Basic Account Nc Final Copy

HOW
TO
PASS
BASIC ACCOUNTS
Page 1 of 49
TABLE OF CONTENTS
CHAPTER/TOPIC PAGE
1. General information ...................................................................................................3
2. Accounting equation ...................................................................................................5
3. Double entry system....................................................................................................6
4. Books of Accounts .......................................................................................................8
5. Cash books..................................................................................................................12
6. Petty Cash ...................................................................................................................16
7. Bank Reconciliation ....................................................................................................20
8. Final Accounts of a sole trader....................................................................................24
9. Adjustments before final accounts.............................................................................29
10. Trial balance and Errors.............................................................................................34
11. Control Accounts.........................................................................................................37
12. Partnership Accounts .................................................................................................40
13. Manufacturing Accounts.............................................................................................44
14. Incomplete records.....................................................................................................47
Page 2 of 49
CHAPTER ONE (1)
GENERAL INFORMATION
Terms used in accounting
i) Bookkeeping is the systematic recording of all business transactions in the books of accounts of
a business.
ii) Transaction refers to any receiving of and giving away of anything of monetary value by a
business.
iii) Accounting is the preparation, analysis and interpretation of financial statements, reports and
bookkeeping records to provide information to managers for decision making.
iv) Business refers to any artificial person created by law to generate money for an entrepreneur
operating through human beings. It should be noted that a business should operate distinctively
from the owner
v) Capital is the money which is provided and used by the business owner to start a business. This
can be cash or kind as long as can be expressed in monetary terms.
vi) Drawings refer to anything of monetary value taken by the business owner for personal use e.g
cash, purchases.
vii) Purchases are goods bought for resale
viii) Sales are receipts from goods bought for resale
ix) Expenses are expenditure incurred a business. Can be capital expenditure e.g. purchase of
fixed assets (Motor vehicles, buildings) or Revenue expenditure ( incurred for the day to day
running of business) eg salaries, wages etc
Capital expenditure is a non allowable deduction when calculating net profit. The expense is
spread over the life span of the asset as depreciation.
Revenue expenditure is an allowable deduction in the year it is incurred
x) Profit is the excess of sales and other revenues over total expenses of the business. Loss is the
opposite of profit.
xi) Assets are economic resources owned by the business. These are used in running the business.
Can be:
a) Current assets are in form of cash or can be easily turned into cash e.g. debtors,
stock
b) Fixed assets which cannot be easily turned into cash and are used by the business for
more than one trading period e.g. Buildings, Vehicles
xii) Liabilities are borrowings of a business from service providers. Can be
Page 3 of 49
a) Current liabilities are liabilities payable within one year e.g. creditors for goods, Bank over-
draft and any unpaid expenses.
b) Long term liabilities are liabilities payable after a period of one year e.g. Bank Loans
xiii) Double entry principle is a system in accounts which states that each transaction must be
recorded twice in the books of accounts. It says for every transaction there are two parties
involved, the giver and receiver. Is the golden rule in accounts. Dr Receiver Cr Giver.
xiv) Books of original entry are books in which transactions are recorded before posting (recording)
in the ledger(s). Are also known as subsidiary or prime books
xv) Ledger is the main book of accounts in which double entry system is completed.
xvi) Debit is the left side of the ledger. Is the receiving side of any account
xvii) Credit is the right side of the ledger. Is the giving side of any account
xviii) Trial balance is a list of assets and liabilities at any given date preferably at year end. Assets are
listed on the debit side while liabilities on the credit side. If all entries and recordings are correct,
the debit side must be equal to the credit side.
The trial balance can be used for the following purposes:

a) Checking arithmetic accuracy
b) Identifying incomplete double entry
The difference between bookkeeping and accounting

a) Bookkeeping is the mere recording of business transactions in the books of accounts and drafting of
financial statements. Financial statements include Trading, and Profit and Loss Account and Balance
Sheet.
b) Accounting goes further than recording. It involves analysis and interpretation of financial
statements so as to deduce meaningful information, which can be used for decision making.
Types of organisations
i) Sole trader or proprietorship
ii) Partnership
iii) Companies e.g. Bata, OK, TM, Air Zimbabwe etc
Companies can be divided into two classes:
a) Public Companies e.g. ZESA, COTTCO

b) Private Companies e.g. TM, OK
*Shareholders of companies enjoy limited liability.
iv) Commercial and industrial Co-operatives

v) Non –profit organisations e.g. churches, hospitals, social clubs¸ Jairos Jiri Association
PURPOSE OF AN ORGANISATION
a) To provide service and products
b) To generate profit
Why are books of accounts needed?

i) To have a summary of business transactions for use in future.
ii) Future reference
iii) To determine if the business is generating profit, growing or going down.
Page 4 of 49
CHAPTER TWO (2)
ACCOUNTING EQUATION
It shows the relationship of assets to capital and liabilities at any given time
a) Accounting equation before any borrowings

ASSETS = CAPITAL
b) Accounting equation after borrowings

ASSETS = CAPITAL AND LIABILITIES
ACCOUNTING EQUATION
ASSETS CAPITAL LIABILITIES

i) 3000 1500
ii) 5000 2000
iii) 7000 3500
iv) 2500 5500
What is the effect of the following on the accounting equation?

i) The owner introduced additional $2500 into the business
ii) Borrowed $4000 for use in the business
iii) Paid $300 to a creditor by cheque
iv) Withdrew $600 for business use
v) Sold goods on credit
vi) Received $3000 from a debtor
vi Owner withdrew $400 for personal use.
It should be noted that a change of status or nature of an asset do not change the entire equation.
Page 5 of 49
CHAPTER THREE (3)
DOUBLE ENTRY SYSTEM
Double entry principle says for every transaction there are two parties involved. Is the golden rule or dual
aspect in accounts.
a) The giver which is the giving account. Is credited (Cr)
b) The receiver which is the receiving account. Is debited (Dr)
Remember the following when recording transactions in ledgers

i) Each transaction must be recorded twice.
ii) Each party to the transaction is an account.
iii) Each account is created/opened once and recorded many times.
iv) Each account is divided into two sides:
a) Debit side(Dr) which is the left hand side
b) Credit side(Cr) which is the right hand side
v) For each transaction, what is given is what is received, hence identical amounts are written
down on each side of the accounts.
vi) Dr entry increases an asset and Cr entry reduces as asset
vii) Dr entry reduces a liability while a Cr increases
viii) Cr entry increases capital while a Dr entry reduces.
ix) Balance off the ledgers at the end of month or year.
NB When balancing the accounts or ledgers

a) The credit side and the debit sides of an account must balance (the totals , at the
bottom, must be the same or equal)
b) The side with a lesser amount should have the c/d balance
c) Do not leave unrecorded line within an account (Do not skip lines) on either side
d) The objective of balancing off is to calculate the remaining amount after transactions,
therefore an account with a single entry might not be balanced
Layout of an Account
Dr Name of Account Cr
Date Details F Amount Date Details F Amount
F stands for folio. A folio is the identification number of the receiving or giving account. This is necessary
for tracing and easy identification of affected accounts.
Record the following transactions in the ledger

i) 2013 January 15 Furniture worth $2000 is purchased for cash
ii) 2013 January 25 A motor vehicle is sold for $14000 cash
LEDGER BOOK
Furniture A/c (1)

2013 $
Jan 15 Cash 2 2000
Cash A/c (2)

Page 6 of 49
2013 $ 2013 $
Jan 25 Motor Vehicles 3 14000 Jan 15 Furniture 1 2000
Motor Vehicle (3)

2013 $
Jan 25 Cash 2 14000
Source documents
Sources documents are used as input when recording business transactions. The main source
documents required by a bookkeeper are:
i) The invoice can be the sales or purchases invoice
ii) The cash receipt book
iii) The cheque book
iv) The petty cash voucher
Question 1
You are required to write up the necessary accounts for the month of January 2019 from the following
information relating to Chipo a sole trade Balance off the accounts and extract a trail balance as at 31
January 2019
January1 Started business with capital, cash of $20000
2 Purchased goods from N Richards; cash $6000
4 Cash sales amounted to $2000.
6 Paid rent by cash $200
9 Deposited $8000 into a bank account with CBZ
10 Paid goods for resale by cheque $4500
12 Paid wages $2000 cash
14 Cash sales $1800
15 Paid carriage by cash $230
18 Bought goods on credit from OK $4000 ; N Richards $6000.
20 Cash $350 withdrawn from the bank for business use
21 Sold goods on credit to Martha $670
31 Paid electricity by cheque $600
Question 2
You are required to enter the following in the accounts of NK ltd for September 2017
1. Started business with $5000 cash
2. Paid $2300 of the cash into a bank
3. Bought goods on credit $450 from Hanga, Tsuro $650 and Mhara $850
4. Bought a motor van by cheque $500
5. Bought goods by cash $860
6. Sold goods on credit $300 to Moses, Jimmy $2500, and Sarah $900
7. Returned goods to Hanga $250 and returns from Jimmy $140
8. Sold goods for cash $200
9. Bought fixtures on credit KK equipment ltd $850
13 Paid Hanga $330 by cheque
14 Paid KK Equipment by cheque $500.
18 Bought goods for resale on credit from Tsuro $500, Mhara $650 and Shumba $350
19 Sold goods on credit to Jimmy $800 and Sarah $450
24 Paid water charges by cash $300
26 Withdrew cash $200 for personal use
28 Jimmy paid $200 by cheque and Sarah paid $350 by cash
Page 7 of 49
CHAPTER FOUR (4)
BOOKS OF ACCOUNTS
Books of accounts can be put into two groups:
a) The ledger is the main or principal books of accounts in which double entry system is completed.
The ledger is in a form of a” T” layout
Two main types of ledgers accounts are:

a) Personal accounts
b) Impersonal accounts
Personal accounts are accounts of people or business expressed in personal names e.g Mary
Capital A/c, John A/c. Are mostly found in the sales and purchases ledger
Impersonal accounts are accounts of things which are not people or business. There are two
types of impersonal accounts which are:
a) Real accounts for tangible objects e.g Motor Vehicles A/c

b) Nominal accounts of things which are intangible e.g expenses, revenues etc
b) Subsidiary books also known as books of original entry or prime entry. Is a horizontal presentation
of an account to be debited and credited supported with a suitable narration. Are there to help the
ledger.
Subsidiary Books are:

a) Purchases day book/Purchases Journal – used to record all goods bought on credit
b) Sales day book/Sales Journal-used to record all and only goods sold on credit
c) Purchases returns book – used to record all purchases returned to suppliers
d) Sales returns book – used to record all sales returns
e) The Journal/ General Journal -used to record all the other credit transactions which are not
recorded in the other subsidiary books explained above
f) The Cash book is the only subsidiary book in a ledger form. Records all cash and cheque
receipts and payments
g) Petty Cash book is an extension of the Cash Book which records all petty cash or small cash
payment using petty cash
NB i) *Totals for subsidiaries “b” to “g” are posted to the appropriate ledger in the
general ledger at the end of each month but posting to personal accounts is done on
the date of the transactions
ii) Amounts are records in journal after deducting trade discount if allowable
Layout of a day book/journal
Date Details Invoice F Amount

