CHAPTER FOUR

TRIAL BALANCE
Introduction
According to the dual aspect concept, the total of debit balance must be equal to the
credit balance. It is a must that the correctness of posting to the ledger accounts and
their balances be verified. This is done by preparing a trail balance.

Meaning
Trail balance is a statement containing the balances of all ledger accounts, as at any
given date, arranged in the form of debit and credit columns placed side by side and
prepared with the object of checking the arithmetical accuracy of ledger postings.

Objectives of Preparing a Trial Balance

Following are the objectives of preparing Trial Balance
(i) To check arithmetical accuracy
Arithmetical accuracy in ledger posting means writing correct amount, in the correct
account and on its correct side while posting transactions from various original books of
accounts, such as Cash Book, Purchases Book, Sales Book, etc. It also means not only the
correct balance of ledger account but also the totals of the special purpose Books.

(ii) To help in preparing Financial Statements

The ultimate objective of the accounting is to prepare financial statements i.e. statement
of profit or loss and other comprehensive income, and statement of financial position of
a business enterprise at the end of an accounting year. These statements contain
balances of various ledger accounts. As Trial Balance contains balances of all ledger
accounts, in financial statements the balances of ledger accounts are carried from the
Trial balance for proper analysis.

(iii) Helps in comparison

Comparison of ledger account balances of one year with the corresponding balances
with the previous year helps the management taking some important decisions. This is
possible by using the Trial Balances of the two years.

(iv) Helps in making adjustments

While making financial statements adjustments regarding closing stock, prepaid
expenses, outstanding expenses etc. are to be made. Trial balance helps in identifying
the items requiring adjustments in preparing the financial statements. Trial Balance is

1
generally prepared at the end of the year. However, it can be prepared at any time
during the accounting year to check the accuracy of the posting.

Format of Trial Balance

S.No. NAME OF ACCOUNT L.F DEBIT BALANCE CREDIT BALANCE
(Shs.) (Shs.)

Note: Accounts of all assets, expenses, losses, Purchases and drawings are debit
balances. Accounts of incomes, gains, liabilities, Sales and capital are credit balances.

Illustration 1
From the following transactions, pass journal entries, prepare ledger accounts and also
prepare Trial Balance

1. Anil started business with T.shs 8,000,000 cash

2. Purchased furniture of T.shs 1,000,000 cash
3. Purchased goods of T.shs 6,000,000 by cash
4. Sold goods T.shs 7,000,000 cash
5. Purchased from Raja goods of T.shs 4,000,000 on credit
6. Sold to Somu goods of T.shs 5,000,000 on credit
7. Paid to Raja T.shs 2,500,000 cash
8. Received from Somu T.shs 3,000,000 cash
9. Paid rent by cash T.shs 200,000
10. Received commission of T.shs 100,000 cash

Feedback

a) Journal entries

DATE DETAILS (ACCOUNT NAME) FOLI DEBIT CREDIT

O
1 Cash 8,000,000
Capital 8,000,000

2 Furniture 1,000,000
Cash 1,000,000

3 Purchases 6,000,000

2
 Cash 6,000,000

4 Cash 7,000,000
Sales 7,000,000

5 Purchases 4,000,000
Raja 4,000,000

6 Somu 5,000,000
Sales 5,000,000

7 Raja 2,500,000
Cash 2,500,000

8 Cash 3,000,000
Somu 3,000,000

9 Rent 200,000
Cash 200,000

10 Cash 100,000
Commission received 100,000

ii) Ledger accounts

DR CASH ACCOUNT CR

Capital 8,000,000 Furniture 1,000,000

Sales 7,000,000 Purchases 6,000,000
Somu 3,000,000 Raja 2,500,000
Commission received 100,000 Rent 200,000
Balance c/d 8,400,000
18,100,000 18,100,000
Balance b/d 8,400,000

DR CAPITAL ACCOUNTS CR

Balance c/d 8,000,000 Cash 8,000,000

8,000,000 8,000,000

3
 DR FURNITURE ACCOUNT CR

Cash 1,000,000 balance c/d 1,000,000

1,000,000 1,000,000

DR PURCHASES ACCOUNT CR
Cash 6,000,000 balance c/d 10,000,000
Raja 4,000,000
10,000,000 10,000,000

