TOPIC 3; PREPARATION OF BOOKS OF ACCOUNT.

STAGES OF ACCOUNTING CYCLE/ ACCOUNTING PROCESS.

i). Occurrence and documentation.
When a transaction has occurred, the relevant documents are prepared.
These include invoices, receipts; goods received note, payment
vouchers, delivery notes, local purchase order, etc.
ii). Journalizing of the transactions.
Information from documents is recorded in the journals. Journals are
referred to as the books of original entry. Examples of journals are the
general journal, sales day book, purchases day book, etc.
iii). Posting the transactions from the journals to the ledgers.
Post the information from the journals to the ledgers. Ledgers include;
general ledgers and subsidiary ledgers. Ledgers are books in which
transactions concerning a particular account are summarized. Balance
off the ledger accounts are at end of the accounting period.
iv). Preparation of the trial balance.
Extract from the ledger balances, the trial balance. The trial balance is a
list of debit and credit balances extracted from the ledgers. If the double
entry rule is not complied with, the totals of the debit and credit columns
will not be equal.
v). Adjustments of accounts.
Adjustment of some accounts is needed before the preparation of the
financial statements. The major adjustments include provision for bad
debts, provision for depreciation, incomes and expenses.
vi). Preparing the financial statements.
Financial statements are the outputs of recording organization’s
transactions. The financial statements include the income statement,
statement of financial position, statement of cash flows, statement of
changes in equity and notes to financial statements.
SOURCE DOCUMENTS.
Business transactions are recorded on source documents. Whenever a
business transaction takes place, involving sales or purchases, receiving
or paying money, or owing or being owed money, it is usual for the
transaction to be recorded on a document. These documents are the
source of all the information recorded by a business.
Documents used to record the business transactions in the “books of
account” of the business include the following:
Quotation: is a document sent to a customer by a company/Suppliers
stating the fixed price that would be charged to produce or deliver goods
or services. They are normally used where each job varies according to
the customer’s needs.
Purchase order: is a document of the company that details goods or
services which the company wishes to purchase from another company.
They are sequentially numbered. Two copies are often made, one is sent
to the seller, and the other kept internally by the buyer.
Sales order: a document of the company that details an order placed by
a customer for goods or services. The customer may have sent a
purchase order to the company from which the company will then
generate a sales order. They are also sequentially numbered so as to keep
track of orders placed by customers.
Goods received note (GRNs): lists the goods that a business has
received from a supplier. It is usually prepared by the business’s own
warehouse or goods receiving area. Often the accounts department will
want to see the relevant GRN and the matching purchase order before
paying a supplier’s invoice.
Goods dispatch note: lists the goods that the supplier has sent out to a
customer. The customer will compare the goods dispatch note to what
they receive to make sure all items listed have been delivered and are the
right specification. The supplier will keep a copy of the dispatch notes in
case of any queries by customers about the goods sent.
Invoice: shows a claim for money regarding goods sold on credit .An
invoice relates to a sales order or a purchase order, and is primarily a
demand for payment.
When a business sells goods or services on credit to a customer, it sends
out an invoice. The details on the invoice should match the details on the
sales order. The invoice is a request for the customer to pay what he
owes.
When a business buys goods or services on a credit it receives an invoice
from the supplier. The details on the invoice should match the details on
the purchase order.
Invoices may be used for different purposes by the supplier:
 top copy to customer as request for payment
 second copy to accounts department to match to eventual payment
 third copy to warehouse to generate a dispatch of goods, as
evidenced by a goods dispatch note
  fourth copy stapled to sales order and kept in sales department as a
record of sales.
Credit note: Shows the decrease in a claim of money. Issued when part
of the goods sold or purchased are returned or priced over-charged
is reduced at a later stage. Is a document sent by a supplier to a
customer in respect of goods returned or overpayments made by the
customer. It is a “negative invoice”.

