Q.

Prepare the Journal Entries for the following items:

a) Started a business with $50,000.
Dr. Cash $50,000
Cr. Capital $50,000
b) Payment of Loan $5,000.
Dr. Loan liability $5,000
Cr. Cash $5,000
c) Mr. Matthew took some goods worth $3,500 from inventory for his personal use.
Dr. Drawing $3,500
Cr. Cogs $3,500
d) Cash payment of $2,500 to the supplier.
Dr. Payables $2,500
Cr. Cash $2,500
e) Cash received of $3,500 from the customer.
Dr. Cash $3,500
Cr. Receivable $3,500

Business:
Any activity undertaken with the intention to make profit, but result can be profit or loss.
Thus, it is an organization which sells something or provides a service with the objective of
earning profit.

Organization:
It is a place where a group of people are working together to achieve a common goal.
 Types of Business Organization

Sole Trader Partnership Limited Company

➢ Owned and managed ➢ Owned and managed by ➢ Owned and managed by

by one person.
➢ Sole trader and their
business are legally
the same entity
➢ Therefore sole trader
is fully and personally
liable for any losses of
the business.
a number of partners.
➢ Partners share profits
and losses in accordance
with their agreement.
➢ Partners and business
are legally same due to
which partners have
unlimited liabilities for
any losses of business.
many people
➢ A company is a legal
entity in its own right,
and therefore the
shareholders have only
limited liability for any
losses of company.
➢ Limited company are of
two types: Public and
private limited company.

Types of accounting

Financial Accounting Management Accounting

• Deals with production of financial • Deals with preparation of accounting

statements/ accounting reports for
external users.
• Prepared annually (six monthly or
quarterly in some countries).
• Generally required by law.
• Reflects past performance and
current position.
• Information are calculated and
presented as per International
Financial reporting standards. (IAS or
IFRS)
reports for internal users (employees,
management and etc.
• Normally prepared in monthly basis.
• Not required by law and is not
mandatory.
• Production of detail accounts which
help management in control of
business.
• Includes budget and forecast of
future activities as well as
reflecting past performance.
 REVISION QUESTIONS (Assignment)
Q.1 What accounting concept should be considered if the owner of a business takes goods
from inventory for his own personal use?
a) The fair presentation concept
b) The accruals Concept
c) The going concern concept
d) The business entity concept

Q.2 Sales revenue should be recognized when goods and services have been supplied; costs
are incurred when goods and services have been received.
Which accounting concept governs the above?
a) The business entity concept
b) The materiality concept
c) The accruals concept
d) The duality concept

Q.3 Which accounting concept states that omitting or misstating this information could
influence users of the financial statements?
a) The consistency concept
b) the accruals concept
c) The materiality concept
d) The going concern concept

Q.4 A trader's net profit for the year may be computed by using which of the following
formulae?
a) Opening capital + drawings – capital introduced – closing capital
b) Closing capital + drawings – capital introduced – opening capital
c) opening capital – drawings + capital introduced – closing capital
d) opening capital – drawings – capital introduced – closing capital

Q.5 The profit earned by a business in 20X7 was $72,500. The proprietor injected new
capital of $8,000 during the year and withdrew goods for his private use which had cost
$2,200.
If net assets at the beginning of 20X7 were $101,700, what were the closing net assets?
a) $35,000
b) $39,400
c) $168,400
d) $180,000
Q.6 A sole trader took some goods costing $800 from inventory for his own use. The normal
selling price of the goods is $1,600.
Which of the following journal entries would correctly record this?
Dr Cr
$ $
a) Inventory account 800
Purchase account 800
b) Drawings account 800
Purchase account 800
c) Sales account 1,600
Drawings account 1,600
d) Drawings account 800
Sales account 800

Drawing: Drawings are reduction in the liability of business to the owner. Whatever the
owner takes out of the business for personal use, whether goods or cash, reduces the
liability of the business towards the owner, and are thus called drawings.

Q.7 Which of the following are books of prime entry?

1. sales day book
2. Cash book
3. Journal
4. purchase ledger

Q.8 In which book of prime entry will a business record debit notes in respect of goods which
have been sent back to suppliers?
a) The sales return day book
b) The cash book
c) The purchase returns day book
d) The purchase day book

Q.9 A company's trade payables account at 30 September 20X1 is as follows:

Dr. Trade Payables a/c Cr.

$ $
Cash at bank 21,600 Balance b/f 14,000
Balance c/f 11,900 Purchases 19,500
33,500 33,500
What is the balance for trade payables in the trial balance at 30 September 20X1?
 a) $14,000 Dr
b) $14,000 Cr
c) $11,900 Dr
d) $11,900 Cr

Q.10 Bert has extracted the following list of balances from his general ledger at 31 October
20X5: $
Sales 258,542
Opening Inventory 9,649
Purchases 142,958
Expenses 34,835
NCA (carrying amount) 63,960
Receivables 31,746
Payables 13,864
Cash at bank 1,783
Capital 12,525
What is total of the debit balances in Bert's trial balance at 31 October 20X5?