Rules for Debit and CreditAdd commentsRules for Debit and Credit:Increases in assets                           -      Debi...
be credited.a)       Started business with cash $2,500b)    Bought goods by cash $12,000c)       Sold goods for cash $20,0...
Control AccountsAdd commentsControl AccountsControl Accounts are the total accounts used for checking the arithmeticalaccu...
The format of sales ledger control account      Balances b/d(large amount) ———–            Balances b/d(small amount)    —...
Sources of information for itemsappearing in the sales ledger controlaccount1. Credit sales- sales day book – total.2. Ret...
Balances c/d (large amount)        ——–xxxxx                                      xxxxxxBalances b/d (small amount)        ...
Key Points  Control accounts are considered as total accounts.  Debtors ledger control account is also known as sales ledg...
2. Sales journal                C. General journal D. Sales      ledger2. Which of the following is not considered while p...
A. Total   debtors   account                      B.   Total   creditorsaccountC. Purchases account             D. sales a...
Cash paid to creditors           $ 11800Returns inwards                  $ 300What is the closing balance?A. $ 600        ...
Cash received from debtors                        8 000Cheques received from debtors                    60 000Cheques paid...
Q 2.   From the following information prepare the salesledger control account and purchases ledger controlaccount.$Opening...
Q3. The following details are available from the books of Mathewsfor the month of June, 2003. Prepare the sales ledger con...
Q4. The following information was obtained from the books of Vale. $March 1          D                                    ...
Debit balances in purchases ledger                              40Credit balances in sales ledger                         ...
Discount allowed                                            630Interest charged to customers on overdue accounts          ...
Credit sales and return inwards are subject to 10% trade discount on listprice.Required:-1. Make sales ledger control acco...
On 31-12-2002:Cheque issued to suppliers                                   $ 19,200Cheque received from customers         ...
2000,2001 and 2002.Q 9. The following details are available from the books of a business for theyear ended 31st December 2...
Set off from purchase ledger to the sales ledger                      $ 2 0005% of year end debtors should be created as p...
Revision QuestionsAdd commentsRevision theories       Grade 10 – Principles of Accounts1. Depreciation     on        fixed...
11. The monetary value of goods and services supplied to the customers isknown as:___________________________12.    The   ...
22. Drawings ( both cash and goods ) are shown in the balance sheet as adeduction from the ______________ account.23. All ...
37. The subsidiary book for recording both receipts & payments of cash andcheques is known as ___________________38. Credi...
49. Under which heading will the value of closing stock be found in thebalance sheet ? ____________________50. Cash sales ...
60. ____________ ______________are the expenditures needed for theday to day running of the business.61. The provision for...
74. Prepaid expenses are shown as ___________________ in the balancesheet.75. Revenue owing is also known as _____________...
85.   The   excess   of   assets   over   business   purchase   price   is   called____________________86. The total of th...
96.    The    profit   expressed   as   a   percentage   on    sales   is   called_______________________97.   The profit ...
the control accounts? ______________________108. What is the basic document for the transaction ―cheque dishonoured ―?____...
machinery is shown in ________________________120. The royalties paid is a part of _____________________121. Costs that ca...
131. In a manufacturing concern’s final accounts, the carriage outwards isshown in___________________ account.132. In the ...
138. The preference share holders get an __________ rate of dividend atthe end of a year139. Debenture holders get _______...
148. The double entry to set off the purchase ledger control account to thesales ledgercontrol                  account   ...
ErrorsAdd commentsRectification of errors and suspense accountWhile recording the transactions in the journal, posting the...
3. Errors of principle: Where an item is entered in wrong class ofaccounts, E.g. Purchase of plant had been debited to pur...
ReversalTranspositionTypes of errors which do affect the agreement of the trial balanceThe following errors will stop the ...
in trial balance, when it disagrees. When the errors are found out, thecorrection is made to suspense account and it will ...
1. Purchase of machinery was entered in the purchase account. What type   of error was this?A. Commission            B. Pr...
6. A sale of goods $ 250 to E.Ellis on credit had been completely omittedfrom the books.What is the entry to correct this ...
2. Cash account debit $300 and M.Meenu credit $ 3003. M.Meenu debit $ 600 and cash account credit $ 6004. Cash account deb...
What kind of error is this?A. Omission     B. Commission       C. Principle   D. Compensating14. A revenue expenditure was...
8. A cheque received from Mathew $ 500 had been entered in the cash book   only.9. A payment made by cash $100 to Sunil wa...
9. A cheque for $ 270 received from Albert recorded correctly in the cashbook but recorded in      Albert’s account as $ 2...
Q 4. The trial balance drawn up from the books of a business on 31 st Dec2003 did not balance, thedebit total being $ 1769...
2. Goods returned to Martin $ 120 had been credited to returns outwards  account only3. A credit note was received from Se...
1 Write up the rectification entries required to correct the above errors.2. Write up the suspense account after correctio...
a. A cheque for $ 32 received from J. Steve had been entered in the booksas $ 23.b. The purchases account had been underca...
book but had been posted to Tomy’s account as $ 105C. A debtor, G. Franks, who should have deducted 10% cash discount towh...
2. A sales ledger debit balance of $ 370 for A. Jones had been omitted from   the sales ledger.3. Goods $ 160 returned by ...
books, the following errors were discovered:-1. Goods for resale had been purchased by cheque for $ 615. The correct   ent...
5. Discount allowed 125 were credited in discount received account.Required to:-1. Pass rectification entries for the abov...
1. Write up the rectification entries for the above errors2. Write up the suspense account, after the corrections have bee...
there may be some items so far not adjusted. These items are to beadjusted in the final accounts for calculating the corre...
c. Accrued income:- The income earned during the year but not received incash is known as accrued income. The amount of ac...
of its use is known as depreciation. It is considered as an expense in thebusiness therefore shown as an expense in the pr...
Credit    Purchase account or sales accountThe amount of goods drawings should be deducted form purchases andcapital in th...
5. The debenture interest paid is recorded in which part of the final accountsof a limited company?A. Trading account     ...
10. In the final accounts of a limited company, directors’ remuneration is:A. debited in the trading account           B. ...
Capital                                             59 400Machinery                                55   000Buildings      ...
Q 2. The following account balances were extracted from the books of a soletraderfor the year ended 31st December 2003:-St...
Capital                           27 210      License & taxes      500Carriage inwards                     1 000          ...
Commission                                 670Wages                                      3 000Debtors & Creditors         ...
Cash in hand              190      Bank overdraft        7 000Discount allowed          1 400    Discount received     900...
Returns in & out                   1 500         1 600Carriage inwards                   6 000Carriage outwards           ...
Q 6. The following trial balance was taken from the books of a sole traderfor theYear ended 31st March 2004:-Account balan...
6 The owner had taken goods costing $ 600 for his own use not entered inthebooks of the businessRequired prepare :-a. The ...
1. The closing stock was valued at $ 2 7002. Heating & lighting unpaid at 31-12-02 was $ 2503. Depreciate furniture & equi...
Q 9. The trial balance shown below was extracted from the books of a soletrader for the year ended31st March 2003:-Account...
Prepare the set of final accounts as at 31st Dec 2003Q 10. The following trial balance was taken form the books of Alfred ...
6. Depreciate land and building @ 5% , Plant and Machinery and Motor Van@ 10% p.a. on costRequired to prepare at 31st Dec ...
4) Rent paid in advance was $ 176             5) Carriage inwards owing was $666) Increase the provision for bad debts to ...
Adjustments:-1. The closing stock was valued at $ 30 0002. Salaries owing amounted to $ 1 500 and repairs outstanding $ 40...
The following additional information is also available:-1. Stock at 31st Dec 1999 was valued at $ 5 2002. General expenses...
Loan ( Repayment on 31st Dec 2008) 6 000Debtors                            15 000Creditors                          6 050S...
