Accounting work from the net (2)
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The document provides rules for debit and credit entries in accounting. Increases in assets and expenses are debited, while decreases in assets and increases in liabilities and capital are credited. It also gives examples of basic double-entry transactions like starting a business, purchases, sales, and payments.
Accounting work from the net (2)
- 1. Rules for Debit and Credit Add comments Rules for Debit and Credit: Increases in assets - Debit Decreases in assets - Credit Increases in liabilities & Capital – Credit Decreases in liabilities & Capital - Debit All Expenses - Debit All Incomes – Credit Summary of basic double entry transactions Use the following format in your answer book for writing the answer to the Question given below. S Account to be debited Amount Account to be credited Amount $ $ A B . . . Based on the following transactions, find out the Account to be debited and Account t
- 2. be credited. a) Started business with cash $2,500 b) Bought goods by cash $12,000 c) Sold goods for cash $20,000 d) Paid carriage inwards in cash $1,500 e) Received commission in cash $1,000 f) Bought goods for cheque $ 2,000 g) Sold goods for cheque $ 3,000 h) Bought furniture in cash $1,200 i) Sold machinery for cash $12,000 j) Returned goods to Ahmed $100 k) Alwin returned goods to us $250 l) Bought goods on credit from Sathya $1,500 m) Sold goods on credit to Samuel $1,800 n) Issued a cheque to Mathew for $ 2,800 o) Paid travelling expenses in cash $25 p) Returned furniture to Sunil $2,000 q) Alfred issued a cheque to us $ 600 r) Withdrew cash from the business for personal use $120 s) Withdrew cash from the business bank account for personal use $1,250 t) Cash sales deposited into business bank account $ 2,500 u) Anand deposited cash in our bank account $ 4,000 v) Paid cash to Sabig for the settlement of his account $1,000 w) Raasi settled his account by cheque $1,400 x) Introduced additional capital into the business $3,000 by cheque y) Paid rent of building by cheque $600 z) Received Interest in cash $5,000
- 3. Control Accounts Add comments Control Accounts Control Accounts are the total accounts used for checking the arithmetical accuracy of each of ledger separately. The two most common control accounts are: (i)The sales ledger control account (debtors ledger control a/c / total debtors a/c) and (ii)The purchase ledger control account (creditors ledger control a/c/total creditors a/c) A control account contains the same information as the individual ledger accounts which it controls, but in total. Purposes of control accounts 1. To act as a check on the accuracy of the totals of the balances in the sales and purchases ledgers. 2. To provide totals of debtors and creditors quickly when a trial balance is being prepared. 3. To identify the ledger(s) in which errors have been made when there is a difference on the trial balance. 4. To act as an internal check on the work of the sales and purchases ledger clerks – to detect errors and deter fraud, under the charge of a responsible person
- 4. The format of sales ledger control account Balances b/d(large amount) ———– Balances b/d(small amount) ———– Credit sales --—— Cash/cheque from debtors ———— Returned cheque - discount allowed ———— (unpaid cheque) ———- Sales returns ———– Interest charged to debtors ———- Bad debts written off ———– Cash refunds to customers ———– Balances c/d(small amount) ———- Set off or contra entries ———— Balances c/d(large amount) ———— xxxxxxx xxxxxxx Balances b/d (large amount) ———- Balances b/d (small amount) — ——-
- 5. Sources of information for items appearing in the sales ledger control account 1. Credit sales- sales day book – total. 2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement. 3. Interest charged to debtors- Interest received account. 4. Cash or cheques from debtors – cash book-receipts side. 5. Discount allowed – cash book (debit side) or discount allowed account. 6. Sales returns – sales returns day book total. 7. Bad debts written off – general journal or bad debts account. 8. Set off or contra entries- general journal. Format of purchase ledger control account Balances b/d (small amount) ——— Balances b/d (large amount) ——— Cash /cheques paid to creditors ——— Credit purchases — —— Discount received ——— Interest charged by Creditors — —— Purchases returns ——– Balances c/d (small amount) — —— Set off /contra entries ——– Refunds from suppliers ———
- 6. Balances c/d (large amount) ——– xxxxx xxxxxx Balances b/d (small amount) ——– Balances b/d (large amount) — —– Sources of information for items appearing in the purchases ledger control account a Credit purchases – purchases day book total b. Interest charged by creditors – interest paid account. c. Cash/cheque paid to creditors – cash book – payments side. d. Discount received – cash book payment side or discount received account e. Purchases returns – purchases returns day book total. f. Set off or contra entries – general journal. Set off / contra entries. Sometimes, the same person may be a debtor as well as a creditor for the business. At the end of the month, the smaller amount in his account from one ledger is transferred to his account in the ledger with large amount. The entry passed for recording this transfer is known as set off or contra entry.
- 7. Key Points Control accounts are considered as total accounts. Debtors ledger control account is also known as sales ledger control account or total debtors account. Creditor’s ledger control account is also known as purchases ledger control account or total creditors account. Balance in sales ledger control account is the balance of debtors at the year end and balance in purchases ledger control account is balance of creditors. Cash sales and cash purchases are not recorded in the control accounts. The double entry to record set off from purchase ledger to sales ledger is to debit purchase ledger control account and credit sales ledger control account. Dishonoured cheque which was received from debtors is shown in the debit side of the sales ledger control account. Interest on overdue accounts charged from customers and refunds to customers for overpayments by them are shown on the debit side of sales ledger control account. Interest charged by suppliers and refunds received from suppliers for overpayments to them are recorded in the credit side of purchases ledger control account. Provision for bad debts is not included in sales ledger control account Small balance in a control account represents advance payments, overpayments etc. MCQ 1. What is the source of information for credit sales for preparing the control accounts? 1. Sales account in the General ledger
- 8. 2. Sales journal C. General journal D. Sales ledger 2. Which of the following is not considered while preparing the sales ledger control account? A. Opening balance of debtors B. Discount received C. Discount allowed D. Returns inwards 3. Which item will appear on the debit side of a debtors ledger control account? A. Cash sales B. Cheques received C. Return inwards D. Sales on credit 4. Which item will appear on the credit side of a purchase ledger control account? A. Cheques paid B. Discount received C. Credit purchases D. purchases returns 5. What is the purpose of preparing the control accounts? A. To calculate the total sales B. To calculate the closing debtors only C. To calculate the closing creditors only D. To check the arithmetical accuracy of each ledger separately. 6. What is the alternative name of the sales ledger control account?
