THE ACCOUNTING SYSTEM

• Accounting systems are usually designed to produce a set of financial statements and
reports. An accounting system may be totally manual (no use of computers), fully
computerised, or partially computerised (where there is a move from a manual system
to a fully computerised system).
• The diagram below depicts a traditional accounting system:

TRANSACTIONS
Evidenced by

SOURCE DOCUMENTS
Entered into

BOOKS OF PRIME ENTRY

Posted to

THE LEDGER
Checked by

TRIAL BALANCE
Helps to prepare

FINANCIAL STATEMENTS

TRANSACTIONS
• The accounting function originates from business transactions (e.g. purchase and sale
of goods) that are properly recorded to be further processed to produce the results of an
enterprise in a form required by the various users of accounting information
(management, owners, lenders, employees, suppliers, public, government authorities
etc.).
• The results of an enterprise are usually summarised in a set financial statements
(basically the Statement of Profit or Loss, Statement of Changes in Equity, Statement of
Financial Position and Statement of Cash Flows).
• A business transaction is an event that affects the business that can be expressed in
monetary terms.
• A transaction can be made in cash (cash is immediately paid or received), by cheque or
through the bank (cash is paid or received through the banking system) or on credit
(money is to be paid or received in the future).
• The recording and reporting of business transactions are affected by the following
concepts or principles:
1. Business entity concept – only those transactions are recorded and reported that
affect the business. The personal transactions of the owner are excluded from the
accounts, unless they are connected with the business. The business and the
owner(s) are two separate entities.
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 2. Money measurement concept – only those transactions are recorded and reported
that can be expressed in terms of money or at least can be reliably estimated in
monetary terms. Thus, assets that cannot be expressed in terms of money are
excluded from the accounts, e.g. skilled workforce, inherent goodwill of the business,
technical know-how etc.
3. Historical cost concept – the monetary amount of transactions are in terms of their
historic cost, i.e. the amount of cash paid/payable or received/receivable. However,
modern accounting uses modified historical cost system to provide more reliable and
relevant information, such as by restating historical cost to current values.
4. Duality – transactions are recorded under the double entry system, i.e. a transaction
gives rise to two entries in the accounts, a debit entry followed by a corresponding
credit entry.

SOURCE DOCUMENTS
• A source document is a document that gives evidence of the occurrence of a business
transaction. In a well established enterprise all transactions are backed by a source
document to ensure a sound internal control system, namely:
1. Invoices sent / sales invoices (for credit sales transactions);
2. Invoices received / purchases invoices (for credit purchases);
3. Credit notes sent (for returns inwards);
4. Credit notes received (for returns outwards);
5. Debit notes (sent to debtors who are undercharged by error);
6. Receipts issued (when cash is received, e.g. for cash sales);
7. Remittance advice issued (when payments are made by cheque);
8. Cheque book stubs / counterfoils (for payments made by cheque);
9. Payment vouchers (for petty cash payments or other payments);
10. Statement of account (shows all transactions for the month to notify the balance
outstanding at the end of the month).

BOOKS OF PRIME ENTRY

• They are often described as subsidiary books or books of original entry. All source
documents are initially entered in an appropriate book of prime entry for control
purposes (e.g. to keep track of the documents through a proper grouping, to derive
periodic totals of certain important transactions, to exert an independent check on the
accuracy of the accounts etc.).
• The entries are usually referenced by the serial number of the document (e.g. invoice
numbers) in order to facilitate verification.
• An accounting system uses six books of prime entry as listed below:
1. Sales Day Book (to enter sales invoices for credit sales);
2. Purchases Day Book (to enter purchases invoices for credit purchases);
3. Returns Inwards Day Book (to enter credit notes sent);
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 4. Returns Outwards Day Book (to enter credit notes received);
5. Cash Book & Petty Cash Book (to enter receipts and payments in cash or by
cheque);
6. Journal (to enter the remaining transactions, e.g. acquisition & disposal of fixed
assets on credit, writing off of bad debts, drawings of goods, entries for correction of
errors etc.).
• Subsidiary books enable us derive periodic totals of specific transactions (e.g. the Sales
Book enables the accountant to know monthly total credit sales, while the Cash Book
can show the monthly cash sales figure from the analysis column 'Cash Sales').
• The Cash Book is normally analysed into various columns of important items of receipts
and payments (including discounts allowed and discounts received columns) - such a
Cash Book is often described as a multi-column cash book).
EXAMPLES:
Transactions Source Documents Books of Prime Entry
1. Purchase of goods on credit Invoice received Purchases Day Book
2. Sale of goods on credit Invoice sent Sales Day Book
3. Cash sales Receipt issued Cash Book
4. Payment of wages by cheque Counterfoil Cash Book
5. Returns of defective goods to supplier Credit note received Returns Outwards Book
6. Purchase of office equipment in cash Receipt received Cash Book
7. Purchase of van on credit Invoice received Journal