DR SALES ACCOUNT CR

Balance c/d 12,000,000 Cash 7,000,000

Somu 5,000,000

12,000,000 12,000,000

DR RAJA ACCOUNT CR

Cash 2,500,000 Purchases 4,000,000

Balance c/d 1,500,000
4,000,000 4,000,000

DR SOMU ACCOUNT CR

Sales 5,000,000 Cash 3,000,000

Balance c/d 2,000,000
5,000,000 5,000,000

DR RENT ACCOUNT CR

Cash 200,000 Balance c/d 200,000

200,000 200,000

4
DR COMMISSION RECEIVED ACCOUNT CR

Balance c/d 100,000 Cash 100,000

100,000 100,000

5
iii)
TRIAL BALANCE
S/NO NAME OF ACCOUNT FOLIO DEBIT CREDIT
1 Cash 8,400,000
2 Capital 8,000,000
3 Furniture 1,000,000
4 Purchases 10,000,000
5 Sales 12,000,000
6 Raja 1,500,000
7 Somu 2,000,000
8 Rent 200,000
9 Commission received 100,000
TOTAL 21,600,000 21,600,000

Illustration 2
The following Trail balance has been prepared wrongly. You are asked to prepare the
Trail balance correctly
Account Name Dr. (T.shs) Cr.(T.shs)
Capital 22,000,000
Stock 10,000,000
Debtors 8,000,000
Creditors 12,000,000
Machinery 20,000,000
Cash in hand 2,000,000
Bank overdraft 14,000,000
Sales returns 8,000,000
Purchases returns 4,000,000
Misc. expenses 12,000,000
Sales 44,000,000
Purchases 26,000,000
Wages 10,000,000
Salaries 12,000,000
Prepaid insurances 200,000
Bills payable 10,800,000
Outstanding salaries 1,400,000
Total 108,200,000 108,200,000
Feedback

6
 Account Name Dr. (T.shs) Cr. (T.shs)
Capital 22,000,000
Stock 10,000,000
Debtors 8,000,000
Creditors 12,000,000
Machinery 20,000,000
Cash in hand 2,000,000
Bank overdraft 14,000,000
Sales returns 8,000,000
Purchases returns 4,000,000
Misc. expenses 12,000,000
Sales 44,000,000
Purchases 26,000,000
Wages 10,000,000
Salaries 12,000,000
Prepaid insurances 200,000
Bills payable 10,800,000
Outstanding salaries 1,400,000
Total 108,200,000 108,200,000

Test Yourself
As at 30.3.2016, your business has the following balances on its ledger accounts.

Accounts Balance (shs)

Bank loan 12,000

Cash at bank 11,700
Capital 13,000
Local business taxes 1,880
Trade accounts payable 11,200
Purchases 12,400
Sales 14,600
Sundry payables 1,620
Trade accounts receivable 12,000
Bank loan interest 1,400
Other expenses 11,020
Vehicles 2,020
During 31.3.2016, the business made the following transactions.

a) Bought materials for shs 1,000, half for cash and half on credit

7
b) Made shs 1,040 sales, shs 800 of which was for credit

c) Paid wages to shop assistants of shs 260 in cash.

You are required to draw up a trial balance showing the balances as at the end of
31.3.2016.

Feed back

Dr (shs) Cr (shs)
Bank loan 12,000
Cash at bank (11,700 + 240 – 500 – 260) 11,180
Capital 13,000
Local taxes 1,880
Trade accounts payable (11,200 + 500) 11,700
Purchases (12,400 + 1,000) 13,400
Sales (14,600 + 1,040) 15,640
Sundry payables 1,620
Trade accounts receivable (12,000 + 800) 12,800
Bank loan interest 1,400
Other expenses (11,020 + 260) 11,280
Vehicles 2,020
53,960 53,960

Limitations of Trail Balance

The following are the important limitations of trail balances:
a) Trial Balance only confirms that the total of all debit balances match the total of
all credit balances. Its limitation is that; Trial balance totals may agree in spite of
errors. An example would be an incorrect debit entry being offset by an equal
credit entry.
b) If the trail balance is wrong, the subsequent preparation of statement of profit or
loss and other comprehensive income, and statement of financial position will
not reflect the true picture of the concern.

8
REVIEW QUESTIONS
Question one
You are to enter up the necessary accounts for the month of May from the following
information relating to a small printing firm. Then balance off the accounts and extract a
trial balance as at 31 May 2013.
2013
May 1 Started in business with capital in cash of Tshs800,000 and Tshs2,200,000
in the bank.
2 Bought goods on credit from the following persons: J Ward Tshs610,000; P
Green Tshs214,000; M Taylor Tshs174,000; S Gemmill Tshs345,000; P Tone
Tshs542,000.
4 Sold goods on credit to: J Sharpe Tshs340,000; G Boycott Tshs720,000; F
Titmus Tshs1,152,000.
6 Paid rent by cash Tshs180,000.
9 J Sharpe paid us his account by cheque Tshs340,000.
10 F Titmus paid us Tshs1,000,000 by cheque.
12 We paid the following by cheque: M Taylor Tshs174,000; J Ward
Tshs610,000.
15 Paid carriage by cash Tshs38,000.
18 Bought goods on credit from P Green Tshs291,000; S Gemmill
Tshs940,000.
21 Sold goods on credit to G Boycott Tshs810,000.
31 Paid rent by cheque Tshs230,000.

