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Principles of Accounting

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 Published by
Gramsol Books
46 Kwame Nkrumah Avenue,
Harare. 2020
www.gramsol.com
Tel. 0864 420 9124

© Gramsol Books
The moral rights of the authors have been asserted.
Publisher: Sandura Tafadzwa
Managing Editor: Mbono Njabulo
Development editors: Nkomazana Priscilla
Mabhodyera Armstrong
Typeset by Mhlahlo Artkins
Cover by Chikanga Francis

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Printed by Gramsol Books

ISBN: 978-1-77929-810-2

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Contents
Book Features
Topic 1: Introduction to Principles of Accounting.....................................................................1
1.1 Definition of terms.........................................................................................................................2
1.2 Types of business activities...........................................................................................................5
1.3 Importance of accounting.............................................................................................................6
Topic 2: Business Organisations................................................................................................9
2.1 Types of business organisations..................................................................................................10
Topic 3: The Accounting Cycle.................................................................................................14
3.1 The accounting cycle..................................................................................................................15
Topic 4: Data Processing.........................................................................................................19
4.1 Manual method..........................................................................................................................20
4.2 Electronic method.......................................................................................................................20

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Topic 5: Source Documents......................................................................................................22
5.1 Importance of source documents...............................................................................................23
5.2 Types of source documents..........................................................................................................23
Topic 6: Cash book.................................................................................................................33
6.1 Double column cash book.........................................................................................................34
Topic 7: Sales Journal...............................................................................................................46
7.1 Sales journal................................................................................................................................47
Topic 8: Purchases Journal.......................................................................................................55
8.1 Purchases journal........................................................................................................................56
Topic 9: Sales Returns Journal..................................................................................................63
9.1 Sales returns journal....................................................................................................................64
Topic 10: Purchases Returns Journal.......................................................................................73
10.1 Purchases returns journal..........................................................................................................74
Topic 11: The Ledger.......................................................................................................... ....83
11. 1 Classification of business transactions.....................................................................................84
11.2 Interpreting ledger accounts....................................................................................................87
Topic 12: Trial Balance.............................................................................................................96
12.1 Trial balance..............................................................................................................................97
Book Features

Catchy opening images

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Objectives at the
begining of each topic

Summary at the end

of each topic

Revision exercise at
the end of each topic
 INTRODUCTION TO PRINCIPLES
TOPIC
1
OF ACCOUNTING
Units Covered
1.1 Definition of terms
1.2 Types of business activities and organisations
1.3 Importance of accounting and users of accounting
information

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Objectives
By the end of the topic, learners should be able to:
• Define key terms in accounting
• State the forms of business activities
• Explain each form of business activity
• State the importance of accounting
• State the users of accounting information.

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Transactions
A transaction is any event that involves the exchange of values. It involves cash, bank,
barter or credit transactions. Cash transactions involve the exchange of goods and services
with cash being paid or received immediately. Bank transactions involve the exchange of
goods and services where payments will pass through the bank. Credit transactions occur
when the payments of goods and services supplied will be made later. Barter transactions
involve the exchange of goods for goods or goods and services without cash movement.
Transactions

Cash transactions Bank transactions Credit Barter

transactions transactions

Payments of Exchange of
Cash being paid Cheques being used transactions are goods for goods
immediately when as form of payment made later or in or goods and
transactions occur on transactions future services

Assets

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An asset is property or an economic resource owned by the business. It is regarded as
anything that belongs to the business. Examples of assets include buildings, motor vehicles,
office equipment, fixtures and fittings, cash in hand, cash at bank, inventory and trade
receivables. Assets are classified into non-current assets and current assets.

Non-current assets
These are resources or capital goods bought to generate
income for the business and are used for a long period
of time. Examples are premises, motor vehicles, furniture,
equipment and plant and machinery.

Current assets An example of a non-current asset

These are resources that can be quickly turned into cash and
can be converted into cash within twelve months. Examples are inventory, trade receivables,
cash in hand, cash at bank and petty cash balance.