Accounting work from the net (2)
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Accounting work from the net (2)

  1. 1. Rules for Debit and CreditAdd commentsRules for Debit and Credit:Increases in assets - DebitDecreases in assets - CreditIncreases in liabilities & Capital – CreditDecreases in liabilities & Capital - DebitAll Expenses - DebitAll Incomes – CreditSummary of basic double entry transactionsUse the following format in your answer book for writing the answer to theQuestion given below.S Account to be debited Amount Account to be credited Amount $ $AB...Based on the following transactions, find out the Account to be debitedand Account t
  2. 2. be credited.a) Started business with cash $2,500b) Bought goods by cash $12,000c) Sold goods for cash $20,000d) Paid carriage inwards in cash $1,500e) Received commission in cash $1,000f) Bought goods for cheque $ 2,000g) Sold goods for cheque $ 3,000h) Bought furniture in cash $1,200i) Sold machinery for cash $12,000j) Returned goods to Ahmed $100k) Alwin returned goods to us $250l) Bought goods on credit from Sathya $1,500m) Sold goods on credit to Samuel $1,800n) Issued a cheque to Mathew for $ 2,800o) Paid travelling expenses in cash $25p) Returned furniture to Sunil $2,000q) Alfred issued a cheque to us $ 600r) Withdrew cash from the business for personal use $120s) Withdrew cash from the business bank account for personal use$1,250t) Cash sales deposited into business bank account $ 2,500u) Anand deposited cash in our bank account $ 4,000v) Paid cash to Sabig for the settlement of his account $1,000w) Raasi settled his account by cheque $1,400x) Introduced additional capital into the business $3,000 by chequey) Paid rent of building by cheque $600z) Received Interest in cash $5,000
  3. 3. Control AccountsAdd commentsControl AccountsControl Accounts are the total accounts used for checking the arithmeticalaccuracy of each of ledger separately. The two most common controlaccounts are:(i)The sales ledger control account (debtors ledger control a/c / total debtorsa/c) and(ii)The purchase ledger control account (creditors ledger control a/c/totalcreditors a/c)A control account contains the same information as the individual ledgeraccounts which it controls, but in total.Purposes of control accounts1. To act as a check on the accuracy of the totals of the balances in the sales and purchases ledgers.2. To provide totals of debtors and creditors quickly when a trial balance is being prepared.3. To identify the ledger(s) in which errors have been made when there is a difference on the trial balance.4. To act as an internal check on the work of the sales and purchases ledger clerks – to detect errors and deter fraud, under the charge of a responsible person
  4. 4. The format of sales ledger control account Balances b/d(large amount) ———– Balances b/d(small amount) ———–Credit sales --—— Cash/cheque from debtors ————Returned cheque - discount allowed ————(unpaid cheque) ———- Sales returns ———–Interest charged to debtors ———- Bad debts written off ———–Cash refunds to customers ———–Balances c/d(small amount) ———- Set off or contra entries ————Balances c/d(large amount) ————xxxxxxx xxxxxxxBalances b/d (large amount) ———- Balances b/d (small amount) ———-
  5. 5. Sources of information for itemsappearing in the sales ledger controlaccount1. Credit sales- sales day book – total.2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement.3. Interest charged to debtors- Interest received account.4. Cash or cheques from debtors – cash book-receipts side.5. Discount allowed – cash book (debit side) or discount allowed account.6. Sales returns – sales returns day book total.7. Bad debts written off – general journal or bad debts account.8. Set off or contra entries- general journal.Format of purchase ledger control accountBalances b/d (small amount) ——— Balances b/d (large amount)———Cash /cheques paid to creditors ——— Credit purchases ———Discount received ——— Interest charged by Creditors ———Purchases returns ——– Balances c/d (small amount) ———Set off /contra entries ——– Refunds from suppliers ———
  6. 6. Balances c/d (large amount) ——–xxxxx xxxxxxBalances b/d (small amount) ——– Balances b/d (large amount) ——–Sources of information for items appearing in the purchases ledger controlaccounta Credit purchases – purchases day book totalb. Interest charged by creditors – interest paid account.c. Cash/cheque paid to creditors – cash book – payments side.d. Discount received – cash book payment side or discount received accounte. Purchases returns – purchases returns day book total.f. Set off or contra entries – general journal.Set off / contra entries. Sometimes, thesame person may be a debtor as well as acreditor for the business. At the end of themonth, the smaller amount in his accountfrom one ledger is transferred to his accountin the ledger with large amount. The entrypassed for recording this transfer is known asset off or contra entry.
  7. 7. Key Points Control accounts are considered as total accounts. Debtors ledger control account is also known as sales ledger control account or total debtors account. Creditor’s ledger control account is also known as purchases ledger control account or total creditors account. Balance in sales ledger control account is the balance of debtors at the year end and balance in purchases ledger control account is balance of creditors. Cash sales and cash purchases are not recorded in the control accounts. The double entry to record set off from purchase ledger to sales ledger is to debit purchase ledger control account and credit sales ledger control account. Dishonoured cheque which was received from debtors is shown in the debit side of the sales ledger control account. Interest on overdue accounts charged from customers and refunds to customers for overpayments by them are shown on the debit side of sales ledger control account. Interest charged by suppliers and refunds received from suppliers for overpayments to them are recorded in the credit side of purchases ledger control account. Provision for bad debts is not included in sales ledger control account Small balance in a control account represents advance payments, overpayments etc.MCQ1. What is the source of information for credit sales for preparing the control accounts? 1. Sales account in the General ledger
  8. 8. 2. Sales journal C. General journal D. Sales ledger2. Which of the following is not considered while preparing the sales ledger control account?A. Opening balance of debtors B. Discount receivedC. Discount allowed D. Returns inwards3. Which item will appear on the debit side of a debtors ledgercontrol account?A. Cash sales B. Cheques receivedC. Return inwards D. Sales on credit4. Which item will appear on the credit side of a purchase ledgercontrol account?A. Cheques paid B. Discount receivedC. Credit purchases D. purchases returns5. What is the purpose of preparing the control accounts?A. To calculate the total sales B. To calculate the closingdebtors onlyC. To calculate the closing creditors onlyD. To check the arithmetical accuracy of each ledger separately.6. What is the alternative name of the sales ledger controlaccount?
  9. 9. A. Total debtors account B. Total creditorsaccountC. Purchases account D. sales account.7. Cash is refunded to customer, who had overpaid his account.In which ledger control account it is recorded?1. Debit side of sales ledger control account.2. Credit side of sales ledger control account.3. Debit side of purchase ledger control account.4. Credit side of purchase ledger control account.8. A refund was received from a supplier for excess paymentmade by us.Where should it be recorded?A. Debit side of sales ledger control account.B. Credit side of sales ledger control account.C. Debit side of purchase ledger control account.D. Credit side of purchase ledger control account.9. A purchase ledger control account is prepared from thefollowing list of items:-Total creditors at the start of the month $ 900Credit purchases $ 12000Customers’ debts written off $ 200
  10. 10. Cash paid to creditors $ 11800Returns inwards $ 300What is the closing balance?A. $ 600 B. $900 C. $ 1100 D. 140010. The table shows details of sales ledger:-Sales ledger opening balance $ 1894Total credit sales $ 10290Cheques received from customers $ 7284Cash received form customers $ 1236Returns inwards $ 296What is the closing balance of debtors?A. $ 3664 B.$ 3072 C. $ 3368 D. $ 2664Assignment questionsQ 1. The following details are available from the books of Westonfor the month of May, 2003.Prepare Sales ledger control accountand Purchases ledger control account. $Opening debtors 4 000Opening creditors 3 800
  11. 11. Cash received from debtors 8 000Cheques received from debtors 60 000Cheques paid to creditors 55 000Cash paid to creditors 7 000Bad debts written off during the year 750Discount allowed 1 250Discount received 1 000Returns inwards 800Returns outwards 500Transfer from purchases ledger to sales ledger 500Credit sales 80 000Credit purchases 71 000
  12. 12. Q 2. From the following information prepare the salesledger control account and purchases ledger controlaccount.$Opening debtors 12 000Opening creditors 8 000Credit sales 30 000Credit purchases 25 000Returns inwards 500Returns outwards 800Discounts allowed 1 000Discounts received 300Bad debts written off 200Cash paid to creditors 2 500Cheques paid to creditors 20 000Cheques received from debtors 25 000Cash received from debtors 4 500Customers cheques returned unpaid 1 000Set off from sales ledger to purchases ledger 600
  13. 13. Q3. The following details are available from the books of Mathewsfor the month of June, 2003. Prepare the sales ledger controlaccount and purchases ledger control account for the month ofJune, 2003. $Sales ledger control account balance b/d 10 000Purchases ledger control account balance b/d 8 000Purchases for the month 12 000Sales for the month 16 000Returns inwards 1 000Returns outwards 400Payments to creditors 11 000Receipts from debtors 15 000Customers’ cheques returned unpaid 500Bad debts written off 300Discount received 550Discount allowed 750Transfer from purchases ledger to sales ledger 600Credit balance in sales ledger control account 600Debit balance in purchases ledger control account 200
  14. 14. Q4. The following information was obtained from the books of Vale. $March 1 D 9 506Creditors 2 580March 31 Credit sales 20 345Credit purchases at list price 7 200Returns outwards at list price 200Sales returns 120Cash and cheques received from debtors 19 580Customers’ cheques dishonored 250Cash and cheques paid to suppliers 5 170Discount received 190Discount allowed 210Interest charged to customers on overdue accounts 70Bad debts written off 155Balance in sales ledger set off against balance in thepurchases ledger 350Cash refunds from suppliers for overpayments 60
  15. 15. Debit balances in purchases ledger 40Credit balances in sales ledger 64 All purchases and purchases returns were subject to a trade discount of 10% off the list price.Prepare the sales ledger control account and purchases ledger controlaccount.Q 5. The following information was obtained from the books of K. Kent:- $1st April, 2002 Trade debtors 28 518Trade creditors 7 740Stock in trade 22 50031st March, 2003: Credit sales 61 440Credit purchases at list price 21 600Purchase returns at list price 600Sales returns 360Cash and cheque received from debtors 58 740Customer’s cheque dishonored 750Cash and cheque paid to creditors 15 510Discount received 570
  16. 16. Discount allowed 630Interest charged to customers on overdue accounts 210Bad debts written off 465Balance in sales ledger set off against balance inpurchases ledger 1050Cash refunds from suppliers for overpayments 180Debit balance in purchases ledger 120Credit balance in sales ledger 186Interest charged by our suppliers on overdue accounts 390Cash refunds to customers for overpayments by them 540 All purchases and purchase returns are subject to a trade discount of 20% off the list price. during the year Cash sales were $ 22 000 and Cash purchases were $ 12 500. On 31st March, 2003 the stock in trade was valued at $ 12 500.Required to:-1. Prepare the sales ledger control account and purchases ledger control account.2. Calculate the gross profit of the business for the year ended 31st March,2003.Q 6. The following information is relating to the business of Anson for themonth ended 31st March 2003:-
