Class Notes and

Question Bank

Financial Accounting 1A
2018
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CH 1: Business, Bookkeeping and Accounting

History of Accounting
• The origins of Accounting can be traced back 5 000 years
• It was the first form of written language – recording assets and property to
legally prove ownership
• Events and occurrences were also noted
• 12th Century Rome was the most developed society
• They made use of Arabic numerals to record financial information as it was
more precise than Roman numerals
• Numerals used to record capital, assets and liabilities gained through their
transactions

Double Entry Accounting

• It was the first modern form of accounting and is the basis of our
accounting system and is still used today
• Developed by Luca Pacioli – a Venetian Monk who was a friend of Leonardo
Da Vinci (14th Century)
• Wrote a book called the Summa and he was known as the father of
Accounting
• Did not invent it but described the system used by merchants in Venice
(memorandums, journals and ledgers)
• He proposed a Trial Balance be used to prove a balanced ledger – (500
years no modification to system)

History of Accounting
• 1868 Balance Sheet
• 1940s Income Statement
• Pacioli: 3 things are needed to be a successful merchant:
o Sufficient amount of cash or credit
o Thorough Bookkeeping with detailed lists of transactions
o An Accounting system which makes it easy for one to look at
transactions very quickly and efficiently

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Users of Financial Information

• Investors – evaluate rate of return on their investments and whether to

buy, hold or sell investments and the risk involved with their investments
• Employees and labour unions – assess the stability and profitability of their
employers and their ability to provide remuneration, retirement benefits
and employment opportunities
• Lenders – evaluate the credit worthiness of their clients and assess if their
loans and interest on loans will be paid when due
• Suppliers and other trade creditors – have a keen interest in information
that enables them to determine whether amounts owing to them will be
paid when due and they are more concerned over the enterprise over the
short-term
• Customers – assess the life span of the organisation especially when they
are dependent on it
• Governments – evaluate the allocation of the resources of business and
their activities as they need to regulate these as well as tax
• The general public – assess the contribution made by the business to local
economy and their patronage to local suppliers
• Management – prepare and present Financial Statements and they require
it for decision-making

Uses of Financial Information

• To assess financial condition of business

• To determine if business activity resulted in a profit or loss
• To determine how well the departments of the business performed
• To ascertain which activities or products have been profitable
• From existing products decide which to discontinue and which to increase
production of
• To decide whether a component be bought from the market or discontinued
• To determine if the cost of production is reasonable or excessive
• To ascertain what impact existing policies have on the profitability of the
business

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 • To determine what are the likely results of new policy decisions would be on
the future earning capacity of business
• In light of past performance, how should the business strategise for the
future to ensure favourable results
• To evaluate the performance of the business and plan for the future
• To assess the viability of the business
• Obviates the necessity of remembering various transactions
• Enable the business to compare results of one period with another (if
prepared on basis of uniform practices)
• Taxation authorities are likely to believe facts contained in the set of
accounting books if maintained according to GAAP
• Can be used as evidence in a court of law if backed up by authenticated
vouchers

Internal vs External Reporting

• Internal – preparation and reporting of financial information for use by

management in making strategic decisions regarding the entity, these
reports are referred to as management accounts

• External – preparation and reporting of financial information, in

accordance with the International Financial Reporting Standards (IFRS’s),
for use by external stakeholders (customers, suppliers, etc.), these should
reflect a true and fair view of the business affairs of the organisation

IFRS comprise of:

• International Financial Reporting Standards (IFRS) after 2001 – developed

by the International Accounting Standards Board (IASB)
• Interpretations originating from the International Reporting Interpretations
Committee (IFRIC) – after 2001
• International Accounting Standards (IAS) before 2001 – developed by the
International Accounting Standards Committee (IASC)
• Standing Interpretations Committee (SIC) before 2001
• Framework for the preparation and presentation of Financial Statements

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Qualitative Characteristics of Financial Statements prepared in
accordance with IFRS

• Understandibility – should be readily understandable by readers who

have a reasonable knowledge of business
• Relevance – influences economic decisions of users
• Materiality – omission or misstatement influences decisions
• Timeliness – provided in time period likely to influence decisions
• Reliability – free from material error
• Comparability – over time and with other businesses

Different Business Forms

Choice of business form will determine:

• Exposure to risk
• Cost and efficiency of start-up
• Access to capital investment
• Right to profits
• Level of managements involvement
• Relevant income tax regime

Sole Proprietorships

• One-man business
• No separate legal personality
• Owner is responsible for all the decision-making processes
• No limited liability
• Lacks continuity when owner dies

Partnerships

 2 to 20 partners sharing a common objective of obtaining a common

benefit
 No legal formalities
 Not a separate legal personality

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  Partners bound by partnership agreement – distribution of profit and loss if
not according to contribution and if not ascertainable then equal share
(usually attorney and auditors)
 Active partner – responsible for day to day running
 Passive partner – responsible for providing capital

Companies

Profit Companies
 Private: not listed on the stock exchange
 Public: listed on the stock exchange

Non-Profit Companies
 Incorporated for benefit of the public with the income and property not
distributable to its incorporators

The New Companies Act, 71 of 2008 has brought changes about

regarding Close Corporations. What are they?

 New registrations discontinued

 Old CCs change to Private Company or continue as is until discontinued or
deregistered

Different fields in Accounting

Financial Accounting Management Accounting

Provides information for external Provides information for internal

stakeholders stakeholders

Reports on overall financial Reports at more detailed level for

performance of the organisation management decision making

Requires reporting to be accurate Uses estimates made by management

and complete or manipulated

Focuses on historical information Focuses on future performance of

indicating past performance organisation

Reporting must follow financial Reporting not required to comply with

reporting standards any standard (internal)

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The Accounting Cycle

Transaction takes place

Source documents summarise the transactions

This cycle
repeats itself on
a monthly basis
Journals summarise the source documents

The General Ledger summarises the Journals

The Trial Balance summarises the General Ledger

The Statement of Profit and Loss and other

comprehensive income (Income Statement) summarises
financial performance

The Statement of Financial Position (Balance Sheet)

measures financial position (A = O + L)

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Self-Assessment Activity 1

Financial Management
Accounting Accounting
Provides information mainly for external users
Generates ‘general purpose’ financial statements
Makes more use of subjective data
Future orientated reports
Emphasises objective data
Provides information mainly for internal users
Must conform with standards that are set externally set
Generates ‘specific purpose’ financial statements
Reports on financial events of the past
Not subject to externally set standards

Column A Column B Answer

1 Materiality and A Precision of information is required
timeliness
2 IFRS B Maximum marginal interest
3 South African GAAP C May not offer securities to the general public
4 Luca Pacioli D Components of ‘relevance’
5 Sole proprietorship E The ‘Father of Accounting’
6 Financial accounting F In line with IFRS
7 Non-profit company G May offer securities to the general public
8 Private company H Owners are called shareholders
9 40 percent I Owners take all the financial risks involved with
the business
10 Companies J Institute of Directors
K Accounting equation
L Incorporated for public benefit
M International Financial Reporting Standard’s

CH 2: Double Entry Accounting, The Accounting Equation

The Accounting Equation

• Expresses the relationship between the sources (owner’s equity and

liabilities) and the employment (assets) of business funds
• Assets = Owner’s Equity + Liabilities
• Must always balance: total on left = total on right

Assets

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 • Resources controlled by a business as a result of past events, from which
future economic benefits are likely to flow to the business and includes
tangible and intangible assets
• For an item to be classified as an asset it must meet the definition:
o Resource (make use of)
o Control (own or hire)
o Past event
and recognition criteria of an asset:
o Future economic benefits flow to entity
o Cost or value that can be measured reliably

Types of Assets

• Long-term assets or non-current assets – owned or controlled for more

than one financial year
• Short-term or current assets – owned or controlled for less than one
financial year

Liabilities

• Debts owed to third parties

• Definition of a Liability:
o Present obligation
o Past event
o Outflow of future economic benefits
Recognition Criteria:
o Probable that settlement will result in outflow of future
economic benefits and amount of obligation can be reliably measured

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Types of Liabilities

 Non-current Liabilities – settled over a period longer than one financial

year, examples:
o Mortgage Loan (bond on property)
o Bank Loans with a maturity greater than one year

 Current Liabilities – settled in a period less than one financial year,

examples:
o Bank Overdraft
o Creditors (supplier – business supplies good or services)
o SARS (money owed to them)

Equity

 Claim owners have over assets of the business (net asset value or net
assets)
 It is the remaining assets of the business after all liabilities have been
settled
 Consists of capital contributions made by owner(s) of the business,
distributions to or withdrawals by the owners and profit or loss made by the
business during a particular financial year

Profit

 Amount by which income exceeds the expenses of the business

 Gross Profit – amount by which sales exceeds cost of sales
 Operating Profit – amount after deducting operating expenses (day-to-day
expenses) from Gross Profit
 Net Profit – after all other expenses deducted except Tax and Interest

Income
 Definition:
o Increases in economic benefits during an accounting period

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 o Related to an increase in an asset or a decrease in a liability, resulting
in an increase in owner’s equity
o Other than contributions from equity participants (owners)
 Recognition Criteria:
o Increase in economic benefits related to an increase in an asset or a
decrease in a liability
o Can be measured reliably

Expenses

 Definition:
o Decreases in economic benefits during an accounting period
o Due to decreases in assets or increases in liabilities, resulting in a
decrease in owner’s equity, other than distributions to equity
participants
 Recognition Criteria:
o Decrease in economic benefits related to an increase in an asset or a
decrease in a liability has arisen
o Can be measured reliably

Cost of Sales

 Expense incurred when trading inventory previously purchased is sold.

When the trading inventory is purchased assets increase. When the trading
inventory is sold the asset is expensed.
Assets = Owner’s Equity Liabilities
+
Non-Current Assets Drawings Capital Non-Current
Liabilities
Land and Buildings Long Term Loan
Machinery and Plant Mortgage Loan
Furniture
Vehicles
Long-Term
Investments
Equipment

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Current Assets Expenses Income Current Liabilities
Trading Inventory Cost of Sales Sales Short Term Loans
Debtors Rent Expense Services Creditors
Rendered
Bank Interest Expense Rent Income Bank Overdraft
Cash Settlement Interest Output VAT
Discount Income
Granted
Cash Float Salaries and Settlement
Wages Discount
Received
Input VAT Insurance Commission
Received
Petty Cash Repairs & Dividend
Maintenance Income
Advertising
Postage
Rates and Taxes
Telephone
Fuel
Packing
Materials
Accounting Equation

Assets = Owner's Equity + Liabilities

A=O+L

Example 1

Andrew starts a business and opens up a bank account as Super Surfboard

Centre (SSC) and transfers R50 000 out of his personal bank account into the
business’s bank account. SSC thus has cash of R50 000 and is thus worth
R50 000.

Solution

Assets = Owner's Equity + Liabilities

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+R50 000 +R50 000

Example 2

SSC now takes R20 000 of the business’s money in the bank account and
purchases surfboards which Andrew intends to sell to his new clients. Thus, the
business has R20 000 less cash but now has R20 000 worth of surfboards which
it intends to sell.

Solution

Assets = Owner's Equity + Liabilities

+R20 000 R0 R0

- R20 000

Example 3

SSC purchases surfboards for R70 000 from a new supplier, Magic Boards, that
allows them to purchase the surfboards on credit. Thus the business has an
additional R70 000 worth of surfboards which it intends to sell. But with this
transaction a debt owing to the supplier of R70 000 is created.

Solution

Assets = Owner's Equity + Liabilities

+ R70 000 R0 + R70 000

Example 4

SSC sells R60 000 worth of surfboards they have on credit for R100 000. Thus
SSC, is departing with R60 000 worth of surfboards and is now owed R100 000
by a debtor.

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Solution

Assets = Owner's Equity + Liabilities

+ R100 000 + R100 000 R0

- R60 000 - R60 000 R0

Example 5

The business pays R2 000 in cash for electricity. Thus SSC is paying R2 000 in
cash for electricity which is being used up and hence decreases the worth of the
business.

Solution

Assets = Owner's Equity + Liabilities

- R2 000 - R2 000 R0

Exercise 1

1. Cashed a cheque for R2 000 for petty cash.

2. Purchased merchandise by cheque for R11 000.

3. Purchased office equipment for R12 000 on credit.

4. Paid off R3 000 on a bank loan.

5. The owner took R5 000 cash from the business bank account using an ATM
card.

6. Owner received the bank statement from the bank showing that interest on
current account is R105.

7. Received a capital contribution of R205 000 in the form of cash.

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8. The owner took stock for personal use, selling price R8 500 and cost price
R7 000.

9. Cash sales of trading inventory selling price R7 950 and cost price
R4 968.75.

10. Paid SA Prop by EFT for trading inventory purchased for R10 000.

11. Purchased an office printer on credit from Offer (Pty) Ltd for R7 200.

Date Assets Owner’s Equity Liabilities

e.g. + R205 000 + R205 000

Dr Bank Cr Capital

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Exercise 2

1. The owner made another capital contribution of R100 000 to his business,

by drawing a cheque in favour of his own business from his personal
chequebook. He also contributed a vehicle to the value of R300 000.

2. The owner took clothing from stock for personal use, selling price = R1 500
and cost price = R1 000.

3. Purchased an office computer on credit from Incredible Computers for

R5 200.

4. Paid the bookkeeper’s salary by cheque for R9 000.

5. Purchased trading goods on credit for R25 000.

6. Sold merchandise with a cost price of R2 000 on credit for R4 500.

7. Returned some of the goods, R1 000, from SA Prop and received a cash
refund.

8. Received dividend income of R800.

9. The owner contributed a desk to the business valued at R2 000.

10. Credit sales of trading inventory, selling price R9 750, cost price R6 825.

11. Paid the telephone bill for R2 300 cash.

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 Date Assets Owner’s Equity Liabilities

Exercise 3

Putin Wholesalers trade in office furniture. On 1 September 2007, the accounting

equation of the business is as follows:

Assets = Owner’s Equity + Liabilities

R233 415 R83 415 R150 000

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Putin Wholesalers entered into the following transactions for September 20.7:

Date Transaction

1 The owner, Mrs Helena Putin, made a capital contribution of R75 000 to her
business. This was done by means of an electronic transfer from her
personal account into the business’ account.

5 Purchased trading inventory (stock) on credit for R34 275.

6 Sold merchandise on credit for R9 000, the goods were bought for R6 000.

7 Paid casual wages from petty cash with R600.

8 Paid for repairs and maintenance by cheque for R2 538.

13 Issued a cheque for R1 845 to pay for water and electricity.

16 Purchased a computer for the office on credit for R21 930.

17 Purchased office refreshments by cheque for R4 500.

19 Purchased packing materials on credit for R1 365.

24 Purchased fuel for the delivery vehicle from petty cash for R 450.

25 Sold goods for R4 500 cash, the goods were originally bought for R1 200

26 Mrs Putin took a couch from stock for her personal use. This set was
originally bought for R12 000.

30 Received a cheque for R3 000 from a debtor in part payment of her account

Required: Calculate Mrs Putin’s equity in her business on 30 September 2007,

by showing the effect of each individual transaction on the accounting equation.

Date Assets Owner’s Equity Liabilities

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Self-Assessment 2

1. From the list below, identify the items that will be regarded as assets.
Explain why these items should be regarded as assets:

Office Equipment Advertising Costs Traffic Fines

A Favourable bank balance Trading Inventory A Fixed Deposit

Vehicles Packing Materials Fuel

Office Consumables

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 Assets Reasons

2. Briefly explain the accounting cycle:

___________________________________________________________

___________________________________________________________

___________________________________________________________

___________________________________________________________

___________________________________________________________

3. Roger Pierce commenced a business as a sole trader on the 1 st of August

2017. At this point he only had R40 000 in the bank, R10 000 being from
his personal funds and R30 000 from the bank in the form of a loan. Roger
entered into the following transactions during August 2017:
 2nd Sold Goods on credit for R8 700 which cost R7 000
 5th Paid the telephone bill for R2 300
 7th Cash sales of trading inventory R3 900 costing R2 250
 8th Received rent income R3 000
 9th Purchased trading inventory on credit R10 000
 13th Owner took stock for personal use, selling price R8 700 and
cost price R6 500

Calculate Roger’s equity in his business on 31 August 2017. Show the effect of
each transaction on the accounting equation.

Date Assets Owners’ Equity Liabilities

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4. List of assets and liabilities

Equipment R120 000
Debtors Control R24 000
Petty Cash R4 000
Bank (Unfavourable) R2 000
Vehicles R180 000
Creditors Control R30 000
Land and Buildings R400 000
Mortgage Loan R250 000
Cash Float R1 000
Trading Inventory (Stock) R15 000
Loan from Plewmans Bank R124 000
(R24 000 redeemable by 28/02/2008)

Required: Calculate the following values of Kiara Enterprises as at 28 February

2007:

The total of the non-current assets

The total of the current assets

The total of the non-current

liabilities

The total of the current liabilities

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 The owner’s equity

Define the following concepts:

Assets

Owner’s Equity

Liabilities

Income

Expenses

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CH 3: Value Added Tax

Zero Rated Supplies Exempt Supplies Non-Allowable Items

Petrol, diesel and Life assurance Entertainment

illuminating paraffin expenditure including
staff refreshments
except the hotel bill for
a business trip
Foodstuffs such as Interest received and
brown bread, milk, fruit interest paid
and vegetables, samp,
canned-pilchards
Exports (if pay delivery Renting a dwelling for
costs) private use

Sale of a business as a Passenger transport by

going concern bus, taxi or train

Service rendered by Donated goods and

welfare society services sold by NPO

Education services

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VAT Calculations

For VAT transactions there are three important amounts that need to be
recorded:

• VAT exclusive amount – exclusive amount x 1.14

• VAT Inclusive amount – inclusive amount ÷ 1.1.4
• VAT amount:
•
o Deduct VAT exclusive amount from VAT inclusive amount
o VAT exclusive amount X 14 ÷ 100 = VAT amount
o VAT inclusive amount X 14 ÷ 114 = VAT amount

VAT Exclusive Price VAT Amount VAT Inclusive Price

439.45 ? ?

? ? 9 003.15

120.50 ? ?

? ? 2 150.00

? 21.00 ?

680.75 ? ?

? ? 14 222.69

? 59.06 ?

300.00 ? ?

? 3 482.12 ?

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Mark-Up Calculations

 The mark-up is the price added to the cost price to arrive at its selling
price
 Gross profit and mark-up are the same thing
 Profit may be expressed as a percentage of either selling price or cost
price:
o The percentage of the cost price is called mark-up percentage
o The percentage of the selling price is called the gross profit margin
 The mark-up is used to determine the cost price of a product
 Cost price (excl. VAT) + Gross Profit amount (excl. VAT) = Selling Price
(excl. VAT)
 Example: Assume it costs a manufacturer R200 (excluding VAT) to
produce one unit of their product, called Hypo X. the manufacturer would
like to add a mark-up of 50% to their product before selling it to the
wholesaler.
 The manufacturer’s costing ratio would be:

Cost R200 + Gross Profit R100 = Selling Price R300

R 100
Mark-Up : x 100 = 50%
R 200

R 100
Gross Margin: x 100 = 33.33%
R 300

When the mark-up on cost is given to calculate the cost price:

• Cost price + mark-up % x cost price = selling price
• Cost price x (1 + mark-up %) = selling price
• Cost price = Selling Price
(1 + mark-up %)

If the mark-up is 20% on cost, CP = Selling price ÷1.2

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 Mark-Up on Cost Cost Price Profit Selling Price

10% 100.00 ? ?

25% ? ? 500.00

50% ? 750.00 ?

? ? 4 000.00 8 000.00

120% ? ? 2 200.00

When the mark-up on selling price is given, to calculate cost price:

• Cost price + gross margin x selling price = selling price
• Cost price = selling price – gross margin
• Cost price = selling price (1 – gross margin)

If the mark-up is 20% on selling price, CP = Selling Price (1 – 0.2)

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Self-Assessment 3

Complete the following table by marking the correct block:

Consideration Standar Zero- Exemp Non-

d Rate Rated t Allowable
Supply Supply Supply Item

Brown bread purchased by a

restaurant with the purpose of
making sandwiches for resale

White bread purchased by a

restaurant with the purposes of
making burgers for resale

Diesel for use in the delivery

vehicle

Illuminating paraffin for use in a

business’s factory

Water and electricity bill

Telephone bill

Doctor’s subscription to the

Medical Council

Business’s subscription to the

local golf club

Stationery

Equipment for the office

A kettle for the office kitchen

(used by staff)

Staff lunches

Interest on bank overdraft

Short-term insurance premiums

Advertising

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 Sale of a business as a going
concern

A ‘double-cab’ vehicle

A delivery vehicle that does not

fit the description of a
passenger vehicle

Electricity portion of rates and

taxes bill

Rates portion of rates and taxes

bill

1. VAT Calculation

Kumari Dealers is registered for VAT on the invoice basis. At the end of
June 2001 the sales as well as capital and current expenditure for May and
June 2001 were summarised as follows and handed over to the accountant.
All figures include VAT where applicable

Total sales (cash and credit) R82 672.00

Old delivery vehicle sold R108 400.00
Insurance paid out on stock losses due to theft R42 000.00
New office furniture purchased R29 200.00
Standard rated inventory and overheads R60 500.00
Credit note losses written off R6 000.00
Credit notes issued R4 800.00

The accountant completed the VAT return and submitted it on the 31 st July
2001 along with a payment for the amount due.

Required:
Show how the accountant would have completed the VAT return covering
the two-month tax period in question.

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CH 4: Journals, General Ledger and Trial Balance

Source Documents

 Credit Invoice: records a sale of goods or service on credit

 Cash Invoice: records a sale of goods and services on cash
 Credit Note: records cancellation of a sale or part thereof
 Cash Slip: instead of cash invoice but valid under R5 000
 Cash Receipt: records receipt of cash where no VAT is charged when a
debtor pays on account
 Cheque and its counterfoil
 EFT confirmation slip
 Petty Cash Voucher: internal source document to record payment out of the
petty cash
 Journal voucher: internal source document from which transactions are
recorded

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 Name of Abbr. Type of transaction Source document used to
Journal make an entry into
particular Journal
Cash Receipts CRJ Any transaction that Duplicate cash slip,
Journal causes the balance of duplicate cash invoice,
the current bank duplicate receipt, duplicate
account to increase bank deposit
Cash Payments CPJ Any transaction that Cheque counterfoil; EFT
Journal causes the balance of confirmation slip; original
the current bank invoice, cash slip or receipt
account to decrease from supplier
Petty Cash PCJ Purchases from the Petty cash voucher, original
Journal pretty cash box invoices, cash slip or receipt
from supplier
Creditors CJ Credit purchases of Original credit invoice
Journal any product or service

Creditors CAJ Returns or rebates with Original credit note

Allowance regard to transactions
Journal previously entered into
the CJ
Debtors DJ Credit sales of trading Duplicate credit invoice
Journal inventory only

Debtors DAJ Returns or rebates with Duplicate credit note

Allowance regard to transactions
Journal previously entered into
the DJ
General Journal GJ Sundry transactions Journal voucher
that cannot be
recorded in any of the
above seven journals

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Format of Journals

Cash Journals:

Cash Receipts Journal

Doc Date Details Fol Analysis of Bank Output Services Sales Sundry Accounts Cost of
No. Receipts VAT Rendered Sales
Amount Fol Details

Cash Payments Journal

Doc Date Name of Folio Bank Input Trading Sundry Accounts

No. Payee VAT Stock
Amount Folio Details

Petty Cash Journal

Doc Day Details Folio Petty Postage & Staff Input Sundry Accounts
No. cash Stationery Refreshments VAT
Amount Folio Details

Creditors Journal
Doc No. Day Details Fol Creditors Control VAT Input Stock Sundry
Amount Fol Details

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Creditors Allowances Journal
Doc No. Day Details Fol Creditors Control VAT Output Stock Sundry

Amount Fol Details

Debtors Journal
Doc No. Day Details Fol Debtors Control VAT output Sales Cost of Sales

Debtors Allowances Journal

Doc No. Day Details Fol Debtors Control VAT Input Sales Returns Cost of Sales
.

General Journal
Doc No. Day Details Fol Debit Credit
.

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Example 4.1 The Cash Journals

Leroy Ungaretti officially started trading as a sole trader on the 1 st of March

2007. He trades as Letsema Furnishers, a furniture retailer and as a sole trader
and is a registered VAT vendor. The business marks all their goods up at a
constant mark-up of 50% on cost, before allowing any trade discounts. The
business trades only with other registered VAT vendors that can provide valid
tax invoices (unless otherwise stipulated). Leroy decided to trade on a cash only
basis to start with, and to introduce a credit line only at a later stage. Therefore,
the only journals his bookkeeper needed to set up for March 2007 were the cash
books (receipts and payments) and the petty cash journal. All amounts include
VAT unless VAT is not applicable. The following transactions took place during
March 2007:

Date Details of transaction

1 Leroy issued a personal cheque for R100 000 as a capital contribution.

Receipt RC01 was issued and the duplicate was retained.
Cashed the first business cheque, No.01, for petty cash, R2 000. This was
regarded as the imprest amount.
2 The business received R150 000 in the form of a loan from AAA Bank to
be used as additional funds to buy inventory (stock). The money was
transferred directly into the bank account of the business
Purchased furniture for resale purposes from Pecan Nut Wholesalers and
paid by cheque No. 02, R80 000
4 Services rendered (installation fee only for 10 sets of kitchen cupboards in
a townhouse complex). Issued cash invoice CV 1 for this purposes for
R11 400 (inclusive of VAT) on receipt of the cheque from the customer,
ED Developments
Made an electronic funds transfer (EFT) for R1 240 in favour of Belkom for
the installation of the business ADSL line
5 Purchased stamps from petty cash, R48.50 (inclusive of VAT), petty cash
voucher PV1 was issued
Cash sales according to cash register roll (CRR) is R45 472 inclusive of
VAT, the CRR total includes the sale of the kitchen cupboards (materials
only) to ED Developments on day 4

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8 Debit the equipment account with R7 719.25 debit input VAT with
R1 080.70 and credit bank with R8 799.95 for a cheque purchase made
from Future Computing (cheque No.03)
Purchased cold drinks for R42.34 (including VAT) and 2 paper reams
totalling R48.60 (excluding VAT) from Star Supermarket from petty cash
9 Cashed a cheque to pay the storekeeper’s wages for the week, R500
11 Cash sales according to cash register roll, R7 695 (inclusive of VAT)
12 Purchased a delivery vehicle (non-passenger) by cheque from Elite Motors
R80 000
Paid for diesel for the delivery vehicle from petty cash R320
17 Cash sales according to cash register roll, R12 825 (inclusive of VAT)
Services rendered for R5 000 (exclusive of VAT), issued a cash invoice to
R Rogers in this regard
18 Purchased a cell phone for business use (pay-as-you-go) from petty cash
R584.95 (inclusive of VAT)
20 Purchased trading goods by cheque from Oberson Dealers, R11 482.61
(inclusive of VAT), paid for the delivery costs (via SA Couriers) for the
goods from petty cash, R176.23 (inclusive of VAT)
21 Issued a cheque in favour of the Germiston Primary School for the
enrolment fees of the owner’s son, R1 000
22 Paid Thomas Pule (the cleaner) his wages from petty cash R100
24 The owner took R200 from petty cash, R143.50 was used to purchase
snacks for a staff function, the owner kept the change for personal use
27 Sent a parcel to a client (D Knox) via courier, paid with petty cash R91.20
31 Paid the business rent via debit order for the first month of trading to The
Rental Experts, R5 000 (including VAT)
Drew a cash cheque to restore petty cash imprest amount
Cash sales according to the cash register roll is R30 472.20 including VAT
Paid the rates and taxes bill as received from Ekurhuleni by cheque, the
following cost components were shown on the bill (all amounts are
inclusive of VAT where applicable):
 Assessment rates R277.95
 Electricity R345.45
 Refuse removal R50.52
 Water services R482.63

34 | P a g e
 The bank statement (from AAA Bank) showed the following credits:
 Interest R94.17
The Bank Statement (from AAA Bank) showed the following debits:
 Debit order to SA Insurance Corporation for short-term insurance
on the vehicle R625
 Bank charges, R242.60 including VAT and a government levy of
R2.50
Duplicates of bank, deposit slips for March 2007:
 1 March 2007 – R100 000
 5 March 2007 – R56 872.00
 17 March 2007 – R26 220.00
 31 March 2007 – R30 472.20

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Cash Receipts Journal of Letsema Furnishers- March 2007

Doc Day Details Fol Analysis of Bank Output Services Sales Sundry Account Cost of
No Receipts Vat Rendered Amount Fol. Details Sales

Cash Payment Journal of Letsema Furnishers – March 2007

Doc Day Name of Payee Fo Bank Input Vat Trading Stock/ Sundry Account
No l Inventory Amount Fol. Details

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Petty Cash Journal of Letsema Furnishers – March 2007

Doc Day Details Petty Cash Postage and Staff Input Vat Sundry Account
No Stationery Refreshment Amount Fol. Details
s

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 4. 1 General Ledger of Letsema Furnishers

Balance Sheet Section

Capital B1
Date Details Fol Amount Date Details Fol Amount

Drawings B2
Date Details Fol Amount Date Details Fol Amount

Loan: AAA Bank B3

Date Details Fol Amount Date Details Fol Amount

Bank B4
Date Details Fol Amount Date Details Fol Amount

Output VAT B5
Date Details Fol Amount Date Details Fol Amount

Trading Inventory B6
Date Details Fol Amount Date Details Fol Amount

38 | P a g e
 Input VAT B7
Date Details Fol Amount Date Details Fol Amount

Petty Cash B8
Date Details Fol Amount Date Details Fol Amount

Equipment B9
Date Details Fol Amount Date Details Fol Amount

Vehicles B10
Date Details Fol Amount Date Details Fol Amount

Nominal Accounts Section

Services Rendered N1
Date Details Fol Amount Date Details Fol Amount

Sales N2
Date Details Fol Amount Date Details Fol Amount

Cost of Sales N3
Date Details Fol Amount Date Details Fol Amount

39 | P a g e
 Interest on Current Account N4
Date Details Fol Amount Date Details Fol Amount

Telephone N5
Date Details Fol Amount Date Details Fol Amount

Wages and Salaries N6

Date Details Fol Amount Date Details Fol Amount

Rent Expense N7
Date Details Fol Amount Date Details Fol Amount

Rates and Taxes N8

Date Details Fol Amount Date Details Fol Amount

Insurance N9
Date Details Fol Amount Date Details Fol Amount

Bank Charges N10

Date Details Fol Amount Date Details Fol Amount

Postage and Stationery N11

Date Details Fol Amount Date Details Fol Amount

Staff Refreshments N12

Date Details Fol Amount Date Details Fol Amount

Fuel N13
Date Details Fol Amount Date Details Fol Amount

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The Trial Balance of Letsema Furnishers as at 31st March 2007

Folio Debit Credit

Balance Sheet Section

Nominal Accounts Section

Total

Example 4.4 The Credit and Sundry Journals

After the first month of trading, Leroy decided to extend a credit line to
customers and he incorporated a Creditors Control account and a Debtors
Control account into the books of account with effect from the 1 April 2007. They
also decided to discontinue their services rendered department with effect from
the 1 April 2007.

