Answers to Quick Tests

Unit 1.1: The purpose of accounting 6 (a) Advantages of using ICT:

●● Computers can process information
1 The owners of a business will need detailed
more quickly than people.
financial records to monitor:
●● As long as details are input correctly,
● how much it is earning and how much it is computer programs can perform
spending over time; calculations and analyse transactions
● whether or not it is making a profit; without error.
● how much it owes (its liabilities) and if it ●● Computers can perform and produce a
has enough money to pay its debts; wide range of financial calculations and
● how much it owns (its assets); reports very quickly to meet the needs of
● if they are making the best use of the a particular business at any given time.
capital they have invested in the business. ●● It is simpler to store and find information.
Computerized information takes up
much less space that paper documents
2 It is important to measure the profit or loss of
and records and it is easier to search for
a business because
and retrieve computer records.
●● The aim of a business is to make a profit.
(b) Disadvantages of ICT:
Measuring profit or loss tells you whether
this aim is being met. ●● Some ICT systems are expensive to buy
and install. They might also be costly to
●● The business owners will want to know if
maintain.
their investment is returning a profit
greater than they could earn from other ●● The owner of a business will need to
uses of their money. find time to learn to use an ICT system
properly and to train any other staff in
●● A bank will want to know how much profit
the business who will need to use it.
or loss a business is making before it
decides whether or not to lend it money Unit 1.2 : The double entry system of book-
and on what terms. Similarly, suppliers to keeping
who the business owes money will want to
1 Owner’s capital is the money invested in
know if it will be able to continue to pay its
business assets by the business owners from
debts.
their own funds
3 The business made a profit of $17 000: 2 Assets Liabilities
Total income − total costs
= $45 000 − ($20 000 + $8 000) = $17,000 a. premises b. bank loan
c. fork lift truck d. money owed to a
4 Book-keeping involves maintaining up-to-date supplier
records of business transactions.
e. office furniture
Accounting involves using book-keeping
f. computer
records to prepare financial reports and
equipment
statements to determine the financial health of
a business. g. inventory of goods
for resale
5 The owner(s) of a business will need
h. money owed by a
accounting reports to calculate and show the
customer
profit or loss and value of the business
including its ability to pay its liabilities. i. savings in a bank
deposit account
This information will help the owner(s) of a
j. inventory of
business to make decisions about its future, for
stationary for office
example, about whether or not to expand,
use
take on more employees, increase borrowing
or perhaps even to sell or close down the 3 The accounting equation is:
business. Assets = Capital + Liabilities
It is important because it is the basis of all
accounting. It tells us that the total assets of a

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 business will always be equal to the sum of the 6 The main divisions of a the ledger are:
owner’s capital and total liabilities invested in ●● sales ledger: this contains all the personal
them. Or by rearranging, that: accounts of credit customers or trade
Capital = Assets – Liabilities receivables;
●● purchases ledger: this contains all the
That is, the owner's capital invested in the
personal accounts of suppliers or trade
business will always be equal to the value of
payables;
business assets remaining after all business
liabilities have been met. ●● general ledger (or nominal ledger): this
contains all the other accounts of the
4 $ million business including all other payable and
Total assets 3.00 receivable accounts, real accounts for
less total liabilities 1.25 assets, liabilities and capital, and nominal
Owner’s equity (or capital) 1.75 accounts for income and expenses.
5 7 Double entry book-keeping is the system used
Financial position at 31 January to write up ledger accounts with transactions
Assets: $ first recorded in books of prime entry. It is a
Premises 180 000 set of rules for the recording of financial
Machinery 110 000 information in which every transaction will
Equipment 20 000 involve a debit to one ledger account and a
Vehicles 30 000 corresponding credit to another ledger account
Inventory 26 000
Trade receivables 30 000
Cash in bank    4 000
Less $400 000
Liabilities:
Trade payables 55 000
Bank loan 200 000
255 000
Capital 145 000

8 Transaction Impact on assets Impact on Impact on

liabilities capital
a. The onwer invests $16 000 of her own Increase Increase
money in new equipment for her business
b. $500 of goods are purchased on credit Increase Increase
from a supplier
c. A cheque payment of $450 is made to No overall change (cash
buy a new computer for the office is reduced by $450 but
equipment is increased
by $450)
d. The balance of $180 on a trade No overall change (cash
receivable account is paid in full with cash is increased by $180 as
by the credit customer trade receivables are
reduced by $180)
e. The business borrows $15 000 from a Increase Increase
car finance company to buy a new van
f. The old van valued at $1 000 in the No overall change (cash
accounts is sold off to a scrap merchant for is increased by $1 000
$1 000 in cash as equipment is reduced
by $1 000)
g. Immediate payment is received in cash No overall change (cash
from the sale of $225 worth of goods is increased by $225 as
inventory is reduced by
$225)