  17. 17. Credit sales and return inwards are subject to 10% trade discount on listprice.Required:-1. Make sales ledger control accounts of Mr. Ibrahim for the month of March 2003.2. Calculate total Turn over on 31st March 2003Q 7. The following information was obtained from the books of K. Vasanthi.*All purchases and purchase returns were subject to a trade discount of20%off the list price. During the year cash sales were $ 22 000 and cashpurchase were $ 12,500.*On 31st March 2004 the stock in trade was valued at $ 12,500.Required:-1. Total Debtors Account for the year ended 31st March 20042. Total Creditors Account for the year ended 31st March 2004.3. c. Calculate the Gross profit of the business for the year ended 31st march 2004.Q 8. The following details are available from the books of a business for theyear ended 31st December 2002:- $On 1-1-2000 The balance in the provision for bad debts account $ 400On 31-12-2000 Total debtors $12 000On 1-1-2002 Purchase ledger control account balance $ 12 700On 1-1-2002 Sales ledger control account balance $ 14 200
  18. 18. On 31-12-2002:Cheque issued to suppliers $ 19,200Cheque received from customers $ 50,400Discount allowed $ 400Discount received $ 600Returns inwards $ 1 000Return outwards $ 900Bad debts written off $ 1 200Dishonored cheque returned to us $ 1 200Credit sales $ 52 000Credit purchases $ 28 000Set off from purchase ledger to the sales ledger $ 2 0005% of year end debtors should be created as provision for bad debtsRequired to prepare:-a. Purchase ledger control account for the year ended 31st December 2002b.Prepare the sales ledger control account for the year ended 31st Dec 2002.c.The provision for bad debts a/ct and the balance sheet extracts for the 3
  19. 19. 2000,2001 and 2002.Q 9. The following details are available from the books of a business for theyear ended 31st December 2002:- $On 1-1-2000 The balance in the provision for bad debts account $ 400On 31-12-2000 total debtors $12 000On 1-1-2002 Purchase ledger control account balance $ 12 700On 1-1-2002 Sales ledger control account balance $ 14 200On 31-12-2002:Cheque issued to suppliers $ 19,200Cheque received from customers $ 50,400Discount allowed $ 400Discount received $ 600Returns inwards $ 1 000Return outwards $ 900Bad debts written off $ 1 200Dishonored cheque returned to us $ 1 200Credit sales $ 52 000Credit purchases $ 28 000
  20. 20. Set off from purchase ledger to the sales ledger $ 2 0005% of year end debtors should be created as provision for bad debtsRequired to prepare:-1. Purchase ledger control account for the year ended 31st December 20022. Prepare the sales ledger control account for the month ended 31st Dec 2002.Q 10. Ander Paul, a sole trader, provided the following information from hisaccounts for the year ended 31st Dec 2003. $Credit sales for 2003 75 500Credit purchases for 2003 68 900Credit sales return for 2003 700Total debtors at 1 Jan 03 8 500Total creditors at 1 Jan 03 4 800Prov. for bad debts as at 1 Jan 01 600The cash book extract figures are totals for the year.The following points are also relevant.1. $ 600 of trade debtors were written off as bad debts on 7th Oct 20032. A revised provision for bad debts is to be 5%of the trade debtor’s balance as at 31st Dec 2001.3. Balance in the sales ledger set off against balance in the purchase ledger $ 300.Required to prepare the Sales ledger control account and the provision forbad debt account for the year ended 31st Dec
  21. 21. Revision QuestionsAdd commentsRevision theories Grade 10 – Principles of Accounts1. Depreciation on fixed assets are usually deducted from_______________________2. Sate the meaning of business entity concept________________3. The double entry for recording the transfer of profit on sale of assets is:____________4. The amount of depreciation changes year after year under____________5. The opening and closing balances of the assets are compared tocalculate the amount of depreciation under ________________ method.6. The source of information for cheque dishonoured which was receivedfrom a debtor is ___________________7. The resources owned by a business is called ______________8. The financial plan expressed in money is called _________________9. Net worth is another name of ___________10. The double entry for goods taken by the owner for his personal use is_________________
  22. 22. 11. The monetary value of goods and services supplied to the customers isknown as:___________________________12. The purpose of preparing the trial balance is to___________________________________________________________.13. Sale – cost of goods sold = __________________________.14. Opening stock + purchases + carriage inwards – return outwards –closing stock = ____________________________.15. The double entry for transferring sales account to the trading account atthe end of a year is : ___________________________16. The double entry for bringing the closing stock into the accounts is :____________________________17. The double entry for transferring the purchase account to the tradingaccount is: __________________18. Gross profit + incomes – expenses = __________________19. The double entry for transferring the net profit to capital account is :________________20. The double entry to transfer the net loss to the capital account is :______________21. Working capital means: __________________
  23. 23. 22. Drawings ( both cash and goods ) are shown in the balance sheet as adeduction from the ______________ account.23. All items in the balance sheet are either _____________ or _______24. Among the final accounts, __________ is not a part of double entry.25. Carriage inwards means______________________________26. Carriage outwards means______________________________27. The cost of import duty, insurance and freight incurred on goods areshown as part of _________________________________28. The concept that profit is the difference between revenue and expensesis: ______________________29. The concept that profit is not shown as being too high, or that assetsare shown at too ____________________________31. The journal which records the miscellaneous transactions is called_______________32. Sales journal records only __________________________34. Purchases journal records only ___________________________35. The journal which records returns of goods to the suppliers i9s knownas___________________________36. The journal for recording the returns inwards from customers is knownas __________________________
  24. 24. 37. The subsidiary book for recording both receipts & payments of cash andcheques is known as ___________________38. Creditors ledger contains the accounts of ___________________39. Sales ledger contains the accounts of ______________________40. Nominal account is another name of general ledger. It contains theaccounts of : _________ __________ ___________ _____________41. The debit side discount column total of a cash book is called___________________42. The credit side discount column total of a cash book is called___________________43. Cash account can have _____________ balance only.44. Bank account can have ___________ or ___________ balance.45. If both debit and credit entries of a transaction are shown in a cashbook itself, such entries are known as ___________ __________.46. The discount allowed from the list price of the goods is knownas________________47. ____________________ are given to encourage people pay theiraccounts within a stated time limit.48. The copy of our current account given to us by our bank in known as :______________________________
  25. 25. 49. Under which heading will the value of closing stock be found in thebalance sheet ? ____________________50. Cash sales are not recorded in the sales journal. But these are recordedin the : __________________51. The total of sales journal is transferred to the _________ side of thesales account in the ___________ ___________52. The document received by a purchaser showing details of goods boughtand their prices : __________ _____________53. A document showing details of goods sold and the prices of these goodsis known as : ____________ _________________54. The total of purchases journal is transferred to the ________ side of thepurchase account in the __________ ________55. A document send to a customer showing allowance given by a supplierin respect of unsatisfactory goods is known as ___ _____________56. The total of returns inwards journal is transferred to the _ side of_account in the _ ledger.57. The total of returns outwards journal is transferred to the side of_account in the general ledger.58. The purchase and sale of fixed assets on credit are recorded in the_______________59. When a firm spends money to buy or add value to a fixed asset thatcost is called_______________ ________________
  26. 26. 60. ____________ ______________are the expenditures needed for theday to day running of the business.61. The provision for bad debt is also known as____________62. The double entry for creating the provision for bad debt is to63. For an increase in the provision for bad debt, the profit & loss account isto be______64. Decrease in the provision for bad debt is shown as _________ in theP&L account.65. State the meaning of bad debt written off ___________66. The provision for bad debt is shown as a deduction from ____ in theB/S.67. Mention two features of a fixed asset.68. Mention three causes of depreciation. ___________________69. Under method, the amount of depreciation reduces year after year.70. The accounting entry to transfer the cost price of the asset sold to assetdisposal a/c is71. Profit on disposal of asset is transferred to the _ side of profit & lossa/c.72. Loss on disposal of asset is transferred to the profit & loss account by____________asset disposal account.73. Accrued expense means _____________
  27. 27. 74. Prepaid expenses are shown as ___________________ in the balancesheet.75. Revenue owing is also known as ____________________76. The difference between total assets and total liabilities is known as______________77. In the absence of an agreement between the partners, they will sharethe profit and loss _______________78. The entry for transferring interest on capital is to ________ thepartner’s current a/c.79. The interest on drawings is debited to the _________ _____________80. The double entry for transferring share of profit is to________________________________ ________________81. Credit balance in a partner’s current accountmeans:__________________________82. Debit balance in a partner’s current account means:__________________________83. Under fluctuating capital method, the adjustments such as interest oncapital, interest on drawings, share of profit, salaries etc.. are shown in eachpartner’s __________a/c84. The difference between net assets and the business purchase price isknow as___________________ ____________________
  28. 28. 85. The excess of assets over business purchase price is called____________________86. The total of the share capital which the company is authorized to raisefrom the public is known as _________ ___________87. Debentures are the ________ capital of a company.88. The debenture interest is shown as an expense in the __________________89. Interim dividend paid is shown in the ___________only.90. In which part(s) of the final accounts of a company, the proposeddividends are shown? ___________________91. In the balance sheet of a company, the share premium is shown underthe heading: _______________________92. Shares that are entitled to an agreed rate of dividend before theordinary shareholdersreceive anything is called : _____________ _____________93. Shares entitled to dividend after the preference shareholders havebeen paid their dividend is called ______________ ____________94. A division of the capital of a limited company into parts is known as____________95. Dividend is always calculated on ________ share capital of thecompany.