Liabilities
A liability is a debt which the business has to pay in future. It is regarded as the amount
owed by the business to other individuals or businesses. Examples are loans, accounts
payables and bank overdraft. Liabilities can also be divided into two categories namely
current and non-current liabilities.

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Capital
Capital also known as owner’s equity refers to resources provided by the owner to start a
business. It also represents the amount owed by the business to the owner. Capital is also
known as equity.

Drawings
This refers to resources taken from the business by the owner for personal use. Drawings
can be in the form of goods or cash. Anything taken by the owner for private use is regarded
as drawings.

Purchases
These are goods bought for resale. These goods are bought with the intention of reselling
them to make a profit. Anything bought by the business without an intention for resale is not
regarded as purchases. Purchases may be in the form of cash, credit or through the bank.
Stationery, fuel and other consumables bought by the business for use are not purchases.

Sales
These are goods by the business to its customers either on cash or by cheque or on credit
basis. These goods are initially bought with the intention of reselling them. Sales are the
main revenue of the trading business. A sale of old assets of the business such as equipment,

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motor vehicles and other non-current assets are not part of the sales.

Inventory
These are goods not yet sold by the business. They are regarded as the goods waiting for
a sale. Inventory at the beginning of the accounting period is known as opening inventory
whilst inventory at the end of the accounting period is known as the closing inventory.

Business
A business is an entity established for the purpose of making a profit. It provides goods and
services to the customers either on cash or credit basis. Businesses are classified according
to what they do.

1.2 Types of business activities

There are various business activities that can be ventured into in order to make a profit.
These include:
• Trading activities
• Manufacturing
• Provision of services

Trading activities
These are businesses involved in buying and selling of goods from the wholesalers at lower
prices and sell them at higher prices to make a profit. They buy and sell goods to the
general public. Goods are bought in bulk from the wholesalers and then sold in smaller
quantities. Examples of these businesses are retailers and wholesalers.
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TOPIC THE ACCOUNTING CYCLE

3 Unit Covered
3.1 The Accounting cycle

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Objectives
By the end of the topic, learners should be able to:
• Define the accounting cycle
• State the stages of the accounting cycle
• Draw the accounting cycle
• Explain each stage of the accounting cycle.

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 also act as the original source of accounting information. This stage is important because it
is where the recording of business transactions starts.

Subsidiary books
This stage involves the recording of transactions of a similar nature in subsidiary books in
order of dates which makes it easier to trace the transaction if omitted. The information
recorded in subsidiary books is taken from the original source of accounting information
(source documents). At this stage, cash and bank transactions are entered in the cash book.
Furthermore, credit transactions are entered in the sales journal, purchases journal and
general journal. Credit sales are recorded in the sales journal, credit purchases in purchases
journal and non-current assets bought or sold on credit are recorded in the general journal.
At this stage, sales invoices are captured in the sales journal, purchases invoices in
purchases journal and receipts, bank statements, deposit slips, till slips and withdrawal slips
are recorded in the cash book. Subsidiary books are also known as day books/ books of
original entry or prime entry books.

The ledger
This is the stage where double entry is completed. At this stage, totals are posted to the
relevant ledgers. For instance, totals in the sales journal are posted on credit sales account
in the general ledger and individual customers’ accounts are debited in the receivables

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ledger.
There are four divisions of the ledger namely general ledger, payables ledger, trade
receivables ledger and cash book. Cash book is a subsidiary book as well as part of the
ledger. It contains cash and bank accounts.
Expenses, assets and revenues accounts are kept in the general ledger. After entries have
been posted to the relevant ledgers, the ledger accounts are balanced off and the balances
are used to extract the trial balance.

Trial balance
At this stage, the accuracy of double entry completed in the ledger is tested. A trial balance
is prepared using the closing balance extracted from the ledger. The trial balance totals for
both sides must be equal. Once the trial balance totals disagree, it means something wrong
happened in completion of double entry or within the trial balance. The trial balance also
enables the quick preparation of financial statements.