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9 Transaction
a. The onwer invests $16 000 of her own money
in new equipment for her business
b. $500 of goods are purchased on credit from a
supplier
c. A cheque payment of $450 is made to buy a
new computer for the office
d. The balance of $180 on a trade receivable
account is paid in full with cash by the credit
customer
e. The business borrows $15 000 from a car
finance company to buy a new van
f. The old van valued at $1 000 in the accounts is
sold off to a scrap merchant for $1 000 in cash
g. Immediate payment is received in cash from
the sale of $225 worth of goods
Unit 1.3 : Business documents
1 Suppliers issue invoices to customers for sales
of goods or services on credit to make a
request for payment. The invoice notifies the
customer of the goods or services supplied on
credit, their total amount payable and when
payment is due.
2 Any four from:
●● the name and address of the supplier
●● the name and address of the customer
●● the customer’s account number
●● a unique invoice number for ease of
reference
●● a full description of the goods or services
supplied
●● the unit price of the individual goods or
services supplied
●● the delivery charge, if any
●● the total price, including any deductions for
any cash or trade discounts
●● the date of the invoice.
3 (a) A trade discount is a percentage reduction
in the total price of the goods or services
supplied to a credit customer. A cash
discount is a discount on the total amount
payable on an invoice or customer account
if it is paid early or on time.
(b) A supplier may offer its credit customers a
trade discount to encourage them to buy in
bulk and to make repeat purchases.
4 A customer may send a debit note to a
supplier if:
●● the supplier has made a mistake and
overcharged the customer
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Debit Credit
Equipment account Capital account
Purchases account Trade payable account
for the supplier
Equipment account Bank account
Cash or Bank account Trade receivable
account of the
customer
Vehicles account Other payable account
Cash or Bank account Vehicles account
Cash or Bank account Sales account
●● the customer has returned unsatisfactory or
damaged goods
●● goods ordered by the customer were not
received because they were lost or stolen in
transit.
5 A supplier will issue a credit note to a
customer if:
●● it has overcharged the customer
●● the customer did not receive goods because
they were lost or stolen in transit
●● the customer returned unsatisfactory or
damaged goods
●● the customer made a mistake and paid too
much
6 (a) A statement of account is a summary of all
the transactions between a supplier and a
credit customer within a given month. It
records the total amount owed by the
customer or balance outstanding on the
account at the end of that month and is
also therefore a request for payment.
(b) The difference between the balance
brought down at the start of the month and
the closing balance at the end of the month
will be explained by any transactions that
have taken place during the month,
including the purchase of additional items
on credit from the supplier by the customer,
any payments received from the customer
and any credit notes issued to the customer.
7 (a) A receipt is a document that provides proof
of purchase and payment for items
(b) Suppliers issue receipts to account for the
sale of items for cash.
3
8 A supplier does not need to issue a receipt 12 Transaction Document
every time it receives a payment from a
The purchase of $10 of goods sales
customer for goods or services supplied on
with cash receipt
credit. This is because a statement of account
will be issued to the customer at the end of The purchase of $350 of purchases
every month recording their purchases on goods on credit from a regular invoice
credit and any payments received. The supplier
statement acts as a receipt for any payments The payment of the account statement
received from the customer. balance outstanding with the of account
9 (a) A cheque is a written order to a bank to same supplier
pay the sum of money written on the
cheque to the person or organisation Unit 1.4 : Books of prime entry
named on the cheque. 1 (a) Books of prime entry are the books in
(b) Any four from: which transactions are first recorded. They
●● the name of the bank account holder are also called books of original entry or the
day books. This is because transactions will
●● the name and address of the bank where
initially be recorded in these books at the
the account is held
end of each day of trading and in the order
●● the unique identification code or they occur. Each book therefore provides a
number of the bank branch list of transactions in date order and
●● the customer account number together they will provide a complete diary
●● a cheque identification or serial number record of every business document issued
the name of the payee or received by the business. This in turn
●● the amount of money to be transferred makes it easier to transfer these entries to
to the payee different accounts in the ledger at the end
of each month.
●● the date the cheque was written
(b) The six books of prime entry are:
●● a signature to authorize payment
●● Purchases journal (or purchases day
10 A cheque can provide proof of payment by a
book)
business: once a cheque has been settled it will
●● Purchases returns journal
appear on the bank statement issued to the
business by its bank. It will also be recorded as ●● Sales journal (or sales day book)

a payment received on the the bank statement ●● Sales returns journal

issued to the person or organisation named on ●● Cash book

the cheque. The cheque counterfoil also
●● General journal
records the transaction.
2 Recording similar types of transactions
11 Transaction Document together in different books of prime entry has
The sale of $500 goods on sales a number of advantages:
credit to a regular customer invoice ●● it simplifies and speeds up the process of

The return of some items
from the same customer that
had been delivered in error
The return of some damaged
items to a supplier
The payment of a liability to a
supplier by bank transfer
credit note recording transactions. This is because it is
usually only necessary to post the totals of
debits and credits on each of the books of
debit note prime entry to corresponding ledger
accounts at the end of each month rather
cheque than having to post every individual entry.
●● it makes it easier and quicker to locate
details about individual transactions
according to their type and the date they
occurred.
●● it allows the task of book-keeping to be

divided up between several different people

in an organization, each one skilled in the
particular type of transactions they
specialize in.

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3 (a)
Purchases Journal Henna
Date Description Invoice No. Amount $

Jul 5 G Smith 3780 340

Jul 14 Boxhill Ltd. 2167 1 700

Jul 23 Camset Ltd. 8761 940

Jul 26 Boxhill Ltd. 2314 800

Jul 31 Transfer to purchases account 3 780

(b)
Purchases Ledger Henna
G Smith

DrCr

$ $

Jul 5 Purchases 340

Purchases Ledger Henna

Boxhill Ltd.