  29. 29. 96. The profit expressed as a percentage on sales is called_______________________97. The profit expressed as a percentage on cost of goods sold is called____________98. The formula to calculate current ratio is ___________________99. The formula to calculate acid test ratio is ___________________100 Stock turn over ratio is calculated_______________________________________101 Mention the profitability ratios. ____________________102. Expenses which remain constant whether activity rises or falls, within agiven rangeof activity are known as _________ ____________103. Expenses which change with change in activity are called ____________________104. Unpresented cheques means _______105. The cheques deposited but not collected and credited is known as____________ ___________106. Where will you show the credit balance as per the bank statement, inthe balance sheet of a business? ________________________________107. What is the source of information for discount received and allowedwhile preparing
  30. 30. the control accounts? ______________________108. What is the basic document for the transaction ―cheque dishonoured ―?_________________________109. Purchase ledger control account is also known as ___________ _110. Total debtors account is also known as _______________ _111. Where a transaction is completely omitted from the books, such errorsare known as112. Errors of commission means _______________113. When an item is recorded in the wrong class of account , such error isknown as:________________________114. Errors of original entry means __________________115. The account prepared by a club which records all the receipts andpayments is known as ________________ __________________116. In a non trading concern, assets = ______________________ +________________117. The subscription in advance is shown as a ______in the balance sheet.118. Direct materials + Direct labour + Direct expenses =_____________________119. In the final accounts of a manufacturing concern, the depreciation onplant &
  31. 31. machinery is shown in ________________________120. The royalties paid is a part of _____________________121. Costs that can be traced to the item being manufactured is called_______________122. The cost of production calculated from the manufacturing account istransferred to _________________________ .123. Cheque counterfoil is used as a source of information for recording the______124. In a non trading concern, the amount of surplus is added with__________________125. In a company balance sheet, usually, under the heading reserves thefollowing items are shown : ____________ ____________________________ _______________126. Goodwill is shown as __________ ___________ in the balance sheet.127. The closing balance in a sales ledger control account is taken as_______________128. Debit balance as per bank statement means________________________________129. With the debit balance as per updated cash book, the unpresentedcheque amount is_____________ and unrealized cheque amount is________________________130. Bank charges as per standing order is shown on ________ side of thecash book.
  32. 32. 131. In a manufacturing concern’s final accounts, the carriage outwards isshown in___________________ account.132. In the balance sheet of a manufacturing concern, usually, ______ typesof stockfigures are shown.133. The amount of salary allowed to a partner will be shown in the_________________and ___________________ at the end of a year.134. While preparing the trial balance, if there is an error, it will betransferred to aseparate account called ― _______________ ― .135. Bank reconciliation statement is prepared to___________________________________________________________________________________________________136. Debit balance as per bank statement means ________ balance as percash book.137. In a purchase ledger control account, the refund of money overpaid byus will beshown on its ____________ side.
  33. 33. 138. The preference share holders get an __________ rate of dividend atthe end of a year139. Debenture holders get _________ ____ __ ___________ at the endof every year.140. The cost of extension of the business building is a __________________________and the cost of painting of the old building is a ____________________________141. The closing stock of this year will be the ________ _______ of thenext year.142. Cost of goods sold + closing stock + opening stock =_________________143. What is deducted from purchase to get net purchases?_________________144. Return inwards and carriage outwards show _________ balance.145. Bank paying in slip is used for__________________________________________146. When the trial balance debit side is less than the credit side then, thedifference isshown on the _________ side of the suspense account.147. Net asset means___________________________________________________
  34. 34. 148. The double entry to set off the purchase ledger control account to thesales ledgercontrol account is to__________________________________________________149. The amount of provision for discount on debtors is calculated on theamount afterdeducting the bad debt ad the _________________________150. Prepaid expenses are also known as _____________ expenses.
  35. 35. ErrorsAdd commentsRectification of errors and suspense accountWhile recording the transactions in the journal, posting them to the ledgeraccounts, casting or at the time of balancing the accounts, there are chancesfor errors. Such errors are to be found out and corrected in the books of thebusinessCorrection of errors After the errors are found out from the books, thoseshould be corrected. The correction of errors is to be done by passingcorrection entries or rectification entries in the general journal.The preparation of trial balance is the test of arithmetical accuracy of theledger accounts prepared under double entry system. It proves the equalityof debit and credit.A trial balance, which agrees, indicates that for every debit there has beenan equivalent credit entry or entries. It does prove that all the entries are forthe correct amount or made to the correct accountTypes of errors which do not affect the agreement of the trial balance1. Errors of omission: Where a transaction is completely omitted from thebooks(Journal or ledger). E.g. a sales invoice $ 245 to Bolton was completelyomitted from the accounts.2. Errors of commission. Where a correct amount is entered in wrongperson’s account, for E.g. Credit purchase from C. Clint has been recorded inthe account of C. Clinton’s account.
  36. 36. 3. Errors of principle: Where an item is entered in wrong class ofaccounts, E.g. Purchase of plant had been debited to purchase accountinstead of debiting to plant account.4. Compensating errors: Where errors cancel out each other, for E.g.Sales account was overcast by $ 500 at the same time the purchase accountwas also overcast by $500, and then the effect of these errors would cancelout in the trial balance5. Errors of original entry: Where the original figure is incorrect butrecorded in the correct original entry. Eg. Credit sales of goods$ 400 wascalculated in the invoice as $ 300 and recorded in the same journal.6. Complete reversal of entries: This occurs where the entries fortransactions are reversed- the account which should be credited is debitedand the account which should be debited is credited. Eg. The purchase ofstationery for $ 200 for cash debited to cash and credited to stationery.7. Transposition errors: Where the wrong sequence of the individualcharacters within a number was entered. E.g. An amount of a transaction $172 was entered in the accounts as $127One way to help remember the six errors is to memorize COPCORTCommissionOmissionPrincipleCompensatingOriginal entry
  37. 37. ReversalTranspositionTypes of errors which do affect the agreement of the trial balanceThe following errors will stop the trial balance from agreeing because debitdoes not equal to credit.1. Incorrect addition to any accounts2. Making an entry only on one side of one account i.e. Entering debit butnot credit or entering debit but not credit.3. Entering a different amount on the debit side from the amount on thecredit side4. The double entry has been inaccurate. E.g. Cash sales $15 – cash accountdebited with $5 and sales account credited with $15.5. Two debit or two credit entry has been made.Casting: means adding figures.Overcastting: means incorrectly adding a column of figures to give ananswer which is greater thanit should be.Under casting: means incorrectly adding a column of figures to give ananswer which is less than it should be.Suspense account: This is the account opened in the books of the businessto show the difference
  38. 38. in trial balance, when it disagrees. When the errors are found out, thecorrection is made to suspense account and it will be automaticallycancelled.Key points Nature of balances of each class of accountsAssets and expenses — always debitLiabilities and incomes — always credit To increase the balance of an account with debit balance – debit the account. To decrease the balance of an account with debit balance – credit the account. To increase the balance of an account with credit balance – credit the account. To decrease the balance of an account with credit balance – debit the account. The journal entries passed in the general journal to correct the errors found in the books of the business are known as rectification entries. The action to be taken for rectification of errors in the case of undercasting and overcasting of accountsNature of balance In case of In case of overcasting undercastingAccount with a debit Dr. Account involved Dr. Suspense accountbalance Cr. Suspense account Cr. Account involvedAccount with credit Dr. Suspense account Dr. Account involvedbalance Cr. Account involved Cr. Suspense accountMCQ
  39. 39. 1. Purchase of machinery was entered in the purchase account. What type of error was this?A. Commission B. Principle C. Omission D. Transposition2. The purchases account was added up too much by $ 100 and salesaccount also addedup too much by $ 100. What kind of error is this?A. Commission B. Principle C. Omission D. Compensating3. A cash receipt from Moorthy was debited to Moortyhy’s account andcredited to cashaccount. What kind of error is this?A. Error of omission B. Error of commissionC. complete reversal of entries D. Transposition errors4. A cash purchase of goods was completely omitted from the books of thebusiness.What kind of error is this?A. Commission B. Principle C. Omission D. Compensating5. Goods sold on credit to Saani had been debited to Soni’s account. Whatkind of error is this?A. Commission B. Principle C. Omission D. Transposition.