Statement of account: is a document sent out by a supplier to a

customer listing the transactions on the customer’s account, including all
invoices and credit notes issued and all payments received from a
customer. The statement helps the customer to reconcile the amount that
they believe they owe the supplier to the amount the supplier believes
they are owed. Any differences can be queried.
Debit note/ supplementary invoice: Sent by the seller to the buyer to
correct an under- charge on the original invoice. It is a formal request to
the supplier to issue a credit note. A debit note might be issued to adjust
an invoice already issued. This is also commonly achieved by issuing a
revised invoice after raising a credit or debit note purely for internal
purposes.
Remittance advice: is a document sent to a supplier with a payment,
detailing which invoices are being paid and which credit notes offset. It
allows the supplier to update the customer’s records to show which
invoices have been paid and which are still outstanding.
Receipt: is a document confirming that a payment has been received.
This is issued by the supplier after he has received a cheque or cash from
a customer.
Bank statement: sent every month from the bank to the account holder,
listing all the transactions between them during that month.

BOOKS OF PRIME ENTRY OR SUBSIDIARY BOOKS.

These are books of original entry. We post the transactions recorded in
the subsidiary books to the ledger accounts at the end of every month
and in case of some transactions, only total amounts are posted. The
books used to record all transactions of a particular category prior to
posting to the ledgers are the books known as subsidiary books or books
of prime entry. They include;
 The purchases daybook or journal; this book records the details
of all goods purchased on credit. We write up the purchases daybook is
from the incoming invoices.
 Sales daybook or journal; this records the details and amounts of
all goods sold on credit. We write up the sales daybook from the
outgoing invoices.
 Purchases return daybook or returns outwards journal; this
book records the details and amounts of goods returned to the creditors.
We write up the returns out ward daybook is written up from the
incoming credit notes
 Sales return day book or return inwards journal; this books
records the details and amounts of goods returned by the debtors. We
write up the return in wards daybook from the outgoing credit notes.
 Petty cash book; this book records the small cash receipts or
payments. This books is also used to analyse the expenses paid in cash.
 Cash book. Is used to record all cash and bank receipts and
payments.
 General Journal or diary; the journal is that daybook in which
we can record the details of any transaction that cannot be recorded in
any other subsidiary book. We call all other books of original entry the
division of journal for recording specific type of transactions. The main
uses of the journal are the following.
 To record purchases or sales of assets.
 To correct the errors.
 To record opening and closing entries.
 Writing off of bad debts; etc.
A)General Journal
We can also use this journal for all types of transactions with two money
columns, although in the diagram above we have said it used to record
other types of transaction other than those specifically identified with
other journals. We also call it a journal proper. MAX Ltd journals
below are examples of general journal.
Illustration
 The following were the transactions of MAX ltd for the month of
January.
i) On January 1st MAX ltd started business with cash of UGX 2,000,000
and money at the bank of UGX 3,000,000.
ii) 3rd Jan Purchased goods for UGX 600,000 cash.
iii) 6th Jan Bought a Motor vehicle for UGX 1,500,000 by cheque
iv) 7th Jan Sold goods for UGX 300,000 cash.
v) 15th Jan Purchased more goods on credit from TK ltd worth UGX
500,000
vi) 20th Jan obtained a bank loan of UGX 3,000,000 cash.
vii) 23rd Jan Sold goods for UGX 200,000 on credit to Martha.
viii) 25th Jan Martha paid UGX 80,000 cash.
ix) 26th Jan Sold goods on credit to Peter for UGX 100,000.
x) 29th Jan purchased goods from John on credit for UGX 300,000
Required Enter the above transactions in the General Journal.
MAX LTD
GENERAL JOURNAL FOR THE MONTH OF JANUARY
Date Account title & Folio Debit Credit
explanations /Ref
st
1 Cash A/C 01 2,000,000
Jan Bank A/C 02 3,000,000
Capital A/C 03 5,000,000
For starting the
business.
rd
3 Purchases A/C 04 600,000
Cash A/C 01 600,000
Being purchase of
 goods using cash
6th Motor vehicle A/C 05 1,500,000
Bank A/C 02 1,500,000
Being for purchase of
a motor vehicle using
cash
7th Cash A/C 01 300,000
Sales A/C 06 300,000
Being sale of goods
for cash
15th Purchases A/C 04 500,000
TK Ltd A/C 11 500,000
(Creditors)
For purchase of
goods from TK Ltd
on credit
20th Cash A/C 01 3,000,000
Loan A/C 08 3,000,000
Being a loan obtained
23rd Martha A/C(Debtor ‘s 09 200,000
A/c ) 06 200,000
Sales A/C
To record sale of
goods on credit to
Martha
25th Cash A/C 01 80,000
Martha A/C 09 80,000
(Debtor s A/c)
To record receipt of
cash
26th Peter A/C (Debtor’s 09 100,000
A/C) 06 100,000
Sales A/C
To record sold of
 goods to Peter on
credit
29th Purchases A/C 04 300,000
John A/C 07 300,000
( Creditor’s A/C)
To record purchase of
goods from John on
credit
Total 11,080,000 11,080,000

