Introduction to accounting principles of accounting2 by Methee Maseeh

Introduction to Accounting - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Introduction to principles of Accounting In todays world Principle of accounting is very important subject which each and every one of us should learn.Without having a basic knowledge of accounting our life is extremely difficult in a modern society regardless of the kind of job we have. If you do not have basic knowledge of principles of accounting we make it easy for you to learn basic principles of accounting. In this website there are several topics of principle of accounting in very a easy to understand words with simple examples and exercises. We provide principles of accounting notes and we explain what are the principles of accounting in this website in a simple words. In order to study basic principles of accounting you should first you should understand basic terms used in principles of accounting. Below are the some of the basic terms used in principles of accounting. What is a transaction? Transaction refers to any business event or activity that affects financial condition of an organization. Transactions typically involve an exchange of resources between the firm and other parties. For example, purchasing equipment with cash is a transaction.

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Difference between Accounting and Book-keeping: Accounting

The process of recording, summarizing, reporting, analyzing and interpretation of financial information relating to an organization. Book-keeping The accurate and systematic recording of transactions according to set rules. It is therefore just one part of the accounting process. One important role of accounting is to communicate financial information to various interested parties. The information provided can help them make financial decisions and take necessary actions. Accounting Equation: Accounting Equation is derived on the basis of the accounting entity assumption. The business is assumed to be a distinct entity having its own assets and the Accounting Equation expresses the fact that everything the business owns has been provided by the owners (capital) and by external sources (liabilities). Capital is sometimes referred to as owner’s equity.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Creditors (trade payables): People to whom the business owes money for the goods or services

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Introduction to Accounting - Principles Of Accounting supplied by them. Debtors (trade receivables): People who owe money to the business for the goods or services supplied to them. The above are some of the basic terminologies used in basic accounting. You must be now familiar with those basic terms.To learn further basic principles of accounting select the topics in the navigation menu and learn one by one be smarter in accounting. Incoming search terms: principlesofaccounting

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Topics - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Topics Introduction to Accounting Accounting Equation Double Entry Book–keeping Trial balance Cash Book Books of Prime entry and ledgers Business documents Accounting Rules Accounting concepts Accruals and Prepayments Depreciation and Assets disposal

/ http://www.principlesofaccounting2.com/ Bad debts and provision for bad debt Bank Reconciliation Statement Rectification of errors Control Accounts Final Accounts Final Accounts with adjustments Incomplete Records Clubs and Societies Partnership Manufacturing Accounts Departmental Accounts Business Purchase Amalgamation Company Accounts Accounting Ratios Payroll Accounting

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Pricacy Policy - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Pricacy Policy Privacy Policy for www.principlesofaccounting2.com If you require any more information or have any questions about our privacy policy, please feel free to contact us by email at psychic119@gmail.com. At www.principlesofaccounting2.com, the privacy of our visitors is of extreme importance to us. This privacy policy document outlines the types of personal information is received and collected by www.principlesofaccounting2.com and how it is used. Log Files Like many other Web sites, www.principlesofaccounting2.com makes use of log files. The information inside the log files includes internet protocol ( IP ) addresses, type of browser, Internet Service Provider ( ISP ), date/time stamp, referring/exit pages, and number of clicks to analyze trends, administer the site, track user’s movement around the site, and gather demographic information. IP addresses, and other such information are not linked to any information that is personally identifiable. Cookies and Web Beacons www.principlesofaccounting2.com does use cookies to store information about visitors preferences, record user-specific information on which pages the user access or visit, customize Web page content based on visitors browser type or other information that the visitor sends via their browser.

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Principles Of Accounting Principles of Accounting Made Easy Home

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Accounting Equation - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Accounting Equation what is the basic accounting equation?

Accounting Equation is also referred to as the balance sheet equation. Like any other mathematical equation, the two sides of the accounting equation will always be equal. The formula for the accounting equation is:

accounting equation

Capital is sometimes referred to as owner’s Equity. So the basic accounting equation can also be written as:

/ http://www.principlesofaccounting2.com/ Like any other mathematical equation, the accounting equation can be used to find any one other three elements if the other two elements are given.

This equation illustrates that the assets of a business (the resources used by a business) are always equal to the liabilities and capital of a business) are always equal to the liabilities and capital of a business (the resources provided for the business by others). The assets represent how the resources are used by the business and the liabilities and capital represent where these resources come from. Accounting equation example: 2007 January 1. Leena set up a business to trade under the name of the Dress shop. She opened a business bank account and paid in $20000 as capital. 2. The business purchased premises $15000 and paid by cheque. 3. The business purchased a stock of goods $3000 on credit. 4. The business sold goods at the cost price of $1000 on credit. Show the Accounting Equation after each of the above transactions. Date

Assets

Capital

liabilities

January 1

Bank $20000

$20000

Nil

January 2

Premises 15000Bank

$20000

Nil

5000 $20000

January 3

Premises 15000Stock 3000Bank

$20000

Creditor $3000

5000 $23000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ January 4

Premises 15000Stock 2000Debtor 1000Bank

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$20000

Creditor $3000

Accounting Equation - Principles Of Accounting 5000 $23000 From the above lesson you should learn what is accounting equation and how to solve a basic accounting equation problem.If you have learned accounting equation go to the next topic from the menu bar. Incoming search terms: equations that equal 20000 Principles of accounting equation

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Trial balance and adjusted trail balance

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Trial balance What is a trial balance? This is the list of all the account balances prepared at the end of a period to test the arithmetical accuracy of the books of accounts kept under double entry system. Trial balance proves the equality of debit and credit. Trial Balance is not part the double entry system of bookkeeping. It is simply list of balances. A trial balance, which agrees, indicates that for every debit there has been an equivalent credit entry or entries. It does prove that all the entries are for the correct amount or made to the correct account. However, the balancing of the trial is not proof that the entries in the ledger accounts are completely from errors. A trial balance is useful in preparing financial accounts. Nature of balances of each class of account

/ http://www.principlesofaccounting2.com/ Examples: plant, machinery, land, building, cash in hand, trade receivables, Inventories, furniture, salary paid, rent paid, wages etc.

Examples: Trade payables, bank overdrafts, bank loans, capital[Equity], discounts received, commissions received, rent received, salaries received etc. MCQ Q. 1 A list of accounts and their balances on a specific date should be entered in the (a) Balance sheet (b) Ledger accounts (c) Trial balance (d) None of these. Q. 2 The trial balance includes all the balances of: (a)Ledgers (b) Journal (c) Subsidiary books d) None of the above

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Q.3 What is the main purpose of trial balance?

(a) To check accounting procedure (b) To check double entry system

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Trial balance and adjusted trail balance Q.4 Which of the following best describes a trial balance? (a)Shows the financial position of a business (b) It is a list of balances on the books (c) Shows all the entries in the books (d) It is a special account Q.5 When preparing a trial balance, which one of the following is recorded on the debit side? (a) Bank overdraft (b) Return outwards (c) Capital (d) Purchases Q.6 When preparing a trial balance, which one of the following is recorded on the credit side?

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(a) Cash (b) Returns inwards (c) Equity (d) Office equipment

Q.7 What is a trial balance? (a) A statement (b) An account (c) A summary (d) An information Fill in the following with the most suitable terms 1) The trial balance is a list of all ——————– ——————————. 2) In a trial balance, the total of debit balances should be equal to the total of ——————– —————-. 3) The trial balance is prepared to check the ————————- ———————–of all ledger account balances. 4) ——————— is the basis for preparing the final accounts.

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bank has a credit balance in trial balance

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Cash Book - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Cash Book What is cash book? Cash book is For recording the receipts and payments of cash and cheques only. It is considered as both a journal and a ledger. Cash Discount and Trade Discount: (A) Cash Discount: The term cash discount refers to the reduction or allowance given for quick payment in cash or by cheque. The cash discount can be discount allowed or discount received. (i) Discount allowed: A reduction given to customers (debtors) who pay their accounts within the time limit. Discount allowed is an expense for the business. (ii) Discount received: A reduction given to us by the suppliers (creditors) when we pay their accounts before the time allowed has elapsed. Discount received is an income for the business. (B) Trade Discount: Trade discount is the reduction allowed from the list price (selling price) of the goods. Trade discount is not recorded in the accounts but cash discounts are recorded in the accounts.