- 9. A. Total debtors account B. Total creditors account C. Purchases account D. sales account. 7. Cash is refunded to customer, who had overpaid his account. In which ledger control account it is recorded? 1. Debit side of sales ledger control account. 2. Credit side of sales ledger control account. 3. Debit side of purchase ledger control account. 4. Credit side of purchase ledger control account. 8. A refund was received from a supplier for excess payment made by us. Where should it be recorded? A. Debit side of sales ledger control account. B. Credit side of sales ledger control account. C. Debit side of purchase ledger control account. D. Credit side of purchase ledger control account. 9. A purchase ledger control account is prepared from the following list of items:- Total creditors at the start of the month $ 900 Credit purchases $ 12000 Customers’ debts written off $ 200
- 10. Cash paid to creditors $ 11800 Returns inwards $ 300 What is the closing balance? A. $ 600 B. $900 C. $ 1100 D. 1400 10. The table shows details of sales ledger:- Sales ledger opening balance $ 1894 Total credit sales $ 10290 Cheques received from customers $ 7284 Cash received form customers $ 1236 Returns inwards $ 296 What is the closing balance of debtors? A. $ 3664 B.$ 3072 C. $ 3368 D. $ 2664 Assignment questions Q 1. The following details are available from the books of Weston for the month of May, 2003.Prepare Sales ledger control account and Purchases ledger control account. $ Opening debtors 4 000 Opening creditors 3 800
- 11. Cash received from debtors 8 000 Cheques received from debtors 60 000 Cheques paid to creditors 55 000 Cash paid to creditors 7 000 Bad debts written off during the year 750 Discount allowed 1 250 Discount received 1 000 Returns inwards 800 Returns outwards 500 Transfer from purchases ledger to sales ledger 500 Credit sales 80 000 Credit purchases 71 000
- 12. Q 2. From the following information prepare the sales ledger control account and purchases ledger control account. $ Opening debtors 12 000 Opening creditors 8 000 Credit sales 30 000 Credit purchases 25 000 Returns inwards 500 Returns outwards 800 Discounts allowed 1 000 Discounts received 300 Bad debts written off 200 Cash paid to creditors 2 500 Cheques paid to creditors 20 000 Cheques received from debtors 25 000 Cash received from debtors 4 500 Customers cheques returned unpaid 1 000 Set off from sales ledger to purchases ledger 600
- 13. Q3. The following details are available from the books of Mathews for the month of June, 2003. Prepare the sales ledger control account and purchases ledger control account for the month of June, 2003. $ Sales ledger control account balance b/d 10 000 Purchases ledger control account balance b/d 8 000 Purchases for the month 12 000 Sales for the month 16 000 Returns inwards 1 000 Returns outwards 400 Payments to creditors 11 000 Receipts from debtors 15 000 Customers’ cheques returned unpaid 500 Bad debts written off 300 Discount received 550 Discount allowed 750 Transfer from purchases ledger to sales ledger 600 Credit balance in sales ledger control account 600 Debit balance in purchases ledger control account 200
- 14. Q4. The following information was obtained from the books of Vale. $ March 1 D 9 506 Creditors 2 580 March 31 Credit sales 20 345 Credit purchases at list price 7 200 Returns outwards at list price 200 Sales returns 120 Cash and cheques received from debtors 19 580 Customers’ cheques dishonored 250 Cash and cheques paid to suppliers 5 170 Discount received 190 Discount allowed 210 Interest charged to customers on overdue accounts 70 Bad debts written off 155 Balance in sales ledger set off against balance in the purchases ledger 350 Cash refunds from suppliers for overpayments 60
- 15. Debit balances in purchases ledger 40 Credit balances in sales ledger 64 All purchases and purchases returns were subject to a trade discount of 10% off the list price. Prepare the sales ledger control account and purchases ledger control account. Q 5. The following information was obtained from the books of K. Kent:- $ 1st April, 2002 Trade debtors 28 518 Trade creditors 7 740 Stock in trade 22 500 31st March, 2003: Credit sales 61 440 Credit purchases at list price 21 600 Purchase returns at list price 600 Sales returns 360 Cash and cheque received from debtors 58 740 Customer’s cheque dishonored 750 Cash and cheque paid to creditors 15 510 Discount received 570
- 16. Discount allowed 630 Interest charged to customers on overdue accounts 210 Bad debts written off 465 Balance in sales ledger set off against balance in purchases ledger 1050 Cash refunds from suppliers for overpayments 180 Debit balance in purchases ledger 120 Credit balance in sales ledger 186 Interest charged by our suppliers on overdue accounts 390 Cash refunds to customers for overpayments by them 540 All purchases and purchase returns are subject to a trade discount of 20% off the list price. during the year Cash sales were $ 22 000 and Cash purchases were $ 12 500. On 31st March, 2003 the stock in trade was valued at $ 12 500. Required to:- 1. Prepare the sales ledger control account and purchases ledger control account. 2. Calculate the gross profit of the business for the year ended 31st March,2003. Q 6. The following information is relating to the business of Anson for the month ended 31st March 2003:-
- 17. Credit sales and return inwards are subject to 10% trade discount on list price. Required:- 1. Make sales ledger control accounts of Mr. Ibrahim for the month of March 2003. 2. Calculate total Turn over on 31st March 2003 Q 7. The following information was obtained from the books of K. Vasanthi. *All purchases and purchase returns were subject to a trade discount of 20%off the list price. During the year cash sales were $ 22 000 and cash purchase were $ 12,500. *On 31st March 2004 the stock in trade was valued at $ 12,500. Required:- 1. Total Debtors Account for the year ended 31st March 2004 2. Total Creditors Account for the year ended 31st March 2004. 3. c. Calculate the Gross profit of the business for the year ended 31st march 2004. Q 8. The following details are available from the books of a business for the year ended 31st December 2002:- $ On 1-1-2000 The balance in the provision for bad debts account $ 400 On 31-12-2000 Total debtors $12 000 On 1-1-2002 Purchase ledger control account balance $ 12 700 On 1-1-2002 Sales ledger control account balance $ 14 200
- 18. On 31-12-2002: Cheque issued to suppliers $ 19,200 Cheque received from customers $ 50,400 Discount allowed $ 400 Discount received $ 600 Returns inwards $ 1 000 Return outwards $ 900 Bad debts written off $ 1 200 Dishonored cheque returned to us $ 1 200 Credit sales $ 52 000 Credit purchases $ 28 000 Set off from purchase ledger to the sales ledger $ 2 000 5% of year end debtors should be created as provision for bad debts Required to prepare:- a. Purchase ledger control account for the year ended 31st December 2002 b.Prepare the sales ledger control account for the year ended 31st Dec 2002. c.The provision for bad debts a/ct and the balance sheet extracts for the 3
- 19. 2000,2001 and 2002. Q 9. The following details are available from the books of a business for the year ended 31st December 2002:- $ On 1-1-2000 The balance in the provision for bad debts account $ 400 On 31-12-2000 total debtors $12 000 On 1-1-2002 Purchase ledger control account balance $ 12 700 On 1-1-2002 Sales ledger control account balance $ 14 200 On 31-12-2002: Cheque issued to suppliers $ 19,200 Cheque received from customers $ 50,400 Discount allowed $ 400 Discount received $ 600 Returns inwards $ 1 000 Return outwards $ 900 Bad debts written off $ 1 200 Dishonored cheque returned to us $ 1 200 Credit sales $ 52 000 Credit purchases $ 28 000
- 20. Set off from purchase ledger to the sales ledger $ 2 000 5% of year end debtors should be created as provision for bad debts Required to prepare:- 1. Purchase ledger control account for the year ended 31st December 2002 2. Prepare the sales ledger control account for the month ended 31st Dec 2002. Q 10. Ander Paul, a sole trader, provided the following information from his accounts for the year ended 31st Dec 2003. $ Credit sales for 2003 75 500 Credit purchases for 2003 68 900 Credit sales return for 2003 700 Total debtors at 1 Jan 03 8 500 Total creditors at 1 Jan 03 4 800 Prov. for bad debts as at 1 Jan 01 600 The cash book extract figures are totals for the year. The following points are also relevant. 1. $ 600 of trade debtors were written off as bad debts on 7th Oct 2003 2. A revised provision for bad debts is to be 5%of the trade debtor’s balance as at 31st Dec 2001. 3. Balance in the sales ledger set off against balance in the purchase ledger $ 300. Required to prepare the Sales ledger control account and the provision for bad debt account for the year ended 31st Dec
- 22. Revision Questions Add comments Revision theories Grade 10 – Principles of Accounts 1. Depreciation on fixed assets are usually deducted from _______________________ 2. Sate the meaning of business entity concept________________ 3. The double entry for recording the transfer of profit on sale of assets is: ____________ 4. The amount of depreciation changes year after year under ____________ 5. The opening and closing balances of the assets are compared to calculate the amount of depreciation under ________________ method. 6. The source of information for cheque dishonoured which was received from a debtor is ___________________ 7. The resources owned by a business is called ______________ 8. The financial plan expressed in money is called _________________ 9. Net worth is another name of ___________ 10. The double entry for goods taken by the owner for his personal use is _________________
- 23. 11. The monetary value of goods and services supplied to the customers is known as:___________________________ 12. The purpose of preparing the trial balance is to ___________________________________________________________. 13. Sale – cost of goods sold = __________________________. 14. Opening stock + purchases + carriage inwards – return outwards – closing stock = ____________________________. 15. The double entry for transferring sales account to the trading account at the end of a year is : ___________________________ 16. The double entry for bringing the closing stock into the accounts is : ____________________________ 17. The double entry for transferring the purchase account to the trading account is: __________________ 18. Gross profit + incomes – expenses = __________________ 19. The double entry for transferring the net profit to capital account is : ________________ 20. The double entry to transfer the net loss to the capital account is : ______________ 21. Working capital means: __________________
