Activity 1.

24
General ledger Roberts

Cesh Book (cash account onl)

Nov 1 Balance bd A00 Nov5 Purchases

Slo 55Now21
Nov 11 Sales 180 Nov 31 Baance cld 05
NOv 14 B ASsam

Nov 29 Sales 22
127
eC Balance b / a

Cash Book Roberts

Cash acoount only

Descnipton Debit
Date
Balance
Balance Dd
Nov 2 Sales 4G0 Dr
Furchase 450 40 Dr
Nov 5 E5
Solps en 26 D
Nov 14 B Assam 875 Dr

Nov 19 Heturms 160 483 Dr

NOV 21
NOv 2s
Electricty
s 122 605 Dr

Activity 1.25
( a ) Accounts with credit balances:

Capital
Trade payables
Sales
Purchases returns

(b) Accounts with debit balances:

Bank
Equipment
Drawings
Electricity
Insurance
Stationary and other expenses

Trade receivables
Cash

Purchases

Sales returns

OUP 2018: this can be reproduced far ciass use solely for the purchaser s insttute
 Petra

Trial Balance as at 31 December

Dr S CrS
Bank 2150
Capital 35000
Equipment
Trade payables
66000

11 600
13950
Drawings
Electricity 4700
Insurance 2000

Stationary and other expenses 7900

Trade receivables 7400
Cash 1400
Sales 128 000
Purchases 72000
Sales returns
Purchases returns 15400

190009 190000

Activity 1.26
Error
SI7s otcash paid for general expenses had not been recorded Error of omission
200 of expenses paid lor the repair of
debited to the equipment account.
a computer had been Error of principle

A cash payment for $300 received was debited to the bank Error ol commission

account nstead ol the casn account

The balance on trade receivables had been incorrectly entered as Error of original entry
S6300 and should have been recorded as Ss600
|A cheque ecelved in payment for cash sales ol S1000 was not Compensating error

ecoracu ln tne saiesaccount

accounthad
and in the bank account
not been balanced off and is
The motor vehicles
missing Irom the trial balance. As at 30 September the account
Error preparing the trial
balance lailure to record all
had a debit balance of $2800 | balances

OUP 2018:this can be reproduced for clas use soely for the purchaser's institute
 Arnold Been

Revised Trial Balance as at 30 September

Dr $ Cr$
Equipment 34 000
Re
Kent 2400
Bank 4400
Cash 2500
KCpairsand maintenance 450
General expenses 12 500
Sales TO1 000
Purchases 57 000
Trade receivables 3600
Trade payables 5500

capital
Lgnng and heating 1550
14 500

Motor vehicles 2800

121000 121000

Activity 1.27
The advanced payment of S250 received by the hotel on September this year is prepaid
17
unearied income. I will no be carmed until the hotel meets its obligation to supply
a or

accommoatian from 20 March next year and should not therefore be inctuded in profit tor the
current year To do so would overstale profit earned in the hotel's current accounting year by S250.
2 The shop has already benelited from $1 300 of
decorating services during its current accounting year
despite the lact it will not receive an invoice for the services or make payment to the decorator until
next year. This means the sum ol $1 300 is an accrued expense and should be expensed to the
shop's prolit for the current year. Fallure to do so would understate total expenses this year and
Overstate prolit carned this year.
The catering business has paid lor an expense item of $300 well in advance of being able to use the
expense iem to benelit the business. The $300 expense should not therefore be expensed to protit
un July next year when it can be used to carn income Irom the sale of foods and drink at the
music Testival. Until then the prepaymeni is a current of the business. To expense it
this year would overstate profit earned during the year by S 300.
asset to profit

OUP 2018: this can be reproduced for class use solely for the purchaer's institute
 Sanaa
General Ledger
Purchases Account

Dr Cr

Jn 30 Total from purchases jounal 2309

General Ledger Sanaa

Sales Account

Jn 30 Balance bid 1120 Jun 5 Cash 270

Jun 8
n 30 Transfer from saes jouna 500
1120 1 129

General Ledger Sanaa

Wages Account

Barx
1990

Unit 1.8:The trial balance

Atrial balance is a list of all the balances on
4cleaning debit motor debit
peuses vehicles
the accounts on a given date. sales debit
Abusiness will prepare a trial balance to (any
credit Computer
allntenance
from he
two
tollowing) drawings debitinventory debit
t o check the accuracy of account entries CTedir a bank loandebit
capital
and balances in the ledger;
t o identifly and correct certain errors that
motor

vehicle
debit
trade payable | credit
account for
have been made in the WSJ Ltd.
accounts expenses
t o prepare financial statements at the end insurance debit trade debit
of an accouning yea. premiums receivablec
Accounts with debit balances (total debits account for
exceed total credits) are entered into the debit D Patel
column and accounts with credit balances
entered
sales returms debit purchases debit
(tolalthe
into
credits exceed total debits)
credit column of triala
are 5 For a trial balance to balance the debit column
balance should be
total exactly cqual to the credit
Accounts lor assets, purchases, expenses and
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 foliows that the sum of all debit