B) SALESDAY BOOK (SALES JOURNAL)

In almost all businesses sales will be made on credit .The sales day
book is used for recording the credit sales .The sales day book
contains the following:
Illustration
The company sold goods on credit to the following people.
On May 1st sold goods to Jackie of 400,000 and the invoice number
was 011
On May 4th sold goods to James of 300,000, invoice number 016
On 7th sold goods to Peter 700,000, invoice number 018
On 10th sold goods to Meyer 500,000 invoice number 020

Required: Prepare a Sales daybook

SALESDAY BOOK

Date Name of Invoice Folio amount

customer number
May 1st Jackie 011 400,000
4th James 016 300,000
7th Peter 018 700,000
10th Meyer 020 500,000
Amounts 1,900,000
to be
 transferr
ed to the
sales
account

C) PURCHASES DAY BOOK

The purchases daybook is book of original entry for recording goods bought on
credit.

Another illustration
The company bought the following goods on credit in the month of May
i) On May 3rd bought goods from Stephen for 1,500,000,invoice number 10
ii) On 7th purchased from Brian for 3,000,000,ivoice number 14
iii) On 20th purchased from Derrick for 2,000,000,invoice number 18
iv) On 22nd bought goods from Adrian for 700,000 ,invoice number 20
Required Record the above transactions in the purchases daybook

PURCHASES DAY BOOK

Date Name of creditor Invoice Folio Amount
number
May Stephen 10 1,500,000
rd
3
7th Brian 14 3,000,000
t
20 Derrick 18 2,000,000
h

22n Adrian 20 700,000

d

Amoun 7,200,000
ts to be
transfer
red to
the
purchas
es
account
RETURNS DAY BOOKS/JOURNALS
The returns day books record goods, which have been returned to and by the
business
These books are:
 Return inwards day book
 Return outwards day book

Return inwards day book/Journal

Return inwards refers to goods which have been sold but have been returned to the
business .When the goods are returned and the amounts are refunded, a credit note
is issued to the customer .It is called a credit note because the customer’s account
will be credited. The returns on the credit notes will be recorded in the:
 The return inwards account
 Sales ledger (Debtors subsidiary ledgers) by crediting the
individual customers accounts

Illustration
The following customers returned goods to the company:
i) On 3rd September David returned goods for
UGX50,000 ,credit note number 012
ii) On 8th September Isaac returned goods for
UGX80,000 ,credit note number 019
iii) On 20th September Deborah returned goods for
UGX100,000, credit note number 020
Required Record the above transactions in return in wards daybook

Return in wards daybook

Date Details Credit Folio Amount
note
number
3rd September David 012 50,000
th
8 “ Isaac 019 80,000
th
20 “ Deborah 020 100,000
Amounts to be
transferred to the 230,000
return inwards
 account

Return outwards account

The return outwards day book records the goods which have returned by the
business to its suppliers .When goods are returned ,the business issues a debit note
to the supplier and gives reasons for their return.
The amounts of the debit note will be recorded thus;
 Return out wards account
 Purchases ledger by debiting in the individual accounts

Illustration
The company returned goods to the following suppliers
i) On 4th May returned goods to peter of UGX80,000,debit note number
013
ii) On 28th May returned goods to Ivan of UGX130,000,debit note number
015
iii) On 30th May returned goods to Mark of UGX200,000,debit note number
018

Required: Record the above transactions in the return outwards daybook

Return outwards daybook

Date Details Debit Folio Amount
note
number
th
4 May Peter 013 80,000
th
28 May Ivan 015 130,000
th
30 May Mark 018 200,000
Amounts to be 410,000
transferred to the
return outwards
account

After recording transactions in the journals, we post them to the ledgers. We

sometimes refer to a ledger as the book of secondary entry. A ledger is a group of
accounts (A/C) and in the manual accounting system the ledger is a book where the
accounts are kept.
Balancing is an easy process and can be carried out on any account at any time it is
considered necessary to do so. It is generally carried out on the account of all
debtors and creditors at the end of each month, and on each account at the end of a
financial or trading year or other accounting period.
Before we proceed, it is important to look at the classification of accounts.