- 24. 22. Drawings ( both cash and goods ) are shown in the balance sheet as a deduction from the ______________ account. 23. All items in the balance sheet are either _____________ or _______ 24. Among the final accounts, __________ is not a part of double entry. 25. Carriage inwards means______________________________ 26. Carriage outwards means______________________________ 27. The cost of import duty, insurance and freight incurred on goods are shown as part of _________________________________ 28. The concept that profit is the difference between revenue and expenses is: ______________________ 29. The concept that profit is not shown as being too high, or that assets are shown at too ____________________________ 31. The journal which records the miscellaneous transactions is called _______________ 32. Sales journal records only __________________________ 34. Purchases journal records only ___________________________ 35. The journal which records returns of goods to the suppliers i9s known as ___________________________ 36. The journal for recording the returns inwards from customers is known as __________________________
- 25. 37. The subsidiary book for recording both receipts & payments of cash and cheques is known as ___________________ 38. Creditors ledger contains the accounts of ___________________ 39. Sales ledger contains the accounts of ______________________ 40. Nominal account is another name of general ledger. It contains the accounts of : _________ __________ ___________ _____________ 41. The debit side discount column total of a cash book is called ___________________ 42. The credit side discount column total of a cash book is called ___________________ 43. Cash account can have _____________ balance only. 44. Bank account can have ___________ or ___________ balance. 45. If both debit and credit entries of a transaction are shown in a cash book itself, such entries are known as ___________ __________. 46. The discount allowed from the list price of the goods is known as________________ 47. ____________________ are given to encourage people pay their accounts within a stated time limit. 48. The copy of our current account given to us by our bank in known as : ______________________________
- 26. 49. Under which heading will the value of closing stock be found in the balance sheet ? ____________________ 50. Cash sales are not recorded in the sales journal. But these are recorded in the : __________________ 51. The total of sales journal is transferred to the _________ side of the sales account in the ___________ ___________ 52. The document received by a purchaser showing details of goods bought and their prices : __________ _____________ 53. A document showing details of goods sold and the prices of these goods is known as : ____________ _________________ 54. The total of purchases journal is transferred to the ________ side of the purchase account in the __________ ________ 55. A document send to a customer showing allowance given by a supplier in respect of unsatisfactory goods is known as ___ _____________ 56. The total of returns inwards journal is transferred to the _ side of_ account in the _ ledger. 57. The total of returns outwards journal is transferred to the side of _account in the general ledger. 58. The purchase and sale of fixed assets on credit are recorded in the _______________ 59. When a firm spends money to buy or add value to a fixed asset that cost is called _______________ ________________
- 27. 60. ____________ ______________are the expenditures needed for the day to day running of the business. 61. The provision for bad debt is also known as____________ 62. The double entry for creating the provision for bad debt is to 63. For an increase in the provision for bad debt, the profit & loss account is to be______ 64. Decrease in the provision for bad debt is shown as _________ in the P&L account. 65. State the meaning of bad debt written off ___________ 66. The provision for bad debt is shown as a deduction from ____ in the B/S. 67. Mention two features of a fixed asset. 68. Mention three causes of depreciation. ___________________ 69. Under method, the amount of depreciation reduces year after year. 70. The accounting entry to transfer the cost price of the asset sold to asset disposal a/c is 71. Profit on disposal of asset is transferred to the _ side of profit & loss a/c. 72. Loss on disposal of asset is transferred to the profit & loss account by ____________asset disposal account. 73. Accrued expense means _____________
- 28. 74. Prepaid expenses are shown as ___________________ in the balance sheet. 75. Revenue owing is also known as ____________________ 76. The difference between total assets and total liabilities is known as ______________ 77. In the absence of an agreement between the partners, they will share the profit and loss _______________ 78. The entry for transferring interest on capital is to ________ the partner’s current a/c. 79. The interest on drawings is debited to the _________ _____________ 80. The double entry for transferring share of profit is to ________________________________ ________________ 81. Credit balance in a partner’s current account means:__________________________ 82. Debit balance in a partner’s current account means :__________________________ 83. Under fluctuating capital method, the adjustments such as interest on capital, interest on drawings, share of profit, salaries etc.. are shown in each partner’s __________a/c 84. The difference between net assets and the business purchase price is know as ___________________ ____________________
- 29. 85. The excess of assets over business purchase price is called ____________________ 86. The total of the share capital which the company is authorized to raise from the public is known as _________ ___________ 87. Debentures are the ________ capital of a company. 88. The debenture interest is shown as an expense in the _______ ___________ 89. Interim dividend paid is shown in the ___________only. 90. In which part(s) of the final accounts of a company, the proposed dividends are shown? ___________________ 91. In the balance sheet of a company, the share premium is shown under the heading: _______________________ 92. Shares that are entitled to an agreed rate of dividend before the ordinary shareholders receive anything is called : _____________ _____________ 93. Shares entitled to dividend after the preference shareholders have been paid their dividend is called ______________ ____________ 94. A division of the capital of a limited company into parts is known as ____________ 95. Dividend is always calculated on ________ share capital of the company.
- 30. 96. The profit expressed as a percentage on sales is called _______________________ 97. The profit expressed as a percentage on cost of goods sold is called ____________ 98. The formula to calculate current ratio is ___________________ 99. The formula to calculate acid test ratio is ___________________ 100 Stock turn over ratio is calculated _______________________________________ 101 Mention the profitability ratios. ____________________ 102. Expenses which remain constant whether activity rises or falls, within a given range of activity are known as _________ ____________ 103. Expenses which change with change in activity are called _________ ___________ 104. Unpresented cheques means _______ 105. The cheques deposited but not collected and credited is known as ____________ ___________ 106. Where will you show the credit balance as per the bank statement, in the balance sheet of a business? ________________________________ 107. What is the source of information for discount received and allowed while preparing
- 31. the control accounts? ______________________ 108. What is the basic document for the transaction ―cheque dishonoured ―? _________________________ 109. Purchase ledger control account is also known as ___________ _ 110. Total debtors account is also known as _______________ _ 111. Where a transaction is completely omitted from the books, such errors are known as 112. Errors of commission means _______________ 113. When an item is recorded in the wrong class of account , such error is known as:________________________ 114. Errors of original entry means __________________ 115. The account prepared by a club which records all the receipts and payments is known as ________________ __________________ 116. In a non trading concern, assets = ______________________ + ________________ 117. The subscription in advance is shown as a ______in the balance sheet. 118. Direct materials + Direct labour + Direct expenses = _____________________ 119. In the final accounts of a manufacturing concern, the depreciation on plant &
- 32. machinery is shown in ________________________ 120. The royalties paid is a part of _____________________ 121. Costs that can be traced to the item being manufactured is called _______________ 122. The cost of production calculated from the manufacturing account is transferred to _________________________ . 123. Cheque counterfoil is used as a source of information for recording the ______ 124. In a non trading concern, the amount of surplus is added with __________________ 125. In a company balance sheet, usually, under the heading reserves the following items are shown : ____________ ____________ ________________ _______________ 126. Goodwill is shown as __________ ___________ in the balance sheet. 127. The closing balance in a sales ledger control account is taken as _______________ 128. Debit balance as per bank statement means ________________________________ 129. With the debit balance as per updated cash book, the unpresented cheque amount is_____________ and unrealized cheque amount is ________________________ 130. Bank charges as per standing order is shown on ________ side of the cash book.
- 33. 131. In a manufacturing concern’s final accounts, the carriage outwards is shown in ___________________ account. 132. In the balance sheet of a manufacturing concern, usually, ______ types of stock figures are shown. 133. The amount of salary allowed to a partner will be shown in the _________________ and ___________________ at the end of a year. 134. While preparing the trial balance, if there is an error, it will be transferred to a separate account called ― _______________ ― . 135. Bank reconciliation statement is prepared to ________________________________ _____________________________________________________________ ______ 136. Debit balance as per bank statement means ________ balance as per cash book. 137. In a purchase ledger control account, the refund of money overpaid by us will be shown on its ____________ side.