  40. 40. 6. A sale of goods $ 250 to E.Ellis on credit had been completely omittedfrom the books.What is the entry to correct this error?1. Debit sales account $ 250 and credit E.ellis $ 2502. Debit E.Ellis $ 250 and credit sales account $ 2503. Debit cash account $ 250 and credit sales account $ 2504. Debit bank account $ 250 and credit sales account $ 2507. Sale of machinery had been recorded in the sales account.What would be the entry to correct this error?1. Debit sales account and credit machinery account2. Debit machinery account and credit sales account3. Debit cash account and credit machinery account4. Debit machinery account and credit cash account8. A sale of goods to Jeena $ 38 was entered in the books as $ 28.How should this error be corrected?1. Debit Jeena $ 38 and credit sales account $ 382. Debit sales account $ 38 and credit Jeena’s account $ 383. Debit Jeena $ 10 and credit sales account $ 104. Debit sales account $ 10 and credit Jeena $ 109. A payment of cash $ 300 to M.Meenu was entered on the debit side of thecash bookand credit side of M.Meenu’ account. What entry is required to correct thiserror?1. M,Meenu debit $ 300 and cash account credit $ 300
  41. 41. 2. Cash account debit $300 and M.Meenu credit $ 3003. M.Meenu debit $ 600 and cash account credit $ 6004. Cash account debit $ 600 and M.Meenu credit $ 60010. Closing stock was overvalued by $ 1400. What is the effect of this erroron cost of goods sold?A. Overstated by $ 1400 B. Understated by $ 1400C. No effect D. Overstated by $ 280011. A purchase of fixed assets $ 300 was debited to the purchases account.What would be the effect of this error?1. Only net profit is overstated B. Only gross profit is overstated2. No effect on gross profit or net profit3. Gross profit & fixed assets are understated.12. After which error will a trial balance still balance?A. Purchase book was overcast by $ 200B. Sales book was under cast by $ 300C. Rent paid by cash $ 400 debited rent account onlyD. Purchase of machinery $ 1000 was debited to purchase account andcreditedto cash account.13. Wages paid for the installation of new machinery debited to wagesaccount.
  42. 42. What kind of error is this?A. Omission B. Commission C. Principle D. Compensating14. A revenue expenditure was treated as capital expenditure. What is theeffect of this error on the final account items?1. The gross profit is unaffected, net profit and fixed assets are overstated.2. The net profit and fixed assets are understated3. The net profit is unaffected and fixed assets are overstated4. No effect on any of final accounts items15. A business paid $224 to X. The entry in the cash book was correct. But itwas credited as $ 242 in X’s account.What is the difference between the totals of the trial balance?1. $ 18 B. $ 36 C. $ 466 D. $ 484Assignment questions:-Q1. Pass rectification entries for the following errors found from the books ofa business:-1. sales day book had been under cast by $2002. sale of goods to J.Johnson on credit for $ 500 had been debited to J.Jackson3. Salaries account had been overcast by $ 300.4. Purchase of goods by cash recorded in the cash account only $ 400.5. Goods returned to Manu $ 150 debited to returns outwards account and credited to Manu’s account.6. Repairs to motor car $ 400 debited to motor car account.7. Returns outwards account had been overcast by $ 150.
  43. 43. 8. A cheque received from Mathew $ 500 had been entered in the cash book only.9. A payment made by cash $100 to Sunil was omitted from the books of the business.10. Sales of machinery $ 1000 had been credited to sales account and debited to cash account.Q 2. The trial balance of a business was prepared on 31st Dec 2003 and it didnot agree. Later, the following errors were found out:-1. Drawings account had been overcast by $ 250.2. Goods bought for the owner’s personal use $ 400 had been included inthe purchase account.3. Capital brought into the business additionally $ 5000 was debited to bankaccount andcredited to cash account.4. Sales of goods on credit to J.John $ 400 had been debited to J.Jeans’saccount.5. Insurance account was overcast by $ 150.6. Carriage on purchases $ 450 paid by cash was completely omitted fromthe books.7. Discount received $ 200 had been debited to discount allowed account.8. Interest on capital to the partner $ 100 had not been entered in the booksof the business.
  44. 44. 9. A cheque for $ 270 received from Albert recorded correctly in the cashbook but recorded in Albert’s account as $ 207.10. A debtor who owed $ 130 to the business was declared insolvent and theamount due fromhim had to be written off. But this record was not made in the books.Show the rectification entries for the above errors and prepare the suspenseaccount showing clearly the opening balance.Q 3. On extracting a trial balance, a book keeper finds that it fails to agree.He enters the difference ina suspense account in the credit side. After checking the accounts, he findsthe following errors:-1. Purchase of goods from Mithal $ 400 posted to his account as $ 40 and correctlyposted to purchases account.1. Purchase day book had been overcast by $ 75.2. Discount of $ 68 allowed to T. Brown entered on the debit side of T.Brown’s account.3. Total of sales returns book $ 200 entered to the credit side of returns inwards account4. Debit balance of debtors account $ 98 incorrectly b/d as $ 89.5. $ 140 received from Makin credited to Malik’s account.Pass rectification entries for the above errors and prepare the suspenseaccount clearly showingthe opening balance.
  45. 45. Q 4. The trial balance drawn up from the books of a business on 31 st Dec2003 did not balance, thedebit total being $ 17698 and credit total $ 18210. A suspense account wasopened and the difference entered in that account. Subsequently, thefollowing errors were discovered:-1. A cheque for $ 64 received from M.Minu had been entered in the books as $ 462. The purchase account had been undercast by $ 1403. Goods sold to J.Jaava $ 280 had been enterd correctly in the sales account but enteredas $ 208 in J.Jaava’s account1. The owner had taken goods costing $ 300 for own use during the year. No entry hadbeen made in the books1. Discount allowed $ 150 had been credited to the discount received account.Required to:-a. Write up the journal entries to correct the above errorsb. Prepare a suspense accountQ 5. The trial balance prepared by a business did not agree. The differencewas recorded in a suspense account on the debit side. Later, the followingerrors were found out from the books:-1. The drawings of cash from the business debited drawings account and credited to bank account $ 550
  46. 46. 2. Goods returned to Martin $ 120 had been credited to returns outwards account only3. A credit note was received from Seema $ 160 was not entered in the books.4. The provision for bad debts $ 250 had been debited to profit & loss account only5. Commission received in cash recorded in the cash account only $ 170.6. Goods returned by Simple $ 190 credited to both returns inwards account and Simple’s account.Pass rectification entries for the above errors and prepare the suspenseaccount by writing the opening balance.Q 6. A trial balance was drawn up by L.Leena which did not agree. Asuspense account was drawn to show the balance in the credit side. Thebooks were checked and the following errors andomissions were discovered:-1. The sales book was overcast by $ 1002. Discount allowed $ 340 had been posted from the cash book to the debtors account, but no other entries have been made.3. The purchase of office equipment for $ 1200 has been debited to the sundry expenses account.1. A payment of $ 140 for motor van repairs was entered correctly in the cash book but postedas $ 410 in the motor van repairs account.1. L.Leena had taken goods worth $ 300 from stock for her personal use and these have been charged to her account as drawings. No other entries have been recordedRequired to:
  47. 47. 1 Write up the rectification entries required to correct the above errors.2. Write up the suspense account after correction of the above errors.Q 7. The trial balance prepared by a sole trader did not agree. Later thefollowing errors and omissions were found out from the books of thebusiness:-1. Purchase of goods from T Williams $ 190. posted to his account as $ 902. Purchase day book had been overcast by $ 253. Discount of $ 34 allowed to S. Burns, entered in the debit side of her account.4. Debit balance on a debtor’s account of $ 94 incorrectly brought down as $ 49 and included inthe trial balance.1. Total of sales returns book $ 120 entered to credit of returns inwards account.2. $ 20 received from C. Jenkins has been credited in error to C. Jenkinson.Required to:1. Write up the rectification entries required to correct the above errors.2. Write up the suspense account after correction of the above errors clearly showingthe opening balanceQ 8. The trial balance drawn up from the books of Joan on 31 st December,2003 did not balance, the debit total being $ 125 664 and the credit total $126 000. A suspense account was opened andthe difference entered in that account. Subsequently the following errorswere discovered.
