 334
Purchases 10 472
Less: Returns outwards 547
9 925
Total stock available 16 259
Less: closing stock 4 400
Cost of goods sold 11 859
Add: warehouse wages 2 612
Cost of sales 14 471
Gross profit 7 400
Add: Income (discount received) 426
7 826
Less: EXPENSES
Office wages 1 306
Office salaries 1 500
Stationery 157
Sundry exp 200
Less rates prepaid 71
129
Motor vehicle Exp 387
Insurance 60
Add Insurance owing 40
100
Discount allowed 248
Depreciation : 216
Fixtures and fittings 160
Motor vehicles 173
Provision for bad debts 4 376
Net Profit 3 450
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(b) PROFIT AND LOSS APPROPRIATION A/C FOR THE YEAR ENDED 31/12/06
Net Profit 3 450
Interest on:
Kabwita 500
Bupe 200
700
Salary Bupe 1 046
Share of profit:
Kabwita 1 273
Bupe 426
1 704
3 450
(c ) CURRENT ACCOUNT
DESCRIPTION KABWITA BUPE
Balance b/d 500 300
Interest on capital 500 200
Salary 1 046
Drawings 1 750 1 250
Balance c/d 528 722
2 278 2 278 1 972 1 972
Balance b/d 528 722
(d ) BALANCE SHEET AS AT 31 DECEMBER 2006

FIXED ASSETS COST DEP B. VALUE
Premises 6 500 - 6 500
Fixtures and fittings 2 000 776 1 224
Motor vehicles 1 600 160 1 440
9164
CURRENT ASSETS
Stocks 4 400
Cash at bank 2 783
Prepaid rates 71
Debtors 4, 520
Less: provision for bad debts 226
4 294
11 548
Less: CURRENT LIABILITIES
Creditors 5 422
Insurance owing 40
5 462
Net Assets 15 250
Financed by:
Capital: Kabwita 10 000
Bupe 4 000
14 000
Current Accounts:
Kabwita 528
Bupe 722
1 250
15 250
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SKM and JKK are In partnership and the trial SKM and JKK
Trading And Profit And Loss Account For The
balance extracted from the books as at Year Ended
31st December 2009 is shown bellow 31st December 2009
K'000 K'000 K'000 K'000 K'000
premises 6000 Sales 28000
carriage 100 Less Sales Returns 80
bad debts 50 Turn Over 27920
purchases and sales 16000 28000 Opening Stock 3500
returns 80 60 Purchases 16000
Less: Purchases
rates and rent 400 Returns 60
salaries 1400 15940
Add: Wages
insurance 140 (2600+400) 3000
cash at bank 700 Carriage Inwards 60
stock 01.01.09 3500 Net Purchase 19000
fixtures and fittings 4500 Stock Available 22500
wages 2600 Less Closing Stock 2800
capital: SKM 6000 Cost Of Sales 19700
JKK 6000 Gross Profit 8220
current A/C SKM 100 Add: Discount Received 20
JKK 150 Total Income 8240
drawings SKM 800 Less Expenses
JKK 900 Carriage Out (100-60) 40
debtors and creditors 8000 5000 Bad Debts 50
provision for bad debts 250 Salaries 1400
discounts 100 20 Rent And Rates 400
office expenses 110 Insurance 140
45480 45480 Depreciation F/Fittings 450
Discount Allowed 100
Required Office Expenses 110
Increase In Prov. For Bad
Prepare the Trading and Profit and Loss Debts 550
account for the year ended 31st December Total Expenses 3240
2009 and balance sheet as at that date Net Profit 5000
after taking the following into an account
Appropriation Account For The Year Ended
a. stock on 31.12.09 was valued at K2800 31/12/09
b. K60 of the carriage is for carriage in Net Profit b/d 5000
c. depreciate fixtures and fittings at the rate Interest On Capital
of 10% SKM 300
d. interest on capital was at the rate of 5% P.A JKK 300
e. residue of profit are to be divided equally Salaries SKM 500
f. wages accrued K400 1100
g. provision for bad debts is to be equal to Share Of Profits 3900
10% of debtors SKM 1950
h. they agreed to give SKM a salary of K500 JKK 1950
3900 3900
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CURRENT Chanda and Mulenga are in partnership. The
ACCOUNTS following
items have been extracted from the trial balance
Skm JKK as at
31st December 2009 and after the gross profit
DATE DETAILS Dr Cr Dr Cr had been
K'000 K'000 K'000 K'000 calculated
1.1.09 balance b/f 100 150 capital accounts at 1.1.09
share of
31.12.9 profits 1950 1950 Chanda 30000
intest on capital 300 300 Mulenga 20000
salaries 500 current accounts 01.01.09
drawings 800 900 Chanda 300 Dr
balance c/d 1850 1500 Mulenga 900 Cr
2750 2750 2400 2400 drawings
1850 1500 Chanda 14000
Mulenga 11000
SKM and JKK trade debtors 8300
balance sheet as at 31stdecember 2009 trade creditors 7000
fixtures and fittings at book
K'000 K'000 K'000 value 36000
Fixed Asset COST DEP N.B.V bank 20000
Premises 6000 0 6000 provision for doubtful debts 300
Fixtures And Fittings 4500 450 4050 general expenses 4000
10500 450 10050 insurance 5800
Current Assets rent 12000
Stock 2800
Debtors (8000-800) 7200 The following information is provided
a. Gross profit for the year ended 31st
Cash At Bank 700 December 2009
Was shown in the trading account at
Total Current Asset 10700 K68200
Less Current b. The insurance premium includes K1000
Liabilities paid in
c. Advance for the year
Creditors 5000 2009
d. A debt of K300 included in the total of
debtors is to be Written off as a bad
Wages Owing 400 debts
Total Current
Liabilities 5400
e. Rent of K200 was still unpaid on 31st
Working Capital 5300 December 2009
f. A provision for bad debts is to be
Net Asset 15350 maintained at 5%
On a book value g.
h. Depreciate fixture and fittings at 5% on
Financed By: book value
Capital SKM 6000 i. Stock held on 31st December 2009 was
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K15000
j. Residue profit and loss at the ratio of 3:2
JKK 6000 respectively
k. Interest on capital is at the rate of 5% per
12000 year
l. Mulenga is entitled to a salaries of
Current Accounts K8000
SKM 1500
JKK 1850 Required
Prepare the profit and loss account and
3350 appropriation
15350 Account of the partnership for the year ended
31st December 2009
Current account and balance sheet as at that date
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MANUFACTURING ACCOUNTS
A Manufacturing Account is an account that collects together all the costs involved in production to
determine the production cost of goods completed. To ascertain the production cost of the goods completed,
charge all the elements of production cost (i.e. direct materials, direct labour, direct expenses and production
overheads) to the Manufacturing Account.
Direct materials, labour, and expenses are all those costs involved in production that are traceable to units of
goods produced. The total of all direct costs incurred in a year is called the prime cost. Production
overheads are all those costs incurred in a factory, but cannot be easily traced to the units of goods produced.
At the end of the year, the cost of goods manufactured is then transferred, as the figure equivalent to
purchases, to the income statement.
Manufacturing Costs
Manufacturing organizations are firms that are involved in the manufacturing process where raw materials
are worked on and converted into finished products which are then sold. In such organizations, the trading
profit and loss account may not be sufficient enough hence the need to prepare a manufacturing account as
an additional statement. Manufacturing account includes costs incurred when making the product,
CLASSIFICATION OF MANUFACTURING COSTS