Question two
Enter the following transactions of an antiques shop in the accounts and extract a trial
balance as at 31 March 2013.
2013
March 1 Started in business with Tshs8,000,000 in the bank.
2 Bought goods on credit from the following persons: L Frank Tshs550,000;
G Byers Tshs290,000; P Lee Tshs610,000.
5 Cash sales Tshs510,000.
6 Paid wages in cash Tshs110,000.
7 Sold goods on credit to: J Snow Tshs295,000; K Park Tshs360,000; B Tyler
Tshs640,000.
9 Bought goods for cash Tshs120,000.
10 Bought goods on credit from: G Byers Tshs410,000; P Lee Tshs1,240,000.
12 Paid wages in cash Tshs110,000.
13 Sold goods on credit to: K Park Tshs610,000; B Tyler Tshs205,000.

9
 15 Bought shop fixtures on credit from Stop Ltd Tshs740,000.
17 Paid G Byers by cheque Tshs700,000.
18 We returned goods to P Lee Tshs83,000.
21 Paid Stop Ltd a cheque for Tshs740,000.
24 B Tyler paid us his account by cheque Tshs845,000.
27 We returned goods to L Frank Tshs18,000.
30 G Prince lent us Tshs1,000,000 by cash.
31 Bought a van paying by cheque Tshs6,250,000.

Question three
Record the following details relating to a carpet retailer for the month of November
2014 and extract a trial balance as at 30 November 2014:
2014
Nov 1 Started in business with Tshs15,000,000 in the bank.
3 Bought goods on credit from: J Small Tshs290,000; F Brown Tshs1,200,000;
T Rae Tshs610,000; R Charles Tshs530,000.
5 Cash sales Tshs610,000.
6 Paid rent by cheque Tshs175,000.
7 Paid business rates by cheque Tshs130,000.
11 Sold goods on credit to: T Potts Tshs85,000; J Field Tshs48,000; T Gray
Tshs1,640,000.
17 Paid wages by cash Tshs290,000.
18 We returned goods to: J Small Tshs18,000; R Charles Tshs27,000.
19 Bought goods on credit from: R Charles Tshs110,000; T Rae Tshs320,000; F
Jack Tshs165,000.
20 Goods were returned to us by: J Field Tshs6,000; T Potts Tshs14,000.
21 Bought van on credit from Turnkey Motors Tshs4,950,000.
23 We paid the following by cheque: J Small Tshs272,000; F Brown
Tshs1,200,000; T Rae Tshs500,000.
25 Bought another van, paying by cheque immediately Tshs6,200,000.
26 Received a loan of Tshs750,000 cash from B. Bennet.
28 Received cheques from: T Potts Tshs71,000; J Field Tshs42,000.
30 Proprietor brings a further Tshs900,000 into the business, by a payment
into the business bank account.

10
Question four
Record the following transactions for the month of January of a small finishing retailer,
balance off all the accounts, and then extract a trial balance as at 31 January 2015:
2015
Jan 1 Started in business with Tshs10,500,000 cash.
2 Put Tshs9,000,000 of the cash into a bank account.
3 Bought goods for cash Tshs550,000.
4 Bought goods on credit from: T Dry Tshs800,000; F Hood Tshs930,000; M
Smith Tshs160,000; G Low Tshs510,000.
5 Bought stationery on credit from Buttons Ltd Tshs89,000.
6 Sold goods on credit to: R Tong Tshs170,000; L Fish Tshs240,000; M Singh
Tshs326,000; A Tom Tshs204,000.
8 Paid rent by cheque Tshs220,000.
10 Bought fixtures on credit from Chiefs Ltd Tshs610,000.
11 Paid salaries in cash Tshs790,000.
14 Returned goods to: F Hood Tshs30,000; M Smith Tshs42,000.
15 Bought van by cheque Tshs6,500,000.
16 Received loan from B Barclay by cheque Tshs2,000,000.
18 Goods returned to us by: R Tong Tshs5,000; M Singh Tshs20,000.
21 Cash sales Tshs145,000.
24 Sold goods on credit to: L Fish Tshs130,000; A Tom Tshs410,000; R Pleat
Tshs158,000.
26 We paid the following by cheque: F Hood Tshs900,000; M Smith
Tshs118,000.
29 Received cheques from: R Pleat Tshs158,000; L Fish Tshs370,000.
30 Received a further loan from B Barclay by cash Tshs500,000.
30 Received Tshs614,000 cash from A Tom.