DrCr

$ $

Jul 14 Purchases 1 700

Jul 26 Purchases 800

Purchases Ledger Henna

Camset Ltd.

DrCr

$ $

Jul 23 Purchases 940

4 (a)
Purchases Returns Journal Raakesh
Date Description Credit Note number Amount $
Sept 4 Prism Ltd. C5689 3 400

Sept 9 Tripark Ltd. CR453 845

Sept 17 Prism Ltd. C5780 560

Sept 30 Transfer to purchases returns account 4 705

(b)
Purchases Ledger Raakesh
Prism Ltd.

DrCr

$ $

Sept 4 Purchases returns 3 400

Sept 17 Purchases returns 560

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 Purchases Ledger Raakesh
Tripark Ltd.

DrCr

$ $

Sept 9 Purchases returns 845

5 (a) Sales Journal Samuel

Date Description Invoice No. Amount $
April 3 M Kolsi 145 420

April 7 W H Lawrence 146 1 230

April 18 K Moore 147 355

April 27 M Kolsi 148 225

April 30 Transfer to sales account 2 230

(b)
Sales Ledger Samuel
M Kolsi

DrCr

$ $

Apr 3 Sales 420

Apr 27 Sales 225

Sales Ledger Samuel

W H Lawrence

DrCr

$ $

Apr 7 Sales 1 230

Sales Ledger Samuel

K Moore

DrCr

$ $
Apr 18 Sales 355

6 (a)
Sales Returns Journal Mario
Date Description Credit Note No. Amount $

Jun 10 V Lynne CR77 160

Jun 22 A Morrison CR78 218

Jun 26 D Latta CR79 39

Jun 30 Transfer to sales returns account 417

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 (b)
Sales Ledger Mario
V Lynne

DrCr

$ $

Jun 10 Sales returns 160

Sales Ledger Mario

A Morrison

DrCr

$ $

Jun 22 Sales returns 218

Sales Ledger Mario

D Latta

DrCr

$ $

Jun 26 Sales returns 39

7 If the list price of the item is $22.00 then:

Trade discount of 15% of list price = $22 × 0.15 = $3.30
So, net price on sales invoice = $22 − $3.30 = $18.70
8 (a) Purchases Journal Susan
Date Description Invoice No. Details $ Amount $

Aug 9 Barista Ltd. 2 790 1 400

Goods −280 1 120
Less 20% trade discount

Aug 28 Barista Ltd. 3 078 2 500

Goods −500 2 000
Less 20% trade discount

Aug 31 Transfer to purchases account 3 120

Sales Journal Susan

Date Description Invoice No. Details $ Amount $

Aug 11 Café Mango 196 2 000

Goods −200 1 800
Less 10% trade discount

Aug 21 Café Mango 197 1 800

Goods −180 1 620
Less 10% trade discount

Aug 31 Transfer to sales account 3 420

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 Purchases Returns Journal
Date Description
Aug 15 Barista Ltd.
Goods
Less 20% trade discount
Aug 31 Transfer to purchases returns account
Sales Returns Journal
Date Description
Aug 17 Café Mango
Goods
Less 10% trade discount
Aug 31 Transfer to purchases returns account
(b) Purchases Ledger
Barista Ltd.
DrCr
$ $
Aug 15 Purchases returns 320
(c) Sales Ledger
Café Mango
DrCr
$ $
Aug 11 Sales 1 800
Aug 21 Sales 1 620
Unit 1.5 : The cash book
1 A cash book is both a book of prime entry and
a ledger account because it records all cash
receipts and payments in the date they occur
and as so many transactions involve cash it
saves time and effort for this also to provide
the ledger accounts for cash and bank
transactions.
2 (a) Cash receipts are recorded on the left
(debit) side of the cash book.
(b) Cash payments are recorded on the right
(credit side) of the cash book.
3 (a) A bank current account can be used to keep
money safely and is an account that allows
the account holder to make and receive
payments using cheques and different
forms of bank transfer.
(b) A bank deposit account is used for business
savings. It is not used for day to day
transactions. Deposits and withdrawals
from a deposit account are usually much
larger and much less frequent than a
current account. Unlike current accounts,
© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute
Susan
Invoice No. Details $ Amount $
C456 400
−80 320
320
Susan
Invoice No. Details $ Amount $
CR23 300
−30 270
270
Susan
Aug 9 Purchases 1 120
Aug 28 Purchases 2 000
Susan
Aug 17 Sales returns 270
deposit accounts will usually pay interest
on the money held in them.
4 (a) The bank account had a credit balance of
$300 at the end of that month.
(b) If the bank account has a credit balance it
means the bank current account is
overdrawn: the business has paid out more
cash from its bank current account than it
had available.
5 (a) Overdrawing a bank current account is a
convenient way for a business to borrow
money from its bank at short notice and for
a short amount of time when cash
payments exceed cash receipts and is called
a bank overdraft. However, the bank may
charge the business a fee to have a pre-
agreed bank overdraft facility and a high
rate of interest on any amount overdrawn.
The interest payable on the overdraft is a
cost of finance for the business and will
reduce its profit for the year.
(b) A bank overdraft is recorded in (i) the cash
book as a credit balance because the bank
8
 account will have become a current liability
for the business; (ii) a debit balance in the
bank statement because the overdraft will
be a receivable account for the bank.
6 A bank reconciliation statement is produced at
the end of each month to identify and account
for any differences in the closing balances
carried down on the cash book and bank
statement.
7 An unpresented cheque is a cheque that has
yet to be submitted or cleared for payment.
The amount on the cheque will not appear in
the bank statement of the business that
received the cheque. In contrast, A
dishonoured cheque is a cheque that a bank
refuses to pay because it contains errors or
because the account holder has insufficient
funds to honour the cheque.
8 $
Balance on cash book 290
less dishonoured cheque 50
less unpresented cheque 65
Balance on bank statement 175
9 (a) An imprest is a fixed amount of petty cash
used by a business for small items of
10
expenditure. As payments are made from
petty cash, the imprest is run down. It is
restored to the fixed amount from cash in
hand or from the bank account at the start
of each new week or month.
(b) The advantages of running an imprest
system in a business are:
●● the job of managing petty cash can be
given to a more junior member freeing
up the time of the business manager,
accountant or finance director to
concentrate on more important tasks;
●● the total amount of cash paid out can be
controlled and checked easily and at any
time. This is because the amount paid
out each period can never be more than
the total value of approved petty cash
vouchers and their total cannot exceed
the float or imprest set for each period;
●● there is no need for a cash book or
ledger account. Only a bank account is
needed to record bank transactions
because all cash expenses will be
recorded in the petty cash book and only
their totals need to be transferred to the
relevent expense accounts in the general
ledger at the end of each period.