Financial statements
This is the last stage of the accounting cycle where financial statements, (income statement,
statement of changes in equity and statement of financial position) are prepared. The
income statement is prepared to calculate the net profit for the business at the end of the
accounting period. The statement of financial position is prepared to show the financial
position of the entity. Assets, liabilities and capital invested are shown in the statement of
financial position. A statement of changes in equity is prepared to show the equity of the
entity at the end of the accounting period.

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 TOPIC SUMMARY
• The accounting cycle refers to the stages in which a transaction passes from its
occurrence up to the financial statements.
• Double entry for the transactions is completed in the ledger where double entry
accounts are kept.
• The last stage of the accounting cycle is the preparation of financial statements.

REVISION EXERCISE 3

Multiple Choice
Answer all questions
1. Which of the following is the correct order of the accounting cycle?
A. Ledger Financial statements Trial balance

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B. Trial balance Ledger Financial statements
C. Ledger Trial balance Financial statements
D. Financial statements Trial balance Ledger
2. Name the stage which involves the recording of transactions in the receipt book.
A. Transaction B. Source document
C. Subsidiary books D. Ledger
3. The correct completion of double entry of a transaction is checked at which stage
of the accounting cycle?
A. Trial balance B. Financial statement C. Ledger D. Subsidiary books
4. The statement of financial position shows _________.
A. assets and liabilities at any particular date
B. entries recorded in sequential order
C. captured cash receipts
D. debit and credit balances at any particular date
5. The financial statement which shows profit earned in an accounting period
is ________.
A. statement of changes in equity B. statement of financial position
C. income statement D. none of the above

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 3 Paid rent $200 cash
4 Bought goods $400 by cheque
5 Sold goods on cash $600 and by cheque $300
13 Cash sales $800
16 Paid sundry expenses $200 cash and $100 cheque
18 Paid insurance $250
25 Paid commission on cash $220 and $660 by cheque
29 Sold goods on cash $500 and cheque $450
30 Received cash $900 for rent
31 Bought motor van by cheque $700

Required
a. Enter the above transactions in the double column cash book.

Solution
Double column cash book
Date Receipts F Cash Bank Date Payments F Cash Bank

SAMPLE
2018 $ $ 2018 $ $
Mar 1 Capital GL 1 200 1 800 Mar 2 Purchases GL 500
5 Sales GL 600 300 3 Rent GL 200
13 Sales GL 800 4 Purchases GL 400
29 Sales GL 550 450 10 Computer GL 150
30 Rent received GL 900 16 Insurance GL 250
25 Commission GL 220 660
31 Motor van GL 700

Contra entries
Deposits and withdrawals of cash for office use are regarded as contra entries in the cash
book. The double entry of these transactions is completed within the cash book.

How to record cash withdrawn from the bank for office use in the cash book
Cash withdrawn from the bank for office use results in an increase in the cash account and a
decrease in the bank account. In this case, the cash account becomes the receiving account
and a bank account becomes the giving account.
Debit Cash account (the receiving account)
Credit Bank account (the giving account)

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Solution
Dr Capital account Cr
2018 $
2018 $ Mar 1 Bank CB 1 800
Balance c/d
Mar 31 3 000 Cash CB 1 200
3 000 3 000
2018
Apr 1 Balance b/d 3 000

Purchases account
2018 $ 2018 $
Mar 2 Cash CB 500 Mar 31
4 Bank CB 400 Balance c/d 900
900 900
2018

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Apr 1 Balance b/d 900

Sales account
$ 2018 $
Mar 5 Cash CB 600
Bank CB 300
13 Cash CB 800
2018 29 Cash CB 550
Mar 31 Balance c/d 2 700 Bank CB 450
2 700 2 700
2018
Apr 1 Balance b/d 2 700