The business marks up all their goods up at a constant mark-up of 50% on the
cost of sales before any relevant cash or trade discounts. All amounts are
inclusive of VAT unless otherwise stipulated or unless VAT is not applicable. The
bookkeeper now had to set up all eight of the subsidiary journals as from 1 April
2007, namely the cash receipts journal, the cash payments journal, the petty

41 | P a g e
cash journal, debtors journal, debtors allowances journal, creditors journal,
creditors allowances journal and the general journal. The cash receipts journal
now has a debtors’ column, and there are no services rendered column
anymore, since the servicing department has been discontinued. The cash
payments journal now has an additional column for creditors control. The
following transactions took place during April 2007:

Date Details of transaction

3 Leroy Ungaretti made the following capital contributions:

 A personal computer to the value of R3 000. SARS has allowed Leroy
to claim back the full VAT amount on the value of this computer.
Journal voucher JV1 was issued and the cash invoice he initially
received in his personal capacity as well as the SARS depreciation
schedules were used as supporting documents to justify the fair value
of R3 000
 A personal cheque was drawn in favour of the business, R20 000, the
amount was deposited directly into the business’s account
4 The loan statement from AAA Bank shows a debit for R1 849.32, being for
interest on the loan taken out on 2 March 2007 (the loan accrues interest
at 15% per annum), it also reflects a credit for R2 420.02, which
constitutes the first instalment on this loan, the bank statement for the
current bank account reflects the debit order for this instalment
5 Purchased merchandise on credit from Geronimo’s and received their credit
invoice no.TX5 for R84 102.04 less 2% trade discount for bulk purchases
Purchased trading inventory by cheque no. 10 from H-Low Traders,
R17 000
7 Returned goods of inferior quality to Geronimo’s and received their credit
note no. RE2 for R6 900.
8 Sold goods on credit to Runway Dealers and issued credit invoice D1. the
VAT exclusive price on the invoice was R4000
Sold two ‘Type F’ couches to Jane Noxa for cash @ R7 000 each less 2.5%
trade discount, cash invoice CV3 was issued to the customer
9 Runaway Dealers requested a 20% rebate on invoice D1, the goods were
not according to order, issued credit note DA1 to grant their request

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 10 Purchased a NTM recharge voucher of R800 for the pay-as-you-go
cellphone from petty cash, petty cash voucher no. PV9 was issued
Cash sales according to cash register roll, R15 236.56
11 The owner took a table and chair from stock for his own use, these goods
would have been sold for R750 (including VAT) had it been sold to the
public
Sold merchandise on credit to Iso Venter for R29 070 less 7.5% trade
discount
Issued receipt RC02 to Runway Dealers for R3 500 in full settlement of their
account, a prompt settlement discount was granted and JV4 was completed
12 Sold merchandise on credit to Lebo Tathe for R7 68295
13 The owner took R250 from petty cash to purchase 100 postage stamps at
R2.50 each from SA Post Office, the owner kept 20 of these stamps for
personal use, the rest was retained for business use
Lebo Tathe returned goods of inferior quality, issued credit note DA2 for
R825
14 Made an EFT to Geronimo’s in full settlement of the amount due, less 5%
early settlement discount (JV5 was completed)
Paid for diesel for the delivery vehicle from petty cash, R350
15 Purchased a new printer cartridge & printing paper for the office on credit
from Smart Offices, and received their credit invoice no. F17 for R886.40
Cash sales according to cash register roll, R11 217.75
17 Sold trading goods on credit to Sunil Govender for R4 332, sent the
consignment to Sunil Govender and paid for the courier fees from petty
cash, but debited the cost R224.50 to the debtors account
18 Purchased a microwave oven for the staff kitchen by cheque from Future
Kitchen Supplies R2 800
19 Purchased four coffee tables on credit @ R840.75 each from Tudor
Enterprises and received their invoice no. E495, three of those tables are
for re-sale purposes, whilst the other will be used in the reception area of
the business
20 Received a letter from Iso Venter’s attorney, stating that he has gone into
liquidation and that his personal estate has been wound up, a cheque
constituting 40 cents in the Rand from his insolvent estate was enclosed,

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 receipt no.RC03 was issued to acknowledge receipt of this part settlement
and the remainder of the outstanding debt was written off as irrecoverable
Purchased a computer slide projector for use in future board meetings, the
projector was purchased on credit from Western Frontiers for R59 250
(received credit invoice T112), but a 10% deposit was paid by cheque, the
business was to be settled over six months in accordance with a zero-
interest agreement, starting on 31 May 2007
21 Requested a rebate of 25% on one of the coffee tables purchased from
Tudor Enterprises on 19 April 2007, the table was damaged. Credit note
CN31 was received to grant the request
22 It was found that the slide projector purchased on the 20 th was an older
model than the one advertised, but the invoice received was based on the
purchase price of the newer model, the price difference between the two
models is R5 000 (excluding VAT), this was discussed with Western
Frontiers and credit note no.C14 was received to account for this
discrepancy
23 Sold trading inventory on credit to Owners Enterprises for R9 690
25 Cash sales according to cash register roll, R15 390
Owners Enterprises returned goods and a credit note was issued for R3 420
26 Purchased cold drinks for R44.24 and two paper reams for R29.19 each
from Star Supermarket from petty cash
27 The owner took R100 from petty cash for personal use
Drew a cash cheque to pay wages, R750
Drew a cheque in favour of Smart Offices, being for:
 Settlement of account (no discount)
 Purchase of stationery R482
 Purchase of trading inventory R1 000
29 It was realised that stationery purchased for R8 799.95 on 8 March 2007
was recorded in the equipment account, correct the error
30 Paid the business rent via a debit order to The Rental Experts, R5 000
(including VAT)
Drew a cash cheque to restore the petty cash imprest amount
Cash Sales according to cash register roll, R20 142.80

44 | P a g e
 Paid the rates and taxes bill as received from Ekhuruleni by cheque, the
following cost components were shown on the bill (all amounts are inclusive
of VAT where applicable):
 Assessment Rates R277.95
 Electricity R411.67
 Refuse removal R50.52
 Water services R397.46

The bank statement (from AAA Bank) showed the following credits:
 Interest R345.28

The bank statement (from AAA Bank) showed the following debits:
 Debit order to SA Insurance Corporation for short-term insurance on
the vehicle, R625
 Bank charges R312.60 including VAT and a government levy of R2.50

Duplicates of bank deposit slips for April 2—7:

 8 April 2007 – R13 650.00
 11 April 2007 – R18 736.58
 21 April 2007 – R21 973.65
 25 April 2007 – R15 390.00
 30 April 2007 – R20 142.80

45 | P a g e
Cash Receipts Journal of Letsema Furnishers - April 2007

Doc Day Details Fol Analysis Bank Debtors Output Sales Sundry Account Cost of
No of Control VAT Amount Fol. Details sales
Receipts

Cash Payment Journal of Letsema Furnishers – April 2007

Do Da Name of payee Fo Bank Creditors Input VAT Trading Sundry Account

c y l Control Stock Amount Fol. Details
No

46 | P a g e
Creditors Journal of Letsema Furnishers - April 2007

Doc Day Details Fol Creditors VAT Input Stock Sundry Account
No Control Amount Fol. Details

Creditors Allowances Journal of Letsema Furnishers - April 2007

Doc Day Details Fol Creditors VAT Stock Sundry Account

No Control Output Amount Fol. Details

47 | P a g e
Debtors Journal of Letsema Furnishers - April 2007

Doc Day Details Fol Debtors Control VAT Output Sales Cost of Sales
No

Debtors Allowances Journal of Letsema Furnishers - April 2007

Doc Day Details Fol Debtors Control VAT Input Sales Cost of
No Returns Sales

Petty Cash Journal of Letsema Furnishers – April 2007

Doc Da Details Petty Postage Staff Input Sundry Account

No y Cash and Refreshment VAT Amount Fol. Details
Stationer s
y

48 | P a g e
49 | P a g e
 General Journal of Letsema Furnishers April 2007

Doc Day Details Fol Debit Credit

No.

General Ledger of Letsema Furnishers

Balance Sheet Section

Capital B1

Date Details Fol Amount Date Details Fol Amount

Drawings B2

Date Details Fol Amount Date Details Fol Amount

Loan: AAA Bank B3

Date Details Fol Amount Date Details Fol Amount

50 | P a g e
 Bank B4

Date Details Fol Amount Date Details Fol Amount

Output VAT B5

Date Details Fol Amount Date Details Fol Amount

Trading Inventory B6

Date Details Fol Amount Date Details Fol Amount

Input VAT B7

Date Details Fol Amount Date Details Fol Amount

Petty Cash B8

Date Details Fol Amount Date Details Fol Amount

Equipment B9

51 | P a g e
Date Details Fol Amount Date Details Fol Amount

Vehicles B10

Date Details Fol Amount Date Details Fol Amount

Debtors Control B11

Date Details Fol Amount Date Details Fol Amount

Creditors Control B12

Date Details Fol Amount Date Details Fol Amount

Nominal Accounts Section

Services Rendered N1

Date Details Fol Amount Date Details Fol Amount

Sales N2

Date Details Fol Amount Date Details Fol Amount

Cost of Sales N3

Date Details Fol Amount Date Details Fol Amount

52 | P a g e
 Interest on Current Account N4

Date Details Fol Amount Date Details Fol Amount

Telephone N5

Date Details Fol Amount Date Details Fol Amount

Wages and Salaries N6

Date Details Fol Amount Date Details Fol Amount

Rent Expense N7

Date Details Fol Amount Date Details Fol Amount

Rates and Taxes N8

Date Details Fol Amount Date Details Fol Amount

Insurance N9

Date Details Fol Amount Date Details Fol Amount

Bank Charges N10

Date Details Fol Amount Date Details Fol Amount

53 | P a g e
 Postage and Stationery N11

Date Details Fol Amount Date Details Fol Amount

Staff Refreshments N12

Date Details Fol Amount Date Details Fol Amount

Fuel N13

Date Details Fol Amount Date Details Fol Amount

Interest on Loan N14

Date Details Fol Amount Date Details Fol Amount

Settlement Discount Granted N15

Date Details Fol Amount Date Details Fol Amount

Settlement Discount Received N16

Date Details Fol Amount Date Details Fol Amount

Credit Losses N17

Date Details Fol Amount Date Details Fol Amount

54 | P a g e
 Sales Returns N18

Date Details Fol Amount Date Details Fol Amount

The Trial Balance of Letsema Furnishers as at 30th April 2007

Balance Sheet Section Folio Debit Credit

Nominal Accounts Section

Total
Question 4.15 Journals, General Ledger and Trial Balance

August 2008 was the fourth month of trading for Oribi Dealers, a registered VAT
vendor that trades only with other registered vendors that are able to supply
them with valid tax invoices. The business uses a perpetual inventory (stock)
system. The following information relates to all the transactions that Oribi
Dealers entered into during August 2008 which affected the general journal. The
most recent journal voucher number was JV18, issued on 31 July 2008.

Date Details of transaction

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1 The Owner, George Oribi, made a capital contribution in the form of
furniture with a fair value of R15 000, since the furniture was purchased
more than six months ago, no notional input VAT was allowed by SARS
5 The owner took trading stock that would have been sold to the public for
R4 731 including VAT for personal use; the mark-up on cost was 33.33 %
6 The owner took stock that would have been sold to the public for R5 928
including VAT for personal use, the mark-up on selling price was 40%
8 The owner took office stationery for use by his daughter, since it is the
start of the new school year, the stationery was brand new, and was
purchased a few days ago for R365.54 including VAT
9 Received a cheque for R885 from a debtor, Derold Selepe, in full
settlement of his account of R900
11 Received a cheque for R3 800 from a debtor, Beauty Masilela, in full
settlement of her account, Beauty owed R1 130.67 on 1 August 2008, on
3 August 2008 she purchased trading goods from Oribi Dealers for
R3 455.20 including VAT, some of these goods were returned by Beauty
on 4 August and Oribi dealers issued a credit note for R722.80 (including
VAT) to settle the issue
13 Received a fax from a debtor’s bank informing us that an EFT was made
into our current bank account, the amount of the transfer was
R22 087.50, which constituted a full settlement of Thembi Mahlangu’s
account after a discount of 5% was allowed
14 Received a cheque (issued by Beauty Masilela) back from the bank
marked ‘Refer to Drawer’, show the entry to cancel the discount

16 Issued a cheque for R12 000 in full settlement of the amount of R12 250

owing to Munro Enterprises
17 Settled our account with Donnay Dealers and received a 6% settlement
discount, the amount owing to this creditor on 1 August 2008 was R4 800,
goods purchased on credit from Donnay Dealers during August 2008
totalled R6 400 (including VAT), credit notes received from this creditor
during the same period amounted to R3 000 including VAT
19 Paid R7 529 to Garries Limited in full settlement of the amount owing,
after receiving a 15% settlement discount

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24 A debtor, Fred Couples, owed Oribi Dealers R10 000 on 1 August 2008, of
this amount, R5 000 was outstanding for 61 days by 24 August 2008,
Oribi Dealer’s terms are as follows: all accounts must be settled within 60
days, ss soon as this period is exceeded, interest will accrue from the date
of purchase at an interest rate of prime plus 3%, the prime lending rate as
at 24 August was 12%, show the double entry that was made in the books
of Oribi Dealers to record this interest (assume a 365 day year)
25 Received a statement of account from a creditor (Dave Martin) showing a
debit for interest of R32.50, since our account has been overdue for 30
days longer than the agreed terms, show the double entry that was made
in the books of Oribi Dealers at time of receipt of this statement
27 It was realised that packing materials purchased on credit during July
2008 for R14 000 (including VAT) was debited to the office consumables
account in error, show the entry that had to be made to correct this error
31 It was realised that Fred Couples made an EF transfer into our bank
account for the full amount due as at 24 August, correct the error in
charging his account with interest on day 24

Required:
Interpret the information given above, and make the necessary entries in the
General Journal of Oribi Dealers for August 2008.

General Ledger Reconciliation

The following incorrect Trial Balance appeared in the books of Naledi Stores on
31 December 2007. The business makes use of the manual bookkeeping system,
is a registered VAT vendor and deals only with other registered VAT vendors. A
standard VAT rate on 14% applies.
Balance Sheet Section Folio Debit Credit
Capital B1 470 460.00
Drawings B2 23 000.00
Vehicles B3 279 400.00
Equipment B4 41 460.00
Trading Inventory B5 11 460.00
Debtors Control B6 15 700.00

57 | P a g e
 Creditors Control B7 8 400.00
Bank B8 92 327.00
Petty Cash (standard imprest) B9 2 500.00
VAT Control B10 4 567.00
Nominal Accounts Section
Sales N1 181 000.00
Cost of Sales N2 104 500.00
Rent Expense N3 26 000.00
Wages and Salaries N4 36 300.00
Fuel N5 870.00
Bank Charges N6 210.00
Postage and Stationery N7 330.00
Settlement Discount Received N8 1 490.00
Settlement Discount Granted N9 1 520.00
Interest on Current Account N10 9 520.00
Staff Refreshments N11 4 810.00
Municipal Rates and Taxes N12 31 950.00
Credit Losses (bad debts) N13 1 000.00
Interest Income N14 690.00
Interest Expense N15 130.00
Total 673 467.00 676 207.00
The following errors and omissions were depicted:

1. A municipal rates and services account amounting to R2 000 (excluding

VAT) was incorrectly debited to the rent expense account, both the rates
and services bill and rent expense attracted VAT in full and the VAT was
accounted for correctly

2. The creditors control column in the Cash Payments Journal was not posted
to the General Ledger, R2 840

3. The cost of sales column in the Debtors Journal was posted twice to both
accounts concerned, R14 000

4. When balancing the bank account in the General Ledger, the credit side of
the account was undercast by R100, and this mistake was carried forward
when the account was balanced

5. A computer was bought on credit from a VAT vendor during the year for
R11 400, including VAT. The following double entry was made in the books
to record the transaction: Dr Vehicles R11 400 Cr Bank R11 400

6. No double entry has been passed in the books for bank charges, R57, the
bank charges includes an amount of R7 for VAT and does not include any
interest charges

58 | P a g e
Required

Prepare a basic general ledger reconciliation statement for Naledi Stores as at 31

December 2007

59 | P a g e
 Example 4.5 The Trial Balance of Naledi Stores on 31 st December 2007

Folio Incorrect Trial Balance Recommended Adjustment Corrected Trial Balance

Balance Sheet Section Debit Credit Debit Credit Debit Credit
Capital B1 470 460.00 470 060.00
Drawings B2 23 000.00 23 000.00
Vehicles B3 279 400.00 11 400.00 (5) 268 000.00
Equipment B4 41 460.00 10 000.00 (5) 51 460.00
Trading Inventory B5 11 460.00 14 000.00 (3) 25 460.00
Debtors Control B6 15 700.00 15 700.00
Creditors Control B7 8 480.00 2 840.00 (2) 11 400.00 (5) 17 040.00
Bank B8 92 327.00 11 400.00 (5) 100.00 (4) + 57.00 (6) 103 570.00
Petty Cash B9 2 500.00 2 500.00
VAT Control B10 4 567.00 1 400.00 (5) + 7.00 (6) 3 160.00
Nominal Accounts Section
Sales N1 181 000.00 181 000.00
Cost of Sales N2 104 500.00 14 000.00 (3) 90 500.00
Rent Expense N3 26 000.00 2 000.00 (1) 24 000.00
Wages and Salaries N4 36 600.00 36 300.00
Fuel N5 870.00 870.00
Bank Charges N6 210.00 50.00 (6) 260.00
Postage and Stationery N7 330.00 330.00
Settlement Discount Received N8 1 490.00 1 490.00
Settlement Discount Granted N9 1 520.00 1 520.00
Interest on Current Account N10 9 520.00 9 520.00
Staff Refreshments N11 4 810.00 4 810.00
Municipal Rates and Taxes N11 31 950.00 2 000.00 (1) 31 950.00
Credit Losses (bad debts) N12 1 000.00 1 000.00
Interest Income N14 690.00 690.00
Interest Expense N15 130.00 130.00
Total 673 467.00 676 207.00 41 697.00 38 957.00 683 360.00 683 360.00

60 | P a g e
Question 4.17 on General Ledger Reconciliation

The following incorrect Trial Balance appeared in the books of Mapulane Dealers
on 31 May 2008. The business makes use of the manual bookkeeping system, is
a registered VAT vendor and deals only with other registered VAT vendors. A
standard VAT rate on 14% applies.
Folio Debit Credit
Balance Sheet Section
Capital B1 377 080.00
Drawings B2 118 062.00
Machinery B3 178 000.00
Furniture and Equipment B4 40 500.00
Trading Inventory B5 40 000.00
Debtors Control B6 23 550.00
Creditors Control B7 16 006.00
Bank B8 10 128.00
Petty Cash B9 2 026.00
VAT Control B10 228.00
Nominal Accounts Section
Sales N1 413 020.00
Cost of Sales N2 275 030.00
Insurance N3 18 350.00
Repairs and Maintenance N4 20 030.00
Wages and Salaries N5 87 100.00
Stationery N6 3 280.00
Advertising N7 7 210.00
Settlement Discount Received N8 760.00
Settlement Discount Granted N9 470.00
Interest on Bank Overdraft N10 30.00
Staff Refreshments N11 442.00
Rates and Taxes N12 840.00
Credit Losses (bad debts) N13 2 400.00
Interest Income N14 900.00
Interest Expense N15 80.00
Total 817 402.00 818 122.00

The following errors and omissions were depicted:

1. Drawings by owner amounting to R1 700 (cost price, excluding VAT) was

recorded as: Dr Cost of Sales R1 700 Cr Trading Stock R1 700

2. Refreshments were bought for R228 from petty cash, but input VAT was
erroneously claimed on the purchase, then a transaction was recorded in
the CPJ instead of the Petty Cash Journal

3. The owner made a capital contribution in the form of a personal cheque for
R6 000 drawn in favour of the business, but this transaction has not been
recorded as yet

61 | P a g e
4. The stationery column in the petty cash journal was undercast by R720 and
posted as such

5. A new computer purchased for R4 500 plus VAT was erroneously recorded
in the repairs and maintenance account, no VAT was claimed on the
transaction

6. Machinery purchased for R11 400 (including VAT) was recorded as a

purchase of trading inventory, the input VAT was correctly claimed on the
purchase

7. The outstanding debt of a debtor must be written off as irrecoverable,

R684, input Vat may be claimed back from SARS on the credit loss

Required

Prepare a basic general ledger reconciliation statement for Mapulane Dealers as

at 31 May 2008

62 | P a g e
 Question 4.17 The Trial Balance of Mapulani Dealers on 31st May 2008

Foli Incorrect Trial Balance Recommended Adjustment Corrected Trial Balance

o
Balance Sheet Section Debit Credit Debit Credit Debit Credit
Capital B1 377 080.00
Drawings B2 118 062.00
Machinery B3 178 000.00
Furniture and Equipment B4 40 500.00
Trading Inventory B5 40 000.00
Debtors Control B6 23 550.00
Creditors Control B7 16 006.00
Bank B8 10 128.00
Petty Cash B9 2 028.00
Vat Control B10 228.00
Nominal Accounts Section
Sales N1 413 020.00
Cost of Sales N2 275 030.00
Insurance N3 18 350.00
Repairs and Maintenance N4 20 030.00
Wages and Salaries N5 87 100.00
Stationery N6 3 280.00
Advertising N7 7 210.00
Settlement Discount Received N8 760.00
Settlement Discount Granted N9 470.00
Interest on Bank Overdraft N10 30.00
Staff Refreshments N11 442.00
Rates and Taxes N12 840.00
Credit Losses (bad debts) N13 2 400.00
Interest Income N14 900.00
Interest Expense N15 80.00
Total 817 402.00 818 122.00

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64 | P a g e
CH 5: Inventory

Inventory Defined

Inventory can be defined as assets:

• Held for sale in the ordinary course of business – is purchased ‘as is’ or
manufactured by the business
• In the process of production for such sale – whether raw materials or partly
processed (work-in-progress)
• In the form of material or supplies to be consumed in the production
process or in the rendering of services

Inventory should be recognised at cost including all costs incurred to bring

inventory to its location and condition for sale, such as:
• Transport costs
• Transport inwards
• Bulk and trade discounts
• Import tariffs
• Insurance costs
• Custom duties

Initial Measurement: Example

Gentile Furnishers imports an expensive lounge suite from Canada to be sold to

a client in South Africa. The regular purchase price of the lounge suite is R30
000, before a trade discount of 5%. Other costs include transport costs inwards
of R3 000 and import duties of R1 500. The cost of inventory can be calculated
as follows.

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Solution

Normal purchase price 30 000.00

Less: Trade Discount (1 500.00)

Net Purchase Price 28 500.00

Transport Inwards 3 000.00

Import Duties 1 500.00

Total Cost of Inventory 33 000.00

Inventory Systems

As will be seen in the succeeding tables:

 According to the Perpetual Inventory System balance of Stock at the end of
the year will reflect value of stock on hand
 According to the Periodic Inventory System the Inventory account remains
untouched as no Cost of Sales is recorded, rather Purchases are recorded

Perpetual Inventory System Periodic Inventory System

Continuous updating of balances for Inventory is not updated on a real
items of inventory time basis
Easy to determine gross margins at Gross margins are calculated at the
all times end of the year
Cost of sales are calculated on a Cost of sales is thus determined at
real time basis the end of the financial period/year
Stock is referred to as inventory Stock is referred to as purchases

Perpetual Inventory System

Transaction Account Debited Account Credited

1 When inventory is Inventory Bank / Trade

purchased Payables

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 2 When additional costs Inventory Bank / Trade
are incurred to get the Payables
stock ready and
available for sale
3 When inventory is Inventory (exchange) Inventory
returned to the supplier Bank (cash)
Trade Payables
(if bought on credit)
4 When inventory is sold Two double entries for Sales and Cost of
Sales
Sales Bank / Trade Sales
Receivables
Cost of Sales Cost of Sales Inventory

5 When inventory is Two double entries for Sales Returns and

returned to the Cost of Sales
business by the
customers
Sales Returns Sales Returns Bank / Debtors

Cost of Sales Inventory Cost of Sales

6 When the owner takes Drawings Inventory

inventory for personal
use

Periodic Inventory System

Transaction Account Debited Account Credited

1 When inventory is Purchases Bank / Trade

purchased Payables
2 When additional costs Carriage on Bank / Trade
are incurred to get the Purchases, import Payables
stock ready and tariffs or customs
available for sale duties
3 When inventory is Purchases (exchange) Purchases Returns
returned to the supplier Bank (cash)
Trade Payables

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 (if bought on credit)
4 When inventory is sold Only one debit entry recorded for Sales

Sales Bank / Trade Sales

Receivables
5 When inventory is One double entry is recorded for Sales
returned to the Returns
business by the
customers
Sales Returns Sales Returns Bank / Debtors

6 When the owner takes Drawings Purchases

inventory for personal
use

An Introduction to Inventory (Stock) Systems

 As shown in the above table, when the perpetual inventory system is in

use, the trading inventory account is worked in throughout the year and the
balance of the account at the end of the year must reflect the value of
stock that should be on hand
 When the periodic inventory system is used, the trading inventory account
remains untouched throughout the year, as all purchases are recorded in
the purchases account, and cost of sales is not recorded at the point of sale

Initial Measurement vs Reporting Requirements

There is a difference between the initial measurement of inventory on the date

of purchase and its eventual measurement on the reporting date – financial
statements. We have been using the perpetual stock system. With the periodic
system cost of sales is not recorded when sales occur but are determined when
stock takes are done. When we buy inventory we debit an expense account
called purchases and the costs relating to stock are debited to their individual
expense items like transport and tariffs.

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Periodic Inventory System

Cost of Sales:

Opening Inventory

Plus: Purchases less purchase returns

Plus: Carriage / Railage / Freight on Purchases

Plus: Import Tariffs / Custom Duties

Less: Closing Inventory

Differences between Periodic and Perpetual Inventory Systems

Example 1

Assume that the business has 18 000 units @ R1 per unit of their single,
homogenous product on hand on 1 April 2007 (verified by a stock-take on 31
March 2007).