THE LEDGER
• A ledger is a columnar sheet designed to prepare accounts, as illustrated below:
Dr CASH ACCOUNT Cr
Date Details Amount Date Details Amount
2006 $ 2006 $
June 1 Sales 3,000 June 7 Purchases 2,000
,, 17 Telephone charges 900
• With a few exceptions, all ledger accounts form part of the double entry system. The
double entry system requires that every debit has a credit.
• A transaction gives rise to at least two accounts (asset a/c, liability a/c, expense a/c, or
revenue a/c) whereby the total amount of debit entries will be equal to the total amount
of credit entries. The table below summarises the general rules governing the accounts
to be debited and credited.
Assets, Expenses Liabilities, Revenues
& Drawings & Capital
DEBIT (Dr) Increase (+) Decrease (-)
CREDIT (Cr) Decrease (-) Increase (+)
Note: You should only find out whether an item increases or decreases as a result of the
transaction.
• Examples of asset accounts:
Non-current assets (held for use over more than one year; not intended for sale in the ordinary
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 course of business):
Land & buildings
Motor vehicles
Furniture & fittings
Current assets (held over a period of less than one year; they are eventually converted into
cash):
Trade receivables (Debtors)
Inventory (Stock)
Bank balance
Cash in hand
• Examples of liability accounts:
Non-current liabilities (debts repayable after more than one year):
Loans from the bank (long-term)
Current liabilities (debts repayable within one year):
Bank overdraft
Trade payables (Creditors)
Loans from the bank (short-term)
• Examples of expense accounts:
Wages
Purchases (value of goods purchased for re-sale)
Returns inwards (value of goods sold that have been returned back by the customer)
Discount allowed
Transport costs (carriage inwards and outwards)
Stationery
Irrecoverable debts
Depreciation expense (on depreciable non-current assets)
• Examples of revenue accounts:
Sales (value of goods sold)
Discount received
Rent receivable
Returns outwards (value of goods purchased that have been returned to the supplier)
• Examples of double entry system:
1. Bought office equipment in cash
Dr Office Equipment A/C (+ in Asset)
Cr Cash A/C (- in Asset)
2. Paid insurance by cheque
Dr Insurance A/C (+ in Expense)
Cr Bank A/C (- in Asset)
3. Paid H. Rose, a credit supplier, in cash
Dr H. Rose’s A/C (- in Liability)
Cr Cash A/C (- in Asset)

Subdivisions of the Ledger

• With a large number of ledger accounts it becomes difficult to record transactions
because we will have to search an account out of a book containing too many accounts.
This makes bookkeeping highly time consuming, especially where we have to locate
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 errors in accounting records. There is no doubt that by including all the accounts in a
single ledger increases the risk of errors. For these reasons, we tend to subdivide the
ledger into various parts to facilitate the work of the bookkeeper.
• The main subdivisions are:
1. Cash Book (combines the Cash A/C and the Bank A/C) + Petty Cash Book;
2. Sales / Debtors / Accounts Receivables Ledger (contains the accounts of all credit
customers);
3. Purchases / Creditors / Accounts Payables Ledger (contains the accounts of credit
suppliers);
4. General / Nominal Ledger (contains the remaining ledger accounts).

• Examples of double entry system:

No. Transactions A/c Debited A/c Credited
1 Started business with a cash balance Cash Capital
2 Commenced trading with a bank balance Bank Capital
3 Owner introduced cash into the business Cash Capital
4 Proprietor brought his private car into the business Motor Vehicle Capital
5 Owner paid office expenses from his personal bank account Office Expenses Drawings
6 Drew cash for personal use Drawings Cash
7 Drew cheque for private use Drawings Bank
8 Paid private expenses from business bank account Drawings Bank
9 Owner took out goods for personal use Drawings Purchases
10 Paid cash into the bank Bank Cash
11 Drew cheque for office use Cash Bank
12 Cashed cheque for office cash Cash Bank
13 Bought goods for cash Purchases Cash
14 Purchased goods by cheque Purchases Bank
15 Purchased goods on credit from Tommy Purchases Tommy
(Creditor)
16 Bought stationery in cash Stationery Cash
17 Purchased stationery by cheque Stationery Bank
18 Purchased stationery on credit from Notepad. Stationery Notepad
(Creditor)
19 Purchased motor van for use in cash Motor Vehicle Cash
20 Bought an office computer by cheque Office Equipment Bank
21 Acquired machines for the factory on credit from Machinery Maxwork
Maxwork (Creditor)
22 Cash sales Cash Sales
23 Sold goods by cheque Bank Sales
24 Sold goods on credit to Lewis Lewis (Debtor) Sales
25 Sold old office furniture in cash Cash Office Furniture
26 Paid rent in cash Rent Cash
27 Paid an electricity bill by cheque Electricity Bank
28 Returned goods bought on credit to Tommy Tommy Returns
(Creditor) Outwards
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 No. Transactions A/c Debited A/c Credited
29 Returned goods that were bought in cash Cash Returns
Outwards
30 Lewis returned goods (that were sold on credit) to us Returns Inwards Lewis (Debtor)
31 Goods sold in cash returned to us Returns Inwards Cash
32 Received loan from Cat Cash Loan
33 Received loan from the bank Bank Loan
34 Repaid part of the loan in cash Loan Cash
35 Repaid part of the loan by cheque Loan Bank
36 Granted cash loans to employees Investment Cash
37 Allowed a cash discount to Lewis, a credit customer Discount Allowed Lewis (Debtor)
38 Received a cash discount from Tommy, a credit Tommy Discount
supplier (Creditor) Received
39 Accepted a reduction in the price of goods sold on credit to
Lewis owing to a complaint for poor quality goods Sales Lewis (Debtor)
40 Reduced a trade discount on goods sold to Lewis on credit Lewis (Debtor) Sales

Cash & Trade Discounts

• Cash discount or settlement discount is an allowance for prompt (quick) payment.
It acts as a motivation for settling an outstanding debt quickly.
• ‘Discount allowed’ refers to cash discount given to credit customers while ‘discount
received’ refers to cash discount obtained from credit suppliers.
• A trade discount is a reduction in the cost price or list price of goods. It often
results in a sales promotion or when goods are bought in bulk. Such a discount is never
accounted; in fact it reduces the value of sales, purchases, returns inwards and returns
outwards.

TRIAL BALANCE
• A trial balance is a list of ledger account balances as illustrated below:
Trial balance as at 31 March 2006
Debit Credit
$ $
Cash xxx
Capital xxx
Land and buildings xxx
Sales (Revenue) xxx
Discount received xxx

• If the ledger accounts have properly been prepared the trial balance should agree /
balance (i.e. debit totals = credit totals).
• NOTE: Debit balances = Assets, Expenses & Drawings
Credit balances = Liabilities, Revenues & Capital
• A trial balance is normally extracted after preparing all the ledger accounts. However, it
can even be prepared at a later stage while preparing the financial statements whereby
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 period end adjustments like accruals and prepayments are taken into account.

FINANCIAL STATEMENTS
This often includes the following:
1. Statement of Profit or Loss;
2. Statement of Financial Position (Balance Sheet);
3. Statement of Cash Flows.

BOOKS OF PRIME ENTRY

• Books of prime entry (subsidiary books or books of original entry) are books in which
entries are made before being posted to the ledger accounts.

SALES DAY BOOK

• The Sales Day Book (Sales Book or Sales Journal) records all the credit sales of goods.
• The details of the information of the Sales Day Book are entered up from sales invoices,
i.e. invoices sent to credit customers, the total of which represents the amount credit
sales.
• A Sales Day Book may appear as follows:

SALES DAY BOOK

Date Details Invoice No. $
Mar 4 H. Tomson 0001168 12,000
,, 9 K. Wilson 0001169 3,700
,, 18 Linton Co. Ltd 0001170 22,100
,, 24 G. Waites 0001171 10,200
,, 31 TOTAL CREDIT SALES FOR THE MONTH 48,000

• After having recorded all the sales invoices in the Sales Day Book at a particular point in
time, say at the end of the month, the double entries are then done in the Sales /
Debtors / Accounts Receivables Ledger (containing the individual accounts of the
debtors) and the General Ledger (containing the Sales Account) as follows:
DR Customer’s A/C (individually by considering each invoice)
CR Sales A/C (with the total figure obtained at end)