No
Page 8 of 49
ENTRIES IN SUBSIDIARY BOOKS
a) Purchases day book. Is the subsidiary book in which credit purchases are recorded before
posting to the purchases ledger and the general ledger.
Creditors (suppliers of goods on credit) are credited on the date when goods are supplied
and the Purchases A/c debited with total purchases at the end of the month, ie, the total is
transferred to the Purchases A/c in the purchases ledger. Eg
Purchases journal for the month of January 2013

No
Jan 1 TM Supplies 2 PL1 200
8 OK Supplies 3 PL2 300
31 Dr. Purchases A/c, Transfer to General Ledger GL5 500
B) Sales day book. Is the day book in which credit sales are recorded before posting to the sales
ledger and the general ledger. Debtors (customers to whom goods have sold on credit) are
debited and the Sales A/c is debited at the end of the month
Sales journal for the month of January 2013

No
Jan 1 Moses 2 SL1 300
9 John 3 SL2 300
31 Cr. Sales A/c, Transfer to General Ledger GL6 500
C) The entries in the Purchases returns journal

The creditors are debited and the purchases returns a/c is credited at the end of the
month.
D) The entries in the Sales returns journal

The customers are credited and the Sales returns a/c is debited at the end of the month.
E) Entries in the general journal or the journal are transferred immediately to the affected
accounts.
Reasons for having subsidiary books

i) To avoid overloading the ledger book with numerous daily credit transactions especially of
suppliers and customers
ii) The room for additional explanation in the day books
THE SUBSIDIARIES AND THE CORRESPONDING LEDGER BOOKS

SUBSIDIARY BOOK LEDGER BOOK
Cash book Cash book
Petty Cash book Petty Cash book
Purchases day book Purchases ledger & General ledger ie Purchases Ac
Sales day book Sales Ledger & General ledger ie Sales Ac
Purchases Returns book General Ledger
Sales returns book General Ledger
General Journal General Ledger
Purchases ledger contains accounts of credit suppliers
Sales ledger contains credit customers’ personal accounts.
Page 9 of 49
General ledger contains impersonal accounts such as those relating to expenses, fixed asset
and capital
NB In order to ensure privacy for the proprietor, the capital, drawings and other similar
accounts are sometimes kept in a Private Ledger
Exercises –, Trial Balance and Subsidiary books

Exercise 1
You are required to extract a trial balance for BB Lt as on 31 June 2015 using the following assets and
liabilities?
Premises $31 000, Motor Van $ 8 125, Fixtures $ 810, Inventory $6 390, Debtors: P Mull $ 140,
F John $ 310, Bank $ 6 240, Cash in hand $560. Liabilities: Creditors S Hondo $215, J Maria $460.
Capital $ 52 900.
Exercise 2
George Traders has the following credits purchases for the month of March 2012
2012
March 2 Bought from Moore Stores $800, James $700. No trade discount
15 Bought from Kelley $400
25 Purchased from Moore Stores $750, Kelly $700. All 5% trade discount
26 Returned to James $50, Moore $150
29 Bought from James $500 and Moore $350. All at 4% trade discount
Required:
a) Enter up the purchases day book and returns book for the month of March 2012
b) Post the items to the suppliers ‘ accounts
c) Transfer the total to the purchases account
Exercise 3
George Traders has the following credit sales for the month of March 2012
2012
March 10 Sold good to John $200, Moses $600.
18 Sold to Manda $900, Young $400, Charles $200
22 Returns from Manda $80, Moses $40
28 Sold to Moses $550, Young $600.
31 Returns from Young $30, Manda $10
Required
a) Prepare the sales days book and returns book from the above
b) Post the items to the personal accounts
c) Post the totals of the days books to the sales account
Exercises 4
Record the following details relating to M Moto , a sole trader, for the month of November 2010 via
journal entries, ledgers and extract a trial balance at 30 November 2010
2010
Nov 1 Started business with $20 000 in the bank
2 Bought goods on credit from: J Smart $290, F Brown $1200, T Ray $610, R Charles $530
4 Cash sales$ 610
` 6 Paid by cheque rent $175, business rates $130
12 Sold goods on credit to T Peter $ 85, J Fat $ 48, T Garikai $1640.
17 Paid wages by cash $290
18 We returned goods to J Smart $18, R Charles $27
19 Bought goods on credit from R Charles $110,T Ray $320, Jack $165.
20 Goods were returned to us by J Fat $6, T Peter $14
21 Bought Motor Van on credit from Torko Motors $ 4 950
23 We paid the following by cheque J Smart $272, F Brown $1200, T Ray $500
Page 10 of 49
25 Bought another van paying cheque immediately $6200
26 Received a loan of $750 cash from Barclays Bank
28 Received cheques from T Peter $71, J Fat $42
30 Proprietor brings a further $900 into the business payment into the business bank account
Question 5
You are required to write up the necessary accounts for the month of January 2013 from the following
information relating to a Kushinga Pvt. Then balance off the accounts and extract a trail balance as at 31
January 2013
January1 Started business with capital in cash of $2500
2 Bought goods on credit from the following Chipo $540;
Tanaka $870; Peter $250; Manyara$760; Cleo $640.
4 Sold goods on credit to Bata $430; Mati $620; Muka $1760.
6 Cash paid into the bank $800
7 Bought goods for resale on credit from Tanaka $400, Manyara $560
9 Bata paid us his account by cheque $430
10 Muka paid us his account by cheque $1500
11 Bought goods by cheque from Chipo $250, Richard $350
12 We paid the following by cheque: Peter$ 250; Chipo $540
15 Paid carriage by cash $230
16 Returns to Tanaka $150, and Cleo $80
18 Bought goods on credit from Tanaka $430; Manyara $1100.
21 Sold goods on credit to Mati $670
22 Cash sales received $3600
26 Cash sales paid directly into the bank $850
31 Paid rent by cheque $60
Page 11 of 49
CHAPTER FIVE (5)
THE CASH BOOK
Records major transaction that involve cash. The cash book contain two accounts the cash account and
the bank account. Small/minor transactions are recorded in the
petty cash.
Layout of cash book
DR Cr
DATE DETAILS F Disc CASH BANK DATE DETAILS F Disc CASH BANK
$ $ $ $ $ $
All receipts All payments
NB i) Dr - recording all cash/cheques received
ii) Cr –recording all cash/cheques paid
iii Discount allowed is recorded on the debit side of the Cash book while discount
received on the credit side.
The totals are transferred to the Discount allowed or received at the end of the month. The
Discount Allowed is debited and Discount Received is credited.
v) All received cash must be bank immediately.
vi) Folio gives a quick reference to other accounts mentioned in the details column. It shows
the name of the other account in a short form and the page number of the other account
that completes the double entry.
Balancing the cash book

Is done to know the available cash or bank after transactions
-Add up the amounts in each column
-Compare the Dr and Cr totals of Cash column to find the difference
-Compare the Dr and Cr total of Bank Column to find the difference
-The difference is called the balance c/d, on the side with the lesser amount
- No balancing for the discounts columns
Source documents for the cash book

Entries in the cash book are made from two source documents which are:
a) Receipt
b) Cheque counterfoil
The person who is in charge of the cash book is known as the cashier. From time to time, the
business receives cash/cheque for goods sold and pays cash/cheque for running expenses hence a
cash book has a receipt side and a payment side.
The receipt side is the receiving side which is the debit side (Dr) and the payment side is the giving
side which is the credit side (Cr)
The receipt (debit) side of the cash book

A firm receives money from many sources. Money received may be in the form of cash, postal order
or cheque. As a rule all money received must be deposited into the bank immediately.
The main sources are:
i) Goods sold for cash (cash sales)
ii) Capital introduced by the owner
iii) Sale of fixed assets
Page 12 of 49
iv) Debtors as they pay their debts
v) Interest received on savings deposits
.
The payment side of the cash book
From time to time a business incurs expenses which s must be paid for. Business expenses may
include salaries, electricity, water charges, rent, office stationery, purchases of goods etc All
payments are recorded on the credit side of the cash book.
Credit entries in the Cash Book

The Cash Book is credited for any payments made. These may include:
i) Fixed assets. Fixed include land and buildings, furniture, plant and machinery, fixtures and
fittings, motor vehicles etc. To complete double entry, fixed assets accounts are debited.
ii) Purchases, that is, goods for resale. vehicle,
iii) Business’ running expenses e.g rent payable, salaries, telephone, water, electricity etc In
order to complete the double entry each of these expense accounts in the ledger is debited.
i) For those expenses that are too small do not deserve opening a separate account, they are
usually referred to as Sundry Expenses or just Sundries. Examples of such sundries are
postage, typing pads and subscriptions. To complete the double entry the Sundry Expenses
Account or Sundry Account in the ledger is debited.
ii) From time to time, money is drawn from the business for the owner’s personal use. This is
known as drawings. It is necessary to show the reason for such drawings by giving more
information in recording the transaction.
For example : Drawings – cash for owner’s use, purchases for family use, payment of
proprietor’s pension, water, electricity, school fees etc .
In the ledger, the Drawings Account is debited.
Contra entries in the Cash Book

Are entries between the cash a/c and bank a/c within the cashbook.
Balancing the Cash Book