The opening balance of trading stock on the 1 April 2007 would be reflected in
the general ledger as:

According to the Perpetual Inventory System:

Trading Inventory B6

Date Details Fol Amount Date Details Fol Amount

2007
April 1 Balance b/d 18 000.00

According to the Periodic Inventory System:

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 Trading Inventory B6

Date Details Fol Amount Date Details Fol Amount

2007
April 1 Balance b/d 18 000.00

Example 2

Assume that the business made the following purchases of the homogenous
product by cheque from two different suppliers during April 2007:

Date Transaction Details

4 4 200 Units from Kiara Suppliers (cheque number 24)

18 1 000 Units from Jubber Dealer (cheque number 26)

According to the Perpetual Inventory System:

Cash Payments Journal of Hewitt Enterprises April 2007

Doc Day Name of Fo Bank VAT Trading Sundry Accounts

No Payee l Input Inventory
Amount Fol Details
24 4 Kiara 4 788.0 588.00 4 200.00
Suppliers 0
26 18 Jubber 1 140.0 140.00 1 000.00
Dealers 0

According to the Periodic Inventory System:

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Cash Payments Journal of Hewitt Enterprises April 2007

Doc Day Name of Fo Bank VAT Purchase Sundry Accounts

No Payee l Input s
Amount Fol Details
24 4 Kiara 4 788.00 588.00 4 200.00
Suppliers
26 18 Jubber 1 140.00 140.00 1 000.00
Dealers

Here Purchases is an Expense Account and Trading Inventory is an Asset

Example 3

Assume the business purchased goods on credit from two different suppliers
during April 2007:

Date Transaction Details

3 8 800 Units from Green Traders (invoice number H101)

24 3 220 Units from Isle Dealers (invoice number G238)

According to the Perpetual Inventory System:

Creditors Journal of Hewitt Enterprises April 2007

Doc Day Name of Payee Fol Bank VAT Input Trading Sundry Accounts
No Inventory
Amount Fol Details
H101 3 Green Traders 10 032.00 1 232.00 8 800.00
24 24 Isle Dealers 3 670.00 450.80 3 220.00

According to the Periodic Inventory System:

Creditors Journal of Hewitt Enterprises April 2007

Doc Day Name of Payee Fol Bank VAT Input Purchases Sundry Accounts
No
Amount Fol Details
H101 3 Green Traders 10 032.00 1 232.00 8 800.00
24 24 Isle Dealers 3 670.00 450.80 3 220.00

Here Purchases is an Expense Account and Trading Inventory is an Asset

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Example 4

Assume that Hewitt Enterprises made the following returns to suppliers during
April 2007:

Date Transaction Details

4 2 200 Units to Green Traders (received credit note CR2)

26 1 602 Units to Isle Dealers (received credit note GY3)

According to the Perpetual Inventory System:

Creditors Allowances Journal of Hewitt Enterprises April 2007

Doc Day Name of Payee Fol Bank VAT Trading Sundry Accounts
No Output Inventory
Amount Fol Details
CR2 4 Green Dealers 2 508.00 308.00 2 200.00
GY3 26 Isle Dealers 1 826.28 224.28 1 602.00

According to the Periodic Inventory System:

Creditors Allowances Journal of Hewitt Enterprises April 2007

Doc Day Name of Payee Fol Bank VAT Purchases Sundry Accounts
No Output Returns
Amount Fol Details
CR2 4 Green Dealers 2 508.00 308.00 2 200.00
GY3 26 Isle Dealers 1 826.28 224.28 1 602.00

Example 5: Assume that the business made the following payments from Petty
Cash during April 2007:

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Date Transaction Details

3 Purchased 240 units of inventory (petty cash voucher P108)

21 Paid R1 240 plus VAT to FR Transport for carriage on purchases

(petty cash voucher P111)

28 Paid R604 plus VAT in customs duties relating to the purchase of

inventory from abroad (petty cash voucher P112)

30 Paid R1 012 plus VAT for import tariffs relating to the purchase of
inventory from abroad (petty cash voucher P113)

Perpetual System: Petty Cash Journal of Hewitt Enterprises April 2007

Doc Day Details Fol Petty VAT Trading Sundry Accounts

No Cash Input Inventory
Amount Fol Details
P108 3 Products for resale 273.60 33.60 240.00
P111 21 FR Transport-Carriage 1 413.60 173.60 1 240.00
P112 28 Custom Duties 688.56 84.56 604.00
P113 30 Import Tariffs 1 153.68 141.68 1 012.00

Periodic System: Petty Cash Journal of Hewitt Enterprises April 2007

Doc Day Details Fol Petty VAT Purchase Sundry Accounts

No Cash Input s
Amount Fol Details
P108 3 Products for resale 273.60 33.60 240.00
P111 21 FR Transport-Carriage 1 413.60 173.60 1 240.00 Carriage on
purchases
P112 28 Custom Duties 688.56 84.56 604.00 Custom Duties
P113 30 Import Tariffs 1 153.68 141.68 1 012.00 Import Tariffs

Example 6

Assume the following sundry transactions took place with regards to inventory
during April 2007:

Date Transaction Details

6 The owner, Mr Hewitt, took merchandise with a VAT exclusive cost

price of R300 for own use, JV1 was issued.

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27 Mr Hewitt returned goods with a VAT excusive cost price of R160,
which he withdrew on the 6th of April 2007

According to the Perpetual Inventory System: General Journal of Hewitt

Enterprises April 2007

Doc No Da Details Fol Debit Credit

y
JV1 6 Drawings 342.00
Output VAT 42.00
Trading Inventory 300.00
Owner took goods for own use
JV2 27 Trading Inventory 160.00
Input VAT 22.40
Drawings 182.40
Owner returned goods previously for personal use

According to the Perpetual Inventory System: General Journal of Hewitt

Enterprises April 2007

Doc No Da Details Fol Debit Credit

y
JV1 6 Drawings 342.00
Output VAT 42.00
Purchases 300.00
Owner took goods for own use
JV2 27 Purchases 160.00
Input VAT 22.40
Drawings 182.40
Owner returned goods previously for personal use

Example 7

Assume the following cash sales of inventory took place during April 2007.
Remember all goods are sold at a mark-up of 50% on cost:

Date Transaction Details

2 2 000 Units were sold according to the cash register roll

11 7 000 Units were sold according to the cash register roll

According to the Perpetual Inventory System:

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Cash Receipts Journal of Hewitt Enterprises April 2007

Doc Day Details Fol Bank VAT Sales Sundry Accounts Cost of Sales
No Output
Amount Fol Details
CRR 2 Cash Sale 3 420.00 420.00 3 000.00 2 000.00
CRR 11 Cash Sale 11 970.0 1 470.00 10 500.00 7 000.00
0

According to the Periodic Inventory System:

Cash Receipts Journal of Hewitt Enterprises April 2007

Doc Day Details Fol Bank VAT Sales Sundry Accounts

No Output
Amount Fol Details
CRR 2 Cash Sale 3 420.00 420.00 3 000.00
CRR 11 Cash Sale 11 970.00 1 470.00 10 500.00

Under the Periodic Inventory System we do not record the double entry for cost of sales and
therefore there will be no column for cost of sales.

Example 8

Assume the following credit sales of inventory took place during April 2007:

Date Transaction Details

9 5 000 Units were sold to B Brent according to invoice U25

14 10 200 Units were sold to O Ozz according to invoice U26

According to the Perpetual Inventory System:

Debtors Journal of Hewitt Enterprises April 2007

Doc No Day Details Fol Debtors Control VAT Output Sales Cost of Sales

U25 9 B Brent 8 550.00 1 050.00 7 500.00 5 000.00

U26 14 O Ozz 17 442.00 2 142.00 15 300.00 10 200.00

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According to the Periodic Inventory System:

Debtors Journal of Hewitt Enterprises April 2007

Doc No Day Details Fol Debtors Control VAT Output Sales

U25 9 B Brent 8 550.00 1 050.00 7 500.00

U26 14 O Ozz 17 442.00 2 142.00 15 300.00

Under the Periodic Inventory System we do not record the double entry for cost of sales and
therefore there will be no column for cost of sales.

Example 9

Assume the following returns of inventory to Hewitt Enterprises took place

during April 2007:

Date Transaction Details

9 1 000 Units were returned by B Brent (credit note N1)

14 1 020 Units were returned by O Ozz (credit note N2)

According to the Perpetual Inventory System:

Debtors Allowances Journal of Hewitt Enterprises April 2007

Doc No Day Details Fol Debtors Control VAT Input Sales Returns Cost of Sales

N1 9 B Brent 1 710.00 210.00 1 500.00 1 000.00

N2 14 O Ozz 1 744.20 214.20 1 530.00 1 020.00

According to the Periodic Inventory System:

Debtors Allowances Journal of Hewitt Enterprises April 2007

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 Doc No Day Details Fol Debtors Control VAT Input Sales Returns

N1 9 B Brent 1 710.00 210.00 1 500.00

N2 14 O Ozz 1 744.20 214.20 1 530.00

Under the Periodic Inventory System we do not record the double entry for cost of sales and
therefore there will be no column for cost of sales.

Example 10

General Ledger: According to the Perpetual Inventory System

Trading Inventory B6
Date Details Fol Amount Date Details Fol Amount
2007 2007
April 1 Balance b/d 18 000.00 April 6 Drawings GJ 4 300.00
27 Drawings GJ4 160.00 30 Creditors Control CAJ4 3 802.00
30 Bank CPJ4 5 200.00 Cost of Sales CRJ4 9 000.00
Creditors Control CJ4 12 020.00 Cost of Sales DJ4 15 200.00
Petty Cash PCJ4 3 096.00 Balance c/d 12 1940.00
Cost of Sales DAJ4 2 020.00
40 496.00 80 402.49
2007 1 Balance b/d 12 194.00
May

Sales N2
Date Details Fol Amount Date Details Fol Amount
2007A
pril 30 Bank CRJ2 13 500.00
Debtors Control DJ4 22 800.00
36 300.00

Sales Returns N3
Date Details Fol Amount Date Details Fol Amount
2007
April 30 Debtors Control DAJ4 3 030.00

Cost of Sales N4
Date Details Fol Amount Date Details Fol Amount
2007 2007
April 30 Trading Inventory CRJ4 9 000.00 April 30 Trading Inventory DAJ4 2 020.00
Trading Inventory DJ4 15 200.00 Balance c/d 22 180.00
24 200.00 24 200.00
2007
May 1 Balance b/d 22 180.00

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 General Ledger: According to the Periodic Inventory System

Trading Inventory B6
Date Details Fol Amount Date Details Fol Amount
2007
April 1 Balance b/d 18 000.00

Sales N2
Date Details Fol Amount Date Details Fol Amount
2007
April 30 Bank CRJ2 13 500.00
Debtors Control DJ4 22 800.00
36 300.00

Sales Returns N3
Date Details Fol Amount Date Details Fol Amount
2007
April 30 Debtors Control DAJ4 3 030.00

Purchases N4
Date Details Fol Amount Date Details Fol Amount
2007 2007
April 27 Drawings GJ4 160.00 April 6 Drawings GJ4 300.00
30 Bank CPJ4 5 200.00 30 Balance c/d 17 320.00
Creditors Control CJ4 12 020.00
Petty Cash PCJ4 240.00
17 620.00 17 620.00
2007
May 1 Balance b/d 17 320.00

Carriage on Purchases N5
Date Details Fol Amount Date Details Fol Amount
2007
April 21 Petty Cash PCJ4 1 240.00

Custom Duties N6
Date Details Fol Amount Date Details Fol Amount
2007
April 21 Petty Cash PCJ4 604.00

Import Tariffs N7

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Date Details Fol Amount Date Details Fol Amount
2007
April 30 Petty Cash PCJ4 1 012.00

Purchase Returns N8
Date Details Fol Amount Date Details Fol Amount
2007
April 30 Debtors Control CAJ4 3 082.00

Please note that the cost of sales can now be determined as follows:

Opening Inventory R18 000

Plus: Purchases (less Purchases Returns) R13 518
Plus: Carriage on Purchases R1 240
Plus: Customs Duties R604
Plus: Import Tariffs R1 012
R34 374
Less: Closing Inventory R12 194
R22 180

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CH 6: Bank Reconciliation: Bank Reconciliation Procedure

Step 1

Credits on bank statement are compared with the bank column of the cash
receipts journal and the differences are identified and investigated, as requiring
amendment or addition in the cashbook or as outstanding items to be entered in
the bank reconciliation statement.

Step 2

The debits on the bank statement are compared with the bank column of the
Cash Payments Journal and the differences are identified as requiring
amendment or addition in the cashbook or as outstanding items to be entered
into the bank reconciliation statement.

Step 3

Differences identified as requiring amendment or addition in the cashbook are

recorded and the cashbook is totalled.

The cashbook is then posted to the bank account in the General Ledger.

Step 4

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Complete the Bank Reconciliation Statement

Step 5

The monthly reconciliation statement is now interpreted and any outstanding

items are investigated in order to highlight potential penalties or unresolved
issues.

Bank Reconciliation Procedure

You are provided with the bank statement of Letsema Furnishers for November
2007 and additional information that you require to investigate and clarify any
differences identified when comparing the cashbook with the bank statement:

Additional Information:

1. Cheque No.18 is now stale and must be cancelled, the cheque was
originally drawn in favour of Star Supermarket for postage and stationery
2. The bank has recorded cheque no.48 at the incorrect amount
3. Deposit no.0425 on the 19 November 2007 was credited on the bank
statement at the correct amount of R2 816.03

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 4. The deposit on the 12 November 2007 was for a cheque received from a
debtor A Viljoen, the cheque was returned by the bank marked – ‘Return to
Drawer’
5. The direct deposit on 7 November was from a debtor, K Ndlovu, in
settlement of her account, the direct deposit on 21 November was for
services rendered to T Toby
6. The debit order on 30 November in favour of SA Insurance Corporation is
for the business insurance
7. The debit order on 30 November, in favour of Belkom, is for the business
telephone
8. Cheque no.11566 was incorrectly debited to the business’s account
9. Cheque no.50 was erroneously debited twice on the bank statement

Step 1: Compare the CRJ with the credit side of the bank statement:

Cash Receipts Journal of Letsema Furnishers November 2007

Doc Day Details Fol Analysis Bank Debtors Output Sales Sundry Accounts Cost of
No. of Control Vat Amount Fol Details Sales
Receipts
RC08 1 Iso Venter 4 828.60 4 828.60 4 828.60
CRR 6 Cash 2 992.26 2 992.26 367.47 2 624.79 1 749.86
CV3 12 A Viljoen 5 319.58 5 319.58 5 319.58
RC09 19 Runway Dealers 2 826.03 2 826.03 2 826.03
CV4 27 Subway 1 662.37 1 662.37 204.15 1 458.22 Commission
Furnishers Received
CRR 30 Cash 1 994.84 1 994.84 244.98 1 749.86 1 166.57

BS 7 K Ndlovu 2 174.14 2 174.74

BS 21 Services 4 336.13 532.51 3 803.62 Services
Rendered Rendered
BS 30 AAA Bank 494.86 494.86 Int on
Current Acc
18 30 Star 1 084.03 133.13 950.90 Postage &
Supermarket Stationery
27 712.84 15 148.35 1 482.2 4 374.65 6 707.60 2 916.43
4

The duplicate deposit slips are:

 1 November 2007 – Deposit Slip No. 0024 – R4 828.60

 6 November 2007 – Deposit Slip No. 0075 – R2 992.26
 12 November 2007 – Deposit Slip No. 0356 – R5 319.58
 19 November 2007 – Deposit Slip No. 0425 – R2 826.03
 27 November 2007 – Deposit Slip No. 0369 – R1 662.37
 30 November 2007 – Deposit Slip No. 0879 – R1 994.84

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Compare the credits on the bank statement with corresponding entries in the
Cash Receipts Journal. The first two amounts credited on the bank statement do
not appear in the CRJ, so we need to see if it appears on the previous month’s
reconciliation statement, and in this case they do appear on the reconciliation
statement of October.

Bank Reconciliation Statement of Letsema Furnishers - 31 October 2007

Details Amount
Balance as per bank statement R49 528.96
Less outstanding cheques:
Cheque no.18 CRJ (1 084.03)
Cheque no. 44 (2 168.07)
Cheque no. 45 BR (3 252.10)
Add outstanding deposits
Deposit slip no. 00371 1 897.06
Add bank error on deposit no.0021 2 710.08
Balance as per bank account 47 631.90

Take note of the following:

 The direct deposits on the 7th and 21st must be recorded in the CRJ
 The business overstated RC09 in their CRJ by R10 and incorrectly
completed deposit slip no.0425. thus an adjusting entry must be recorded
in the CPJ
 The interest on the current account on the 28th must be recorded in the
CRJ
 All amounts are ticked as being reconciled

Looking at the CRJ take note of:

 The CRJ is not totalled prior to completing the bank reconciliation

 The bank column is used in the comparison and not the analysis of
receipts column
 The amount received from Runway Dealers was an overstatement and the
correction is to be recorded in the CPJ
 The last 2 deposits are not credited on the bank statement and must thus
be added in the reconciliation statement

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  The two direct deposits and the interest on the current account as part of
step 1 are now recorded in the CRJ, note that there is an additional
amount for postage and stationery, we are told in the additional
information that cheque no.18 is now stale, it must therefore be reversed
in the CRJ
 The CRJ is now complete and can be totalled

Step 2: Compare the CPJ with the debit side of the bank statement

Cash Receipts Journal of Letsema Furnsihers November 2007

Doc Day Name of Payee Fol Bank Creditors Input Vat Trading Sundry Accounts
No. Control Inventory Amount Fol Details
46 1 Tudor Enterprises 7 201.15 7 201.15
47 3 Peacan Nut 5 400.86 663.26 4 737.60
Wholesalers
48 6 Star Supermarket BR780.12 95.80 684.32 Postage & Stationery
49 10 Geronimo’s 8 401.34 8 401.34
50 13 Oberson Dealers 10 201.62 1 252.83 8 948.79
51 18 The Rental Experts 5 000.00 614.00 4 385.00 Rent Paid
52 22 Smart Offices 4 554.72 559.35 3 995.37
53 26 Ekhuruleni 1 156.55 107.90 1 048.65 Rates and Taxes
54 28 Western BR3 600.57 3 600.57
Furnishers
55 30 Peacan Nut BR13 712.3 1 683.97 12 028.34
Wholesalers 1
B/S 30 A Viljoen 5 319.58 5 319.58 Debtors Control
B/S AAA Bank 525.10 43.68 481.42 Bank Charges
B/S SA Insurance 2 710.08 332.82 2 377.26 Insurance
Corporation
B/S Belkom 4 947.10 607.54 4 339.56 Telephone
B/S Runway Dealers 10.00 10.00 Debtors Control
73 521.10 19 203.06 5 961.20 29 9710.10 18 646.74
Take note of the following:

 Cheque no.48 was overstated on the bank statement and must therefore
be subtracted on the reconciliation statement
 The 3 bank charges must be recorded in the CPJ, the business can pass a
collective recording but remember government levy does not incur VAT
 Cheque no. 50 was debited twice on the bank statement, the second debit
must therefore be added on the reconciliation statement
 A Viljoen’s cheque was returned by the bank marked ‘Return to Drawer’, a
reversing recording must therefore be entered in the CPJ
 Cheque no.11566 was not drawn by Letsema Furnishers and must
therefore be subtracted on the reconciliation statement
 The two debit orders on the bank statement are recorded in the CPJ
 The CPJ is now complete and can be totalled

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Step 3: General Ledger

Bank B9

Date Date
2007 2007 Total
Nov 1 Balance b/d 47 631.90 Nov 30 Payments CPJ9 73 521.10
Total
30 Receipts CRJ9 27 712.84 Balance c/d 1 823.64
75 344.74 75 344.74
2007
Dec 1 Balance b/d 1 823.64

Step 4: Bank Reconciliation Statement

Bank Reconciliation Statement of Letsema Furnishers as at 30 November 2007

Details Amount
Balance as per bank statement 6 857.94
Less outstanding cheques
Cheques no. 45 (3 252.00)
Cheques no. 54 (3 600.47)
Cheque no. 55 (13 517.31)
Add outstanding deposits
Deposits slip no. 0369 1 662.37
Deposits slip no. 0879 1 994.84
Add correction of bank error on cheque no. 48 100.00
Add cheque incorrectly debited cheque no. 11566 1 571.85
Add cheque no. 50 incorrectly debited twice on bank statement 10 201.62
Balance as per bank statement 1 823.64

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Take note of the following:

 The first step in compiling the reconciliation is to enter the current

month’s bank statement balance, the amount is positive because the
account has a credit balance
 The second step is to carry forward any amounts not cleared off the
previous month’s reconciliation statement
 The third step is to include any additional outstanding cheques, any
outstanding deposits and list any errors requiring investigation

Question 6.2

Bank Reconciliation Statement of Hobson Traders as at 31 May 2007.

Details Amount
Balance as per bank statement R52 980.56
Less outstanding cheques:
Cheque No. 65 (R1 159.58)
Cheque No. 97 (R2 319.16)
Cheque No. 98 (R3 478.74)
Add outstanding deposits
Deposit Slip No. 56 R2 029.26
Add bank error on deposit no. 53 R2 898.95
Balance as per bank account R50 951.29

Bank Statement from BBB Bank for Hobson traders June 2007

Da Description Debit Credit Balance

y
1 Balance 52 980.56 Cr
1 Cheque no. 97 2 319.16 50 661.40
1 Deposit 2 029.26 52 690.66
1 Correction of error on deposit 2 898.95 55 589.61
1 Deposit 5 956.03 61 545.64
2 Cheque no. 99 7 679.80 53 865.84
4 Cheque no. 100 5 759.86 48 105.98
6 Deposit 3 200.79 51 306.77
7 Cheque no. 101 881.98 50 424.79
7 Monthly account fees 269.60 50 155.19
9 Direct deposit – J Fella 2 325.65 52 480.84
11 Cheque no. 102 8 959.78 43 251.06

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 12 Deposit 5 690.29 49 211.35
12 Government levy 110.86 49 100.49
14 Cheque no. 103 10 879.73 38 220.76
14 Cheque no. 103 10 879.73 27 341.03
15 Return to drawer – A Zac 5 690.29 21 650.74
19 Deposit no. 104 1 212.77 20 437.97
19 Deposit 2 822.97 23 260.94
22 Direct deposit – P Gilbey 4 638.31 27 889.25
23 Cheque no. 105 4 857.48 23 041.77
23 Transaction fees 181.24 22 860.53
26 Cheque no. 98714 1 681.39 21 179.14
27 Cheque no. 106 1 233.43 19 942.71
28 Interest on credit balance 529.35 20 475.06
30 Debit order – Freedom Insurance 2 898.95 17 576.11
30 Debit order – SA Property Management 5 291.85 12 284.26

Cash Receipts Journal of Hobson Traders June 2007

Doc Details Fo Analysis of Bank Debtors Output Sales Amount Fo Details

No. l Receipts Control VAT l
RCT67 K Phillips 5 956.03 5 956.03 5 956.03
CRR Cash 3 200.79 3 200.79 393.08 2 807.71
CI98 A Zac 5 690.29 5 690.29 5 690.29
RVT68 T Trent 3 022.97 3 022.97 3 022.97
CI99 Baxter 1 778.22 1 778.22 218.38 1 559.84 Commission
Traders Received
CRR Cash 2 133.86 2 133.86 262.05 1 871.81

Cash Payments Journal of Hobson Traders June 2007

Doc Name of Payee Fo Bank Debtors Input Purchase Amount Fo Details

No. l Control VAT s l
99 Mac Suppliers 7 679.80 7 679.80
100 Zurban Traders 5 759.86 707.35 5 052.51
101 Eleven Supermarket 831.98 102.17 729.81 Packing
Materials
102 Northern Suppliers 8 959.78 8 959.78
103 Long Distributors 10 879.73 1 336.11 9 543.62
104 Cell E 1 212.77 148.94 1 063.83 Telephone
105 Morton’s Wholesalers 4 857.48 596.53 4 260.95
106 Berg Municipality 1 233.43 96.20 1 137.23 Rates and
Taxes
107 Jock Enterprises 3 839.91 3 839.91
108 Zurban Traders 18 743.68 2 301.85 16 441.83

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Additional Information:

1. The business had the following duplicate deposit slips, deposits are made
daily when required:
 Deposit slip no. 57 – R5 956.03
 Deposit slip no. 58 – R3 200.79
 Deposit slip no. 59 – R5 690.29
 Deposit slip no. 60 – R3 022.97
 Deposit slip no. 61 – R1 778.22
 Deposit slip no. 62 R2 133.86
2. Cheque no.65 is now stale and must be cancelled, the cheque was originally
drawn in favour of Raj Café for office refreshments
3. The bank has recorded cheque no.101 at the incorrect amount
4. Deposit no.60 was credited on the bank statement at the correct amount of
R2 822.97
5. Deposit slip no.59 was for a cheque received from a client, A Zac, in
settlement of his account, the cheque was returned by the bank marked –
‘Return to Drawer’
6. The direct deposit on 9 June was from a debtor, J Fella, in settlement of his
account
7. The direct deposit on 22 June was for services rendered to P Gilbey
8. The debit order in favour of SA Property Management is for business rent
9. The debit order in favour of Freedom Insurance is for business insurance
10. Cheque no. 98714 was incorrectly debited to the business’s account. This
cheque was not drawn by the business
11. Cheque no. 103 was erroneously debited twice on the bank statement

Required: Use the information taken from the books of Hobson Traders to
complete the following for June 2007:

(i) Record any difference, identified in the bank reconciliation process, in the
Cash Receipts Journal and Cash Payments Journal at month-end
(ii) Open, post to and balance the bank account (B7) in the General Ledger

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 (iii) Compile the Bank Reconciliation Statement as at 30 June 2007

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Solution

Cash Receipts Journal of Hobson Traders June 2007

Doc No. Details Fo Analysis of Receipts Bank Debtors Control Output VAT Sales Amount Fo Details
l l
RCT67 K Phillips 5 956.03 5 956.03 5 956.03
CRR Cash 3 200.79 3 200.79 393.08 2 807.71
CI98 A Zac 5 690.29 5 690.29 5 690.29
RVT68 T Trent 3 022.97 3 022.97 3 022.97
CI99 Baxter Traders 1 778.22 1 778.22 218.38 1 559.84 Commission Received
CRR Cash 2 133.86 2 133.86 262.05 1 871.81

Cash Payments Journal of Hobson Traders June 2007

Doc No. Name of Payee Fol Bank Debtors Control Input VAT Purchase Amount Fo Details
s l
99 Mac Suppliers 7 679.80 7 679.80
100 Zurban Traders 5 759.86 707.35 5 052.51
101 Eleven Supermarket 831.98 102.17 729.81 Packing Materials
102 Northern Suppliers 8 959.78 8 959.78
103 Long Distributors 10 879.73 1 336.11 9 543.62
104 Cell E 1 212.77 148.94 1 063.83 Telephone
105 Morton’s Wholesalers 4 857.48 596.53 4 260.95
106 Berg Municipality 1 233.43 96.20 1 137.23 Rates and Taxes
107 Jock Enterprises 3 839.91 3 839.91
108 Zurban Traders 18 743.68 2 301.85 16 441.83

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91 | P a g e
 Bank B9

Date Date

Bank Reconciliation Statement of

Details Amount
Balance as per bank statement
Less outstanding cheques

Add outstanding deposits

Balance as per bank account

Question 6.3

The following information has been taken from the books of Hobson Traders to
complete the following for June 2007.

1. The following Bank Reconciliation Statement was drawn up on 31 May

2007.

Details Amount
Balance as per bank statement (unfavourable) 16 200
Outstanding deposit 2 400
Outstanding cheques
CC114 1 690
CC115 2 140
Correction of incorrect cheque 2 900

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 Balance as per bank account ?

2. A comparison of the Cashbook for June, the above Bank Reconciliation

Statement and the Bank Statement for June showed the following:

2.1 Provisional totals in the cashbook on 30 June 2007 were as follows:

 Cash Receipts Journal R112 000
 Cash Payments Journal R99 600

2.2. The outstanding deposit at the end of May for R2 400 appeared on
the bank statement on 2 June 2007

2.3. Cheque No.CC114 still did not appear on the bank statement for
June 2007, this cheque was originally written out to Foodbank SA as
a donation on 24 December 2006

2.4. Cheque No.CC115 appeared on the bank statement on 4 June 2007

for R2 740, an investigation revealed that the bank statement
amount was correct

2.5. The correction of incorrect cheque R2 900 refers to a cheque that

was incorrectly debited twice by the bank, this error has still not
been corrected by the bank

2.6. The Cash Receipts Journal showed an amount of R10 400 on 30

June 2007 that did not appear on the bank statement

2.7. The bank statement showed the following charges:

 Bank charges R364
 Interest on overdraft R840
 A dishonoured cheque for R1 120 originally received from B
Brown for R1 180 in settlement of debt
 A stop order to the insurance company for R4 800

2.8. An investigation revealed that the bank has paid the insurance
policy twice i.e. the actual amount is R2 400, this mistake was also

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 made last month, they have promised to rectify the matter and to
refund the amount to the business

2.9. The bookkeeper is in possession of two cheques that she has not
entered as she is not sure what to do:
 Cheque No.CC203 for R1 700 issued to Helix Traders dated 12
July 2007
 Cheque No.CC104 received from M Cloete, a debtor, for R2 500,
dated 26 July 2007

2.10. The following cheques appear on the Cash Payments Journal but not
on the bank statement:
 CC197 for R1 840 (dated 3 June 2007)
 CC199 for R1 480 (dated 22 June 2007)

2.11 The Bank statement showed an electronic transfer into our account
from B Martch, a debtor, for R3 000

2.12 The bank statement received on 30 June showed an unfavourable

balance of R15 344

Required:

(i) Calculate the correct bank balance on 30 June 2007

(ii) Complete the Bank Reconciliation Statement on 30 June 2007

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Solution

Details Amount

95 | P a g e
Bank Reconciliation Statement of

Details Amount
Balance as per bank statement
Less outstanding cheques

Add outstanding deposits

Balance as per bank account

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Question 6.4

The following information was taken from the books of POP Travel for June and
July, table of items appearing on the:

Bank Reconciliation Statement of POP Travel as at 30 June 2007.