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(1) Two-Column Cash book: The cash book for recording cash and cheque transactions together is known as the two-column cash book . Contra Entry: A contra entry for cash book items is where both the debit and credit are shown in the cash book itself. Format of the Two Column Cash Book

Assignment Questions: 1. A cash book shows a debit balance $ 50. What does this mean? A. There is cash in hand $ 50 B. Cash has been over spent by $ 50 C. Total cash paid out $ 50 D. Total cash received is less than $ 50

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2. We bought goods on credit from Charles. He was paid within prescribed time and he gave a reduction for that. What does this reduction mean for us? A. Discount allowed B. Discount received C. Discount given D. Special discount

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Cash Book - Principles Of Accounting 3. Which of the books does consist a cash account and a bank account put together in to one book? A. Cash book B. Bank book C. Sales book D. Pass book 4. A trader maintains the two column cash book. Debit balance of bank column $ 1,000 Cheques deposited $ 200 Cheques drawn for cash $ 350 What is the balance of the bank column at the end? A. $ 1,150 B. $ 1,000 C. $ 850 D. $ 1,550

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5. What does the discount column of the cash book record?

A. Discounts for trade customers B. Discounts for prompt payment C. Discount for bulk buying D. Discount for suppliers 6. A cash book shows a debit balance $ 50. What does this mean? A. There is cash in hand $ 50 B. Cash has been over spent by $ 50 C. Total cash paid out $ 5 D. Total cash received is less than $ 50 7. We bought goods on credit from Charles. He was paid within prescribed time and he gave a reduction for that. What does this reduction mean for us? A. Discount allowed B. Discount received C. Discount given D. Special discount

/ http://www.principlesofaccounting2.com/ 8. Which of the books does consist a cash account and a bank account put together in to one book? A. Cash book B. Bank book

C. Sales book D. Pass book 9. A trader maintains the two column cash book. Debit balance of bank column $ 1,000 Cheques deposited $ 200 Cheques drawn for cash $ 350 What is the balance of the bank column at the end? A. $ 1,150 B. $ 1,000 C. $ 850 D. $ 1,550 10. What does the discount column of the cash book record? A. Discounts for trade customers B. Discounts for prompt payment C. Discount for bulk buying D. Discount for suppliers LONG QUESTIONS: Q.1. Prepare a Two Column Cash Book for the month of December 2005 from the following transactions. 2005 Dec 1 Proprietor puts Capital into a bank account for the business $ 9,400 Dec 2 Received cheque from Boon $ 1,100 Dec 4 Cash Sales $ 1,200

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Dec 6 Paid rent by cash $ 450

Dec 7 Deposited Cash into Bank $ 500

Dec 15 Cash Sales paid directly into the Bank $ 400 Dec 23 Paid cheque to S,wills $ 2,700

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Cash Book - Principles Of Accounting Dec 29 Withdrew cash from bank for business use $ 1,200 Dec 30 Paid wages in cash $ 1,100 Q.2. Prepare a Two column cash book for the month of January 2006 from the following transactions. 2006 Jan 1 Started business with Cash $ 10,000 and of Bank $ 15,000 Jan 3 Bought goods by cheque $ 3,000 Jan 5 Sold goods for cash $ 5,000 Jan 6 Paid Wages in cash $ 700 Jan 10 Paid for postage and stationery $ 300 in cash

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Jan 13 Bought goods from Jack for $ 3,000 Jan 15 Bought goods for Cash $ 5,000 Jan 18 Sold goods and received by cheque $ 7,000 Jan 20 Sold goods to Jim for $ 2,000 Jan 24 Paid Telephone charges by cheque $ 1,000 Jan 26 Cash deposited into bank $ 5,000 Jan 27 Withdrew from Bank $ 1,000 for personal use Jan 29 Cash sales $ 1,500 Jan 30 Withdrew cash from Bank business use $ 1,500 Q. 3 Write up a Two column cash book from the following for the month of November 2002. 2002 Nov.

/ http://www.principlesofaccounting2.com/ 1 Balances brought down from the last month: Cash $1,050 (Dr)Bank $2,100 (Cr) 3 Cash sales $ 600

4 Took $1,200 from the cash till and deposited in the bank 5 T. Terry paid us by cheque $270 6 Bought postage stamps in cash $160 7 Bought office furniture for cheque $180 8 We paid L.Lucas by cheque $500 9 Received cheque for sale of goods $ 2,000 11 Withdrew $ 750 from the bank for business use. 14 Paid wages in cash $ 230 16 Paid motor expenses by cheque $100 20 R. Numan paid us by cheque $920 24 Paid general expenses by cash $ 72 28 Paid insurance by cheque $54 29 Paid rent in cash $ 400 30 The owner took cash from the business by for his private use $ 100 Q. 4 Prepare a two-column cash book for the month of January 2001 from the following transactions: 2001 January 1 Balances brought down: Cash $ 4,200; Bank $1,200

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 2 Bought goods for cash $1,000

3 Bought furniture for cheque $1,200 4 Received cheque from Sameen $5,100

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Cash Book - Principles Of Accounting 5 Received cash from Sannal $2,500 8 Cash sales $3,500 9 Cash purchases $2,800 12 Paid cash for stationery $180 14 Bought goods for cheque $1,400 18 Received commission in cash $250 21 Settled the account of Martin by cheque $1,800 23 Rita settled her account of $1,000 by cheque. 25 Paid insurance in cash $ 250 28 Paid cash for office expenses $150

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 30 Paid wages to the workers $700 in cash 31 Cash sales for the week $ 2,500

31 Withdrew cash from the business bank account for business use $1,700 Q. 5 From the following transactions, prepare the two column cash book for the month of March 2003:2003 March 1 Balances b/d: Cash $ 1800 (Dr.) Bank $ 2100 (Dr) 2 Received cheque from Samoon $ 2100 3 Cash sales for the week $5200 4 Cash purchases $ 2200 5 Carriage inwards paid in cash $200 6 Rafi paid us cash $2000 for the settlement of his account 8 We paid Sonu $3000 by cheque for the settlement of his account

/ http://www.principlesofaccounting2.com/ 10 Deposited cash into the bank account $2000 12 Paid advertising expenses in cash $500 14 Paid cash for carriage outwards $150 18 Bought stationery by cheque $600 20 Bought goods by cheque $ 800 24 Received commission by cheque$1400 26 Paid rent of business building by cheque $1500 28 Paid salaries by cheque $ 2000 30 Withdrew cash from the business bank A/C for office use $3100 31 Cheque received for the sale of goods $3100 (2)The Three-Column Cash Book: The cash book for recording cash, bank (cheque) and discount transactions together. From this book cash balance, (balance of cash in hand), bank balance (balance of cash at bank or overdraft) total discount allowed and total discount received etc. can be found. Usually the discount columns are not balanced. But, the discount columns are totalled. The total of debit side discount column is considered as total discount allowed and the total of credit side discount column is considered as total discount received. Both the two-column cash book and the three-column cash book serve as journals and Ledgers

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Cash Book - Principles Of Accounting

Assignment Questions:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Select the correct answer:

Q. 1 A cash discount will be entered in the

(a) two column cash book (b) three column cash book (c) petty cash book (d) none of the above. Q. 2 A trade discount will appear in the (a) two column cash book (b) three column cash book (c) petty cash book (d) none of the above. Q. 3 A trade discount will (a) increase the selling price (b) decrease the selling price (c) increase the purchase price (d) none of the above. Q. 4 Contra entries should affect

/ http://www.principlesofaccounting2.com/ (a) both cash and bank columns on both sides.

(b) both cash and Bank columns on the debit side.