  48. 48. a. A cheque for $ 32 received from J. Steve had been entered in the booksas $ 23.b. The purchases account had been undercast by $ 64.c. Goods sold to N. Brown for $ 180 had been entered correctly in the salesaccount but enteredas $ 188 in N. Brown’s accountd. Joan had taken goods costing $ 100 for her own use during the year. Noentry had been madein the accounts.e. Discount allowed $ 140 to Lames had been credited to discount receivedaccount.Required to :1. Write up the journal entries to correct the above errors.2. Prepare a suspense account clearly showing the opening balance.Q 9. The trial balance of S. Romsey, a wholesaler, drawn up on 31stDecember, 2003 did not balance. The difference between the debit andcredit totals was entered in a suspense account.Subsequently the following errors were discovered.A, Sales of $ 150 to B. Martin had been debited in error to D. Martin.B. A cheque for $ 150 received from B.Tomy, a debtor, had been correctlyposted in the cash
  49. 49. book but had been posted to Tomy’s account as $ 105C. A debtor, G. Franks, who should have deducted 10% cash discount towhich he was entitled, failed to do so and paid an account of $ 200 in full.It was decided to credit the discount toG. Franks account.D. A bad debt of $80 had been written off during 2003 and although thecorrect entry had beenmade in the debtor’s account, no other entry had been made.E. Purchase returns to L. Lowry $ 300 had been credited to both the salesreturns account andL. Lowry account.Required to:-1. Write up the journal entries which are necessary to correct the above errors.2. Prepare the suspense account after the correction of errors, clearly showing the opening balance.Q 10. Bakewell, a sole trader, prepared a trial balance. Unfortunately, thetrial balance did not agreeand a Suspense account was opened.On checking the books on 31st Dec 2003 the following errors were disclosed:-1. The purchases day book had been over added by $ 300.
  50. 50. 2. A sales ledger debit balance of $ 370 for A. Jones had been omitted from the sales ledger.3. Goods $ 160 returned by N.Nion had been entered in the returns inwards account but no entry had been made in N.Nion’s account.4. Discount allowed $ 320 had been incorrectly credited to the discount received account. No entry had been made in the discount allowed account.Prepare journal entries to correct the above errors.Q11. On drawing up the trial balance, the book keeper found that the totalsdid not agree. A suspense account was opened and the difference betweenthe totals was entered on it. On checking the books, the following errorswere discovered:-1. Purchases $ 600 from F. Frensham had been posted to S. Frensham’s account.2. No entry had been made for goods costing $ 800 taken by the proprietor for his own use.3. Sales returns $ 60 had been entered in the debtors account only.4. Repairs to premises $ 500 had been debited to the premises account. The correct credit entry had been made.5. Discount allowed $ 400 had been credited correctly to the debtor’s account but had been credited to the discount received account in error.Required to:1. Write up the journal entries to correct the above errors.2. Prepare the suspense account, clearly showing the opening balance.Q12. On drawing the trail balance of a business the book keeper found thatthe totals did not agree. A suspense account was opened and the differencebetween the total entered. On checking the
  51. 51. books, the following errors were discovered:-1. Goods for resale had been purchased by cheque for $ 615. The correct entry had been made in the purchases account but the bank account had been credited with $ 651.2. White, the owner of the business had taken goods costing $ 180 from the business forhis own use, was not recorded in the books.1. Discount received $ 250 had been debited to discount allowed account.2. Sale of goods for $ 150 had been omitted from the debtors account.3. Sales returns had not been posted to the sales returns account in the general ledger$ 126.Required to:1. Write up the rectification entries for the above errors.2. Prepare a suspense account clearly showing the opening balanceQ13. On drawing the trial balance, the book keeper found that the totals didnot agree. A suspense account was opened and the difference entered in it.On checking the books, the following errors were discovered:-1. No entry had been made for the goods taken by the owner for own use $ 21502. A debtor paid $ 2 400 by cheque in full settlement of his account of $ 2 500. Both accounts were entered for $ 2 400 only.3. Purchased a motor car from A. Allen for $ 5 600 by cheque was not entered in the books.4. A cheque received for $ 3 950 from Neena was credited in Neena’s account only.
  52. 52. 5. Discount allowed 125 were credited in discount received account.Required to:-1. Pass rectification entries for the above errors2. Prepare suspense account showing the difference in trial balance.Q 14. a. Explain with the help of an example the meaning of error ofprinciple.b. The trial balance of a company did not balance. The difference betweenthe debit and creditsides was entered in a suspense account. Subsequently, the following errorswere discovered.i. Sale of $ 2 750 to A .Allen had been debited in error to A.Alwin’s account.ii. A cheque for $ 250 received from Saany, a debtor, had been correctlyposted in thecash book but had been posted to Saany’s account as $ 205Iii.A debt of $ 95 had been written off during the current year, debited tobad debts account but no entry was made in the debtors account.iv.Purchase returns to Lilly $ 350 had been credited both to the sales returnsaccount and Lilly’s account.v. The owner took stock to home from the business was not recorded in thebooks $ 750Required:-
  53. 53. 1. Write up the rectification entries for the above errors2. Write up the suspense account, after the corrections have been made, showing clearly the opening balance.Q 15. Amber is the owner of a sole trading concern. He prepared the trialbalance of his business at 31st December 2003, and it did not agree. Thedebit total being $ 28 750 and the credit total being$ 29 250.The difference was recorded in a suspense account. Later, thefollowing errors were discovered from the books of the business:-1. The purchase return account had been over cast by $ 1802. Discount allowed $ 200 had been credited to discount received account in error3. An invoice of $ 600 for goods purchased on credit from Ancy was received before 31st December 2003 but it was not recorded in the accounts of the business.4. Bank charges of $ 40 were recorded in the bank statement but this entry did not appear in the books of the business.5. Goods taken by Amber $ 788 recorded in the drawings account with the correct amount, credit entry was made with $ 708.After the correction of the above errors the two totals of the trial balancewere equal and suspense account was cancelled.Required to prepare1. The necessary journal entries for correcting the above errors2. The suspense account to show the correction of errors.The Final Accounts of a sole trader ( With Adjustments)The trading and profit & loss account and balance sheet prepared at the endof a year is known as Final accounts. While preparing the final accounts,
  54. 54. there may be some items so far not adjusted. These items are to beadjusted in the final accounts for calculating the correct profit or loss of thebusiness. The usual adjustments in the final accounts are:-a. Expenses owing :- These are the expenses incurred during the year butnot paid in cash. This amount will be paid in the near future (next year). Theowing expense is to be added with the amount of same expense already paidgiven in the trial balance and it should be shown in the balance sheetas a current liability.The double entry for recording the expenses owing isDebit Expenses accountCredit Expenses owing accountThis expense is also known as outstanding expenses, expenses payable orexpense payable.b. Prepaid expense. :- This is the expense paid during the year for thebenefit of the next year. The portion of the expense which is prepaid is to bededucted from the total expenses already paid during the year (given in thetrial balance) and shown as current asset in the balance sheet.The double entry for recording the prepaid expense isDebit Prepaid expense account andCredit Expense accountThis expense is also known as expense paid in advance or unexpiredexpense
  55. 55. c. Accrued income:- The income earned during the year but not received incash is known as accrued income. The amount of accrued income is to beconsidered as current year’s income and addedwith the concerned income received during the year(given in the trialbalance) and shown as a current asset in the balance sheet.The double entry for recording the accrued income is:Debit Accrued income account andCredit Income accountThe accrued income is also known as outstanding income.d. Income received in advance:- This is the income received during theyear for the services to be rendered during the next year. Since this incomeis not related to the current year, it should be deducted from the concernedincome (given in the trial balance) and shown as a current liabilityin the balance sheet.The double entry for recording the income received in advance is:Debit Income account andCredit Income received in advanceThis is also known as unexpired income.e. Depreciation:- The part of the cost of a fixed asset that is consumed bya business during the period