PURCHASES DAY BOOK

• The Purchases Day Book (Purchases Book or Purchases Journal) records all credit
purchases of goods.
• All purchases invoices, i.e. invoices received from credit suppliers, are recorded into this
book in order to determine the total amount of credit purchases at the end of a given
period. The double entries are then effected as follows:

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 DR Purchases A/C (with the total figure derived at end)
CR Supplier’s A/C (individually by posting each invoice)

SALES RETURNS DAY BOOK

• This book records all sales returns (returns inwards) from credit customers.
• It is prepared by entering all the credit notes sent, the total of which represents the
amount of returns inwards. The double entries are then effected as follows:
DR Returns Inwards A/C (with the total figure)
CR Customer’s A/C (individually from each credit note entered)

PURCHASES RETURNS DAY BOOK

• This book records all purchases returns (returns outwards) to credit suppliers.
• It is prepared by entering all the credit notes received, the total of which represents the
amount of returns outwards. The double entries are then completed as follows:
DR Supplier’s A/C (individually from each credit note entered)
CR Returns Outwards A/C (with the total figure)

CASH BOOK
• Exceptionally, the Cash Book is a subsidiary book which forms part of the double entry
system. It contains details of all receipts and payments in cash and by cheque.
• The Cash Book combines the Cash and the Bank Accounts.

Two-column Cash Book

• It consists of two columns to record the amount of the transactions: the “cash” column
and the “bank” column as shown below:
Dr CASH BOOK Cr
Date Details Cash Bank Date Details Cash Bank
2001 RECEIPTS $ $ 2001 PAYMENTS $ $

Three-column Cash Book

• This type of Cash Book consists of three columns to include a special column for cash
discounts:
Dr CASH BOOK Cr
Date Details Discount Cash Bank Date Details Discount Cash Bank
Allowed Received
2001 RECEIPTS $ $ $ 2001 PAYMENTS $ $ $

• The discounts columns help us to derive monthly totals to facilitate postings to the
ledger accounts. The total of the discounts allowed column is posted to the debit side of
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 the Discounts Allowed Account, whilst the total of the discounts received column is
posted to the credit side of the Discounts Received account. The individual amounts of
discounts are posted to the appropriate personal accounts of the credit customers and
suppliers to complete the double entry.
• It should be noted that the discounts column are memorandum columns that are
meant for record and control purposes. They do not form part of the double entry
system.

Multi-column Cash Book

• In this case the Cash Book is analysed into various columns of important items of
receipts and payments (including discounts allowed and discounts received columns).
The following items may be analysed (which depends on management's needs):
1. Cash sales;
2. Receipts from credit customers;
3. Cash purchases;
4. Payments to credit suppliers;
5. Wages and salaries;
• All the entries made in the cash book are classified in the appropriate columns.
• Analysis columns help us to know the monthly totals for control purposes.
• Analysis columns do not form part of the double entry system.

Petty Cash Book (PCB)

• This is a multi-column Cash Book which is kept by a petty cashier to record the
payments of small (petty) expenses out of the petty cash float provided to him.
• Payments are analysed in the same way as a multi-column cash book.
• The petty cash float is a fixed amount which is re-instated every month by making a
transfer of funds from the main Cash Book (at an amount equal to the last month’s total
expenses paid out of the float). Such a system of managing a firm’s petty cash is
known as the imprest system. This might involve the following:
1. The level of cash float is determined and given to the petty cashier – Dr Petty
Cash, Cr Bank;
2. The petty cashier makes small payments from the available cash float, whereby
all such payments must be evidenced by expense receipts – Cr Petty Cash to
record all payments from the PCB;
3. As the petty cash runs low, a cheque is drawn to return the petty cash to the exact
amount of the original float by making the entries Dr Petty Cash, Cr Bank:
Note: Amount reimbursed = Total expenses since last reimbursement = Float – Cash in petty
cash box

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JOURNAL
• A journal is a form of diary of transactions showing the date, the name of the accounts
to be debited and credited, and the description of the transaction being effected (i.e. the
narrative) as illustrated below:
JOURNAL
Date Details Dr Cr
2001 $ $
June 18 Motor Van Account 200,000
Automax Limited Account 200,000
The purchase of a new motor van on credit from
Automax Limited.