Computer account
2018 $ 2018 $
Mar 10 Bank CB 150 Mar31 Balance c/d 150
150 150
2018
Apr 1 Balance b/d 150

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 3. When cash is deposited into a bank account by the business, a source document
used is a ___________.
A. receipt B. withdrawal slip
C. deposit slip D. cheque stub
4. Two accounts kept in the cash book are ____________.
A. capital and drawings account
B. trade receivables and trade payables accounts
C. cash and bank accounts
D. discount received and discount allowed accounts
5. Which one is correct about the cash book?
A. It records the daily credit transactions of the business.
B. It records daily cash transactions of the business only.
C. It records daily bank transactions of the business only.
D. It records daily cash and bank transactions of the business.
6. A transaction completed its double entry within the cash book is ____________.

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A. general entry B. double entry C. single entry D. contra entry
7. Which one is not included in the cash book?
A. Cash purchases of $5 000.
B. Cheque for $1 600 received from T. Simawo
C. Cash sales of $6 500.
D. Credit sales of $1 800 to Songani

Structured Questions
Answer the questions correctly
1. The following transactions took place in the business of Kudakwashe during the
month of October 2018.

2018
Oct 1 Started business with cash $5 690 and cheque $8 900
2 Paid rent $340 cash
4 Bought goods by cheque $1 450
10 Bought a delivery van worth $2 000 by cheque
16 Paid electricity $300 on cash
Paid sundry expenses $450 cash and $100 by cheque
20 Sold goods on cash $2 300 and $800 by cheque
22 Deposited cash into bank $500
40 29 Paid repairs on cash $150
 11 Bought goods on cash $1 500 and cheque $500
15 Sold goods for cash $1 900
20 Sold an old car $3 000 cash
21 Purchased goods for $399 paid immediately by cheque
24 Received cash for rent $1 000 and deposited $850 into bank account
27 Commission paid by cheque $702
29 Purchased fixtures and fittings by cheque $529
31 Banked all cash held in till, except $100

4. The following balances appeared in the books of Chimhenga December 2018

Cash account $4 000 Dr
Bank account $1 000 Cr
Transactions for the month of December 2018 were as follows:

2018
Dec 1 Deposited cash into bank account $3 000
4 Bought petrol on cash $400
6 Paid Gidza, a supplier $500

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8 Received cash $1 600 and $2 000 cheque for commission
9 Received cash $311 from Dee, a customer
11 Cash sales banked $688
14 Cash purchases $125
19 Paid motor expenses $700 by cheque
22 Sold goods on cash $600 to Vee
24 Paid insurance $400
27 Withdrew cash from bank $598
28 Sold an old computer on credit worth $600
29 Deposited cash into bank $277
31 Bank charges $200

Required
a. Prepare a double column cash book [10]
b. Post entries from the cash book to the ledger [10]
5. From the following transactions, you are required to prepare the cash book for the
month of February 2018.
2018 $
Feb 1 Cash account Balance 1 000 Dr
1 Bank Account Balance 5 000 Dr

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 Unit 9.2 Pollution

TOPIC PURCHASES JOURNAL

8 Unit Covered
8.1 Purchases journal

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Objectives
By the end of the topic, learners should be able to:
• Define purchases journal
• State the source document of the purchases journal
• Draw the structure of the purchases journal
• Enter transactions in the purchases journal
• Post entries from the purchases journal to the ledger.

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 Solution
Purchases journal
Date Details Invoice no Folio Amount ($)
2018
Mar 1 Fundira Wholesalers 2228 PL 4 000
12 Thiago Ltd 2229 PL 9 000
27 LLM Ltd 2230 PL 8 900
31 Purchases for the month GL 21 900

Notes
• Trade discount is not recorded in the books of accounts. If a trade discount is given to
goods supplied, it should be deducted before the transaction is entered in the books
of accounts.
• The entry of 1 March 2018 has a trade discount, 20% x $5 000. This 20% that is $1 000
is not recorded in accounting books. Therefore, we record $4 000 as the value of goods
bought from the supplier.
• The same with the entry of 12 March, a trade discount of 10% of $10 000 is not recorded

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in books of accounts. Therefore, we record $9 000 as the value of goods bought from
the supplier.