Details Amount
Balance as per bank statement (favourable) 48 950.25
Outstanding cheque CC704 1 071.37
Outstanding cheque CC736 2 142.74
Outstanding cheque CC737 3 214.10
Outstanding deposit SLP1568 1 874.89
Correction of bank error on deposit SLP1565 where Merger Bank 2 678.42
understated the amount of the deposit on the bank statement
Balance as per bank account (favourable) 47 075.35

Cheque Counterfoils of POP Travel July 2007

Date Cheque Amount

Counterfoil
1 CC738 8 381.20
3 CC739 6 285.89
6 CC740 907.96
10 CC741 9 778.06
13 CC742 11 873.35
18 CC743 1 323.53
22 CC744 5 301.10
26 CC745 1 346.07
28 CC746 4 190.60
30 CC747 20 455.50
69 843.26

Deposits slips of POP Travel July 2007

Date Cheque Counterfoil Amount

1 SLP1569 1 807.25
6 SLP1570 2 957.30
12 SLP1571 5 257.42
19 SLP1572 2 793.00

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 27 SLP1573 1 642.94
31 SLP1574 1 971.53
16 429.44

Bank Statement from Merger Bank or POP Travel July 2007

Da Description Debit Credit Balance

y
1 Balance 48 950.25 CR
1 CC736 2 142.74
1 Deposit 1 874.89
1 Correction of error on deposit 2 687.42
1 Deposit 1 807.25
2 CC738 8 381.20
4 CC739 6 285.89
6 Deposit 2 957.30
7 CC740 1 007.96
7 Internet Banking Fees 249.09
11 Deposit – T Turn 2 148.73
11 CC741 9 778.06
12 Deposit 5 257.42
12 Service fees 102.42
14 CC742 11 873.3
5
14 CC742 11 873.3
5
15 R/D – F Doddy 5 257.42
19 CC743 1 323.53
19 Deposit 2 643.00
23 Direct deposit – The Publisher 4 285.47
23 CC744 5 301.10
23 Cheque book fees 167.45
26 GTRE5687 1 553.48
27 CC745 1 346.07
28 Interest on credit balance 489.08
31 Debit order – Time Security 2 678.42
31 Debit order – Meggit Properties 4 889.29

Additional Information:

1. Cheque no.CC704 is now stale and must be cancelled

2. The bank has recorded cheque no.CC740 at the incorrect amount

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3. The deposit corresponding with SLP1572 was credited on the bank
statement at the correct amount of R2 643.00

4. The deposit corresponding with SLP1571 was for a cheque received from a
debtor, F Doddy, the cheque was returned by the bank marked – ‘Return to
Drawer’

5. The direct deposit on 11 July was from a debtor, T Turn, in settlement of

her account

6. The direct deposit on 23 July was royalty income from The Publisher

7. The debit order in favour of Meggit Properties is for the business rent
expense

8. The debit order in favour of Time Security is for the business armed
response

9. Cheque no.GTRE5687 was incorrectly debited to the business’s account.

10. Cheque no.CC742 was erroneously debited twice on the bank statement

Required:

Use the information given above to complete the following for July 2007:

(i) Record any difference, identified in the bank reconciliation process in a

supplementary Cash Receipts Journal and Cash Payments Journal with
columns for details and amount, begin with the totals before any
amendments
(ii) Open, post to and balance the bank account (B9) in the General Ledger
(iii) Compile the Bank Reconciliation Statement as at 31 July 2007

Solution

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Supplementary Cash Receipts Journal CRJ7

Details Amount

Supplementary Cash Payments Journal CPJ7

Details Amount

Bank B9
Date Date

Bank Reconciliation Statement of

Details Amount
Balance as per bank statement
Less outstanding cheques

Add outstanding deposits

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 Balance as per bank account

CH 7 Accounts Receivable and Accounts Payable

Example 7.1 The Debtors Ledger

The following transactions relate to Jousuf Suliman, a debtor (Debtor No. D3) of
Hawkes Enterprises, for the period 1 August 2008 to 31 August 2008. The
following coding system is used by Hawkes Enterprises in their Debtors Ledger:

Code 1: Credit Sales according to duplicate credit invoices

Code 2: Increases in previously issued credit invoice by means of a debit note

Code 3: Returns or Rebates according to duplicate credit notes

Code 4: Cash Receipts from debtors (duplicate receipts)

Code 5: Discounts granted on prompt settlements

Code 6: R/D cheques

Code 7: Settlement Discounts cancelled on R/D cheques

Code 8: Interest Charged on overdue accounts

Code 9: Credit losses (bad debts)

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Balance on 1 August 2008 is R24 348.73 (Note: No interest is included in this
balance). Subsequent transactions recorded in subsidiary journals for August
2008 (use reference No. 8, i.e. CRJ8).

Date Details of Transactions

2 Sold goods to Jousuf Suliman for R4 000 plus VAT. Issued invoice No.47

4 Suliman returned goods purchased on the 2nd and credit note no.CN12
totalling R1 140 (including VAT) was issued to him.

5 It was realised that invoice number Inv.47 was ‘undercast’ by R400

(including VAT). Mr Suliman was contracted in this regard and he accepted
the debit note (No.DN04) for this amount.

14 Received a cheque from Mr Suliman in full settlement of the amount

owing, less 7 ½ % settlement discount. Receipt No.RC423 and Journal
Voucher JV11 were issued.

18 Received the bank statement showing that the cheque received from Mr
Suliman on 14 August 2008 was dishonoured due to insufficient funds.
Make the necessary entries (JV13 was issued to cancel the discount).

24 The amount of R24 348.73 as owing by Mr Suliman on 1 August 2008 was

now overdue by 30 days. Charged interest @ 14% p.a. for the period the
account had been outstanding. Issued JV18 to record the interest. Assume
a 365-day year.

31 Received a letter from Mr Suliman’s attorneys stating that his entire

estate has been sequestered, along with a cheque constituting a dividend
of 35 cents in the rand from his insolvent estate (issued receipt
no.RC441). The payment was based on the amount owing as at 25 August
2008. The rest of his debt was subsequently written off as irrecoverable
(JV20)

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103 | P a g e
Example 7.1 The Debtors Ledger of Hawkes Enterprises

Jousuf Suliman (D3)

Date Code Doc No. Fol Debit Credit Balance

1 August 2008 Balance brought forward 24 348.73
2 August 2008 1 Invoice No.47 DJ8 4 560.00 28 908.73
4 August 2008 3 Credit Note CN12 DAJ8 1 140.00 27 768.73
5 August 2008 2 Debit Note DN04 DJ8 400.00 28 168.73
14 August 2008 4 Receipt RC243 CRJ8 26 056.08 2 112.65
5 Journal Voucher JV11 (discount) GJ8 2 112.65 0.00
18 August 2008 6 Bank Statement (R/D Cheque) CPJ8 26 056.08 26 056.08
7 Journal Voucher JV13 (discount cancelled) GJ8 2 112.65 28 168.73
24 August 2008 8 Journal Voucher JV18 (interest) GJ8 280.18 28 448.91
31 August 2008 4 Receipt RC441 CRJ8 9 957.12 18 491.79
9 Journal Voucher JV20 (irrecoverable debt) GJ8 18 491.79 0.00

 24 348.73 X 14% X 30/365 = 280.18

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Question 7.2 The Debtors Ledger

Thembi Thambo has been a regular customer at Tucson Arizona’s (otherwise

known as TA’s. She opened an account at the store on 1 July 2007 (debtor
account number D311), and received a discount of R300 on her first purchase
which amounted to R1 325.95 (this was the total VAT inclusive amount of the
purchase before the discount voucher was taken into account). Invoice No.
G1321 was issued. The following subsequent transactions affecting Thembi’s
account took place (Journal reference no.7 for July 2007):

 TA’s realised that Thembi was undercharged by R100 (excluding VAT) on 1

July 2007. Debit note R06 was issued and accepted on 5 July 2007 to
rectify the error.
 On 3 August 2007, Thembi purchased goods from TA’s to the amount of
R6 312.50 (including VAT) less 2% trade discount. Invoice No.G1387 was
issued.
 On 7 August, Thembi returned 25% of the goods purchased on 3 August
2007 because they were of inferior quality. Credit note C67 was issued.
 Thembi made a payment of R2 000 on her account at TA’s on 31 August
2007. No settlement discount was received because the account was not
paid in full. TA’s issued receipt number RCT78.
 On 1 September 2007, R45 was charged to Thembi’s account, being for her
quarterly TA’s club subscription. As per agreement, the amount was directly
charged to her account balance.
 On 15 October 2007, TA’s sold merchandise to Thembi for R2 500 (Invoice
no.G1477). She offered a discount voucher (no.D987) for R600 in part
payment of the amount due. The discount voucher was recorded in the
general journal. The gross income amount and the discount were charged
to her account.
 Received a cheque from Thembi on 1 November 2007 in full settlement of
her account. A prompt settlement discount of R120 was granted to her.
Receipt RCT101 and journal voucher JV33 were issued.
 The bank statement that TA’s received on 1 November 2007 was
dishonoured due to insufficient funds. Make the necessary entries in her
account (Journal Voucher JV35 was issued to cancel the discount.)

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 By 1 December 2007, a significant part of Thembi’s account was long
overdue, and TA’s decided to charge interest amounting to R53.81 to her
account. Journal voucher JV36 was issued.
 On 9 February 2008, TA’s received a letter from Thembi’s attorneys
informing them that she has gone into liquidation, along with a cheque
constituting 25 cents in the rand from her insolvent estate. This dividend
was based on the amount outstanding as at 1 January 2008 and receipt
no.RCT143 was issued upon receipt. The rest of her debt was subsequently
written off as irrecoverable. Journal voucher JV38 was issued in this regard.

Required:

Show Thembi Thambo’s individual account as it would appear in the Debtors

Ledger on Tucson Arizona’s from 1 July 2007 until 9 February 2008.

Code 1: Credit Sales according to duplicate credit invoices

Code 2: Increases in previously issued credit invoice by means of a debit note

Code 3: Returns or Rebates according to duplicate credit notes

Code 4: Cash Receipts from debtors (duplicate receipts)

Code 5: Discounts granted on prompt settlements

Code 6: R/D cheques

Code 7: Settlement Discounts cancelled on R/D cheques

Code 8: Interest Charged on overdue accounts

Code 9: Credit losses (bad debts)

Code 10: Club membership subscription charges

Code 11: Discount vouchers

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Debtors Ledger Tuscon Arizona’s

Thembi Thambo D311

Date Code Doc No. Fol Debit Credit Balance

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Question 7.4 The Creditors Ledger

Lovettica Dealers entered into the following transactions with Brunton Traders
(Creditor Number C10), during 2008. All amounts include VAT where applicable.

Balance owing to Brunton Traders on 1 January 2008L R115 240.75

The following subsequent transactions affecting Brunton Traders’ account took

place:

7 January 2008
Brunton Traders charged us interest @ 12% p.a. for 30 days, based on an
overdue portion of R12 301.82 included in the balance of R115 240.75 as shown
above. 2008 was a leap year, so 366 days must be used as the denominator for
the interest calculation. Journal voucher JH28 was completed.

21 January 2008
Issued cheque no.001 to Brunton Traders for R115 000 in full settlement of the
amount owing. JH31 was issued to account for the discount.

14th April 2008

Purchased equipment on credit from Brunton Traders for R21 000 less 5% trade
discount. Received their invoice no.JJ957.

17th April 2008

Requested a rebate of 10% on invoice no.JJ957, because the goods purchased
were of inferior quality. Received credit note no.NT14 from Brunton Traders.

30 May 2008
Transferred R5 000 to Brunton Traders’ account via EFT as a part payment on
the account.

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Required:

Use the above information, and prepare the individual account of Brunton
Traders as it would appear in the books of Lovettica Dealers from 1 January
2008 until 30 May 2008.

Note: The following coding system is used by Lovettica Dealers in their Creditors
Ledger:

Code 1: Credit Purchases according to original credit invoices

Code 2: Increases in previously received credit invoice by means of a debit note

received

Code 3: Returns or Rebates according to original credit notes

Code 4: Cash Payments to creditors (cheque counterfoils)

Code 5: Discounts received on prompt settlements

Code 6: Interest Charged by creditors on our overdue account

Code 7: Electronic Funds Transfers

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Creditors Ledger of Lovettica Dealers

Brunton Traders C10

Date Code Doc No. Fol Debit Credit Balance

110 | P a g e
Question 7.5 The Debtors and Creditors Ledger

Genieve Dealers, a registered VAT vendor, has one debtor, A Adam, and one
creditor, Hollard Enterprises. Hollard Enterprises is also a registered VAT vendor
dealing in standard rated supplies. VAT is charged at 14%. The following
balances appeared in the books of Genieve Dealers on 1 March 2009:

A Adam (D1): Dr Balance on 1 March 2009: R33 457.50

Hollard Enterprises (C1): Cr Balance on 1 March 2009: R89 472.20

Transactions entered into with the two above-mentioned parties during March
2009.

Date Details of Transactions

4 Sold Goods to A Adam for R6 200, including VAT. Issued invoice no.IN22

5 Purchased merchandise from Hollard Enterprises for R30 000 plus VAT.

Received invoice H138.

7 It was realised that invoice number IN22 was undercast by R600

(including VAT). A Adam was contacted in this regard and he accepted the

debit note (no.DN12) for this amount.

8 Returned half of the goods purchased from Hollard Enterprises on the 5 th

of March 2009 and received their credit note, HC15 for the relevant

amount.

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14 Received a cheque from A Adam in full settlement of his account, less 5%

settlement discount. Receipt No.R81 was issued for the cash received,

and journal voucher J10 for the settlement discount granted.

25 The amount of R89 472.50 owing to Hollard Enterprises has been

outstanding for some time now. Received an account statement showing a

debit entry for interest of R312.83 against our account. The interest is to

be accounted for with the issue of Journal Voucher J11.

Required:

1. Prepare the individual account of A Adam in the Debtors Ledger of Genieve

Dealers from the information provided
2. Prepare the individual account of Hollard Enterprises in the Creditors Ledger
of Genieve Dealers from the information provided

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The following coding system is in use by Genieve Dealers:

For the Debtors Ledger For the Creditors Ledger

Code 1: Credit Sales according to Code 1: Credit Purchases according to

duplicate credit invoices original credit invoices

Code 2: Increases in previously issued

Code 2: Increases in previously
credit invoice by means of a debit
received credit invoice by means of a
note
debit note received
Code 3: Returns or Rebates according
to duplicate credit notes Code 3: Returns or Rebates according
to original credit notes
Code 4: Cash Receipts from debtors
(duplicate receipts)
Code 4: Cash Payments to creditors
Code 5: Discounts granted on prompt (cheque counterfoils)
settlements
Code 5: Discounts received on prompt
Code 6: R/D cheques
settlements
Code 7: Settlement Discounts
cancelled on R/D cheques Code 6: Interest Charged by creditors
on our overdue account
Code 8: Interest Charged on overdue
accounts

Code 9: Credit losses (bad debts)

Code 10: Club membership

subscription charges

Code 11: Discount vouchers

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Debtors Ledger of Genieve Dealers

A Adam C10

Date Code Doc No. Fol Debit Credit Balance

Creditors Ledger of Genieve Dealers

Hollard Enterprises C10

Date Code Doc No. Fol Debit Credit Balance

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Question 7.7 The Debtors Control Account

Zilla Hardware buys and sells a variety of hardware goods, and uses a periodic
inventory system. The business is a registered VAT vendor, and it is the policy of
the business to buy only from other vendors who are able to provide tax
invoices. June 2007 was the business’s second month of trading.

The following transaction codes are used by Zilla Hardware:

Code 1: Credit Sales according to duplicate credit invoices

Code 2: Returns or Rebates according to duplicate credit notes

Code 3: Cash Receipts from debtors (duplicate receipts)

Code 4: Discounts granted on prompt settlements

Code 5: R/D cheques

Code 6: Discounts cancelled on R/D cheques

Code 7: Interest charged on overdue accounts

Code 8: Credit losses

Code 9: Set off of accounts to and from the creditors ledger

Code 10: Discount vouchers

Code 11: Petty cash vouchers

Code 12: Reversal of interest on overdue accounts

List of balances in the Debtors Ledger of Zilla Hardware on 31 May 2007:

Debtor Fol Amount

L Lulu DB1 12 445.25

K Krank DB2 15 929.91

J Jeong DB3 10 951.82

H Honer DB4 10 454.01

49 780.99

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Debtors Journal of Zilla Hardware June 2007 DJ6

Doc Da Details Fol Debtors Output Sales

No. y Control VAT
I0657 1 L Lulu 29 868.59 3 668.07 26 200.52
I0658 5 K Krank 27 379.54 3 362.40 24 017.14
I0659 9 J Jeong 32 357.64 3 973.75 28 383.89
I0660 13 H Honer 22 401.44 2 751.05 19 650.39
I0661 17 G Grint 30 864.21 3 790.34 27 073.87
142 871.42 17 545.61 123 325.81

Debtors Allowances Journal of Zilla Hardware June 2007 DAJ6

Doc Da Details Fol Debtors Input Sales

No. y Control VAT Returns
C0121 6 L Lulu 5 077.66 626.57 4 454.09
C0122 10 K Krank 4 928.32 605.23 4 323.09
C0123 14 J Jeong 4 206.49 516.59 3 689.90
C0124 18 H Honer 2 668.17 330.13 2 358.04
C0125 22 G Grint 5 555.56 682.26 4 873.30
22 456.20 2 760.78 19 698.42

Cash Receipts Journal of Zilla Hardware June 2007 CRJ6

Doc Day Detail Bank Debtors Output Sales Sundry Accounts

No. s Control VAT Amount Fol Details
CV347 1 G Zilla 39 824.78 39 824.78 Capital
Contribution
CV348 5 F Fury 4 430.51 544.10 3 886.41 Service
Income
RE245 111 L Lulu 35 374.37 35 374.37
CV349 20 RICA 1 597.97 196.24 1 401.73 Commission
Ltd Received
RE246 22 K Krank 1 642.77 1 642.77
CV350 25 Cash 2 887.30 354.58 2 532.72
B/S 30 H Honer 30 167.28 30 167.28
115 924.9 67 184.42 1 094.92 2 532.72 45 112.92
8
General Journal of Zilla Hardware June 2007 GJ6

Doc Da Details Fol Debit Credit

No. y
J045 11 Settlement Discount Granted 1 633.17
Input VAT 288.64
Debtors Control (L Lulu) 1 861.81
Settlement Discount of 5%

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 J046 22 Creditors Control (K Krank) 36 738.36
Debtors Control (K Krank) 36 738.36
Balance transferred

J047 30 Credit Losses 34 300.85

Input Vat 4 802.12
Debtors Control (J Jeong) 39 102.97
Amount written off as irrecoverable

J048 30 Debtors Control (H Honer) 302.67

Interest Income 302.67
Interest on overdue account at 12% per annum

J049 30 Interest Income 302.67

Debtors Control (H Honer) 302.67
Reversal of interest received

Additional information:

Zilla Hardware received a bank statement on 30 June 2007 after all the journals
has been closed off. The following entries appeared on the bank statement:

 The cheque received from L Lulu was returned by the bank marked R/D on
17 June 2007. This transaction was not recorded.
 H Honer had deposited the amount owing directly in the bank account on
30 June 2007.

Required:

1. Prepare the Debtors Ledger (including the Debtors List on 30 June 2007).

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2. Prepare the Debtors Control Account for June 2007 in the general ledger of
Zilla Hardware. The account must be properly balanced and reconciled with
the total of the debtors list.

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Debtors Ledger Zilla Hardware

L Lulu

Date Code Doc No. Fol Debit Credit Balance

K Krank

Date Code Doc No. Fol Debit Credit Balance

J Jeong

Date Code Doc No. Fol Debit Credit Balance

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H Honer

Date Code Doc No. Fol Debit Credit Balance

G Grint

Date Code Doc No. Fol Debit Credit Balance

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 List of balances in the Debtors Ledger of Zilla Hardware on 30 June 2007

Debtor Fol Amount

L Lulu DB1

K Krank DB2

J Jeong DB3

H Honer DB4

G Grint DB5

Debtors Control Account B11

Date Details Fol Amount Date Details Fol Amount

Question 7.8 The Creditors Control Account

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Cape Clothing buys and sells a variety of clothing items and uses a perpetual
inventory system. The business is a registered VAT vendor, and it is the policy of
the business to buy only from other vendors who ae able to provide tax invoices.
June 2007 was the business’s second month of trading.

The following transaction codes are used by Cape Clothing:

Codes used in the Creditors Ledger:

Code 1: Credit Purchases according to original credit invoices

Code 2: Returns or Rebates according to original credit notes

Code 3: Cash Payments to creditors (cheque counterfoils)

Code 4: Discounts received on prompt settlements

Code 5: Interest Charged by creditors on our overdue account

Code 6: EFT

Code 7: Transfer to Debtors Ledger

Creditors List of Cape Clothing on 31 May 2007:

Creditor Fol Amount

Top Fabrics C1 11 656.60

Tarn World C2 11 126.80

Sabba C3 12 185.40

Cotton King C4 19 544.32

54 513.12

Creditors Journal of Cape Clothing June 2007 CJ6

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 Doc Da Details Fol Creditor Input Trading Sundry Accounts
No. y s Control VAT Inventory Amount Fol Details
IV65 1 Top Fabrics 31 788.00 3 903.79 27 884.21
8
IV65 6 Yarn World 29 139.00 3 578.47 25 560.53
9
IV66 11 Sabba 524.50 64.41 460.09 Cleaning
0 Materials
IV66 16 Cotton King 23 841.00 2 927.84 20 913.16
1
IV66 21 Office City 5 229.13 642.17 4 586.96 Equipment
2
90 521.63 11 116.6 74 357.90 5 047.0
8 5

Creditors Allowances Journal of Cape Clothing June 2007 CAJ6

Doc Day Details Fol Debtors Output Trading Sundry Accounts

No. Control VAT Inventory Amount Fol Details
NT65 5 Top Fabrics 5 403.96 663.64 4 740.32
NT66 10 Yarn World 5 245.02 644.13 4 600.89
NT67 15 Sabba 68.19 8.37 59.82 Cleaning
Materials
NT68 20 Cotton King 2 860.92 351.34 2 509.58
NT69 25 Office City 941.24 115.39 825.65 Equipment
14 519.33 1 783.07 11 850.79 885.47

Cash Payments Journal of Cape Clothing June 2007 CPJ6

Doc Da Details Bank Creditor Input Trading Sundry Accounts

No. y s VAT Inventory Amount Fol Details
Control
CC879 1 A Ndlovu 8 233.09 8 233.09 Salaries
& Wages
CC880 5 Post Webb 1 250.33 153.55 1 096.78 Postage
CC881 10 Top 36 518.05 36 518.05
Fabrics
CC882 20 Umfolozi 1 298.01 159.40 1 138.61 Electricity
CC883 26 Yarn World 1 748.34 1 748.34
CC884 27 Fabric 3 073.84 377.49 2 696.35
World
51 121.6 38 266.39 690.44 2 696.35 10 468.4
6 8

General Journal of Cape Clothing June 2007 GJ6

Doc Da Details Fol Debit Credit

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 No. y
JC56 10 Creditors Control (Top Fabrics) 1 522.59
Output VAT 186.96
Settlement Discount Received 1 335.61
Settlement discount of 4%

JC57 26 Creditors Control (Yarn World) 33 272.44

Debtors Control (Yarn World) 33 272.44
Balance transferred

JC58 30 Interest Paid 304.93

Creditors Control 304.93
Interest on overdue account at 9% per annum

Required:

1. Prepare the Creditors Ledger (including the Creditors List on 30 June 2007).
2. Prepare the Creditors Control Account for June 2007 in the General Ledger
of Cape Clothing. The account must be properly balanced and reconciled
with the total of the Creditors List.

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Creditors Ledger of Cape Clothing

Top Fabrics C1

Date Code Doc No. Fol Debit Credit Balance

Yarn World C2

Date Code Doc No. Fol Debit Credit Balance

Sabba C3

Date Code Doc No. Fol Debit Credit Balance

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Cotton King C4

Date Code Doc No. Fol Debit Credit Balance

Office City C5

Date Code Doc No. Fol Debit Credit Balance

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 Creditors List of Cape Clothing on 30 June 2007:

Creditor Fol Amount

Top Fabrics C1

Tarn World C2

Sabba C3

Cotton King C4

Creditors Control Account B12

Date Details Fol Amount Date Details Fol Amount

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 Question 7.11 The Debtors and Creditors Control Accounts

The following information was taken from the books of Jaypeg Stores, a
registered VAT vendor: Total as at 1 March 2007: Debtors List: R24 030

Creditors List: R19 530

Transactions for March 2007 (all amounts include VAT where applicable).

Total cash sales of merchandise 24 560.45

Total credit sales of merchandise 141 234.81
Total of the debtors column in the cash receipts journal 41 591.12
Total of the creditors column in the cash payments journal 34 962.06
Settlement discount granted to debtors in the general journal 9 018.88
Settlement discount received from creditors in the general journal 4 819.22
Cheque dishonoured as recorded in the cash payments journal 500.00
Discount (previously granted to debtors) cancelled 1 307.99
Total of creditors column in the creditors journal 87 762.48
Cash purchases – merchandise 13 000.00
- packing materials 3 500.00
Total of creditors column in the creditors allowance journal 1 680.33
Total of the sales returns column in the debtors allowances journal 2 450.00
Debtors’ balance written off as irrecoverable 6 492.11
Cash recovered from a debtor previously written off as a credit 2 000.00
loss
Interest received on overdue account 315.59
Interest paid on overdue account 43.66
Transfer of account balance in debtors ledger to account in 5 785.05
creditors ledger
Transfer of account balance in creditors ledger to account in 440.62
debtors ledger

Required: Use the given information and draw up the debtors control and
creditors control accounts in the general ledger of Jaypeg Stores. All postings
may be dated 31 March 2007.

Debtors Control B17

Date Details Fol Amount Date Details Fol Amount

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 Creditors Control B18
Date Details Fol Amount Date Details Fol Amount

Question 7.13 The Creditors Control Account

You are provided with extracts of information taken from the books of Standard
Stores for the month of June 2008. Standard Stores sells building materials that
they buy from various local suppliers. Most of their creditors allow them 60 days

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in which to settle their accounts and they then allow them 5% discount for early
settlement.

1. You are provided with an incomplete Creditors Control for the month of
June 2008 in your answer book.

2. You are also provided with a Creditors List with the balances owing by the
different debtors on 31 June 2008.

3. The following errors or omissions were noted:

3.1 The total of the Creditors Journal was overcast by R1 200.

3.2 No entry has been made for trading stock bought on credit from S
Amphiwe for R4 800 less 10% trade discount.

3.3 Goods bought on credit from C Cornwall for R6 600 has been entered
in the Creditors Journal as H Mortimer.

3.4 A debit note issued to S Zondo for R870 was by mistake entered in the
Creditors Allowances Journal as R780.

3.5 A Debit Note for R590 issued to S Zondo was correctly recorded in the
journals but was posted to the wrong side of S Zondo’s account.

3.6 No entry has been made for interest charged at 12% p.a. on our
overdue account for R18 000 by C Cornwall. The account is 4 months
overdue.

3.7 H Mortimer is also a debtor and shows a CR Balance of R800 in the

Debtors Ledger. Management have decided to transfer this amount to
her account in the Creditors Ledger. No entry has been processed.

Required

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 Study the Creditors Control Account and correct any entries that have been
posted to the wrong side. Cross out the incorrect entry and write it in, in the
correct place. (Note that you may assume that the two GJ entries are on the
correct sides.)

Using the additional information make the necessary entries in the Creditors
Control Account and the Creditors List, where applicable. Balance or total the
accounts at the end of June 2008.

General Ledger of Standard Stores

Creditors Control B25

Date Details Fol Amount Date Details Fol Amount

2008 2008
June 30 Sundry Returns CAJ 5 600.00 June 1 Balance b/d 110 260.00
31 Bank 48 000.00 30 Sundry Accounts 26 000.00
Settlement
Sundry Accounts GJ 220.00 discount received CJ 500.00
Bank (R/D) 3 600.00 Sundry Accounts GJ 480.00

Creditors List as at 30 June 2008

Creditor Pre-Adjusted Balance

S Amphiwe 22 000.00
C Cornwall 18 000.00
H Mortimer 19 000.00
S Zondo 27 000.00

Creditors Control B18

Date Details Fol Amount Date Details Fol Amount

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Creditors List as at 30 June 2008

Creditor Closing Balance

S Amphiwe
C Cornwall
H Mortimer
S Zondo

CH 8 Year-End Procedures

Example 8.1

The following trial balance of Tuscany Dealers was drawn up on the last day of
their financial year:

Trial Balance of Tuscany Dealers on 28 February 2008

Foli Debit Credit
o
Balance Sheet Section

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 Capital B1 163 270.00
Drawings B2 42 000.00
Land and Buildings B3 540 000.00
Equipment B4 60 000.00
Fixed Deposit: ABOO Bank B5 50 000.00
Trading Inventory B6 70 000.00
Bank B7 15 200.00
Debtors Control B8 47 730.00
Creditors Control B9 67 100.00
Mortgage Bond: BZN Bank B10 482 400.00
Nominal Accounts Section
Sales N1 848 000.00
Sales Returns N2 16 000.00
Cost of Sales N3 520 000.00
Rent Income N4 45 500.00
Interest on Fixed Deposit N5 6 000.00
Insurance N6 14 700.00
Interest on Mortgage Loan N7 72 130.00
Wages and Salaries N8 125 680.00
Telephone N9 17 750.00
Office Consumables N10 3 000.00
Advertising N11 9 200.00
General Expenses N12 8 880.00
1 612 270.00 1 612 270.00

Steps

1. Close off the Sales Returns account against the Sales account i.e. Cr Sales
Returns, Dr Sales, the balance in the Sales account will now reflect the net
sales

2. Close off the Sales account against the Trading Account i.e. Dr Sales and Cr
Trading Account

3. Close off the Cost of Sales account against the Trading Account, i.e. Cr Cost
of Sales and Dr Trading Account

4. The gross profit can now be calculated by balancing the Trading Account,
Dr Trading Account and Cr Profit and Loss Account

5. Close off all income accounts against the Profit and Loss Account, Dr Each
Income account and Cr Profit and Loss Account

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6. Close off all expenses accounts against the Profit and Loss Account, Dr
Profit and Loss Account and Cr Each Expense account

7. Profit and Loss Account now closed off against the Capital Account, if
credits exceed the debits in the Profit and Loss Account, Dr Profit and Loss
Account and Cr Capital, if the debits exceed the credits, Dr Capital and Cr
Profit and Loss Account

8. Drawings account is closed off against the Capital account thus the Capital
account now reflects the owner’s equity at year-end

These transactions are made in the General Journal before they are entered in
the General Ledger.