Ledgers
General ledger
It is a ledger for all accounts in an organisation .In an organisation the general
ledger will contain accounts such as cash account, bank account, purchases account
etc. but on different pages. It is important to note that the general ledger will not
contain individual accounts for the debtors and creditors. For example, the account
for Martha as a debtor will not appear in the general ledger but the debtors account
will appear having information about all the debtors.

Subsidiary ledgers
Businesses have so many customers and suppliers therefore it is necessary to have
each individual debtor or creditors account separate to determine each one’s
balance.
We call these individual accounts subsidiary ledgers because they support and
general ledger controls them.

Types of subsidiary ledgers

 Debtors subsidiary ledger
 Creditors subsidiary ledger

Debtors’ subsidiary ledger

This is a summary of an individual debtor’s transaction. The general ledger shows
information concerning all the debtors but does not bring out the details about each
individual debtor. The subsidiary ledger brings out these details. For example,
Mary who is a debtor will have transactions concerning her alone summarized in
Mary’s account.

Creditors’ subsidiary ledger

This is a summary of individual creditor’s transactions. The general ledger will
show information concerning all the creditors but will not details of each
individual creditor. In the creditors subsidiary ledger each creditor will have their
account.
The format of a ledger account
If a ledger account were to be kept in an actual book, rather than as a computer
record, it might look like this:
For the rest of this chapter, we will assume that a manual system is being used, in
order to illustrate fully the working of the ledger accounts. However, a
computerized system performs the same functions although the actual ledger
accounts may be 'hidden' inside the computer! There are two sides to the account,
and an account heading on top, and so it is convenient to think in terms of 'T'
accounts.
a) On top of the account is its name.
b) There is a left hand side, or debit side.
c) There is a right hand side, or credit side.

Dr. Ledger account name

Cr.

Bal b/d xx Bal b/d xx

Bal c/d xx Bal c/d xx

 xxx xxx

Or
Dr. Ledger account name (Bank account)
Cr.
Details Shs. Details Shs.
Bal b/d xx Bal b/d xx

Bal c/d xx Bal c/d xx

xxx xxx

Posting transactions from the Journals to the Ledgers

The transfer of transactions from the journals to the ledgers is referred to as
posting. The transactions that appear in the debit column of the general journal will
be posted to the debit side of the respective ledger.
The transactions that appear in the credit column of the general journal will be
posted on the credit side of the respective ledger account.
QN. Using the illustration of MAX ltd, post the transactions to the ledger
accounts, balance them off and extract a trial balance.
Illustration
The following were the transactions of MAX ltd for the month of January.
On January 1st MAX ltd started business with cash of UGX 2,000,000 and money
at the bank of UGX 3,000,000
3rd Jan Purchased goods for UGX 600,000 cash.
6th Jan Bought a Motor vehicle for UGX 1,500,000 by cheque.
7th Jan Sold goods for UGX 300,000 cash.
15th Jan purchased more goods on credit from TK ltd worth UGX 500,000
20th Jan obtained a bank loan of UGX 3,000,000 cash.
23rd Jan Sold goods for UGX 200,000 on credit to Martha
25th Jan Martha paid UGX 80,000 cash.
26th Jan Sold goods on credit to Peter for UGX 100,000.
29th Jan purchased goods from John on credit for UGX 300,000.
Required Enter the above transactions in the General Journal, post to respective
ledger accounts balance them off and extract a trial balance.