How to post entries from the purchases journal to the ledger

The purchases and individual suppliers’ accounts are opened by debiting the purchases
account with the total amount of the purchases for the month and crediting individual
supplier account with amount of goods bought from each supplier.

Required
Using example 8.1.2, post entries from the purchases journal to the ledger.

Solution
PURCHASES LEDGER

Fundira Wholesalers account

2018 $
Mar 1 Purchase GL 4 000

Thiago Ltd account

2018 $
Mar 12 Purchase GL 9 000

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5. On 13 July 2018, the business bought goods worth $25 000. A trade discount of
10% was allowed. How much was entered in the purchases day book?
A. $25 000 B. $22 500 C. $27 500 D. None of the mentioned
6. Purchases account is kept in the__________.
A. purchases ledger B. sales ledger C. nominal ledger D. cash book

Structured Questions
Answer the questions correctly
1. For the following transactions, prepare a purchases day book and post the details
to the relevant accounts in the ledgers.
2014 $
Aug 4 D. Mlauze 600
11 A. Chinyama 800
12 C. Mavura 1 200
17 M. Banga 1 600
21 J. Gondo 2 300

SAMPLE
26 Y. Ndumo 1 850
2. For the following transactions, prepare a purchases day book and post the details
to relevant ledger accounts.
2012 $
Mar 2 J. Kamota 1 300
6 M. Mutiya 2 800
9 A. Mlauze 1 400
18 C. Phiri 1 600
21 R. Shomima 1 350
31 R. Joe 2 300
3. The following information relates to Mtumwa Stores for the month of June 2018.
Record the transactions in their relevant subsidiary books and post the entries to
their relevant ledger accounts.
2018 $
June 1 Bought goods for resale on credit from D. Chinhengo 2 500
3 Bought goods for resale on credit from the following:
William Wholesalers 5 500
B. Ndlovu 3 600
W. Murwira 4 500
5 Bought goods for resale on credit from T. Mubaira 2 300
13 Bought goods for resale on credit from B. Jasi 4 800

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 21 Bought goods for resale on credit from the following:
D. Chinhengo 1 600
L. Suwedi 2 700
W. Kuzanga 1 800
28 Bought goods for resale on credit from B. Ndlovu 2 400
4. Enter the following transactions to the relevant subsidiary books, post each
transaction to its respective ledger account.
Nov 1 Bought goods on credit from D. Mare, list price $6 000,
received trade discount of 15%.
5 Bought goods on credit from the following; E Ngoche $2 800,
M. Kavhai $3 500 and R.Madziva $4 500, received a trade
discount of 10%.
14 Bought goods on credit from B. Madziva $7 000, received a
trade discount of 20%
5. For the following transactions, write up the purchases journal and post the entries
in their relevant ledger accounts.

SAMPLE
2018
April 2 Bought goods worth $ 2 500 on credit from D. Banda
3 Bought goods worth $1 650 on credit from Kapoto, received a trade
discount of 15%
6 Bought goods worth $1 270 from D. Banda on credit, received a trade
discount of 20%
8 Purchased goods from D. Banda worth $2 520, from Kapoto $1 750
and from Cheng Wholesalers $4 500
15 Purchased goods worth $9 500 from Cheng wholesalers and received
a trade discount of 15%
18 Bought goods from Kapoto worth $1 700 and received a 20% trade
discount
24 Purchased goods from D. Banda worth $3 600, received a 20% trade
discount

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 Unit 9.2 Pollution

TOPIC SALES RETURNS JOURNAL

9 Unit Covered
9.1 Sales returns journal

SAMPLE

Objectives
By the end of the topic, learners should be able to:
• Define sales returns journal
• State the source documents of the sales returns
journal
• Enter entries in the sales returns journal
• Post entries from the sales returns journal to the
ledger.

