Explanation

Transactions

Cash transactions Credit Transactions

Payment on the spot when goods are Payment after some time of delivery of goods or rendering of services
delivered/service is rendered by Cash, Cheque, Credit card etc.
by Cash, Cheque, Credit card etc. e.g. Credit sales/purchases
e.g. Cash sales/purchases

Discount
Cash Discount Trade discount
• Offered to people to promote them to pay within certain time period • Offered to people who purchased in bulk etc
• No double entry is made in ledger accounts
• On list price of goods.
Cash discount allowed Cash discount received
• Given to customers • Obtained by business from suppliers
• Business expense, deducted from Gross Profit • Business income, added in Gross Profit

DR Accounts receivable 100 DR Purchases 100

CR Sales 100 CR Accounts payable 100

DR Cash/Bank 80 DR Accounts payable 80

CR Accounts receivable 80 CR Cash/Bank 80

DR Discount Allowed 20 DR Accounts payable 20

CR Accounts receivable 20 CR Discount Received 20

COMBINING ENTRY COMBINING ENTRY

DR Discount Allowed 20 DR Accounts payable 100
DR Cash/Bank 80 CR Cash/Bank 80
CR Accounts receivable 100 CR Discount Received 20
DOUBLE ENTRY PRACTICE AND INTRODUCTION TO ACCOUNTING CYCLE

Accounting cycle (Sole Trader)

Source document

Day books

Ledger accounts

Trial balance (unadjusted)

Adjusting entries in ledger accounts

Trial balance (adjusted)

Financial statements for presentation(to the owner, lenders, tax authorities etc.)
● Statement of comprehensive income/Income statement
● Statement of financial position/Balance Sheet

Close of books
● Close all income and expense accounts to the income statement(I/S in T-a/c form)

Opening trial balance

AFZAL & SONS (Sole Trader)

Afzal & Sons deals in selling branded computers(finished goods). His business volume is low and accounting system
is manual. His accounts clerk make posting to ledgers and doesn't maintain books of prime entries.
Following are the business transaction for the year ended 31-12-09

1-Jan Mr. Afzal introduced capital of $ 1M(1,000,000) by cash

2-Jan He opened a bank account (MCB) and put $500,000 cash into it

2-Jan He bought Goods(Stock) on cash $100,000

4-Mar He bought Goods(Stock) from Mr. Ali of $200,000
3-Apr He sold Goods(Stock) on cash of $500,000
6-Jun He sold Goods(Stock) to Mr. Hasan of $200,000
 10-Jun Mr. Hasan found some faulty goods of $15,000. Hence returning it to the business(Returns inwards/Sales
Returns)

11-Jun The business found some faulty goods of $10,000 purchased from Mr. Ali. Hence returning it to Mr.
Ali(Returns outwards/Purchases Returns)

15-Aug Mr. Afzal made sales to Mr. Naseem. Afzal gave him 5% trade discount on list price of goods $ 50,000 as
he is good customer & purchased in bulk. Afzal offered him further a cash discount 5% if he pays within
One week of invoice date(15-08-09)

17-Aug Mr. Naseem availed 5% cash discount and paid by cheque.

18-Aug Mr. Afzal made purchases from Mr. Avon. Avon gave him 5% trade discount on list price of goods $
100,000 as he is good customer & purchased in bulk. Avon offered him further a cash discount 10% if
Afzal pays within One week of invoice date(18-08-09)

19-Aug Mr. Afzal availed 10% cash discount and paid to Avon by cheque.

12-Sep Mr. Afzal takes goods for his personal use of purchase price $1,000.
15-Oct Mr. Afzal draws cash $ 5,000 from business for his personal use.
11-Nov Mr. Afzal obtains a loan from bank(MCB) of $200,000. Cash goes to his bank a/c. Payable within 2 years
from B/S date

17-Nov The business pays its utility bills of business premises of 2009 of $ 10,000 by cash
20-Nov Mr. Afzal purchase a delivery van of $50,000 paying by cheque(MCB).
10-Dec Mr. Afzal purchase a new warehouse of $50,000 from Mr. Hawk . Payment will be made within 6
months from B/S date
12-Dec Repair and maintenance of new warehouse paid by cash of $2,000.
22-Dec Petrol expense of delivery van of $1,000 paid by cash.

Requirement:
1 Prepare "Double entries" and make posting to ledger accounts and find balances at 31-12-2009.

2 Prepare Trial Balance as on 31-12-2009

3 Prepare the following financial statements in a format suitable for presentation to the owner, lenders, tax
authorities etc.