1. Direct Costs: These are costs that can be directly related (easily traced) to the product manufactured e.g.
direct materials; direct labour, direct wages and direct expenses. The total of direct costs is what is called
PRIME COST.
Here is an example of manufacturing accounts layout incorporating the calculation of prime cost,
Manufacturing account for the year ended 31 December.......
K K
Raw materials:
Opening Stock X
Purchases of raw materials X
Add: Carriage inwards of R/M X
X
Stock of R/M available for production X
Less Closing Stock of R/M X
Cost of raw materials Consumed X
Add: Direct wages X
Direct expenses X
Prime Cost X
2. OVERHEADS: If the cost cannot be directly traced to the product or the products being manufactured
then it is said to be an indirect cost or overhead. These costs are incurred in order to enable the business
operations to take place and they are often shared by the entire output. The costs are classified as follows:
 Production overheads
 Administrative overheads
 Selling and Distribution overheads
Example of manufacturing account incorporating prime cost and production overheads
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K K
Raw materials:
Opening Stock XX
Purchases of raw materials XX
Add: Carriage inwards of R/M XX
XX
Stock of R/M available for production XX
Less Closing Stock of R/M XX
Cost of raw materials Consumed XX
Add: Direct wages XX
Direct expenses XX
Prime Cost XX
Add: Overheads
Factory Lights XX
Factory wages and salaries XX
Depreciation Plant and Machinery XX
COST OF PRODUCTION XX
Note: all the overheads (expenses) that have a word “Factory” must be treated in the manufacturing account under overheads.
WORK IN PROGRESS (WIP)

WIP is incomplete production or partly finished goods. At the beginning of the period there will be opening
work in progress and closing work in progress at the end of the period. WIP is incorporated in the
manufacturing account by adding the opening work in progress to production cost and subtracting closing
work in progress.
Example of manufacturing account layout incorporating both opening and closing work in progress

K K
Raw Materials:
Opening Stock XX
Purchases of raw materials XX
Add: Carriage inwards of R/M XX
XX
Stock of R/M available for production XX
Less Closing Stock of R/M XX
Cost of raw materials Consumed XX
Add: Direct wages XX
Direct expenses XX
Prime Cost XX
Add: Overheads
Factory Lights XX
Factory wages and salaries XX
Depreciation Plant and Machinery XX
XX
Add opening work in progress XX
Less Closing work in progress XX
Total Production Cost of Finished Goods XX
eskulu.com
APPLICATION EXERCISE
B sure owns a small manufacturing business. In addition to the goods made by the firm, Sure buys in
finished goods to increase the product range.
The following balances were taken from the books on 31st December 2014.
Stock 1st January 2014
Raw materials 15 300
Finished Goods 18 700
st
Stock 31 December 2014
Finished goods 19 600
Bad debts 400
Factory wages 66 000
Factory overheads 19 900
Carriage on sales 2 800
Purchases of raw materials 175 200
Purchase of finished goods 45 100
Carriage on raw materials 2 100
Depreciation of factory equipment 9 300
Sales office expenses 5 800
Factory direct expenses 2 700
Sales of Finished Goods 445 100
(a) (i) Name the accounts which should not be included in Sure’s manufacturing accounts
or trading account.
(b) Prepare the manufacturing account for the year ended 31st December 2014, naming clearly with the
account, cost of raw materials consumed, prime cost and cost of production
(c) Prepare the trading account for the year ended 31st December 2014
Solutions
a) Bad debts, carriage on sales and sales office expenses

b) B Sure
Manufacturing account
For the year ended 31/12/2014
Opening stock of raw materials 15300
Purchases of raw materials 175200
Add: carriage inwards on raw materials 2100
177300
Total stock of raw materials available 192600
Less: closing stock of raw materials 14100
Cost of raw materials consumed 178500
Add: direct costs
Factory direct expenses 2700
81200
Add: direct labour
Factory wages 66000
Prime cost 147200
Add: overhead expenses
eskulu.com
Factory overheads 19900
Depreciation of factory equipment 9300
29200
Cost of production 176400
Trading account
For the year ended 31/12/2014
sales 445100
Opening stock of finished goods 18700
Purchase of finished goods 45100
Add: costs of production 176400
221500
Total stock available 240200
Less closing stock of finished goods 19600
Cost of sales 220600
Gross profit 224500
APPLICATION EXERCISE 2
Annie Zimba is a manufacturer. The following balances were extracted from the books on31 December 2010
K
Stock at 1 January 2010
Work in progress 7 900
Finished Goods 2 450
Purchases of Raw Materials 213 200
Purchases of finished goods 15 800
Capital 80 740
Purchases returns of Finished Goods 900
Bank 3 600 Cr
Sales 525 300
Discount received 5 100
Direct factory wages 145 300
Factory managers salary 14 800
Indirect factory expenses 23 200
Office salaries 36 200
Office expenses 18 600
Distribution cost 23 400
Factory plant and machinery 80 000
Office equipment 24 000
Provision for depreciation of factory plant and machinery 36 000
Provision for depreciation of office equipment 15 360
Debtors 44 250
Provision for doubtful debts 800
Creditors 19 600
Drawings 11 600
eskulu.com
Additional information
a. Stock at 31 December 2010 was valued as follows
i. Raw Materials K30 640
ii. Work In Progress K8 200
iii. Finished Goods K2 150
At 31 December 2010:
b. Distribution cost K1 860 were prepaid
c. The annual Direct factory wages is K157 400