Michael
Cash book
DrCr

Date Details Cash Bank Date Details Cash Bank

$ $ $ $

Jan 1 Balances b/d 450 1 200

Jan 3 Sales 90 Jan 14 Purchases 30
Jan 9 B Menzies 50 Jan 16 Samex Ltd. 320
Jan 25 Cash sale 70 Jan 21 Electricity Company 160
Jan 27 V Asheen Jan 31 Cleaner 200
270 Bank charges 20
          Balances c/d 380 1 020
610 1 520 610 1 520

Feb 1 Balances b/d 380 1 020

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11

Cara
Cash book
DrCr

Date Details Cash Bank Date Details Cash Bank

$ $ $ $

Jul 1 Balances b/d 130 900

Jul 3 Sales 330 Jul 4 Bank 300
Jul 4 Cash 300 Jul 10 DJW Wholesalers 1 400
Jul 17 M Atkins 550 Jul 21 Vehicle repairs 180
Jul 25 Sales 120 Jul 23 Rent 500
Jul 31 Balances c/d 280 Jul 25 Insurance 90
Jul 31 Bank charges 40
Balances c/d 100
580 2 030 580 2030

Aug 1 Balances b/d 100 Aug 1 Balances b/d 280

12

Tanwir
Cash book
DrCr
Date Details Dis- Cash Bank Date Details Dis- Cash Bank
counts $ $ counts $ $
Allowed Received
$ $

Oct 1 Balances b/d 390 1 100

Oct 6 Sales 1 250 Oct 10 Unique Designs Ltd. 25 975
Oct 9 B Hill 75 1 425 Oct 21 Bank 1 700
Oct 14 Y Moulson 21 679 Oct 27 Electricity 150
Oct 18 Sales 670 Oct 28 Fool’s Gold 110 2 090
Oct 21 Cash 1 700 Oct 31 Balances c/d 610 1 689
96 2 310 4 904 135 2 310 4 904

Nov 1 Balances b/d 610 1 689

13 (a)
Hamood’s Cash Book (Bank Account only)

DrCr

$ $
Jun 1 Balance b/d 1 950 Jun 4 Carlson 500
Jun 6 Rogerson 650 Jun 17 Mehmet 770
Jun 19 Hamzah 300 Jun 29 Salim 330
Jun 30 Bank charges 100
Jun 30 Balance c/d 1 200
2 900 2 900

Jul 1 Balance b/d 1 200

(b) (b) Alternative presentation:

Hamood Hamood
Bank Reconciliation Statement as at 30 June Bank Reconciliation Statement as at 30 June
$ $
Balance on updated cash book 1 200 Balance on bank statement 880
Add: Unpresented cheque 330 Add: Dishonoured cheque – Rogerson 650
 1 530  1 530
Less: Dishonoured cheque – Rogerson 650 Less: Unpresented cheque 330
Balance on bank statement 880 Balance on updated cash book 1 200

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14

Manishsa
Petty Cash Book
DrCr
Date Details Total Date Details No. Total Stationary Travel Cleaning Sundry
Received Paid & Postage Expenses
$ $ $ $ $ $