- 34. 138. The preference share holders get an __________ rate of dividend at the end of a year 139. Debenture holders get _________ ____ __ ___________ at the end of every year. 140. The cost of extension of the business building is a ____________ ______________ and the cost of painting of the old building is a ______________ ______________ 141. The closing stock of this year will be the ________ _______ of the next year. 142. Cost of goods sold + closing stock + opening stock = _________________ 143. What is deducted from purchase to get net purchases? _________________ 144. Return inwards and carriage outwards show _________ balance. 145. Bank paying in slip is used for __________________________________________ 146. When the trial balance debit side is less than the credit side then, the difference is shown on the _________ side of the suspense account. 147. Net asset means ___________________________________________________
- 35. 148. The double entry to set off the purchase ledger control account to the sales ledger control account is to __________________________________________________ 149. The amount of provision for discount on debtors is calculated on the amount after deducting the bad debt ad the _________________________ 150. Prepaid expenses are also known as _____________ expenses.
- 36. Errors Add comments Rectification of errors and suspense account While recording the transactions in the journal, posting them to the ledger accounts, casting or at the time of balancing the accounts, there are chances for errors. Such errors are to be found out and corrected in the books of the business Correction of errors After the errors are found out from the books, those should be corrected. The correction of errors is to be done by passing correction entries or rectification entries in the general journal. The preparation of trial balance is the test of arithmetical accuracy of the ledger accounts prepared under double entry system. It proves the equality of debit and credit. A trial balance, which agrees, indicates that for every debit there has been an equivalent credit entry or entries. It does prove that all the entries are for the correct amount or made to the correct account Types of errors which do not affect the agreement of the trial balance 1. Errors of omission: Where a transaction is completely omitted from the books (Journal or ledger). E.g. a sales invoice $ 245 to Bolton was completely omitted from the accounts. 2. Errors of commission. Where a correct amount is entered in wrong person’s account, for E.g. Credit purchase from C. Clint has been recorded in the account of C. Clinton’s account.
- 37. 3. Errors of principle: Where an item is entered in wrong class of accounts, E.g. Purchase of plant had been debited to purchase account instead of debiting to plant account. 4. Compensating errors: Where errors cancel out each other, for E.g. Sales account was overcast by $ 500 at the same time the purchase account was also overcast by $500, and then the effect of these errors would cancel out in the trial balance 5. Errors of original entry: Where the original figure is incorrect but recorded in the correct original entry. Eg. Credit sales of goods$ 400 was calculated in the invoice as $ 300 and recorded in the same journal. 6. Complete reversal of entries: This occurs where the entries for transactions are reversed- the account which should be credited is debited and the account which should be debited is credited. Eg. The purchase of stationery for $ 200 for cash debited to cash and credited to stationery. 7. Transposition errors: Where the wrong sequence of the individual characters within a number was entered. E.g. An amount of a transaction $ 172 was entered in the accounts as $127 One way to help remember the six errors is to memorize COPCORT Commission Omission Principle Compensating Original entry
- 38. Reversal Transposition Types of errors which do affect the agreement of the trial balance The following errors will stop the trial balance from agreeing because debit does not equal to credit. 1. Incorrect addition to any accounts 2. Making an entry only on one side of one account i.e. Entering debit but not credit or entering debit but not credit. 3. Entering a different amount on the debit side from the amount on the credit side 4. The double entry has been inaccurate. E.g. Cash sales $15 – cash account debited with $5 and sales account credited with $15. 5. Two debit or two credit entry has been made. Casting: means adding figures. Overcastting: means incorrectly adding a column of figures to give an answer which is greater than it should be. Under casting: means incorrectly adding a column of figures to give an answer which is less than it should be. Suspense account: This is the account opened in the books of the business to show the difference
- 39. in trial balance, when it disagrees. When the errors are found out, the correction is made to suspense account and it will be automatically cancelled. Key points Nature of balances of each class of accounts Assets and expenses — always debit Liabilities and incomes — always credit To increase the balance of an account with debit balance – debit the account. To decrease the balance of an account with debit balance – credit the account. To increase the balance of an account with credit balance – credit the account. To decrease the balance of an account with credit balance – debit the account. The journal entries passed in the general journal to correct the errors found in the books of the business are known as rectification entries. The action to be taken for rectification of errors in the case of undercasting and overcasting of accounts Nature of balance In case of In case of overcasting undercasting Account with a debit Dr. Account involved Dr. Suspense account balance Cr. Suspense account Cr. Account involved Account with credit Dr. Suspense account Dr. Account involved balance Cr. Account involved Cr. Suspense account MCQ
- 40. 1. Purchase of machinery was entered in the purchase account. What type of error was this? A. Commission B. Principle C. Omission D. Transposition 2. The purchases account was added up too much by $ 100 and sales account also added up too much by $ 100. What kind of error is this? A. Commission B. Principle C. Omission D. Compensating 3. A cash receipt from Moorthy was debited to Moortyhy’s account and credited to cash account. What kind of error is this? A. Error of omission B. Error of commission C. complete reversal of entries D. Transposition errors 4. A cash purchase of goods was completely omitted from the books of the business. What kind of error is this? A. Commission B. Principle C. Omission D. Compensating 5. Goods sold on credit to Saani had been debited to Soni’s account. What kind of error is this? A. Commission B. Principle C. Omission D. Transposition.
- 41. 6. A sale of goods $ 250 to E.Ellis on credit had been completely omitted from the books. What is the entry to correct this error? 1. Debit sales account $ 250 and credit E.ellis $ 250 2. Debit E.Ellis $ 250 and credit sales account $ 250 3. Debit cash account $ 250 and credit sales account $ 250 4. Debit bank account $ 250 and credit sales account $ 250 7. Sale of machinery had been recorded in the sales account. What would be the entry to correct this error? 1. Debit sales account and credit machinery account 2. Debit machinery account and credit sales account 3. Debit cash account and credit machinery account 4. Debit machinery account and credit cash account 8. A sale of goods to Jeena $ 38 was entered in the books as $ 28. How should this error be corrected? 1. Debit Jeena $ 38 and credit sales account $ 38 2. Debit sales account $ 38 and credit Jeena’s account $ 38 3. Debit Jeena $ 10 and credit sales account $ 10 4. Debit sales account $ 10 and credit Jeena $ 10 9. A payment of cash $ 300 to M.Meenu was entered on the debit side of the cash book and credit side of M.Meenu’ account. What entry is required to correct this error? 1. M,Meenu debit $ 300 and cash account credit $ 300
- 42. 2. Cash account debit $300 and M.Meenu credit $ 300 3. M.Meenu debit $ 600 and cash account credit $ 600 4. Cash account debit $ 600 and M.Meenu credit $ 600 10. Closing stock was overvalued by $ 1400. What is the effect of this error on cost of goods sold? A. Overstated by $ 1400 B. Understated by $ 1400 C. No effect D. Overstated by $ 2800 11. A purchase of fixed assets $ 300 was debited to the purchases account. What would be the effect of this error? 1. Only net profit is overstated B. Only gross profit is overstated 2. No effect on gross profit or net profit 3. Gross profit & fixed assets are understated. 12. After which error will a trial balance still balance? A. Purchase book was overcast by $ 200 B. Sales book was under cast by $ 300 C. Rent paid by cash $ 400 debited rent account only D. Purchase of machinery $ 1000 was debited to purchase account and credited to cash account. 13. Wages paid for the installation of new machinery debited to wages account.