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Required
a. Enter the above transactions in the sales returns journal and post the entries to the
ledger.

Solution
Sales Returns Journal
Date Details Invoice no Folio Amount ($)
2018
Mar 02 Tengah 0020 SL 1 000
04 Yolanda 0021 SL 2 700
12 Philip 0022 SL 4 600
31 Total Sales Returns for the month GL 8 300

How to post entries from the sales returns journal to the ledger
Totals in the sales returns journal at the end of the month are posted to the debit side of
the sales returns account. The individual customers` accounts are credited with the value of
the goods they have returned to the business.
Debit sales returns

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account in general
ledger

Credit note Sales returns journal

Credit trade
receivables account
in the sales ledger
Required
Using example 9.1.1, post entries from the sales returns journal to the ledger.

Solution
SALES LEDGER
Tengah

2018 $
Mar 2 Sales Returns GL 1 000

Yolanda
2018 $
Mar 4 Sales Returns GL 2 700

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SALES LEDGER
Shoriwa
2018 $
Mar 14 Sales Returns GL 1 600

Shephard
2018 $
Mar 18 Sales Returns GL 6 800

Leona
2018 $
Mar 28 Sales Returns GL 1 700

GENERAL LEDGER

SAMPLE
Sales Returns Account
2018 $
Mar 31 Trade recievable SL 10 100

TOPIC SUMMARY
• Sales returns journal is a subsidiary book used to record goods returned by the
customers to the business.
• Sales returns journal is also known as returns inwards journal.
• The source document for the sales returns journal is the credit note.
• Totals in the sales returns journal at the end of the month are posted to the
debit side of the sales returns account.

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 Unit 9.2 Pollution

TOPIC PURCHASES RETURNS

10
JOURNAL
Unit Covered
10.1 Purchases returns journal

SAMPLE

Objectives
By the end of the topic, learners should be able to:
• Define purchases returns
• State the source documents of the purchases
returns journal
• Enter entries in the purchases returns journal
• Post entries from the purchases returns journal to
the ledger.

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 10.0 Introduction
Goods bought by the business may be returned to the supplier for several reasons. The
purchases returns journal is a subsidiary book used to enter goods returned to suppliers by
the business before they are posted to the ledger. Goods recorded are those which were
purchased on credit from the supplier with an intention for resale. Consumables such as
packaging materials, stationery, oil and fuel if returned are not recorded in the purchases
returns journal.
The source of information for entries in the purchases returns journal is the debit note. The
purchases returns journal is also known as returns outwards day book because it is where
daily transactions of goods (purchases) returned to the supplier from business are recorded.
The structure of the purchases returns journal is the same as that of other special journals
such as sales journal, purchases journal and sales returns journal.

10.1 Purchases returns journal

The structure of purchases returns journal
Purchases journal
Date Details Debit Note Folio Amount ($)
Number

SAMPLE
How to record entries in the purchases returns journal
Entries are recorded in the same way as in the sales journal, purchases journal and the sales
returns journal. The only difference is that the total at the end of the month represents
purchases returns for the month.

Example 10.1.1
2018
May 10 Returned goods worth $5 000 to Liberty Suppliers Ltd, Debit note number
0030
15 Returned damaged goods to Metro Ltd worth $4 000, Debit note number
0031
25 Purchases returns to Sally Ltd worth $3 900, Debit note number 0032

Solution
Purchases Returns Journal
Date Details Debit Note Folio Amount ($)
Number
2018
May 05 Liberty Suppliers 0030 PL 5 000
15 Metro Ltd 0031 PL 4 000
25 Sally Ltd 0012 PL 3 900
31 Purchases Returns for the month GL 12 900