1/3 Balance 50 4/3 Office stationary 1 45 45

b/d

1/3 Cash 200 7/3 Travel expenses 2 12 12

9/3 Postage 3 8 8

16/3 Travel expenses 4 30 30

23/3 Cleaning products 5 15 15

27/3 Tea and biscuits 6 10 10

28/3 Cleaner 7 60 60

180 53 42 75 10

9/11 Balance c/d 70

250 250

31/3 Balance 70
b/d

1/4 Cash 180

Unit 1.6 : The general journal
1 The general journal is a book of prime or
original entry. It is used to record one-off and
less frequent transactions that cannot be
entered in any other book of prime entry.
These include transfers and drawings of
capital by the business owners, one-off
purchases or sales of non-current assets and
the writing off of bad debts.
2 (a) The following transactions would be
recorded in the general journal:
●● a farm buys a combine harvester on
credit from Agri-Supplies Ltd.
●● a new business owner deposits $12 000
of her savings to the business bank
account
●● a credit sale for $300 to C Perez has been
recorded in error as $330
●● a bad debt for $1 400 is written off
(b) The following ledger accounts will record
the above transactions:
●● debit machinery account, credit trade
payable account for Agri-Supplies Ltd.
●● debit bank account, credit capital account
●● debit trade receivable account for C
Perez, credit sales
●● debit bad debts account, credit trade
receivable account
3 (a) The narrative of a journal entry is a brief
description of the transaction and
explanation of why it took place.
(b) A narrative is necessary to identify the
transaction and a source document. This
helps to reduce errors and the scope for
fraud.
4 (a) An opening entry is the first entry made to
the journal.
(b) Opening entries for assets, liabilities and
capital will be recorded in the general
journal when the business starts to operate
or when accounting records are started for
the first time
5 The general journal provides a full and
permanent record of many different business
transactions in the date order in which they
occurred including narratives and references
to their original source documents. It has the
following advantages:
●● it reduces the risk of error when posting
entries to the ledger accounts;
●● it reduces the scope for fraudulent
purchases or claims for money owed;
●● it can be passed on to any qualified person
or accountant to use to complete full and
accurate ledger and final accounts for the
business.

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6
General Journal Sanjay
Date Description Dr $ Cr $

May 1 Bank 7 000

Capital 7 000
Introduction of owners capital

May 3 Bank 2 100

Computer equipment 2 100

Purchase of computer equipment by cheque

May 5 Bank 1 600

Fixtures and fittings 1 600

Purchase of fixtures and fittings by cheque

May 6 Bank 6 000

Bank loan 6 000

Loan funds transferred to business bank account

May 12 Vehicles 6 000

Bank 6 000
Purchase of delivery van by bank transfer

May 17 Fixtures and fittings 3 900

Segura Ltd. 3 900

Purchase of shop alarm system on credit

7 (a)
General Journal Babita
Date Description Dr $ Cr $

Mar 2 Water damage losses 1 200

Inventory 1 200
Damaged inventory written off

Mar 5 Water damage losses 1 300

Furniture and fittings 1 300

Damaged furniture written off

Mar 9 Bank 5 000

Water damage losses 5 000

Compensation received from insurance company

Mar 13 Premises 2 500

Bank 2 500
Paid for building works by cheque

Mar 18 Furniture and fittings 1 300

Outfitters S.A. 1 300

Purchase of new furniture and fittings on credit

Mar 27 Bad debts 450

C Henning 450
Bad debt written off

Mar 28 Sales 1 800

Bank 1 800
Correction of error: cash sale of $200 recorded
in error as $2 000

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 (b)
General Ledger Babita
Cash Book (Bank Account only)

DrCr

$ $
Mar 9 Water Damage losses 5 000 Mar 1 Balance b/d 400
Mar 13 Premises 2 500
Mar 28 Sales 1 800
_____ Mar 31 Balance c/d 300
5 000 5 000

8 (a) General Journal Karim

Date Description Dr $ Cr $

Sept 2 Bank 12 000

Bank loan 12 000

Sept 3 Vehicles   9 000

Bank   9 000

Sept 8 Sunspot Ltd.   3 500

Bank   3 500

Sept 26 Repairs   3 000

Bank   3 000

Sept 30 Wages   2 500

Bank   2 500

Sales Journal Karim

Date Description Amount $

Sept 12 TR Duncan 1 900

Purchases Journal Karim

Date Description Amount $

Sept 17 Spex Ltd. 5 000

(b) Karim
Statement of financial position as at 30 September
Assets: Vehicles and equipment $35 000
Inventory $6 200
Trade receivables $4 300
Bank   $2 000
$47 500
Less
Liabilities: Trade payables $5 000
Bank loan $12 000
$17,000
Capital: $30 500

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 13
Unit 1.7 : The ledger 2 You will find the ledger accounts for income
1 (a) The sales ledger includes trade receivable received, expenses, assets, liabilities and capital
accounts. in the general ledger.
(b) The purchases ledger includes trade payable
accounts.
(c) The general ledger includes all other
double-entry accounts.

3
Transaction Ledger account 1 Ledger account 2
Account Impact Dr or Cr Account Impact Dr or Cr
Purchase of new equipment Equipment Increase Dr Cash Decrease Cr
with cash
Received cheque payment Bank Increase Dr Trade Decrease Cr
from a trade receivable receivable
Goods for resale purchased Purchases Increase Dr Cash Decrease Cr
for cash
Credit transfer to pay off Trade Decrease Dr Bank Decrease Cr
balance on trade payable payable
account
Owner withdraws cash for Drawings Increase Dr Cash Decrease Cr
own use
Vehicle purchased on credit Vehicles Increase Dr Other Increase Cr
from Vantastic Ltd. payable for
Vantastic
Ltd.
Electricity charges paid by Electricity Increase Dr Bank Decrease Cr
cheque

4 (a)

CXL Account

Dr Cr

Year $
Mar 5 Sales 425
Mar 19 Sales 300
Mar 30 Sales 340
1 065
Year $
Mar 1 Balance b/d 100
Mar 10 Sales returns 425
Mar 28 Bank 500
Mar 31 Balance c/d    40
1 065

(b)