(c) both cash and bank columns on the credit side. (d) none of the above. Q. 5 A discount received will appear on the (a) debit side of the Two-column cashbook (b) credit side of the Two-column cashbook (c) debit side of the Three-column cashbook (d) credit side of the Three-column cashbook Q. 6 A cash discount is allowed at the time of ——————– of cash or cheque. (a) Sales (b) Purchase (c) Receipt (d) Payments. Q. 7 The left hand side of the three-column cashbook is called (a) payment side (b) receipts side (c) credit side (d) none of these Q. 8 The right hand side of the cash book is called (a) receipts side (b) payment side (c) income side (d) none of these Q. 9 The cash book is used for recording (a) all cash receipts only (b) all cash payments & receipts only

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (c) all cash & cheques receipts only

(d) all cash & cheques receipts and payments only. Q. 10 A trade discount is:-`

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Cash Book - Principles Of Accounting (a) recorded in the books (b) not recorded in the books of the business (c) not deducted from the value of the goods (d) none of these Q. 11 Which of the following statements is correct? A cash discount is (a) given to encourage people to settle their accounts within a stated time limit (b) the name given to a discount to increase the number of customers. (c) the name given to a discount for cash purchases (d) given for cash or credit purchases.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Q. 12 Fill in the following with the most suitable terms 1) An asset sold for cash is recorded in the ———————– book 2) In a three column cash book, the discount columns are ——————— 3) The total of the discount column in the debit side of a three column cash book is —————– 4) The total of the discount column in the credit side of a three column cash book is —————– 5) The cash book is both a ———————————– and a —————– 6) The cash account shows ———————balance only. 7) The bank account may show ——————— or ———————– balance. 8) A cash discount is a reduction allowed to encourage ————————– payment of cash. 9) A trade discount is the reduction from the —————————— of goods 10) All receipts and payments of cheques and cash are recorded in ——————

/ http://www.principlesofaccounting2.com/ 11) The book for recording the receipts & payments of cash & cheques is known as ———————

Q.13 From the following transactions your are required to prepare a Three column cash book for the month of February 2006 2006 Feb 1 Cash balance (Dr) $ 20,000 and Bank balance (Dr) $ 50,000 Feb 2 Bought goods and paid by cheque $ 10,000 Feb 4 Cash sales $ 5,000 Feb 5 Bought goods from James $ 10,000 Feb 6 Sold goods to Raheem $ 7,000 Feb 7 Paid Wages by cash $ 500 Feb 10 Paid Electricity charges by cheque $ 1,000 Feb 15 Received cheque for $ 6,600 from Raheem in full settlement of his account Feb 20 Paid James by cash for $ 9,500 in full settlement of his account. Feb 23 Paid salaries by cheque $ 5,000 Feb 25 Received commission in cash $ 2,000 Feb 28 Cash paid into Bank $ 3,000 Q. 14 From the following you are required to prepare a three column cash book for the month of March 2003

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 2003 March

1 Balances brought down: Cash $21,00 (Dr).; Bank $1,200 (Cr.)

2 Cash sales $2,700 3 Cash purchases $ 800

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Cash Book - Principles Of Accounting 4 Settled the account of Mathews $ 1,800 by cheque 7 Sold an old fixture for cash $1,900 8 Bought furniture for cheque $1,400 9 Reema settled her account of $2,400 by cheque after deducting cash discount $100 10 Received rent of building $1,000 in cash. 12 Sold goods and received cheque $3,000 13 Issued a cheque to Mannya $1,800 for the full settlement of her a/c of $1,900 15 Received a cheque from Sunitha $2,100 for the full settlement of

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ her a/c of $2,150

17 Cash purchases for the week $1,500

18 Paid travelling expenses in cash $150 20 Bought machinery for cheque $ 4,500 21 Paid cheque to Sumon $2,750 after deducting cash discount $ 150 24 Sold goods and received cheque $800 25 Received commission in cash $1,000 28 Paid electricity charges by cheque $500 29 Paid salaries for the month $2,000 in cash 30 Sold goods and received cheque $4,100 31 Deposited cash in the bank account $2,500 Q. 15 Prepare a three column cash book from the following for the month of January 2003

/ http://www.principlesofaccounting2.com/ 2003 January

1 Balances brought down: Cash $ 2,300 (Dr.); Bank $ 5,200 (Dr.)

2 The following paid their accounts by cheque, in each case deducting 5% cash discount: B. Binnu $ 4,000 C. Climate $3,000 3 Paid rent by cheque $1,000 4 J. Jackson lent us $1,400 by cheque 6 We paid the following accounts by cheque in each case deducting cash discount 5%:- N.North $ 900; S.South $1,400 8 Paid Motor expenses in cash $ 250 12 W. West paid his account of $180 by cheque $170, deducting $ 10 cash discount. 14 Paid wages in cash $270 16 The following paid their accounts by cheque, in each case deducting 10% cash discount: C.Cinu $1,200; D.David $3,000 ; E. Ellis $ 2,000 18 Cash drawings from the business $280 19 Cash withdrawn from the bank for the business use $1,500 21 Cash sales for the week $1,500 24 Paid to P. Potter his account of $800 in cash $ 750 after deducting $50 as cash discount. 27 Bought furniture for cheque $1,500 28 Received rent by cheque $180 29 Cash sales $1,650 30 Paid salaries $3,000 by cheque 31 Paid rent $1,000 in cash and insurance $500 by cheque.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Q. 16 From the following information taken from the books of Peter Shewag, prepare a

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Cash Book - Principles Of Accounting three column cash book for the month of March 2001 and balance the cash book on that date: 01 March Balances brought forward from the previous month: Cash $23,000; Bank $11,000 02 March Received cash from the following in each case after deducting 10% cash discount: Ameen $6,000; Ahmed $5,000 05 March Received commission by cheque from Aishath $7,100 07 March Issued cheques to the following in each case after deducting 5% cash discount: Afzal $4,600; Shifana $6,400 09 March Paid cash to Faruhana $1,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 11 March Paid Power charges by cheque $200

15 March Bought one machinery for cash $3,000

17 March Received a cheque from Smith for $6,900 after deducting $2,100 as cash discount. 21 March Rent received by cheque $2,000 22 March Cash withdrawn from the bank $500 for the business use. 24 March Bought goods by cash $2,700 27 March Sold an old motor car for $3,000. Payment received in cash immediately. 28 March Paid wages in cash $250 29 March Telephone charges paid by cheque $300 30 March Cash deposited in the bank $2,500 31 March Issued a cheque to Babu for $9,000 after deducting $1,000. Q.17 From the following, prepare the three column cash book for the month of January 2003:

/ http://www.principlesofaccounting2.com/ 1 Balances B/d : Bank $ 5200 ; Cash $ 2800 4 Withdrew cash from bank account $ 3000 7 Bought goods by cash $ 1800 8 Sold goods and received cheque $ 2500 9 Paid cash for stationery $ 100 10 Paid carriage inwards by cheque $ 500 11 Sold goods and received cash $ 5400 11 The following paid us in cash having deducted cash discount 10% in each case Ameer $1400: C.Chand $ 2500 12 Wages paid in cash $ 1300 15 Cash sales deposited in the bank account $ 1800 16 Paid cheque to Babu $ 600 after deducting cash discount $ 30 18 Sajan paid his account of $ 1800 by cheque in full settlement for $1750 20 Samson paid into our bank account $ 1000 24 Paid salaries for the month by cheque $ 1600 26 Paid cheque to Anil $ 1300 in full settlement of his account of $ 1350 28 Paid cleaning charges $ 150 in cash. 30 Received commission in cash $ 1000 31 Cash sales for the week $ 3500 Q. 18 Prepare a three column cash book from the following transactions for the month

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ of March 2003:

2003 March 1 Balances b/d: Cash $ 2400(Dr) ; Bank $ 400 (Cr)

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Cash Book - Principles Of Accounting 2 Paid cash to the petty cashier $168 2 Received cash from Samson $1800 for the settlement of his account of $1800 4 Cash sales deposited into bank $ 3800 6 Settled the account of Mark $2500, by cheque $ 2440 8 Bought goods by cheque $ 1000 9 Sold furniture by cash $ 500 11 Received commission by in cash$ 900 13 Paid stationery by cash $160 16 Reema settled her account of $ 1700 by cash $ 1650 after deducting cash discount.

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18 Meenu settled her account by cheque $ 2500 after deducting cash discount 21 Bought Machinery by cheque $ 4000 23 Cash sales for the week $1800 24 Settled the account of Adil by cheque $1250 after deducting

cash discount $30 26 Reetha deposited cash directly in our bank account $ 700 29 Bank charges paid from the bank account $15 31 Cash sales deposited into bank account $ 2000 For recording the receipts and payments of cash and cheques only. It is considered as both a journal and a ledger. Cash Discount and Trade Discount: (A) Cash Discount: The term cash discount refers to the reduction or allowance given for quick payment in cash or by cheque. The cash discount can be discount allowed or discount received. (i) Discount allowed: A reduction given to customers (debtors) who pay their accounts within the time limit. Discount allowed is an expense for the business. (ii) Discount received: A reduction given to us by the suppliers (creditors) when we pay their accounts before the time allowed has elapsed. Discount received is an income for the business.