- 43. What kind of error is this? A. Omission B. Commission C. Principle D. Compensating 14. A revenue expenditure was treated as capital expenditure. What is the effect of this error on the final account items? 1. The gross profit is unaffected, net profit and fixed assets are overstated. 2. The net profit and fixed assets are understated 3. The net profit is unaffected and fixed assets are overstated 4. No effect on any of final accounts items 15. A business paid $224 to X. The entry in the cash book was correct. But it was credited as $ 242 in X’s account. What is the difference between the totals of the trial balance? 1. $ 18 B. $ 36 C. $ 466 D. $ 484 Assignment questions:- Q1. Pass rectification entries for the following errors found from the books of a business:- 1. sales day book had been under cast by $200 2. sale of goods to J.Johnson on credit for $ 500 had been debited to J.Jackson 3. Salaries account had been overcast by $ 300. 4. Purchase of goods by cash recorded in the cash account only $ 400. 5. Goods returned to Manu $ 150 debited to returns outwards account and credited to Manu’s account. 6. Repairs to motor car $ 400 debited to motor car account. 7. Returns outwards account had been overcast by $ 150.
- 44. 8. A cheque received from Mathew $ 500 had been entered in the cash book only. 9. A payment made by cash $100 to Sunil was omitted from the books of the business. 10. Sales of machinery $ 1000 had been credited to sales account and debited to cash account. Q 2. The trial balance of a business was prepared on 31st Dec 2003 and it did not agree. Later, the following errors were found out:- 1. Drawings account had been overcast by $ 250. 2. Goods bought for the owner’s personal use $ 400 had been included in the purchase account. 3. Capital brought into the business additionally $ 5000 was debited to bank account and credited to cash account. 4. Sales of goods on credit to J.John $ 400 had been debited to J.Jeans’s account. 5. Insurance account was overcast by $ 150. 6. Carriage on purchases $ 450 paid by cash was completely omitted from the books. 7. Discount received $ 200 had been debited to discount allowed account. 8. Interest on capital to the partner $ 100 had not been entered in the books of the business.
- 45. 9. A cheque for $ 270 received from Albert recorded correctly in the cash book but recorded in Albert’s account as $ 207. 10. A debtor who owed $ 130 to the business was declared insolvent and the amount due from him had to be written off. But this record was not made in the books. Show the rectification entries for the above errors and prepare the suspense account showing clearly the opening balance. Q 3. On extracting a trial balance, a book keeper finds that it fails to agree. He enters the difference in a suspense account in the credit side. After checking the accounts, he finds the following errors:- 1. Purchase of goods from Mithal $ 400 posted to his account as $ 40 and correctly posted to purchases account. 1. Purchase day book had been overcast by $ 75. 2. Discount of $ 68 allowed to T. Brown entered on the debit side of T.Brown’s account. 3. Total of sales returns book $ 200 entered to the credit side of returns inwards account 4. Debit balance of debtors account $ 98 incorrectly b/d as $ 89. 5. $ 140 received from Makin credited to Malik’s account. Pass rectification entries for the above errors and prepare the suspense account clearly showing the opening balance.
- 46. Q 4. The trial balance drawn up from the books of a business on 31 st Dec 2003 did not balance, the debit total being $ 17698 and credit total $ 18210. A suspense account was opened and the difference entered in that account. Subsequently, the following errors were discovered:- 1. A cheque for $ 64 received from M.Minu had been entered in the books as $ 46 2. The purchase account had been undercast by $ 140 3. Goods sold to J.Jaava $ 280 had been enterd correctly in the sales account but entered as $ 208 in J.Jaava’s account 1. The owner had taken goods costing $ 300 for own use during the year. No entry had been made in the books 1. Discount allowed $ 150 had been credited to the discount received account. Required to:- a. Write up the journal entries to correct the above errors b. Prepare a suspense account Q 5. The trial balance prepared by a business did not agree. The difference was recorded in a suspense account on the debit side. Later, the following errors were found out from the books:- 1. The drawings of cash from the business debited drawings account and credited to bank account $ 550
- 47. 2. Goods returned to Martin $ 120 had been credited to returns outwards account only 3. A credit note was received from Seema $ 160 was not entered in the books. 4. The provision for bad debts $ 250 had been debited to profit & loss account only 5. Commission received in cash recorded in the cash account only $ 170. 6. Goods returned by Simple $ 190 credited to both returns inwards account and Simple’s account. Pass rectification entries for the above errors and prepare the suspense account by writing the opening balance. Q 6. A trial balance was drawn up by L.Leena which did not agree. A suspense account was drawn to show the balance in the credit side. The books were checked and the following errors and omissions were discovered:- 1. The sales book was overcast by $ 100 2. Discount allowed $ 340 had been posted from the cash book to the debtors account, but no other entries have been made. 3. The purchase of office equipment for $ 1200 has been debited to the sundry expenses account. 1. A payment of $ 140 for motor van repairs was entered correctly in the cash book but posted as $ 410 in the motor van repairs account. 1. L.Leena had taken goods worth $ 300 from stock for her personal use and these have been charged to her account as drawings. No other entries have been recorded Required to:
- 48. 1 Write up the rectification entries required to correct the above errors. 2. Write up the suspense account after correction of the above errors. Q 7. The trial balance prepared by a sole trader did not agree. Later the following errors and omissions were found out from the books of the business:- 1. Purchase of goods from T Williams $ 190. posted to his account as $ 90 2. Purchase day book had been overcast by $ 25 3. Discount of $ 34 allowed to S. Burns, entered in the debit side of her account. 4. Debit balance on a debtor’s account of $ 94 incorrectly brought down as $ 49 and included in the trial balance. 1. Total of sales returns book $ 120 entered to credit of returns inwards account. 2. $ 20 received from C. Jenkins has been credited in error to C. Jenkinson. Required to: 1. Write up the rectification entries required to correct the above errors. 2. Write up the suspense account after correction of the above errors clearly showing the opening balance Q 8. The trial balance drawn up from the books of Joan on 31 st December, 2003 did not balance, the debit total being $ 125 664 and the credit total $ 126 000. A suspense account was opened and the difference entered in that account. Subsequently the following errors were discovered.
- 49. a. A cheque for $ 32 received from J. Steve had been entered in the books as $ 23. b. The purchases account had been undercast by $ 64. c. Goods sold to N. Brown for $ 180 had been entered correctly in the sales account but entered as $ 188 in N. Brown’s account d. Joan had taken goods costing $ 100 for her own use during the year. No entry had been made in the accounts. e. Discount allowed $ 140 to Lames had been credited to discount received account. Required to : 1. Write up the journal entries to correct the above errors. 2. Prepare a suspense account clearly showing the opening balance. Q 9. The trial balance of S. Romsey, a wholesaler, drawn up on 31st December, 2003 did not balance. The difference between the debit and credit totals was entered in a suspense account. Subsequently the following errors were discovered. A, Sales of $ 150 to B. Martin had been debited in error to D. Martin. B. A cheque for $ 150 received from B.Tomy, a debtor, had been correctly posted in the cash
- 50. book but had been posted to Tomy’s account as $ 105 C. A debtor, G. Franks, who should have deducted 10% cash discount to which he was entitled, failed to do so and paid an account of $ 200 in full. It was decided to credit the discount to G. Franks account. D. A bad debt of $80 had been written off during 2003 and although the correct entry had been made in the debtor’s account, no other entry had been made. E. Purchase returns to L. Lowry $ 300 had been credited to both the sales returns account and L. Lowry account. Required to:- 1. Write up the journal entries which are necessary to correct the above errors. 2. Prepare the suspense account after the correction of errors, clearly showing the opening balance. Q 10. Bakewell, a sole trader, prepared a trial balance. Unfortunately, the trial balance did not agree and a Suspense account was opened. On checking the books on 31st Dec 2003 the following errors were disclosed:- 1. The purchases day book had been over added by $ 300.