MAX LTD GENERAL JOURNAL FOR THE MONTH OF JANUARY

Date Account title & Folio Debit Credit
explanations
st
1 Jan Cash A/C 01 2,000,000
Bank A/C 02 3,000,000
Capital A/C 03 5,000,000
For starting the
business
rd
3 Purchases A/C 04 600,000
Cash A/C 01 600,000
Being purchase of goods
using cash
th
6 Motor vehicle A/C 05 1,500,000
Bank A/C 02 1,500,000
Being for purchase of a
motor vehicle using cash
th
7 Cash A/C 01 300,000
Sales A/C 06 300,000
Being sale of goods for
cash
th
15 Purchases A/C 04 500,000
TK Ltd A/C 11 500,000
(Creditors)
For purchase of goods
from TK Ltd on credit
th
20 Cash A/C 01 3,000,000
Loan A/C 08 3,000,000
Being a loan obtained
rd
23 Martha A/C(Debtor ‘s 09 200,000
A/c ) 06 200,000
Sales A/C
To record sale of goods
on credit to Martha
th
25 Cash A/C 01 80,000
Martha A/C (Debtor s 09 80,000
A/c)
 To record receipt of cash
th
26 Peter A/C (Debtor’s 09 100,000
A/C) 06 100,000
Sales A/C
To record sold of goods
to Peter on credit
29th Purchases A/C 04 300,000
John A/C 07 300,000
( Creditor’s A/C)
To record purchase of
goods from John on
credit
Total 11,080,000 11,080,000

Dr Cash account Cr.

Date Details Shs. Date Details Shs.
1st capital 2,000,000 3rd purchases 600,000
Jan
7th Sales 300,000
20th Loan 3,000,000
25th Debtor(Martha) 80,000 31st Bal c/d 4,780,000
Jan
Balancing figure 5,380,000 Balancing figure 5,380,000
st
1 Bal b/d 4,780,000
feb

Dr Bank account
Cr.
Date Details Shs. Date Details Shs.
1st capital 3,000,000 6th Motor vehicle 1,500,000
Jan

31st Bal c/d 1,500,000

Jan
Balancing figure 3,000,000 Balancing figure 3,000,000
st
1 Bal b/d 1,500,000
feb
Dr Capital account
Cr.
Date Details Shs. Date Details Shs.
1st Cash 2,000,000
Jan
31st Bal c/d 5,000,00 1st bank 3,000,000
jan 0 Jan

5,000,00 5,000,000
0
1st Bal b/d 5,000,000
feb

Dr Purchases account
Cr.
Date Details Shs. Date Details Shs.
3rd cash 600,000
15th creditors 500,000
29th Creditor (john) 300,000 Bal c/d 1,400,000
1,400,000 1,400,000
Bal b/d 1,400,000

Dr Motor vehicle account

Cr.
Date Details Shs. Date Details Shs.
6th Bank 1,500,000
Bal c/d 1,500,000
1,500,000 1,500,000
Bal b/d 1,500,000

Dr Sales account Cr.

Date Details Shs. Date Details Shs.
7th Cash 300,000
23rd Debtor (Martha) 200,000
Bal c/d 600,000 26th Debtor (peter) 100,000
600,000 600,000
Bal b/d 600,000
Dr Creditors account
Cr.
Date Details Shs. Date Details Shs.
15th purchases 500,000
29th Purchases 300,000
Bal c/d 800,000
800,000 800,000
Bal b/d 800,000

Dr Loan account Cr.

Date Details Shs. Date Details Shs.
20th Cash 3,000,000
Bal c/d 3,000,00
0
3,000,00 3,000,000
0
Bal b/d 3,000,000

Dr Debtors account
Cr.
Date Details Shs. Date Details Shs.

23rd Sales 200,000 25th Cash 80,000

26th Sale (peter) 100,000
Bal c/d 220,000
300,000 300,000
Bal b/d 220,000

MAX LTD TRIAL BALANCE FOR THE MONTH OF JANUARY

AMOUNTS IN SHS.

Details Dr. Cr.

Cash account 4,780,000
 Bank 1,500,000
Capital 5,000,000
Purchases a/c 1,400,000
Motor vehicle 1,500,000
Sales a/c 600,000
Creditors a/c 800,000
Loan a/c 3,000,000
Debtors a/c 220,000
9,400,000 9,400,000

TRIAL BALANCE
This is a list of debit and credit balances extracted from the ledgers. The trial
balance is not an account but merely a list of balances for all assets, expenses and
losses, liabilities, capital and income. The most commonly used method of coming
up with a trial balance is by extracting from the various ledger accounts maintained
by a business. Each ledger account is balanced to ascertain the balance to be
carried forward to the next accounting period. In the trial balance, asset account
balances are recorded in the debit column while the accounts for liabilities and
capital are recorded in the credit column. The nominal accounts, which relate to
expenses and losses, are recorded in the debit column of the trial balance, but those
that relate to items of income and revenue are recorded in the credit column of a
trial balance.
If the accounts have been properly and accurately posted by the double entry
system, the trial balance should balance (i.e the amounts in the debit column must
equal the amounts in the credit column).