/ http://www.principlesofaccounting2.com/ (B) Trade Discount: Trade discount is the reduction allowed from the list price (selling price) of the goods. Trade discount is not recorded in the accounts but cash discounts are recorded in the accounts. (1) Two-Column Cash book: The cash book for recording cash and cheque transactions together is known as the two-column cash book . Contra Entry: A contra entry for cash book items is where both the debit and credit are shown in the cash book itself. Format of the Two Column Cash Book Two Column Cash Book for the month of December 2002 Date Details LF Cash $ Bank $ Date Details LF Cash $ Bank $ (All receipts of cash and cheques) (All payments of cash and cheques) Assignment Questions: 1. A cash book shows a debit balance $ 50. What does this mean? A. There is cash in hand $ 50 B. Cash has been over spent by $ 50 C. Total cash paid out $ 50 D. Total cash received is less than $ 50 2. We bought goods on credit from Charles. He was paid within prescribed time and he gave a reduction for that. What does this reduction mean for us? A. Discount allowed B. Discount received C. Discount given D. Special discount 3. Which of the books does consist a cash account and a bank account put together in to one book? A. Cash book B. Bank book C. Sales book D. Pass book 4. A trader maintains the two column cash book. Debit balance of bank column $ 1,000 Cheques deposited $ 200 Cheques drawn for cash $ 350 What is the balance of the bank column at the end? A. $ 1,150 B. $ 1,000 C. $ 850 D. $ 1,550

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Cash Book - Principles Of Accounting A. Discounts for trade customers B. Discounts for prompt payment C. Discount for bulk buying D. Discount for suppliers 6. A cash book shows a debit balance $ 50. What does this mean? A. There is cash in hand $ 50 B. Cash has been over spent by $ 50 C. Total cash paid out $ 5 D. Total cash received is less than $ 50 7. We bought goods on credit from Charles. He was paid within prescribed time and he gave a reduction for that. What does this reduction mean for us? A. Discount allowed B. Discount received C. Discount given D. Special discount 8. Which of the books does consist a cash account and a bank account put together in to one book? A. Cash book B. Bank book C. Sales book D. Pass book 9. A trader maintains the two column cash book. Debit balance of bank column $ 1,000 Cheques deposited $ 200 Cheques drawn for cash $ 350 What is the balance of the bank column at the end? A. $ 1,150 B. $ 1,000 C. $ 850 D. $ 1,550

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 10. What does the discount column of the cash book record? A. Discounts for trade customers B. Discounts for prompt payment C. Discount for bulk buying D. Discount for suppliers LONG QUESTIONS: Q.1. Prepare a Two Column Cash Book for the month of December 2005 from the following transactions. 2005 Dec 1 Proprietor puts Capital into a bank account for the business $ 9,400 Dec 2 Received cheque from Boon $ 1,100 Dec 4 Cash Sales $ 1,200 Dec 6 Paid rent by cash $ 450 Dec 7 Deposited Cash into Bank $ 500 Dec 15 Cash Sales paid directly into the Bank $ 400 Dec 23 Paid cheque to S,wills $ 2,700 Dec 29 Withdrew cash from bank for business use $ 1,200 Dec 30 Paid wages in cash $ 1,100 Q.2. Prepare a Two column cash book for the month of January 2006 from the following transactions. 2006 Jan 1 Started business with Cash $ 10,000 and of Bank $ 15,000 Jan 3 Bought goods by cheque $ 3,000 Jan 5 Sold goods for cash $ 5,000 Jan 6 Paid Wages in cash $ 700 Jan 10 Paid for postage and stationery $ 300 in cash Jan 13 Bought goods from Jack for $ 3,000 Jan 15 Bought goods for Cash $ 5,000 Jan 18 Sold goods and received by cheque $ 7,000 Jan 20 Sold goods to Jim for $ 2,000 Jan 24 Paid Telephone charges by cheque $ 1,000 Jan 26 Cash deposited into bank $ 5,000 Jan 27 Withdrew from Bank $ 1,000 for personal use Jan 29 Cash sales $ 1,500 Jan 30 Withdrew cash from Bank business use $ 1,500

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Q. 3 Write up a Two column cash book from the following for the month of November 2002. 2002 Nov. 1 Balances brought down from the last month: Cash $1,050 (Dr)Bank $2,100 (Cr) 3 Cash sales $ 600 4 Took $1,200 from the cash till and deposited in the bank 5 T. Terry paid us by cheque $270 6 Bought postage stamps in cash $160 7 Bought office furniture for cheque $180 8 We paid L.Lucas by cheque $500 9 Received cheque for sale of goods $ 2,000 11 Withdrew $ 750 from the bank for business use. 14 Paid wages in cash $ 230 16 Paid motor expenses by cheque $100 20 R. Numan paid us by cheque $920 24 Paid general expenses by cash $ 72 28 Paid insurance by cheque $54 29 Paid rent in cash $ 400 30 The owner took cash from the business by for his private use $ 100 Q. 4 Prepare a two-column cash book for the month of January 2001 from the following transactions: 2001 January 1 Balances brought down: Cash $ 4,200; Bank $1,200 2 Bought goods for cash $1,000

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Cash Book - Principles Of Accounting 3 Bought furniture for cheque $1,200 4 Received cheque from Sameen $5,100 5 Received cash from Sannal $2,500 8 Cash sales $3,500 9 Cash purchases $2,800 12 Paid cash for stationery $180 14 Bought goods for cheque $1,400 18 Received commission in cash $250 21 Settled the account of Martin by cheque $1,800 23 Rita settled her account of $1,000 by cheque. 25 Paid insurance in cash $ 250 28 Paid cash for office expenses $150 30 Paid wages to the workers $700 in cash 31 Cash sales for the week $ 2,500 31 Withdrew cash from the business bank account for business use $1,700 Q. 5 From the following transactions, prepare the two column cash book for the month of March 2003:2003 March 1 Balances b/d: Cash $ 1800 (Dr.) Bank $ 2100 (Dr) 2 Received cheque from Samoon $ 2100 3 Cash sales for the week $5200 4 Cash purchases $ 2200 5 Carriage inwards paid in cash $200 6 Rafi paid us cash $2000 for the settlement of his account 8 We paid Sonu $3000 by cheque for the settlement of his account 10 Deposited cash into the bank account $2000 12 Paid advertising expenses in cash $500 14 Paid cash for carriage outwards $150 18 Bought stationery by cheque $600 20 Bought goods by cheque $ 800 24 Received commission by cheque$1400 26 Paid rent of business building by cheque $1500 28 Paid salaries by cheque $ 2000 30 Withdrew cash from the business bank A/C for office use $3100 31 Cheque received for the sale of goods $3100

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(2)The Three-Column Cash Book: The cash book for recording cash, bank (cheque) and discount transactions together. From this book cash balance, (balance of cash in hand), bank balance (balance of cash at bank or overdraft) total discount allowed and total discount received etc. can be found. Usually the discount columns are not balanced. But, the discount columns are totalled. The total of debit side discount column is considered as total discount allowed and the total of credit side discount column is considered as total discount received.

/ http://www.principlesofaccounting2.com/ Both the two-column cash book and the three-column cash book serve as journals and Ledgers Format of the Three-Column Cash Book Three Column Cash Book for the month of January 2002 Date Details LF Dis. Allow Cash $ Bank $ Date Details LF Dis. Recd Cash $ Bank $ (All receipts of cash and cheques) (All payments of cash and cheques) Assignment Questions: Select the correct answer: Q. 1 A cash discount will be entered in the (a) two column cash book (b) three column cash book (c) petty cash book (d) none of the above. Q. 2 A trade discount will appear in the (a) two column cash book (b) three column cash book (c) petty cash book (d) none of the above. Q. 3 A trade discount will (a) increase the selling price (b) decrease the selling price (c) increase the purchase price (d) none of the above. Q. 4 Contra entries should affect (a) both cash and bank columns on both sides. (b) both cash and Bank columns on the debit side. (c) both cash and bank columns on the credit side. (d) none of the above.

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Q. 5 A discount received will appear on the (a) debit side of the Two-column cashbook (b) credit side of the Two-column cashbook (c) debit side of the Three-column cashbook (d) credit side of the Three-column cashbook Q. 6 A cash discount is allowed at the time of ——————– of cash or cheque.

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Cash Book - Principles Of Accounting (a) Sales (b) Purchase (c) Receipt (d) Payments. Q. 7 The left hand side of the three-column cashbook is called (a) payment side (b) receipts side (c) credit side (d) none of these Q. 8 The right hand side of the cash book is called (a) receipts side (b) payment side (c) income side (d) none of these Q. 9 The cash book is used for recording (a) all cash receipts only (b) all cash payments & receipts only (c) all cash & cheques receipts only (d) all cash & cheques receipts and payments only. Q. 10 A trade discount is:-` (a) recorded in the books (b) not recorded in the books of the business (c) not deducted from the value of the goods (d) none of these

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Q. 11 Which of the following statements is correct? A cash discount is (a) given to encourage people to settle their accounts within a stated time limit (b) the name given to a discount to increase the number of customers. (c) the name given to a discount for cash purchases (d) given for cash or credit purchases.