The example below illustrates how this is done.
20...
Jan 1 Capital paid into the business: Cash $3000 and Bank $ 5000
4 Bought goods for cash $930
5 Received a cheque for rent $350
6 Paid telephone by cash $130
7 Banked $100 cash
8 Sold goods for cash $700
9 Received a cheque from a debtor- M Gozo $800
10 The following paid their accounts less Mary account of $200 by cheque
less $4 cash discount and James account of $ 400 less 5% discount by cheque
17 Paid postages and subscriptions by cheque $350
24 Received a cheque for interest $176
25 Paid insurance premium by cash $75
26 Drawings – cheque for proprietor’s rent $180
27 Withdrew $200 cash from the bank
28 Paid salaries in cash $150 and used $450 cash to pay for children school fees.
29 Bought office furniture of $3500 by cheque less 10% discount
30 Sold a piece of old office furniture for cash $275
31 Paid sundries by cheque $82
Page 13 of 49
DR CASH BOOK Cr
DATE DETAILS F Disc CASH BANK DATE DETAILS F Disc CASH BANK
$ $ $ $ $
20.. 20..
Jan 1 Capital 3000 5000 Jan 3 Electricity 128
5 Rent Received 350 4 Purchases 930
7 Cash C 100 6 Telephone 130
8 Sales 700 7 Bank C 100
9 M Gozo 800 17 Postage & subscription 350
10 Mary 4 196 25 Insurance 75
10 James 20 380 26 Drawings 180
24 Interest received 176 27 Cash C 200
27 Bank C 200 28 Salaries 150
30 Off Furniture disp 275 28 Drawings 450
29 Office Furniture 350 3150
31 Sundries 82
31 Balance c/d 2340 2912
350 4175 7002
24 4175 7002
20..
Feb 1 Balance b/d 2340 2912
Exercises – cashbook
Exercise 1
Write up a cash book from these transactions and balance off at the end of the month
2012 October 1 Had cash in hand of $2130 and bank balance of $8500 $
2 Paid commission in cash 136
5 Deposited cash into the bank 200
8 Withdrew from bank for use in business 300
9 Bought goods for resale by cheque 3800
10 Paid a creditor, J Williams by cheque 978
10 Cash sales paid directly into bank 535
11 Sold land for cash 2150
12 R Tora paid us by cheque 750
13 Paid wages in cash 53
14 Paid for subscriptions in cash 50
17 Cash sales 896
23 Cash drawings by owner 500
24 Owner paid additional capital by cheque 1000
T Jones paid us by cash 150
Drawings by cheque for owner’s life assurance 85
26 Took $700 from cash till and deposited in bank 700
28 Paid rent in cash 160
Page 14 of 49
Exercise 2
Enter the following in the three –column cash book of a book supplier. Balance –off the cash book at the
end of the month and show the discounts in the general ledger.
2013
Sept 1 Balances brought forward: cash$ 420, bank$ 4900
2 The following paid us by cheque in each case deducting a 5% cash discount: S Banda $800,
Pindai $300, Hodd $400, Maritha $1040
3 Cash sales paid direct into the bank $740
6 We paid the following accounts by cheque, in each case deducting 10% cash discount Peters
$360, Ganda $960, Bhora $400
8 Withdrew cash from the bank for business use $350
10 Cash sales $1200
12 Banda paid us their account of $280 by cheque less & $4 cash discount
14 Paid wages by cash $ 540
15 We paid the following accounts by cheque Thomas $310 less cash discount $15, Dury $410
less cash discount $10
16 Bought fixtures by cheque$14000
17 Cash sale $980
Exercise 3
Write up a cash book from these transactions and balance off at the end of the month
2012 October 1 Balances cash: $2800 and bank balance of $7500 $
2 Receive commission in cash 130
5 Paid commission by bank 250
8 Withdrew from bank for use in business 500
9 Sold goods for cash 3500
10 Paid a creditor, Jones by cheque 900
10 Cash sales paid directly into bank 500
11 Sold machine for cash 2500
12 Receive cash from a debtor, John, paid us by cheque 750
13 Paid wages in cash 50
14 Paid for subscriptions in cash 250
17 Cash sales 8900
23 Cash drawings by owner for personal use 500
24 Owner paid additional capital by cheque 10000
Jim paid us by cash 150
Owner’s life assurance 1 80
26 Took $800 from cash till and deposited in bank
28 Paid rent in cash 360
30 Paid electricity by cheque 560
31 Transferred $8000 into bank account
Page 15 of 49
CHAPTE SIX (6)
PETTY CASH BOOK
Cash book previously discussed is maintained by the main cashier. The cash book is used to pay major
transactions. To relieve the main cashier from paying minor or significant, a petty cash book is used.
The petty cash book is then maintained by the petty cashier, who is a junior or secretary who lacks
accounting knowledge. The petty cash book is then used to pay small cash payments e.g postage
stamps, refreshments, etc. The petty cashier receives cash from the main cashier as reimbursement of
cash used.
The petty cash book is operated using the imprest system. This system involves reimbursing the petty
cashier of the amount she or he used during the period so up to the float. Float is the maximum
amount the cashier is expected to have or to use during a period.
The Petty Cash Book is made up of two main columns, one for receipts (debit side) and the other for
payment (the credit side). The receipts column is used for reimbursing the float. The payment side is
used for paying various petty expenses. The payment column is usually further divided into smaller
columns in order to give a breakdown of the petty expenses. This makes it easier to control cash
expenditure on each of the expenses. The posting details column shows the account in the ledger in
which the corresponding debit of the record will be found. This is done for those accounts that do not
fall in any of the given categories in the payment column. Below is an example of the Petty Cash Book
layout.
PETTY CASH BOOK (Page ***)

Dr Cr
RECEIPT F DATE DETAILS Voucher TOTAL POSTAGE COFFEES FUEL WAGES Ledger Ledger
No Folio Accounts
Let’s consider the example of the petty cashier who is given a float of $10 at the begin of January.
The petty cashier is authorised to pay expenses for postages, wages, fuel, drinks and sundry out the
float against proof of signed voucher for the month of January.
Date Voucher No Details Amount

2013 $
Jan 2 1 Stamps 2.40
3 2 Washing powder 3.60
4 3 Wages- overtime 3.90
5 4 Petrol and Lubricating oil 2.80
7 5 Envelopes 1.75
8 6 Sugar and milk 2.70
9 7 Petrol 3.50
11 8 Stationery 1.50
15 9 Soft drinks 2.40
16 10 Stamps 1.25
17 11 Paid James, Creditor 2.50
23 12 Wages – advances 2.60
26 13 Lubricating oil 3.10
27 14 Coffee 3.90
29 15 Powdered milk 1.10
31 16 Envelopes 2.90
Page 16 of 49
A mere glance at the transactions above shows that more than $10.00 was spent during the month
of January. This shows that each time the float was nearly finished; it was topped up by an amount
equal to the amount of money that had been spent so far. The basic idea behind the imprest system
is that irrespective of the amount of cash in hand at the end of a month, the float must be topped up
to that each month commences with a complete float. In our example above, we must enter the
transactions so that there is a complete float of $10 at the beginning of February. If a quick
arithmetic check is carried out, it appears that is was necessary to top up the float after the following
dates by the given amounts. The amount to be reimbursed at the end of the month in this case at
31 January is the total of the $1.10 +$2.90 = $4.00.
Drafting of a Petty Cash Book

The first thing is to decide the number of columns needed for each petty cash payment. In order to
this go through the whole exercise ad list the names of each transaction. In front of each transaction
indicate the number of times it appears in the exercise. This can be done by tallying. Try to group
items that are related to each other in some way. The transactions in our example can be analysed
as in the box below. In the case those expenses which appear more than once can be given a
column. Those that appear only once, such as washing powder and stationery, can have their
amount under sundry. For posting they are transferred to the General Account and Stationery
Account respectively.
CATEGORY FREQUENCY DATES AND ITEMS BOUGHT

Postages IIII Jan 1 stamps, Jan 7 envelopes, Jan 16 stamps, Jan 31 envelopes
Wages II Jan 4 wages-overtime, Jan 23 wages-advances
Fuel III Jan 5 petrol & lubricating oil, Jan 9 petrol, Jan 26 lubricating oil
Drinks IIII Jan 8 sugar & milk, Jan 15 soft drinks, Jan 27 coffee, Jan 29
powdered milk
Washing Powder I Jan 3
Stationery I Jan 11
The difference between the debit side and the credit side of the Petty Cash Book must always be equal to
the amount of the float at the end of the month. This indicates that each time the float ran down it was
topped up with an amount of money equal to what has been used for making payments so far. The expected
Petty cash book for data shown above is as follows
Page 17 of 49
PETTY CASH BOOK
Dr Cr
RECEIPT F DATE DETAILS Vou TOTAL POSTAGE WAGES FUEL DRINKS SUNDR Ledger Ledger
No Y Folio Account
s
2013 $ $ $ $ $ $
10.00 CB1 Jan 1 Cash
2 Stamps 1 2.40 2.40
3 Washing Powder 2 3.60 3.60
4 Wages 3 3.90 3.90
9.90 CB1 4 Cash
5 Petrol & Lubrics 4 2.80 2.80
7 Envelopes 5 1.75 1.75
7.25 CB1 8
8 Sugar & Milk 6 2.70 2.70
9 Petrol 7 3.50 3.50
11 Stationery 8 1.50 1.50
15 Soft Drinks 9 2.40 2.40
8.65 CB1 16 Cash
16 Stamps 10 1.25 1.25
17 James- Creditor 11 2.50 PL1 2.50
23 Wages 12 2.60 2.60
26 Lubricating Oil 13 3.10 3.10
8.20 CB1 27
27 Coffee 14 3.90 3.90
29 Powder Milk 15 1.10 1.10
31 Envelopes 16 2.90 2.90
41.90 8.30 6.50 9.40 10.10 5.10 2.50
7.90 CB1 31 Cash GL GL GL GL GL