Question five
On 1 October 2014, the owner of the USS Enterprise, Mr Kirk, decided that he will
boldly go and keep his records on a double entry system. His assets and liabilities at
that date were:
Tshs
Fixtures and equipment 20,000,000
Stock including weapons 15,000,000
Balance at Universe Bank 17,500,000
Cash 375,000
Creditors – Spock 3,175,000
– Scott 200,000

11
 – McCoy 500,000
Kirk’s transactions during October were as follows:
1. Sold faculty phasers, original cost Tshs500,000 to Klingon Corp, for cash
Tshs5,000,000
2. Bought Photon Torpedoes (weapons), on credit from Central Council
Tshs2,500,000
3. Sold Stocks to Aardvarks, original cost Tshs250,000 on credit, Tshs1,500,000
4. Bought Cloaking Device (Fixture and Fittings) from Klingon Corp Tshs3,500,000
5. Paid the balance owed to Spock at 1 October less a 5% cash discount
6. Paid Central Council full amount due by cheque
7. Received full amount due from Aardvarks by cheque
8. Paid Klingon Corp by cheque after deducting 20% trade discount
9. Paid, by bankers order, Tshs10,000,000 for repairs to Enterprise following
disagreement over amount owing to Klingon Corp and faculty phasers.
Required:
Open Enterprise’s ledger accounts at 1 October, record all transactions for the
month, balance the ledger accounts, and prepare a trial balance as at 31 October

12
 CHAPTER FIVE

THE PREPARATION OF FINANCIAL STATEMENTS

Purpose of Financial Statements

Financial statements are a structured representation of the financial position and
financial performance of an entity. The objective of financial statements is to provide
information about the financial position, financial performance and cash flows of an
entity that is useful to a wide range of users in making economic decisions. Financial
statements also show the results of the management’s stewardship of the resources
entrusted to it. To meet this objective, financial statements provide information about
an entity’s:
a) Assets;
b) Liabilities;
c) Equity;
d) Income and expenses, including gains and losses;
e) Contributions by and distributions to owners in their capacity as owners; and
f) Cash flows.
This information, along with other information in the notes, assists users of financial
statements in predicting the entity’s future cash flows and, in particular, their timing
and certainty.

Preparation of Financial Statements

At this level we will learn how to prepare only two sets of financial statements which
are statement of profit or loss (income statement) and statement of financial position.

Statement of profit or loss (Income Statement)

 Is considered by many to be the most important financial report because it shows
whether or not a business achieved its profitability goal.
 Summarizes revenues earned and expenses incurred over a period of time.

Recommended Format
(NAME OF COMPANY)
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDING...

Sales xxxx
Less: sales returns/return inwards (xxx)
Net sales xxxx
Less: Cost of goods for sold:
13
 Opening stock xxxx
Add: Purchases xxxx
Less: Purchases returns (xxx)
Net purchases xxxx
Cost of goods available for sale xxxx
Less: Closing stock (xxx)
Cost of Goods sold (xxx)
Gross Profit xxxx
Add: income
Discount received xxxx
Commission received xxxx
Rent received xxxx xxxx
xxxx
Less: Operating Expense:
Sales salaries expense xxxx
Delivery expense xxxx
Office expenses xxxx
Depreciation expenses xxxx
Insurance expenses xxxx
Sales supplies expenses xxxx
Bad debts xxxx
Carriage outwards (xxxx) (xxxx)
Net Profit/Loss xxxx

Statement of Financial Position

 Shows financial position at a point in time.
 Presents a view of the business as the holder of resources, or assets, that are equal to
the claims against those assets.

Current / Non – Current Distinction

An entity shall present current and non – current assets, and current and non – current
liabilities, as separate classifications on the face of its statement of financial position.
Current Assets
An asset shall be classified as current when it satisfies any of the following criteria:
a) It expects to realise the asset, or intends to sell or consume it, in its normal
operating cycle;
b) It holds the asset primarily for the purpose of trading;
c) It expects to realise the asset within twelve months after the reporting period; or

14
d) The asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is
restricted from being exchanged or used to settle a liability for at least twelve
months after the reporting period.
 All other assets shall be classified as non – current

Current Liabilities
A liability shall be classified as current when it satisfies any of the following criteria:
a) It is expected to be settled in the entity’s normal operating cycle
b) It is held primarily for the purpose of being traded
c) It is due to be settled within twelve months after the statement of financial
position date

