Accounting equation and double entry system

Rendering of services Trading of goods

*Hospitals/health centre
provide health services Trading of finished goods Manufactures
*Transportation companies
provide transportation services Stock/Inventory:- Stock/Inventory:-
*Finished goods *Raw material
e.g. grocery in *Work in process
a departmental store *Finished goods

(Types according to the output of the business)

TYPES OF BUSINESS

(Types according to who is owner and form of capital)

Sole trader Partnership Limited Liability Company

*Single owner *More than one owner(Partners) Private Limited Public Limited Company
*Capital is of single owner *Capital belongs to those partners Company
*Hence profit/loss *They share profit/loss according to (Pvt. Ltd.)
belongs to single the agreement Listed Non-Listed

*Owners are called shareholders

*They own shares in the company
*Capital is called share capital
*Profit given to shareholders is called dividend

Types of accounting

Financial accounting Management accounting

Objective:- Objective:-
To know the FINANCIAL To accumulate the costs related to each unit of product
PERFORMANCE and FINANCIAL sold/manufactured and also to accumulate costs for a service rendered
POSITION at the end of a specific period by rendering of services business, hence business may add an
e.g. after one year. appropriate profit to the units to get the selling price. Management
accounting uses information from both costing and financial records for
decision making purposes.
Terminology
Assets Something owned or controlled by the business that will result in future economic benefits
Examples
● Land and building
● Plants and machinery
● Stocks
● Accounts receivables (those who owe money to us)
● Cash in hand
● Cash at bank

Capital Owner's investment in business from his personal resources

e.g. cash or any other asset given to the business

Liabilities An amount owed by the business to third parties.

Examples
● Long term loans
● Accounts payable (those to whom we owe money)
● Bank overdraft
● Other payables

trade receivables/trade debtors

People to whom we sell goods or render services on credit ( directly relating to our
Accounts Receivables trade activity)

Other receivables/other debtors

People who owe to us for the reason other than that of sale of goods or rendering of
services (not directly relating to our trade activity) e.g. rent receivable

trade payables/trade creditors

People from whom we bought goods or receive services on credit ( directly relating to
our trade activity)

Accounts Payables
Other payables/other creditors
People to whom we owe for the reason other than that of purchase of goods or
receiving of services (not directly relating to our trade activity) e.g. rent payable,
telephone bills payable
Accounting equation
ASSETS = CAPITAL + LIABILITIES

1 You are to complete the gaps in the following table:-

Assets Liabilities Capital
£ £ £
a) 12,500 1,800 ?
b) 28,000 4,900 ?
c) 16,800 ? 12,500
d) 19,600 ? 16,450
e) ? 6,300 19,200
f) ? 11,650 39,750
2 You are to complete the gaps in the following table:-
Assets Liabilities Capital
£ £ £
a) 55,000 16,900 ?
b) ? 17,200 34,400
c) 36,100 ? 28,500
d) 119,500 15,400 ?
e) 88,000 ? 62,000
f) ? 49,000 110,000
3 Distinguish from the following list the items that are liabilities from those that are assets:
a Office machinery d Motor vehicles
b Loan from C Shirley e We owe for goods
c Fixtures and fittings f Bank balance
4 Classify the following items into liabilities and assets
a Motor vehicles f Owing to bank
b Premises g Cash in hand
c Creditors for goods h Loan from D Jones
d Stock of goods i Machinery
e Debtors
5 State which of the following are shown under the wrong classification for J white's business:
Assets Liabilities
Loan from C Smith stock of goods
cash in hand Debtors
Machinery Money owing to bank
Creditors
Premises
Motor Vehicles
6 Which of the following are shown under the wrong headings:
Assets Liabilities
__________________________________________________________________
Cash at Bank Loan from j Graham
Fixtures Machinery
Creditors motor vehicles
Building
Stock of goods
Debtors
Capital
7 A Smart sets up a new business. Before he actually sells anything, he has bought motor vehicles 2,000,
premises 5,000, stock of goods 1,000. He did not pay in full for his stock of goods and still owes 400 in
respect of them. He had borrowed 3,000 from D Bevan. After the events just described, and before trading
starts, he has 100 cash in hand and 700 cash at bank. (all fig. are in £)
You are required to calculate his capital.
8 T Charles starts a business. Before he actually starts to sell anything, he has bought fixtures 2,000, motor
vehicles 5,000 and a stock of goods 3,500. Although he has paid in full for the fixtures and motor vehicles, he
still owes 1,400 for some of the goods. J Perston had lent him 3,000. Chales, after the above, has 2,800 in
the business bank account and 100 cash in hand. (all fig. are in £)
You are required to calculate his capital.
9 Draw up accounting equation as at 31 Dec. 19X8
£
Capital 23,750
Debtors 4,950
Motor vehicles 5,700
Creditors 2,450
Fixtures 5,500
Stock of goods 8,800
Cash at bank 1,250
10 Draw up accounting equation as at 30 June 19X6
£
Capital 15,000
Office machinery 9,000
Creditors 900
Stock of goods 1,550
Debtors 275
Cash at bank 5,075
11
Day 1 Avon commences business introducing $1,000 capital in cash.
Day 2 Buy a motor car for $ 400 cash.
Day 3 Buy inventory for $200 cash.
Day 4 Sells all the goods bought on DAY 3 for $ 300 cash.
Day 5 Buys inventory for $400 on credit from X.
Day 6 Sells half of the goods bought on Day 5 on credit for $250 to Y.
Day 7 Pays $ 200 to X.
Day 8 Receives $ 100 from Y
Day 9 Proprietor draws $ 75 in cash.
Day 10 Pays rent of $ 40 in cash,
Day 11 Receives a loan in cash of $ 600 from a friend Cathy ,repayable in two years.
Day 12 Pays cash of $ 30 for insurance.
Requirement Know the effect of each business transaction on Accounting Equation