● Statement of comprehensive income as on 31-12-2009(statement form)

● Statement of financial position as on 31-12-2009
CLOSE OF BOOKS
4 ● Close all income and expense accounts to the income statement(I/S in T-a/c form)

5 Prepare opening trial balance as at 1 Jan 2010

1 Double entries
Dr Cr
Date Detail
($) ($) W1
2009 Cash 1,000,000 List price of goods 50,000
1-Jan Capital 1,000,000 Less trade discount 2,500 (50,000X5%)
2-Jan Bank (MCB) 500,000 Receivable 47,500
Cash 500,000
2-Jan Purchases 100,000 W2
Cash 100,000 Calculation of cash discount allowed
4-Mar Purchases 200,000
Ali(A/P) 200,000 Receivable 47,500
3-Apr Cash 500,000
Sales 500,000 Less discount allowed 2,375 (47,500X5%)
6-Jun Hassan(A/R) 200,000 Naseem will pay 45,125
Sales 200,000
10-Jun Sales returns 15,000 W3
Hassan(A/R) 15,000 List price of goods 100,000
11-Jun Ali(A/P) 10,000 Less trade discount 5,000 (50,000X5%)
Purchases returns 10,000 Payable 95,000
15-Aug Naseem(A/R) W1 47,500
Sales 47,500 W4
17-Aug Bank(MCB) (W2) 45,125 Calculation of cash discount received
Naseem(A/R) 45,125
Discount allowed 2,375 Purchase price after trade 95,000
Naseem(A/R) 2,375 discount
18-Aug Purchases W3 95,000 Less discount received 9,500 (47,500X10%)
Avon(A/P) 95000 Afzal will pay 85,500
19-Aug Avon(A/P) (W4) 85,500
Bank (MCB) 85,500
Avon(A/P) 9,500
Discount received 9,500
12-Sep Drawing 1,000
Purchases 1,000
15-Oct Drawing 5,000
Cash 5,000
11-Nov Bank (MCB) 200,000
Loan from MCB Bank 200,000
17-Nov Utility bills 10,000
Cash 10,000
20-Nov Delivery van 50,000
Bank (MCB) 50,000
10-Dec Warehouse 50,000
Hawk(other payable) 50,000
12-Dec Repair & maintenance 2,000
Cash 2,000
22-Dec Petrol 1,000
Cash 1,000

3
ledger accounts
Cash
$ $
1-Jan-09 Capital 1,000,000 2-Jan-09 Bank 500,000
3-Apr-09 Sales 500,000 2-Jan-09 Purchases 100,000
15-Oct-09 Drawings 5,000
17-Nov-09 Utility bills 10,000
12-Dec-09 Repair & maintenance 2,000
22-Dec-09 Petrol 1,000
31-Dec-09 Balance c/d 882,000
1,500,000 1,500,000
Balance b/d 882,000
Capital
$ $
31-Dec-09 Balance c/d 1,000,000 1-Jan-09 Cash 1,000,000

Balance b/d 1,000,000

Bank(MCB)
$ $
2-Jan-09 Cash 500,000 19-Aug-09 Avon(A/P) 85,500
17-Aug-09 Naseem(A/R) 45,125 20-Nov-09 Delivery van 50,000
11-Nov-09 Loan from MCB 200,000 31-Dec-09 Balance c/d 609,625
745,125 745,125

Balance b/d 609,625

Purchases
$ $
2-Jan-09 Cash 100,000
4-Mar-09 Ali(A/P) 200,000 12-Sep-09 Drawings 1,000
18-Aug-09 Avon(A/P) 95,000 31-Dec-09 Balance c/d 394,000
395,000 395,000
Balance b/d 394,000
Ali(A/P)
$ $
11-Jun-09 Purchases returns 10,000 4-Mar-09 Purchases 200,000
31-Dec-09 Balance c/d 190,000
200,000 200,000
Balance b/d 190,000
Sales
1-Jul-05 $ $
3-Apr-09 Cash 500,000
6-Jun-09 Hassan(A/R) 200,000
31-Dec-09 Balance c/d 747,500 15-Aug-09 Naseem(A/R) 47,500
747,500 747,500
Balance b/d 747,500
Hassan(A/R)
$ $
6-Jun-09 Sales 200,000 10-Jun-09 Sales returns 15,000
31-Dec-09 Balance c/d 185,000
200,000 200,000
Balance b/d 185,000
Returns inwards/Sales returns
$ $
10-Jun-09 Hassan(A/R) 15,000 31-Dec-09 Balance c/d 15,000