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 11 Returned goods to B. Looney bought on 5 January 2 112
12 Bought goods on credit from K. James 22 667
16 Bought goods from L. Thompson 21 444
18 Bought goods from R. Johnson 21 435
20 Bought goods from D. Durant 17 590
21 Returned goods bought from R. Johnson 3 564
25 Returned good bought from D. Durant 1 678
31 Bought goods on credit from B. Looney 19 577
7. Enter the following transactions in the purchases journal and the purchases returns
journal. All goods had been supplied at a trade discount of 15%.
2018 $
Jan 3 Bought goods from D. Curry, list price 15 900
5 Bought goods from S. Wade, list price 12 500
7 Returned goods bought from D. Curry, list price 1 300
12 Bought goods from K. Whiteside, list price 16 700

SAMPLE
15 Bought goods from D. Curry, list price 11 800
17 Bought goods from K. Waiters, list price 10 700
18 Bought goods from S. Wade, list price 17 600
19 Bought goods from K. Waiters, list price 13 400
20 Returned goods bought from S. Wade, list price 2 500
21 Returned goods bought from K. Waiters, list price 3 600
30 Bought goods from K. Whiteside, list price 18 700
8. Enter the following transactions into the appropriate journals and post the entries
into the correct accounts.
2018
Jun 1 Goods sold on credit to F. Kamwiyo for $2 550
6 Goods sold on credit to T. Chidenyu for $3 600
8 Goods purchased on credit from C Dlakama for $1 860
12 Goods sold on credit to F. Kamwiyo for $1 950
19 Goods purchased on credit from A. Mngabi for $2 780
9. Enter the following transactions into the appropriate journals and post the entries
into the correct accounts.

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 11.0 Introduction
The ledger is regarded as the principal book of accounts because it is where all postings
from the subsidiary books are recorded. Similar transactions relating to a particular person,
liabilities, assets, revenues and expenses are all kept in the ledger. The main function of the
ledger is to classify all items appearing in subsidiary books under the appropriate accounts.
For example, all credit sales in the sales journal are kept in the ledger under the appropriate
account known as the sales account.

11.1 Classification of business transactions

A transaction is any event that involves the exchange of values, for example bought a motor
van on cash $5 000. In this case, there is an exchange of motor van and cash.
Business transactions are classified into cash, bank, credit and barter transactions. Cash
transactions involve the exchange of goods and services with cash being paid or received
immediately. Bank transactions involve the exchange of goods and services where payments
will pass through the bank. Credit transactions are when the payments of goods and services
supplied will be made later. Barter transactions involve the exchange of goods and goods
or goods and services without cash movements.

Classification of the ledger accounts

SAMPLE
Accounts are classified into personal, real and nominal accounts.

Personal accounts
These are accounts of people who deal with the business on its daily operations. The
accounts include of the trade receivables, trade payables and the accounts which contain
the transactions of the owner, the capital and drawings account

Real accounts
These are accounts of tangible items. Examples are office equipment, motor vehicles, cash,
plant and machinery, inventory, premises and so on

Nominal accounts
These are accounts of intangible items. Nominal accounts exist in names only. They include
all revenues, expenses and liabilities.

The structure of the ledger

The left side of the ledger is the debit side and the right side is the credit side.

Dr Cr
Date Details F Amount Date Details F Amount

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 Solution

Sales journal
Date Details Folio Amount ($)
2018
May 20 Dread SL 1 5 000
Ray SL 2 3 500
31 Tee SL 3 1 400
Sales for the month GL 9 900

Purchases journal
Date Details Folio Amount ($)
2018
May 4 Jay Ltd PL 1 1 700
14 Lee PL 2 4 000
Dee PL 3 3 000

SAMPLE
Vee PL 4 1 600
31 Purchases for the month GL 10 300

Returns outwards journal

Date Details Folio Amount ($)
2018
May 27 Lee PL 2 1 000
Dee PL 3 680
31 Returns outwards for the month GL 1 680

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 REVISION EXERCISE 11
Multiple Choice
Answer all questions
1. ___________ is an expense account.
A. Commission earned B. Rent C. Loan D. Motor vehicle
2. The main book of accounts is the _________.
A. cash book B. ledger C. journal D. receipt
3. Cash deposited into a bank account is recorded as ___________ in folio column of
the cash book
A. PL B. GL C. C D. SL
4. Which of the following is a real account?
A. Fixtures B. Insurance C. Rent received D. Interest on loan
5. Which of the following accounts is credited when a sole trader pays rent using a
cheque?