Double entry system

Duality concept- means each transaction has two effects

Double entry concept- based on duality concept, each business transaction should be recorded two times as it has two effects.
One effect is called Debit (Dr.) and the other one Credit(Cr.) in double entry system

Double entry rule

Dr. Cr.

Assets, expenses Capital, liabilities, income(revenue)

Cr. Dr.
Recording transactions in double entry system
Income/Revenue
Motor cycle dealer Transportation company
(Trading of finished goods) (Rendering of Services)
1 Sale of goods Sales of services
Total Income
e.g commission, fees etc.
/Revenue
2 Other income/Miscellaneous income:-
● Rent received (e.g. a part of business premises rented out)
Same
● Interest received on loan
● Dividend received from shares investment
Miscellaneous income/other income means income from other sources which doesn't relate to our main trading activity.

Trading of finished goods business

Stock:-
Finished goods

Purchases and sales

Stock buying called PURCHASES Cash purchases DR Purchases (increase of stock)

CR Cash

Credit purchases DR Purchases (increase of stock)

CR Trade creditors
Stock selling called SALES Cash sales DR Cash
CR Sales (decrease of stock)

Credit sales DR Trade debtors

CR Sales (decrease of stock)
Purchases returns and sales returns
Bought stock returned called PURCHASES RETURNS DR Trade creditors
CR Purchases returns (decrease of stock)

Sold stock returned called SALES RETURNS DR Sales returns (increase of stock)
CR Trade debtors
12
19X6
01-Aug Started business with £1,000 cash.
2 Paid £900 of the opening cash into the bank.
4 Bought goods on credit £78 from S Holmes.
5 Bought a motor van by cheque £500.
7 Bought goods for cash £55.
10 Sold goods on credit £98 to D Moore,
12 Returned goods to S Holmes £18.
19 Sold goods for cash £28.
22 Bought fixtures on credit from Kingston Equipment Co £150.
24 D Watson lent us £100 paying us the money by cheque.
29 We paid S Holmes his account by cheque £60.
31 We paid Kingston Equipment Co by cheque £150.
Requirement a) Prepare double entries
b) Prepare ledger accounts(i.e make posting to ledger accounts)
13
19X7
01-Jul Started business with £ 10,000 in the bank.
2 T Cooper lent us £ 400 in cash.
3 Bought goods on credit from F Jones £ 840 and S Charles £ 3,600.
4 Sold goods for cash £ 200.
6 Took £ 250 of the cash and paid it into the bank.
8 Sold goods on credit to C Moody £180.
10 Sold goods on credit to J Newman £ 220.
11 Bought goods on credit from F Jones £370.
12 C Moody returned goods to us £ 40.
14 Sold goods on credit to H Morgan £190 and J Peat £ 320.
15 We returned goods to F Jones £ 140.
17 Bought motor van on credit from Manchester Motors £ 2,600.
18 Bought office furniture on credit from Faster Supplies Ltd £ 600.
19 We returned goods to S Charles £ 110.
20 Bought goods for cash £ 220.
24 Goods sold for cash £70.
25 Paid money owing to F Jones by cheque £ 1,070.
26 Goods returned to us by H Morgan £ 30.
27 Returned some of office furniture costing £ 160 to Faster Supplies Ltd.
28 E Sangster put a further £ 500 into the business in the form of cash.
29 Paid Manchester Motors £ 2,600 by cheque.
31 Bought office furniture for cash £ 100.
Requirement a) Prepare double entries
b) Prepare ledger accounts(i.e make posting to ledger accounts)
Expenditure.
Expenditure.