Balance b/d 15,000 15,000

Returns outwards/Purchases returns
$ $
31-Dec-09 Balance c/d 10,000 11-Jun-09 Ali(A/P) 10,000
Balance b/d 10,000
 Naseem(A/R)
$ $
15-Aug-09 Sales 47,500 17-Aug-09 Bank 45,125
17-Aug-09 Discount allowed 2,375
47,500 47,500
Avon(A/P)
$ $
19-Aug-09 Bank 85,500 18-Aug-09 Purchases 95,000
19-Aug-09 Discount received 9,500
95,000 95,000
Discount allowed
$ $
17-Aug-09 Naseem(A/R) 2,375 31-Dec-09 Balance c/d 2,375

Balance b/d 2,375

Discount received
$ $
31-Dec-09 Balance c/d 9,500 19-Aug-09 Avon(A/P) 9,500
Balance b/d 9,500
Drawings
$ $
12-Sep-09 Purchases 1,000
15-Oct-09 Cash 5,000 31-Dec-09 Balance c/d 6,000
6,000 6,000
Balance b/d 6,000

Loan(MCB Bank)
$ $
31-Dec-09 Balance c/d 200,000 11-Nov-09 Bank 200,000
Balance b/d 200,000
Utility Bills
$ $
17-Nov-09 Cash 10,000 31-Dec-09 Balance c/d 10,000

Balance b/d 10,000

Delivery Van
$ $
20-Nov-09 Bank 50,000 31-Dec-09 Balance c/d 50,000
Balance b/d 50,000
Warehouse
$ $
10-Dec-09 Hawk 50,000 31-Dec-09 Balance c/d 50,000
Balance b/d 50,000

Hawk(Other payable)
$ $
31-Dec-09 Balance c/d 50,000 10-Dec-09 Warehouse 50,000
Balance b/d 50,000
Repair and Maintenance
$ $
12-Dec-09 Cash 2,000 31-Dec-09 Balance c/d 2,000

Balance b/d 2,000

Petrol
$ $
22-Dec-09 Cash 1,000 31-Dec-09 Balance c/d 1,000

Balance b/d 1,000

 AFZAL & SONS
2 Trial Balance as on 31 December 2009
Dr ($) Cr ($)
Cash 882,000
Capital 1,000,000
Bank 609,625
Purchases 394,000
Ali (A/P) 190,000
Sales 747,500
Hassan (A/R) 185,000
Sales returns 15,000
Purchases returns 10,000
Discount allowed 2,375
Discount received 9,500
Drawings 6,000
Loan 200,000
Utility Bills 10,000
Delivery van 50,000
Warehouse 50,000
Hawk (other payable) 50,000
Repair and Maintenance 2,000
Petrol 1,000
2,207,000 2,207,000
3
AFZAL & SONS
Income statement for the year ended 31 December 2009
$ $
Sales 747,500
Sales returns (15,000)
732,500
Cost of sales:-
Opening stock X
Purchases 394,000
Purchases returns (10,000)
Closing stock (X)
Cost of sales (384,000)
Gross profit 348,500
Other income:-
Discount received 9,500
358,000
Less expenses:-
Discount allowed 2,375
Utility bills 10,000
Repair & maintenance 2,000
Petrol expenses 1,000
(15,375)
Net Profit 342,625

AFZAL & SONS

Statement of financial position as at 31 December 2009
$ $
Assets
Non Current Assets:
Warehouse 50,000
Delivery van 50,000
100,000

Current Assets:
Trade receivables 185,000
Other receivables X
Cast at bank 609,625
Cash in hand 882,000
1,676,625
1,776,625
Capital and Liabilities
Capital:
Opening capital X
Introduced during year 1,000,000
Add profit 342,625
Less drawings (6,000)
1,336,625

Non current Liabilities:

Loan (MCB Bank) 200,000
Current Liabilities:
Trade payables 190,000
Other payables 50,000
240,000
1,776,625
4 Close of Books
Purchases
$ $
2-Jan-09 Cash 100,000
4-Mar-09 Ali(A/P) 200,000 12-Sep-09 Purchases 1,000
15-Aug-09 Avon(A/P) 95,000 31-Dec-09 Balance c/d 394,000
395,000 395,000

31-Dec-09 Balance b/d 394,000 31-Dec-09 Income statement 394,000

Sales
1-Jul-05 $ $
3-Apr-09 Cash 500,000
6-Jun-09 Hassan(A/R) 200,000
31-Dec-09 Balance c/d 747,500 15-Aug-09 Naseem(A/R) 47,500
747,500 747,500
31-Dec-09 Income statement 747,500 31-Dec-09 Balance b/d 747,500