Q. 12 Fill in the following with the most suitable terms 1) An asset sold for cash is recorded in the ———————– book 2) In a three column cash book, the discount columns are ——————— 3) The total of the discount column in the debit side of a three column cash book is —————– 4) The total of the discount column in the credit side of a three column cash book is —————– 5) The cash book is both a ———————————– and a —————– 6) The cash account shows ———————balance only. 7) The bank account may show ——————— or ———————– balance. 8) A cash discount is a reduction allowed to encourage ————————– payment of cash. 9) A trade discount is the reduction from the —————————— of goods 10) All receipts and payments of cheques and cash are recorded in —————— 11) The book for recording the receipts & payments of cash & cheques is known as ———————Q.13 From the following transactions your are required to prepare a Three column cash book for the month of February 2006 2006 Feb 1 Cash balance (Dr) $ 20,000 and Bank balance (Dr) $ 50,000 Feb 2 Bought goods and paid by cheque $ 10,000 Feb 4 Cash sales $ 5,000 Feb 5 Bought goods from James $ 10,000 Feb 6 Sold goods to Raheem $ 7,000 Feb 7 Paid Wages by cash $ 500 Feb 10 Paid Electricity charges by cheque $ 1,000 Feb 15 Received cheque for $ 6,600 from Raheem in full settlement of his account Feb 20 Paid James by cash for $ 9,500 in full settlement of his account. Feb 23 Paid salaries by cheque $ 5,000 Feb 25 Received commission in cash $ 2,000 Feb 28 Cash paid into Bank $ 3,000

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Q. 14 From the following you are required to prepare a three column cash book for the month of March 2003 2003 March 1 Balances brought down: Cash $21,00 (Dr).; Bank $1,200 (Cr.) 2 Cash sales $2,700 3 Cash purchases $ 800 4 Settled the account of Mathews $ 1,800 by cheque 7 Sold an old fixture for cash $1,900 8 Bought furniture for cheque $1,400 9 Reema settled her account of $2,400 by cheque after deducting cash discount $100 10 Received rent of building $1,000 in cash. 12 Sold goods and received cheque $3,000 13 Issued a cheque to Mannya $1,800 for the full settlement of her a/c of $1,900 15 Received a cheque from Sunitha $2,100 for the full settlement of her a/c of $2,150 17 Cash purchases for the week $1,500 18 Paid travelling expenses in cash $150 20 Bought machinery for cheque $ 4,500 21 Paid cheque to Sumon $2,750 after deducting cash discount $ 150 24 Sold goods and received cheque $800 25 Received commission in cash $1,000 28 Paid electricity charges by cheque $500 29 Paid salaries for the month $2,000 in cash 30 Sold goods and received cheque $4,100

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Cash Book - Principles Of Accounting 31 Deposited cash in the bank account $2,500 Q. 15 Prepare a three column cash book from the following for the month of January 2003 2003 January 1 Balances brought down: Cash $ 2,300 (Dr.); Bank $ 5,200 (Dr.) 2 The following paid their accounts by cheque, in each case deducting 5% cash discount: B. Binnu $ 4,000 C. Climate $3,000 3 Paid rent by cheque $1,000 4 J. Jackson lent us $1,400 by cheque 6 We paid the following accounts by cheque in each case deducting cash discount 5%:- N.North $ 900; S.South $1,400 8 Paid Motor expenses in cash $ 250 12 W. West paid his account of $180 by cheque $170, deducting $ 10 cash discount. 14 Paid wages in cash $270 16 The following paid their accounts by cheque, in each case deducting 10% cash discount: C.Cinu $1,200; D.David $3,000 ; E. Ellis $ 2,000 18 Cash drawings from the business $280 19 Cash withdrawn from the bank for the business use $1,500 21 Cash sales for the week $1,500 24 Paid to P. Potter his account of $800 in cash $ 750 after deducting $50 as cash discount. 27 Bought furniture for cheque $1,500 28 Received rent by cheque $180 29 Cash sales $1,650 30 Paid salaries $3,000 by cheque 31 Paid rent $1,000 in cash and insurance $500 by cheque.

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Q. 16 From the following information taken from the books of Peter Shewag, prepare a three column cash book for the month of March 2001 and balance the cash book on that date: 01 March Balances brought forward from the previous month: Cash $23,000; Bank $11,000 02 March Received cash from the following in each case after deducting 10% cash discount: Ameen $6,000; Ahmed $5,000 05 March Received commission by cheque from Aishath $7,100 07 March Issued cheques to the following in each case after deducting 5% cash discount: Afzal $4,600; Shifana $6,400 09 March Paid cash to Faruhana $1,000 11 March Paid Power charges by cheque $200 15 March Bought one machinery for cash $3,000 17 March Received a cheque from Smith for $6,900 after deducting $2,100 as cash discount. 21 March Rent received by cheque $2,000 22 March Cash withdrawn from the bank $500 for the business use. 24 March Bought goods by cash $2,700 27 March Sold an old motor car for $3,000. Payment received in cash immediately. 28 March Paid wages in cash $250 29 March Telephone charges paid by cheque $300 30 March Cash deposited in the bank $2,500 31 March Issued a cheque to Babu for $9,000 after deducting $1,000.

/ http://www.principlesofaccounting2.com/ Q.17 From the following, prepare the three column cash book for the month of January 2003: 1 Balances B/d : Bank $ 5200 ; Cash $ 2800 4 Withdrew cash from bank account $ 3000 7 Bought goods by cash $ 1800 8 Sold goods and received cheque $ 2500 9 Paid cash for stationery $ 100 10 Paid carriage inwards by cheque $ 500 11 Sold goods and received cash $ 5400 11 The following paid us in cash having deducted cash discount 10% in each case Ameer $1400: C.Chand $ 2500 12 Wages paid in cash $ 1300 15 Cash sales deposited in the bank account $ 1800 16 Paid cheque to Babu $ 600 after deducting cash discount $ 30 18 Sajan paid his account of $ 1800 by cheque in full settlement for $1750 20 Samson paid into our bank account $ 1000 24 Paid salaries for the month by cheque $ 1600 26 Paid cheque to Anil $ 1300 in full settlement of his account of $ 1350 28 Paid cleaning charges $ 150 in cash. 30 Received commission in cash $ 1000 31 Cash sales for the week $ 3500 Q. 18 Prepare a three column cash book from the following transactions for the month of March 2003: 2003 March 1 Balances b/d: Cash $ 2400(Dr) ; Bank $ 400 (Cr) 2 Paid cash to the petty cashier $168 2 Received cash from Samson $1800 for the settlement of his account of $1800 4 Cash sales deposited into bank $ 3800 6 Settled the account of Mark $2500, by cheque $ 2440 8 Bought goods by cheque $ 1000 9 Sold furniture by cash $ 500

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Cash Book - Principles Of Accounting 11 Received commission by in cash$ 900 13 Paid stationery by cash $160 16 Reema settled her account of $ 1700 by cash $ 1650 after deducting cash discount. 18 Meenu settled her account by cheque $ 2500 after deducting cash discount 21 Bought Machinery by cheque $ 4000 23 Cash sales for the week $1800 24 Settled the account of Adil by cheque $1250 after deducting cash discount $30 26 Reetha deposited cash directly in our bank account $ 700 29 Bank charges paid from the bank account $15 31 Cash sales deposited into bank account $ 2000 Incoming search terms: cash book format three column cash book

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ cash book accounting a reduction given to

Three colum cashbook farmat three column cash book questions Trade discount received on buying goods from suppliers is recorded in? what are itmes appears in cash book what is 3 colum cash book what is a cash payments book?