CXL Account
Date Description Debit Credit Balance
$ $ $

Mar 1 Balance b/d 100 100 Cr

Mar 5 Sales 425 325 Dr
Mar 10 Sales returns 425 100 Cr
Mar 19 Sales 300 200 Dr
Mar 28 Bank 500 300 Cr
Mar 30 Sales 340  40 Dr

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 14
5 It is useful to balance off all the ledger
accounts at the end of each month to check
they are up to date, for any errors and to keep
track of:
●● how much is owed on each trade and other
payable account, and by the business in
total liabilities;
7 (a) The balance to be carried down on the
●● how much is owed on each trade and other
receivable account, and to the business in
total;
●● how much the business owns in total
assets;
●● total income and expenses, to calculate
8 Drawings by an owner or owners of a business
profit or loss to date.
A business will also need to balance off all its
accounts at the end of an accounting year to
produce its financial statements of income and
financial position.
6 (a) The balance carried down on the account is
$2 000.
(b) It is a debit balance.
(c) A debit balance on a trade receivable
account shows how much the credit
customer owed to the business.
account is $1 300
(b) It is a credit balance.
(c) A credit balance on a trade payable account
shows how much the business owes that
supplier of goods on credit.
are not a business expense because they are
from their own capital. Drawings reduce the
asset of cash available to the business thereby
reducing the value of its net assets and
therefore the owner’s capital.

9 (a)
General Journal Pauline Purchases Journal Pauline
Date Description Dr $ Cr $ Date Description Amount $
May 1 Bank 6 500 May 6 Barrons Ltd. 1 500

Capital 6 500 May 21 Barrons Ltd. 1 500

May 2 Equipment 1 200 May 31 Transfer to purchases 3 000

account
Bank 1 200

May 4 Bank 7 000

Sales Journal Pauline
Bank loan 7 000 Date Description Amount $
May 5 Vehicles 6 800 May 14 D Ashcroft 780

Bank 6 800 May 31 Transfer to sales journal 780

Pauline
Cash Book
DrCr

Date Details Cash Bank Date Details Cash Bank

$ $ $ $

May 1 Capital   6 500 May 2 Equipment   1 200

May 4 Bank loan   7 000 May 5 Vehicles   6 800
May 10 Bank 150 May 10 Cash    150
May 17 Sales 170 May 11 Vehicle expenses  60
May 25 Sales 210 May 19 Insurance  25
May 28 Drawings     50
May 31 Barrons Ltd.   3 000
          Balances c/d 445   2 300
530 13 500 530 13 500

Jun 1 Balances b/d 445   2 300

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 15
 (b)
General Ledger Pauline General Ledger Pauline
Capital Account Bank Loan Account
Dr Cr Dr Cr
$ $ $ $

May 1 Bank 6 500 May 4 Bank 7 000

General Ledger Pauline General Ledger Pauline

Equipment Account Vehicles Account

Dr Cr Dr Cr

$ $ $ $

May 2 Bank 1 200 May 5 Bank 6 800

General Ledger Pauline General Ledger Pauline

Vehicle Expenses Account Drawings Account

Dr Cr Dr Cr

$ $ $ $

May 11 Cash 60 May 28 Cash 50

General Ledger Pauline

Insurance Account

Dr Cr

$ $

May 19 Cash 25

Purchases Ledger Pauline

Barrons Ltd. Account

Dr Cr

$ $
May 31 Bank 3 000 May 6 Purchases 1 500
May 21 Purchases 1 500
3 000 3 000

Sales Ledger Pauline

D Ashcroft Account

Dr Cr

$ $

May 14 Sales 780

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 16
 General Ledger Pauline
Purchases Account

Dr Cr

$ $

May 31 Total from purchases journal 3 000

General Ledger Pauline

Sales Account

Dr Cr

$ $

May 31 Balance c/d 1 160 May 17 Cash 170

May 25 Cash 210
May 31 Total from sales journal   780
1 160 1 160

10 (a,b)

Sanaa
Cash Book
DrCr

Date Details Cash Bank Date Details Cash Bank

$ $ $ $

Jun 1 Balances b/d 450 5 700 Jun 1 Sullivan & Mills Co, 4 500
Jun 2 K Taggart 2 000 Jun 4 Fittings 560
Jun 5 Sales 270 Jun 10 Bank Loan 200
Jun 6 Sales 110 280 Jun 11 Advertising 430
Jun 19 Sales 240 Jun 14 Drawings 40
Jun 25 Cash 800 Jun 17 Cleaning 30
Jun 21 Vehicle repairs 880
Jun 25 Bank 800
Jun 30 Wages 1 900
Balances c/d   200   310
1 070 8 780 1 070 8 780

Jul 1 Balances b/d 200 310

Purchases Ledger Sanaa

Sullivan & Mills Co. Ltd. Account

Dr Cr

$ $

Jun 1 Bank 4 500 Jun 1 Balance b/d 4 500

Jun 30 Balance c/d 2 300 Jun 28 Purchases 2 300
6 800 6 800

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 17
 Sales Ledger Sanaa
K Taggart Account

Dr Cr

$ $

Jun 1 Balance b/d 2 800 Jun 2 Bank 2 000

Jun 24 Sales   500 Jun 30 Balance c/d 1 300
3 300 3 300

General Ledger Sanaa

Fittings Account

Dr Cr

$ $
Jun 4 Bank 560

General Ledger Sanaa

Bank Loan Account

Dr Cr

$ $
Jun 10 Bank 200 Jun 1 Balance b/d 4 200
Jun 30 Balance c/d 4 000     
4 200 4 200