31 Balalnce c/d 10.00
51.90 51.90
2013
10.00 Feb 1 Balance b/d
Checking the Petty Cash Book

If the Petty Cash Book is properly done:
i) The grand total of the payment equal the figure is the total payment columns. In our
example $8.30 +$6.50 +$9.40 +$10.10 +$5.10 +2.50 =$41.90.
ii) At the end of the month, the total cash on hand must be equal to the float, that is,
the petty cashier must be reimbursed with amount used so that can start with the
float.
iii) At the end of the month the grand total of the cash payments must be equal to the
value of the vouchers issued during the month.
If these three things do not happen, an error has been made and must be found and
corrected.
NB When balancing the petty cash book consideration should be take on whether the
reimbursement is at the beginning or end of the month
Posting to the ledger

As we did preciously with discounts in the cash book, so must the Petty Cash Book (PCB) be posted to
the ledger.
When posting, it is important to remember the rule of double entry. For every debit there must be a
corresponding credit, and for every credit the must be a matching debit entry. In our example, we
Page 18 of 49
post $39.30 to the credit side of the Petty Cash Account in the ledger. Amounts of payments which
fall within the given categories are posted to the debit sides of the relevant accounts. The amounts
of the other accounts that cannot be classified under the given categories are posted to the debit
sides of the relevant accounts in the ledger. In our example, the amount spent on washing powder is
debited in the General Account and the amount used to by stationery is debited in the Stationery
Account.
Exercises – Petty cash book

Exercise 1
The following is a summary of petty cash transactions of James (Pvt) for the month of March 2013
March 1 Receiver from Cashier $400 as petty cash float $
2 Postage 20
3 Travelling 15
4 Cleaning 20
5 Petrol for small vehicle 22
8 Travelling 25
9 Stationery 15
10 Cleaning 20
11 Postage 5
13 Travelling 22
15 Stationery 8
20 Cleaning 10
22 Postage 12
25 Petrol 20
26 Cleaning 15
28 Postage 5
30 Petrol 15
You are required to:
a) Rule up a suitable petty cash book and enter the above transactions
b) Enter the receipt of the amount necessary to restore the imprest and carry down the balance for
the commencement of the following month.
Exercise 2
Rule up the a petty cash book with analysis columns for office expenses, motor expenses, cleaning
expenses, and causal labour. The cash float is $600 and the amount spent is reimbursed on 30 June
2012 $
June 1 Black- causal labour 18
2 Letter headings 40
2 Ab Motor- motor repairs 60
3 Cleaning materials 10
6 Envelopes 10
8 Petrol 20
11 Petros – causal labour 15
12 Upton- cleaner 8
12 Paper clips 5
14 Petrol 10
16 Adhesive tape 6
16 Petrol 15
20 Motor taxation 80
21 F Look- casual labour 20
22 Upton – cleaner 25
25 Copy paper 10
26 General motor repairs 40
30 Tendai- causal labour 20
Page 19 of 49
CHAPTER SEVEN (7)
BANK RECONCILIATION
Types of bank accounts
Banks offers three main types of accounts which are Current Account, Fixed deposit account and
Savings account.
i) Current Account
Holders of this account can use cheque book for withdrawal. Mostly, this account do not
earn interest. It is possible for account holder to overdraw from their account. If that
happens interest is charged.
ii) Fixed Deposit Account. Sometimes known as time deposit account. Is a form of
investment. Earns interest. Withdrawal is possible after application or after a defined
period
iii) Savings Account. This type of account earns interest but less than fixed deposit account.
Withdrawal can be done without notice. Holders do not use cheque.
Relations between a Bank and its Customers

The relationship between a bank and its clients (customers) is that of a debtor and a creditor.
Customers are creditors in the books of the bank and the bank is a debtor. When customer deposits
cash into his/her account with a bank, that customer’s account is credited and the bank account is
debited. Therefore on a bank statement issued by banks, deposits by customers are credit entries
are on the bank statement corresponding to debit entries in the cash book and withdrawals by
customers are debit entries on the bank statement but are credit entries on the cashbook.
Deposits and withdrawals

Deposits in the cashbook are debit entries but are credit entries on the bank statement
Withdrawals in the cashbook are credit entries but are debit entries
Bank reconciliation statement

Is drawn at the end of the month or when a bank statement is received or request. The purpose of
this statement is to reconcile the difference between the bank statement (from the bank) and the
bank account of the cash book maintained by the business.
Causes of differences between the bank statement and the cashbook (bank column only) are:
a) Deposits not year credited , that is, deposits entered in the cashbook but not yet credited on the
bank statement by the bank
b) Unpresented cheques are cheques recorded/credited on the cashbook but not yet presented for
payment at the bank
c) Bank interests charged or received
d) Direct deposits
e) Standing order etc
Page 20 of 49
Steps when drawing a bank statement
i) Compare opening balance of the bank statement and the cash book. If different adjust
accordingly.
ii) Compare debit entries on the cash book against credit entries on the bank statement. Note non
common items
iii) Compare credit entries on the cash book against debit entries on the bank statement. Note none
common items
iv) Up-date the cash book with items on the bank statement but not on the cash book. Remember
debit entries in the bank statement are credit entries on the cash book and vice versa for credit
entries.
v) Use items in the cash book but not appearing on the bank statement to draw the bank
reconciliation statement.
Layout of a reconciliation statement
Balance as per cash book xxxx

Add Unpresented cheques xxx
xxxx
Less Deposits not yet credited xxx
Balance as per bank statement xxxx
Or
Overdraft as per cash book xxxx
Add Deposits not yet credited xxx
xxxx
Less Unpresented Cheques xxx
Balance as per bank statement xxxx
Page 21 of 49
Exercises
Exercise 1
The bank columns in the cash book for June 2007 and the bank statement for that month for D
Huges are as follows:
Cash book
2007 $ 2007 $
Jun 1 Balance b/d 1410 Jun 5 K Homes 180
7 J Martha 62 12 J Johns 519
11 Blessing 75 16 Susan 41
20 Wilson 224 25 B Dennis 22
30 G Bar 582 30 Balance c/d 1591
2,353 2.353
Bank Statement
2007 Dr Cr Balance
Jun 1 Balance b/d 1410
7 Cheque 62 1472
8 K Homes 180 1292
16 Cheque 75 1367
17 J Johns 519 848
18 Susan 41 807
28 Cheque 224 1031
29 SLM Standing order 52 979
30 Flynn: trader’s credit 64 1043
30 Bank charges 43 1000

Write the cash book up to date to take the above into account and then draw up the bank
reconciliation statement as on 30 June 2007.
Exercise 2
The following is the cash book (bank columns) of King Ltd for December 2012
2012 $ 2012 $
Dec 6 Pan 230 Dec 1 Balance b/d 1900
20 Hook 265 10 Lamb 304
31 Britten 325 19 Wilson 261
31 Balance c/d 1682 29 Cally 37
2502 2502
The bank statement for the month is:

2012 Dr Cr Balance
Dec 1 Balance 1900 O/D
6 Cheque 230 1670 O/D
13 Lamb 304 1974 O/D
20 Cheque 265 1709 O/D
22 Wilson 261 1970 O/D
30 T. Standing order 94 2064 O/D
31 F Ray ; trader credit 102 1962 O/D
31 Bank charges 72 2034 O/D
a) To up date the cash book
b) Draw up a bank reconciliation statement as on 31 December 2012
Page 22 of 49
Question 3
On 31 December 2016 the bank column of Rick ltd cash book showed a debit balance of $1500.00 while the
bank statement showed a credit balance of $2950.00.
A thorough check revealed the following:
i. Dividend of $240 was paid directly into the bank
ii. A fund refund of $260 had been collected by the bank
iii. Bank charges amounted to $30
iv. A direct debit of $70 subscription had been paid by the bank including a standing order for DSTV
of $200
v. Rick’s deposit account balance of $1400 was transferred into his bank current account only by
the bank
vi. Cheques to Risk of $250 and to John of $290 had been entered in the cash but had not been
presented for payment
vii. Cash and cheques amounting to $690 had been into the bank but not credited by end of the
year
Required
a) Updated cash book for the year
b) Bank reconciliation statement as at 31 December 2016
Question 4
Banda’s Cash book showed a negative balance of $1290 on 31 December 2019 but the bank statement
showed an overdraft of only $620.
A critical analysis of the cash book with the bank statement unearthed the following discrepancies:
i. An amount of $2740 paid into the bank hand not yet appeared in the bank statement
ii. Cheques amounting to $1 720 issued to creditors had not been presented to the bank for
payment
iii. A cheque for $420 received from J Jones which had been deposited into the bank had been
returned marked “Refer to Drawer”. No action had been take by Band to with this item
iv. The bank received a credit transfer (bank giro) $180 due to Bands from S & T consultants
v. Cash deposited into the bank amounting to $780 had been recorded in the cash book as if it was
withdrawn from the bank for office use.
vi. The following charges raised by the bank had not been recorded in the cash book:
Bank charges $160, Interest on overdraft $110
vii. The bank had credited Banda’s account with $640 in error
Required:
a) An updated cash book
b) A correctly headed statement to reconcile the adjusted cash book balance with the bank statement
balance
Page 23 of 49
CHAPTER EIGHT (8)
FINAL ACCOUNTS OF SOLE TRADER
At the end of every trading period, any type of business must prepare financial statements. Some of
the major financial statements are:
a) Income statement
b) Statement of financial position
Users of Financial Statements

1 Bankers- these are interested in business viability and financial position especially on Non-Current
Assets land and buildings and non-bonded assets.
2 Investors- Concerned with the profits, going concern and positive cash flow positions.
3 Customers- satisfaction of their needs by product availability.
4 Employees- employment costs and benefits and turnovers.
5 Suppliers – positive cash flows and cash operating cycles.
6 Environmentalists- profitability is not at the expense of the environment. They also look at
recycling, conversation and environment sustainability.
7 Government- Taxes and compliance with other regulatory issues.
Characteristics of good Financial Statements
Financial reports for businesses should be generally informative and made according to International
Accounting Standards, International Financial Reporting Standards, Generally Accepted Accounting Practice,
Companies Act Chapter 24:03 and Global Reporting Initiative Framework. There is a great need to focus on
making financial statements with following characteristics.
- Relevance. They should be relevant to stakeholders.
-Reliability. They should be accurate reliable for correct decision making by users.
-Understandable. Easy to comprehend by a business minded persons.
-Comparability. They should be comparable from year to year and with the industry.
-Timeliness. Financial Statements should be released at most 9 months after the cutoff date
according to the companies act 26:03.
Each financial Statement must disclose the following:

i) Name of the Company at the top
ii) Type of the financial statement
iii) Period covered by the financial statements
Income statement
This shows the financial performance of the company for the period. It is used to calculate the profit
or loss of the company.
It should be noted that the Trading and Profit and Loss Account is a combination of two accounts
namely:
a) Trading Account drawn to calculate the gross profit

Gross profit = Total revenue – Cost of Sale.
b) Profit and Loss account to calculate the net profit

Net Profit = Gross + other incomes – total operational expenses.
Page 24 of 49
TYPES OF BUSINESS EXPENSES
Business expenses can be:
a) Capital expenditure – is expenditure for acquiring fixed assets eg construction of buildings,
purchase of motor vehicles etc. These expenses are none allowable deductions when calculating
profit or loss. Their expenditure is spread over the period the asset is in use by the organisation
as depreciation.
b)` Revenue expenditure- are expenses for the day to day running of the business eg wages,
electricity, rent etc . These are allowable deduction during the period there are incurred.
Layout of the income statement
NAME OF THE COMPANY
Income statement for the year ended .....................................