 All other liabilities shall be classified as non – current

Recommended format:
(NAME OF COMPANY)
STATEMENT OF FINANCIAL POSITION AS AT …

ASSETS
Non-Current Assets
Property, Plant and Equipment xxx
Other Tangible Assets (e.g. Investment Property) xxx
Intangible Assets xxx
Investments xxx
Total Non-Current Assets xxx

Current Assets
Inventories xxx
Trade and Other Receivables xxx
Other Current Assets xxx
Cash and Cash Equivalents xxx
Total Current Assets xxx
Total Assets xxx
OWNERS’ EQUITY & LIABILITIES
Ordinary Share Capital xxx
Preference Share Capital xxx
Other Reserves xxx
Retained Earnings xxx
Owners’ Equity of the Parent xxx
Total Owners Equity xxx
Non-Current Liabilities

15
 Long Term Borrowings (loan) xxx
Deferred Tax Liability xxx
Total Non-Current Liabilities xxx

Current Liabilities
Trade and Other Payables xxx
Short Term Borrowings xxx
Accruals xxx
Total Current Liabilities xxx
Total Owners Equity and Liabilities xxx

Illustration
Kikatio was in the business as a retailer and the following balances were extracted
from his books on 30 June 2012:

Tshs “000”
Capital (1 July 2011) 49,000
Drawings 16,100
Fittings & Equipment 7,600
Cash in hand (Petty Cash) 280
Purchases 222,020
Sales 304,320
Returns Outwards 1,580
Stock (1 July 2011) 40,300
Motor Vans 11,500
Wages 26,940
Rent & Rates 7,180
Water & Light 2,340
Cash at Bank 15,380
Sundry Expenses 3,960
Debtors 15,360
Creditors 19,200
Motor Van Expenses 7,380
Discount Received 2,240

You are required to prepare

(1) The Trial Balance as at 30 June 2012
(2) Income statement for the year ended 30 June 2012
(3) Statement of financial position as at that date, taking into account the closing stock valued at
Tshs 29,540,000

16
Feedback
Kikatio
Trial Balance as at 30 June 2012
DR CR
Tshs “000” Tshs “000”
Capital (1 July 2011) 49,000
Drawings 16,100
Fittings & Equipment 7,600
Cash in hand (Petty Cash) 280
Purchases 222,020
Sales 304,320
Returns Outwards 1,580
Stock (1 July 2011) 40,300
Motor Vans 11,500
Wages 26,940
Rent & Rates 7,180
Water & Light 2,340
Cash at Bank 15,380
Sundry Expenses 3,960
Debtors 15,360
Creditors 19,200
Motor Van Expenses 7,380
Discount Received 2,240
376,340 376,340

KIKATIO
INCOME STATEMENT FOR THE YEAR ENDED 31 JUNE, 2012

Tshs “000” Tshs “000”

Sales 304,320

Less: Cost of goods sold

Opening stock 40,300

Add: Purchases 222,020,000

Less: Returns outward (1,580,000) 220,440

17
Cost of goods available for sale 260,740

Less: Closing stock 29,540 231,200

Gross profit 73,120

Add: Income

Discount received 2,240

75,360

Less: Expenses

Wages 26,940

Rent & rates 7,180

Water & light 2,340

Sundry expenses 3,960

Motor van expenses 7,380 47,800

27,560

KIKATIO
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE,2012
ASSETS
Non-current assets Tshs “000” Tshs “000”
Fittings & equipment 7,600
Motor vans 11,500 19,100
Current assets
Stock 29,540
Debtors 15,360
Cash at bank 15,380
Cash in hand 280 60,560
79,660
EQUITY AND LIABILITIES
Capital 49,000
Add: Net profit 27,560
76,560
Less: Drawings (16,100) 60,460
18
Current liabilities
Creditors 19,200
79,660

19
Comprehensive illustration (Attempt after completing next three chapters)

The following is the schedule of balance as 31/3/2012 extracted from the books of
ALINANUSWE, who carries on business:

  T.SHS. T. SHS.
Cash in hand 114,000.00  
Cash at bank 70,000.00  
Sundry Debtors 860,000.00  
Stock as on 1/4/2011 620,000.00  
Furniture & fixtures 214,000.00  
Office equipment 160,000.00  
Buildings 600,000.00  
Motor car 200,000.00  
Sundry creditors   430,000.00
Loan from Veron 300,000.00
Provision for bad debts   30,000.00
Purchases 1,400,000.00  
Purchase returns   26,000.00
Sales   2,300,000.00
Sales returns 42,000.00  
Salaries 110,000.00  
Rent for godown 55,000.00  
Interest on loan from Veron 27,000.00  
Rates and taxes 21,000.00  
Discount allowed to debtors 24,000.00  
Discount received from creditors   160,000.00
Freight on purchases 12,000.00  
Carriage outwards 20,000.00  
Drawings 120,000.00  
Printing and stationery 18,000.00  
Electric charges 22,000.00  
Insurance premix 55,000.00  
General office expenses 30,000.00  
Bad debts 20,000.00  
Bank charges 16,000.00  
Motor car expenses 36,000.00  
Capital   1,620,000.00
TOTAL 4,866,000.00 4,866,000.00