d. Depreciation is to be charged on factory plant and machinery at 25% per annum using the straight
line method. The residual value of plant and machinery is estimated at K8 000
e. Depreciation is to be charged on office equipment at 40% per annum using reducing balance method
f. A cheque for K4 800 was received from a debtor on 30 November 2010 but has been omitted, in
error from the above balances. This is to be entered in the books
g. The provision for doubtful debts is to be maintained at 2% of debtors
Required:
a. Prepare the manufacturing account for the year ended 31 December 2010. Showing clearly cost of
raw materials consumed, prime cost, and cost of production [11]
b. Prepare the trading and profit and loss account for the year ended 31 December 2010 [14]
c. Prepare the balance sheet as at 31 December 2010 [15]
SOLUTION
Annie Zimba
Manufacturing Account for the year ended 31 December 2010
Raw Materials K K K
Opening Stock 26,700
Add: Purchases 213,200
239,900
Less: Closing Stock 30,640
cost of Raw Materials Consumed 209,260
Add: Direct Wages 157,400
Prime Cost 366,660
Add: Overhead Expenses
Factory Managers Salary 14,800
indirect factory 23,200
depreciation 18,000
56,000
422,660
Add: work in Progress (
Opening) 7,900
430,560
Less Work In Progress Closing 8,200
cost of Production 422,360
eskulu.com
Annie Zimba’s
Trading And Profit And Loss Account For The Year 31
December 2010
K'000 K'000 K'000
sales 525,300
opening stock 2,450
cost of production 422,360
Add: Purchases of finished
Goods 15,800
Less: Returns of finished Goods 900 14,900
439,710
Less Closing Stock of Finish.
Goods 2,150
cost of sales 437,560
Gross Profit 87,740
Add: Discount Received 5,100
Decrease in prov. For bad debts 11

Total Income 92,851
Less Expenses
Office Salaries 36,200
Sundry office Expenses 18,600
Distribution cost (23400 - 1860) 21,540
depreciation Office Equipment 3,456
total Expenses 79,796
Net Profit 13,055
Exercise 1
Chanda is a manufacturer. The following balances were extracted from the books after preparation of the
manufacturing account for the year ended 31st December 2012
K
Cost of goods manufactured 913,200
Sales 1,120,000
Cost of finished goods at 1st January 2012 82,200
Stock at 31st December 2012
Raw materials 74,500
Work in progress 94,000
Freehold premises 300,000
Furniture and fittings 11,000
Plant and machinery at 31st December 2012 after depreciation 233,800
Cash at bank 97,300
Debtors 103,000
Creditors 131,800
Selling expenses 91,700
eskulu.com
Provision for bad debts 1 January. 2012 4,700
General expenses 59,500
Factory wages outstanding 4,200
Drawings 50,000
Capital 849,500
The following additional information should e taken into account