Sales xxxx
Less Returns inwards xxx
xxxxx
Cost of Goods Sold
Opening Stock xxxxx
Purchases xxxxxx
Less Returns outwards xxx
xxxx
Add Carriage in wards xx___ xxxxx
xxxxx
Less Closing Stock xx xxx
Gross profit xxxx
Add Other income __xx
xxxxx
Less Expenses
Wages and Salaries xxx
Carriage out wards xxx
Advertising expenses xxx
Bad debts xx
Rent and Rates xxx
Electricity xxx
Provision for Depreciation xXx
Increase in provision for Bad Debts xxx xxxx Profit
xxxxx
NB The above must not overlap.
Statement of financial position is a financial statement which is drawn to show the financial position of the
business at the end of the trading period or at any given date. Is also known as a Statement of Financial
Position.
Remember the following when preparing the balance sheet:

i) Fixed Assets must be recorded in liquidity order starting with the least liquidity
ii) Also Current asset are recorded in liquidity order starting with the least liquidity
iii) Current liabilities are also in the same order
iv) Working capital is the difference between current assets and current liabilities.
v) The capital employed (Financed by) total should balance with the employment of capital (Asset
Side)
Page 25 of 49
Layout of statement of financial position
Name of Company
Statement of financial position as at .......................................................................................
Fixed Assets At Cost Less Accum Dep NBV
Land and Buildings xxxxx xxxx xxxx
Fixture and Fittings xxxxx xxxx xxxx
Motor Vehicles xxxxx xxxx xxxx
xxxxx xxxxx x xxxx
Intangible Assets
Goodwill xxx
Preliminary Expenses xxx xxxxx
xxxxxx
Current Assets
Inventory xxxxx
Accounts receivables less provision for doubtful debts xxxxx
Prepaid expenses- rent xxxxx
Bank xxxxx
Cash xxxxx
xxxxxx
Less Current liabilities
Creditors xxx
Expenses owing eg rent, electricity etc xxx
Bank overdraft xxx xxxxxx
Working Capital ............................................................................................................. xxxxxx
xxxxxx
Finance by
Capital xxxxx
Add/(Less) Net Profit (Loss) xxxx
xxxxx
Less Drawings (xxx)
xxxxx
Add Non Current Liabilities
Long term loan xxx
xxxxxx
Page 26 of 49
Exercise 1
The following is a trail balance of Novel ltd for the year ended 31 December 2011
Debit Credit
$ $
Cash 342
Bank 16 519
Capital 138 666
Drawings 8 425
premises 95 420
motor vehicles 16 594
General expenses 85
Purchases 119 832
Sales 190 576
Motor expenses 2 416
rent 1 894
salaries 56 527
Debtors 26 740
creditors 16 524
insurance 372
345 166 345 166
Stock at 31 December 2011 was 12 408

Required : Prepare a trading and profit and loss account for the year ended 31 December 2011
together with the balance sheet at that date
Exercise 2
The following trial balance has been extracted from the ledger of Maria , a sole trader
Trial Balance as at 31 December 2010

$ $
Sales 138 078
Purchases 82350
Carriage out 2933
Carriage in 2211
Drawings 7800
Rent, rates and insurance 6622
Postage and stationery 3001
Advertising 1330
Salaries 26420
Bad debts 877
Allowance for doubtful debts 130
Accounts receivable (Debtors) 12120
Accounts payable (Creditors) 6471
Cash in hand 177
Cash at bank 1002
Inventory as at 1 January 2010 11927
Equipment : at cost 58000
Accumulated depreciation 19000
Capital 53091
216770 216770
Inventory at the close of business has been valued at $13000
Required: Income statement for the year ended 31 December 2010 and balance sheet as at that date.
Page 27 of 49
Exercise 3
Mr Moses has been trading for some years as a sole trader. The following list of balances has been
extracted from his ledger as at 30 April 2012, the end of his most recent financial year.
$ $
Capital 84 000
Sales 280 000
Trade accounts receivable 24 000
Returns out 13 000
Provision/Allowance for doubtful debts 700
Discount allowed 2 000
Discount received 2 800
Purchases 132 000-
Returns inwards 5 600
Carriage out 4 500
Drawings 18 600
Carriage inwards 11 300
Rent, rates and insurance 15 300
Heating and lighting 11 200
Postage, stationery and telephone 2 400
Advertising 6 500
Salaries and wages 38 000
Bad debts 2 400
Cash in hand 700
Cash at Bank 5 000
Inventory as at 1 May 2011 15 000
Trade accounts payables 20 000
Fixtures and Fittings at cost 120 000
Provision for depreciation Fixtures and Fittings 62 000
Motor Vehicles at cost 80 000
Provision for depreciation Motor Vehicles 22 000
489 500 489 500
Inventory at the close of business was valued at 30 April 2012 $18000
Page 28 of 49
CHAPTER NINE (9)
ADJUSTMENTS BEFORE FINAL ACCOUNTS
Expected adjustments are given as additional information, that is, are not shown on the trial balance.
The trial balance show actual incurred expenses and received revenue as well as balances as per the
end of the previous year. What is shown on the trial balance may require adjustments when
preparing financial.
The main adjustments before final accounts are:
a) Depreciation
b) Provision for bad debts
c) Adjustments for prepaid and owings/accrual for expenses and/ or revenue
a) Depreciation of fixed assets

Depreciation is that part of cost of a fixed asset consumed during the period of use / it is the
loss of value of a fixed asset over a period of time
Fixed assets such land and building, motor vehicles, furniture and fittings, equipment etc are
expected to value over a period of time from the date of purchase.
Causes of depreciation
i) Physical factors such as wear tear, erosion, rusting rot and decay
ii) Economic factors eg obsolescence ( becoming outdated due to technological
changes) , inadequacy i.e. unable to meet the capacity of business growth
iii) Time factor a combination of physical and economic factors
METHODS OF CALCULATION DEPRECIATION

The major methods are
a) Straight line method/ fixed instalment method
b) Reducing balance method
Straight line method

The same amount of depreciation is charged in the profit and loss account . Two methods can be
used to calculate the depreciation which are:
i) Depreciation = Cost –residual value

Expected life span of the assets
ii) Depreciation = (Cost- residual value ) x a given %
Reducing balance method

Also known as the diminishing balance method
Depreciation = %(Cost-Accumulated Depreciation)
Page 29 of 49
b) Provision for bad debts
In addition to actual bad debts, some of the remaining debtors may fail to pay, there provision or
allowance should be made for an occurrence of such a thing.
Accounting for provision for bad debts

i) The initial or first provision for bad debts is subtracted as an expense in the Profit and Loss
ii) For subsequent provisions:

a) The increase in provision for Bad debts ,comparing with the previous year, is an expense
in the profit and loss account
b) A decrease in provision for bad debts, comparing with the previous year , is an income
in the profit and loss account
iii) In the Balance sheet, debtors under current assets are reduced with the provision for bad
debts without necessarily considering the issue of increase or decrease.
c) Accrued expenses at the end of the year

Accrued/owing expenses are added to the related expense when preparing the profit and loss
account. E.g rent owing is added to rent paid in the trial balance and the total is subtracted as
expense.
NB In the balance sheet, accrual or owings are current liabilities
d) Prepaid expenses at the end of the year

These are subtracted from the related expenses listed in the trial balance. The difference is
subtracted when preparing the profit and loss acc.
NB In the balance sheet, prepaid expenses are current assets.
Page 30 of 49
Exercises – Final statements
Exercise 1
The following trial balance has been extracted from the ledger of Banda, a sole trader
Trial Balance as at 31 December 2010