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Books of Prime entry and ledgers - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Books of Prime entry and ledgers Books of prime entry are the books in which transactions are first recorded. These are not accounts; they are simply books that records the details of transactions, almost like a diary. The firm will have a separate book for each kind of transaction. The type of the transaction will affect which book it, is entered into. Sales will be entered in one book, purchases in another book, cash in another book, and so on. Books of prime entry are also known as books of original entry or subsidiary books. Types of books of prime entry Books of prime entry are also known as either ‘journals’ or ‘daybooks’. The term ‘day book’ is, perhaps, more commonly used, as it more clearly indicates the nature of these books of prime entry – entries are made to them every day. The commonly used books of prime entry are: Book of prime entry Sales daybook (Sales journal) Purchases daybook (Purchases journal) Sales Returns daybook (Sales Returns journal) Purchases Returns daybook (Purchases Returns journal)

Type of transaction for credit sales for credit purchases for returns from customers for returns to suppliers

/ http://www.principlesofaccounting2.com/ Cash book

for receipts and payments of cash and cheques General journal (The journal) for other transactions The cashbook is a combined account of the cash account and the bank account. It is the only one of the six daybooks that is both an account and a daybook at the same time. Apart from the cashbook, all the other double-entry accounts are kept in one of the three ledgers. LEDGERS The different types of ledgers most businesses use are: Sales ledger: This is for customers’ (Trade receivables) personal accounts Purchases ledger: This is for suppliers’ (Trade payables ) personal accounts General ledger : This contains the remaining double entry accounts, such as those relating to expenses, sales, purchases, fixed assets, and capital Sales Journal/ Sales Day Book: For recording credit sale of goods only. Cash sales of goods and sale of assets, either on credit or for cash, are not recorded in this journal

Assignment Questions: Q. 1 Prepare Sales Journal from the following transaction for the month of March 2006.

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Jan 1 sold goods to Jam $ 10,000

Jan 7 Sold goods for cash $ 5,000 Jan 9 sold goods to X, 300 Tables @ $ 100 each

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Books of Prime entry and ledgers - Principles Of Accounting Jan 15 sold goods to Jill, 100 Chairs @ $ 50 each Jan 20 Bought goods for cash $ 3,000 Jan 25 sold goods and received Cash $ 500 Jan 30 Sold goods to Anil $ 4,000 And post them to the relevant ledgers. Q. 2 Prepare Sales Journal from the following transactions for the month of February 2006. 2006 Feb1 Cash Sales $ 5,000 Feb5 Sold goods to Tin, 100 Wall clocks @ $ 100 each less 5% Trade discount

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Feb7 Sold goods to Sam, 200 Floor mats @ $ 50 each

Feb9 Bought goods from Jill, 150 Tyres @ $ 50 each less 10% Trade discount Feb15 Bought a Motor Van $ 15,000

Feb20 Sold goods to George 50 Motor cycles @ $ 10,000 each less Trade discount 10% Feb25 Sold goods to Albert 100 Tape recorders @ $ 500 each less Trade discount 5% Feb27 Cash sales $ 7,000 Feb28 Sold goods on Credit to Zet $ 10,000 Post them to concerned ledgers. Q. 3 Prepare Sales Journal from the following transactions for the month of January 2003: 2003 January

/ http://www.principlesofaccounting2.com/ 1 Sold goods on credit to Samson:

200 Tube Lights @ $10 each less 10% trade discount. 4 Sold goods on credit to Anson: 100 Table fans @ $100 each less 20% trade discount. 5 Cash Sales $ 7,000 7 Sold goods to Soson: Goods costing $4,000 less 25% trade discount 10 Sold a Motor Van $ 15,000 15 Cash sales $5,000

18 Credit sales to Alby $2,500 less $ 500 trade discount 20 Sold an asset to X for $ 10,000 21 Sold goods on credit to Adil agencies 500 Usha Fans @ $150 each less 10% trade discount 30 Bought goods on credit from Lee $ 1,000 31 Credit sales to Samson $4,500 less $500 trade discount. Q. 4 Prepare the sales journal from the following for the month of March 2002: 2002 March 1 Credit sales to Mohamed:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 200 Ball point pens $25 each less 10% trade discount

5 Credit sales to Anitha:

1000 reams of white papers @ $50 each ream less 25% trade discount 9 Credit sales to Soothy $5,000 less $ 500 trade discount

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Books of Prime entry and ledgers - Principles Of Accounting 15 Sold goods on credit to Sathya: 400 ruled note books @ $20 each less 25% trade discount 24 Credit sales to Milton $4,500 31 Sold on credit to Allen goods after deducting trade discount $3000 Post the entries to the ledger accounts on 31 st March 2002 Purchase Journal/ Purchase Day Book: For recording the credit purchase of goods only. Cash purchase of goods and purchase of assets, either on credit or in cash, are not recorded in this journal.

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Assignment Questions: Q. 1 Write a short note about the Purchases Return Journal. Q.2. Prepare Purchases Journal from the following transactions for the month of April 2005 2005 April 1Bought goods on credit from Thomas costing $ 15,000

/ http://www.principlesofaccounting2.com/ April 5 Credit purchases of goods from Jones 700 tables @ $ 50 each

April 12 Credit purchases of goods from Albert 200 items @ $ 30 each April 15 Credit purchases of Furniture from Dave costing $ 7,500 April 17 Bought on credit from Gordon 100 beds @ 1250 each April 20 Bought on credit from K.King 200 chairs @ $ 250 each April 25 Credit purchases from Alexander goods costing $ 30,000 April 28 Cash purchases from Roberts $ 15,000 Post the items to the concerned ledger account on 30 th April 2005.

Q.3 Prepare Purchases Journal from the following transaction for the month of January 2005 2005 Jan 1 Bought goods on credit from Peter 200 items @ $ 25 each Jan 4 Cash Purchases of goods from steward $ 40,000 Jan 10 Credit purchases of goods from Smith $ 5,000 Jan 17 bought on credit from David 400 items @ $ 30 each. Jan 19 bought a motor can on credit from Oliver $ 2,000 Jan 20 bought goods on credit from Marshall 100 items @ $ 200 each Jan 25 Credit purchases of goods costing $ 25,000 from Adams. Post the items to the concerned ledger accounts on 31 st January 2005.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Q. 4 Prepare Purchase Journal from the following transactions for the month

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Books of Prime entry and ledgers - Principles Of Accounting of January 2003: 2003 January 1 Bought goods on credit from Alwin: 800 Items @ $20 each, less 25% trade discount. 4 Bought goods on credit from Alby: 400 items @ $100 each, less 10% trade discount 5 Bought goods for Cash $ 5,000 7 Bought goods on credit from Amal: 400 items @ $30 each less 33 1/3 % trade discount

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 15 Bought Furniture for $ 10,000

16 Bought goods on credit from Vimal:

Goods costing $25,000 less $ 5,000 trade discount 26 Credit purchases of goods from: A.Allen $4,000 less trade discount ¼ of the cost. 28 Purchases goods for cash $ 10,000 30 Bought goods on credit from Adil: Goods costing $2,000 net of trade discount. Q. 5 Following are the credit purchases of goods in a business for the month of April 2003 2003 April 1 Bought goods on credit from Bilton: 500 Chairs @ $1,000 each less 15% trade discount 5 Cash purchases $ 2,000

/ http://www.principlesofaccounting2.com/ 7 Bought 50 tables @ $500 each from Albert on credit net of trade discount

14 Bought on credit from Bitson: 100 mattresses at $2,000 each less 25% trade discount. 21 Bought on credit from Betsy 100 beds @ $1,500 each less 10% trade discount 25 Purchases a motor car on credit from X for $ 10,000 29 Credit Purchase from Binu, goods costing $20,000 less $ 2,000 Trade discount 30 Bought goods on credit from Bobby :- 100 fancy chairs @ $500 each less 30 % trade discount. 30 Credit purchases from Bimal $5,600 net of trade discount. 30 Purchased goods for cash $ 2,000 Post the items to the concerned ledger accounts on 30 th April 2003 Returns Inwards Journal/ Sales Returns Day Book: For recording only the return of goods from the customers.

Return Outwards Journal/ Purchase Return Day Book:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ For recording only the return of goods to the suppliers

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Books of Prime entry and ledgers - Principles Of Accounting

Assignment Questions: Q. 1 Write a short note about the sales return journal. Q. 2 Write a short note about the purchases return journal.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Q. 3 How does the sales journal differ from the purchases journal?