General Journal of Tuscany Dealers for the year ended 28 February 2008
Doc Day Details Fol Debit Credit
N/A 28 Sales N1 16 000.00
Sales Returns N2 16 000.00
Closing Transfer

Sales N1 832 000.00
Trading Account F1 832 000.00
Closing Transfer

Trading Account F1 520 000.00

Cost of Sales N2 520 000.00
Closing Transfer

Trading Account F1 312 000.00

Profit and Loss F2 312 000.00
Closing Transfer

Rent Income N4 45 500.00

Profit and Loss F2 45 500.00
Closing Transfer

Interest on Fixed Deposit N5 6 000.00

Profit and Loss F2 6 000.00

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 Closing Transfer

Profit and Loss F2 14 700.00

Insurance N7 14 700.00
Closing Transfer

Profit and Loss F2 72 130.00

Interest on Mortgage Loan N7 72 130.00
Closing Transfer

Profit and Loss F2 125 680.00

Wages and Salaries N8 125 680.00
Closing Transfer
Profit and Loss F2 17 750.00
Telephone N9 17 750.00
Closing Transfer

Profit and Loss F2 9 200.00

Advertising N11 9 200.00
Closing Transfer

Profit and Loss F2 3 000.00

Office Consumables N10 3 000.00
Closing Transfer

Profit and Loss F2 8 880.00

General Expenses N12 8 880.00
Closing Transfer

Profit and Loss F2 112 160.00

Capital B1 112 160.00
Closing Transfer

Capital B1 42 000.00
Drawings B2 42 000.00
Closing Transfer

General Ledger of Tuscany Dealers

Balance Sheet Section
Capital B1
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Drawings GJ12 42 000.00 Feb 28 Balance b/d 163 270.00
Balance c/d 233 430.00 Profit and Loss GJ12 112 160.00
275 430.00 275 430.00
2008
Mar 1 Balance b/d 233 430.00

Drawings B2
Date Details Fol Amount Date Details Fol Amount

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2008 2008
Feb 28 Balance b/d 42 000.00 Feb 28 Capital GJ12 42 000.00
Nominal Accounts Section
Sales N1
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Sales Returns GJ12 16 000.00 Feb 28 Balance b/d 848 000.00
Trading Account GJ12 832 000.00
848 000.00 848 000.00

Sales Returns N2
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 16 000.00 Feb 28 Sales GJ12 16 000.00

Cost of Sales N3
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 520 000.00 Feb 28 Trading Account GJ12 520 000.00

Rent Income N4
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Profit and Loss GJ12 45 500.00 Feb 28 Balance b/d 45 500.00

Interest on Fixed Deposit N5

Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Profit and Loss GJ12 6 000.00 Feb 28 Balance b/d 6 000.00

Insurance N6
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 14 700.00 Feb 28 Profit and Loss GJ12 14 700.00

Interest on Mortgage Loan N7

Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 72 130.00 Feb 28 Profit and Loss GJ12 72 130.00

Wages and Salaries N8

Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 125 680.00 Feb 28 Profit and Loss GJ12 125 680.00

Telephone N9

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Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 17 750.00 Feb 28 Profit and Loss GJ2 17 750.00
Office Consumables N10
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 3 000.00 Feb 28 Profit and Loss GJ12 3 000.00

Advertising N11
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 9 200.00 Feb 28 Profit and Loss GJ12 9 200.00

General Expenses N12

Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Balance b/d 8 880.00 Feb 28 Profit and Loss GJ12 8 880.00

Final Accounts Section

Trading Account F1
Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Cost of Sales GJ12 520 000.00 Feb 28 Sales GJ12 832 000.00
Profit and Loss GJ12 312 000.00
832 000.00 832 000.00

Profit and Loss Account F2

Date Details Fol Amount Date Details Fol Amount
2008 2008
Feb 28 Insurance GJ12 14 700.00 Feb 28 Trading Account GJ12 312 000.00
Interest on Interest on Fixed
Mortgage Loan GJ12 72 130.00 Deposit GJ12 6 000.00
Wages and Salaries GJ12 125 680.00 Rent Income GJ12 45 500.00
Telephone GJ12 17 750.00
Office Consumables GJ12 3 000.00
Advertising GJ12 9 200.00
General Expenses GJ12 8 880.00
Capital (Net Profit) GJ12 112 160.00
363 500.00 363 500.00

Post-Closing Trial Balance of Tuscany Dealers on 28 February 2008

Balance Sheet Section Folio Debit Credit
Capital B1 233 430.00
Land and Buildings B3 540 000.00
Equipment B4 60 000.00
Fixed Deposit: ABOO Bank B5 50 000.00
Trading Inventory B6 70 000.00
Bank B7 15 200.00
Debtors Control B8 47 730.00
Creditors Control B9 67 100.00
Mortgage Loan: BZN Bank B10 482 400.00

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 782 930.00 782 930.00

Question 8.3 Trial Balance of Letsema Furnishers on 28 February 2008

Balance Sheet Section Folio Debit Credit
Capital B1 136 179.50
Drawings B2 4 906.84
Loan: AAA Bank B3 190 000.00
Bank B4 18 178.68
Output VAT B5 48 345.72
Trading Inventory B6 33 768.43
Input VAT B7 43 440.73
Petty Cash B8 3 046.34
Equipment B9 169 517.37
Vehicles B10 225 741.58
Debtors Control B11 17 897.64
Creditors Control B12 12 841.77

Nominal Accounts Section

Services Rendered N1 46 741.71
Sales N2 501 696.39
Cost of Sales N3 324 479.53
Interest on Current Account N4 574.50
Telephone N5 14 283.56
Wages and Salaries N6 9 441.45
Rent Expense N7 39 540.25
Rates and Taxes N8 4 975.20
Insurance N9 15 311.64
Bank Charges N10 4 847.17
Postage and Stationery N11 2 113.64
Staff Refreshments N12 2 199.09
Fuel N13 5 450.50
Interest on Loan N14 10 147.50
Settlement Discount Granted N15 2 339.98
Settlement Discount Received N16 2 644.54
Credit Losses N17 7 072.32
Sales Returns N18 16 303.29
Interest Received N19 2 672.27
Interest on Overdraft N20 786.12
Interest Paid / Charged N21 2 447.91
960 148.08 960 148.08

Required:

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1. Open all Nominal Accounts in the General Ledger with their respective
totals as per the above Trial Balance. Open a Trading Account and Profit
and Loss Account, and show all the closing transfers. Also show the Capital
and Drawings Accounts in the Balance Sheet Section. Close Drawings off
against Capital, and Balance the Capital Account to determine the correct
amount for Owner’s Equity at year-end.
2. Draft a Post-Closing Trial Balance as at 28 February 2008.

General Ledger of Letsema Furnishers

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 Balance Sheet Section
Capital B1
Date Details Fol Amount Date Details Fol Amount

Drawings B2
Date Details Fol Amount Date Details Fol Amount

Nominal Accounts Section

Services Rendered N1
Date Details Fol Amount Date Details Fol Amount

Sales N2
Date Details Fol Amount Date Details Fol Amount

Cost of Sales N3
Date Details Fol Amount Date Details Fol Amount

Interest on Current Account N4

Date Details Fol Amount Date Details Fol Amount

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 Telephone N5
Date Details Fol Amount Date Details Fol Amount

Wages and Salaries N6

Date Details Fol Amount Date Details Fol Amount

Rent Expense N7
Date Details Fol Amount Date Details Fol Amount

Rates and Taxes N8

Date Details Fol Amount Date Details Fol Amount

Insurance N9
Date Details Fol Amount Date Details Fol Amount

Bank Charges N10

Date Details Fol Amount Date Details Fol Amount

Postage and Stationery N11

Date Details Fol Amount Date Details Fol Amount

Staff Refreshments N12

Date Details Fol Amount Date Details Fol Amount

Fuel N13
Date Details Fol Amount Date Details Fol Amount

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 Interest on Loan N14
Date Details Fol Amount Date Details Fol Amount

Settlement Discount Granted N15

Date Details Fol Amount Date Details Fol Amount

Settlement Discount Received N16

Date Details Fol Amount Date Details Fol Amount

Credit Losses N17

Date Details Fol Amount Date Details Fol Amount

Sales Returns N18

Date Details Fol Amount Date Details Fol Amount

Interest Received N19

Date Details Fol Amount Date Details Fol Amount

Interest on Overdraft N20

Date Details Fol Amount Date Details Fol Amount

Interest Paid / Charged N21

Date Details Fol Amount Date Details Fol Amount

Final Accounts Section

Trading Account F1
Date Details Fol Amount Date Details Fol Amount

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 Profit and Loss Account F2
Date Details Fol Amount Date Details Fol Amount

Post-Closing Trial Balance of Letsema Furnishers on 28 February 2008

Folio Debit Credit
Balance Sheet Section

Question 8.4

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The following information was taken from the books of Dama Enterprises on 28
February 2009, the last day of the financial year of the business:

Trial Balance of Dama Enterprises on 28 February 2009

Balance Sheet Section Foli Debit Credit

o
Capital B1 204 087.50
Drawings B2 52 500.00
Land and Buildings B3 675 000.00
Equipment B4 75 000.00
Fixed Deposit: AB00 Bank B5 62 500.00
Trading Inventory B6 87 500.00
Bank B7 17 500.00
Petty Cash B8 1 500.00
Debtors Control B9 49 662.50
Creditors Control B10 83 875.00
Mortgage Loan: BZN Bank B11 583 000.00
Output VAT B12 20 000.00
Input VAT B13 10 000.00
Nominal Accounts Section
Sales N1 1 060 000.00
Sales Returns N2 20 000.00
Cost of Sales N3 650 000.00
Settlement Discount Received N4 56 875.00
Interest on Fixed Deposit N5 7 500.00
Rates and Taxes N6 18 375.00
Interest on Mortgage Loan N7 90 162.50
Wages and Salaries N8 157 100.00
Telephone N9 22 187.50
Stationery N10 3 750.00
Packing Materials N11 11 500.00
General Expenses N12 11 100.00
2 015 337.50 2 015 337.50

Required:

1. Journalise the closing transfers.

2. Post all the journal entries passed to the closing transfers to the General
Ledger on 28 February 2009. Including the Trading and Profit and Loss
Accounts, clearly showing the gross profit and net profit or loss
respectively.

Draft a Post-Closing Trial Balance as at 28 February 2009.

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General Journal of Dama Enterprises for the year ended 28 Feb 2009
Doc Day Details Fol Debit Credit

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146 | P a g e
 General Ledger of Dama Enterprises
Balance Sheet Section
Capital B1
Date Details Fol Amount Date Details Fol Amount

Drawings B2
Date Details Fol Amount Date Details Fol Amount

Nominal Accounts Section

Sales N1
Date Details Fol Amount Date Details Fol Amount

Sales Returns N2
Date Details Fol Amount Date Details Fol Amount

Cost of Sales N3
Date Details Fol Amount Date Details Fol Amount

Settlement Discount Received N4

Date Details Fol Amount Date Details Fol Amount

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 Interest on Fixed Deposit N5
Date Details Fol Amount Date Details Fol Amount

Rates and Taxes N6

Date Details Fol Amount Date Details Fol Amount

Interest on Mortgage Loan N7

Date Details Fol Amount Date Details Fol Amount

Wages and Salaries N8

Date Details Fol Amount Date Details Fol Amount

Telephone N9
Date Details Fol Amount Date Details Fol Amount

Stationery N10
Date Details Fol Amount Date Details Fol Amount

Packing Materials N11

Date Details Fol Amount Date Details Fol Amount

General Expenses N12

Date Details Fol Amount Date Details Fol Amount

Final Accounts Section

Trading Account F1
Date Details Fol Amount Date Details Fol Amount

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 Profit and Loss Account F2
Date Details Fol Amount Date Details Fol Amount

Post-Closing Trial Balance of Dama Enterprises on 28 February 2009

Balance Sheet Section Folio Debit Credit

CH 9 Depreciation

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  Depreciation is the adjustment at the end of a financial year, where the
accountant attempts to adjust the value of the non-current assets to a
value which is generally referred to as the net realisable value

 This is the realistic trade value of the asset as at the accounting date

 Depreciation is normally calculated at the end of each financial period

using a standard method of depreciation

 The original cost of the asset is adjusted with the depreciation calculated

 The adjusted value of the asset is known as the carrying value (book
value) and is disclosed as such in the financial statements

 Depreciation is classified as an expense account

Methods of Depreciation

1. The Straight-Line Method – depreciation is calculated on the

depreciable amount (cost less residual amount) of the asset using a pre-
determined rate of depreciation which is given either as a percentage (25%
per annum) or by estimating the useful life of the asset

• E.g. An asset was bought for R200 000 and its depreciation rate
was given as 25% p.a., thus depreciation will be 25% of R200 000
which is R50 000

• E.g. An asset was bought for R380 000 and has a residual value of
R20 000 and is expected to have an economic life of 6 years, thus the
depreciation would be R380 000 – R20 000 = R360 000 divided by 6
years equalling R60 000

2. The Diminishing Balance Method – the annual depreciation is

calculated as a percentage of the carrying value of the asset.

• The carrying value is obtained by deducting the accumulated

depreciation on the asset from the original cost of the asset

• The depreciation rate is then applied to the carrying value to

calculate the depreciation amount for the year

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 Accounting Entries for Depreciation

 The depreciation account – an expense account which is closed off

against the Profit and Loss account at the end of the financial year and this
account will be debited when recording the depreciation adjustment
 The accumulated depreciation account – which holds all the
depreciation written off on a particular asset until the asset is completely
written off or sold and has a credit balance (negative asset)

Example 9.1 On 1 April 2005, Vortec Dealers (a VAT vendor) bought a delivery
vehicle (non-passenger vehicle) for R410 400 including VAT. The financial year
of the firm ends on 31 December. The relevant ledger accounts showing the
entries for depreciation for the period 31 December 2005 to 2008 are:

Using the Straight-Line Method

Depreciation N15
Date Details Fol Amount Date Details Fol Amount
2005 Accumulated Dep: 2005
Dec 31 Vehicles GJ12 27 000.00 Dec 31 Profit and Loss GJ12 27 000.00

2006 Accumulated Dep: 2006

Dec 31 Vehicles GJ12 36 000.00 Dec 31 Profit and Loss GJ12 36 000.00

2007 Accumulated Dep: 2007

Dec 31 Vehicles GJ12 36 000.00 Dec 31 Profit and Loss GJ12 36 000.00

2006 Accumulated Dep: 2008

8Dec 31 Vehicles GJ12 36 000.00 Dec 31 Profit and Loss GJ12 36 000.00

Accumulated Depreciation B12

Date Details Fol Amount Date Details Fol Amount
2005
Dec 31 Depreciation GJ12 27 000.00

2006
Dec 31 Depreciation GJ12 36 000.00
63 000.00
2007
Dec 31 Depreciation GJ12 36 000.00
99 000.00
2008
Dec 31 Depreciation GJ12 36 000.00
135 000.00

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 The first depreciation charge on 31 December 2005 was only for 9 months. The
vehicle was bought 3 months into the financial year, and cannot be depreciated
for the first 3 months. The relevant depreciation calculation is based on the VAT
exclusive purchases price i.e. R410 400 ÷ 1.14 x 10% x 9/12 = R27 000.

Using the Diminishing Balance Method

Depreciation N15
Date Details Fol Amount Date Details Fol Amount
2005 Accumulated 2005
Dec Depreciation: Dec
31 Vehicles GJ12 27 000.00 31 Profit and Loss GJ12 27 000.00

2006 Accumulated 2006

Dec Depreciation: Dec
31 Vehicles GJ12 33 300.00 31 Profit and Loss GJ12 33 300.00

2007 Accumulated 2007

Dec Depreciation: Dec
31 Vehicles GJ12 29 970.00 31 Profit and Loss GJ12 29 970.00

20068 Accumulated 2008

Dec Depreciation: Dec
31 Vehicles GJ12 26 973.00 31 Profit and Loss GJ12 26 973.00

Accumulated Depreciation B12

Date Details Fol Amount Date Details Fol Amount
2005
Dec 31 Depreciation GJ12 27 000.00

2006
Dec 31 Depreciation GJ12 33 300.00
60 300.00
2007
Dec 31 Depreciation GJ12 29 970.00
90 270.00
2008
Dec 31 Depreciation GJ12 26 973.00
117 243.00

Calculations for Diminishing Balance Method

Carrying Value at the beginning of the depreciation period Period of Rate Depreciation
Depreciation Expense
360 000 X 9/12 10% = 27 000.00
360 000 – 27 000 X 1 10% = 33 300.00
360 000 – 27 000 – 33 300 X 1 10% = 29 970.00
360 000 – 27 000 – 33 300 -29 970 X 1 10% = 26 973.00

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 Question 9.1 Nkula Stores bought furniture for R67 200 on 1 July 2007. It was
decided to depreciate the furniture at 20% per annum according to the straight-
line method. Ignore VAT and show all your workings. Required:

1. Prepare the depreciation and accumulated depreciation accounts of Nkula

Stores for the financial years ending 31 December 2007 and 2008.
2. Show the depreciation adjustments and closing transfers in the General
Journal of Nkula Stores on 31 December 2007 and 2008.

Depreciation N15
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation B12

Date Details Fol Amount Date Details Fol Amount

General Journal of Nkula Stores for the year ended

Doc Day Details Fol Debit Credit

Question 9.2 Goodwill’s Goodies bought machinery for R184 680 on 31 October

1
2002. It was decided to depreciate all machinery at 33 % p.a. according to the
3
Diminishing Balance Method. Ignore VAT. Show all your workings. Required:

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 1. Prepare the depreciation and accumulated depreciation accounts of
Goodwill’s Goodies for the financial years ending 30 April 2003 and 2004.
2. Show the depreciation adjustments and closing transfers in the General
Journal of Goodwill’s Goodies on 30 April 2003 and 2004.

Depreciation N15
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation B12

Date Details Fol Amount Date Details Fol Amount

General Journal of Goodwill’s Goodies for the year ended

Doc Day Details Fol Debit Credit

Question 9.3 Sterling Jewels CC (a VAT vendor) bought a non-passenger

vehicle for R285 638.40 (VAT incl) on 31 May 2002. It was decided to depreciate

1
vehicles at 33 % p.a. according to the Diminishing Balance Method.
3
Required:

1. Prepare the depreciation and accumulated depreciation accounts of Sterling

Jewels CC for the financial years ending 31 August 2002 and 2003.

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 2. Show the depreciation adjustments and closing transfers in the General
Journal of Sterling Jewels CC on 31 August 2002 and 2003.

Depreciation N15
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation B12

Date Details Fol Amount Date Details Fol Amount

General Journal of Sterling Jewels CC for the year ended

Doc Day Details Fol Debit Credit

Asset Register

As depreciation is only dealt with internally, the internal office memorandum

serves as the source document for the entry. The supporting document is the
asset register. The asset register shows all the important details pertaining to a
particular asset, as from the date of purchase until the date of sale. It is a
prerequisite of SARS that every business should keep a record of all depreciable
assets for up to five years after the sale of such an asset.

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It is clear from the above asset register that:

 The financial year of Jaypeg Engineering ends on 31 March, we know this,

because it is the date on which the annual depreciation is written off

 The asset register shows details of a delivery vehicle with a registration

number DGP075GP

 The carrying value of this vehicle was R170 000 on 31 March 2006, R136
000 on 31 March 2007 and R108 800 on 31 March 2008

 The asset was sold for cash on 31 March 2008 for R108 000, it is clear
that it was a cash sale, since a cash receipt was issued (had the business
been a registered VAT vendor, it would have had to be a valid tax invoice)

The four steps of Asset Disposal

Step 1: Take the initial cost price out of the books. Dr Asset Disposal and Cr The
Asset’s account

Step 2: Take the accumulated depreciation out of the books. Cr Asset Disposal
and Dr Accumulated Depreciation

156 | P a g e
 Step 3: Record the selling price. Dr Bank (cash sale), Debtors Control (credit
sale) or Creditors Control / HP Loan (trade-in) and Cr Asset Disposal

Step 4: Calculate the profit or loss with disposal. Dr/ Cr Asset Disposal and Cr /
Dr the Profit / Loss on Disposal account

Disposals at the beginning of the year

Follow the four steps.

The following amounts will be needed to calculate the profit or loss on the sale:

 Selling Price
 Initial Cost Price
 Accumulated Depreciation as at the date of the sale

Example 9.2

Walton’s Stockists bought all their office furniture on 1 January 2006 for
R25 000. One year later, on 1 January 2007, the business sold all the furniture
to F Lawson for R18 750 cash. (Receipt No. R84). The total depreciation written
off for the first year amounted to R7 500. The financial year of the business ends
on 31 December. In January 2007, the sale of the office furniture of Walton’s
Stockists will be reflected in the General Ledger as follows (by applying the four
steps of asset disposal). Note: VAT has been ignored.

General Ledger of Walton’s Stockists

Furniture B15
Date Details Fol Amount Date Details Fol Amount
2007 2007
Jan 1 Balance b/d 25 000.00 Jan 1 Asset Disposal GJ1 25 000.00

Accumulated Depreciation B17

Date Details Fol Amount Date Details Fol Amount
2007 2007
Jan 1 Asset Disposal GJ1 7 500.00 Jan 1 Balance b/d 7 500.00

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 Asset Disposal N15
Date Details Fol Amount Date Details Fol Amount
2007 2007 Accumulated Dep:
Jan 1 Furniture GJ1 25 000.00 Jan 1 Furniture GJ1 7 500.00
Profit on sale of
furniture GJ1 1 250.00 Bank CRJ1 18 750.00
26 250.00 26 250.00

Bank B13
Date Details Fol Amount Date Details Fol Amount
2007
Jan 1 Asset Disposal CPJ1 18 750.00

Profit on Sale of Furniture N13

Date Details Fol Amount Date Details Fol Amount
2007
Jan 1 Asset Disposal GJ1 1 250.00

General Journal of Walton’s Stockists

Doc Day Details Fol Debit Credit
JV1 1 Asset Disposal N15 25 000.00
Furniture B15 25 000.00
Transfer cost price to asset disposal

JV2 Accumulated Depreciation: Furniture B17 7 500.00

Asset Disposal N15 7 500.00
Transfer accumulated depreciation to asset disposal

JV3 Asset Disposal N15 1 250.00

Profit on sale of furniture N13 1 250.00
Profit on sale of asset

Cash Receipts Journal of Waltons Stockists for January 2007

Doc No. Day Details Fol Bank Sundry Accounts Fol Details of
Sundries
1 F Lawson 18 750.00 18 750.00 N15 Asset Disposal
Question 9.6

Foster Incorporated, a registered VAT vendor, bought a delivery vehicle on the

day they opened the doors of their business on 1 November 2001. The purchase
price of the vehicle was R205 200, including VAT. They decided that the year-
end would be 31 October annually. On 1 November 2004 the vehicle was sold to
Hanrod Traders for R102 600 cash (including VAT). Receipt No. RC374 was
issued. The following represents a detailed statement of depreciation charges on
the vehicle from the date of purchase until the date of sale:

Period of Depreciation Calculation Depreciation

1 Nov 2001 – 31 Oct 2002 R180 000 x 20% R36 000.00
1 Nov 2002 – 31 Oct 2003 (R180 000 – R36 000) x 20% R28 800.00

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 R64 800.00
1 Nov 2003 – 31 Oct 2004 (R180 000 – R64 800.00) x 20% R23 040.00
R87 840.00

Required:

1. Identify the method of depreciation used by Foster Incorporated to

depreciate the delivery vehicle.
2. Record the sale of the vehicle in the General Ledger of Foster Incorporated
in November 2004 by applying the four steps of asset disposal.
3. Show the entries made in the subsidiary journals before the posting to the
ledger was done.

General Ledger of Foster Incorporated

Vehicle B15
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation B17

Date Details Fol Amount Date Details Fol Amount

Asset Disposal N15

Date Details Fol Amount Date Details Fol Amount

Bank B13
Date Details Fol Amount Date Details Fol Amount

Profit on Sale of Vehicle N13

Date Details Fol Amount Date Details Fol Amount

159 | P a g e
General Journal of Foster Incorporated
Doc No. Day Details Fol Debit Credit

Cash Receipts Journal of Foster Incorporated

Doc No. Day Details Fol Bank Sundry Accounts Fol Details of
Sundries

Disposal of an asset from a pool of other assets

There will be times when it is not the only depreciable asset that is sold, but one
from many. In such a situation there will be depreciable assets left over after the
sale. These assets must still be depreciated at the end of the year. It now
becomes possible to combine the four steps of asset disposal with the year-end
adjustment for depreciation, all in one question.

Example 9.3

The following balances (amongst others) appeared in the books of Jordan

Enterprises on 31 December 2003: (Note: Ignore VAT for this example)

 Vehicles R224 000
 Accumulated Depreciation: Vehicles R105 392

Additional Information:

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 A delivery vehicle with a book value of R28 896 was traded in on a new vehicle
bought from Zola’s Car Sales on 1 January 2004. The purchase price of the new
vehicle was R134 400 (Invoice T111), and the trade-in covered R31 360 of this
amount. The balance was financed through a 4 ½ year hire purchase loan from
Wesbank, payable in monthly instalments of R2 572.64, starting from 1
February 2004. The balance of the vehicles account on 31 December 2004 was
R268 800, and no further vehicles were bought or sold during the year. Jordan

2
Enterprises depreciates all their assets at 16 % on the diminished balances.
3

We will now do the following:

 Show the following accounts in the General Ledger (31 December 2004):
o Vehicles
o Accumulated Depreciation: Vehicles
o Depreciation
o Asset Disposal
o Profit or Loss on Trade-In

 Record the year-end adjustment (on 31 December 2004) for depreciation

on vehicles in the General Ledger of Jordan Enterprises
 Show the relevant entries made in the subsidiary journals on 1 January
2004 and 31 December 2004 respectively

General Ledger of Jordan Enterprises

Vehicles B13
Date Details Fol Amount Date Details Fol Amount
2004 2004
Jan 1 Balance b/d 224 000.00 Jan 1 Asset Disposal GJ1 89 600.00
HP Loan: Wesbank GJ1 134 400.00 Dec 31 Balance c/d 268 800.00
358 400.00 358 400.00
2005
Jan 1 Balance c/d 268 800.00

Accumulated Depreciation: Vehicles B14

Date Details Fol Amount Date Details Fol Amount
2004 2004
Jan 1 Asset Disposal GJ1 60 704.00 Jan 1 Balance b/d 105 392.00
Dec 31 Balance c/d 82 040.00 Dec 31 Depreciation GJ12 37 352.00
142 744.00 142 744.00
2005

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 Jan 1 Balance b/d 82 040.00

Depreciation N13
Date Details Fol Amount Date Details Fol Amount
2004 Acc Depreciation: 2004
Dec 31 Vehicles GJ12 37 352.00 Dec 31 Profit and Loss GJ12 37 352.00

Asset Disposal N14

Date Details Fol Amount Date Details Fol Amount
2004 2004 Acc. Depreciation
Jan 1 Vehicles GJ1 89 600.00 Jan 1 Vehicles GJ1 60 704.00
Profit on trade-in GJ1 2 464.00 HP Loan: Wesbank GJ1 31 360.00
92 064.00 92 064.00

Profit on Trade-In N15

Date Details Fol Amount Date Details Fol Amount
2004 2004
Dec 31 Profit and Loss GJ1 2 464.00 Jan 1 Asset Disposal GJ1 2 464.00

 R89 600 – R28 896 = R60 704

 [R268 800 – (R105 392 – R60 704)] X 6 2/3% =R37 752

General Journal of Jordan Enterprises for January 2004 GJ1

Doc Day Details Fol Debit Credit

JV1 1 Vehicles B13 134 400.00
HP Loan: Wesbank B17 134 400.00
Acquisition of vehicle per HP agreement

JV2 Asset Disposal N14 89 600.00

Vehicles B13 89 600.00
Transfer cost price to asset disposal

JV3 Accumulated Depreciation: Vehicles B14 60 704.00

Asset Disposal N14 60 704.00
Transfer accumulated depreciation to asset disposal

JV4 HP Loan: Wesbank B17 31 360.00

Asset Disposal N14 31 360.00
Disposal value of vehicle

JV5 Asset Disposal N14 2 464.00

Profit on trade-in N15 2 464.00
Realisation of profit on trade-in

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General Journal of Jordan Enterprises for December 2004 GJ12

Doc Day Details Fol Debit Credit

JV1 31 Depreciation N13 37 352.00
Accumulated Depreciation: Vehicles B14 37 352.00
Adjustment

JV2 31 Profit and Loss F2 37 352.00

Depreciation N13 37 352.00
Closing Transfer

Question 9.8

The following balances (amongst others) appeared in the books of Beauty’s

Products on 31 March 2003: (Note: Ignore VAT)

 Vehicles R276 000
 Accumulated Depreciation: Vehicles R74 400

Additional Information:

On 1 April 2003, a vehicle with a cost price of R84 000 and an accumulated

depreciation of R52 380 was traded in on a new vehicle bought from Kendra
Motors. The purchase price of the new vehicle was R135 000 (Invoice S434),
and the trade-in covered R30 000 of this amount. The balance was financed
through a Hire Purchase Loan from Zeda Finance.

Beauty’s Products depreciates vehicles at a rate of 25% per annum according to

the diminishing balance method. The information given above refers to all the
movements relating to vehicles for the financial year ending 31 March 2004.

Required:

 Prepare the following ledger accounts in the books of Beauty’s Products for
the year ended 31 March 2004:

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 o Vehicles
o Accumulated Depreciation: Vehicles
o Depreciation
o Asset Disposal
o Profit or Loss on Trade-In or Disposal
 Show the relevant entries made in the subsidiary journals on 1 April 2003
and 31 March 2004 respectively

General Ledger of Beauty’s Products

Vehicles B13
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation: Vehicles B14

Date Details Fol Amount Date Details Fol Amount

Depreciation N13
Date Details Fol Amount Date Details Fol Amount

Asset Disposal N14

Date Details Fol Amount Date Details Fol Amount

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 Profit on Trade-In N15
Date Details Fol Amount Date Details Fol Amount

General Journal of Beauty’s Products for April 2003 GJ1

Doc Day Details Fol Debit Credit

General Journal of Beauty’s Products for March 2004 GJ12

Doc Day Details Fol Debit Credit

165 | P a g e
Disposals mid-way through the financial year

If an asset is sold during the year then the accounting records will not show the
carrying value.