$ $
Sales 138 078
Purchases 82350
Carriage out 2933
Carriage in 2211
Drawings 7800
Rent, rates and insurance 6622
Postage and stationery 3001
Advertising 1330
Salaries 26420
Bad debts 877
Allowance for doubtful debts 130
Accounts receivable (Debtors) 12120
Accounts payable (Creditors) 6471
Cash in hand 177
Cash at bank 1002
Inventory as at 1 January 2010 11927
Equipment : at cost 58000
Accumulated depreciation 19000
Capital 53091
216770 216770
The following additional information as at 31 December 2010

a) Rent is accrued by $200
b) Rates have been prepaid by 800
c) Inventory at the close of business has been valued at 13000
d) The allowance for doubt debts has to be increased by $40
e) Equipment is to be depreciated at 10% per annum using the straight line method.
Required:
Income statement for the year ended 31 December 2010 and balance sheet as at that date.
Page 31 of 49
Exercise 2
Mr Chauruka has been trading for some years as a sole trader. The following list of balances has been
extracted from his ledger as at 30 April 2012, the end of his most recent financial year.
$ $
Capital 84 000
Sales 280 000
Trade accounts receivable 24 000
Returns out 13 000
Provision/Allowance for doubtful debts 700
Discount allowed 2 000
Discount received 2 800
Purchases 132 000
Returns inwards 5 600
Carriage out 4 500
Drawings 18 600
Rent, rates and insurance 15 300
Heating and lighting 11 200
Postage, stationery and telephone 2 400
Advertising 6 500
Bad debts 2 400
Cash in hand 700
Cash at Bank 5 000
Inventory as at 1 May 2011 15 000
Trade accounts payables 20 000
Fixtures and Fittings at cost 120 000
Provision for depreciation Fixtures and Fittings 62 000
Motor Vehicles at cost 80 000
Provision for depreciation Motor Vehicles 22 000
489 500 489 500
Additional information as at 30 April 2012
a) Inventory at the close of business was valued at 30 April 2012 $18000
b) Insurance have been prepaid by $1 200
c) Heating and lighting is accrued by $1 300
d) Rates have been prepaid by $5 000.
e) The allowance for doubtful debts to be adjusted so that it is 5% of trade debtors accounts receivable
after writing off additional bad debt of $4 000
f) Fixtures and fittings are depreciated at 10% on cost while Motor vehicles are depreciated at 20%
reducing balance method.
Required
Prepare Mr Chauruka’s income statement for the year ending 30 April 2012 and a balance sheet at that date.
Page 32 of 49
Question 3
Prepare income statement and financial position for Jimmy for the year 31 December 2018
Sales 40 445
Purchases 10 000
Carriage in 1 000
Sales returns 1 000
Inventory as at at January 2018 6 040
Provision for doubtful debts 330
Carriages on sales 2 100
Rates 200
Administration expense 5 070
Loan interest 600
Motor vehicles at cost 20 000
Buildings at cost (100 000) 60 000
Provision for depreciation: Motor Vehicles 4 900
Accounts receivable 14 000
Accounts payable 5 900
Loan from ZB bank 6 000
Bank 4 620
Drawings 6 050
Capital 67 895
130 090 130 090
Additional information
a) Inventory on 31 December 2018 $8000
b) Expenses outstanding , Administration $4210 and carriage outwards $800
c) Prepaid rates $80
d) Wages owing $200
e) Reduce the provision for doubtful debts to $300
f) Depreciate motor vehicles at 10% on cost and builidings 15% reducing balance method.
Page 33 of 49
CHAPTER TEN (10)
TRIAL BALANCE AND ERRORS
a) Errors not affecting the balancing of the trial balance
b) Errors affecting the balancing of the trial balance
a) Errors not affecting the balancing of the trial balance

Characteristics of such errors:
i) Do not affect balancing of the trial balance
ii) There is complete double entry system
Types of errors
1. Error of omission - is where a transaction is completely omitted from the books.

2. Error of commission - occurs when the correct amount is entered in the wrong personal
account. Common when accounts resemble each other in identity. Eg Sale of goods to W
Bhobho in W Bobo’s account
3. Error of principle - is where an item is entered in the wrong class account. Like error of
commission, common when accounts resemble each other in identity. Eg purchase of motor
vehicle recorded in the motor vehicle expenses.
4. Compensating errors – is where errors cancel out each other. eg A revenue account (sales,
discount received, rent receivable etc) overstated/understated by the same amount an
expense account is overstated or understated (purchases, rent, discount allowed) is
overstated
5. Errors of original entry - is where an incorrect figure is used to complete double entry. Eg
$2000 recorded as $200
6. Errors of transposition - is a form of error of original entry. Happens when wrong sequence
of numbers in a number resulting in the wrong number being used to complete double
entry. eg $212 used as $221
7. Complete reversal of entries - is when correct accounts are used but recorded on the
wrong side of the account, that is , the account to be debited is credited and to be credited
is debited.
Correction of errors
Is through journal entries, explaining the reasons for the correction, followed by posting to
the correct ledger accounts.
1. Error of omission - The omission is recorded in the appropriate ledger accounts

2. Error of commission – The entry is removed from the wrong personal and recorded in the
correct account
3. Error of principle - The entry is removed from the wrong type of account and recorded in the
correct account
4. Compensating errors – The overstatement/understatement is written off from both affected
accounts
5. Errors of original entry - The difference between the correct figure (amount) and the
incorrect figure is calculated. The difference is used to correct the incorrect figure in the
affected accounts
6. Errors of transposition – correction is just like error of original entry
7. Complete reversal of entries – correction is by doubling the figure and record in the
opposite sides of the original entry in the affected accounts
Page 34 of 49
b) Errors affecting the balancing of the trial balance
These errors include:

i) Arithmetical errors, that is, addition, subtraction, multiplication,& division
ii) Using different figures (amounts) to complete double entry. Can be the overstated
or understated of a single account
iii) Incomplete double entry or single entry.
The balancing of the trial balance is made possible by inserting the amount of the difference
between the debit and credit totals in a suspense account.
Correction of the errors

-Is through journal entries before posting to the ledger. The suspense account be one of the
corresponding account affected
When correcting, the nature of the error must be critically analysed to note if the error is not the
one which do not affect the trial balance.
Errors and the profit
a) An error affecting the balance sheet only do not affect the profit
b) An error which affects the income statement (P & L) figures do affect the profit hence the profit
must be adjusted accordingly
Exercises
Exercise 1
Identify the following errors, journalise the errors to correct them.
a) Sales of $2400 to A Moses were records in A Martha.
b) Purchases from B Shuku were not recorded in the books of accounts
c) Purchases of Motor Van, $25 000 was recorded in the motor vehicles expenses account
d) Purchases of $2300 on credit from Roy had been entered in Ray’s account
e)` A sale of fittings $300 had been entered in the Sales account
f) Purchase of goods $1100 has been entered in error in the Furniture Account
g) Cash withdrawn from bank $400 had been entered in the cash column on the credit side of the cash
book, and in the bank column on the debit side
Exercise 2
Identify the following errors and journalise them. Narrations are required.
a) Rent Received $300 have been credited to the Commission Received Account
b) Bank Charges $30 have been debited to the Business Rates Account
c) Completely omitted from the books is a payment of Motor Expenses by cheque $45
d) A purchase of a fax machine $250 has been entered in the Purchases Account
e) Returns inwards $210 have been entered on the debit side of the Returns Outwards Account
f) A loan from Bain $2500 has been entered on the credit side of the Capital Account
g) Goods take for own use $80 have been debited to the Purchases Account and credited to Drawings
Exercise 3
You extracted a trial balance for the year ended 31 December 2014. There was a shortage of $78 on the
credit side of the trial balance, a suspense account being opened for that amount.
During 2015 the following errors made in 2014 were found:

i) $125 received from sales of old office equipment has been entered in the sales account
ii)` Purchases day book had been overcast by $10
iii) A private purchase of $140 had been included in the business purchases.
iv) Bank charges $22 entered in the cash book have not been posted to the bank charges account
Page 35 of 49
v) A sale of goods to Kamba $230 was correctly entered in the sales book but entered in the
personal account as $320.
Required:
a) Identify errors in the above transactions
b) Show the requisite journal entries to correct the errors
c) Write up the suspense account showing the correction of the errors.
d) Adjustments on the profit shown in the final statements of $12100
Question 4
The trial of MM Pvt on 31 December 2017 failed to agree by $600 a shortage on the credit side. Suspense
was opened for the difference.
During the year ending 2018 the following errors made in 2017 were discovered:
i. Rent was undercast by $1000
ii. Purchase of a tractor $2000 had been debited to the purchases account
iii. Insurance account was overstated by $200
iv. Commission received $250 had been completely omitted from the books
v. Goods returned to Jimmy (a creditor) $800 was correctly entered in his account but not other entry was
made.
vi. Discount received $150 had been entered on the debit side of the discount allowed account
vii. Cash received from a debtor $300 was entered in the cash book only.
Required:
a) Show the journal entries to correct the errors
b) Write up the suspense account showing the correction of the errors
Exercise 5
The trial balance as at 30 April 2012 of T Product limited was balanced by the inclusion of the following debit
balance: Difference on trial balance suspense account $2 513
Investigations revealed the following errors:
i Discounts received of $324 in January 2012 have been posted to the debit of the discounts allowed
A/c
ii. Wages of $2 963 paid in February 2012 have not been posted from the cashbook
iii. A remittance of $940 received from K Mitt in November 2011 has been posted to the credit of B
Mcc
iv. In December 2011, the company took advantage of an opportunity to purchase a large quantity of
stationery at a bargain price of $2 000. No adjustments have been made in the accounts for the fact
that three- quarters, in value, of this stationery was in the inventory on 30 April 2012.
v. A payment of $341 to J Wat in January 2012 has been posted in the personal account as $143.
vi. A remittance of $3 000 received from D Nani, a credit customer, in April 2012 has been credited to
sales.
The draft accounts for the year ended 30 April 2012 of T Product Ltd show $12 346
Required: - Journal entries to correct the above errors
- Prepare the difference on trial balance suspense a/c showing, where appropriate, the
entries necessary to correct the accounting errors.
-Corrected net profit for the year ended 30 April 2012
Page 36 of 49
CHAPTER ELEVEN (11)
CONTROL ACCOUNTS
Control accounts are type of accounting controls used to quickly identify errors and fraud.
Purpose of and advantages of control accounts

-Help ensure that errors are minimized
-Used to identify errors and fraud
Types of control accounts

a) Sales Ledger control accounts also known as the Total Debtors’ Control account in which all
transactions with debtors (credit customers) or affecting debtors are recorded. Non-fund, eg
provision for bad debts, etc items are excluded.
b) Purchases ledger control accounts also known as the Total Creditors’ Control account in which all
transactions with creditors for purchase are recorded. Similarly, non-fund items are excluded.
Principles of control accounts

Total of opening balances xxxxxx
Add: Total of entries increased the opening balance xxxx
xxxxxx
Less: Total of entries which reduced the opening balance (xxxx)
Total closing balances xxxxxx
Expected entries in control accounts