1. the stock of finished goods at 31st December 2012 was valued at K86 000
2. Depreciation of plant and machinery k 41 000 has already been charged in the manufacturing
account. This depreciation figure was calculated wrongly should have been K49 000. Appropriate
adjustments are to be made.
3. depreciation of furniture and fittings is to e at the rate of 10%
4. provision for bad debts is to be 5% of the adjusted balance for debtors
5. general expenses (K59 000)included an annual Insurance Premium of K12000 of which K300 has
been paid in advance
You required preparing:
a. Trading and Profit and Loss Account for the year ended 31st December 2012 [12 marks]
b. Balance Sheet as at that date [16 marks]
Exercise 2
Bonaventure Kobela is a manufacturer. The following balances were extracted from the books on 31
December 2012
Bonaventure Kobela
Trial balance as at 31 December 2012
K
Stock at 1 January 2012:
Work in progress 4,820
Finished goods 8,300
Purchases:
Finished goods 11,340
Carriage on purchases of raw materials 1,200
Sales 798,200
Sales returns 6,400
Direct factory wages 198,600
Salaries:
Factory managers 18,600
Office 4,330
Sundry expenses:
Factory 24,360
eskulu.com
Office 18,950
Distribution cost 23,460
Land and buildings (cost) 79,000
Factory Plant and machinery (cost) 96,000
Office equipment (cost) 17,400
Provision for depreciation of Factory Plant and Machinery 42,000
Provision for depreciation of Office Equipment 6,000
Debtors 84,350
Bank Dr 2,050
Creditors 64,160
Capital 132,160
Drawings 12,300
1. Stock at 31 December 2012 was valued at as follows
a. Raw materials K47 290
b. Work in progress K4 670
c. Finished Goods K9 200
2. Direct factory wages K 200 were accrued
3. Office salaries K150 were prepaid
4. depreciation is to be charged on factory Plant and Machinery at 25% per annum using the
diminishing (reducing ) balance Method
5. office equipment is to be depreciated using the straight line method at 20% on cost
6. A provision for doubtful debts is to be created at 2% of debtor
7. Bonaventure Kobela withdrew finished goods K600 from the business during the year. This has
not been included in the books of accounts
Solutions (prime cost: 583,770; Cost of production; 640,380 Net profit; 89,823 Net Assets: 209,083
Working capital: 81,663 )
Exercise 3
The following information has been extracted from the books of SKM manufacturing company for the year
to 30th September 2012:
K
Deprecation for the year to 30th September 2012:
Factory equipment 21 000
Office equipment 12 000
Direct wages 120 000
Factory: insurance 3 000
Heat 45 000
Indirect materials 15 000
Power 60 000
Salaries 75 000
Finished goods at 1st October 2011 72 000
Office: electricity 55 000
General expenses 27 000
Postage and telephones 8 700
Salaries 210 000
eskulu.com
Raw material purchases 600 000
Carriage inwards on raw materials 6 000
Raw material Stock at 1st October 2011 24 000
Advertising 6 000
Sales revenue 1 537 200
Work in progress at 1st October 2011 36 000
Notes:
1. At 30th September 2012, the following were on hand:
K
Work in progress 27 000
Finished goods 90 000
th
2. At 30 September 2012, there was an accrual for advertising of K3 000, and it was estimated that K4 500
had been paid in advance for electricity. These items had not been included in the books of account for
the year to 30th September 2012.
3. Goods produced during the year are to be transferred to the trading account at a market value of K978
000.
4. For the purpose of Stock valuation, finished goods have been valued at cost
Required: Prepare in the vertical columnar form, the SKM’s Manufacturing Account, Trading and profit
and loss account for the year to 30th September 2012.
Solutions (prime cost: 720 000; Cost of production; 948 000: Net profit; 300 000 : manufacturing Profit:
30 000 )
eskulu.com
INCOMPLETE RECORDS/ SINGLE ENTRY
Single entry may be defined as a system of book keeping that does not follow the principles of double entry
system. It is also referred to as incomplete records
Single entry applied to any system which does not provide for twofold aspect of transaction; while the
alternative term “incomplete records” is often applied to books of accounts kept on such a single entry.
When preparing the final accounts using incomplete records details. You need to calculate the missing
information such as:
i. Sales by preparing the Debtors Ledger Control Accounts
ii. Purchase: by preparing the Creditors Ledger Control Accounts
iii. Adjust other expenses if necessary
iv. Calculate the opening and closing Capital using the statement of affairs (balance Sheet)
v. Calculate the adjusted net profit/loss using Statement of net profit or loss
CALCULATION OF SALES
If a business does not keep a record of its sales on credit, the value of these sales can be derived from the
opening balance of trade debtors, the closing balance of trade debtors and the payments received from
debtors during the period.
i.e sales
Closing debtors balance xxxx
Add: receipts from debtors during the year xxxx
xxxx
Less: Opening balance of debtors (xxxx)
Total sales for the year xxxx
Example
Suppose that a business had trade debtors of K1 750 on 1st April 2015 and trade Debtors of K3 140 on 31
March 2016, if payments received from trade Debtors during the year to 31st March 2016 were K28 490.
Calculate the credit sales
DEBTORS LEDGER
K K K
Closing balance of Opening Balance 1,750
Debtors 3,140
Add: receipts from Receipts
customers 28,490 28,490
O Credit Sales
31,630 R (balancing fig) 29,880
Less: Opening Balance balance c/d 3,140
of Debtors 1,750
Credit sales 29,880
31,630 31,630
eskulu.com
CALCULATING THE PURCHASES
The similar relationship exists between purchases of stock during a period, the opening and closing balances
for trade creditors, and the amount paid during the year to creditors.
Creditors Opening balance xxxxx

Add: Payments from trade creditors during the year xxxxx
xxxxx
Less: Opening balance of trade creditors xxxxx
Total purchase for the year xxxxx
Example
The business had trade creditors of K3 728 on 1 January 2016 and there was creditors of K2 645 on 31st
December 2016. If payments to trade creditors during the year to 31st December 2016 2009 were K31 479.
Calculate the purchase.
Creditor Ledger Control
K’000 K’000 K’000
Closing balance of creditors 2 645 Balance B/f 3 728
Add: payments to creditors 31 479 Payments OR 31 479

34 124 Purchase) balancing 30 396
Less: opening balance of creditors (3 728) Figure)
30 396 Balance c/d 2 645

CALCULATING THE OPENING AND
Purchase for the year CLOSING CAPITAL
34 124
When calculating capital at start or at end we use the statement of affairs (i.e. Balance 34 124
Sheet) or the Journal
Statement of affairs is the same as Balance sheet of a business. It is prepared exactly the balance sheet of a
company or organization is prepared
OPENING CAPITAL (Capital at Start)
It is calculated using the balance sheet equation i.e. Capital = Assets – Liabilities. However, all the
Liabilities at start of the trading period are subtracted from the Assets at start of the trading period using
the journal or statement of affairs
CLOSING CAPITAL (Capital at the End)

It is calculated using the balance sheet equation i.e. Capital = Assets – Liabilities. However, all the
Liabilities at start of the trading period are subtracted from the Assets at the end of the trading period
using the journal or statement of affairs
DETERMINING THE TRADER’S ANNUAL PROFIT

i. Determine the Capital at the end of the trading period. If not available it must be ascertained by
means of statement of affairs or the balance sheet of the journal (accounting Equation)
ii. Determine the Capital at the start of the trading period. If not available it must be ascertained by
means of statement of affairs or the balance sheet of the journal (Accounting Equation)
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iii. An increase of capital indicate profit whereas decrease indicate Loss
iv. When the capital at start is less that than the capital at the end then there is an increase in Profit, when
the capital at the end is less that the capital at start, then there is decrease in profit
v. This figure can be adjusted for:
a. Drawing in or in Kind are added to an increase in net worthy and deducted from a decrease in
net worthy
b. Any addition to capital during the year is deducted from a profit and added to a loss
c. The figure arrive at is either net profit or net loss
vi. Net worthy means value of a business at a particular moment in time based on the value of assets
that belongs to the company
FORMAT TO DETERMINE THE NET PROFIT OR LOSS OF A BUSINESS

Statement of net profit or loss for the year ended ……………..
Capital at the end of the year xxxxx
Less: capital at start of the year (xxxxx)
Increase in net profit or apparent profit xxxxx
Add: drawing in Kind/cash xxxxx
Less: capital introduced (xxxxx)
Less expenses (xxxxx)
Net profit/loss of the year xxxxx
EXAMPLE
Bwalya, who does not keep proper books records of his business transaction is able to give you the under
mentioned details of his business
Jan. 1 2016 Dec. 31, 2016
K K
Balance at bank 1100 -
Debtors 500 800
Stock 1600 4 800
Machinery 2 400 11 200
Loan from Chanda - 2 500
Bank overdraft - 1 250
Motor vehicles - 5 280
During the year he had withdrawn K100 per week in cash and K40 per week in goods for his own use. You
are required to ascertain his correct net profit for the year ended 31st December 2016, bearing in mind that a
win on football pools enables him to inject K1000 of extra capital during the year.
The Journal as at 1st January 2016 The Journal as at 31 December 2016