Revenue expenditure(expenses) Capital expenditure

For day to day running of the business For buying of e.g plant, machinery, land, furniture which will remain in
business use for fairly long time
1 Purchases
2 Other expenses:-
paying utility bills
paying salaries and wages
paying rent and rates
14
19X8
01-Mar Started business with cash £ 1,500.
2 Bought goods on credit from A Hanson £ 296.
3 Paid rent by cash £ 28.
4 Paid £ 1,000 of the cash of the firm into a bank account.
5 Sold goods on credit to E Linton £ 54.
7 Bought stationery £ 15 paying by cheque.
11 Cash sale £ 49.
14 Goods returned by us to A Hanson £ 17.
17 Sold goods on credit to S Morgan £ 29.
20 Paid for repairs to the building by cash £ 18.
22 E Linton returned goods to us £ 14.
27 Paid Hanson by cheque £ 279.
28 Cash purchases £ 125.
29 Bought a motor van paying by cheque £ 395.
30 Paid motor expenses in cash £ 15.
31 Bought fixtures £ 120 on credit from A Webster.
Requirement a) Prepare double entries
b) Prepare ledger accounts(i.e make posting to ledger accounts)
15
01-Jul Started business with £ 8,000 in the bank.
2 Bought stationery by cheque £ 30.
3 Bought goods on credit from I Walsh £ 900.
4 Sold goods for cash £ 180.
5 Paid insurance by cash £ 40.
7 Bought machinery on credit from H Morgan £ 500.
8 Paid for machinery expenses by cheque £ 50.
10 Sold goods on credit to D Small £ 320.
11 Returned goods to I Walsh £ 70.
14 Paid wages by cash £ 70.
17 Paid rent by cheque £ 100.
20 Received cheque £ 200 from D Small.
21 Paid H Morgan by cheque £ 500.
23 Bought stationery on credit from Express Ltd £ 80.
25 Sold goods on credit to N Thomas £ 230.
31 Paid Express Ltd by cheque £ 80.
Requirement a) Prepare double entries
b) Prepare ledger accounts(i.e make posting to ledger accounts)

16 Using question 11 data:-

a) Prepare double entries
b) Prepare ledger accounts(i.e make posting to ledger accounts)

Balancing of Accounts and The Trial Balance

BALANCING OFF ACCOUNTS
Balancing off means make debit and credit side of ledger account equal by inserting the balancing fig. in the shorter side of the
account.

CLOSING BALANCE OR BALANCE CARRIED DOWN OR BALANCE CARRIED FORWARD

BALANCE C/D BALANCE C/F

OPENING BALANCE OR BALANCE BROUGHT DOWN OR BALANCE BROUGHT FORWARD

BALANCE B/D BALANCE B/F

TRIAL BALANCE
Prepared at accounting period end.
Purpose
* Is to see the total debits and total credits entered are equal. So certain types of errors will be revealed
* Helps in the preparation of financial statements