PURPOSE OF A TRIAL BALANCE

The trial balance provides and serves as;
a) Proof of the arithmetical accuracy of the book keeping in the ledger. It is a
test of the balances of the ledger accounts to check the entries made in the
accounts.
b) Proof of the double entry posting accuracy of the book keeping.
c) Information for preparing final accounts (i.e trading and profit and loss
account for the year ending and a statement of financial position as at a
given date).
However, agreement of a trial balance is not sound proof that book keeping has
been carried out perfectly. There are certain book keeping errors that do not affect
the agreement of a trial balance. This limits the scope of a trial balance as a
financial statement.

Errors not affecting the trial balance/errors not detected by trial balance
(i) Error of commission. This type of error is committed when a book
keeper post entries of a transaction on the correct side but in a wrong
account of the same class. An example would be to debit or credit the
personal account of M.Kamanzi instead of N.Kamanzi account when
they both appear in the debtor’s ledger. The error cannot be reflected on
the trial balance as the erroneous posting is in the account but merely in
the wrong account.

(ii) Error of omission. This occurs when entries for certain transactions are
completely omitted from the books such that there is no record of such
transactions in the firm’s ledger and hence the error is not reflected in the
trial balance. In this case the whole double entry aspect of the transaction
is ignored. An example would be failure to record the fact that the
proprietor had taken goods from stock for his/her personal use during the
period.

(iii) Error of principle. This is a basic or fundamental error in book keeping

which arises when entries of transaction are posted to wrong class of
accounts such as debiting a capital item in respect of revenue transaction
or vice-versa. The error is commonly made when capital transactions are
posted as revenue transactions and vice-versa. For instance, a purchase of
a desk calculator for Ugx.8,000 is debited to office expenses account, or
the sale of an old typewriter for Ugx.5, 000 is journalized through the
sales day book and posted to the ledger accordingly.

(iv) Error of original entry. This error arises when an entry is incorrectly
made in a book of original entry and the incorrect amount is
simultaneously posted to the ledger. For example, an invoice for
Ugx.12,000 from L.Tibamanya a creditor, is misread as Ugx.120, 000
and is accordingly recorded in the purchases day book and also in his
personal account in the bought ledger as Ugx.120,000. Such error if it is
not discovered will understate net profit as the cost of sales will have
been overstated and therefore rendering the reported profit non-useful.
 (v) Compensating error. This error is committed when two errors of the
same magnitude, on either side of the ledger are committed in the books
such that the errors counter act or contra or cancel out each other. The
error(s) on the debit side compensate(s) for the error(s) on the credit side
and vice-versa and thus do not affect the agreement of the trial balance.
Suppose both the purchases day book and the sales day book are under-
cast or overcast by similar amount, say Ugx.11,000. The two errors are
on opposite sides and since they involve the same amount, they cancel
out each other.

(vi) Error of complete reversal. The error is made when both the debit and
credit entries of a transaction are completely reversed. For instance, when
a sale of goods on credit is debited to the sales account and credited to
the customer’s personal account in the ledger, instead of being debited to
the customer’s personal account and credited to the sales account.
(vii) Error of duplication. This error is committed when the same transaction
is posted to the ledger twice along the correct principle of double entry
system.