• Such a book is normally used to supplement all the other books of original entry. In
other words, it is used to record those transactions that are not recorded in any of the
subsidiary books mentioned above. It may therefore contain entries like credit
purchases of non-current assets; disposals of non-current assets on credit; and bad
debts written off. It is also used for the following purposes:
(i) opening & closing entries;
(iii) adjustments for provisions, reserves and other transfers;
(iv) adjustments for accruals and prepayments;
(v) correction of errors.

COMPUTERISED ACCOUNTING
• Computerised accounting is, in principle, exactly the same as manual accounting.
However, computer programs or softwares give instructions to process data.

Advantages of accounting packages

1. Can be used by non-specialist.
2. Large amount of data can be processed very quickly.
3. More accurate than manual systems.
4. Handle large volumes of data.
5. Input data is rapidly analysed to present useful control information (trial balance,
schedules etc.).

Disadvantages of accounting packages

1. Costly to install (in terms of time, money, training etc.).
2. Security checks are needed to prevent unauthorised access to data (passwords,
firewalls, encryption etc.).
3. Requires a system of coding (numbers to identify items) and checking.
4. Lack of audit trail – difficult to identify the location of mistakes.
5. Resistance of staff to introduction of the system.

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Integrated software
• A module is a program which deals with one particular part of business accounting (e.g.
Invoicing, stock, receivables, payables, payroll, cash book etc.). An accounting
package can consist of one or several modules.
• Each module may be integrated with the others, so that data entered in one module will
be passed automatically or by simple operator request through into another module –
e.g. there may be an automatic link between invoicing and the sales ledger.
• Advantages:
1. Possible to update several ledgers by making just one entry.
2. Reports can be generated by extracting data from all relevant files.
3. Reduces the workload of the user as a result of (1) and (2) above.
• Disadvantages:
1. Usually requires more computer memory than separate systems.
2. Fewer facilities are available than specialised modules.

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QUESTION 1
You are required to complete the following table:
No. Transactions A/C to be A/C to be
debited credited
1. Started business with cash as capital
2. Received loan from the bank
3. Purchased office building by cheque
4. Bought goods on credit from Smith
5. Cash sales paid into bank

6. Bought stationery on credit from Office Supplies Ltd.

7. Bought goods by cheque

8. Paid Smith by cheque

9. Sold goods on credit to Jones

10. Owner paid business expenses out of his private bank

account.
11. Jones settled his account in cash

12. Cash paid into the bank

13. Drew cash for office use

14. Drew cheque for personal use

15. Goods taken by the proprietor for his own use
16. Sam, a credit customer, returned goods to us.
17. Sold surplus office furniture by cheque

18. Owner paid rent of his house in cash

19. Paid operating expenses by cheque

20. Paid part of the bank loan by cheque

QUESTION 2 (MCQs)
1. Which of the following is a liability of a firm?
A A building owned by the firm.
B Cash in the firm’s safe.
C Money owed to the firm by its debtors.
D Money which the firm has borrowed and has not yet repaid.
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2. In accounting, the term ‘purchases’ means
A all items bought.
B only goods bought on credit.
C only those goods bought for resale.
D only goods bought and paid for.

3. In the case of a sole trader

A earning profit does not affect capital.
B earning profit reduces capital.
C capital can arise only by earning profit.
D earning profit increases capital.

4. Which one of the following transactions may give rise to the accounting entries debit Tom’s
account, credit returns outwards account?
A Sales of goods to Tom on credit.
B Purchases of goods on credit from Tom.
C Returns of defective goods to Tom.
D Returns of defective goods by Tom.

5. When a firm pays one of its creditors by cheque, the effect on its assets and liabilities is:
Effect upon Assets Effect upon Liabilities
A Reduce bank Reduce creditors
B Increase bank Increase creditors
C Reduce bank Increase creditors
D None of the above.