20
Adjustment:

1. Depreciate
a) Building used for business by Tshs. 30,000
b) Furniture and fixtures by 10%. One steel table purchased during the year
for Tshs. 14,000 was sold for same price but the sales proceed was
wrongly credited to sales account.
c) Office equipment by 15%. Purchases of a typewriter during the year for
Tshs. 40,000 have been wrongly debited to purchases.
d) Motor car Tshs. 40,000
2. Value of stock at the close of the year was Tshs. 440,000
3. One month rent for godown is outstanding
4. One month salary is outstanding
5. Interest on loan from Veron is payable at 12% p.a. This loan was taken on
1/5/2011.
6. Provision for bad debts is to be maintained at 5% of sundry debtors
7. Insurance charges cover the period from 1/4/2011 to 30/6/2012
Required
Prepare statement of comprehensive income for the year ended 31/3/2012 and the
statement of financial position as at that date after taking into account all adjustments.

Feedback

ALINANUSWE
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDING 31/03/2012
Sales 2,300,000
Less
: Sales Return 42,000
2,258,000
Less
: Cost of Goods Sold
Opening Stock 620,000
Add
: Purchases 1,400,000
Add
: Freight on Purchases 12,000
1,412,000
Less
: Purchase Return 26,000 1,386,000
2,006,000
Less Closing Stock 440,000 1,566,000

21
 :
GROSS PROFIT 692,000
Add
: Discount Received 160,000
NET GROSS PROFIT 852,000
Less
: Expenses
Depreciation
Building 30,000
Furniture & Fixtures 21,400
Office Equipment 24,000
Motor Car 40,000
Rent for Godwon 55,000
Add
: Outstanding Rent for Godwon 5,000 60,000
Salaries 110,000
Add
: Outstanding Salary 10,000 120,000
Interest on Loan 27,000
Add
: Outstanding Interest 6,000 33,000
Provision for Baddebts 13,000
Insurance Charges 55,000
Less
: Prepaid Insurance 11,000 44,000
Rates and Taxes 21,000
Discount Allowed 24,000
Carriage Outward 20,000
Printing and Stationery 18,000
Electric Charges 22,000
General Office Expenses 30,000
Bad debts 20,000
Bank Charges 16,000
Motor Car Expenses 36,000 592,400
NET PROFIT 259,600

ALINANUSWE
STATEMENT OF FINANCIAL POSITION AS AT 31/03/2012
ASSETS
Tangible Non-Current Assets
Buildings 600,000
Less
: Depreciation 30,000 570,000

22
 Furniture and Fixtures 214,000
Less
: Depreciation 21,400 192,600
Office Equipment 160,000
Less
: Depreciation 24,000 136,000
Motor Car 200,000
Less
: Depreciation 40,000 160,000
Net Tangible Non-current Assets 1,058,600
Current Assets
Stock 440,000
Sundry Debtors 860,000
Less
: Provision for Bad debts 43,000 817,000
Prepaid Insurance 11,000
Cash in Hand 114,000
Cash at Bank 70,000 1,452,000
2,510,600
Liabilities
Sundry Creditors 430,000
Outstanding Rent 5,000
Outstanding Salary 10,000
Outstanding interest on loan 6,000 451,000
NET ASSETS/EQUITY
Capital 1,620,000
Add
: Net Profit 259,600
1,879,600
Less
: Drawings 120,000 1,759,600
Loan from Veron 300,000
2,510,600

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Test Yourself
The financial affairs of Newbegin Tools prior to the commencement of trading were as
follows.

NEWBEGIN TOOLS
STATEMENT OF FINANCIAL POSITION AS AT 1 AUGUST 2015

Non-current assets
Motor vehicle 2,000
Shop fittings 3,000
5,000
Current assets
Inventories 12,000
Cash 1,000
18,000

Capital 12,000
Current liabilities
Bank overdraft 2,000
Trade payables 4,000 6,000
18,000

At the end of six months the business had made the following transactions.
a) Goods were purchased on credit at a list price of shs 10,000.
b) Trade discount received was 2% on list price and there was a settlement discount
received of 5% on settling debts to suppliers of shs 8,000. These were the only
payments to suppliers in the period.
c) Closing inventories of goods were valued at shs 5,450.
d) All sales were on credit and amounted to shs 27,250.
e) Outstanding receivables balances at 31 January 2016 amounted to shs 3,250, of which
shs 250 were to be written off. An allowance for receivables is to be made amounting
to 2% of the remaining outstanding receivables.

f) Cash payments were made in respect of the following expenses.

shs
i. Stationery, postage and wrapping 500
ii. Telephone charges 200
iii. Electricity 600
iv. Cleaning and refreshments 150
g) Cash drawings by the proprietor, Alf Newbegin, amounted to shs 6,000.