Exercise 1
The following are the transactions of Michelle’s business during her first month of
trading.
a. Michelle starts a business and pays in Shs 5,000,000 cash as capital
b. The business buys a car for Shs 1,000,000 cash
c. She bought goods for resale for Shs 500,000 cash
d. They bought more goods for resale for Shs 600,000 on credit from Mr.
Aken.
e. They pay rent of Shs 200,000 cash
f. They sold goods on credit for Shs 900,000 to Ms. Betty.
g. They pay Shs 400,000 cash on account of the amount owing to Mr. Aken
h. They receive Shs 500,000 from Ms. Betty
i. Michelle withdraws Shs100,000 cash from the business
j. She received commission of Shs 400,000 cash from MTN for selling air
time on their behalf.
Required: Record each transaction in t-accounts (Ledgers, balance off the each
account and extract the balances from each and prepare a trial balance
Exercise 2
Enter the following transactions of YONNA (U) ltd for the month of December,
2019 in a general journal, general ledger, and trial balance.
On 1st Dec, Yonna ltd started business with cash of shs.2, 000,000 and shs.3,
000,000 at the bank.
On 3rd Dec, purchased goods for Ushs. 600,000 cash
On 6th Dec bought a Motor vehicle Ushs. 1,500,000 by cheque
On 7thDec, sold goods for Ushs.300, 000 cash
15th Dec, purchased more goods on credit from TK ltd worth Ushs. 500,000
0n 20th Dec obtained a bank loan of Ushs. 3,000,000 cash
23rd Dec sold goods shs.200, 000 on credit to Paul
On 25th Dec Paul paid Ushs. 80,000 cash
26th Dec sold goods on credit to Mary for Ushs. 100,000
29th Dec purchased goods from John on credit for Ushs. 300,000
Exercise 3
Enter up the sales, purchases and returns daybooks from the following details.
Then post the individual items to the relevant accounts in the sales and purchases
ledger and transfer the totals of the various daybooks to the accounts in the general
ledger.
May1:Credit purchases; RitahUgx.250,000, CathyUgx.145,000, Mark
Ugx.355,000.
May 5: Credit sales; Saul Ugx.410,000 Tom Ugx.340,000 Peter Ugx.270,000.
May7:CreditPurchases;AmosUgx.147,000, RuthUgx.100,000, Calvin
Ugx.190,000.
May 9: Goods returned by us to; Ritah Ugx.35,000 Cathy Ugx.50,000.
May 10: Goods returned to us by; Tom Ugx.25,000, Peter Ugx.30,000.
May 12: Credit purchases, Amos UGX.186,000, Ruth UGX.250,000 Calvin
UGX.80,000.
May 15: Credit sales; Tom UGX.150, 000, Saul UGX.220, 000.
May 18: Goods returned by us to; Amos UGX.20, 000, Calvin UGX.10, 000.
May 25: Goods returned to us by Tom UGX.18,000.
CASHBOOK

The cashbook is a book of original entry for recording cash and bank transactions.
It shows the business receipts and payments. We also classify a cashbook as a
ledger. A cashbook can have two columns or three columns.

Two-column cashbook
The two-column cashbook has the bank and cash column both on the debit and
credit side. The cashbook therefore is a combination of the bank and the cash
account.

Format of a two-column cashbook

Title
Date Particulars Bank Date Particulars Cash Bank

Use of folio columns in the cashbook

The particulars column of the cashbook just contains the name of the other
accounts and tracing such accounts may be difficult .Folio columns will
indicate where we find such accounts when we need more information.

The three-column cashbook

The three-column cashbook has additional columns of discount received and
discount allowed column in addition to the cash and the bank columns.
Discount allowed this is the discount (reduction in the prices) that is given to
customers by the business. It reduces the amount paid by the customer. We
enter the discounts allowed in the discount column on the debit side of the
cashbook

Discount received
This is a discount received by the business from its suppliers. It reduces the
amount paid to suppliers. The discounts received are entered in the discounts
column on the credit side of the cashbook.

Illustration
The company purchased goods on credit from Mary for UGX2, 000,000.
i)The company was able to pay on 4 May (in time) using a cheque and
therefore qualified for a discount of 5%.
 ii) The company has a debtor John whose balance was UGX200,
000. He paid cash on 10 April (in time) and this made him qualify for
discount of 2%.
Required Show how the above transactions will appear in the cashbook

Discount received
2,000,000*5/100 = 100,000 (To be entered on the credit side of the cashbook)

The amount of money that the company paid to Mary amounted to

2,000,000-100,000 =1,900,000

Discount allowed
2/100*200,000 = 4,000
The discount allowed is UGX 4,000 (will appear in the discount column on the
debit side of the cash book)

The amount received from John a debtor was 200,000-4,000 = 196,000

Three-column cashbook
Date Detail Discou Cash Bank Date Details Discount Cash Bank
s nt
10/4 John 4,000 196,00 4/05 Mary 100,000 1,900,
0 000

ILLUSTRATION ONE

Enter the following transactions into a cashbook for the month ended Oct. 2015.