What is needed is an additional depreciation adjustment to cover the period until

the asset is sold.

When an asset is sold during the year there is one additional step in the asset
disposal procedure:

Step 1: Take the initial cost price out of the books. Dr Asset Disposal and Cr The
Asset’s account

Step 2a: Write additional depreciation off on the asset being sold

Step 2b: Take the accumulated depreciation out of the books. Cr Asset Disposal
and Dr Accumulated Depreciation

Step 3: Record the selling price. Dr Bank (cash sale), Debtors Control (credit
sale) or Creditors Control / HP Loan (trade-in) and Cr Asset Disposal

Step 4: Calculate the profit or loss with disposal, Dr/ Cr Asset Disposal and Cr /
Dr the Profit / Loss on Disposal account

Example 9.4

On 1 October 2007, Nestadt Enterprises, a registered VAT Vendor, bought a

delivery vehicle for R189 960 cash, including VAT. It was decided that the
vehicle would be depreciated at 20% per annum according to the straight-line
method. The financial year of the firm ends 30 September.

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 On 1 April 2009, the vehicle was sold on credit to Born Free Dealers for
R115 915.20 (including VAT).

The General Ledger accounts that are affected by the information provided for
the period 1 October 2008 to 1 April 2009 would be prepared as follows:

General Ledger of Nestadt Enterprises

Vehicles B13
Date Details Fol Amount Date Details Fol Amount
2008 2009
Oct 1 Balance b/d 164 000.00 Apr 1 Asset Disposal GJ7 164 000.00

Accumulated Depreciation: Vehicles B14

Date Details Fol Amount Date Details Fol Amount
2009 2008
Apr 1 Asset Disposal GJ7 49 200.00 Oct 1 Balance b/d 32 800.00
2009
Apr 1 Depreciation GJ7 16 400.00
49 200.00 49 200.00

Depreciation N13
Date Details Fol Amount Date Details Fol Amount
2009 Acc Depreciation:
APr 1 Vehicles GJ7 16 400.00

Asset Disposal N14

Date Details Fol Amount Date Details Fol Amount
2009 2009 Acc. Depreciation
Apr 1 Vehicles GJ7 164 000.00 Apr 1 Vehicles GJ7 49 200.00

Debtors Control GJ1 101 600.00

Loss on sale of
vehicle GJ7 13 120.00
164 000.00 164 000.00

Debtors Control B12

Date Details Fol Amount Date Details Fol Amount
2009
Apr 1 Balance b/d XXX.XX
Asset Disposal and
VAT GJ7 115 915.20

Output VAT B11

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Date Details Fol Amount Date Details Fol Amount
2009
Apr 1 Debtors Control GJ7 14 235.20

Loss of Sale of Vehicles N15

Date Details Fol Amount Date Details Fol Amount
2009
Apr 1 Asset Disposal GJ7 13 120.00

General Journal of Nestadt Enterprises for April 2009 GJ7

Doc Day Details Fol Debit Credit

JV1 1 Asset Disposal N14 164 000.00
Vehicles B13 164 000.00
Transfer cost price to asset disposal

JV2 Depreciation N13 16 400.00

Accumulated Depreciation: Vehicles B14 16 400.00
Accumulated depreciation written off

JV3 Accumulated Depreciation: Vehicles B14 49 200.00

Asset Disposal N14 49 200.00
Transfer accumulated depreciation to asset disposal

JV4 Debtors Control (Born Free Dealers) B12 115 915.20

Output VAT B11 14 235.20
Asset Disposal N14 101 680.00
Recording of selling price

JV5 Loss on Sale of Vehicle N15 13 120.00

Asset Disposal N14 13 120.00
Loss on sale of asset

168 | P a g e
 Question 9.9

Sorvina Traders had the following balances (amongst others) in their books on 1
September 2007: Vehicles R700 000 and Accumulated Depreciation: Vehicles
R140 000. During the year ended 31 August 2008, the following transactions
took place pertaining to vehicles:

 On 28 February 2008, a new vehicle was bought for R231 000 cash

 On 1 June 2008, an old vehicle, which had been bought on 1 December
2005 for R280 000 was sold on credit for R157 500

Sorvina Traders depreciates all their vehicles at a rate of 20% per annum
according to the reducing balance method. Ignore VAT.

Required: Show the following accounts in the books of Sorvina Traders for the
financial year ended 31 August 2008:

 Vehicles
 Accumulated Depreciation: Vehicles
 Asset Disposal

General Ledger of Sorvina Traders

Vehicles B13
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation: Vehicles B14

Date Details Fol Amount Date Details Fol Amount

Asset Disposal N14

Date Details Fol Amount Date Details Fol Amount

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General Journal of Sorvina Traders for August 2008 GJ7
Doc Day Details Fol Debit Credit

Question 9.10

The financial year of Sithole Dealers ends on 31 August. The following balances
appeared in their books on 1 September 2005: Equipment R95 120 and

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 Accumulated Depreciation: Equipment R28 536. On 28 February 2006, an office
computer bought on 1 September 2003 for R13 920 was sold on credit to Puma
Dealers for R7 714 (credit invoice R12). No other purchases or sales of
equipment took place during the financial year ended 31 August 2006. It is the
policy of the firm to depreciate all equipment at an annual rate of 20% on cost
(straight-line method). Ignore VAT.

Required:

1. Prepare the following accounts in the General Ledger of Sithole Dealers for
the full year ended 31 August 2006:
 Equipment
 Accumulated Depreciation: Equipment
 Asset Disposal
 Debtors Control
 Profit or Loss on sale of Equipment
2. Show all the journal entries pertaining to the sale as well as the
depreciation adjustment at the end of the financial year

General Ledger of Sithole Dealers

Equipment B11
Date Details Fol Amount Date Details Fol Amount

Accumulated Depreciation: Equipment B15

Date Details Fol Amount Date Details Fol Amount

Asset Disposal N14

Date Details Fol Amount Date Details Fol Amount

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 Debtors Control B12
Date Details Fol Amount Date Details Fol Amount

Profit on Sale of Vehicles N15

Date Details Fol Amount Date Details Fol Amount

General Journal of Sithole Dealers

Doc Day Details Fol Debit Credit

Disclosure of Depreciable Assets

Example 9.5

Property, Plant and Equipment Land and Vehicles Total

Buildings
Carrying value at end of previous year 625 000 250 000 875 000
Cost 625 000 432 500 1 057 500

Accumulated Depreciation - (182 500) (182 500)

Movements during the year 125 000 57 500 182 500

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 Additions at Cost 125 000 150 000 275 000
Disposals at carrying value - (32 500) (32 500)
Depreciation for the year - (60 000) (60 000)

Carrying value at end of current year 750 000 307 500 1 057 500
Cost 750 000 517 500 1 267 500
Accumulated Depreciation (210 000) (210 000)

The following can be derived from the above statement:

 Land and Buildings: Are non-depreciable assets, during the year an

additional building was purchased or an increase of R125 000 in valuation
took place
 Vehicles: Are depreciable assets. The total depreciation for the year
ended 28 February 2009 was R60 000 and it is clear that a new vehicle
was purchased for R150 000 and vehicles of R32 500 were disposed of.

Question 9.11

The following are some of the balances in the books of Tobias Dealers on 30
June 2005:

Fol Debit Credit

Equipment B4 80 000.00
Vehicles B5 560 000.00
Furniture B6 53 600.00
Accumulated Depreciation: Equipment B7 24 000.00
Accumulated Depreciation: Vehicles B8 192 000.00
Accumulated Depreciation: Furniture B9 18 400.00

Additional Information:

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 An office computer which was bought on 1 October 2004 for R20 000, was
sold to H Ushanti for R16 000 cash on 1 July 2005. Receipt No.218 was
issued.
 A vehicle with a carrying value of R60 000 and accumulated depreciation of
R91 400 was sold on credit to O Pula for R55 000 on 1 July 2005 (Invoice
X214).
 Office furniture (which was bought on 30 September 2003 for R24 000)
was sold for R3 000 more than the carrying value on 2 July 2005. This was
a cash sale, and receipt No.006 was issued to L Lange.
 Tobias Dealers depreciates their assets as follows:
1
o Equipment at 33 % p.a. on cost
3
o Vehicles at 20% p.a. according to the diminishing balance method
2
o Furniture at 16 % on the reducing balance
3
 The financial year of the firm ends on 30 June.

Required:

Prepare the Notes to the Financial Statements that shows the movements for
Property, Plant and Equipment for the year ended 30 June 2006.

Property, Plant and Equipment Land and Vehicles Total

Buildings
Carrying value at end of previous year

Cost

Accumulated Depreciation

Movements during the year

Additions at Cost

Disposals at carrying value

Depreciation for the year

Carrying value at end of current year

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 Cost

Accumulated Depreciation

Question 9.12 The following balances were taken from the Trial Balance of
Benjamin Traders on 28 February 2003:

Fol Debit Credit

Land and Buildings B3 400 000.00
Vehicles B4 240 000.00
Equipment B5 52 000.00
Accumulated Depreciation: Vehicles B6 70 400.00
Accumulated Depreciation: Equipment B7 24 600.00

Additional Information: Depreciation is taken into account as follows:

 On vehicles at 20% per annum on the diminishing balance. On 28 February

2004, a vehicle with a cost price of R80 000 and accumulated depreciation
of R39 040 as at 1 March 2003 was sold for R40 000 cash. No entries
pertaining to this transaction have been made as yet.

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 On equipment at 10% per annum on cost price. Take into account that a
new office computer was purchased for R24 000 on 1 March 2003.

Required: Complete the note to the Financial Statements relating to property,

plant and equipment for the year ended 28 February 2004.

Property, Plant and Equipment Land and Vehicles Total

Buildings
Carrying value at end of previous year

Cost

Accumulated Depreciation

Movements during the year

Additions at Cost

Disposals at carrying value

Depreciation for the year

Carrying value at end of current year

Cost

Accumulated Depreciation

CH 10 Financial Statements of the Sole Proprietorship

Example 10.1

The following information was taken from the pre-adjustment Trial Balance of
Ventura Stores on 31 October 2005, the last day of the financial year of the
business:

Balance Sheet Section Fol Debit Credit

Fixed Deposit (15% p.a.) B11 60 000.00
Long-Term (21% p.a.) B16 140 000.00
Nominal Accounts Section
Interest on Fixed Deposit N4 6 750.00
Interest on Loan N5 26 950.00
Insurance N6 18 850.00
Rent Income N8 23 400.00

Additional information: On closer investigation the following was discovered:

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  The investment into the fixed deposit was made on 1 January 2005
 The long-term loan was initiated on 1 November 2004
 The insurance premium for November 2005 has been prepaid
 The tenant has been in the building since 1 March 2004 and pays a
monthly rent of R1 800

The necessary adjustments and closing transfers will be recorded as follows on

the General Ledger on 31 October 2005:

Interest on Fixed Deposit N4

Date Details Fol Amount Date Details Fol Amount
2005 2005
Oct 31 Profit and Loss GJ12 7 500.00 Oct 31 Total / Balance b/d 6 750.00
Accrued Income GJ12 750.00
7 500.00 7 500.00

Accrued Income B14

Date Details Fol Amount Date Details Fol Amount
2005 Interest on Fixed
Oct 31 Deposit GJ12 750.00

Interest on Loan N5
Date Details Fol Amount Date Details Fol Amount
2005 2005
Oct 31 Total / Balance b/d 26 950.00 Oct 31 Profit and Loss GJ12 29 400.00
Accrued Expenses GJ12 2 450.00
29 400.00 29 400.00

Accrued Expenses B15

Date Details Fol Amount Date Details Fol Amount
2005
Oct 31 Interest on Loan GJ12 2 450.00

Insurance N9
Date Details Fol Amount Date Details Fol Amount
2005 2005
Oct 31 Total / Balance b/d 8 850.00 Oct 31 Prepaid Expenses GJ12 1 450.00
Profit and Loss GJ12 17 400.00
18 850.00 18 850.00

Prepaid Expenses B15

Date Details Fol Amount Date Details Fol Amount
2005
Oct 31 Insurance GJ12 1 450.00

Rent Income N8
Date Details Fol Amount Date Details Fol Amount
2005 Income Received in 2005

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Oct 31 Advance GJ12 1 800.00 Oct 31 Total / Balance GJ12 23 400.00
Profit and Loss GJ12 21 600.00
23 400.00 23 400.00

Income Received in Advance B17

Date Details Fol Amount Date Details Fol Amount
2005
Oct 31 Rent Income GJ12 1 800.00

Profit and Loss Account F2

Date Details Fol Amount Date Details Fol Amount
2008 2008
Oct 31 Interest on Loan GJ12 29 400.00 Oct 31 Trading Account GJ12 XXX.XX
Insurance GJ12 17 400.00 Rent Income GJ12 21 600.00
Interest on Fixed GJ12 7 500.00
Capital (Net Profit) GJ12 XXX.XX Deposit
XX XXX.XX XX XXX.XX

General Journal of Ventura Stores – October 2005 GJ12

Doc Day Details Fol Debit Credit

31 Accrued Income B14 750.00
Interest on Fixed Deposit N4 750.00
Adjustment

Interest on Loan N5 2 450.00

Accrued Expenses B15 2 450.00
Adjustment

Prepaid Expenses B16 1 450.00

Insurance N6 1 450.00
Adjustment

Rent Income N8 1 800.00

Income Received in Advance B17 1 800.00
Adjustment

Interest on Fixed Deposit N4 7 500.00

Rent Income N8 21 600.00
Profit and Loss F2 29 100.00
Closing transfer of income accounts

Profit and Loss F2 46 800.00

Interest on Loan N5 29 100.00
Insurance N6 17 400.00
Closing transfer of expense accounts

The effect of the adjustments on the financial statements will be as follows:

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Statement of Profit or Loss and Other Comprehensive Income of Ventura Stores
for the year ended 31 October 2005.

Notes R R
Revenue XXX.XX
(Sales – Sales Returns – Settlement Discount Granted)
Less: Cost of Sales (XXX.XX)
(Cost of Sales – Settlement Discounts Granted)
Gross Profit XXX.XX
Add: Other Income XXX.XX
Rent Income (23 400 – 1 800) 21 600.00
Credit Losses Recovered XXX.XX
Interest Income 1 XXX.XX
Gross Income XXX.XX
Less: Distribution, Administrative and Other Expenses (XXX.XX)
Insurance (18 850 – 1 450) 17 400.00
Advertising XXX.XX
Depreciation XXX.XX
Credit Losses XXX.XX
Salaries and Wages XXX.XX
Telephone XXX.XX
Repairs and Maintenance XXX.XX
Sundry Expenses XXX.XX
Stationery XXX.XX
Packing Materials XXX.XX
Profit (or loss) before finance costs XXX.XX
Less: Interest Expense 2 (29 400.00)
Profit or Total Comprehensive Income for the year XXX.XX

Statement of Financial Position of Ventura Stores on 31 October 2008

Notes R R
Assets XXX.XX
Non-Current Assets
Property, Plant and Equipment XXX.XX
Financial Assets XXX.XX
Current Assets XXX.XX
Inventories XXX.XX
Trade and Other Receivables 3 XXX.XX
Cash and Cash Equivalents XXX.XX
Total Assets XXX.XX
Equity and Liabilities
Owner’s Equity XXX.XX
Non-Current Liabilities XXX.XX
Current Liabilities
Trade and Other Payables 4 XXX.XX
Bank Overdraft XXX.XX
Total Equity and Liabilities XXX.XX

Notes to the Financial Statements on 31 October 2005

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 1. Interest Income

Interest on Fixed Deposit (6 750 + 750) 7 500.00

7 500.00

2. Interest Expense

Interest on Loan (26 950 + 2 450) 29 400.00

29 400.00

3. Trade and Other Receivables

Trade Debtors XXX.XX

Less: Allowance for Credit Losses (XXX.XX)
Net Trade Debtors XXX.XX
Accrued Income (Interest on Fixed Deposit) 750.00
Prepaid Expenses (Insurance) 1 450.00
XXX.XX

4. Trade and Other Payables

Trade Creditors XXX.XX

Accrued Expenses (Interest on Loan) 2 450.00
Income Received in Advance (Rent Income) 1 800.00
XXX.XX

Question 10.1 Accrued Expenses, Prepaid Expenses, Accrued Income

and Income Received in Advance

The following extract was taken from the pre-adjustment trial balance of
Peninsula Stores on 28 February 2008, the last day of the financial year of the
business:

Balance Sheet Section Fol Debit Credit

Fixed Deposit (16 ½ % p.a.) B7 82 000.00
Mortgage Loan (19% p.a.) B9 260 000.00
Nominal Accounts Section
Interest on Fixed Deposit N4 3 382.50
Interest on Mortgage Loan N5 49 083.00
Wages and Salaries N6 78 340.00
Rent Income N8 22 750.00

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 Additional Information:

 The investment into fixed deposit was made on 1 November 2007 and all
interest is credited to the current bank account.
 The long-term mortgage loan was initiated on 1 November 2006. Interest
on the loan is debited to the current bank account and R40 000 was
redeemed (paid back) on the loan on 1 September 2007.
 The salary for March 2008 of an employee, Faith Gumede, has been paid
already, R7 000.
 The tenant has been in the building since 1 December 2007, and has paid
her rent for March and April 2008 already. No deposit was payable upon
occupation (Note: Ignore VAT).

Required:

1. Show how the adjustments and closing transfers would be recorded in the
General Ledger accounts on 28 February 2008.
2. Show how the adjustments and closing transfers were journalised before
the postings to the ledger was done.
3. Show the effect of the adjustments on the Financial Statements.

General Ledger of Peninsula Stores

Interest on Fixed Deposit N4

Date Details Fol Amount Date Details Fol Amount

Accrued Income B14

Date Details Fol Amount Date Details Fol Amount

Interest on Mortgage Loan N5

Date Details Fol Amount Date Details Fol Amount

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 Accrued Expenses B15

Date Details Fol Amount Date Details Fol Amount

Wages and Salaries N9

Date Details Fol Amount Date Details Fol Amount

Prepaid Expenses B16

Date Details Fol Amount Date Details Fol Amount

Rent Income N8

Date Details Fol Amount Date Details Fol Amount

Income Received in Advance B17

Date Details Fol Amount Date Details Fol Amount

Profit and Loss Account F2

Date Details Fol Amount Date Details Fol Amount

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General Journal of Peninsula Stores – February 2008 GJ12

Doc Day Details Fol Debit Credit

Example 10.2 Creating an Allowance for Credit Losses

The following is an extract from the accounting records of Zinhle Dealers at 30

June 2001, the last day of the financial year:

Pre-adjustment Trial Balance:

Balance Sheet Section Debit Credit

Debtors Control 100 000

Adjustment at 30 June 2001:

Create an allowance for Credit Losses to the amount of R5 000.

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 Solution

General Ledger of Zinhle Dealers

Debtors Control B12
Date Details Fol Amount Date Details Fol Amount
2001
Jun 30 Balance b/d 100 000.00

Allowance for Credit Losses B14

Date Details Fol Amount Date Details Fol Amount
2001 Allowance for
Jun 30 Credit Losses GJ12 5 000.00
Adjustment

Allowance for Credit Losses Adjustment N12

Date Details Fol Amount Date Details Fol Amount
2001 Allowance for 2001
Jun 30 Credit Losses GJ12 5 000.00 Jun 30 Profit and Loss GJ12 5 000.00

Profit and Loss Account F2

Date Details Fol Amount Date Details Fol Amount
2001 Allowance for 2001
Jun 30 Credit Losses Adjust GJ12 5 000.00 Jun 30 Trading Account GJ12 XXX.XX

Capital (Net Profit) GJ12 X XXX.XX

X XXX.XX X XXX.XX

General Journal of Zinhle Dealers – 30 June 2001 GJ12

Doc Day Details Fol Debit Credit
30 Allowance for Credit Losses Adjustment N12 5 000.00
Allowance for Credit Losses B14 5 000.00
Adjustment-Allowance for Credit Losses Created

Profit and Loss F2 5 000.00

Allowance for Credit Losses Adjustment N12 5 000.00
Closing Transfer

Statement of Profit or Loss and Other Comprehensive Income of Zinhle

Dealers for the year ended 30 June 2001
Notes R R
Revenue XXX.XX
Less: Cost of Sales (XXX.XX)
Gross Profit XXX.XX
Add: Other Income XXX.XX
Gross Income XXX.XX
Less: Distribution, Administrative and Other Expenses (XXX.XX)
Allowance for Credit Losses Adjustment 5 000.00
Profit or Total Comprehensive Income for the year XXX.XX

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 Statement of Financial Position of Zinhle Dealers on 30 June 2001
Assets Notes R R
Non-Current Assets XXX.XX
Property, Plant and Equipment XXX.XX
Financial Assets XXX.XX
Current Assets XXX.XX
Inventories XXX.XX
Trade and Other Receivables 1 XXX.XX
Cash and Cash Equivalents XXX.XX
Total Assets XXX.XX
Equity and Liabilities XXX.XX
Owner’s Equity XXX.XX
Non-Current Liabilities XXX.XX
Current Liabilities XXX.XX
Trade and Other Payables 4 XXX.XX
Bank Overdraft XXX.XX
Total Equity and Liabilities XXX.XX
Notes to the Financial Statements on 30 June 2011

1. Trade and Other Receivables

Trade Debtors 100 000.00

Less: Allowances for Credit Losses (5 000.00)
Net Trade Debtors 95 000.00
Accrued Income XXX.XX
Prepaid Expenses XXX.XX

Example 10.3 Increasing the existing Allowance for Credit Losses

The following example is a continuation of Example 10.2; Zinhle Dealers has

now reached 30 June 2002. The following is an excerpt from the accounting
records as at that date:

Balance Sheet Section Debit Credit

Debtors Control 150 000.00

Allowance for Credit Losses 5 000.00

Adjustment at 30 June 2002: Adjust the allowance for Credit Losses to an

amount of R7 500.

General Ledger of Zinhle Dealers

Debtors Control B12
Date Details Fol Amount Date Details Fol Amount
2002
Jun 30 Balance b/d 150 000.00

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 Allowance for Credit Losses B14
Date Details Fol Amount Date Details Fol Amount
2002
Jun 30 Balance GJ12 5 000.00
Allowance for
Credit Losses Adjust GJ12 2 500.00
7 500.00

Allowance for Credit Losses Adjustment N12

Date Details Fol Amount Date Details Fol Amount
2002 Allowance for 2002
Jun 30 Credit Losses GJ12 2 500.00 Jun 30 Profit and Loss GJ12 2 500.00

Profit and Loss Account F2

Date Details Fol Amount Date Details Fol Amount
2002 Allowance for 2002
Jun 30 Credit Losses Adjust GJ12 2 500.00 Jun 30 Trading Account GJ12 XXX.XX

Capital (Net Profit) GJ12 X XXX.XX

X XXX.XX X XXX.XX

General Journal of Zinhle Dealers – 30 June 2002 GJ12

Doc Day Details Fol Debit Credit

30 Allowance for Credit Losses Adjustment N12 2 500.00
Allowance for Credit Losses B14 2 500.00
Adjustment-Allowance for Credit Losses Created

Profit and Loss F2 2 500.00

Allowance for Credit Losses Adjustment N12 2 500.00
Closing Transfer

Statement of profit or loss and other comprehensive income of Zinhle

Dealers for the year ended 30 June 2002

Notes R R
Revenue XXX.XX
Less: Cost of Sales (XXX.XX)
Gross Profit XXX.XX
Add: Other Income XXX.XX
Gross Income XXX.XX
Less: Distribution, Administrative and Other Expenses (XXX.XX)
Allowance for Credit Losses Adjustment 2 500.00
Profit or Total Comprehensive Income for the year XXX.XX

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Statement of Financial Position of Zinhle Dealers on 30 June 2002

Assets Notes R R
Non-Current Assets XXX.XX
Property, Plant and Equipment XXX.XX
Financial Assets XXX.XX
Current Assets XXX.XX
Inventories XXX.XX
Trade and Other Receivables 1 XXX.XX
Cash and Cash Equivalents XXX.XX
Total Assets XXX.XX

Equity and Liabilities XXX.XX

Owner’s Equity XXX.XX
Non-Current Liabilities XXX.XX
Current Liabilities XXX.XX
Trade and Other Payables XXX.XX
Bank Overdraft XXX.XX
Total Equity and Liabilities XXX.XX

Notes to the Financial Statements on 30 June 2011

1. Trade and Other Receivables

Trade Debtors 150 000.00

Less: Allowances for Credit Losses (7 500.00)
Net Trade Debtors 142 500.00
Accrued Income XXX.XX
Prepaid Expenses XXX.XX

Decreasing the existing Allowance for Credit Losses

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 Zinhle Dealers has now reached 30 June 2003. The following is an excerpt from
their accounting records as at that date:

Balance Sheet Section Debit Credit

Debtors Control 130 000.00

Allowance for Credit Losses 7 500.00

Adjustment at 30 June 2003: Adjust the allowance for Credit Losses to an

amount of R6 500.

General Ledger of Zinhle Dealers

Debtors Control B12
Date Details Fol Amount Date Details Fol Amount
2003
Jun 30 Balance b/d 130 000.00

Allowance for Credit Losses B14

Date Details Fol Amount Date Details Fol Amount
2003 Allowance for 2003
Jun 30 Credit Losses Adjust GJ12 1 000.00 Jun 30 Balance GJ12 7 500.00
Balance c/d 6 500.00
7 500.00 7 500.00

Allowance for Credit Losses Adjustment N12

Date Details Fol Amount Date Details Fol Amount
2003 2003 Allowance for
Jun 30 Profit and Loss GJ12 1 000.00 Jun 30 Credit Losses GJ12 1 000.00

Profit and Loss Account F2

Date Details Fol Amount Date Details Fol Amount
2003
XXX.XX Jun 30 Trading Account GJ12 XXX.XX
Allowance for
Capital (Net Profit) GJ12 X XXX.XX Credit Losses Adjus 1 000.00
X XXX.XX X XXX.XX

General Journal of Zinhle Dealers – 30 June 2003 GJ12

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 Doc Day Details Fol Debit Credit
30 Allowance for Credit Losses B14 1 000.00
Allowance for Credit Losses Adjustment N12 1 000.00
Adjustment-Allowance for Credit Losses reduced

Allowance for Credit Losses Adjustment N12 1 000.00

Profit and Loss F2 1 000.00
Closing Transfer

Statement of Profit or Loss and Other Comprehensive Income of Zinhle

Dealers for the year ended 30 June 2003
Notes R R
Revenue XXX.XX
Less: Cost of Sales (XXX.XX)
Gross Profit XXX.XX
Add: Other Income XXX.XX
Allowance for Credit Losses Adjustment 1 000.00
Gross Income XXX.XX
Less: Distribution, Administrative and Other Expenses (XXX.XX)
Profit or Total Comprehensive Income for the year XXX.XX

Statement of Financial Position of Zinhle Dealers on 30 June 2003

Assets Notes R R
Non-Current Assets XXX.XX
Property, Plant and Equipment XXX.XX
Financial Assets XXX.XX
Current Assets XXX.XX
Inventories XXX.XX
Trade and Other Receivables 1 XXX.XX
Cash and Cash Equivalents XXX.XX
Total Assets XXX.XX
Equity and Liabilities XXX.XX
Owner’s Equity XXX.XX
Non-Current Liabilities XXX.XX
Current Liabilities XXX.XX
Trade and Other Payables XXX.XX
Bank Overdraft XXX.XX
Total Equity and Liabilities XXX.XX
Notes to the Financial Statements on 30 June 2011

1. Trade and Other Receivables

Trade Debtors 130 000.00
Less: Allowances for Credit Losses (7 500 – 6 500) (6 500.00)
Net Trade Debtors 123 500.00
Accrued Income XXX.XX
Prepaid Expenses XXX.XX

Example 10.4 Adjustments and Year-End Procedures

The following pre-adjustment Trial Balance in the books of Tuscany Dealers at

the end of their first financial year:

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Pre-adjustment Trial Balance of Tuscany Dealers on 28 February 2008.
Balance Sheet Section Folio Debit Credit
Capital B1 163 270.00
Drawings B2 42 000.00
Land and Buildings B3 540 000.00
Equipment B4 60 000.00
Fixed Deposit: ABOO Bank B5 50 000.00
Trading Inventory B6 70 000.00
Bank B7 15 200.00
Debtors Control B8 47 730.00
Creditors Control B9 67 100.00
Mortgage Loan: BZN Bank B10 482 400.00
Nominal Accounts Section
Sales N1 848 000.00
Sales Returns N2 16 000.00
Cost of Sales N3 520 000.00
Rent Income N4 45 500.00
Interest on Fixed Deposit N5 6 000.00
Insurance N6 14 700.00
Interest on Mortgage Loan N7 72 130.00
Wages and Salaries N8 125 680.00
Telephone N9 17 750.00
Office Consumables N10 3 000.00
Advertising N11 9 200.00
General Expenses N12 8 880.00
1 612 270.00 1 612 270.00

Adjustments at year-end:

 According to a physical stock-take the following was on hand on 28

February 2008:
o Trading Inventory R67 500
o Office Consumables R1 000
 Depreciation must be written off on equipment at 20% per annum
according to the straight-line method. All equipment was purchased on 1
March 2007.
 The following adjustments must be made to enforce the accrual concept:
o Insurance Prepaid R2 100
o Telephone Accrued R3 420
o Rent Received in Advance R3 500

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 o Accrued Interest in Fixed Deposit R500
 Create an allowance for credit losses to the amount of R4 773.