Method
At accounting period end, list down all debit and credit balances, if total debits not equal to total credits certain types of
errors may have occurred.
17
19X6
01-May Started firm with capital in cash of £250
2 Bought goods on credit from the following persons : D Elis £54, C Mendez £87, K Gibson £25,
D Booth £76; L Low £64.
4 Sold goods on credit to: C Bailey £43; B Huges £62; H Spencer £176.
6 Paid rent by cash £12.
9 Bailey paid us his account by cheque £43.
10 H Spencer Paid us £150 by cheque.
12 We paid the following by cheque: K Gibson £25; D Ellis £54.
15 Paid carriage by cash £23.
18 Bought goods on credit from C Mendez £43; D Booth £110.
21 Sold goods on credit to B Hughes £67.
31 Paid rent by cheque £18.
Requirement a) Prepare ledger accounts and balance all on 31 May 19x6
b) Prepare trial balance as on 31 May 19X6
18
19X6
01-Mar Started business with £800 in the bank.
2 Bought goods on credit from the following persons: K Henriques £76;
M Hyatt £27; T Braham £56.
5 Cash sales £87.
6 Paid wages in cash £14.
7 sold goods on credit: H Elliott £35; L Lane £42; J Carltion £72.
9 Bought goods for cash £46.
10 Bought goods on credit from: M Hyatt £57; T Braham £98.
12 Paid wages in cash £14.
13 Sold goods on credit to; L Lane £32; J Carlton £23.
15 Bought shop fixtures on credit from Betta Ltd £50.
17 Paid M Hyatt by cheque £84.
18 We returned goods to T Braham £20.
21 Paid Betta Ltd a cheque for £50.
24 J Carlton paid us his account by cheque £95.
27 We returned goods to K Henriques £42.
30 J King lent us £60 by cash.
31 Bought a motor van paying by cheque £400.
Requirement a) Prepare ledger accounts and balance all on 31 March.
b) Prepare trial balance as on 31 March.
Financial Statements
Accounting period is the period for which a business prepares its financial statements. It is normally of 12
months(1Year) Statement of Comprehensive Income (Income Statement) and Statement of Financial Position
(Balance Sheet) are Financial Statements (there are some others also) prepared at the end of the accounting
period.

Components in financial statements

• Assets
• Capital
• Liabilities
• Income
• Expenses

Assets

Non current Current

• Give benefits for more than • Give benefits within one accounting period
one accounting period e.g. • Already cash (cash at bank or in hand) or will be converted
*Plant and machinery into cash within one accounting period(e.g. trade receivables,
*Land and building stock etc.)
*Furniture and fixtures
Liabilities
Non current Current
• Payable for more than one accounting • Payable within one accounting period
period e.g. Long term loans e.g. Trade payables, Bank overdraft etc.

Ledger accounts (in Trial Balance)

*SOCI ledger accounts SOFP** ledger accounts

(all income and expense accounts) (Assets liabilities, capital, drawings
ledger accounts)
*Statement of Comprehensive Income
** Statement of Financial Position(Balance Sheet)
Statement of Comprehensive Income
• Income statement shows the Financial Performance for the year
• Financial Performance means what is income/revenue and to earn that income what are expenses (cost of sale,
other expenses).
Hence when compared revenue with expenses we have profit or loss for the year.
• Income statement is for the period (accounting period is normally of 12 months)
 (Business name)
Statement of comprehensive income for the year ended 31 Dec 2009
£ £
Sales X
Sales returns (X)
Net sales X
Cost of sales:-
Opening stock X
Purchases X
Carriage inwards(N1) X
Purchases returns (X)
Closing stock (X)
Cost of sales (X)
Gross profit X
Other income:-
Rent received X
Profit on disposal of non current asset X
Discount received X
X
Expenses
Discount allowed X
Utility bills X
Repair & maintenance X
Petrol expenses X
Salaries X
Rent X
Depreciation X
Bad and doubtful debts X
Interest expenses X
Carriage outwards(N1) X
Salesmen salaries X
Delivery van repair X
Bonus to Salesmen X
(X)
Net Profit X

(N1) Carriage

Carriage inwards Carriage outwards

• Cost incurred to bring stock to • Cost incurred to give delivery of stock to customers' warehouse
business warehouse. • deduct as an expense
• Add in purchase cost
Statement of Financial Position

• Assets, Liabilities, Capital account balances are presented in SOFP

• SOFP shows the balances as on/at specific date.
• SOFP shows Financial Position of the business e.g. is there sufficient cash to pay the accounts payable ? etc.