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h) The outstanding overdraft balance as at 1 August 2015 was paid off. Interest charges
and bank charges on the overdraft amounted to shs 40.

Prepare the statement of profit or loss of Newbegin Tools for the 6 months to 31
January 2016 and a statement of financial position as at that date. Ignore
depreciation

Feed back
STATEMENT OF PROFIT OR LOSS
FOR THE SIX MONTHS ENDED 31 JANUARY 2016
Revenue 27,250
Cost of sales
Opening inventory 12,000
Purchases (note 1) 9,800
21,800
Closing inventory 5,450
16,350
Gross profit 10,900
Other income – discount received (note 2) 400
11,300
Expenses
Electricity (note 3) 600
Stationery, postage and wrapping 500
Irrecoverable debts written off 250
Telephone charges 200
Allowance for receivables (note 4) 60
Cleaning and refreshments 150
Interest and bank charges 40 1,800
Profit for the period 9,500

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Notes
1. Purchases at cost shs 10,000 less 2% trade discount.
2. 5% of shs 8,000 = shs 400.
3. Expenses are grouped into sales and distribution expenses (here assumed to be
electricity, stationery and postage, bad debts and allowance for receivables),
administration expenses (here assumed to be telephone charges and cleaning) and
finance charges.
4. 2% of shs 3,000 = shs 60. The preparation of a statement of financial position is not so
easy, because we must calculate the value of payables and cash in hand.

(a) Payables as at 31 January 2016

The amount owing to payables is the sum of the amount owing at the beginning of the
period, plus the cost of purchases during the period (net of all discounts), less the
payments already made for purchases.

Payables as at 1 August 2015 4,000

Add purchases during the period, net of trade discount 9,800
13,800
Less settlement discounts received (400)
13,400
Less payments to payables during the period* (7,600)
5,800
* shs 8,000 less cash discount of shs 400.

(b) Cash at bank and in hand as at 31 January 2016

You need to identify cash payments received and cash payments made.

(i) Cash received from sales

Total sales in the period 27,250
Add receivables as at 1 August 2015 0
27,250
Less unpaid debts as at 31 January 2016 3,250
Cash received 24,000

(ii) Cash paid

Trade payables (see (a)) 7,600

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 Stationery, postage and wrapping 500
Telephone charges 200
Electricity 600
Cleaning and refreshments 150
Bank charges and interest 40
Bank overdraft repaid 2,000
Drawings by proprietor 6,000
17,090

Note. It is easy to forget some of these payments, especially drawings.

(iii) Cash in hand as at 1 August 2015 1,000

Cash received in the period 24,000
25,000
Cash paid in the period (17,090)
Cash at bank and in hand as at 31 January 2016 7,910

(c) When irrecoverable debts are written off, the value of outstanding receivables must
be reduced by the amount written off. Receivables will be valued at shs 3,250 less bad
debts shs 250 and the allowance for receivables of shs 60 – ie at shs 2,940.

(d) Non-current assets should be depreciated. However, in this exercise depreciation

has been ignored.

NEWBEGIN TOOLS
STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 2016
Non-current assets
Motor vehicles 2,000
Shop fittings 3,000 5,000
Current assets
inventories 5,450
Receivables, less allowance for 2,940
receivables
cash 7,910 16,300
21,300
Capital
Capital as at 1 August, 2015 12,000
Profit for the period 9,500

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 21,500
Less drawings 6,000
15,500
Current liabilities
Trade payables 5,800
21,300

The opening bank overdraft was repaid during the year and is therefore not shown at
the year end.

REVIEW QUESTIONS

Question one
The following trial balance has been drawn up by a trainee accounts clerk;
(a) Redraft the trial balance to show the correct entries.
Particular DR. CR.
Tshs “000” Tshs “000”
Capital 54,200
Drawings 10,000
Bank 5,000
Cash 700
Debtors 9,500
Creditors 4,000
Wages 16,200
General expenses 25,300
Carriage inwards 800
Carriage outwards 1,200
Purchase returns 900
Sales returns 600
Discount allowed 2,200
Discount received 1,400
Sales 95,400
Purchases 60,400

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 Motor vehicle 40,500
Stock as at 1st September 6,000
Accumulated depreciation 22,500
197,200 159,600

(b)From (a) above prepare Statement of Comprehensive Income.