Oct. 1. Karuhanga started business with cash at bank amounting to UGX 940,000
and at hand UGX 540,000.

2. Received a cheque from G.W Kato worth UGX 115,000

4. Cash sales UGX 102,000
6. Paid rent by cash UGX 3,500
7. Banked UGX 50,000 of the cash held by the firm
15. Cash sales paid direct into the bank UGX 40,000.
 17. Purchased goods worth UGX 35,000 and paid by cash.

18. Karuhanga made credit sale to Kato worth UGX 40,000.

23. Paid by cheque to S. Forks UGX 277,000

25. Drew a cheque for own use UGX 48,000.

27. Purchased good on worth UGX 89,000 on credit.

29. Withdrew cash from bank for business use UGX 120,000

30. Paid wages in cash 118,000.

KARUHANGA’S CASHBOOK FOR THE MONTH OF OCTOBER 2015

AMOUNTS IN UGX.

DR. CR.

Details Cash Bank Details Cash Bank

Illustration two
The following balances were extracted from the books of Ken ltd on 31/12/2016.
UGX
Cash 5,000,000
Bank (credit balance) 3,300,000
During the month of December 2016, the following transactions occurred.
Dec 1. Bought goods on credit for UGX 6,500,000
2. Sold goods on credit for UGX 8,000,000
4. Received a cheque from UGX 5,000,000 from a debtor and banked it.
7. Paid creditors UGX 1,500,000 cash and UGX 500,000 by cheque
10. Rejected and returned goods worth UGX 300,000 to a creditor
12 A debtor rejected and returned goods worth 100,000/=
14. Banked UGX 1,500,000 cash
16. Paid rent UGX 400,000 cash and UGX 800,000 by cheque and
electricity UGX 250,000 cash
20. Withdrew UGX 1,000,000 from the bank and put it in the cash box for
payment of Cash expenses.
22. Paid UGX 2,000,000 by cheque for retirement loan
25. Sold land inherited from his father for UGX 10,000,000 cash and
invested the money into the business
27. Received cash of UGX 100,000 and cheque of UGX 2,000,000 from a
debtor and banked both cash and cheque.
30. Used business cash UGX 300,000 for a social evening with his friend
at a club
Required
Prepare Ken’s Cash Book for December 2016 properly balanced off as at
31/12/2016.

KEN’S CASHBOOK FOR THE PERIOD ENDED DECEMBER 2016

AMOUNTS IN UGX.

DR. CR.

Details Cash Bank Details Cash Bank

NB; Pliz Read about the Petty Cash Book.

Exercise
The books of Okello, a trader, showed the following transactions for the month
august 2016.
1st Assets; Premises shs.300, 000, Debtors: Kato shs.50, 000, Sarah shs. 20,000,
Cash at bank shs.840.000 and Cash at hand shs. 60,000.
Liabilities; Creditors: Game ltd shs. 260,000 and tinah shs.90, 000.
2nd Paid rent shs.25, 000.
Bought furniture on credit from Joan ltd shs.25, 000.
Goods bought on credit from game ltd shs.350, 000, Tinah shs. 250,000 and
mark shs.400, 000.
3rd Goods sold on credit to Kato shs.30, 000, Sarah shs. 70,000 and Akello shs.360,
000.
4th Paid for general expenses in cash shs. 5,000.
7th Cash drawings by the proprietor shs.2, 500.
9th Sale made by cheque shs.70, 000.
11th Goods returned to Okello; shs. 8,000 by Kato and 20,000 by Akello.
16th The following paid Okello their accounts by cheque less 5% cash discount:
Kato, Sarah and Akello.
19th Goods returned by Okello to Tinah shs.5, 500 and Mark shs.20, 000.
25th Okello settled his account with Game ltd by cheque less 5% cash discount.
27th Salaries paid by cheque shs.40, 000.
31st Paid Joan ltd by cheque shs.20, 000.
Made cash purchases of shs.20, 000 and Credit purchases from Mark shs.
50,000 and Atuha shs.65, 000.

Prepare a cashbook for okello’s business.