Assets: K K Assets: K K
Machinery 2400 Machinery 11200
Stock 1600 Stock 4800
Debtors 500 Debtors 800
Bank balance 1100 Motor vehicle 5280
Liabilities Liabilities
Creditor 1700 Creditor 400
Capital as at that date 3900 Loan from Chanda 2500
5600 5600 Bank overdraft 1250
Capital as at that date 17930
22080 22080
eskulu.com
STATEMENT OF NET PROFIT /LOSS FOR THE YEAR ENDED 31 DECEMBER 2016
K’000
Capital at the end of the year 17930
Less: capital at the beginning of the year 3900
Apparent profit or increase in net profit 14030
Add: drawings in cash [K100 000x 52 weeks] 5200
Drawings in Kind [K40 000 x 52 weeks] 2080
7280
21310
Less: extra capital introduced 1000
Question 1
Net profit for the year ended 31 December 2009 20310
Bwalya Started business on 1 July 2013 with Cash in hand K500, Cash at bank K200, Buildings
K2000, Debtors K2300, Creditors K 300, Fixtures 1300.
During the first year. He kept few records of his transaction but the following information is available
regarding the assets and liabilities at 30th June 2014.
Cash 120
Fixtures 2,500
Bank 1,800
Stock 4, 130
Debtors 2, 650
Creditors 1, 800
th
During the year to 30 June 2015, Bwalya withdrew K3500 in cash from the business for private
purposes and also too K200 of goods at cost for his private use. Also during the year, Bwalya sold his
private motor vehicles and paid the K800 processed into the business bank account. Bwalya decided
to depreciate the Fixtures at 30 June 2014 at the rate of 10%.
You are required to prepare statement, under a proper heading to show Bwalya’s profit. Show
all your workings within the statement [16]
Question 2
Chanda is a sole trader who does not keep the books of the business on the twofold system. However the
following information is available from the books
January 1 2016 December 31 2016
K’000 K’000
Debtors 8480 10160
Creditors 7560 6200
Stock 4360 5640
All sales and purchases are made on a credit basis
Receipts from debtors during the year ended 31st December 2009 amounted to K54 800 000
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Payments to creditors during the year ended 31st December 2009 amounted to K 32 640 000
Required:
a) Calculate the sales and purchases totals for the year ended 31st December 2009
b) Calculate the rate of stock turnover
c) Explain how Chanda could use the information from (b)
Question 3
Chanda started business in July 1 2008 with capital in cash K5 000 000. During the year he kept few records
of his transactions but the following information is available regarding his asset and liabilities at 30th June
2009.
Cash K120 000, Fixtures K2 000 000, bank loan K1 000 000 Stock K4130 000, Debtors K2650 000,
Creditors K1 800 000.
During the year to 30th June 2009, Chanda withdraw K3500 000 in cash from the business for private
purpose and also took K200 000 for goods, at cost for his private use. Also during the year Chanda also sold
his private vehicle and paid the K800 000 proceeds into the business bank account.
Chanda agrees that K50 000 should be provided for bad and doubtful debts and K200 000 for depreciation
off fixtures. From the following information, prepare the a statement of affairs ( balance sheet) showing the
financial position of the business at 30th June 2009, and statement of profit and loss for the year ended 30th
June 2009 . All workings must be shown.
Question 4
SKM’s accountant makes up the following bank Summary from his clients cash book from the year ended
31st December 2016.
BANK SUMMARY FOR 2016
Balance b/d 170 000 cash purchases 87 000
Cash takings 1 844 000 Payments to supplier 1 032 000
Total payments from customers 436 000 office salaries 648 000
New Equipment 70 000
Advertising 19 000
Rates 30 000
Electricity 24 000
Drawings 460 000
eskulu.com
1 January 31 December
Stock in trade 128 000 162 000
Trade debtors 386 000 468 000
Trade creditors 940 000 984 000
Delivery van 1 200 000 800 000
Office Equipment 176 000 ?
The following information has been verified:

In making up the final Accounts, the following adjustments are to be taken into account
i. Rates unexpired K8 000
ii. Advertising prepaid K9 000
iii. Office Salaries outstanding at 31 December 2009 K14 000
iv. Office Equipment depreciated by 20 percent on the year-end balance

a) Total Creditors Account to calculate the total purchases [4]
b) Total Debtors Accounts to calculate the total sales [4 ½ ]
c) Trading and Profit and Loss Account for the year ended 31 December 2009 [10]
d) Calculation of Capital at start [4]
e) Balance Sheet as at 31 December 2009 [14]
Question 5
SKM Stars do not keep a full set of books but he is able to give you the following information: on January
2016 he had assets as follows:
Premises K 120 000, furniture K 30 000, Stock K95 000, Rates K5 000, Debtors K50 000, Bank Balance
K42 000 Cash K 1 000.
His creditors amounted to K49 000 and he owned ZESCO K 2 000 for electricity, He informed you that all
cash takings are banked daily, except for K800 each week (52weeks) which is returned for personal use.
SKM Stars produces his bank statement for 2009 and his notes on credit sales and you summarize her bank
accounts as follows
eskulu.com
Receipts K Payments K
Balance (o1/o1/2016) 42 000 To suppliers for:
Money from debtors 180 000 Goods on Credit 380 000
Takings banked 342 000 Wages and salaries 32 000
Cash purchases 42 000
Rates 24 000
Electricity 18 000
New furniture 12000
Drawings 25000
Balance c/d 31 000
536 000 536 000
On 31st December 2016, SKM stars valued his stock at K76 000, debtors K 60 000, Creditors K36 000, He
owned ZESCO K20 000 for electricity,
Required to:
a) Prepare the trading and profit and loss account for the year ended 31st December 2016
b) Balance sheet as at that date (35 marks)
Solution
Question 1
Statement of Net Profit Or Loss For The Year Ended 30th June 2014
K K K
Capital at End- 30 June 2014
Assets:
Cash 120
Fixtures 2500
Bank 1800
Stock 4130
Debtors 2650
11200
Laibilities; Creditors 1800
9400
Less: Capital at start- 1 July 2013
Assets
Cash 500
Bank 200
Buildings 2000
Debtors 2300
Fixtures 1300
6300
Liabilities- Creditors 300
6000
Apparent profit 3400
Add: Drawings: (3500+200) 3700
7100
Less: Depreciation 250
Capital Introduced 800
1050
Ne t P ro fi t fo r the ye ar 6050
eskulu.com
Question 4
SKM Stars’s
Trading and Profit and Loss Account for the year ended 31 December 2016
K K K
Sales (W1) 573 600
Opening Stock 95 000
Add: purchases (W2) 409000
Stock available for sale 504000
Less: closing stock 76000
Cost of goods sold 428000
Gross profit 145600
Less: Expenses
Wages and salaries 32000
Rates (24000+5000) 29000
Electricity (18000-2000+20000) 36000
Total expenses 97000
Net profit 48600
SKM Star’s Balance Sheet as at 31 December 2016