General Ledger Sanaa

Advertising Account

Dr Cr

$ $
Jun 11 Bank 430

General Ledger Sanaa

Drawings Account

Dr Cr

$ $
Jun 14 Cash 40

General Ledger Sanaa

Cleaning Account

Dr Cr

$ $
Jun 17 Cash 30

General Ledger Sanaa

Vehicle Repairs Account

Dr Cr

$ $
Jun 21 Bank 880

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 18
 General Ledger Sanaa
Purchases Account

Dr Cr

$ $

Jun 30 Total from purchases journal 2 300

General Ledger Sanaa

Sales Account

Dr Cr

$ $
Jun 30 Balance b/d 1 120 Jun 5 Cash 270
Jun 6 Cash 110
Jun 19 Cash 240
Jun 30 Transfer from sales journal   500
1 120 1 120

General Ledger Sanaa

Wages Account

Dr Cr

$ $

Jun 30 Bank 1 900

Unit 1.8 : The trial balance 4 cleaning debit motor debit

1 A trial balance is a list of all the balances on expenses vehicles
the accounts on a given date. sales credit computer debit
2 A business will prepare a trial balance to (any maintenance
two from the following): drawings debit inventory debit
●● to check the accuracy of account entries capital credit a bank loan debit
and balances in the ledger; motor debit trade payable credit
●● to identify and correct certain errors that vehicle account for
have been made in the accounts; expenses WSJ Ltd.
●● to prepare financial statements at the end insurance debit trade debit
of an accounting year. premiums receivable
3 Accounts with debit balances (total debits account for
exceed total credits) are entered into the debit D Patel
column and accounts with credit balances sales returns debit purchases debit
(total credits exceed total debits) are entered
into the credit column of a trial balance. 5 For a trial balance to balance the debit column
Accounts for assets, purchases, expenses and total should be exactly equal to the credit
drawings will have debit balances. Accounts column total. This is because every transaction
for liabilities, income, capital and sales will is recorded with double entries in the ledger
have credit balances. accounts: one a debit entry and one a credit
entry. It follows that the sum of all debit

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 19
 entries to the ledger accounts of a business 8 A trial balance may not balance because (any
should always equal the sum of all its credit three from):
entries. A trial balance lists the total debit and ●● the columns have not been added up
credit balances on the accounts at a given date correctly;
and therefore the column totals should be ●● one or more account balances are missing;
the same.
●● one or more account balances have been
6 Trial balance at 31 December entered in the wrong columns in the trial
Dr $ Cr $ balance;
●● one or more ledger account balances have
Capital 40 000 not been balanced off and are therefore
Purchases 46 000 missing from the trial balance;
Sales 77 500 ●● one or more balances have been added up
Cash in bank 2 300 incorrectly on the ledger accounts;
Cash in hand 540 ●● a debit (credit) has been recorded in one
Trade payables 4 240 ledger account that does not match a credit
Trade receivables 3 600 (debit) in another;
Vehicles 16 000
●● a single entry for a transaction has been
General expenses 7 800
made without a corresponding double
Rent 6 000
entry.
Electricity 1 500
Equipment 34 000 9 Error Type of error
Drawings 12 000 Sales to P Murray have Commission
Bank loan          8 000 been debited to B Murray’s
129 740 129 740 account
Sales have been added up Compensating
incorrectly and have been
7 Trial balance at 31 July understated by $4 000 but
Dr $ Cr $ purchases have been
overstated by $4 000
Sales 134 000 The return of some goods Complete
Sales returns 12 600 purchased on credit by reversal
Purchases 67 000 Amina Kauser has been
Purchases returns 10 900 entered as a credit to the
Bank overdraft 3 800 Sales Returns Account and
Cash 900 as a debit to Amina
S Moran (trade receivable) 4 500 Kauser’s account
Chemex Ltd. (trade payable) 9 600 A new delivery vehicle Principle
Equipment 25 000 purchased for $8 000 from
Premises 75 000 Premier Motors Ltd. has
Drawings 23 000 been debited to the motor
General expenses 26 300 vehicle expenses account
Wages 32 000 The payment of $500 for Original entry
Capital        108 000 telephone charges has been
266 300 266 300 recorded in the accounts as
$5 000