Sales ledger (Total Debtor’s) Control Acc
Balance b/d (Debit balance) xxxxx Balance b/d (Credit balance) xxxx
Sales (Credit)/Sales journal xxx Receipts from credit customers xxxxx
Dishonoured cheques xxx Discount allowed xxx
Discount allowed disallowed xx Bills receivable/ Credit notes to customers xx
Dishonoured bills receivable xx Bad debts written off xxx
Refunds to credit customers xx Set off against purchases ledger xx
Charges on overdue accounts xx Returns inwards xx
Balance c/d (Credit balance) xx Balance c/d (debit balance) xxxxx
xxxxxx xxxxxx
Balance b/d (debit balance) xxxxx Balance c/d (Credit balance) xx
Purchases ledger (Total Creditor’s) Control Acc

Balance b/d (Debit balance) xxx Balance b/d (Credit balance) xxxxxx
Payments to credit suppliers xxxxx Credit purchases/Purchases journal xxx
Purchases returns xxx Dishonoured cheques to credit suppliers xxx
Discount received xxx Interest charged by credit suppliers xx
Set off against sales ledger xx Balance c/d (Debit balance) xxx
Balance c/d (credit balance) xxx
xxxx xxxxx
Balance c/d (Debit balance) xxx Balance c/d (credit balance) xxx
Page 37 of 49
NB: Credit notes can be used to correct over charge to debtors or returns inwards
Debit notes can be used to correct over by suppliers or returns outwards
Question 1
Prepare the Debtors Control and Creditors Control Accounts from the information given below for the year
ended 31 March 2015
Balances as on 1 April 2014

Sales ledger Debit Balance 55 600
Sales Ledger Credit balance 2 000
Purchases ledger debit balance 1 000
Purchases ledger Credit balance 45 100
Totals for the year ended 31 March 2015:

Credit sales 100 000
Cash sales 70 000
Credit Purchases 80 000
Cash purchases 55 000
Cash received from Debtors 85 250
Payments to Creditors 75 350
Debtors’ cheques dishonoured 5 100
Debit notes 350
Credit notes 150
Discount Received 1 500
Discount Allowed 2 400
Bad Debts written off 1 250
Bills receivable 6 000
Interest on Debtors overdue A/c 7 000
Bills payable accepted 2 500
Provision for bad debts 4 000
Dishonoured Bills payable 1 000
Debtors balance set off against creditors balance 400
Sales ledger Credit balance 350
Purchases ledger debit balance 500
Question 2
The trial balance of Richard Pvt (ltd) revealed a difference in the books. In order to locate the error(s), it was
decided to prepare purchases and sales ledger control accounts. From the following prepare the
control accounts and show where an error may have been made:
2015
January 1 Purchases ledger balances 11 800
Sales ledger balances 19 700
Total for the year 2015

Purchases journal 154 500
Sales journal 199 600
Returns outwards journal 2 600
Returns inwards journal 4 550
Cheques paid to suppliers 146 100
Cash paid to suppliers 1 200
Bills payable 8 600
Cheques and cash received from customers 185 900
Discounts received 2 130
Discounts allowed 5 830
Page 38 of 49
Dishonoured cheques from customers 8 500
Bad debts written off 5 500
Bills receivable 12 500
Bills receivable discounted 4 500
Dishonoured cheques honoured 2 500
Bad debts written off recovered 900
Balances on the sales ledger set off against balance
In the purchases ledger 2 130
Dec 31 The list of balances from the purchases ledger shows a total of $14 830 (Dr) and that from the
sales ledger a total of $22 200 (Cr)
Question 3
Page 39 of 49
CHAPTER TWELVE (12)
PARTNERSHIP ACCOUNTS
Partnership is refers to two to twenty people operating a business with the view to make profit with each
party contributing something into the business.
Characteristics of partnership
i. Is formed to make profits and each partner to enjoy the profits
ii. Must comply with the Partnership Act
iii. Partners are between two and twenty, except in professional partnership, the maximum can be
exceeded.
iv. Each partner must contribute capital (cash or kind) into the partner
v. Partners do not enjoy limited liabilities.
Why forming a partnership?

a) To meet financial requirements of the business
b) To avoid complicated procedures of forming a company
c) To share management of the business
Types of partnerships
a) General partnership in which partners do not enjoy limited liabilities
b) Limited partnerships are partnerships containing one or more limited partners, whose liabilities are
limited to capital contributed.
Partnership agreement
Contain issues partners agreed on about the running of the partnership. These include:
1. Capital to be contributed by each partner
2. How profits are to be shared between or among partners. (Profit sharing ratio)
3. Rate of interest on capital and drawings
4. Salaries to be paid to partners actively involved in the management of the business.
5. Procedures for admission of new partners
Financial statements of a partnership

Just like a sole trader, the statements are the Income statement and the balance sheet.
a) Income statement
After the net profit, there is a profit and loss appropriation account used to account for any
transactions between the partnership business and the partners. Layout as follows:
Net profit b/d xxxxxxx

Add: Interest on drawings : Peter xx
Moses xx xxx
xxxxxx
Less Salaries : Peter xx
Interest on capital Peter xx
Moses xx (xxx)
Profit to be shared xxxxx
Share of profits
Peter (3/5) xxxx
Moses (2/5) xxxx xxxxx
Page 40 of 49
b) Balance sheet
( Employment of capital section, just like that of a sole trader)
Financed by:
Capital Peter xxxxxx
Moses xxxxxx xxxxxxx
Current Account Peter Moses

Balance b/d xxx (xxx)
Interest on capital xx xx
Salary xx -
Share of profits xxx xxx
xxxx xxxx
Drawings (xxx) (xxx)
Interest on drawings (xx) (xx)
(xxx) (xxx)
xxxx xxxx xxxxx
xxxxxx
Capital and Current Accounts in Columnar form
Preparation of capital and current accounts can be in single form for each partner or can be in a columnar
form. The current accounts in columnar form can be as follows:
Current A/C
Peter Moses Peter Moses
Balance b/d xxxx - Balance b/d - xx
Drawings xx xxx Interest on capital xx xx
Interest on drawings xx xx Salary xxx xxx
Share of profits xxx xxx
Balance c/d xxx xxx
xxxxx xxxxx xxxxx xxxx
Where Current Accounts have been prepared separately from the balance sheet, only the balances are
included in the balance sheet
Types of capital accounts of a parntership
a) Fixed Capital Accounts are not affected by drawings, interest on drawings, interest on
capital, salary, share of profits etc. Such capital accounts are used in conjunction with current
accounts
b) Fluctuating Capital Accounts are affected by drawings, interest on drawings, interest on

capital, salary, share of profits etc. Not used in conjunction with current accounts
Page 41 of 49
Exercises
Question 1
Peter and Walter are in a partnership sharing profits and losses in the ratio 3:2. The following information
was taken from their books for the year ended 31 December 201X
Current accounts (1 January 201X) : Peter 880 (Cr)

Walter 340 (Dr)
Drawings: Peter $3800, Walter $2800

Capital : Peter $15 000, Walter $12000
Salary Peter: $2200

Net Profit for the year was $6 800.00
You are informed that interest on capital is 10% p.a and drawings 20%
Prepare for the year ended 31 December 201X

a) Profit and loss appropriation account of Peter and Walter
b) Current Accounts in columnar form
c) Balance sheet extract
Question 2
Tapiwa and Hazel are partners in a retail business sharing profits and losses equally. The following balances
were extracted from their books at 31 March 2019
Dr Cr
Capital Accounts 1 April 2018
Tapiwa 6 000
Hazel 3 000
Current Accounts 1 April 2018
Tapiwa 3000
Hazel 4500
Drawings : Tapiwa 600
Hazel 900
Partners salaries : Tapiwa 7500
Hazel 10500
Fittings at cost 15000
Provision for depreciation Fittings 5250
Vehicles at cost 11250
Provision for depreciation Vehicles 3750
Stock 1 April 2018 4950
Debtors and Creditors 1650 1320
Cash at bank 1920
Purchases and Sales 36750 78000
Wages 3300
Rent and rates 9300
Heating and lighting 1200
104820 104820
The following matters are to be taken into account:
a. Stock at 31 March 2014 was $4050
b. Rent of $750 has been paid in advance
c. Depreciation shop fittings at 10% diminishing method and Vehicles at 20% on cost
d. Interest on capital allowed at 5% p.a
Required
i. Prepare a Statement of Comprehensive Income for the partnership
ii. The Current Accounts in columnar form.
Page 42 of 49
Question 3
James, John and Jimmy are in a partnership sharing profits and loss in the ratio 5:3:2 respectively. Their trial
balance as at 31 December 2015
Sales 220 800
Returns 6 800 2 400
Purchases 156 790
Carriage outwards 2 600
Stock 1 January 2015 42 850
Discounts 2 320 4 200
Bad debts 1 200
Provision for bad debts 1560
General expenses 940
Rent and rates 2 560
Postages 2 400
Motor expenses 3 900
Motor Van at cost 12 500
Office equipment 8 200
Provisions for depreciation 1 January 2015
Motor Vans 3 600
Office equipment 2 400
Creditors 24 300
Debtors 37 100
Cash at bank 1 800
Drawings: James 12 600
John 8 400
Jimmy 6 200
Capital Accounts: James 32 000
John 20 000
Jimmy 14 000
Current Accounts: James 1 400
John 200
Jimmy 2 400
329 060 329 060
Prepare final accounts for the year ended 31 December 2015. The following information is relevant at 31
December 2015:
i) Stock at 31 December 2015 $42 500
ii) Rates in advance $280, stock of postage stamps $180
iii) Additional bad debts of $1800.
iv) Provision for bad debts to be adjusted to 5%
v) James and Jimmy are entitled to a salary of $850 and $1280 per year respectively
vi) Interest on drawings James $1200, John $800 and Jimmy $600
vii) Interest on capitals at 12% p.a
viii) Depreciate Motor Vans $2800 and office equipment at 20% on cost.
Page 43 of 49
CHAPTER THIRTEEN (13)
MANUFACTURING ACCOUNTS
Manufacturing company produce finished goods from raw materials. In addition to trading account,
should prepare Manufacturing Account to compute/calculate cost of production.
Production is the transformation of raw materials into finished.
COST OF PRODUCTION = PRIME COST + FACTORY OVERHEADS (INDIRECT EXPENSES)
Prime Cost = Direct material + Direct labour + Direct expenses
Manufacturing Account for the year ended ……………………………………………………………….