(Business name)
Statement of Financial Position as at 31 Dec, 2009
£ £
ASSETS
Non Current Assets
Warehouse X
Delivery van X
X
FROM LESS
Current Assets
LIQUID TO
MOST LIQUID Stock X
Trade receivables X
Other receivables X
Cast at bank X
Cash in hand X
X
X
CAPITAL & LIABILITIES
Capital
Opening capital X
Injected during year X
Add profit X
Less drawings (X)
Closing capital X

Non current Liabilities

Loan (MCB Bank) X

FROM LESS
Current Liabilities
LIQUID TO
MOST LIQUID Trade payables X
Other payables X
X
X

Liquidity means how quickly an item can be converted into cash.

19 The following trial balance was extracted from the books of B Jackson on 30 April 19X7.
From it prepare his statement of comprehensive income for the year ended 30 April 19X7
and statement of financial position as at that date.
Dr. Cr.
£ £
Sales 18,600
Purchases 11,556
Stock 1 May 19X6 3,776
Carriage outwards 326
Carriage inwards 234
Returns inwards 440
Returns outwards 355
Salaries and wages 2,447
Motor expenses 664
Rent 576
Sundry expenses 1,202
Motor vehicles 2,400
Fixtures and fittings 600
Debtors 4,577
Creditors 3,045
Cash at bank 3,876
Cash in hand 120
Drawings 2,050
Capital 12,844
34,844 34,844
Stock at 30 April 19X7 was £ 4,998.
20 The following trial balance was extracted from the books of J Smailes on 31 March 19X7.
From it prepare his statement of comprehensive income for the year ended 31 March 19X7
and statement of financial position as at that date.
Dr. Cr.
£ £
Stock at 1 April 19X6 18,160
Sales 92,340
Purchases 69,185
Carriage inwards 420
Carriage outwards 1,570
Returns outwards 640
Wages and salaries 10,240
Rent and rates 3,015
Communication expenses 624
Commissions expenses 216
Insurance 405
Sundry expenses 318
Buildings 20,000
Debtors 14,320
Creditors 8,160
Fixtures 2,850
Cash at bank 2,970
Cash in hand 115
Drawings 7,620
Capital 50,888
152,028 152,028
Stock at 31 March 19X7 was £ 22,390
21 The following trial balance was extracted from the books of L Strokes on 30 September 19X8.
From it prepare his statement of comprehensive income for the year ended 30 September 19X8
and statement of financial position as at that date.
Dr. Cr.
£ £
Capital 30,955
Drawings 8,420
Cash at bank 3,115
Cash in hand 295
Debtors 12,300
Creditors 9,370
Stock 30 September 19X7 23,910
Motor van 4,100
Office equipment 6,250
Sales 130,900
Purchases 92,100
Returns inwards 550
Carriage inwards 215
Returns outwards 307
Carriage outwards 309
Motor expenses 1,630
Rent 2,970
Telephone charges 405
Wages and salaries 12,810
Insurance 492
Office expenses 1,377
Sundry expenses 284
171,532 171,532
Stock at 30 September 19X8 was £27,475
1 A=C+L
or C=A-L
or L=A-C £
a) C=A-L 10,700
b) C=A-L 23,100
c) L=A-C 4,300
d) L=A-C 3,150
e) A=C+L 25,500
f) A=C+L 51,400

7 Assets = Liabilities + Capital

Motor vehicle 2,000 A/P 400
Premises 5,000 Loan 3,000
Stock 1,000
CIH 100
Bank 700
8,800 3,400 ?