Solution General Ledger of Tuscany Dealers

Trading Account F1
Date Details Fol Amount Date Details Fol Amount
2008 Cost of Sales 2008 Sales (848 000 –
Feb 28 (520 000 + 2 500) GJ12 522 500.00 Feb 28 16 000) GJ12 832 000.00
Profit and Loss GJ12 309 500.00
832 000.00 832 000.00

Profit and Loss F2

Date Details Fol Amount Date Details Fol Amount
2008 Insurance 2008
Feb 28 (14 700 – 2 100) GJ12 12 600.00 Feb 28 Trading Account GJ12 309 500.00
Interest on GJ12 72 130.00 Rent Income GJ12 42 000.00
Mortgage Loan (45 500 – 3 500)
Int on Fixed Dep
Wages and Salaries GJ12 125 680.00 (6 000 + 500) GJ12 6 500.00
Telephone GJ12 21 170.00
(17 750 + 3 420)
Office Consumables
(3 000-1 000) GJ12 2 000.00
Advertising GJ12 9 200.00
General Expenses GJ12 8 880.00
Depreciation GJ12 12 000.00
Allowance for
credit losses adjust GJ12 4 773.00
Capital (net profit) GJ12 89 657.00
358 000.00 358 000.00

Post-adjustment Trial Balance of Tuscany Dealers on 28 February 2008.

Balance Sheet Section Folio Debit Credit

Capital B1 163 270.00
Drawings B2 42 000.00
Land and Buildings B3 540 000.00
Equipment B4 60 000.00
Fixed Deposit: ABOO Bank B5 50 000.00
Trading Inventory B6 67 500.00
Bank B7 15 200.00
Debtors Control B8 47 730.00
Creditors Control B9 67 100.00
Mortgage Loan: BZN Bank B10 482 400.00
Consumable Stores on Hand B11 1 000.00
Accumulated Depreciation: Equipment B12 12 000.00
Prepaid Expenses B13 2 100.00
Accrued Expenses B14 3 420.00
Income Received in Advance B15 3 500.00
Accrued Income B16 500.00

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 Allowance for Credit Losses B17 4 773.00
Nominal Accounts Section
Sales N1 848 000.00
Sales Returns N2 16 000.00
Cost of Sales N3 522 500.00
Rent Income N4 42 000.00
Interest on Fixed Deposit N5 6 500.00
Insurance N6 12 600.00
Interest on Mortgage Loan N7 72 130.00
Wages and Salaries N8 125 690.00
Telephone N9 21 170.00
Office Consumables N10 2 000.00
Advertising N11 9 200.00
General Expenses N12 8 880.00
Depreciation N13 12 000.00
Allowance for Credit Losses Adjustment N14 4 773.00
1 632 963.00 1 632 963.00

Post-closing Trial Balance of Tuscany Dealers on 28 February 2008.

Balance Sheet Section Folio Debit Credit
Capital B1 210 837.00
Land and Buildings B3 540 000.00
Equipment B4 60 000.00
Fixed Deposit: ABOO Bank B5 50 000.00
Trading Inventory B6 67 500.00
Bank B7 15 200.00
Debtors Control B8 47 730.00
Creditors Control B9 67 100.00
Mortgage Loan: BZN Bank B10 482 400.00
Consumable Stores on Hand B11 1 000.00
Accumulated Depreciation: Equipment B12 12 000.00
Prepaid Expenses B13 2 100.00
Accrued Expenses B14 3 420.00
Income Received in Advance B15 3 500.00
Accrued Income B16 500.00
Allowance for Credit Losses B17 4 773.00
784 030.00 784 030.00

Statement of Financial Position of Tuscany Dealers on 28 February 2008

Assets Notes R R
Non-Current Assets 638 000.00
Property, Plant and Equipment 3 588 000.00
Financial Assets 4 50 000.00
Current Assets 129 257.00
Inventories 5 68 500.00
Trade and Other Receivables 6 45 557.00
Cash and Cash Equivalents 7 15 200.00
Total Assets 767 257.00
Equity and Liabilities
Owner’s Equity 210 837.00
Non-Current Liabilities 482 400.00
Long-Term Liabilities 8 482 400.00
Current Liabilities

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 Trade and Other Payables 9 74 020.00
Total Equity and Liabilities 767 257.00

Statement of profit or loss and other comprehensive income of Tuscany

Dealers for the year ended 28 February 2008

Notes R R
Revenue (848 000 – 16 000) 832 000.00
Less: Cost of Sales (520 000 + 2 500) (522 500.00)
Gross Profit 309 500.00
Add: Other Income 48 500.00
Rent Income (45 500 – 3 500) 42 000.00
Interest Income 1 6 500.00
Gross Income 358 000.00
Less: Distribution, Administrative and Other Expenses (196 303.00)
Insurance (14 700 – 2 100) 12 600.00
Wages and Salaries 125 680.00
Telephone (17 750 + 3 420) 21 170.00
Office Consumables (3 000 – 1 000) 2 000.00
Advertising 9 200.00
General Expenses 8 880.00
Depreciation 12 000.00
Allowance for credit losses adjustment 4 773.00
Profit before finance costs 161 697.00
Less: Interest Expense 2 (72 130.00)
Profit or Total Comprehensive Income for the year 89 567.00

Tuscany Dealers

Statement of Changes in Equity for the year ended 28 February 2005

Capital
Balance as at 28 February 2004 163 270.00
Additional contributions during the year 0.00
Profit or Total Comprehensive Income for the year 89 567.00
Drawings for the year (42 000.00)
Balance as at 28 February 2005 210 837.00

Notes to the Financial Statements on 28 February 2005

1. Interest Income

Interest on Fixed Deposit (6 000 + 500) 6 500.00

6 500.00

2. Interest Expenses

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 Interest on Mortgage Loan 72 130.00
72 130.00

3. Property, Plant and Equipment

Land and Equipment Total

Buildings
Carrying Value at end of previous year 540 000.00 540 000.00
Cost 540 000.00 540 000.00
Accumulated Depreciation

Movements during the year 48 000.00 48 000.00

Additions at cost 60 000.00 60 000.00
Disposals at carrying value
Depreciation for the year (12 000.00) (12 000.00)

Carrying value at end of current year 540 000.00 48 000.00 588 000.00

Cost 540 000.00 60 000.00 600 000.00
Accumulated Depreciation (12 000.00) (12 000.00)

4. Financial Assets

Fixed Deposit: ABOO Bank 50 000.00

50 000.00

5. Inventories

Trading Inventories 67 500.00

Consumable Stores on Hand: office Consumables 1 000.00
68 500.00

6. Trade and Other Receivables

Trade Debtors 47 730.00

Less: Allowances for Credit Losses (4 773.00)
Net Trade Debtors 42 957.00
Accrued Income (Interest on Fixed Deposit) 500.00
Prepaid Expenses (Insurance) 2 100.00
45 557.00

7. Cash and Cash Equivalents

Bank 15 200.00
15 200.00

8. Long-Term Liabilities

Mortgage Loan: BZN Bank 482 400.00

482 400.00

9. Trade and Other Payables

Trade Creditors 67 100.00

Accrued Expenses (Telephone) 3 420.00

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 Income Received in Advance (Rent Income) 3 500.00
74 020.00

Question 10.3
Pre-adjustment Trial Balance of Muskadel Traders on 28 February 2008.
Balance Sheet Section Folio Debit Credit
Capital B1 469 770.00
Drawings B2 8 000.00
Land and Buildings B3 550 000.00
Vehicles B4 240 000.00
Accumulated Depreciation: Vehicles B5 60 000.00
Fixed Deposit: Munroe Investments B6 42 850.00
Trading Inventory B7 21 370.00
Petty Cash B8 1 000.00
Bank B9 4 460.00
Debtors Control B10 13 910.00
Creditors Control B11 7 070.00
Mortgage Loan: Norton Bank B12 372 000.00
Nominal Accounts Section
Sales N1 618 000.00
Sales Returns N2 18 000.00
Cost of Sales N3 488 000.00
Rent Income N4 26 000.00
Interest on Fixed Deposit N5 3 920.00
Telephone N6 38 040.00
Interest on Mortgage Loan N7 59 520.00
Wages and Salaries N8 21 660.00
Repairs and Maintenance N9 9 000.00
Postage and Stationery N10 4 750.00
Advertising N11 40 000.00
Credit Losses N12 5 120.00
1 612 270.00 1 612 270.00
Adjustments at year-end:

1. According to a physical stock-take the following was on hand 31 August

2007:
 Trading Inventory R21 000
 Postage and Stationery R750
2. Depreciation must be written off on vehicles at 25% per annum according
to the reducing balance method. No vehicles were bought or sold during the
financial year.
3. The following adjustments must be made to enforce the accrual concept:
 Wages and Salaries payable R8 000
 Telephone prepaid for September 2007, R1 800
 Rent received in advance R2 000
 Accrued interest on Fixed deposit R210

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4. Create an allowance for credit losses to the amount of R695.50

Required:

a. Prepare the post-adjustment Trial Balance on 31 August 2007

b. Draft the Statement of Financial Position on 31 August 2007
c. Prepare the Statement of Profit and Losses and Other Comprehensive
Income for the year ended 31 August 2007
d. Prepare the Statement of Changes in Equity for the year ended 31 August
2007
e. Prepare the notes to the financial statements

Note: Ignore VAT

Post-adjustment Trial Balance of Muskadel Traders on 31 August 2007

Balance Sheet Section Folio Debit Credit

Capital B1
Drawings B2
Land and Buildings B3
Vehicles B4
Accumulated Depreciation: Vehicles B5
Fixed Deposit: Munroe Investments B6
Trading Inventory B7
Petty Cash B8
Bank B9
Debtors Control B10
Creditors Control B11
Mortgage Loan: Norton Bank B12

Nominal Accounts Section

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 Sales N1
Sales Returns N2
Cost of Sales N3
Rent Income N4
Interest on Fixed Deposit N5
Telephone N6
Interest on Mortgage Loan N7
Wages and Salaries N8
Repairs and Maintenance N9
Postage and Stationery N10
Advertising N11
Credit Losses N12

Statement of Financial Position of Muskadel Traders on 31 August 2007

Assets Notes R R
Non-Current Assets
Property, Plant and Equipment 3
Financial Assets 4
Current Assets
Inventories 5
Trade and Other Receivables 6
Cash and Cash Equivalents 7
Total Assets
Equity and Liabilities
Owner’s Equity
Non-Current Liabilities
Long-Term Liabilities 8
Current Liabilities
Trade and Other Payables 9
Bank Overdraft
Total Equity and Liabilities

Statement of Profit or Loss and Other Comprehensive Income of

Muskadel Traders for the year ended 31 August 2007
Notes R R
Revenue
Less: Cost of Sales
Gross Profit
Add: Other Income
Rent Income
Interest Income 1
Gross Income
Less: Distribution, Administrative & Other Expenses
Telephone
Wages and Salaries
Repairs and Maintenance
Postage and Stationery (4 750 – 750)
Advertising
Credit Losses

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 Depreciation
Allowance for Credit Losses Adjustment
Loss before finance costs
Less: Interest Expense 2
Profit or Total Comprehensive Income for the year

Muskadel Dealers
Statement of Changes in Equity for the year ended 31 August 2007
Capital
Balance as at 1 September 2006
Additional contributions during the year
Profit or Total Comprehensive Income for the year
Drawings for the year
Balance as at 31 August 2007

Notes to the Financial Statements on 28 February 2005

1. Interest Income

2. Interest Expenses

3. Property, Plant and Equipment

Land and Vehicles Total
Buildings
Carrying Value at end of previous year
Cost
Accumulated Depreciation

Movements during the year

Additions at cost
Disposals at carrying value
Depreciation for the year

Carrying value at end of current year

Cost
Accumulated Depreciation

4. Financial Assets

Fixed Deposit:

5. Inventories

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 Trading Inventories
Consumable Stores on Hand: Office Consumables

6. Trade and Other Receivables

Trade Debtors
Less: Allowances for Credit Losses
Net Trade Debtors
Accrued Income
Prepaid Expenses

7. Cash and Cash Equivalents

8. Long-Term Liabilities

9. Trade and Other Payables

Trade Creditors
Accrued Expenses
Income Received in Advance

Example 10.5 Comprehensive Example – Perpetual Inventory

Pre-adjustment Trial Balance of Condos Galore on 31 May 2005

Balance Sheet Section Folio Debit Credit

Capital B1 519 900.00
Drawings B2 10 500.00
Land and Buildings B3 300 000.00
Equipment B4 77 875.00
Vehicles B5 226 875.00
Accumulated Depreciation: Equipment B6 40 375.00
Accumulated Depreciation: Vehicles B7 51 875.00
Investment: Putin Bank (16% p.a.) B8 100 000.00

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 Petty Cash B9 1 250.00
Bank B10 16 462.50
Cash Float B11 3 500.00
Trading Inventory B12 59 6250.00
Debtors Control B13 26 650.00
Creditors Control B14 18 000.00
Long-Term Loan: Minora Group (181/2%p.a.) B15 75 000.00
Allowance for Credit Losses B16 1 187.50
Nominal Accounts Section
Sales N1 271 250.00
Cost of Sales N2 155 000.00
Sales Returns N3 8 750.00
Interest on Investment N4 14 662.50
Rent Income N5 38 187.50
Insurance N6 3 937.50
Stationery N7 937.50
Settlement Discount Received N8 3 800.00
Settlement Discount Granted N9 3 587.50
Credit Losses N10 1 000.00
Rates and Taxes N11 5 862.50
Repairs N12 1 562.00
Credit Losses Recovered N13 3 750.00
Advertising N14 14 900.00
Salaries and Wages N15 32 250.00
Interest on Loan N16 13 812.50
Interest Income (on debtors’ accounts) N17 1 087.50
Interest Expense (on creditors’ accounts) N18 287.50
Telephone N19 4 687.50
Consumable Stores N20 2 687.50
1 055 537.50 1 055 537.50

Adjustments on 31 May 2005:

1. An amount of R400 for freight on purchases of trading inventory was

incorrectly debited to the repairs accounts during April 2005. Correct the
error.
2. The owner, Hira Flemming, took goods with a selling price of R741 for her
own use the goods were marked up at 50% on cost. This transaction has
not been recorded as yet.
3. A physical stock-take revealed that the following was on hand:
 Inventory R58 656
 Stationery R162.50
 Consumable Goods R312.50
4. The investment and long-term loan were both negotiated during 2003.
Interest on the investment is credited to the current account and interest
on the loan is debited to the current account. The capital amount in the

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 investment was increased by R6 000 on 1 may 2005 and R15 000 was paid
back on the loan on 1 December 2004.
5. The insurance premiums for June and July 2005 have been prepaid.
Insurance premiums have remained constant for the duration of the
financial year.
6. The telephone account for May 2005 must still be settled R1 187.50.
7. The monthly rent due from the tenant amounts to R2 937.50. The tenant
has been renting from Condos Galore since 1 June 2004. No deposit was
payable with occupation.
8. The outstanding balance of a debtor, G Keenan, must be written off as
irrecoverable, R625. Adjust the allowance for credit losses to the amount of
R1 301.25. (note: No potential settlement discounts granted were tied up
in outstanding debtors at year-end, thus no allowance was needed in this
respect.)
9. Provide for depreciation as follows:
 On equipment at 20% per annum on cost. Take into account that a
new office computer was purchased for R10 000 on 1 March 2005.
This was properly recorded.
 On vehicles at 25% per annum according to the diminishing balance
method.
10. A debtor, whose account of R2 5000 had previously been written off as
irrecoverable, sent a cheque in full settlement. The transaction has not yet
been recorded and all the subsidiary journals for May 2005 have already
been closed off. Receipt No. RC807 was issued.

Note: Ignore VAT

Fol New Balance Sheet Accounts Created

B17 Consumable Stores on Hand (Current Asset) + 162.50 (Dr) + 312.50 (Dr)
B18 Accrued Income (Current Asset) + 457.50 (Dr)
B19 Accrued Expenses (Current Liabilities) + 1 450 (Cr) + 1 187.50 (Cr)
B20 Prepaid Expenses (Current Asset) + 562.50 (Dr)
B21 Income received in advance (Current Liabilities) + 2 937.50 (Cr)

Fol New Income Statement Accounts Created

N21 Allowance for credit losses adjustment (Expense) + 113.75 (Dr)
N22 Depreciation (Expense) + 14 075 (Dr) + 43 750 (Dr)

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General Journal of Condos Galore for May 2005
Doc Day Details Fol Debit Credit
31 Trading Inventory B12 400.00
Repairs N12 400.00
Correction of Error

Drawings B2 494.00
Trading Inventory B12 494.00
Owner took goods for own use

Cost of Sales N2 875.00

Trading Inventory B12 875.00
Adjustment for inventory deficit

Consumable Stores on Hand B17 475.00

Stationery N7 162.50
Consumable Goods N20 312.50
Adjustment for consumables on hand

Accrued Income B18 457.50

Interest on Investment N4 457.50
Adjustment for interest receivable

Interest on Loan N16 1 450.00

Accrued Expenses B19 1 450.00
Adjustment for interest payable

Prepaid Expenses B20 562.50

Insurance N6 562.50
Adjustment for insurance prepaid

Telephone N19 1 187.50

Accrued Expenses B19 1 187.50
Adjustment for telephone payable

Rent Income N5 2 937.50

Income received in advance B21 2 937.50
Income received in advance

Credit Losses N10 625.00

Debtors Control (G Keenan) B13 625.00
Additional credit losses written off

Allowances for credit losses adjustment N21 113.75

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 Allowances for credit losses B16 113.75
Increasing the allowance for credit losses to 5% outstanding debtors

Depreciation N22 57 825.00

Accumulated Depreciation: Equipment B6 14 075.00
Accumulated Depreciation: Vehicles B7 43 750.00
Adjustment for depreciation on equipment at 20% p.a. on cost and on
vehicles at 25% p.a. on the reducing balance

Bank B10 2 500.00

Credit Losses recovered N13 2 500.00
Received cash from debtor previously been written off as irrecoverable

The year-end adjustments will be journalised as follows:

31 Sales N1 8 750.00
Sales Returns N3 8 750.00
Closing transfer

Sales N1 3 587.00
Settlement discount granted N9 3 587.00
Closing transfer

Settlement discount received N8 3 800.00

Cost of Sales N2 3 800.00
Closing transfer

Sales N1 258 912.50
Trading Account F1 258 912.50
Closing transfer

Trading Account F1 152 075.00

Cost of Sales N2 152 075.00
Closing transfer

Trading Account F1 106 837.00

Profit and Loss F2 106 837.00
Closing transfer of gross profit

Interest on Investment N4 15 120.00

Rent Income N5 35 250.00
Credit Losses Recovered N13 6 250.00
Interest Income N17 1 087.50
Profit and Loss F2 57 707.50
Closing transfer – other income

Profit and Loss F2 141 688.75

Insurance N6 3 375.00
Stationery N7 775.00
Credit Losses N10 1 625.00
Rates and Taxes N11 5 862.50
Repairs N12 1 162.50
Advertising N14 14 900.00

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 Salaries and Wages N15 32 250.00
Interest on Loan N16 15 262.50
Interest Expense N18 287.50
Telephone N19 5 875.00
Consumable Goods N20 2 375.00
Allowance for credit losses adjustment N21 113.75
Depreciation N22 57 825.00
Closing transfer – other operating expenses

Profit and Loss F2 22 856.25

Capital B1 22 856.25
Closing transfer of profits to capital

Capital B1 10 994.00
Drawings B2 10 994.00
Closing transfer of drawings against capital

Post-closing Trial Balance of Condos Galore on 31 May 2005.

Balance Sheet Section Folio Debit Credit

Capital B1 531 762.00
Land and Buildings B3 3000 000.00
Equipment B4 77 875.00
Vehicles B5 226 875.00
Accumulated Depreciation: Equipment B6 54 450.00
Accumulated Depreciation: Vehicles B7 95 625.00
Investment: Putin Bank (16% p.a.) B8 100 000.00
Petty Cash B9 1 250.00
Bank B10 13 962.50
Cash Float B11 3 500.00
Trading Inventory B12 58 656.00
Debtors Control B13 26 025.00
Creditors Control B14 18 000.00
Long-Term Loan: Minora Group 18 ½% p.a. B15 75 000.00
Allowance for credit losses B16 1 301.25
Consumable stores on hand B17 475.00
Accrued Income B18 457.50
Accrued Expenses B19 2 637.50
Prepaid Expenses B20 562.50
Income Received in Advance B21 2 937.50
795 676.00 795 676.00

Statement of Financial Position of Condos Galore on 31 May 2005

Assets Notes R R
Non-Current Assets 554 675.00
Property, Plant and Equipment 3 454 675.00
Financial Assets 4 100 000.00

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 Current Assets 89 624.75
Inventories 5 59 131.00
Trade and Other Receivables 6 24 743.75
Cash and Cash Equivalents 7 4 750.00
Total Assets 644 299.75

Equity and Liabilities

Owner’s Equity 531 762.25
Non-Current Liabilities 75 000.00
Long-Term Liabilities 8 75 000.00
Current Liabilities
Trade and Other Payables 9 23 575.00
Bank Overdraft (16 462.50 – 2 500) 13 962.50
Total Equity and Liabilities 644 299.75

Statement of Profit or Loss and Other Comprehensive Income of Condos

Galore for the year ended 31 May 2005

Notes R R
Revenue (271 250 – 8 750 – 3 587.50) 258 912.50
Less: Cost of Sales (155 000 + 875 – 3 800) (152 075.00)
Gross Profit 106 837.50
Add: Other Income 57 707.50
Rent Income (38 178.50 – 2 937.50) 32 250.00
Interest Income 1 16 207.50
Credit Losses Recovered 6 250.00
Gross Income 164 545.00
Less: Distribution, Administrative and Other (126 138.75)
Expenses
Insurance (3 93750 – 562.50) 3 375.00
Stationery (937.50 – 162.50) 775.00
Credit Losses (1 000 + 625) 1 625.00
Rates and Taxes 5 862.50
Repairs (1 562.50 – 400) 1 162.50
Advertising 14 900.00
Salaries and Wages 32 250.00
Telephone (4 687.50 – 312.50) 5 875.00
Consumable Goods (2 687.50 – 312.50) 2 375.00
Allowance for credit losses adjustment 113.75
Depreciation 57 825.00
Profit before finance costs 38 406.25
Less: Interest Expense 2 (15 550.00)
Profit or Total Comprehensive Income for the 22 856.25
year
Condos Galore

Statement of Changes in Equity for the year ended 31 May 2005

Capital
Balance as at 31 May 2004 519 900.00
Additional contributions during the year 0.00
Profit or Total Comprehensive Income for the year 22 856.25

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 Drawings for the year (10 994.00)
Balance as at 28 February 2005 531 762.25

Notes to the Financial Statements on 31 May 2005

1. Interest Income

On investment (14 662.50 + 457.50) 15 120.00

On debtors’ accounts 1 087.50
16 207.50

2. Interest Expenses

On loan (13 812.50 + 1 450) 15 262.50

On creditors’ accounts 287.50
15 550.00

3. Property, Plant and Equipment

Land and Equipment Vehicles Total

Buildings
Carrying Value at end of 300 000.00 27 500.00 175 000.00 502 500.00
previous year
Cost 300 000.00 67 875.00 226 875.00 594 750.00
Accumulated Depreciation (40 375.00) (51 875.00) (92 250.00)

Movements during the year (4 075.00) (43 750.00) (47 825.00)

Additions at cost 10 000.00 10 000.00
Disposals at carrying value
Depreciation for the year (14 075.00) (43 750.00) (57 825.00)

Carrying value at end of 300 000.00 23 425.00 131 250.00 588 000.00

current year
Cost 300 000.00 77 875.00 226 875.00 604 750.00
Accumulated Depreciation (54 450.00) (95 625.00) (150 075.00)

4. Financial Assets

Investment: Putin Bank (16% p.a) 100 000.00

100 000.00

5. Inventories

Trading Inventory (59 625 – 494 – 875) 58 656.00

Consumable Stores on Hand: (162.50 + 312.50) 475.00
59 131.00

6. Trade and Other Receivables

Trade Debtors(26 650 – 625) 26 025.00

Less: Allowances for Credit Losses (1 187.50 + 113.75) (1 301.25)
Net Trade Debtors 24 723.75

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 Accrued Income (Interest on Investment) 457.50
Prepaid Expenses (Insurance) 562.50
25 743.75

7. Cash and Cash Equivalents

Petty Cash 1 250.00

Cash Float 3 500.00
4 750.00

8. Long-Term Liabilities

Mortgage Loan: Minora Group 18 ½% p.a. 75 000.00

75 000.00

9. Trade and Other Payables

Trade Creditors 18 000.00

Accrued Expenses (Telephone 1 187.50 Interest on Loan 2 637.50
1 450.00)
Income Received in Advance (Rent Income) 2 937.50
23 575.00

Question 10.4

Pre-adjustment Trial Balance of Jaypeg Enterprises on 28 February 2005

Balance Sheet Section Folio Debit Credit

Capital B1 1 180 282.00
Drawings B2 84 900.00
Land and Buildings B3 1 000 000.00
Vehicles B4 680 000.00
Furniture B5 145 600.00
Accumulated Depreciation: Vehicles B6 88 000.00

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 Accumulated Depreciation: Furniture B7 25 600.00
Trading Inventory B8 44 700.00
Bank B9 26 250.00
Mortgage Bond: Festive Bank B10 856 000.00
Allowance for Credit Losses B11 5 400.00
Allowance for settlement discount granted B12 2 400.00
Fixed Deposit: Rusta Investments 12% B13 200 000.00
Savings Account B14 16 000.00
Petty Cash B15 4 000.00
Cash Float B16 2 800.00
Debtors Control B17 124 000.00
Creditors Control B18 91 344.00
SARS (PAYE) B19 47 900.00
Deposit for water and electricity B20 10 000.00
Nominal Accounts Section
Sales N1 1 500 000.00
Cost of Sales N2 1 125 000.00
Settlement discount received N3 4 080.00
Rent Income N4 107 250.00
Interest Income (on debtors control) N5 14 366.00
Salaries and Wages N6 228 000.00
Advertising N7 24 000.00
Stationery N8 7 600.00
Consumable Stores N9 8 440
Insurance N10 70 760.00
Credit Losses N11 25 600.00
Interest Expense (on creditors control) N12 6 780.00
Interest on overdraft N13 1 102.00
Interest on Mortgage Bond N14 106 486.00
Bank Charges N15 2 184.00
Settlement discount granted N16 2 296.00
Credit Losses Recovered N17 1 000.00
General Expenses N18 29 614.00
Sales Returns N19 2 220.00
Interest on Fixed Deposit N20 2 200.00
3 952 082.00 3 952 082.00

Additional information and adjustments:

1. The owner, Mrs Jayden, took trading inventory with a selling price of R1
6000 for own use on 26 February 2005. The business trades at a constant
mark-up of 33.33% on cost. This transaction has not yet been recorded
2. According to a physical stock-take, the following was on hand 28 February
2005:
 Trading Inventory R42 400
 Stationery R600
 Consumable Stores R1 040

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3. A debtor, Miss F Tumele, has been declared insolvent. Received a cheque
for R6 000, constituting 30 cents in the Rand from her insolvent estate.
This transaction must still be recorded. Write the rest of her debt off as
irrecoverable.
4. Adjust the allowance for credit losses to the amount of R5 200, and the
allowance for settlement discount granted to the amount of R2 470.
5. Provide for depreciation as follows:
 On vehicles at 25% per annum on cost. Take into account that a new
vehicle was bought for R360 000 on 1 June 2004.
2
 On furniture at 16 % per annum according to the diminishing
3
balance method. Take into account that a new office desk was
bought for R8 400 on 1 September 2004.
6. The mortgage bond was registered on 1 March 2004. The initial interest
rate was set at 12% p.a. but was raised to 13% p.a. on 1 September 2004.
The mortgage loan is redeemable in quarterly instalments of R48 000
starting from 1 June 2004. All due instalments were paid as scheduled,
being on 1 June 2004. 1 September 2004 and 1 December 2004. Simple
interest is changed and debited to the current bank account of Jaypeg
Enterprises.
7. The tenant moved into building on 1 September 2003. The rent for March
2005 has been prepaid.
8. The quarterly statement of the fixed deposit shows accrued interest of
R200. The fixed deposit matures on 1 September 2005.
9. The amount for advertising includes an amount of R17 000 for an
advertisement that will be broadcast over the ratio during the period 13
March 2005 to 21 April 2005.