QUESTION 3 (Exam Type MCQs)

1 Which of the following statements is true?
A The directors of a company are liable for any losses of the company
B A sole trader business is owned by shareholders and operated by the proprietor
C Partners are liable for losses in a partnership in proportion to their profit share ratio
D A company is run by directors on behalf of its members

2 Which of the following best describes management accounts?

A Management accounts are mandatory accounts which reflect the past performance of a
business and are prepared in accordance with strict accounting requirements
B Management accounts are normally prepared monthly on a rolling basis and include details of
past performance as well as budgets and forecasts
C Management accounts are required by law and include sufficient detail for managers control the
business and prepare for the future
D Management accounts include information computed to be relevant to managers and are
generally prepared annually

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3 Which of the following best explains why employees are interested in the financial statements of
their employer?
A To compare the business with its competitors in order to decide whether to seek employment
with one of those competitors
B To assess the effect of the business on the local economy, community and environment
C To assess whether the business will continue into the foreseeable future
D To assess the profitability of the business in order to decide whether to invest in it

4 Which of the following user groups require the most detailed financial information?
A The management
B Investors and potential investors
C Government agencies
D The public

5 Which of the following statements are true?

A Accounting can be described as the recording and summarising of transactions.
B Financial accounting describes the production of a statement of financial position and profit or
loss statement for internal use

6 The main aim of financial accounting is to:

A record all transactions in the books of account
B provide management with detailed analyses of costs
C present the financial results to the organisation by means of recognised statements
D calculate profit

7 Which one of the following sentences does NOT explain the distinction between financial accounts
and management accounts?
A Financial accounts are primarily for external users and management accounts are primarily for
internal users
B Financial accounts are normally produced annually and management accounts are normally
produced monthly
C Financial accounts are more accurate than management accounts
D Financial accounts are audited by an external auditor and management accounts do not
normally have an external audit

8 The double-entry system of book-keeping normally results in which of the following balances on
the ledger accounts?
Debit balances: Credit balances:
A Assets & revenues Liabilities, capital & expenses
B Revenues, capital & liabilities Assets & expense
C Assets & expense Liabilities, capital & revenues
D Assets, expenses & capital Liabilities & revenues

9 Which of the following explains the imprest system of operating petty cash?
A Weekly expenditure cannot exceed a set amount
B The exact amount of expenditure is reimbursed at intervals to maintain a fixed float
C All expenditure out of the petty cash must be properly authorised
D Regular equal amounts of cash are transferred into petty cash at intervals
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FURTHER PRACTICE OF DOUBLE ENTRY SYSTEM
Question 1
You are required to complete the following table. Part (1) is completed for you as an example.

No Transactions Account to be Account to be

. debited credited
1. Started business with cash at the bank Bank Capital

2. Received a loan from the bank

3. Bought goods on credit from Hritik

4. Purchased office equipment by cheque

5. Sold goods in cash

6. Paid office expenses by cheque

7. Returned defective goods to Hritik

8. Sold goods to Johny Lever

9. Drew cash for personal use

10. Paid cash into the bank

11. Paid Hritik by cheque

12. Johny Lever returned goods to us

13. Received rent in cash

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Question 2
The following transactions occurred during the first month of trading of S.John, a small retail merchant.
2016
Jan 3 Started business with $2,400 cash paid into a business bank account.
Jan 5 Owner brought his private equipment valued at $300 for use in the business.
Jan 8 Purchased goods for $1,000 by cheque.
Jan 9 Cash sales $750.
Jan 11 Purchased stationery for $20 in cash.
Jan 14 Received an invoice from B.Samuel for goods supplied at a list price of $1,000 less 20%
trade discount.
Jan 19 Paid general expenses of $130 by cheque.
Jan 20 Returned defective goods with a list price of $100 to B.Samuel.
Jan 23 S.John took out $40 cash for his personal use.
Jan 25 S.John received a bank loan of $200.
Jan 27 Paid B.Samuel $400 by cheque, less 5% cash discount.
Jan 29 Sold goods on credit to J.Crab at a list price of $900 less 10% trade discount.
Jan 30 Received commission of $10 in cash.
Jan 31 Banked in all the cash.

Required:
(a) Prepare a table as illustrated below to show the account(s) to be debited and credited as
well as the appropriate book of prime entry for each of the above transactions.

Date Account to be debited Account to be credited Book of prime entry

Jan 3 Bank Capital Cash Book
Jan 5

(b) Prepare ledger accounts to record all the transactions for the month of January and close
all the accounts at the end of the month, showing clearly the balances (if any) to be carried
forward to the following month.

(c) Extract a trial balance as at 31 January 2016.

(d) Prepare a table as illustrated below to show the effect of each of the above transactions in
the accounting equation:
Assets + Liabilities = Equity

Date Assets Liabilities Capital / Equity

Jan 3 +$2,400 No effect +$2,400
Jan 5

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