K K K
Fixed Asset Cost Dep. N.B.V
Premises 120 000 - 120 000
Furniture (30 000+12000) 42 000 - 42 000
162 000 - 162 000
Current Assets
stock 76000
Debtors 60000
Bank balance 31000
Cash in hand 1000 WORKING 3
168000
Less: current Liabilities CAPITAL At start = Assets –
Creditors liabilities (assets = 120
Electricity owing 36000 000+30
20000 000+95000+5000+50000+42
56000 000+1000) – (liabilities
112 000
=49000+2000) = K292 000
FINANCED BY: 274 000
Capital (W3)
Add: net profit 292 000
46 600
Less: Drawings (41600+25000) 340 600
Capital employed 66 600
274 000
WORKING 1 WORKING 2
Closing balance of creditors 36 000 Closing debtors balance 60 000
Add: payments to creditors 380 000 Add: receipts from debtors 180 000
416 000 240 000
Less: opening balance of creditors 49 000 Less: Opening balance of debtors 50 000
Purchase (credit) for the year 367 000 Credit sales 190 000
Add: cash purchase through bank 42 000 Add: cash taking banked 342 000
Total purchases 409 000 Add: cash drawn 41 600
Total sales for the year 573 000
eskulu.com
SOLE TRADER
Trading and profit and loss account and its adjustments
Adjustments to final accounts
These are additional information; these adjustments must be treated twice in the final accounts. Either:
1. Trading accounts and Profit and Loss Account
2. Trading Account and Balance Sheet
3. Profit and Loss and Balance Sheet
Examination Questions
The following trial balance was extracted from the books of SKM at the close of business on 30 June 2012
Dr Cr
Sales 314,330
Purchases 185,600
Cash at bank 8,200
Cash in hand 648
Capital 22,800
Drawings 34,200
Office furniture 5,800
Rent 6,800
Discount allowed 1,640
Debtors 24,632
Creditors 10,490
Stock 1July 2008 8,240
Allowance for doubtful debts 1 July 2011 810
Delivery van 7,500
Van running costs 1,230
Bad debts written off 1,460
348,750 348,750
Additional Information
(1) Inventory on 30 June 2012 was K4, 800
(2) Wages and Salaries accrued at 30 June 2012 was K680
(3) Rent prepaid K460
(4) Van running costs owing K144
(5) Increasing the allowance for doubtful debts by K182
(6) Provide for depreciation as follows: Office furniture K760, Delivery Van K2, 500.
Required
To prepare the profit and loss account for the year ending 30 June 2012 and the balance sheet as at that date.
Question 2
eskulu.com
1. SKM was in business as a soft drinks supplier and the following balances were extracted from his books
on 31st December 2012.
Capital at 1 January 2012 12,430

