CHAPTER 7

CURRENT ASSETS

PRACTICAL EXAMPLE
Lexi Enterprises does business selling electric motors. The opening balances on
1 January 200X are as follows:

Bank (favourable) R480 000

Petty cash R 500
Debtors R125 000
Trading inventory R385 000
Stationery on hand R 12 500

On 3 December 200X, Lexi Enterprises purchased 20 new electric motors for R315 000 and
paid by cheque. They also ordered parts from Spares for Africa on the same day, amounting
to R85 000, and undertook to immediately transfer the amount electronically. The receptionist
purchased refreshments amounting to R6 000 on 12 December 200X for the upcoming festive
season and paid by cheque. On 15 December 200X, Potch Stationery held a sale and she
purchased stationery to the value of R5 000 and paid by cheque. On 20 December 200X, the
entity sold electric motors amounting to R420 000 to a client, JL van Zyl. Half the amount was
paid on the same day, while the balance is to be paid on 31 January 200Y. Mr van Zyl received
5% discount on the portion that was paid in cash. A new policy of the entity is to make an
allowance for credit losses at 5% of outstanding debtors at year-end. No allowance was
created during the previous financial year. The entity maintains a petty cash float of R500.
During December 200X, the following expenses were paid from petty cash:

• R200 for coffee, milk and sugar; and

• R50 for donations.

The following inventory was on hand at year-end:

• Trading inventory R435 000

• Stationery R 8 500

We will now complete the following:

1. the general journal for the year ending 31 December 200X;

2. the general ledger for the year ending 31 December 200X; and
3. the abbreviated trial balance on 31 December 200X.
PRACTICAL EXAMPLE – ANSWER SHEET

LEXI ENTERPRISES
GENERAL JOURNAL J1
FOL DR CR

200X R R
Jan 1 Cost of sales
Trading inventory
Transfer opening inventory to cost of sales
Stationery (expense)
Stationery on hand
Transfer opening inventory to Stationery
Dec 3 Purchases (electric motors)
Purchases (parts)
Bank
Purchased trading inventory
12 Refreshments (expense)
Bank
Purchased refreshments for festive season
15 Stationery
Bank
Purchased stationery
20 Bank (R420 000 ÷ 2 = R210 000 × 95%)
Debtors control (R420 000 ÷ 2)
Sales
Sale of goods for cash and on credit. 5% cash discount
allowed on cash portion.
31 Credit losses (335 000 × 5%)
Allowance for credit losses
Create allowance for credit losses at 5% of outstanding
debtors
31 Refreshments
Donations
Petty cash
Expenses paid from petty cash
31 Petty cash
Bank
Petty cash imprest restored
 LEXI ENTERPRISES
GENERAL JOURNAL J2
FOL DR CR

200X R R
Dec 31 Trading inventory
Stationery on hand
Cost of sales
Stationery (expense)
Transfer closing inventory and stationery balances
31 Cost of sales
Purchases
Transfer purchases to cost of sales

LEXI ENTERPRISES
GENERAL LEDGER
DR DEBTORS CONTROL (CURRENT ASSET) CR
200X
Jan 1 Balance b/f
Dec 20 Sales J1

DR ALLOWANCE: CREDIT LOSSES (DEDUCT FROM DEBTORS IN SFP) CR

200X
Dec 31 Credit losses J1

DR TRADING INVENTORY (CURRENT ASSET) CR

200X 200X
Jan 1 Balance b/f Jan 1 Cost of sales J1
Dec 31 Cost of sales J2 Dec 31 Balance c/f

200Y
Jan 1 Balance b/f
DR STATIONERY ON HAND (CURRENT ASSET) CR
200X 200X
Jan 1 Balance b/f Jan 1 Stationery J1
Dec 31 Stationery J2 Dec 31 Balance c/f

200Y
Jan 1 Balance b/f

DR BANK (CURRENT ASSET) CR

200X 200X
Jan 1 Balance b/f Dec 3 Purchases J1
Dec 20 Sales J1 12 Refreshments J1
15 Stationery J1
31 Petty cash J1
Balance c/f

200Y
Jan 1 Balance b/f

DR PETTY CASH (CURRENT ASSET) CR

200X 200X
Jan 1 Balance b/f Dec 31 Refreshments J1
Dec 31 Bank J1 Donations J1
Balance c/f

200Y
Jan 1 Balance b/f

DR SALES (INCOME) CR
200X
Dec 20 Bank J1
Debtors control J1

DR PURCHASES (EXPENSE) CR
200X 200X
Dec 3 Bank J1 Dec 31 Cost of sales J2
DR STATIONERY (EXPENSE) CR
200X 200X
Jan 1 Stationery on hand J1 Dec 31 Stationery on hand J2
Dec 15 Bank J1 Balance c/f

200Y
Jan 1 Balance b/f

DR REFRESHMENTS (EXPENSE) CR
200X
Dec 12 Bank J1
31 Petty cash J1

DR DONATIONS (EXPENSE) CR
200X
Dec 31 Petty cash J1

DR CREDIT LOSSES (EXPENSE) CR

200X
Dec 31 Allowance: Credit
J1
losses

DR COST OF SALES (EXPENSE) CR

200X 200X
Jan 1 Trading inventory J1 Dec 31 Trading inventory J2
Dec 31 Purchases J2 Balance c/f

200Y
Jan 1 Balance b/f
LEXI ENTERPRISES
ABBREVIATED TRIAL BALANCE
ON 31 DECEMBER 200X
FOL DR CR

R R
Debtors control
Allowance: Credit losses
Trading inventory
Stationery on hand
Bank
Petty cash
Sales
Cost of sales
Stationery
Refreshments
Donations
Credit losses
xxxxx xxxxx

The trial balance will not balance as only certain accounts are shown for explanation
purposes.