Required:

a. Journalise the adjustments

b. Draft the statement of Financial Position of Jaypeg Enterprises as at 28
February 2005
c. Prepare a Statement of Profit or Loss and Other Comprehensive Income
for Jaypeg Enterprises for the year ended 28 February 2005

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 d. Prepare the Statement of Changes in Equity of Jaypeg Enterprises for the
year ended 28 February 2005
e. Prepare all relevant Notes to the Financial Statements

Note: Ignore VAT

General Journal of Jaypeg Enterprises for February 2005

Day Details Fol Debit Credit

210 | P a g e
211 | P a g e
Statement of Profit or Loss and Other Comprehensive Income of Jaypeg
enterprises for the year ended 28 February 2005

Notes R R
Revenue
Less: Cost of Sales
Gross Profit
Add: Other Income
Rent Income

Interest Income 1

Gross Income
Less: Distribution, Administrative & Other
Expenses
Salaries and Wages
Advertising
Stationery
Consumable Stores
Insurance
Credit Losses
Bank Charges
General Expenses
Depreciation
Loss before finance costs
Less: Interest Expense 2
Profit or Total Comprehensive Income for the year

Statement of Financial Position of Jaypeg Enterprises on 28 February

2005

Notes R R
Assets
Non-Current Assets
Property, Plant and Equipment 3
Current Assets
Fixed Deposit: Rusta Investments
Inventories 4
Trade and Other Receivables 5
Cash and Cash Equivalents 6
Total Assets

212 | P a g e
 Equity and Liabilities
Owner’s Equity
Non-Current Liabilities
Long-Term Liabilities 7
Current Liabilities

Trade and Other Payables 8

Total Equity and Liabilities

Jaypeg Enterprises

Statement of Changes in Equity for the year ended 28 February 2005

Capital
Balance as at 1 March 2004
Additional contributions during the year
Profit or Total Comprehensive Income for the year
Drawings for the year
Balance as at 28 February 2005

Notes to the Financial Statements on 28 February 2005

1. Interest Income

2. Interest Expenses

3. Property, Plant and Equipment

Land and Vehicles Furniture Total

Buildings
Carrying Value on 28/02/04
Cost
Accumulated Depreciation

Movements during the year

Additions at cost
Disposals at carrying value
Depreciation for the year

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 Carrying value at end current
year
Cost
Accumulated Depreciation

4. Inventories

Trading Inventories
Consumable Stores on Hand:

5. Trade and Other Receivables

Trade Debtors
Less: Allowances for Credit Losses
Less: Allowance for settlement discount granted
Net Trade Debtors
Accrued Income
Prepaid Expenses
Deposit for water and electricity

6. Cash and Cash Equivalents

7. Long-Term Liabilities

8. Trade and Other Payables

Trade Creditors
Accrued Expenses
Income Received in Advance
SA Revenue Service (PAYE)

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Question 10.5

Pre-adjustment Trial Balance of Forsythe Stores on 30 June 2004

Balance Sheet Section Folio R

Capital B1 559 800.00
Drawings B2 28 600.00
Debtors Control B3 66 600.00
Trading Inventory B4 91 200.00
Equipment B5 104 000.00
Vehicles B6 320 000.00
Furniture B7 36 000.00
Accumulated Depreciation: Equipment B8 44 000.00
Accumulated Depreciation: Vehicles B9 80 000.00
Accumulated Depreciation: Furniture B10 17 000.00
Creditors Control B11 35 480.00
Loan: Pino Bank (22% pa.a) B12 300 000.00
Petty Cash B13 800.00
Allowance for Credit Losses B14 5 200.00
Fixed Deposit: Superior Bank (16% p.a.) B15 240 000.00
Cash Float B16 800.00
Bank (favourable) B17 25 780.00
Nominal Accounts Section
Sales N1 356 000.00
Cost of Sales N2 222 500.00
Settlement discount received N3 1 020.00

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 Credit Losses Recovered N4 2 900.00
Interest on Loan N5 64 600.00
Settlement discount granted N6 1 440.00
Credit Losses N7 3 000.00
Wages and Salaries N8 82 400.00
Rates and Taxes N9 16 420.00
Sales Returns N10 5 260.00
Insurance N11 4 000.00
Interest on Fixed Deposit N12 39 000.00
Advertising N13 27 400.00
Bank Charges N14 200.00
Telephone N15 3 840.00
Repairs and Maintenance N16 4 120.00
Interest Income (on debtors control) N17 1 140.00
Interest Expense (on creditors control) N18 480.00
Stationery N19 3 300.00
Fuel N20 16 400.00
Depreciation N21 1 400.00
Loss on sale of vehicle N22 8 000.00
Rent Expense N23 91 000.00
Commission Received N24 28 000.00

Adjustments and additional information on June 2004:

1. A physical stock-take revealed that the following was on hand:

 Trading Inventory R90 000
 Stationery R700
 Fuel R2 400
2. A vehicle with a carrying value of R49 000 was sold during the year.
Equipment was bought on 1 January 2004 for R16 000.
3. Non-current assets must be depreciated as follows:
 Equipment at 33.33% on cost
 Vehicles at 20% according to the reducing balance method
 Furniture at 10% per annum on cost
4. R1 600 has been recovered in cash from a debtor whose account had
previously been written off as irrecoverable. No entry has been as yet.
5. It was realised that repairs done to equipment during the year was
debited to the advertising account, R2 720. Correct the error.
6. The rent for July 2004 was paid in advance. Forsythe Stores moved into
the building on 1 February 2001.

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 7. The long-term loan and fixed deposit have been running for over 12
months. No movements on the capital amounts or changes in the interest
rates took place during the financial year, but there are twelve monthly
instalments of R3 000 due on the loan, starting on 31 July 2004.
8. Forsythe Stores acts as an agent for Luke Industries. A total of R16 000 in
commission is receivable at the end of the financial year. Payment for the
year ended 30 June 2004 was still outstanding by 30 June 2004.
9. The account of P Phillips for R6 600 must be written off as irrecoverable
and the allowance for credit losses must be adjusted to the amount of
R4 200.

Required:

a. Show the calculations for the depreciation adjustment

b. Journalise the adjustments
c. Draft the Statement of Financial Position of Forsythe Stores as at 30 June
2004
d. Prepare a Statement of Profit or Loss and Other Comprehensive Income of
Forsythe Stores for the year ended 30 June 2004
e. Prepare the Statement of Changes in Equity for the year ended 30 June
2004
f. Prepare the Notes to the Financial Statements

Note: Ignore VAT

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 Vehicles at Carrying Value B1

Date Details Fol Amount Date Details Fol Amount

General Journal of Forsythe Stores for June 2004

Day Details Fol Debit Credit

218 | P a g e
Statement of Profit or Loss and Other Comprehensive Income of
Forsythe Stores for the year ended 30 June 2004

Notes R R
Revenue
Less: Cost of Sales
Gross Profit
Add: Other Income
Credit Losses recovered
Commission Received
Interest Income 1
Allowance for credit losses adjustment
Gross Income
Less: Distribution, Administrative & Other
Expenses
Credit Losses
Wages and Salaries
Rates and Taxes
Insurance
Advertising
Bank Charges

219 | P a g e
 Telephone
Repairs and Maintenance
Stationery
Fuel
Depreciation
Loss on sale of vehicle
Rent Expense
Loss before finance costs
Less: Interest Expense 2
Profit or Total Comprehensive Income for the year

Statement of Financial Position of Forsythe Stores as at 30 June 2004

Notes R R
Assets
Non-Current Assets
Property, Plant and Equipment 3
Financial Assets 4
Current Assets
Inventories 5
Trade and Other Receivables 6
Cash and Cash Equivalents 7
Total Assets

Equity and Liabilities

Owner’s Equity
Non-Current Liabilities
Long-Term Liabilities 8
Current Liabilities

Trade and Other Payables 9

Total Equity and Liabilities

Forsythe Stores

Statement of Changes in Equity for the year ended 30 June 2004

Capital
Balance as at 1 July 2003
Additional contributions during the year
Profit or Total Comprehensive Income for the year
Drawings for the year
Balance as at 30 June 2005

220 | P a g e
Notes to the Financial Statements on 28 February 2005

1. Interest Income

2. Interest Expenses

3. Property, Plant and Equipment

Equipment Vehicles Furniture Total
Carrying Value on 30 June 2003
Cost
Accumulated Depreciation

Movements during the year

Additions at cost
Disposals at carrying value
Depreciation for the year

Carrying value on June 2004

Cost
Accumulated Depreciation

4. Financial Assets
Fixed Deposits:

5. Inventories
Trading Inventories
Consumable Stores on Hand:

6. Trade and Other Receivables

Trade Debtors
Less: Allowances for Credit Losses
Net Trade Debtors
Accrued Income
Prepaid Expenses

7. Cash and Cash Equivalents

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8. Long-Term Liabilities

9. Trade and Other Payables

Trade Creditors
Accrued Expenses
Income Received in Advance

Example 10.6 Comprehensive Example – Periodic Inventory

Pre-adjustment Trial Balance of Sweets for Heaven on 28 February 2008

Balance Sheet Section Folio Debit Credit

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 Capital B1 106 904.00
Drawings B2 19 200.00
Land and Buildings B3 88 000.00
Equipment B4 27 600.00
Vehicles B5 36 000.00
Trading Inventory B6 22 168.00
Mortgage Loan (15% p.a.) B7 40 000.00
Short-Term Loan (14% p.a.) B8 8 000.00
Fixed Deposit (12% p.a.) B9 16 000.00
Debtors Control B10 5 488.00
Creditors Control B11 7 076.00
Cash Float B12 400.00
Petty Cash B13 200.00
Bank B14 7 864.00
Accumulated Depreciation: Equipment B15 1 200.00
Accumulated Depreciation: Vehicles B16 7 200.00
Allowance for Credit Losses B17 240.00
Nominal Accounts Section
Sales N1 154 000.00
Purchases N2 47 800.00
Freight In N3 24 000.00
Freight Out N4 6 000.00
Wages and Salaries N5 38 400.00
Packing Materials N6 2 000.00
Rent Income N7 10 400.00
Bank Charges N8 532.00
Stationery N9 700.00
Settlement Discount Received N10 1 232.00
Telephone N11 1 148.00
Vehicle Expenses N12 1 600.00
Interest on Loans N13 7 680.00
Credit Losses N14 160.00
Interest on Fixed Deposit N15 960.00
1 055 537.50 1 055 537.50
Adjustments on 28 February 2008:

1. An amount of R870 for freight on purchases of trading inventory was

incorrectly debited to the vehicle expenses account during January 2008.
Correct the error.
2. The owner, Jay Naidoo, took goods with a selling price of R1 800 for her
own use. The goods were marked up at 45% on the selling price. This
transaction has not been recorded as yet.
3. A physical stock-take revealed that the following was on hand:
 Inventory R6 800
 Stationery R300
 Packing Materials R720
4. Interest in the mortgage loan has been paid in full. However, six months’
interest has been paid in advance on the short-term loan.

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5. Interest on fixed deposit has been received for only six months of the year.
6. The February 2008 salary of an employee, P Pugh, is still due to be paid out
to her, R7 000.
7. An amount of R1 000 was prepaid on the telephone account.
8. The tenant has been renting a room in the building since 1 December 2007
at R2 600 per month.
9. Write an amount of R188 outstanding by a debtor, M Naas, off as
irrecoverable.
10. Adjust the allowance for credit losses to the amount of R212.
11. Provide for depreciation as follows:
 On equipment at 16% per annum on cost. Take into account that a
new office computer was purchased for R7 200 on I November 2007.
This was properly recorded.
 On vehicle at 20% per annum according to the diminishing balance
method.
12. A debtor, whose account of R13 000 had previously been written off as
irrecoverable, sent a cheque in full settlement. The transaction has not yet
been recorded, but all the subsidiary journals for February 2008 have been
closed off. Receipt No, RT81 was issued.

Note: Ignore VAT

Fol New Balance Sheet Accounts Created

B18 Consumable Stores on Hand (Current Asset) + 300 (Dr) + 720 (Dr)
B19 Prepaid Expenses (Current Asset) + 560 (Dr) + 1 000 (Dr)
B20 Accrued Income (Current Asset) + 960 (Dr)
B21 Accrued Expenses (Current Liability) + 7 000 (Dr)
B22 Income received in advance (Current Liability) + 2 600(Cr)

Fol New Income Statement Accounts Created

N16 Allowance for credit losses adjustment (Expense/ Income) + 28.00(Cr)
N17 Depreciation (Expense) + 3 800 (Dr) + 5 760 (Dr)
N18 Credit Losses Recovered + 1 300 (Cr)

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General Journal of Sweets for Heaven for February 2008

Doc Day Details Fol Debit Credit

No.
31 Freight In N3 870.00
Vehicle Expense N12 870.00
Correction of error

Drawings B2 990.00
Purchases N2 990.00
Owner took goods for own use

Consumable Stores on hand B16 1 020.00

Stationery N9 300.00
Packing Materials N6 720.00
Adjustment for consumable stores on hand

Prepaid Expenses B19 560.00

Interest on Loans N13 560.00
Adjustment for interest prepaid

Accrued Income B20 960.00

Interest on Fixed Deposit N15 960.00
Adjustment for interest receivable

Wages and Salaries N5 7 000.00

Accrued Expenses B21 7 000.00
Adjustment for salary payable

Prepaid Expenses B19 1 000.00

Telephone N11 1 000.00
Adjustment for telephone prepaid

Rent Income N7 2 600.00

Income Received in Advance B22 2 600.00

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 Rent for March received in advance

Credit Losses N14 188.00

Debtors Control (M Naas) B10 188.00
Additional credit losses written off

Allowance for Credit Losses B17 28.00

Allowance for Credit Losses Adjustment N16 28.00
Decreasing the allowance for credit losses to the amount of R212

Depreciation N17 9 560.00

Accumulated Depreciation: Equipment B15 3 800.00
Accumulated Depreciation: Vehicles B16 5 760.00
Adjustment for depreciation on equipment at 16 2/3% p.a. on cost and on
vehicles at 20% p.a. on the reducing balance

Bank B14 1 300.00

Credit Losses recovered N18 1 300.00
Received cash from debtor that had previously been written off as irrecoverable

Statement of Financial Position of Sweets for Heaven on 28 Feb 2008

Assets Notes R R
Non-Current Assets 149 640.00
Property, Plant and Equipment 3 133 640.00
Financial Assets 4 16 000.00
Current Assets 16 028.00
Inventories 5 7 820.00
Trade and Other Receivables 6 7 608.00
Cash and Cash Equivalents 7 600.00
Total Assets 165 668.00
Equity and Liabilities
Owner’s Equity 94 428.00
Non-Current Liabilities 40 000.00
Long-Term Liabilities 8 40 000.00
Current Liabilities
Short-Term Loan 8 000.00
Trade and Other Payables 9 16 676.00
Bank Overdraft (7 864 – 1 300) 6 564.00
Total Equity and Liabilities 165 668.00
Statement of profit or loss and other comprehensive income of Sweets
for Heaven for the year ended 28 February 2008

Notes R R
Revenue 154 000.00
Less: Cost of Sales (85 816.00)
Opening Inventory 22 168.00
Add: Purchases (47 800 – 990 – 1 232) 45 578.00
Add: Freight In (24 000 + 870) 24 870.00
Less: Closing Inventory (6 800.00)
Gross Profit 68 184.00
Add: Other Income 11 048.00
Rent Income 7 800.00
Interest Income 1 1 920.00

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 Allowance for credit losses adjustment 28.00
Credit Losses Recovered 1 300.00
Gross Income 79 232.00
Less: Distribution, administrative and other (64 398.00)
expenses
Freight Out 6 000.00
Wages and Salaries (38 400 + 7 000) 45 400.00
Packing Materials (2 000 – 720) 1 280.00
Bank Charges 532.00
Stationery (700 – 300) 400.00
Telephone (1 148 – 1 000) 148.00
Vehicle Expenses (1 600 – 870) 730.00
Credit Losses (160 + 188) 348.00
Depreciation (3 800 + 5 760) 9 560.00
Profit before finance costs 14 834.00
Less: Interest Expense 2 (7 7120.00)
Total Comprehensive Income for the year 7 714.00

Sweets for Heaven

Statement of Changes in Equity for the year ended 28 February 2008

Capital
Balance as at 1 March 2007 106 904.00
Additional contributions during the year 0.00
Profit or Total Comprehensive Income for the year 7 714.00
Drawings for the year (20 190.00)
Balance as at 28 February 2008 94 428.00

Notes to the Financial Statements on 28 February 2008

1. Interest Income

On Fixed Deposit 1 920.00

1 920.00

2. Interest Expense

On mortgage loan (40 000 x 15%) 6 000.00

On Short-Term Loan (7 680 – 6 000 – 560) 1 120.00
7 120.00

3. Property, Plant and Equipment

Land and Equipment Vehicles Total

Buildings
Carrying Value at end of 88 000.00 19 200.00 28 800.00 136 000.00
previous year
Cost 88 000.00 20 400.00 36 000.00 144 400.00
Accumulated (1 200.00) (7 200.00) (8 400.00)
Depreciation

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 Movements during the year 3 400.00 (5 760.00) (2 360.00)
Additions at cost 7 200.00 7 200.00
Disposals at carrying
value
Depreciation for the year (3 800.00) (5 760.00) (9 560.00)

Carrying value at end of 88 000.00 22 600.00 23 040.00 133 640.00

current year
Cost 88 000.00 27 600.00 36 000.00 151 600.00
Accumulated Depreciation (5 000.00) (12 960.00) (17 960.00)

4. Financial Assets

Investment: (12% p.a.) 16 000.00

16 000.00

5. Inventories

Trading Inventory 6 800.00

Consumable Stores on Hand: (300.00 + 720.00) 1 020.00
59 131.00

6. Trade and Other Receivables

Trade Debtors(5 488 - 188) 5 300.00

Less: Allowances for Credit Losses (240 - 28) (212.00)
Net Trade Debtors 5 088.00
Accrued Income (Interest on Investment) 960.00
Prepaid Expenses (Insurance) 1 560.00
7 608.00

7. Cash and Cash Equivalents

Petty Cash 200.00

Cash Float 400.00
600.00

8. Long-Term Borrowings

Mortgage Loan (15% p.a.) 40 000.00

40 000.00

9. Trade and Other Payables

Trade Creditors 7 076.00

Accrued Expenses (Wages and Salaries) 7 000.00
Income Received in Advance (Rent Income) 2 600.00
16 676.00

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Question 10.6

The following information relates to Morare Traders:

Pre-adjustment Trial Balance as at 31 March 2004

Balance Sheet Section R R

Capital 257 250.00
Drawings 48 000.00
Vehicles 480 000.00
Accumulated Depreciation: Vehicles 121 000.00
Equipment 36 000.00
Accumulated Depreciation: Equipment 18 800.00
Long-Term Loan: ABSA 180 000.00
Trading Inventory (1 April 2003) 20 000.00
Debtors Control 113 000.00
Allowance for Credit Losses 3 500.00
Fixed Deposit 50 000.00
Bank 88 750.00
Creditors Control 8 000.00
Nominal Accounts Section
Sales 445 000.00
Purchases 100 000.00
Sales Returns 20 000.00
Purchases Returns 10 000.00
Carriage on Purchases 20 000.00
Import Tariffs 30 000.00
Custom Duties 15 500.00
Carriage on Sales 10 000.00
Rent Income 26 250.00
Sales Returns
Interest Expense 35 150.00
Credit Losses 3 400.00
1 069 800.00 1 069 800.00

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Adjustments as at 31 March 2004:

1. The tenant moved into the building on 1 August 2003. No deposit was
payable on occupation, but rent was to be paid in advance (e.g. August
2003’s rent was paid on 1 August 2003 and so on.) The tenant prepaid her
rent for April, May and June 2004 during March 2004. Rent payments were
increased by 25% on 1 January 2004.
2. Depreciation must be provided for as follows:
2
 On vehicles at 16 % p.a. according to the diminishing balance
3
method. Take into account that a new vehicle was purchased on 1
July 2003 at a price of R200 000.
 On equipment at 33.33% on cost. Take into account that a new
computer was purchased on 1 December 2003 at a price of R18 000.
3. The long-term loan from ABSA was negotiated on 31 August 2002 at an
initial annual nominal interest rate of 20%. The only movement on the
capital amount borrowed since inception has been R30 000 partial
redemption which took place on 1 January 2004. The interest rate was
lowered to 18% on 1 August 2003. All interest is recovered from the
business’s current bank account.
4. The credit purchase of stationery for R3 000 during March 2004 as
inadvertently recorded as a cash purchase (per cheque) of equipment. The
error must still be corrected.
5. The allowance for credit losses must be adjusted to the amount of R3 390,
and an allowance for settlement discount granted to the amount of R10 961
must be created.
6. The fixed deposit account was opened on 1 March 2004, when the full
R50 000 was invested in this 30-day notice deposit at an interest rate of
8% p.a. calculated daily, but compounded annually. The interest for 31
days will only be debited to the fixed deposit account on 1 April 2004, but
has been earned already. (Remember that 2004 is a leap year).

Required:

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Show only the journal entries required to record the adjustments on 31 March
2004. No journal narrations are required. Note: Ignore VAT

General Journal of Morare Traders for March 2004

Doc Day Details Fol Debit Credit

Question 10.7

Pre-adjustment Trial Balance of Fortuna Dealers as at 31 August 2006

Balance Sheet Section Fol Debit Credit

Capital B1 699 520.00
Drawings B2 3 570.00
Land and Buildings B3 965 920.00
Motor Vehicle B4 320 000.00
Furniture and Fittings B5 336 200.00
Accumulated Depreciation: Motor Vehicles B6 80 000.00
Accumulated Depreciation: Furniture B7 67 220.00

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 Fixed Deposit (DAS Bank) B8 85 000.00
Bank B9 18 600.00
Debtors Control B10 32 190.00
Allowance for Credit Losses (1/9/2007) B11 1 290.00
Allowance for settlement discount granted B12 300.00
Petty Cash B13 3 930.00
Trading Inventory (1/9/2007) B14 19 670.00
Mortgage Loan B15 357 750.00
Creditors Control B16 37 920.00
Cash Float B17 9 600.00
Rent Deposit B18 3 220.00
Credit Card Account B19 102 670.00
SARS (UIF/SDL/PAYE) B20 26 110.00
Nominal Accounts Section
Sales N1 1 320 170
Sales Returns N2 58 170.00
Purchases N3 636 400.00
Purchases Returns N4 89 800.00
Settlement Discount Received N5 3 000.00
Service Income N6 80 400.00
Interest on Fixed Deposit N7 8 580.00
Rent Income N8 63 700.00
Interest on Debtors Accounts N9 6 080.00
Credit Losses Recovered N10 5 360.00
Telephone and Fax N11 25 610.00
Credit Losses N12 8 730.00
Office Refreshments N13 25 320.00
Cleaning Materials N14 8 940.00
Stationery N15 16 880.00
Railage Inwards N16 9 780.00
Advertising Expenses N17 19 230.00
Electricity N18 9 600.00
Interest on Creditors Control N19 6 220.00
Rent Expense N20 61 700.00
Wages and Salaries N21 192 110.00
Settlement Discount Granted N22 650.00
Fuel N23 73 610.00
2 950 850.00 2 950 850.00

Additional information and adjustments as at 31 August 2008:

1. Provide for depreciation as follows:

 On motor vehicles: 20% per annum on cost. Note that a new motor
vehicle costing R60 000 was bought on 30 April 2008. This has been
properly recorded.

232 | P a g e
  On furniture and fittings: 33.33% per annum on the reducing
balance method.
2. A debtor, T Doster, who owed R1 500 has been declared insolvent. The
business received 35 cents in the rand from the insolvent estate. This
transaction must still be recorded. Write the rest of the debt off as
irrecoverable.
3. The allowance for credit losses must be adjusted to the amount R1 400.
Adjust the allowance for settlement discount granted to an amount of
R550.
4. R840 has been recovered in cash from a debtor whose account had
previously been written off as irrecoverable. No entry has been made as
yet.
5. The debit order for telephone and fax for August 2008 is due on 1
September 2008, R2 460.
6. Advertising expenses for September 2008 has been prepaid, R1 270.
7. Service income for August 2008 has not yet been received, R7 000.
8. The rent income for September 2008 has been received already. The rent
premium has not been increased since the tenant moved in on 1 September
2007. No deposit was payable on occupation.
9. An invoice for R1 300 has been received from Ethekwini Municipality for
electricity. This transaction has not yet been recorded.
10. An amount of R2 000 was paid to DAS Transport for delivery (by rail) of
trading inventory to the business. This was debited to the office
refreshments account in error which has not yet been corrected. This
trading inventory to which the railage relates has not yet been sold.
11. The owner took trading inventory for personal use. The selling price was
R2 325 (VAT is not applicable). The mark-up is 55% on cost price. The
transaction must still be processed.
12. The stock take revealed the following items on hand:
o Trading Inventory R18 300
o Cleaning Materials R4 000
o Stationery R7 000
13. Provide for the interest on the mortgage loan. Interest is calculated at 12%
per annum. On 1 March 2008, an amount of R150 000 was paid off on the

233 | P a g e
 loan. There were no other additional loans for repayments during the
financial year, but twelve end-of month instalments of R3 300 each are due
to be repaid on the loan, starting at the end of September 2008. Interest
on the loan is credited to the current bank account.
14. The owner made a capital contribution of R100 000 during the year. This
has been properly received.

Note: The owner made no further capital contributions during the year in
question.

Required:

a. Illustrate your adjustments on the pre-adjustment Trial Balance

b. Journalise the adjustments and closing transfers, start with journal
voucher no.855
c. Draft the Statement of Financial Position of Fortuna Dealers as at 31
August 2008
d. Prepare the Statement of Profit and Loss and Other Comprehensive
Income of Fortuna Dealers for the year ended 31 August 2008
e. Prepare the Statement of Changes in Equity for the year ended 31 August
2008
f. Prepare the Notes to the Financial Statements

Note: Ignore VAT

234 | P a g e
Pre-adjustment Trial Balance of Fortuna Dealers as at 31 August 2008

Fol Debit Credit Adjustments

Balance Sheet Section
Capital B1 699 520.00
Drawings B2 3 570.00
Land and Buildings B3 965 920.00
Motor Vehicle B4 320 000.00
Furniture and Fittings B5 336 200.00
Accumulated Depreciation: B6 80 000.00
Motor Vehicles
Accumulated Depreciation: B7 67 220.00
Furniture
Fixed Deposit (DAS Bank) B8 85 000.00
Bank B9 18 600.00
Debtors Control B10 32 190.00
Allowance for Credit Losses B11 1 290.00
(1/9/2007)
Allowance for settlement B12 300.00
discount granted
Petty Cash B13 3 930.00
Trading Inventory B14 19 670.00
(1/9/2007)
Mortgage Loan B15 357 750.00
Creditors Control B16 37 920.00
Cash Float B17 9 600.00
Rent Deposit B18 3 220.00
Credit Card Account B19 102 670.00
SARS (UIF/SDL/PAYE) B20 26 110.00

Nominal Accounts Adjustments

Section

235 | P a g e
 Sales N1 1 320 170.00
Sales Returns N2 58 170.00
Purchases N3 636 400.00
Purchases Returns N4 89 800.00
Settlement Discount N5 3 000.00
Received
Service Income N6 80 480.00
Interest on Fixed Deposit N7 8 580.00
Rent Income N8 63 700.00
Interest on Debtors N9 6 080.00
Accounts
Credit Losses Recovered N10 5 360.00
Telephone and Fax N11 25 610.00
Credit Losses N12 8 730.00
Office Refreshments N13 25 320.00
Cleaning Materials N14 8 940.00
Stationery N15 16 880.00
Railage Inwards N16 9 780.00
Advertising Expenses N17 19 230.00
Electricity N18 9 600.00
Interest on Creditors N19 6 220.00
Control
Rent Expense N20 61 700.00
Wages and Salaries N21 192 110.00
Settlement Discount N22 650.00
Granted
Fuel N23 73 610.00
2 950 850.00 2 950 850.00

General Journal of Fortuna Dealers for August 2008

Doc Day Details Fol Debit Credit

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Closing transfers

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 Day Details Fol Debit Credit

238 | P a g e
239 | P a g e
Statement of P/L & OCI of Fortuna Dealers for the year end 31 Aug 2008
Notes R R
Revenue
Less: Cost of Sales
Opening Inventory
Purchases
Railage Inwards
Closing Inventory
Gross Profit
Add: Other Income
Service Income
Rent Income
Interest Income 1
Credit Losses recovered
Gross Income
Less: Distribution, Administrative & Other Expenses
Telephone and Fax
Credit Losses
Office Refreshments
Cleaning Materials
Stationery
Advertising Expenses
Electricity
Rent Expense
Wages and Salaries
Fuel
Depreciation
Allowance for credit losses adjustment
Profit before finance costs
Less: Interest Expense 2
Profit or Total Comprehensive Income for the year
Statement of Financial Position of Fortuna Dealers as at 31 August 2008

Assets Notes R R
Non-Current Assets
Property, Plant and Equipment 3
Financial Assets 4

240 | P a g e
 Current Assets
Inventories 5
Trade and Other Receivables 6
Cash and Cash Equivalents 7
Total Assets

Equity and Liabilities

Owner’s Equity
Non-Current Liabilities
Long-Term Liabilities 8
Current Liabilities
Short-Term portion of mortgage
bond (R3 300 x 12)
Trade and Other Payables 9
Total Equity and Liabilities

Fortuna Dealers

Statement of Changes in Equity for the year ended 31 August 2008

Capital
Balance as at 1 September 2007
Additional contributions during the year
Profit or Total Comprehensive Income for the year
Drawings for the year
Balance as at 31 august 2008

Notes to the Financial Statements

1. Interest Income

2. Interest Expense

3. Property, Plant and Equipment

Land and Vehicles Furniture Total

Buildings

241 | P a g e
 Carrying Value on 30/06/03
Cost
Accumulated Depreciation

Movements during the year

Additions at cost
Disposals at carrying value
Depreciation for the year

Carrying value on June 2004

Cost
Accumulated Depreciation

4. Financial Assets

Fixed Deposits:

5. Inventories

Trading Inventory
Consumable Stores on Hand:

6. Trade and Other Receivables

Trade Debtors
Less: Allowances for Credit Losses
Less: Allowance for settlement discount granted
Net Trade Debtors
Accrued Income
Prepaid Expenses
Rent Deposit

7. Cash and Cash Equivalents

8. Long-Term Liabilities

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9. Trade and Other Payables

Trade Creditors
Accrued Expenses
Income Received in Advance
Credit card account
SARS (UIF/SDL/PAYE)

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