- 51. 2. A sales ledger debit balance of $ 370 for A. Jones had been omitted from the sales ledger. 3. Goods $ 160 returned by N.Nion had been entered in the returns inwards account but no entry had been made in N.Nion’s account. 4. Discount allowed $ 320 had been incorrectly credited to the discount received account. No entry had been made in the discount allowed account. Prepare journal entries to correct the above errors. Q11. On drawing up the trial balance, the book keeper found that the totals did not agree. A suspense account was opened and the difference between the totals was entered on it. On checking the books, the following errors were discovered:- 1. Purchases $ 600 from F. Frensham had been posted to S. Frensham’s account. 2. No entry had been made for goods costing $ 800 taken by the proprietor for his own use. 3. Sales returns $ 60 had been entered in the debtors account only. 4. Repairs to premises $ 500 had been debited to the premises account. The correct credit entry had been made. 5. Discount allowed $ 400 had been credited correctly to the debtor’s account but had been credited to the discount received account in error. Required to: 1. Write up the journal entries to correct the above errors. 2. Prepare the suspense account, clearly showing the opening balance. Q12. On drawing the trail balance of a business the book keeper found that the totals did not agree. A suspense account was opened and the difference between the total entered. On checking the
- 52. books, the following errors were discovered:- 1. Goods for resale had been purchased by cheque for $ 615. The correct entry had been made in the purchases account but the bank account had been credited with $ 651. 2. White, the owner of the business had taken goods costing $ 180 from the business for his own use, was not recorded in the books. 1. Discount received $ 250 had been debited to discount allowed account. 2. Sale of goods for $ 150 had been omitted from the debtors account. 3. Sales returns had not been posted to the sales returns account in the general ledger $ 126. Required to: 1. Write up the rectification entries for the above errors. 2. Prepare a suspense account clearly showing the opening balance Q13. On drawing the trial balance, the book keeper found that the totals did not agree. A suspense account was opened and the difference entered in it. On checking the books, the following errors were discovered:- 1. No entry had been made for the goods taken by the owner for own use $ 2150 2. A debtor paid $ 2 400 by cheque in full settlement of his account of $ 2 500. Both accounts were entered for $ 2 400 only. 3. Purchased a motor car from A. Allen for $ 5 600 by cheque was not entered in the books. 4. A cheque received for $ 3 950 from Neena was credited in Neena’s account only.
- 53. 5. Discount allowed 125 were credited in discount received account. Required to:- 1. Pass rectification entries for the above errors 2. Prepare suspense account showing the difference in trial balance. Q 14. a. Explain with the help of an example the meaning of error of principle. b. The trial balance of a company did not balance. The difference between the debit and credit sides was entered in a suspense account. Subsequently, the following errors were discovered. i. Sale of $ 2 750 to A .Allen had been debited in error to A.Alwin’s account. ii. A cheque for $ 250 received from Saany, a debtor, had been correctly posted in the cash book but had been posted to Saany’s account as $ 205 Iii.A debt of $ 95 had been written off during the current year, debited to bad debts account but no entry was made in the debtors account. iv.Purchase returns to Lilly $ 350 had been credited both to the sales returns account and Lilly’s account. v. The owner took stock to home from the business was not recorded in the books $ 750 Required:-
- 54. 1. Write up the rectification entries for the above errors 2. Write up the suspense account, after the corrections have been made, showing clearly the opening balance. Q 15. Amber is the owner of a sole trading concern. He prepared the trial balance of his business at 31st December 2003, and it did not agree. The debit total being $ 28 750 and the credit total being $ 29 250.The difference was recorded in a suspense account. Later, the following errors were discovered from the books of the business:- 1. The purchase return account had been over cast by $ 180 2. Discount allowed $ 200 had been credited to discount received account in error 3. An invoice of $ 600 for goods purchased on credit from Ancy was received before 31st December 2003 but it was not recorded in the accounts of the business. 4. Bank charges of $ 40 were recorded in the bank statement but this entry did not appear in the books of the business. 5. Goods taken by Amber $ 788 recorded in the drawings account with the correct amount, credit entry was made with $ 708. After the correction of the above errors the two totals of the trial balance were equal and suspense account was cancelled. Required to prepare 1. The necessary journal entries for correcting the above errors 2. The suspense account to show the correction of errors. The Final Accounts of a sole trader ( With Adjustments) The trading and profit & loss account and balance sheet prepared at the end of a year is known as Final accounts. While preparing the final accounts,
- 55. there may be some items so far not adjusted. These items are to be adjusted in the final accounts for calculating the correct profit or loss of the business. The usual adjustments in the final accounts are:- a. Expenses owing :- These are the expenses incurred during the year but not paid in cash. This amount will be paid in the near future (next year). The owing expense is to be added with the amount of same expense already paid given in the trial balance and it should be shown in the balance sheet as a current liability. The double entry for recording the expenses owing is Debit Expenses account Credit Expenses owing account This expense is also known as outstanding expenses, expenses payable or expense payable. b. Prepaid expense. :- This is the expense paid during the year for the benefit of the next year. The portion of the expense which is prepaid is to be deducted from the total expenses already paid during the year (given in the trial balance) and shown as current asset in the balance sheet. The double entry for recording the prepaid expense is Debit Prepaid expense account and Credit Expense account This expense is also known as expense paid in advance or unexpired expense
- 56. c. Accrued income:- The income earned during the year but not received in cash is known as accrued income. The amount of accrued income is to be considered as current year’s income and added with the concerned income received during the year(given in the trial balance) and shown as a current asset in the balance sheet. The double entry for recording the accrued income is: Debit Accrued income account and Credit Income account The accrued income is also known as outstanding income. d. Income received in advance:- This is the income received during the year for the services to be rendered during the next year. Since this income is not related to the current year, it should be deducted from the concerned income (given in the trial balance) and shown as a current liability in the balance sheet. The double entry for recording the income received in advance is: Debit Income account and Credit Income received in advance This is also known as unexpired income. e. Depreciation:- The part of the cost of a fixed asset that is consumed by a business during the period
- 57. of its use is known as depreciation. It is considered as an expense in the business therefore shown as an expense in the profit & loss account and deducted from the cost price of the concerned fixed asset in the balance sheet. The double entry for recording depreciation is: Debit Profit & loss account and Credit Depreciation account f. Bad debt:- The part of the amount of debtors which cannot be recovered is known as bad debt. It is an expense to be shown in the profit & loss account. If the bad debt appears in the trial balance, it is known as bad debt written off and shown in the profit & loss account only. If bad debt information appears among the adjustment points below the trial balance, then it should be shown as an expense in the profit & loss account and shown as a deduction from the debtors in the balance sheet under the heading ―current assets‖. The double entry for recording the bad debt is: Debit Bad debt account and Credit Debtors account g. Goods drawings by the owner for his personal use:- The amount of goods withdrawn by the owner for his personal use is to be considered as drawing. The double entry for recording the goods drawings is: Debit Drawings account and
- 58. Credit Purchase account or sales account The amount of goods drawings should be deducted form purchases and capital in the balance sheet. MCQ 1. A company which can offer its shares for subscription to the public is known as: A. Private company B. Public limited company C. Public corporation D.Corporation 2. What is the authorized share capital of a limited company? A. The issued share capital B. Issued share capital plus reserves C. Issued share capital plus debentures D. The shares that a company is allowed to issue by law 3. The liability of share holders of a public limited company is limited to: A. paid up value of shares B. nominal value of shares C. extent of private assets D. called up share capital 4. What is the other name of authorized capital? A. issued capital B. Nominal capital C. Uncalled capital D. Calls in arrears