Drawings 3,500
Delivery vehicles at cost 9,000
Provision for depreciation on Delivery Vehicles at 1 January 2012 1,200
Furniture at book value 1 January 2012 1,000
Stock at 1 January 2012 1,830
Purchases 38,950
Sales 64,000
Debtors 4,200
Creditors 2,750
Discount received 110
Wages and salaries 15,100
Rent and rates 1,550
Insurance 545
Vehicles expenses 2,400
Balance at bank 2,105
The following information is to be taken into account:
a. Stock at 31 December 2012 was valued at K2, 250
b. Depreciation at the rate of 20% per annum on cost is to be charged on the delivery van
c. SKM withdrew goods worth K300 for his personal use, and no entry had been entered in the
books of accounts.
d. A provision for bad debts is to be equal to 2 ½ % of the debtors.
e. The rent and rates K1,550 includes payment of rates K300 for the year to 31st March 2013
f. An amount of K240 was due for wages, and ¼ of wages was used to prepare good for sale
g. Furniture were re-valued at K700 at 31st December 2012
Required:
a. Prepare the trading and profit and loss account for the year ended 31st December 2012
b. Balance sheet as at that date [Total 35 marks]
eskulu.com
Question 3
SKM is in the export and import business. The following were extracted from his books on 30th September
2010
K K
Sales
306,000
Carriage On Sales 28,300
Purchases 1 47,600
Carriage On Purchases 12,800
Stock At 1 October 2009 13,400
Rent Rates and Insurance 6,900
Motor Vehicle Expenses 2,700
Office Expenses 17,400
Advertising Costs 11,800
Provision For Bad Debts 360
Cash at Bank 7,140
Motor Vehicle At Cost 15,500
Provision For Depreciation 3,100
Debtors 38,000
Creditors 15,500
Drawings 12,320
Capital at 1 October 2009 40,000
364,960 364,960
1. Stock at 30th September 2010 was valued at K14 100
2. During the year SKM took goods worth K1 300 for own use. No entry have been made in the books of
accounts
3. At 30th September 2010 the motor Vehicles were valued at K9 300
4. Wages and salaries K1 900 were owing at 30th September 2010
5. During the year goods for resale costing K600 were destroyed by flood, and his claims has been agreed
by the insurance company. The claim has not been paid or entered in SKM’s books
6. The provision for bad debts is to be maintains at 2% of debtors
7. SKM made a long term loan of K5 000 at 3% interest per annum to the business on 1 October 2009.
This was included in error in capital. The interest has not been entered in the books
REQUIRED
a. Prepare the Trading and Profit and Loss Account of SKM for the year ended 30th September 2010
b. Prepare the Balance Sheet of SKM as at 30th September 2010
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Question 4
SKM is a trade. The following balances were extracted from her books on 31 December 2010
K
Purchases 106 300
Carriage on purchases 2 450
Sales 197 600
Wages and salaries 33 600
Motor vehicles expenses 14 700
Rent and rates paid 22 620
Bank interest and charges 310
Interest paid on loan from JKK 375
Discount received 680
Sundry expenses 9 600
Loan from JKK 10 000
Debtors 16 550
Creditors 7 975
Stock at 1 January 2010 8 620
Fixtures and equipment 8 440
Motor vehicles at cost 12 400
Provision for depreciation on motor Vehicles 4 960
Bank overdraft 8 450
Capital 21 475
Drawings 15 175
1. Stock at 31 December 2010 was valued at K9 920
2. At 31 December 2010:
i. Wages and salaries K3 280 were accrued
ii. The total Rent and Rates for the year was K21 000
3. Depreciation is to be charged on fixtures and equipment at 25% on cost
4. Motor vehicles are to be depreciated using the diminishing (reducing ) balance method at 40% per
annum
5. SKM pays back the loan at the rate of K2 000 per annum, on 1 January each year. The balance of
SKM’s Loan account at 31 December 2009 was K12 000 and the amount in the list of balances
above includes the repayment for 1 January 2009. The interest is paid quarterly at the rate of 5% per
annum on the outstanding balance at January 1 each year. After the annual repayment has been paid.
Required
a. Prepare the trading and profit and loss account for the year ended 31 December 2010 [20 marks]
b. Prepare the balance sheet as at 31 December 2010 [ 15 Marks]
eskulu.com
Question 5
The following balances were extracted from the books of Malanga, a trader, on 30 September 2011:
K
Purchases 70,000
Carriage Inwards 3,000
Sales 156,000
Sales Returns 9,500
Non Current (Fixed) Assets:
Motor Vehicles 42,000
Office Equipment 26,000
Provisions For:
Depreciation on Motor Vehicles 8,000
Depreciation on Office Equipment 4,000
Salaries 23,750
Rent and Rates 6,800
Discount Received 5,600
Sundry Expenses 14,150
Advertising 6,200
Trade Payables (Creditors) 18,300
Trade Receivables (Debtors) 23,000
Inventory (Stock) at 1 October 2010 11,500
Bank (Credit balance) 16,000
Capital 40,000
Drawings 12,000
Additional information at 30 September 2011

1. Inventory (stock) was valued at K14 600.
2. During the year Malanga took goods costing K1250 for his own use. No entries have been made in
the books.
3. Advertising, K300, was prepaid. Salaries, K2600, were accrued.
4. Depreciation is to be charged as follows:
a. motor vehicles at the rate of 25% per annum using the diminishing (reducing) balance
method;
b. Office equipment at the rate of 10% per annum using the straight line method.
5. The total Rent and Rates for the year ended 30 September 2011 was K7300
6. On 1 April 2011 Malanga made a short-term loan, K10 000, to the business. This was included in
error in the capital account. Interest payable at 5% per annum has not been entered in the books.
REQUIRED
a) Prepare the income statement (trading and profit and loss accounts) of Malanga for the year ended 30
September 2011. [22]
b) Prepare the balance sheet of Malanga at 30 September 2011. [18]
eskulu.com
Question 6
Mwandu Enterprise Is in business as soft drinks suppliers and the following balance were extracted from
its books on 31 December 2014
Capital at 1 January 2014 12, 430
Drawings 3, 500
Delivery van at cost 9, 000
Provision for depreciation on delivery van at 1 January 2014 1, 200
Crates and pallets at book value 1 January 2014 1, 000
Stock at 1 January 2014 1, 830
Purchases 38, 950
Sales 64, 000
Debtors 4, 200
Creditors 2, 750
Wages and Salaries 15, 100
Rent and Rates 1, 550
Insurance 545
Vehicle Expenses 2 400
Balance at bank 2, 105
a. Stock at 31 December 2014 was valued at K2, 250

b. Depreciation at the rate of 20% per annum is to be provided on delivery Van at cost
c. During the year goods for resale costing K1, 130 were destroyed by fire and the claim has been
agreed with the insurance company, although it has not year been paid and entered in the books. The
goods were not included on stock at (a)
d. The provision for bad debts is to be made equal to 2 ½ % of debtors excluding the amount due from
the insurance company
e. The Rent and Rates K1550 includes payment of Rates K300 for the year 2015
f. An amount of K240 was outstanding for wages due
g. Crates and pallets were revalued at K700 at 31 December 2014
1. The Trading, Profit and Loss Account for the year ended 31st December 2014 [20]
2. Balance Sheet as at that date [15]
eskulu.com
Solutions
Question 2
SKM
Trading and profit and loss account for the year ended 30th September 2010
K'000 K'000 K'000
Sales 306,000
Opening stock 13,400
Purchases 147,600
Less drawings 1,300
146,300
Less: Goods Destroyed 600
145 700
Add: carriage on purchases 12,800
158,500
Stock available 171, 900
Less: closing stock 14,100
Cost of sales 157, 800
Gross profit 148, 200
Less: expenses
Carriage on sales 28,300
Wages and salaries (51100+1900) 53,000
Rent and rates/insurance 6,900
Advertising cost 11,800
Motor vehicle expenses 2,700
Office expenses 17,400
Prov. For b/debts (760-360) 400
Depreciation (6200-3100) 3,100
Interest on loan (5000x3%) 150
Total expenses 123,750
Net profit 24,450
BALANCE SHEET AS AT 30TH SEPTEMBER 2010
K'000 K'000 K'000
Fixed asset COST DEP. NBV
Motor vehicles 15,500 6,200 9,300