  56. 56. of its use is known as depreciation. It is considered as an expense in thebusiness therefore shown as an expense in the profit & loss account anddeducted from the cost price of the concerned fixed asset in the balancesheet.The double entry for recording depreciation is:Debit Profit & loss account andCredit Depreciation accountf. Bad debt:- The part of the amount of debtors which cannot be recoveredis known as bad debt. It is an expense to be shown in the profit & lossaccount. If the bad debt appears in the trial balance, it is known as bad debtwritten off and shown in the profit & loss account only. If bad debtinformation appears among the adjustment points below the trial balance,then it should be shown as an expense in the profit & loss account andshown as a deduction from the debtors in the balancesheet under the heading ―current assets‖.The double entry for recording the bad debt is:Debit Bad debt account andCredit Debtors accountg. Goods drawings by the owner for his personal use:-The amount of goods withdrawn by the owner for his personal use is to beconsidered as drawing. The double entry for recording the goods drawingsis:Debit Drawings account and
  57. 57. Credit Purchase account or sales accountThe amount of goods drawings should be deducted form purchases andcapital in the balancesheet.MCQ1. A company which can offer its shares for subscription to the public is known as:A. Private company B. Public limited companyC. Public corporation D.Corporation2. What is the authorized share capital of a limited company?A. The issued share capital B. Issued share capital plus reservesC. Issued share capital plus debenturesD. The shares that a company is allowed to issue by law3. The liability of share holders of a public limited company is limited to:A. paid up value of shares B. nominal value of sharesC. extent of private assets D. called up share capital4. What is the other name of authorized capital?A. issued capital B. Nominal capital C. Uncalled capital D. Calls inarrears
  58. 58. 5. The debenture interest paid is recorded in which part of the final accountsof a limited company?A. Trading account B. Profit and loss accountC. Profit and loss appropriation account D. Balance sheet6. The dividend is calculated on which of the following values of shares?A. Authorized share capital B. Issued share capitalC. Called up share capital D. Paid up share capital7. Which of the following is not included in the share holders’ funds?A. Debentures B. General reservesC. Ordinary share capital D. Preference share capital8. Retained profit of a limited company belongs to the:A. directors’ B. debenture holders’ C. shareholders D.company9. Proposed dividends are;A. shown as a current liability on the balance sheetB. debited with other business expenses in the profit and loss accountC. paid from capital reservesD. credited to the appropriation account
  59. 59. 10. In the final accounts of a limited company, directors’ remuneration is:A. debited in the trading account B. debited in the profit and lossaccountC. debited in the appropriation account D. deducted from share capital inthe B.S11. Under which heading is share premium account shown?A. Current assets B. Current liabilities C. Share capital D.Reserves & Surplus12. The interim dividend paid is shown in the:A. profit and loss account B. profit and loss appropriation accountonlyC. profit and loss account and balance sheetD. profit and loss appropriation account and balance sheetAssignment QuestionsQ 1. The following trial balance was taken from the books of a sole traderfor the year ended31st Dec 2003:-Account balances Debit $ Credit $Purchase & sales 92 300 1 90 300Carriage inwards 5 200Drawings 5 000Rent, rates & insurance 4 500Postage 3 000Stationery 2 700
  60. 60. Capital 59 400Machinery 55 000Buildings 45 000Furniture & Fittings 15 000Debtors & Creditors 14 500 13 200Commission received 7 000Opening stock 1 000Cash at bank 2 500Cash in hand 1 800Discounts 250 3 920Bad debt 800Salaries & Wages 22 120Advertising 1 850Carriage outwards 1 200Returns in & out 800 700Total 2 74 520 2 74 520Consider the following points at 31st December 2003:-1. The closing stock was valued at $ 12 4002. Rent, rates & insurance was owing by & 500.` 3. Commission received in advance is $ 1 000.4. Salaries & wages owing $ 880.5. Advertisement expense is prepaid by $ 350.6. Carriage inwards payable $ 800.From the above information, you are required to prepare at 31 st December2003:-a. The Trading & Profit & loss accountb. The Balance Sheet
  61. 61. Q 2. The following account balances were extracted from the books of a soletraderfor the year ended 31st December 2003:-Stock on 1st Jan 2003 12 300 Purchases 125 000Sales 1 58 000 Discount received 2 400Rent paid 7 000 Fixture & fittings 13 500Motor Car 10 500 Advertising 1 960Motor van expenses 1 120 Heating & lighting 1 200Wages to assistant 6 000 Accountant’s fee 1 200Insurance 700 Debtors 3 100Creditors 2 700 Cash in hand 250Bank overdraft 3 840 Bank charges 270Drawings 9 000 Interest received 1 400
  62. 62. Capital 27 210 License & taxes 500Carriage inwards 1 000 Carriage outwards 950The following points are to be considered at 31st Dec 2003:-1) The closing stock was valued at $ 10 500 2) Rent prepaid was $ 10003) Motor van expenses owing $ 200 4) Interest earned butnot received $ 6005) Wages to assistant outstanding $ 1 200 6) License and taxespayable $ 300From the above information, you are required to prepare:-a. The trading & profit & loss account for the year ended 31 st Dec 2003-05-03b. The balance sheet at 31st Dec 2003.Q 3. The following trial balance was extracted from the books of a soletrader for the year ended31st March 2003:-Account balances Debit $ Credit $Purchases & Sales 39 600 76 000Returns 300 450Carriage inwards 1 200Carriage outwards 900Opening stock 5 200Salaries 7 550
  63. 63. Commission 670Wages 3 000Debtors & Creditors 8 000 4 200Discounts 500 800Plant & Machinery 19 000Rates 450Furniture & Fittings 6 500Bank overdraft 3 500Office expenses 150General expenses 600Cash in hand 250Bank Loan 5 000Capital 3 920Total 93 870 93 870Adjustments:-1) The stock on 31-3-2003 was valued at $ 6 500 2) Carriage outwardswas owing by $ 1003) Rates prepaid $ 150 4) Rent for the year was earned butnot received $ 7005) General expenses owing $ 180From the above information you are required to prepare at 31st March 2003:-a. The Trading and profit & loss accountb. The Balance sheetQ 4. The following trial balance was extracted from the books of Martin klinforthe year ended 31st Dec 2003:-Debit balances $ Credit balances $Purchases 22 600 Sales 40 700Stock on 1-1-2003 5 200 Capital 5 580
  64. 64. Cash in hand 190 Bank overdraft 7 000Discount allowed 1 400 Discount received 900Returns in 810 Returns out 570Carriage outwards 2 160 Commission received 660Rent & insurance 1 700 Creditors 6 000Fixtures & Fittings 1 000Delivery van 2 300Debtors 11 900Drawings 2 800Wages & salaries 8 900General office expenses 450Total 61 410 Total 61 410Adjustments:-1. The closing stock was valued at $ 6 700 at 31st Dec 2003-05-032. Wages & salaries was owing by $ 1 1003. General office expenses owing $ 1504. Rent prepaid is 2805. Commission receivable $ 140From the above information, Prepare:-a. The trading and profit & loss account for the year ended 31st Dec 2003b. The balance sheet at 31st Dec 2003Q 5. The following trial balance had been taken from the books of a soletrader for the year ended31st Dec 2003:-Account balances Debit $ Credit $Purchases & sales 70 000 1 46 000
  65. 65. Returns in & out 1 500 1 600Carriage inwards 6 000Carriage outwards 3 000Discount received 6 100Telephone charges 2 000Rent paid 700Advertisement 1 100Debtors & Creditors 7 700 2 000Bank loan 10 000Cash in hand 3 750Power charges 1 000Salaries & wages 12 000Premises at cost 40 000Plant at cost 35 000Machinery at cost 15 000Motor car at cost 38 000Capital 75 800Drawings 1 250Stock on 1-1-2003 3 500Total 2 41 500 2 41 500Additional information:-1. The stock on 31st Dec 2003 was valued at $ 4 7502. Power charges unpaid at 31st Dec 2003 was $ 2 0003. Salary paid in advance at 31st Dec 2003 was $ 3 0004. depreciate all the fixed assets @ 10 % p.a. on cost5 Provide the provision for bad debts at $ 500From the above , you are required to prepare:-The trading and profit & loss account for the year ended 31 st Dec 2003 and abalance sheet