SAMPLE
A. Cash B. Bank C. Capital D. Rent

Structured Questions
Answer the questions correctly
1. Explain the following types of transactions:
a. Cash transactions [2]
b. Bank transactions [2]
c. Credit transactions [2]
d. Barter transactions [2]
2. The following transactions took place in Moyo’s business

2019
Jun 1 Cash capital deposited into bank account $11 900
3 Bought a delivery van at $1 800 by cheque
6 Bought a goods for resale on credit from Billy Suppliers worth $8 000
8 Sold goods on cash $2 400 and by cheque $1 300
10 Paid wages $390
11 Cash sales banked $3 900
19 Bought three computers each worth $1 000 by cheque
21 Acquired a loan from Gilder Ltd $5 000
23 Withdrew cash $560 for office use
28 Paid wages $590 cash
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Sold goods on credit to Jimmy $1 500 and to Edward $3 500
 Unit 9.2 Pollution

TOPIC TRIAL BALANCE

12 Units Covered
12.1 Purpose of a trial Balance
12.2 Preparation of a trial balance

SAMPLE

Objectives
By the end of the topic, learners should be able to:
• Define trial balance
• Explain the purpose of a trial balance
• Construct a trial balance.

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 28 Sold goods on credit to Sibanda worth $700
31 Withdrew cash $100 for private use

Required
a. Prepare ledger accounts and balance them off.
b. Prepare a trial balance using the balances from the ledger accounts.

Solution
Example 12.1.2
Capital account
2018 $ 2018 $
Dec 31 Balance c/d 4 000 Dec 1 Cash CB 4 000
4 000 4 000
2019
Jan 1 Balance b/d 4 000

Sales account

SAMPLE
$ 2018 $
c/d Dec 12 Cash CB 800
2018 Bank CB 1 000
Dec 31 Balance 2 500 28 Sibanda SL 700
2 500 2 500
2019
Jan 1 Balance b/d 2 500

Purchases account
2018 $ $
Dec 3 Cash CB 1 200 2018
16 ABC Ltd PL 500 Dec 31 Balance c/d 1 700
1 700 1 700
2019
Jan 1 Balance b/d 1 700

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 REVISION TEST
Multiple Choice
Answer all questions
1. Which of the following is a source document of the sales day book?
A. purchases invoice B. Sales invoice C. Receipt D. Credit note
2. Undercharged goods sold to the customer are first recorded in the ________.
A. sales returns journal B. sales journal
C. purchases journal D. purchases returns journal
3. The left side of the cash book is known as___________.
A. receipts side B. payments side C. credit side D. debit side
4. The advantage of the electronic method of data processing is__________.
A. it requires skilled labour B. it requires high training costs
C. it is faster than manual D. it can be affected by viruses
5. Totals at the end of the month in the purchases returns journal are posted to the

SAMPLE
_________.
A. debit side of the trade payables account
B. credit side of the trade payables account
C. debit side of the returns outwards account
D. credit side of the returns outwards account
6. Which of the following is part of bookkeeping?
A. Analysing B. Daily recording C. Classifying D. Summarising
7. The last stage of the accounting cycle is the ______________.
A. trial balance B. source documents
C. Ledger D. financial statements
8. Creditors are also known as___________.
A. trade payables B. trade receivables C. inventory D. equity
9. Insurance, rent and advertising are___________.
A. nominal accounts B. personal accounts
C. real accounts D. none of the above
10. The main advantage of a limited company over a sole trader business and a
partnership is _________.
A. unlimited liability B. limited liability
C. continuity D. quality decisions

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