(c) Prepare Statement of Financial Position

Question two
The following trial balance is extracted from the books of a merchant on 31 st December
2009.
Particulars Debit “000” Credit “000”
Furniture and fittings 640
Motor vehicles 6,250
Buildings 7,500
Capital 12,500
Bad debts 125
Provision for bad debts 200
Sundry debtors and creditors 3,800 2,500
Stock on January 1, 2009 3,460
Purchases and sales 5,475 15,450
Bank overdraft 2,850
Sales and purchases returns 200 125
Advertising 450
Interest 118
Commission 375
Cash 650
Taxes and insurance 1,250
General expenses 782
Salaries 3,300
34,000 34,000
The following adjustments are to be made:
a) Stock in hand on 31st December 2009 was Shs 3,250,000
b) Depreciate buildings @ 5%, furniture and fittings @ 10% and motor vehicles @
20%
c) Shs 85,000 is due for interest on bank overdraft.
d) Salaries Shs. 300,000 and taxes Shs. 120,000 are outstanding.

29
 e) Insurance amounting to Shs. 100,000 is prepaid.
f) One – third of the commission received is in respect of work to be done next
year.
g) Write off a further Shs. 100,000 as bad debts and provision for bad debts is to be
made at 5% on sundry debtors.
h) Purchases included purchases of furniture Shs. 200,000 on January 1, 2009.
Prepare an income statement for the year ending 31 st December 2009 and the statement
of financial position as on that date.

Question three
The following trial balance has been extracted from the ledger of Zabdiel a sole trader
as at 31 December 2012, the end of his most recent financial year.

ZABDIEL Co. LTD

TRIAL BALANCE AS AT 31 DECEMBER 2012
Account title Dr “000” Cr “000”.
Property at cost 90,000
Equipment at cost 57,500
Accumulated depreciation on property 12,500
Accumulated depreciation on equipment 32,500
Stock as at 31 December 2011 27,400
Purchases 259,600
Sales 405,000
Discounts allowed 3,370
Discount received 4,420
Wages and Salaries 52,360
Bad debts 1,720
Loan interest 1,560
Carriage out 5310
Other operating expenses 38,800
Trade debtors 46,200
Trade creditors 33,600
Provision for bad debts 280
Cash on hand 151
Bank overdraft 14,500
Drawings 28,930

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 13% loan 12,000
Capital as at 31 December 2011 98,101
612,901 612,901

The following additional information as at 31 December 2012 is available:

i. Stock as at close of business was valued at Tshs. 25,900,000
ii. Depreciation for the year ended 31December has to be provided for as follows:
- Property 1% depreciation
- Equipment 15% depreciation
iii. Wages and salaries accrued by Tshs.140,000.
iv. Other operating expenses include certain expenses prepaid by Tshs. 500,000.
v. Other expenses included under this heading are accrued by Tshs. 200,000
vi. The provision for bad debts is to be adjusted so that it is 0.5% of the debtors as at
31 December 2012
vii. Purchases include goods valued at Tshs.1,040,000 which were withdrawn by Mr.
Raymond for his own personal use.

Required:
(i) Prepare Mr. Peter’s income statement for the year ended 31 December 2012.
(ii) His statement of financial position as at 31 December 2012.

Question four
Meshack Company, in his first year of operation, has come up with a trial balance for
the year ended 31 March 2012. Mr Meshack, being unfamiliar with accounts, has only
managed to come up with a trial balance and a net profit figure for the company. He
knows that your F.A teacher in school has finished teaching the Statement of Financial
Position today. He would like to seek your help in answering his queries below and to
draw up a Statement of Financial Position as at 31 March 2012, based on the figures in
the trial balance.

Meshack Company Company

31
 Trial Balance for the period ended 31 March 2012
Dr CR

Capital 100,000,000
Fixtures and Fittings 55,000,000
Furniture 48,000,000
Cash 56,000,000
Sales 106,727,000
Purchases 46,500,000
Creditors – Sam & Company 7,000,000
- Goh & Company 5,690,000
Debtors 5,678,000
Utilities 1,450,000
Rent 6,789,000
219,417,000 219,417,000

Additional Information:
1. The closing stock is T.shs 4,635,000.
2. The net profit figure is Tshs 56,623,000.

Mr Meshack Company asked:

1. What are the non-current assets in my company?
2. What are the current assets in my company?
3. Where should I place my creditors in the statement of financial position?
4. Please draw up the statement of financial position for me.

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