- 59. 5. The debenture interest paid is recorded in which part of the final accounts of a limited company? A. Trading account B. Profit and loss account C. Profit and loss appropriation account D. Balance sheet 6. The dividend is calculated on which of the following values of shares? A. Authorized share capital B. Issued share capital C. Called up share capital D. Paid up share capital 7. Which of the following is not included in the share holders’ funds? A. Debentures B. General reserves C. Ordinary share capital D. Preference share capital 8. Retained profit of a limited company belongs to the: A. directors’ B. debenture holders’ C. shareholders D. company 9. Proposed dividends are; A. shown as a current liability on the balance sheet B. debited with other business expenses in the profit and loss account C. paid from capital reserves D. credited to the appropriation account
- 60. 10. In the final accounts of a limited company, directors’ remuneration is: A. debited in the trading account B. debited in the profit and loss account C. debited in the appropriation account D. deducted from share capital in the B.S 11. Under which heading is share premium account shown? A. Current assets B. Current liabilities C. Share capital D. Reserves & Surplus 12. The interim dividend paid is shown in the: A. profit and loss account B. profit and loss appropriation account only C. profit and loss account and balance sheet D. profit and loss appropriation account and balance sheet Assignment Questions Q 1. The following trial balance was taken from the books of a sole trader for the year ended 31st Dec 2003:- Account balances Debit $ Credit $ Purchase & sales 92 300 1 90 300 Carriage inwards 5 200 Drawings 5 000 Rent, rates & insurance 4 500 Postage 3 000 Stationery 2 700
- 61. Capital 59 400 Machinery 55 000 Buildings 45 000 Furniture & Fittings 15 000 Debtors & Creditors 14 500 13 200 Commission received 7 000 Opening stock 1 000 Cash at bank 2 500 Cash in hand 1 800 Discounts 250 3 920 Bad debt 800 Salaries & Wages 22 120 Advertising 1 850 Carriage outwards 1 200 Returns in & out 800 700 Total 2 74 520 2 74 520 Consider the following points at 31st December 2003:- 1. The closing stock was valued at $ 12 400 2. Rent, rates & insurance was owing by & 500. ` 3. Commission received in advance is $ 1 000. 4. Salaries & wages owing $ 880. 5. Advertisement expense is prepaid by $ 350. 6. Carriage inwards payable $ 800. From the above information, you are required to prepare at 31 st December 2003:- a. The Trading & Profit & loss account b. The Balance Sheet
- 62. Q 2. The following account balances were extracted from the books of a sole trader for the year ended 31st December 2003:- Stock on 1st Jan 2003 12 300 Purchases 1 25 000 Sales 1 58 000 Discount received 2 400 Rent paid 7 000 Fixture & fittings 13 500 Motor Car 10 500 Advertising 1 960 Motor van expenses 1 120 Heating & lighting 1 200 Wages to assistant 6 000 Accountant’s fee 1 200 Insurance 700 Debtors 3 100 Creditors 2 700 Cash in hand 250 Bank overdraft 3 840 Bank charges 270 Drawings 9 000 Interest received 1 400
- 63. Capital 27 210 License & taxes 500 Carriage inwards 1 000 Carriage outwards 950 The following points are to be considered at 31st Dec 2003:- 1) The closing stock was valued at $ 10 500 2) Rent prepaid was $ 1 000 3) Motor van expenses owing $ 200 4) Interest earned but not received $ 600 5) Wages to assistant outstanding $ 1 200 6) License and taxes payable $ 300 From the above information, you are required to prepare:- a. The trading & profit & loss account for the year ended 31 st Dec 2003-05- 03 b. The balance sheet at 31st Dec 2003. Q 3. The following trial balance was extracted from the books of a sole trader for the year ended 31st March 2003:- Account balances Debit $ Credit $ Purchases & Sales 39 600 76 000 Returns 300 450 Carriage inwards 1 200 Carriage outwards 900 Opening stock 5 200 Salaries 7 550
- 64. Commission 670 Wages 3 000 Debtors & Creditors 8 000 4 200 Discounts 500 800 Plant & Machinery 19 000 Rates 450 Furniture & Fittings 6 500 Bank overdraft 3 500 Office expenses 150 General expenses 600 Cash in hand 250 Bank Loan 5 000 Capital 3 920 Total 93 870 93 870 Adjustments:- 1) The stock on 31-3-2003 was valued at $ 6 500 2) Carriage outwards was owing by $ 100 3) Rates prepaid $ 150 4) Rent for the year was earned but not received $ 700 5) General expenses owing $ 180 From the above information you are required to prepare at 31st March 2003:- a. The Trading and profit & loss account b. The Balance sheet Q 4. The following trial balance was extracted from the books of Martin klin for the year ended 31st Dec 2003:- Debit balances $ Credit balances $ Purchases 22 600 Sales 40 700 Stock on 1-1-2003 5 200 Capital 5 580
- 65. Cash in hand 190 Bank overdraft 7 000 Discount allowed 1 400 Discount received 900 Returns in 810 Returns out 570 Carriage outwards 2 160 Commission received 660 Rent & insurance 1 700 Creditors 6 000 Fixtures & Fittings 1 000 Delivery van 2 300 Debtors 11 900 Drawings 2 800 Wages & salaries 8 900 General office expenses 450 Total 61 410 Total 61 410 Adjustments:- 1. The closing stock was valued at $ 6 700 at 31st Dec 2003-05-03 2. Wages & salaries was owing by $ 1 100 3. General office expenses owing $ 150 4. Rent prepaid is 280 5. Commission receivable $ 140 From the above information, Prepare:- a. The trading and profit & loss account for the year ended 31st Dec 2003 b. The balance sheet at 31st Dec 2003 Q 5. The following trial balance had been taken from the books of a sole trader for the year ended 31st Dec 2003:- Account balances Debit $ Credit $ Purchases & sales 70 000 1 46 000
- 66. Returns in & out 1 500 1 600 Carriage inwards 6 000 Carriage outwards 3 000 Discount received 6 100 Telephone charges 2 000 Rent paid 700 Advertisement 1 100 Debtors & Creditors 7 700 2 000 Bank loan 10 000 Cash in hand 3 750 Power charges 1 000 Salaries & wages 12 000 Premises at cost 40 000 Plant at cost 35 000 Machinery at cost 15 000 Motor car at cost 38 000 Capital 75 800 Drawings 1 250 Stock on 1-1-2003 3 500 Total 2 41 500 2 41 500 Additional information:- 1. The stock on 31st Dec 2003 was valued at $ 4 750 2. Power charges unpaid at 31st Dec 2003 was $ 2 000 3. Salary paid in advance at 31st Dec 2003 was $ 3 000 4. depreciate all the fixed assets @ 10 % p.a. on cost 5 Provide the provision for bad debts at $ 500 From the above , you are required to prepare:- The trading and profit & loss account for the year ended 31 st Dec 2003 and a balance sheet
- 67. Q 6. The following trial balance was taken from the books of a sole trader for the Year ended 31st March 2004:- Account balances Debit $ Credit $ Opening stock 2 000 Purchases and Sales 25 600 44 600 Carriage inwards 1 400 Stationery 500 Debtors & Creditors 8 000 6 000 Plant & Machinery 10 000 Buildings 11 000 Furniture 4 000 Repairs to building 1 000 Carriage out 1 600 Salaries & wages 9 800 Office expenses 200 General expenses 2 500 Drawings & Capital 2 500 30 700 Cash in hand 1 200 Interest paid 200 Discount allowed & received 2 100 3 000 Commission paid 200 Rent & rates 1 500 Returns 200 500 Bank 700 Total 85 500 85 500 Notes:- 1. The stock on 31-3-2004 was valued at $ 4 200 2. Salaries & wages owing for the year ended 31st March 2004 was $ 1 200 3. 2.5% of the debtors should be written off as bad debt 4. Provide provision for depreciation on all the fixed assets @ 10% p.a. 5. Rent & rates paid in advance $ 200
- 68. 6 The owner had taken goods costing $ 600 for his own use not entered in the books of the business Required prepare :- a. The trading and profit & loss account for the year ended 31st March 2004. b. The balance sheet at 31st March 2004. Q 7 Following is the trial balance extracted from the books of Mr. Young, a sole trader, for the Year ended 31st Dec 2002:- Account balances Debit $ Credit $ Capital on 1st Jan 2002 37 470 Debtors & Creditors 1 500 250 Premises 50 000 Loan ( payable after 5 years) 10 000 Furniture & Equipment at cost 10 000 Provision for depreciation on 4 000 Furniture& equipment Cash in hand 120 Maintenance cost of equipment 750 Stock on 1-1-2002 1 500 Drawings 12 000 Rates 1 100 Heating & lighting 1 300 Postage &telegram 1 250 Repairs to premises 1 400 Purchases and sales 14 000 45 000 Wages 1 800 Total 96 720 96 720 Prepare Trading and profit & loss account for the year ended 31 st Dec 2002 and the balance sheet as at that date after taking into account the following:-
- 69. 1. The closing stock was valued at $ 2 700 2. Heating & lighting unpaid at 31-12-02 was $ 250 3. Depreciate furniture & equipment by 10% on cost. 4. Rates paid in advance at the year end was $ 100 5. Interest on loan for the whole year @ 10% p.a. is outstanding Q 8. The following trial balance was taken from the books of a sole trader for the year ended 31st Dec 2002:- Adjustments:- 1. The stock at the end was valued at $ 6 250 2. Salaries and wages owing at the end of the year was $ 1 240 3. Commission accrued $ 200 4. Increase the provision for bad debts by $ 240 5. Provide the provision for depreciation on all the fixed assets @ 10% p.a. 6. $ 4 500 of the carriage represents carriage on goods purchased 7. The owner had taken goods costing $ 900 for his own use, not recorded in the books Prepare the set of final accounts at 31st Dec 2002
- 70. Q 9. The trial balance shown below was extracted from the books of a sole trader for the year ended 31st March 2003:- Account balances Debit $ Credit $ Purchases & Sales 60 000 1 26 000 Returns inwards and outwards 1 500 1 600 Carriage inwards 600 Carriage outwards 300 Discount received 3 100 Rent paid 700 Communication expenses 2 000 Advertisement 1 100 Debtors and creditors 5 000 2 000 Bank loan (long term) 10 000 Cash in hand 3 750 Power charges 1 000 Salaries & wages 12 000 Premises 50 000 Plant 25 000 Machinery 10 000 Motor Car 40 000 Capital 75 000 Drawings 1 250 Stock on 1-1-2003 3 500 Total 2 17 700 2 17 700 Notes:- 1. Stock at 31st March 2003 was valued at $ 4 750 2. Power charges unpaid at the end of the year was $ 2 000 3. Salaries paid in advance at the end of the year was $ 3 000 4. Depreciate all the fixed assets @ 10% p.a. 5. Interest on bank loan @ 7% p.a. is owing for the whole year 6. Create the provision for bad debt at 5% on debtors.