Returns inwards/Sales returns

$ $
10-Jun-09 Hassan(A/R) 15,000 31-Dec-09 Balance c/d 15,000

31-Dec-09 Balance b/d 15,000 31-Dec-09 Income statement 15,000

Returns outwards/Purchases returns

$ $
31-Dec-09 Balance c/d 10,000 11-Jun-09 Ali(A/P) 10,000

31-Dec-09 Income statement 10,000 31-Dec-09 Balance b/d 10,000

Discount allowed
$ $
17-Aug-09 Naseem(A/R) 2,375 31-Dec-09 Balance c/d 2,375

31-Dec-09 Balance b/d 2,375 31-Dec-09 Income statement 2,375

Discount received
$ $
31-Dec-09 Balance c/d 9,500 19-Aug-09 Avon(A/P) 9,500

31-Dec-09 Income statement 9,500 31-Dec-09 Balance b/d 9,500

Utility Bills
$ $
17-Nov-09 Cash 10,000 31-Dec-09 Balance c/d 10,000
31-Dec-09 Balance b/d 10,000 31-Dec-09 Income statement 10,000

Repair and Maintenance

$ $
12-Dec-09 Cash 2,000 31-Dec-09 Balance c/d 2,000

31-Dec-09 Balance b/d 2,000 31-Dec-09 Income statement 2,000

Petrol
$ $
22-Dec-09 Cash 1,000 31-Dec-09 Balance c/d 1,000

31-Dec-09 Balance b/d 1,000 31-Dec-09 Income statement 1,000

1 June, Balance b/f 180
 Income Statement (T- account form)

Purchases 394,000 Purchases returns 10,000

Sales 747,500
Sales returns 15,000
Gross Profit- c/d ([Link].) 348,500
757,500 757,500
Discount allowed 2,375 Gross Profit- b/d 348,500
Utility bills 10,000 Discount received 9,500
Repair & maintenance 2,000
Petrol expenses 1,000
Net profit ( bal fig. ) 342,625
358,000 358,000

Drawings
12-Sep-09 Purchases 1,000
15-Oct-09 Cash 5,000 31-Dec-09 Balance c/d 6,000
6,000 6,000
1-Jan-10 Balance b/d 6,000

Capital
31-Dec-09 Balance c/d 1,000,000 Cash 1,000,000

1-Jan-10 Balance b/d 1,000,000

Cash
1-Jan-09 Capital 1,000,000 2-Jan-09 Bank 500,000
3-Apr-09 Sales 500,000 2-Jan-09 Purchases 100,000
15-Oct-09 Drawings 5,000
17-Nov-09 Utility bills 10,000
12-Dec-09 Repair & maintenance 2,000
22-Dec-09 Petrol 1,000
31-Dec-09 Balance c/d 882,000
1,500,000 1,500,000
1-Jan-10 Balance b/d 882,000
Bank(MCB)
2-Jan-09 Cash 500,000 19-Aug-09 Avon(A/P) 85,500
17-Aug-09 Naseem(A/R) 45,125 20-Nov-09 Delivery van 50,000
11-Nov-09 Loan from MCB 200,000 31-Dec-09 Balance c/d 609,625
745,125 745,125

1-Jan-10 Balance b/d 609,625

Ali(A/P)
11-Jun-09 Purchases returns 10,000 4-Mar-09 Purchases 200,000
31-Dec-09 Balance c/d 190,000
200,000 200,000
1-Jan-10 Balance b/d 190,000
Hassan(A/R)
6-Jun-09 Sales 200,000 10-Jun-09 Sales returns 15,000
31-Dec-09 Balance c/d 185,000
200,000 200,000
1-Jan-10 Balance b/d 185,000
 Naseem(A/R)
15-Aug-09 Sales 47,500 17-Aug-09 Bank 45,125
17-Aug-09 Discount allowed 2,375
47,500 47,500
Avon(A/P)
19-Aug-09 Bank 85,500 15-Aug-09 Purchases 95,000
19-Aug-09 Discount received 9,500
95,000 95,000
Loan(MCB Bank)
31-Dec-09 Balance c/d 200,000 11-Nov-09 Bank 200,000
1-Jan-10 Balance b/d 200,000
Delivery Van
20-Nov-09 Bank 50,000 31-Dec-09 Balance c/d 50,000
1-Jan-10 Balance b/d 50,000
Warehouse
10-Dec-09 Hawk 50,000 31-Dec-09 Balance c/d 50,000
1-Jan-10 Balance b/d 50,000

Hawk(Other payable)
31-Dec-09 Balance c/d 50,000 10-Dec-09 Warehouse 50,000
1-Jan-10 Balance b/d 50,000

5 AFZAL & SONS

Trial Balance as on 1 Jan 2010
Dr ($) Cr ($)
Accumulated profits 342,625
Drawings 6,000
Capital 1,000,000
Cash 882,000
Bank 609,625
Ali (A/P) 190,000
Hassan (A/R) 185,000
Loan 200,000
Delivery van 50,000
Warehouse 50,000
Hawk (other payable) 50,000
1,782,625 1,782,625