  66. 66. Q 6. The following trial balance was taken from the books of a sole traderfor theYear ended 31st March 2004:-Account balances Debit $ Credit $Opening stock 2 000Purchases and Sales 25 600 44 600Carriage inwards 1 400Stationery 500Debtors & Creditors 8 000 6 000Plant & Machinery 10 000Buildings 11 000Furniture 4 000Repairs to building 1 000Carriage out 1 600Salaries & wages 9 800Office expenses 200General expenses 2 500Drawings & Capital 2 500 30 700Cash in hand 1 200Interest paid 200Discount allowed & received 2 100 3 000Commission paid 200Rent & rates 1 500Returns 200 500Bank 700Total 85 500 85 500Notes:-1. The stock on 31-3-2004 was valued at $ 4 2002. Salaries & wages owing for the year ended 31st March 2004 was $ 1 2003. 2.5% of the debtors should be written off as bad debt4. Provide provision for depreciation on all the fixed assets @ 10% p.a.5. Rent & rates paid in advance $ 200
  67. 67. 6 The owner had taken goods costing $ 600 for his own use not entered inthebooks of the businessRequired prepare :-a. The trading and profit & loss account for the year ended 31st March 2004.b. The balance sheet at 31st March 2004.Q 7 Following is the trial balance extracted from the books of Mr. Young, asole trader, for theYear ended 31st Dec 2002:-Account balances Debit $ Credit $Capital on 1st Jan 2002 37 470Debtors & Creditors 1 500 250Premises 50 000Loan ( payable after 5 years) 10 000Furniture & Equipment at cost 10 000Provision for depreciation on 4 000Furniture& equipmentCash in hand 120Maintenance cost of equipment 750Stock on 1-1-2002 1 500Drawings 12 000Rates 1 100Heating & lighting 1 300Postage &telegram 1 250Repairs to premises 1 400Purchases and sales 14 000 45 000Wages 1 800Total 96 720 96 720Prepare Trading and profit & loss account for the year ended 31 st Dec 2002and the balance sheet as at that date after taking into account thefollowing:-
  68. 68. 1. The closing stock was valued at $ 2 7002. Heating & lighting unpaid at 31-12-02 was $ 2503. Depreciate furniture & equipment by 10% on cost.4. Rates paid in advance at the year end was $ 1005. Interest on loan for the whole year @ 10% p.a. is outstandingQ 8. The following trial balance was taken from the books of a sole traderfor the year ended31st Dec 2002:-Adjustments:-1. The stock at the end was valued at $ 6 2502. Salaries and wages owing at the end of the year was $ 1 2403. Commission accrued $ 2004. Increase the provision for bad debts by $ 2405. Provide the provision for depreciation on all the fixed assets @ 10% p.a.6. $ 4 500 of the carriage represents carriage on goods purchased7. The owner had taken goods costing $ 900 for his own use, not recorded inthe booksPrepare the set of final accounts at 31st Dec 2002
  69. 69. Q 9. The trial balance shown below was extracted from the books of a soletrader for the year ended31st March 2003:-Account balances Debit $ Credit $Purchases & Sales 60 000 1 26 000Returns inwards and outwards 1 500 1 600Carriage inwards 600Carriage outwards 300Discount received 3 100Rent paid 700Communication expenses 2 000Advertisement 1 100Debtors and creditors 5 000 2 000Bank loan (long term) 10 000Cash in hand 3 750Power charges 1 000Salaries & wages 12 000Premises 50 000Plant 25 000Machinery 10 000Motor Car 40 000Capital 75 000Drawings 1 250Stock on 1-1-2003 3 500Total 2 17 700 2 17 700Notes:- 1. Stock at 31st March 2003 was valued at $ 4 7502. Power charges unpaid at the end of the year was $ 2 0003. Salaries paid in advance at the end of the year was $ 3 0004. Depreciate all the fixed assets @ 10% p.a.5. Interest on bank loan @ 7% p.a. is owing for the whole year6. Create the provision for bad debt at 5% on debtors.
  70. 70. Prepare the set of final accounts as at 31st Dec 2003Q 10. The following trial balance was taken form the books of Alfred for theyear ended 31-12-03Debit balances $ Credit balances $Returns inwards 30 00 Capital 1 00 000Drawings 70 00 Creditors 26 000Land & building 20 000 Sales 1 69 000Plant & machinery 45 000 Provision for bad 1 000 debtsDebtors 40 500 Purchase returns 4 000Purchases 85 000Rent 3 000Postage & telegram 500Advertising 10 000Cash in hand 10 500Stock on 1-1-03 23 000Wages 13 000Telephone charges 500Salaries 13 250Printing & Stationery 890Commission 5 100Travelling 1 500Carriage inwards 6 300Motor van 1 900Cash at bank 10 060Total 3 00 Total 3 00 000 000Adjustments:-1. The closing stock was valued at $ 15 0002. Rent owed by $ 6003. Salaries Payable at the end of the year was $ 2504. Commission paid in advance was $ 1 1005. Provide for the provision for bad debt at 5% on the year end debtors
  71. 71. 6. Depreciate land and building @ 5% , Plant and Machinery and Motor Van@ 10% p.a. on costRequired to prepare at 31st Dec 2003:-a. The trading & profit & loss account b. The balance sheetQ 11. The following trial balance was related to a sole trader at 31 st Dec2003Account balances Debit $ Credit $Purchases & Sales 11 556 18 000Opening stock 3 776Carriage outwards 326Carriage inwards 234Returns 440 355Salaries & wages 2 447Motor expenses 664Rent 576Sundry expenses 1 202Motor vehicles 2 400Fixtures & fittings 600Debtors & Creditors 4 577 3 000Provision for bad debts 600Prov: for depreciation : Motor 200vehicleFixtures & Fittings 50Cash at bank 3 876Cash in hand 120Drawings and capital 2 050 12 639Total 34 844 34 844Adjustments:-1) The closing stock was valued at $ 4 9982) Salaries and wages unpaid at the end of the year was $ 5333) Depreciate motor vehicle @ 10% and Fixture & fittings @ 5% p.a. on cost
  72. 72. 4) Rent paid in advance was $ 176 5) Carriage inwards owing was $666) Increase the provision for bad debts to $ 800From the above information, you are required to prepare the set of finalaccounts at 31st Dec 2003Q 12. From the following trial balance, prepare trading and profit & lossaccount and balance sheetat 31st Dec 2001:-Account balances Debit $ Credit $Capital 50 000Plant & machinery 18 000Salaries 8 500Repairs 1 600Wages 28 000Cash in hand 2 500Land & buildings 74 500Purchases & Sales 1 23 500 2 49 000Bank overdraft 3 800Discount allowed 1 500Commission received 1 500Provision for bad debt 500Debtors & Creditors 45 000 26 300Discount received 8 000Prov. For depreciation : Plant & 500machineryLand & Buildings 1 500Bad debts 1 000Stock on 1st Jan 2001 37 000Advertising 600Office expenses 1 000Fixtures & fittings 4 000Stationery 400Interest 2 000Rent & rates 1 500Bank loan ( long term ) 9 500Total 350600 350600
  73. 73. Adjustments:-1. The closing stock was valued at $ 30 0002. Salaries owing amounted to $ 1 500 and repairs outstanding $ 4003. Commission received in advance $ 3004. The provision for bad debts should be at 1% of the year end debtors5. Depreciate all the fixed assets @ 10% p.a. on cost6. Rent & rates was prepaid by $ 2007. Goods taken by the owner for his personal use not recorded in the books$ 1 000Q 13. T. Burton is a retailer whose trial balance at 31st Dec 1999 is givenbelow:-Account balances Debit $ Credit $Purchases & Sales 72 000 1 19 400Returns 750Carriage inwards 930Wages and salaries 27 670General expense 4 750Cash at bank 4 210Petty cash 150Premises 62 520Fixtures & Fittings 9 000Stock on 1st Jan 1999 5 550Trade Debtors & Creditors 7 200 4 850Motor Vehicles at cost 13 150Provision for depreciation on Motor 2 630VehiclesCapital at 1stJan 1999 82 500Drawings 3 000Total 210 130 210 130
  74. 74. The following additional information is also available:-1. Stock at 31st Dec 1999 was valued at $ 5 2002. General expenses of $ 400 have been paid for the year 20003. A debt of $ 200 is to be written off as bad debt4. A provision is to be made for doubtful debts of 5% on Debtors at 31st Dec19995. Depreciation for 1999 is to be provided as follows:-Fixtures & Fittings at 10% using the straight line methodMotor Vehicles at 20% using the reducing balance methodRequired to prepare:-a. The Trading and Profit & loss account for the year ended 31st Dec 1999b. The Balance sheet at 31st Dec 1999Q 14. P.Day is a merchant dealing in imported goods. The followingbalances were extracted fromthe books of the business on 31st Dec 2003.Purchases 74 400Sales 141 600Sales returns 4 900Sundry expenses 370Air freight charges 6 240Motor Vehicle expenses 7 250Rent & Rates 5 720Wages 19 600Loan interest 300
  75. 75. Loan ( Repayment on 31st Dec 2008) 6 000Debtors 15 000Creditors 6 050Stock on 1st Jan 2003 8 540Fittings and Equipments 5 800Motor Vehicles 26 400Drawings 12 000Capital 35 700Cash at bank 2 830Notes: – 1. The closing stock was valued at $ 10 750 (2) One – quarter ofthe wages expensewas for the cost of re-packing the goods for resale (3) The rent & ratesamount given aboveincludes rent of $ 900 paid for the three months ended 31 st Jan 2004. (4)Interest on the loanis at the rate of 10% p.a. and has paid to 30th June 2003 (5)Motor vehiclesare to be depreciatedby 20 % of the cost (6) A provision for doubtful debts of 3% of debtors is tomade.Required to prepare at 31st Dec 2003:-a. The Trading and profit & loss accountb. The Balance sheet

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