C=A-L 5,400

9 Assets = Liabilities + Capital

A/R 4,950 A/P 2,450 capital 23,750
Motor van 5,700
Fixtures 5,500
Stock 8,800
Bank 1,250
26,200 = 2,450 + 23,750 = 26,200

11 Assets = Capital + Liabilities

D1 Cash 1,000 Original 1,000 + 0 1,000
D2 Cash(1000-400) 600 Original 1,000 0
Motor van 400
1,000 = 1,000 + 0 = 1,000
D3 Cash(600-200) 400 Original 1,000
Motor van 400
Stock 200
1,000 = 1,000 + 0 = 1,000
D4 Cash(400+300) 700 Original 1,000
Motor van 400 Profit 100
Stock 0 (300-200)
1,100 = 1,100 + 0 = 1,100
D5 Cash 700 Original 1,000
Motor van 400 Profit 100
Stock 400 X 400
1,500 = 1,100 + 400 = 1,500
D6 Cash 700 Original 1,000
Motor van 400 Profit(100+50) 150
Stock(400-200) 200 X 400
Y 250
1,550 = 1,150 + 400 = 1,550
D7 Cash(700-200) 500 Original 1,000
Motor van 400 Profit 150
Stock 200 X(400-200) 200
Y 250
1,350 = 1,150 + 200 = 1,350
D8 Cash(500+100) 600 Original 1,000
Motor van 400 Profit 150
Stock 200 X 200
Y(250-100) 150
1,350 = 1,150 + 200 = 1,350
D9 Cash(600-75) 525 Original 1,000
Motor van 400 Profit 150
Stock 200 Drawings (75) X 200
Y 150
1,275 1,075 + 200 = 1,275
D10 Cash(525-40) 485 Original 1,000
Motor van 400 Profit 150
Stock 200 Less expense (40) 110 X 200
Y 150 Less Drawings (75)

1,235 = 1,035 + 200 = 1,235

D11 Cash(485+600) 1,085 Original 1,000
Motor van 400 Profit 150
Stock 200 Less expense (40) 110 X 200
Y 150 Less Drawings (75) Loan 600

1,835 = 1,035 + 800 = 1,835

D12 Cash(1085-30) 1,055 Original 1,000

Motor van 400 Profit 150
Stock 200 Less expense (70) 80
Y 150 (40+30) X 200
Less Drawings (75) Loan 600
1,805 1,005 + 800 = 1,805
 16

12 a
Date Detail Dr. Cr.
£ £
19X6
01-Aug Cash 1,000
Capital 1,000
2 Bank 900
Cash 900
4 Purchases 78
S Holmes 78
5 Motor Van 500
Bank 500
7 Purchases 55
Cash 55
10 D Moore 98
Sales 98
12 S Holmes 18
Purchases Returns 18
19 Cash 28
Sales 28
22 Fixtures 150
Kig. Equ. 150
24 Bank 100
D Watson(Loan) 100
29 S Holmes 60
Bank 60
31 Kig. Equ. 150
Bank 150
14 a
Date Detail Dr. Cr.
£ £
19X8
01-Mar Cash 1,500
Capital 1,500
2 Purchases 296
A Hanson 296
3 Rent 28
Cash 28
4 Bank 1,000
Cash 1,000
5 E Linton 54
Sales 54
7 Stationary 15
Bank 15
11 Cash 49
Sales 49
14 A Hanson 17
Purchase returns 17
17 S Morgan 29
Sales 29
20 Building repairs 18
Cash 18
22 Sales returns 14
E Linton 14
27 A Hanson 279
Bank 279
 17
28 Purchases 125
Cash 125
29 Motor Van 395
Bank 395
30 Motor expenses 15
Cash 15
31 Fixtures 120
A Webster 120

16 a
Date Detail Dr. Cr.
$ $
D1 Cash 1,000
Capital 1,000
D2 Motor car 400
Cash 400
D3 Purchases 200
Cash 200
D4 Cash 300
Sales 300
D5 Purchases 400
X-(Trade creditor) 400
D6 Y-(Trade debtor) 250
Sales 250
D7 X-(Trade creditor) 200
Cash 200
D8 Cash
Y-(Trade debtor)
D9 Drawings 75
see below Cash 75
D10 Rent 40
Cash 40
D11 Cash 600
Cathy (Loan) 600
D12 Insurance 30
Cash 30
Drawings(Reduction in capital)
When owner injected cash/any other asset into business, this is credited to its capital
account . When he takes cash or stock or any other asset from business for his personal
use, so capital account should be debited by the amount. But instead debiting capital, we
will make debit in a separate account called Drawings account. Cash or stock or any other
asset taken from business for personal use by the owner is called Drawings