O Oxlord University Press 2018: this may be reproduced lor class use solely for the purchaser's institute
 entries to the ledger accounts ofof all
a business

its
8 A trial balance may not balance because (any
credit three from):
should always
trial
cqual thelists
sum
the total debit and
entries. A balance date
t h e columns have not been added up
credittherelore
balancesthe the accounts
on column given
at a
totals should be
correctly:
and one or more äccount balances are missing:
ne
same. one or more account balances have been
Trial balance at 31 December in the wrong columns in the trial
entered
balance;
DrS Cr S one or more ledger account balances have
Capital 40 000 not been balanced off and are therefore
Purchasess 46 000 missing from the trial balance:
77 500
Sales
Cash in bank 2 300
one or more balances have been added up
incorrectly on the ledger accounts:
Cash in hand S40
a debit (credit) has been recorded in one
Trade payables 4 240
Trade receivables 600 ledger account that does not match a credit
(debit) in another:
Vehicles 16 000
General expenses 800 a single entry for a transaction has been
6 000
nade without a corresponding double
Rent
Electricity S00
000 Er
Equipment 4
ETOT ype of error
Drawing 000
Bank loan 000
Sales to P Murray have
been debited to B Murray's
Commission

129 749 129 749 account

Sales have been added up Compensating
incorrectly and have been
by 000 but
Trialbalance at 31July_ understated
purchases have been
$4
DSr CrS
overstated by $4 000
The
Sales
12 600
134 CO0
return of some goods
purchased on credit by
Complete
reversal
Sales returms
Purchases
67000 Amina Kauser has becen
Purchases returns asa to the
Bank overdraft 800
entered credit
Sales Retuns Account and
Cash 900 as a debit to Amina
S Moran (trade
receivable) 500
Kauser's account
Chemex Ltd. (irade payable) 600 A new delivery vehicle Principle
Equipment 25 000 purchased for $8 000 from
Premises
75 000 Premier Motors Ltd. has5
Drawings 25 000
to the motor
General expenses 26 3500
been debited
32 000
vehicle expenses account
Wages The payment of S500 lor Original entry
Capital 08 telephone charges has been

266300 266 J00| recorded in the accounts as

S5 000

o Oxtord Univerity Prew 2018: this may be reptrouduced lor cdaw ue solely for the purchawr'v imtinute
 supplies the goods or services its customer
Corrected Trial Balanceas at 30 September has paid lor in advance. The income
DrS CrS received should not be credited to profit tor
Machinery and cquipment 125 000 5+GO|
the year until the business has settled the
Rent J00
liability and theretore earned the income.
Cash 4 200
(b) An accrued expense has been used to the
General expenses
Sales 2700 J00
benefit of the business but without
payment being made. It will be a item
Purchases
l60 0 0
payable amount or current liability of the
Trade receivables business until it is paid lor.
A bad debt is debt trade
rade payables 70000 on a
receivable
account that the business knows it will be
44 000

Capital unable to collect.

In contrast, a doubitul debt is
one that may turn bad in the future.
Drawings
800 5
Profit should not be
overstated. Abad debt
written off is a loss of income. It should
therefore be expensed to profit lor the year
100 000 400000
It is also prudent to inciude a provision for
doubtful debts in the accounts to allow for the
Unit 1.9:Adjustments to ledger accounts possibility that the business will be unable to
IA prepaid expense is an expense that has been colect
paid tor in the current accounting year in a proportion ol the mcome t should
receive from credit sales it made during the
aavance oM t being used by the business in the
accounting year. Inevitably some debts are
next accounting year. likely to turn bad so the provision ensures a
An accrued expense is arn expense that has been fair and realistic value for trade receivables is
used up or incurred by a business in the current in statements ot income
accounting year that will not be invoiced or paid
recorded its inancial
and financial position.
tor until the next accounting year. 8 A business could reduce the risk of bad debts
Aprepaid income is an unearned income by (any four from):
received by in the
a
business
accounting year in advance of it supplying
current reducing the amount and value of goods
sold on credit lerms;
goods or services in ihe next accounting year
to linally earn the income. undertaking credit checks customers to
on

ensure they are financdally secure and have

An acrued income is an income earned in the a good payment record;
current accounting year that will not be setting a credit limit for cach
customer to
received until into the next accounting year
avoid them taking on to0 much deb:
when payment lalls due.
keeping an up to date aged trade
(a) A prepaid expense has been paid lor but receivables schedule listing all the
not bernelit the business
will until it is used
in the nexI accounting year. The expense
customers that owe the business money.
how much each one owes and when thecir
will be recorded as a current asset in the
debts fall due so they can be easily
statement of financial position of the identilied and payment reminders sent out
business until it is used up.
necessaryY
(b) Any income earned but still owing at the offering rewards to encourage credit
end ol an
accounting year is an accrued
income. It should be credited to the income
customers to settle their debts and on time,
including increased credit limits and cast
statement to include in the calculation of
discounts laor early repayments;
profit for that year. Until the income is
nany received the amount owed or using penalties to discourage late payment.
outstanding will be a current asset of the for example, by refusing to supply any
business in ius statement or inancial
more goods or services to the redit
position. customer and charging interest on late

3 (a)
Prepaid income received by a business will payments
be a current liability of that business until it

O Oxford University Pres 2018: this may be reproducrd lr elass use wlely for the purchaer's institute