Select the correct answer: Q. 4 The number of subsidiary books in accounting are: (a) Five (b) Two (c) Three (d) Six Q. 5 The sales ledger contains: (a) only debtors a/c (b) both debtors & Creditors a/c (c) only suppliers a/c (d) none Q. 6 The debtors ledger contains: (a) customers a/c (b) creditors a/c (c) bankers a/c (d) suppliers a/c Q. 7 The total of purchases returns day book should be shown in the

/ http://www.principlesofaccounting2.com/ (a) sales ledger (b) purchase ledger (c) suppliers ledger (d) general ledger

Q. 8 The document which is necessary for making entries in the sales journal is the (a) purchases Invoice (b) voucher (c) sales Invoice (d) none of these Q. 9 The purchase journal is a (a) day book (b) ledger (c) account (d) none of these Q. 10 The debit note is a document which is used for making entries in the (a) sales Journal (b) purchases Journal (c) returns Inwards Journal (d) returns Outwards Journal Q. 11 The sales journal contains a list of (a) cash sales (b) credit sales (c) credit purchases (d) cash purchases. Q. 12 Asha sold goods on credit to Jisha for $2000 net of trade discount. In which journal will this transaction be recorded by Jisha ? (a) The sales returns journal (b) The purchases book (c) The purchases returns book (d) The cash book Q. 13 The credit note number column is provided in the (a) sales book (b) sales returns book

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (c) purchases returns book (d) purchases book.

Q. 14 The total of sales returns book is transferred to the (a) debit side of the sales A/C in the general ledger

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Books of Prime entry and ledgers - Principles Of Accounting (b) credit side of the sales A/C in the sales ledger (c) credit side of the sales A/C in the general ledger (d) none of these. Q. 15 The proper journal is the other name of the (a) general ledger (b) general journal (c) sales journal (d) sales ledger Q. 16 In which book is the debit note number column shown? (a) Returns inwards book (b) Returns outwards book

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (c) General journal (d) None of these Q. 17 Goods are returned to Anil by Sunil. In which book will Sunil record this transaction? (a) Sales journal (b) Returns inwards book (c) Returns outwards book (d) General journal Q. 18 Anil sold the following goods to one of his customers on credit. 200 sets of door mats @ $200 each less 25% trade discount. 100 mattress @$ 250 each, no trade discount What is the amount with which Anil will record this transaction? (a) $50000 (b) $53000 (c) $ 55000 (d) $ 58000 Q. 19 Which of the following is wrong?

/ http://www.principlesofaccounting2.com/ (a) The sales journal is a book of original entry

(b) Cash sales of goods are recorded in the cash book.

(d) The purchases book is for recording credit purchase of goods on Q. 20 Which of the following is correct ? (a) Purchases of assets are recorded in the sales book (b) Sale of goods on credit are recorded in the cash book. (c) Current assets are also known as circulating assets. (d) Return of goods to the suppliers are recorded in the sales returns book Q. 21 The journal is a a) part of the double entry system b) part of the cash book c) not a part of the double entry system d) none of the above. Q. 22 A credit note issued by us will be entered in the a) returns outwards a/c b) returns Inwards a/c c) purchases a/c d) sales a/c Q. 23 A firm sells goods on credit. Which document does the firm use to record this?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ a) Purchases invoice b )Sales invoice

c) Credit note d) Debit note Q. 24 A firm buys goods on credit.

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Books of Prime entry and ledgers - Principles Of Accounting Which document does the firm use to record this transaction? a) Credit note b) Debit note c) Purchase invoice d) Sales invoice Q. 25 Mr. M sends back $ 900 of faulty goods to Mr. N. In which book of prime entry would Mr. N record this transaction? a) The general journal b) The purchase return journal c) The sales return journal d) The sales journal Q. 26 A book keeper discovers that an amount paid to a supplier has not been entered in the books of accounts. In which book of account should enter this?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ a) Purchase ledger

b) Creditors ledger c) General ledger d) None of the above. Q. 27 Fill in the following with the most suitable terms 1) Book of original entry is the other name for —————————-. 2) In the purchases journal, the names of ————— are shown. 3) The journal for recording returns of goods to the suppliers is —————4) The reduction allowed by the supplier from the list price of the goods is known as ———– ——————. 5) The general journal is also known as —————————.

/ http://www.principlesofaccounting2.com/ 6) The debtors ledger is also known as ——————-.

7) —————— is the book in which a transaction is recorded first. 8) The purchase ledger contains the accounts of ——————–. 9) The debtors ledger contains the accounts of ———————-.

10) The sales day book records all ————- ————- — ————11) The goods returned by customers into the business are recorded in the —————– —- ——————— book. 12) The credit purchase of an asset is shown in the ————————– journal. 13) Credit sales of goods are recorded in the ————————— journal. 14) The total of the returns inwards journal is transferred to the —————- side of ————— a/c in the general ledger. 15) The total of the purchases journal is transferred to the ————– side of the purchase a/c in the ———————- ———————-. 16) Asset accounts are shown in the ————————– ledger. 17) In book keeping there are ——————- subsidiary books. 18) The general ledger is also known as ————————————-. Q. 28 Prepare the returns inwards and returns outwards journals from the following for the month of March 2002:2002 March 1 Returned goods to Mathew $ 250 4 Rinu returned goods to us $ 450

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 8 Returned goods to Sojan $1000

15 Received goods returned by Sunil $800 21 Returns outwards to Minu $500 31 Returns inwards from Tinu $700

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Books of Prime entry and ledgers - Principles Of Accounting Show the postings to the ledger accounts on 31 st March 2002 Q. 29 Prepare returns inwards journal and returns outwards journal form the following transactions for the month of November, 2002:2002 Nov 1 Returns inwards from Sanal $ 250 4 Returned to Amal, goods at list price $3000 less 20% trade discount. 7 Goods returned to Manu $ 600 list price, less 10% trade discount. 9 Bhimal returned goods at net of trade discount $ 450 15 Adil returned goods to us $ 200

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 19 Goods returned to Sunil $ 300

25 Returns outwards to Samuel $ 500 30 Returns inwards from Excell $ 1500 Show the postings to the ledger accounts on 30 th Nov 2002 Q. 30 The following transactions have been taken from the books of a business 2003 January 1 Credit sales to K. Ball: 400 items @ $25 each, less 25% trade discount. 4 Credit purchases from M. Muthu 400 items @ $50 each less 20% trade discount 6 Returns inwards from K. Ball 20 items (out of sales on 1st Jan) 7 Returns outwards to M. Muthu: 40 items (out of purchases on 4th Jan) 10 Credit sales to P.Poter 1,000 items @ $40 each less 10% trade discount.

/ http://www.principlesofaccounting2.com/ 13 Credit Purchases from T. Terry 300 items @ $30 each less 25% trade discount.

14 Returns inwards from P.Poter: 100 items (out of goods sold on 10 th January) 15 Returns outwards to T.Terry 100 items (out of goods bought from him on 13 th Jan.) 18 Credit sales to L.Lane $3,500 net of trade discount.

20 Credit purchases from S.Sita $7,000 net of trade discount. 24 Credit sales to K. Ball $10,000 less $1,000 trade discount 25 Credit purchases from M.Muthu $12,000 less trade discount ¼th of cost 26 Returns inwards from L Lane $500 net of trade discount. 27 Returns outwards to S.Sita $1,500 net of trade discount. 28 Credit sales to P.Poter list price $ 8,000 less 20% trade discount. 31 Credit purchases from T.Terry list price $ 4,000 less trade discount 10% Prepare appropriate journals for recording the above transactions for the month of January 2003 and show the postings to the ledger on 31 st Jan 2003. Q. 31 The following information is related to the business of Ken 2002 March 1 Credit sales to Mathew $2,000 less $200 trade discount 2 Credit sales to David 200 items @ $20 each less 10% trade discount. 4 Credit purchases from Sunil 300 items @ $10 each less 20% trade discount.

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5 Credit Purchase from Sajan 400 items @ $25 each less 10% trade discount 7 Returns inwards from Mathew $90 net of trade discount. 9 Returns outwards to David 10 items @ $ 20 each less 10% trade discount.

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Books of Prime entry and ledgers - Principles Of Accounting 12 Credit sales to Minu 500 items @ $50 each less 25% trade discount. 15 Credit purchases from Sunan $5,000 net of trade discount. 18 Returns inwards from Minu 100 items @ $50 each less 25% trade discount. 23 Returns outwards to Sunan $500 net of trade discount. 24 Credit sales to Naadhan $15,000 less $2,500 trade discount 26 Credit purchases from Sudha $10,000 less 10% trade discount 28 Returns inwards from Naadhan $1,000 less $ 250 trade discount 31 Returns outwards to Sudha $1,000 less 10% trade discount. Record the above transactions in the appropriate journals and post them to the ledger accounts on 31 st March 2002.