- 71. Prepare the set of final accounts as at 31st Dec 2003 Q 10. The following trial balance was taken form the books of Alfred for the year ended 31-12-03 Debit balances $ Credit balances $ Returns inwards 30 00 Capital 1 00 000 Drawings 70 00 Creditors 26 000 Land & building 20 000 Sales 1 69 000 Plant & machinery 45 000 Provision for bad 1 000 debts Debtors 40 500 Purchase returns 4 000 Purchases 85 000 Rent 3 000 Postage & telegram 500 Advertising 10 000 Cash in hand 10 500 Stock on 1-1-03 23 000 Wages 13 000 Telephone charges 500 Salaries 13 250 Printing & Stationery 890 Commission 5 100 Travelling 1 500 Carriage inwards 6 300 Motor van 1 900 Cash at bank 10 060 Total 3 00 Total 3 00 000 000 Adjustments:- 1. The closing stock was valued at $ 15 000 2. Rent owed by $ 600 3. Salaries Payable at the end of the year was $ 250 4. Commission paid in advance was $ 1 100 5. Provide for the provision for bad debt at 5% on the year end debtors
- 72. 6. Depreciate land and building @ 5% , Plant and Machinery and Motor Van @ 10% p.a. on cost Required to prepare at 31st Dec 2003:- a. The trading & profit & loss account b. The balance sheet Q 11. The following trial balance was related to a sole trader at 31 st Dec 2003 Account balances Debit $ Credit $ Purchases & Sales 11 556 18 000 Opening stock 3 776 Carriage outwards 326 Carriage inwards 234 Returns 440 355 Salaries & wages 2 447 Motor expenses 664 Rent 576 Sundry expenses 1 202 Motor vehicles 2 400 Fixtures & fittings 600 Debtors & Creditors 4 577 3 000 Provision for bad debts 600 Prov: for depreciation : Motor 200 vehicle Fixtures & Fittings 50 Cash at bank 3 876 Cash in hand 120 Drawings and capital 2 050 12 639 Total 34 844 34 844 Adjustments:- 1) The closing stock was valued at $ 4 998 2) Salaries and wages unpaid at the end of the year was $ 533 3) Depreciate motor vehicle @ 10% and Fixture & fittings @ 5% p.a. on cost
- 73. 4) Rent paid in advance was $ 176 5) Carriage inwards owing was $ 66 6) Increase the provision for bad debts to $ 800 From the above information, you are required to prepare the set of final accounts at 31st Dec 2003 Q 12. From the following trial balance, prepare trading and profit & loss account and balance sheet at 31st Dec 2001:- Account balances Debit $ Credit $ Capital 50 000 Plant & machinery 18 000 Salaries 8 500 Repairs 1 600 Wages 28 000 Cash in hand 2 500 Land & buildings 74 500 Purchases & Sales 1 23 500 2 49 000 Bank overdraft 3 800 Discount allowed 1 500 Commission received 1 500 Provision for bad debt 500 Debtors & Creditors 45 000 26 300 Discount received 8 000 Prov. For depreciation : Plant & 500 machinery Land & Buildings 1 500 Bad debts 1 000 Stock on 1st Jan 2001 37 000 Advertising 600 Office expenses 1 000 Fixtures & fittings 4 000 Stationery 400 Interest 2 000 Rent & rates 1 500 Bank loan ( long term ) 9 500 Total 350600 350600
- 74. Adjustments:- 1. The closing stock was valued at $ 30 000 2. Salaries owing amounted to $ 1 500 and repairs outstanding $ 400 3. Commission received in advance $ 300 4. The provision for bad debts should be at 1% of the year end debtors 5. Depreciate all the fixed assets @ 10% p.a. on cost 6. Rent & rates was prepaid by $ 200 7. Goods taken by the owner for his personal use not recorded in the books $ 1 000 Q 13. T. Burton is a retailer whose trial balance at 31st Dec 1999 is given below:- Account balances Debit $ Credit $ Purchases & Sales 72 000 1 19 400 Returns 750 Carriage inwards 930 Wages and salaries 27 670 General expense 4 750 Cash at bank 4 210 Petty cash 150 Premises 62 520 Fixtures & Fittings 9 000 Stock on 1st Jan 1999 5 550 Trade Debtors & Creditors 7 200 4 850 Motor Vehicles at cost 13 150 Provision for depreciation on Motor 2 630 Vehicles Capital at 1stJan 1999 82 500 Drawings 3 000 Total 210 130 210 130
- 75. The following additional information is also available:- 1. Stock at 31st Dec 1999 was valued at $ 5 200 2. General expenses of $ 400 have been paid for the year 2000 3. A debt of $ 200 is to be written off as bad debt 4. A provision is to be made for doubtful debts of 5% on Debtors at 31st Dec 1999 5. Depreciation for 1999 is to be provided as follows:- Fixtures & Fittings at 10% using the straight line method Motor Vehicles at 20% using the reducing balance method Required to prepare:- a. The Trading and Profit & loss account for the year ended 31st Dec 1999 b. The Balance sheet at 31st Dec 1999 Q 14. P.Day is a merchant dealing in imported goods. The following balances were extracted from the books of the business on 31st Dec 2003. Purchases 74 400 Sales 141 600 Sales returns 4 900 Sundry expenses 370 Air freight charges 6 240 Motor Vehicle expenses 7 250 Rent & Rates 5 720 Wages 19 600 Loan interest 300
- 76. Loan ( Repayment on 31st Dec 2008) 6 000 Debtors 15 000 Creditors 6 050 Stock on 1st Jan 2003 8 540 Fittings and Equipments 5 800 Motor Vehicles 26 400 Drawings 12 000 Capital 35 700 Cash at bank 2 830 Notes: – 1. The closing stock was valued at $ 10 750 (2) One – quarter of the wages expense was for the cost of re-packing the goods for resale (3) The rent & rates amount given above includes rent of $ 900 paid for the three months ended 31 st Jan 2004. (4) Interest on the loan is at the rate of 10% p.a. and has paid to 30th June 2003 (5)Motor vehicles are to be depreciated by 20 % of the cost (6) A provision for doubtful debts of 3% of debtors is to made. Required to prepare at 31st Dec 2003:- a. The Trading and profit & loss account b. The Balance sheet