Current assets
Stock 14,100
Debtors (38000-760) 37,240
Bank 7,140
Insurance 600
59,080
Less current liabilities
Creditors 15,500
Owing wages and salaries 1,900
Owing interest 150
17,550
eskulu.com
Working capital 41,530
Net asset 50,030
Financed by:
Capital (40000-5000) 35,000
Add: net profit 24,450
59,450
Less drawings (12320+1300) 13,620
45,830
Add: long term liabilities
Loan 5,000
Capital employed 50,830
Question 3
Skm 'S Trading And Profit And Loss Account For The Year Ended 31 December 2010
K K K
Sales 197,600
Opening Stock 8,620
Purchases 106,300
Add: Carriage Inwards 2,450
108,750
Stock Available 117,370
Less Closing Stock 9,920
Cost Of Sales 107,450
Gross Profit 90,150
Add: Discount Received 680
Total Income 90,830
Less Expenses
Wages And Salaries (33600+3280) 36,880
Motor Expenses 14,700
Rent And Rates (22620-1620) 21,000
Bank Interest And Charges 310
Interest Paid On Loan 10000x5% 500
Sundry Expenses 9,600
Depreciation Equipment 2,110
Depreciation Motor van 2,976
Total Expenses 88,076
Net Profit 2,754
BALANCE SHEET AS AT 31 DECEMBER 2010

K'000 K'000 K'00
Fixed Asset COST DEP NBV
Fixtures And Equipment 8,440 2,110 6,330
Motor Vehicle 12,400 7,936 4,464
20,840 10,046 10,794
Current Assets
Stock 9,920
Debtors 16,550
Prepaid Rent 1,620
eskulu.com
Total Current Assets 28,090
Less Current Liabilities
Loan Repayment 2,000
Creditors 7,975
Bank Overdraft 8,450
Accruals Wages 3,280
Interest On Loan (500 - 375) 125
21,830
Working Capital 6,260
Net Asset 17,054
Financed By:
Capital 21,475
Add: Net Profit 2,754
24,229
Less Drawings 15,175
9,054
Add: Long Term Liability
Loan From JKK 8,000
Capital Employed 17,054
Question 6
Mwandu Enterprise Trading and Profit and Loss Account for the year ended 31st December 2014
Sales 64, 000
Opening Stock 1 830
Add: Purchases 38 950
Cost of Goods Available For Sale 40 780
Less: Closing Stock 2 250
Add: Value of Goods Destroyed By Fire 1 130
3 380
Cost of Sales 37 400
Gross Profit 26 600
Add: Discount Received 110
Total Income 26 710
LESS EXPENSES
Wages And Salaries 15 100
Add: Wages Due 240 15 340
Insurance 545
Vehicle Expenses 2 400
Bad Debts 3 10
Rent And Rates 1 550
Less: Rate Prepaid 150 1 400
Depreciation Of Motor Van 1 800
Depreciation (Crates And Pallets : 1000 – 700) 300
Increase In Provision For Bad Debts 105
Total Expenses 22 200
Net Profit 4 510
BALANCE SHEET AS AT 31 DECEMBER 2014
Fixed Assets Cost Dep NBV
eskulu.com
Delivery Vehicles 9 000 3 000 6 000
Crates and pallets 1 000 300 700
10 000 3 300 6 700
Current Assets
Stock ( 2 250 + 1 130) 3 380
Debtors 4 200
Less: provision for bad debts 105 4 095
Rates Prepaid 150
Bank balance 2 105
Total Current Assets 9 730
Less: current Liabilities
Creditors 2 750
Wages 240
Total Working capital 2 990
Net Assets 13 440
Financed By
Capital 12 430
Add: Net Profit 4 510
16 940
Less: Drawings 3 500
Capital Owned 13 440
eskulu.com

Grade 10 To 12 Principles of Accounts Notes

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Grade 10 To 12 Principles of Accounts Notes

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CONTENTS

ASSETS = CAPITAL + LIABILITIES

BALANCE SHEET ITEMS

- Assets are properties of the business

FORMAT FOR A BALANCE SHEET

Total Current Assets XX,XXX

LESS CURRENT LIABILITIES

1. The following is a simplified balance sheet of S. Sameta as at 30th November 2008.

2. (a) (i) How is the working capital calculated?

ITEM EFFECT ON CAPITAL EFFECT ON WORKING CAPITAL

No. Name of journals Function Account Account Source document

Source document Name of subsidiary book Account debited Account credited

Subsidiary Book Account Debited Account Credited

5. State the source document for each of the following transactions

Plant and Machinery ---------------------------------------------------------- 21 450

2. Mubanga K’s Trial Balance as at 31st MARCH 2006

- Trading Account (also known as Income Statement)

PROFIT AND LOSS ACCOUNTS

Sales 200 000

You are required to prepare

Total stock available 102,000

Add Other Income 108,000

Total Fixed Assets 204 000 204 000

Total Current Assets 56 000

LESS:- CURRENT ASSETS 18 000

Working capital 38 0000

You are required to prepare

Bwalya’s account in Zambezi 's Books

2. The following-Account appeared in the Purchases Ledger of Manguka. M. Anold Account

3. B Chembe is a customer of T Twaambo. From the following information prepare T Twaambo's

Sept 1 Balance due to T Twaambo K710 000

 Add: it to the list of expenses in the profit and loss account

Provision Bad debts account

DECREASED PROVISION FOR BAD DEBTS

Provision Bad debts account

DEPRECIATION OF FIXED ASSETS

Straight line method/equal installment

REDUCING BALANCE /DIMINISHING BALANCE METHOD

Disposal of fixed assets

Provision for depreciation account

Profit and loss account extract

Profit and loss account extract

 Motor Vehicle K100 000:

1. motor vehicle account

Rent and Rates account

RENT PAYABLE ACCOUNT

RENT RECEIVABLE ACCOUNT

1. From the following information given below you are required to

Error not revealed by trial balance

(b) Error of Complete reversal Entries

(c). Error of commission

The journal proper

(d). Error of Principle

(e). Error of Original entry.

The journal proper

(f). Compensating Error.

2. EXAMPLE ON ERROR OF SINGLE ENTRY/ERRORS IN POSTING

CLEARING OF THE SUSPENSE ACCOUNT

CORRECTED NET PROFIT FOR THE YEAR ENDED 31 December 2011