RAW MATERIALS
Opening stock xxxxx
Purchases xxxxxxx
Add: Import Duty/Carriage in xxx
xxxxx
Less Returns of raw materails xxx xxxxxx
xxxxxxx
Less Closing stock of raw materials xxxx
COST OF RAW MATERIAL CONSUMED xxxxxxx
Direct expenses xxx
Direct wages xxx
PRIME COST xxxxx
FACTORY OVERHEADS
Indirect expenses xxxx
Indirect wages xxxx
Depreciation of plant xxxx
Factory supervisors’ wages xxx
Factory insurance xxx
General factory expenses xxx xxxx
xxxxx
Add work in progress at the beginning of the year xx
xxxxx
Less work in progress at the end of year xxx
Production Cost of finished goods xxxxx
Page 44 of 49
Question 1
The following details were extracted from the books of TK Manufacturers for the year ended 31 December
2015.
Stocks: 1 January 2015

Raw materials 17 500
Finished goods 25 200
Work in progress 15 200
Stocks: 31 December 2105

Raw Materials 13 200
Purchases of raw materials 95 600

Carriage of raw materials 4 500
Custom duty:
Raw material 2 500
Purchase of finished goods 75 000
Sales 420 000
Returns out: Raw material 1 500
Finished goods 2500
Wages and salaries:
Factory direct 138 500
Factory indirect 27 200
Power and fuel (Indirect) 18 200
Insurance 3 600
The following additional information is also available:

a) Machinery at cost $82 000 and the provision for on 1 January 2015 was 27 000. Machinery is to be
depreciated by 20% per annum using the reducing balance method.
b) Fuel and power outstanding at 31 December 2015 was $450 and insurance prepaid $320
c) Insurance is to be allocated 5/8 factory and 3/8 administration
You are required to prepare a Manufacturing and Trading Account for the year ended 31 December 2015
showing clearly:
a) Cost of raw materials consumed
b) Prime Cost
c) Total Production Cost
d) Cost of finished goods sold
e) Gross Profit
Page 45 of 49
Question 2
James own a manufacturing company. The following trial balance was extracted from his books on 31
December 2015
Capital 43 200
Drawings 2 800
Sales 180 000
Stocks 1 January 2015
Raw Materials 3 800
Purchases
Raw Materials 20 000
Carriage in
Raw Materials 1 800
Import duty on raw materials 3 200
Factory wages 15 600
Office salaries 16 200
General expenses
Factory 2 200
Office 1 800
Lighting 3 200
Rent 4 400
Insurance 9800
Advertising 1 600
Bad debts 650
Discounts 2 400 1 600
Plant and Machinery at cost (120 000) 72 000
Motor vehicles at cost (62 000) 36 000
Bank 3 600
Cash in hand 450
Debtors and Creditors 11 000 6 800
Returns –Raw materials 2 100
Finished goods 1 800 1 200
234 900 234 900
You are given the following additional information
a) Stocks at 31 December 2015
Raw materials $1 200, finished goods $800 and work in progress $220
b) Depreciation for the year is charged as follows: Plant and Machinery 20% at cost and Motor vehicles
at 20% reducing balance method.
c) Insurance paid advance was $180 and office general expenses unpaid were $80
d) Lighting, rents and insurance are to be apportioned 3/5 factory and 2/5 office
You are required to prepare:

i. A Manufacturing Account showing prime cost and cost of production
ii. Trading account
iii. Profit and loss account
iv. Balance Sheet as at 31 December 2015
Page 46 of 49
CHAPTER FOURTEEN (14)
FINAL ACCOUNTS FROM INCOMPLETE RECORDS
Generally financial statements, that is, Trading and Profit and Loss, and the balance sheet must be prepared
from a full set of ledgers. Maintaining all ledgers might be a problem especially to small companies or
individual sole traders, hence financial statements can be prepared from incomplete set of accounts.
1. Ascertaining of profit or loss ONLY can be done using the accounting equation or the balance sheet
a) Determine the capital using balance sheets items at the beginning of the year. Remember opening
bank balance. A statement of affairs or a trial balance can be used for this purpose. The accounting
equation Assets = Capital + Liabilities
b) Extract a balance sheet at the end of the year
c) Come up with equations to calculate the profit
2. Full set of financial statements
Steps when preparing full set of financial statements from incomplete records
Step 1
Determine the capital using balance sheets items at the beginning of the year. Remember opening bank
balance. A statement of affairs or a trial balance can be used for this purpose.The accounting equation
Assets = Capital + Liabilities
Step 2
Determine credit sales for the year using Total Debtors Control Account
Step 3
Calculate total sales for the period = credit sales + cash sales from the bank account or an other source
Step 4
Determine credit purchases using Total Creditors’ Control Account.
Step 5
Calculate total purchases for the period = Credit purchases + Cash purchases.
Step 6
All accounts requiring adjustments can done as previous discussed on adjustments before final accounts.
Step 7 Extract the financial statements . Remember closing bank balance
Page 47 of 49
Exercise 1
Jones is a sole trader who has not kept proper books of accounts. At 31 December the state of affairs of his
business was as follows:
31/12/2015 31/12/2016
Bank 380 (1800)
Cash 250 190
Buildings 4800 4800
Fixtures and Fittings 2600 ---
Stock 18000 23800
Debtors 26500 29800
Creditors 12500 9200
Motor Van (at valuation) 6800 6400
During the year to 31 December 2016, his drawings amounted to $28 000. Winnings from lotto of $15000
were put into the business. Extra fixtures were bought for $1500. Creditors for expenses were $300 while
electricity was prepaid by $420.
Fixtures to be depreciated 10% per annum.
Required
A statement showing the profit or loss made by Jones during the year ended 31 December 2016
Exercise 2
The following is a summary of Jack bank account for the year ended 31 December 2016
$ $
Balance b/d 4 100 Payments to creditors for goods 76 360
Receipts from customers 91 190 Rent 3 950
Balance c/d 6 300 Insurance 1 470
Sundry expenses 610
Drawings 28 200
101 590 101 590
All of the business takings have been paid into to the bank with the exception of $17 400. Out of this Jack
paid wages $11 260, drawings of $1200 and purchase of goods $4 940
The following additional information is available

31/12/2015 31/12/2016
Stock 10 800 12 200
Creditors for goods 12 700 14 100
Debtors for goods 21 200 19 800
Insurance prepaid 420 440
Rent owing 390 ---
Fixtures at valuation 1 800 1 600
You are to draw up a set of financial statements for the year ended 31 December 2016. Show all workings.
Page 48 of 49
Exercise 3
Betty has kept records of her business transactions in a single entry form, but she did not realize that she
had to record cash drawings. Her bank account for the year 2017 is as follows:
$ $
Balance 1.1.2017 920 Cash withdrawn from bank 12 600
Receipts from debtors 94 200 Trade creditors 63 400
Loan from CBZ 2 500 Rent 3 200
Insurance 1 900
Drawings 11 400
Sundry expenses 820
Balance 31/12/2017 4 300
97 620 97 620
Records of cash paid were: Sundry expense $180 and Trade creditors $1 310. Cash sales amounted to $1540.
The following information is also available:

31.12.2016 31.12.2017
Cash in hand 194 272
Trade creditors 7 300 8 100
Debtors 9 200 11 400
Rent owing -- 360
Insurance paid in advance 340 400
Motor Van (at valuation) 5 500 4 600
Stock 24 200 27 100
You are to draw up a trading and profit and loss account for the year ended 31 December 2017 and a
balance sheet as at that date. Show all workings.
END
Page 49 of 49

Basic Account Nc Final Copy

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Basic Account Nc Final Copy

Uploaded by

Copyright:

Available Formats

HOW

1. General information ...................................................................................................3

2. Accounting equation ...................................................................................................5

3. Double entry system....................................................................................................6

4. Books of Accounts .......................................................................................................8

6. Petty Cash ...................................................................................................................16

7. Bank Reconciliation ....................................................................................................20

8. Final Accounts of a sole trader....................................................................................24

9. Adjustments before final accounts.............................................................................29

10. Trial balance and Errors.............................................................................................34

11. Control Accounts.........................................................................................................37

12. Partnership Accounts .................................................................................................40

13. Manufacturing Accounts.............................................................................................44

14. Incomplete records.....................................................................................................47

vii) Purchases are goods bought for resale

viii) Sales are receipts from goods bought for resale

Revenue expenditure is an allowable deduction in the year it is incurred

xii) Liabilities are borrowings of a business from service providers. Can be

The trial balance can be used for the following purposes:

The difference between bookkeeping and accounting

a) Public Companies e.g. ZESA, COTTCO

iv) Commercial and industrial Co-operatives

Why are books of accounts needed?

a) Accounting equation before any borrowings

b) Accounting equation after borrowings

ASSETS CAPITAL LIABILITIES

What is the effect of the following on the accounting equation?

Remember the following when recording transactions in ledgers

NB When balancing the accounts or ledgers

Record the following transactions in the ledger

Furniture A/c (1)

Cash A/c (2)

Motor Vehicle (3)

Two main types of ledgers accounts are:

a) Real accounts for tangible objects e.g Motor Vehicles A/c

Subsidiary Books are:

Layout of a day book/journal

Date Details Invoice F Amount

Purchases journal for the month of January 2013

Sales journal for the month of January 2013

C) The entries in the Purchases returns journal

D) The entries in the Sales returns journal

Reasons for having subsidiary books

THE SUBSIDIARIES AND THE CORRESPONDING LEDGER BOOKS

Exercises –, Trial Balance and Subsidiary books

Layout of cash book

Balancing the cash book

Source documents for the cash book

The receipt (debit) side of the cash book

Credit entries in the Cash Book

Contra entries in the Cash Book

Balancing the Cash Book

PETTY CASH BOOK (Page ***)

Date Voucher No Details Amount

Drafting of a Petty Cash Book

CATEGORY FREQUENCY DATES AND ITEMS BOUGHT

7.90 CB1 31 Cash GL GL GL GL GL

Checking the Petty Cash Book

Posting to the ledger

Exercises – Petty cash book

Relations between a Bank and its Customers

Deposits and withdrawals

Bank reconciliation statement

Layout of a reconciliation statement