Drawings
Cash drawings Stock taken for personal use
DR Drawings DR Drawings
CR Cash/Bank CR Purchases
(As this is not a sale and owner will not pay
for the goods, decrease purchases)
Any other asset taken for personal use

DR Drawings
CR Asset
12 B
CASH CAPITAL
19X6 £ 19X6 £ 19X6 £ 19X6 £
AUG AUG AUG AUG
1 CAPITAL 1,000 2 BANK 900 1 CASH 1,000
19 SALES 28 7 PURCHASES 55

BANK PURCHASES
19X6 19X6 £ 19X6 £ 19X6 £
AUG AUG AUG AUG
2 CASH 900 5 MOTOR VAN 500 4 HOLMES 78
24 D WATSON 100 29 S HOLMES 60 7 CASH 55
(LOAN) 31 KIG. EQU. 150

S HOLMES MOTOR VAN

19X6 £ 19X6 £ 19X6 £ 19X6 £
AUG AUG AUG AUG
12 PURCHASES 18 4 PURCHASES 78 5 BANK 500
RETURNS
29 BANK 60

D MOORE SALES
19X6 £ 19X6 £ 19X6 £ 19X6 £
AUG AUG AUG AUG
10 SALES 98 10 D MOORE 98
19 CASH 28

PURCHASES RETURNS FIXTURES

19X6 £ 19X6 £ 19X6 £ 19X6 £
AUG AUG AUG AUG
12 S HOLMES 18 22 KIG. EQU. 150

KIG. EQU. D WATSON (LOAN)

19X6 £ 19X6 £ 19X6 £ 19X6 £
AUG AUG AUG AUG
31 BANK 150 22 FIXTURES 150 24 BANK 100

14 B
CASH CAPITAL
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
3 RENT 28 1 CASH 1,500
1 CAPITAL 1,500 4 BANK 1,000
11 SALES 49 20 BUILDING 18
REPAIRS 125
28 PURCHASES
30 MOTOR EXP. 15

PURCHASES A HANSON
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
2 A HANSON 296 14 PURCHASES 17 2 PURCHASES 296
28 CASH 125 RETURNS
27 BANK 279

RENT CASH
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
3 CASH 28 3 RENT 28
28 PURCHASES 125

BANK E LINTON
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
4 CASH 1,000 7 STATIONARY 15 5 SALES 54 22 SALES 14
27 A HANSON 279 RETURNS
29 MOTOR VAN 395

SALES STATIONARY
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
5 E LINTON 54 7 BANK 15
11 CASH 49
17 S MORGAN 29
 PURCHASES RETURNS S MORGAN
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
14 A HANSON 17 17 SALES 29

BUILDING REPAIRS SALES RETURNS

19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
20 CASH 18 22 E LINTON 14

MOTOR VAN MOTOR EXPENSES

19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
29 BANK 395 30 CASH 15

FIXTURES A WEBSTER
19X8 £ 19X8 £ 19X8 £ 19X8 £
MAR MAR MAR MAR
31 A WEBSTER 120 31 FIXTURES 120

16 b
CASH CAPITAL
$ $ $ $
D1 CAPITAL 1,000 D2 MOTOR CAR 400 D1 CASH 1,000
D4 SALES 300 D3 PURCHASES 200
D8 Y 100 D7 X 200
D11 CATHY(LOAN) 600 D9 DRAWINGS 75
D10 RENT 40
D12 INSURANCE 30

MOTOR CAR PURCHASES

$ $ $ $
D2 CASH 400 D3 CASH 200
D5 X 400
SALES X-TRADE CREDITOR
$ $ $ $
D4 CASH 300 D7 CASH 200 D5 PURCHASES 400
D6 Y 250

Y-TRADE DEBTOR DRAWINGS

$ $ $ $
D6 SALES 250 D8 CASH 100 D9 CASH 75

RENT CATHY(LOAN)
$ $ $ $
D10 CASH 40 D11 CASH 600

INSURANCE
$ $
D12 CASH 30

17 A
CASH CAPITAL
19X6 £ 19X 6 19X6 £ 19X 6
MAY MAY MAY MAY

1 CAPITAL 250 6 RENT 12 31 Balance c/d 250 1 CASH 250

15 CARRIAGE 23 Balance b/d 250
31 Balance c/d 215
250 250
Balance b/d 215
PURCHASES
19X6 £ 19X 6
MAY MAY
2 D ELLIS 54
C MENDS 87
K GIBSON 25
D BOOTH 76
L LOW 64
18 C MENDS 43
D BOOTH 110 31 Balance c/d 459
459 459
Balance b/d 459
 D ELLIS C MENDEZ
19X6 £ 19X 6 19X6 £ 19X 6 £
MAY MAY MAY MAY