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 20
10 Corrected Trial Balance as at 30 September
Dr $
Machinery and equipment 125 000
Rent 11 000
Cash 4 200
General expenses 57 000
Sales
Purchases 146 500
160 000
Trade receivables
Trade payables 17 000
Capital
Drawings 86 000
25 800
347 500
400 000
Unit 1.9 : Adjustments to ledger accounts
1 A prepaid expense is an expense that has been
paid for in the current accounting year in
advance of it being used by the business in the
next accounting year.
An accrued expense is an expense that has been
used up or incurred by a business in the current
accounting year that will not be invoiced or paid
for until the next accounting year.
A prepaid income is an unearned income
received by a business in the current
accounting year in advance of it supplying
goods or services in the next accounting year
to finally earn the income.
An accrued income is an income earned in the
current accounting year that will not be
received until into the next accounting year
when payment falls due.
2 (a) A prepaid expense has been paid for but
will not benefit the business until it is used
in the next accounting year. The expense
will be recorded as a current asset in the
statement of financial position of the
business until it is used up.
(b) Any income earned but still owing at the
end of an accounting year is an accrued
income. It should be credited to the income
statement to include in the calculation of
profit for that year. Until the income is
finally received the amount owed or
outstanding will be a current asset of the
business in its statement of financial
position.
3 (a) Prepaid income received by a business will
be a current liability of that business until it
© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute
supplies the goods or services its customer
has paid for in advance. The income
Cr $
received should not be credited to profit for
125 000
the year until the business has settled the
liability and therefore earned the income.
(b) An accrued expense has been used to the
270 000 benefit of the business but without
payment being made. It will be a item
payable amount or current liability of the
business until it is paid for.
30 500 4 A bad debt is debt on a trade receivable
44 000 account that the business knows it will be
unable to collect. In contrast, a doubtful debt is
86 000 one that may turn bad in the future.
______ 5 Profit should not be overstated. A bad debt
425 500 written off is a loss of income. It should
400 000 therefore be expensed to profit for the year.
It is also prudent to include a provision for
doubtful debts in the accounts to allow for the
possibility that the business will be unable to
collect a proportion of the income it should
receive from credit sales it made during the
accounting year. Inevitably some debts are
likely to turn bad so the provision ensures a
fair and realistic value for trade receivables is
recorded in its financial statements of income
and financial position.
6 A business could reduce the risk of bad debts
by (any four from):
●● reducing the amount and value of goods
sold on credit terms;
●● undertaking credit checks on customers to
ensure they are financially secure and have
a good payment record;
●● setting a credit limit for each customer to
avoid them taking on too much debt;
●● keeping an up to date aged trade
receivables schedule listing all the
customers that owe the business money,
how much each one owes and when their
debts fall due so they can be easily
identified and payment reminders sent out
if necessary;
●● offering rewards to encourage credit
customers to settle their debts and on time,
including increased credit limits and cash
discounts for early repayments;
●● using penalties to discourage late payment,
for example, by refusing to supply any
more goods or services to the credit
customer and charging interest on late
payments;
21
 ●● taking legal action to recover a bad debt. costs. It is important that new and existing
Legal action may result in the credit customers know what could happen if they
customer paying a large fine as well as legal do not pay their debts on time.

7 (a)
General Journal Saxon Ltd.
Date Description Dr Cr

Feb 28 Bank   900

Rent received   900
3 months rent received in arrears from Petra of
which $300 accrued in previous accounting year

May 31 Bank   900

Rent received   900
3 months rent received in arrears from Petra

Aug 31 Bank   900

Rent received   900
3 months rent received in arrears from Petra

Nov 31 Bank   900

Rent received   900
3 months rent paid in arrears by Petra

Dec 31 Accrual (income receivable)   300

Rent received   300
Unpaid rent receivable for month of December

Dec 31 Income statement 3 600

Rent received 3 600
Total rent earned added to profit

(b)
General Ledger Saxon Ltd.
Rent Received Account

Dr Cr

$ $

1 Jan Accrual b/d 300 Feb 28 Bank 900

Dec 31 Income statement 3 600
    
3 900
May 31 Bank 900
Aug 31 Bank 900
Nov 31 Bank 900
Dec 31 Accrual c/d   300
3 900

8 (a)
General Journal Libby Clarke
Date Description Dr Cr

Oct 1 Equipment insurance 240

Bank 240
Annual insurance premium paid to Assurance Ltd.

Dec 31 Prepayment 180

Equipment insurance 180
9 months unused insurance paid in advance

Dec 31 Income statement  60

Equipment insurance  60
Insurance expenses incurred charged to profit

© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute 22
 (b)
General Ledger
Equipment Insurance Account
Dr
$ $
Oct 1 Bank 240
  
240
9 (a) If trade receivables = $50 000:
Provision for doubtful debts at 3% of trade
receivables = 0.03 × 50 000 = $1 500
(b) If trade receivables = $40 000:
Provision for doubtful debts at 3% of trade
receivables = 0.03 × 40 000 = $1 200
Therefore, provision for doubtful debts
should reduce by $300.
Debit $300 from provision for doubtful
debts account
Credit $300 to income statement for
reduction in provision for doubtful debts
10 (a) No ledger adjustments are necessary. Mito
(trade receivable) has promised to
pay his debt in full by end April.
(b) There is now a bad debt of $800 on the
trade receivable account of FJS Ltd. This
should be written off. The adjustments
needed are as follows:
Debit $800 to the bad debts account
Credit $800 for the debt written off to the
trade receivable account of FJS Ltd.
© Oxford University Press 2018: this may be reproduced for class use solely for the purchaser’s institute
Libby Clarke
Cr
31 Dec Income statement 180
Prepayment c/d  60
240
(c) Create a provision for doubtful debts of 4%
of $14 000 = $560:
Credit $560 to provision for doubtful debts
account
Debit $560 to income statement for the
provision
(d) To record the payment received from
Tomiko in payment of a debt that was
written off by the business 2 years earlier:
Debit $250 to bank account in cash book
Credit $250 to bad debts recovered account
Or re-open trade receivable account for
Tomiko and
Debit $250 to bank account in cash book
Credit $250 to trade receivable account for
Tomiko
Then,
Debit $250 to trade receivable account for
Tomiko
Credit $250 to bad debts recovered account
23