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Review Questions: Answers To Activities
Review Questions: Answers To Activities
Review Questions: Answers To Activities
‘ 5 How transactions cause increases and decreases in asset, liability and capital
accounts.
6 How to record transactions in T-accounts.
Answers to activities
2.1 Each transaction is entered twice. In an accounting transaction, something always ‘gives’ and some-
thing ‘receives’ and both aspects of the transaction must be recorded. In other words, there is a
double entry in the accounting books – each transaction is entered twice.
2.2 A balance sheet is a financial statement that summarises the financial position of an organisation at
a point in time. It does not present enough information about the organisation to make it appro-
priate to enter each transaction directly on to the balance sheet. It does not, for instance, tell
who the debtors are and how much each one of them owes the organisation, nor who the creditors
are and the details of the amounts owing to each of them. We need to maintain a record of each
individual transaction so that (a) we know what occurred and (b) we can check to see that it was
correctly recorded.
Review questions
2.1 Complete the following table: Account to Account to
be debited be credited
(a) Bought office machinery on credit from D Isaacs Ltd.
(b) The proprietor paid a creditor, C Jones, from his
private funds.
(c) A debtor, N Fox, paid us in cash.
(d) Repaid part of loan from P Exeter by cheque.
(e) Returned some of office machinery to D Isaacs Ltd.
(f ) A debtor, N Lyn, pays us by cheque.
(g) Bought van by cash.
2.3 Write up the asset and liability and capital accounts to record the following transactions in
the records of F Murray.
20X7
July 1 Started business with £15,000 in the bank.
== 2 Bought office furniture by cheque £1,200.
== 3 Bought machinery £1,400 on credit from Trees Ltd.
== 5 Bought a van paying by cheque £6,010.
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Chapter 2 l The double entry system for assets, liabilities and capital
== 8 Sold some of the office furniture – not suitable for the business – for £150 on credit to
D Twig & Sons.
== 15 Paid the amount owing to Trees Ltd £1,400 by cheque.
== 23 Received the amount due from D Twig & Sons £150 in cash.
== 31 Bought more machinery by cheque £650.
2.4 You are required to open the asset and liability and capital accounts and record the follow-
ing transactions for June 20X8 in the records of P Bernard.
20X8
June 1 Started business with £12,000 in cash.
== 2 Paid £11,700 of the opening cash into a bank account for the business.
== 5 Bought office furniture on credit from Dream Ltd for £1,900.
== 8 Bought a van paying by cheque £5,250.
== 12 Bought equipment from Pearce & Sons on credit £2,300.
== 18 Returned faulty office furniture costing £120 to Dream Ltd.
== 25 Sold some of the equipment for £200 cash.
== 26 Paid amount owing to Dream Ltd £1,780 by cheque.
== 28 Took £130 out of the bank and added to cash.
== 30 F Brown lent us £4,000 – giving us the money by cheque.
2.5A Write up the asset, capital and liability accounts in the books of D Gough to record the
following transactions:
20X9
June 1 Started business with £16,000 in the bank.
== 2 Bought van paying by cheque £6,400.
== 5 Bought office fixtures £900 on credit from Old Ltd.
== 8 Bought van on credit from Carton Cars Ltd £7,100.
== 12 Took £180 out of the bank and put it into the cash till.
== 15 Bought office fixtures paying by cash £120.
== 19 Paid Carton Cars Ltd a cheque for £7,100.
== 21 A loan of £500 cash is received from B Berry.
== 25 Paid £400 of the cash in hand into the bank account.
== 30 Bought more office fixtures paying by cheque £480.
You can find a range of additional self-test questions, as well as material to help you with
your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood
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chapter
Learning objectives
After you have studied this chapter, you should be able to:
l explain why it is inappropriate to use a stock account to record increases and
decreases in stock
l describe the two causes of stock increasing
l describe the two causes of stock decreasing
l explain the difference between a purchase account and a returns inwards
account
l explain the difference between a sales account and a returns outwards account
l explain how to record increases and decreases of stock in the appropriate
accounts
l explain the meanings of the terms ‘purchases’ and ‘sales’ as used in accounting
l explain the differences in recording purchases on credit as compared to
recording purchases that are paid for immediately in cash
l explain the differences in recording sales on credit as compared to recording
sales that are paid for immediately in cash
Introduction
In this chapter, you will learn how to record movements in stock in the appropriate
ledger accounts and how to record purchases and sales on credit, as opposed to
purchases and sales for cash.
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