12 BANK 54 2 PURCHASE 54 2 PURCHASE 87

18 PURCHASE 43
31 Balance c/d 130
130 130
Balance b/d 130
K GIBSON D BOOTH
19X6 £ 19X 6 19X6 £ 19X 6 £
MAY MAY MAY MAY

12 BANK 25 2 PURCHASE 25 2 PURCHASE 76

31 Balance c/d 186 18 PURCHASE 110
186 186
Balance b/d 186

L LOW C BALLEY
19X6 £ 19X 6 19X6 £ 19X 6 £
MAY MAY MAY MAY

31 Balance c/d 64 2 PURCHASE 64 4 SALES 43 9 BANK 43

Balance b/d 64
B HUGES H SPENCER
19X6 £ 19X 6 19X6 £ 19X 6 £
MAY MAY MAY MAY

4 SALES 62 4 SALES 176 10 BANK 150

21 SALES 67 31 Balance c/d 129 31 Balance c/d 26
129 129 176 176
Balance b/d 129 Balance b/d 26

SALES RENT
19X6 £ 19X 6 19X6 £ 19X 6 £
MAY MAY MAY MAY

4 C BALLEY 43 6 CASH 12
B HUGHES 62 31 BANK 18 31 Balance c/d 30
H SPENCER 176
31 Balance c/d 348 21 B HUGHES 67
348 348 30 30
Balance b/d 348 Balance b/d 30
BANK CARRIAGE
19X6 £ 19X 6 19X6 £ 19X 6 £
MAY MAY MAY MAY

9 BALLEY 43 12 K GIBSON 25 15 CASH 23 31 Balance c/d 23

10 H SPENCER 150 D ELLIS 54 Balance b/d 23
31 RENT 18
31 Balance c/d 96
193 193
Balance b/d 96

(BUSINESS NAME)
17 B TRIAL BALANCE AS ON 31 MAY 19X6

DR. CR.

CASH 215
CAPITAL 250
PURCHASES 459
C MENDEZ 130
D BOOTH 186
L LOW 64
B HUGHES 129
H SPENCER 26
SALES 348
RENT 30
BANK 96
CARRIAGE 23
978 978
19
B Jackson
Statement of comprehensive income for the year ended 30 April 19X7
£ £
Sales 18,600
Sales returns (440)
Net sales 18,160
Cost of sales:-
Opening stock 3,776
Purchases 11,556
Carriage inwards 234
Purchases returns (355)
Closing stock (4,998)
(10,213)
Gross profit 7,947
Less expenses:-
Carriage outwards 326
Salaries and wages 2,447
Motor expenses 664
Rent 576
Sundry expenses 1,202
(5,215)
Net Profit 2,732

B Jackson
Statement of financial position as at 30 April 19X7
£ £
Assets
Non Current Assets
Motor vehicles 2,400
Fixtures and Fittings 600
3,000
Current Assets
Stock 4,998
Trade receivables 4,577
Cast at bank 3,876
Cash in hand 120
13,571
16,571
Capital and Liabilities
Capital
Opening capital 12,844
Add profit 2,732
Less drawings (2,050)
Closing capital 13,526

Current Liabilities
Trade payables 3,045
16,571
 -
Accounting equation- revisited

Assets = Capital + Liabilities

or Assets - Liabilities = Capital

*Asset less liabilities is called Net Assets

Hence Net assets = Capital

It means Opening net assets = Opening capital

Closing net assets = Closing capital

Closing Capital = Opening capital + *IDP + Profit (or less Loss) - Drawings
Or
Closing net assets = Opening net assets + *IDP + Profit (or less Loss) - Drawings

* Capital introduced during the period

Sarfraz Asmat
(ACCA, CAT)