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Q. 32 The following transactions are taken from the books of a sole trader for the month of January 2003 2003 January 1 Credit sales to Nisha: 20 sets of tube lights @ $100 each 30 table fans @ $300 each. Less 25% trade discount 4 Bought on credit from Asha: 100 colour television sets @ $1,000 each 200 table lamps @ $100 each. All less 20% trade discount 9 Returned goods by Nisha: 10 table fans of wrong colour (sold on 1 st January) 15 Returned to Asha 10 colour televisions (bought on 4 th January)

/ http://www.principlesofaccounting2.com/ 20 Credit sales to Jisha:

300 radios @ $ 400 each. Less 10% trade discount

150 sets of tube lights @ $100 each. No trade discount. 24 Bought on credit from Usha: 200 clocks @ $ 200 each, 50 table lamps @ $150 each. No trade discount. 26 Returns inwards from Jisha 30 radios (out of sales on 20 th January) 31 Returned to Usha 5 clocks (out of purchase on 24 th January) You are required to prepare the necessary journals and post the entries to the ledger accounts for the month of January 2003 Q. 33 Prepare: a) the purchases journal b) the sales journal c) the purchase return journal d) the sales return journal for the month of July 2002 from the following transactions 2002 July 1 Credit purchase from Jackson: 1,000 clocks @ $210 each; 500 tape recorders @ $300 each. Less 33 1 / 3 % cash discount

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 7 Cash purchases from Jack:

700 table fans @ $200 each, 100 computer tables @ $150 each. Less 10% trade discount and 20% cash discount. 9 Sold goods on credit to Azleefa:

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Books of Prime entry and ledgers - Principles Of Accounting 200 tape recorders @ $350 each and 20 table fans @ $250 each Less trade discount 25% and cash discount 10% 11 Credit sales to Arifa: 250 table fans @ $260 each, 300 clocks @ $240 each. Less 20% trade discount; 331/3 % cash discount. 14 Returned 20 table fans to Jack which were purchased on 07 th July 2002 16 Azleefa returned 15 tape recorders and 5 table fans 21 Cash sales to Majeedha: 50 computer tables @ $180 each, 40 tape recorders @ $360 each 200 clocks @ $300 each. No trade discount.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 25 Arifa returned $700 net of trade discount worth of goods to us. 27 Bought on credit from Firuza:

90 table lamps @ $ 200 each. Less 5% trade discount and 10% cash discount 28 Returned $300 net of trade discount value of goods to Firuza 29 Credit purchases from Nasreena $7,100 net of trade discount 30 Bought motor car on credit from Neema for $8,000 31 Sold goods for $ 6,190 to Zulfa on credit net of trade discount. Q. 34 The following transactions are occurred in the business of Gilberth , a sole trader for the month of 2003 January: 2003 Jan. 1 Sold goods on credit to A.Allen:-

/ http://www.principlesofaccounting2.com/ 200 dozen red pens @ $ 60 per dozen 50 pairs of shoes @ $150 each Less 20% trade discount 4 Bought goods on credit from B.Bill:400 rulers @ $ 10 ea ; 50 dozen pencils @ $5 each Less $ 100 trade discount 12 Returns inwards from A.Allen 10 pairs of damaged shoes 18 Returns outwards to B.Bill: 50 broken rulers 24 Sold on credit to C.Clint: 1000 staplers @ $20 each less 10% Trade discount 500 erasers @ $5 each, no trade discount 28 Returns inwards from C.Clint : 100 staplers not up to the standard 29 Bought on credit from D.Darling 250 ball point pens @ $15each less 20% trade discount 100 dozen pencils @ $ 5 each less 10% trade discount 31 Returns outwards to D.Darling: 25 ball point pens You are required to prepare the necessary journals for recording the above transactions for the month of January 2003 and show the postings to the ledger accounts on 31 st January 2003 Q. 35 The following transactions are occurred in the books of a sole trader for the month

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ of December, 2002:2002 Dec

1 Credit sales to Mahesh 2000 items @ $ 10 each less 20% trade discount. 3 Credit purchases from Mann 400 items @ $ 25 each, less 25% trade discount.

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Books of Prime entry and ledgers - Principles Of Accounting 5 Credit purchases from Mathew $20000, less 25% trade discount 7 Credit sales to Martin 600 items @ $ 50 each, less 5% trade discount 8 Returns inwards from Mahesh 100 items @ $10 each less 20 % trade discount 10 Returns outwards to Mann: 50 items @ $ 25 each, less 25% trade discount. 12 Returns outwards to Mathew $ 5000 less 25% trade discount 14 Returns inwards from Martin: 25 items @ $ 50 each, less 5% trade discount. 18 Credit purchases from Manju $ 8000, net of trade discount. 20 Credit sales to Mithun $ 6000 less $600 trade discount. 24 Returns outwards to Manju $2000, net of trade discount. 26 Returns inwards from Mothun $1000, less $ 60 trade discount.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 29 Credit purchase from Manu $ 4000

30 Credit sales to Mahesh 500 items @ $10 each, less $500 trade discount You are required to prepare the appropriate journals for recording the above transactions for the month of December 2002 and show the transfer of entries to the concerned ledger accounts Incoming search terms: books of prime entry book of prime entry accounting book of prime entry 2 why ledger is called prime books of accounts prime entry books receipts from cash sales of $7 500 were recorded incorrectly in the cash receipts journal as $5 700 sample question books of prime entry including general ledger purchases ledger and sales ledger what are the books of prime entry what is the book prime entry

/ http://www.principlesofaccounting2.com/ why a ledger is called prime books of accounts

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Business documents - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

Topics

Pricacy Policy

â–º Accounting

â–º Value of Business

â–º Business It

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Business documents

A business document provides details of a business transaction. It contains information like the date, the nature, the value of the transactions & the names of buyers and sellers involved. For accounting purposes, business documents are important as evidence of transactions for recording transactions Invoice When goods are sold on credit, seller will issue an invoice to buyer. A copy of invoice will be retained with the seller while the original is send to the buyer. This document is used by the seller to record its credit sales while the buyer uses the same document to record its credit purchases. Sometimes the seller allows the buyer trade discount. This is a reduction in the price of goods intended to encourage buyers to buy in bulk. Trade discount is shown as a deduction on the invoice and it is not recorded in the books. Debit Note

/ http://www.principlesofaccounting2.com/ The buyer should check that goods received are in satisfactory condition and that they are exactly what was ordered (in respect of price, quantity and quality).

The seller must be informed of any shortages, overcharges and faults. This is done by issuing a debit note to the seller. Therefore, a debit note is merely a request to the seller to reduce the total of original invoice. Neither the seller nor the buyer makes any entries in their books in respect of a debit note. Credit Note When goods are returned, reported faulty, or where there has been an overcharge on an invoice, the seller may issue a credit note. The buyer receives the original credit note and uses it to record purchases returns. The seller keeps a copy of the credit note and uses it to record the sales returns. Statement of Account At the end of each month, a seller will usually issue a statement of account to each buyer. This is a summary of the transactions for the month and a remainder to the buyer of the amount outstanding. Cheque Many accounts are paid by means of a cheque. A cheque is a written order to a bank to pay a stated sum of money to the person or business named on the order.

A paying-in-slip is completed when the cheque is paid into the bank. The counterfoil of paying -inslip is used to record the money paid into the bank. The buyer keeps the cheque counterfoil and uses it to record money paid out of bank. Receipt A receipt is a written acknowledgement of money received and acts as a proof of payment. Where goods are sold for cash, the seller issues a receipt to the buyer.

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Business documents - Principles Of Accounting

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/ http://www.principlesofaccounting2.com/ The accounting cycle for a profit-making organisation.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Incoming search terms:

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Business documents - Principles Of Accounting business documents accounting business documents in accounting

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Accounting Rules - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

Topics

Pricacy Policy

â–º Accounting

â–º Personal Bank

â–º Open Bank Account

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Accounting Rules Rules for Debit and Credit: Increases in assets - Debit Decreases in assets - Credit Increases in liabilities & Capital – Credit Decreases in liabilities & Capital - Debit All Expenses - Debit All Incomes – Credit Summary of basic double entry transactions 1

Transaction Introduce capital

A/C to be debited Bank/Cash/Asset

A/C to be credited Capital

2 3 4 5 6 7 8

Buy asset Sell Asset Borrow Money Repay Loan Owner’s Drawings Receive Income Pay Expenses

Asset Bank/Cash/Asset Debtor Bank/Cash Loan Drawings Bank/Cash Individual expense

Bank/Cash/Asset Creditors Asset Loan Bank/Cash Bank/Cash/Purchases Individual income Bank/Cash

9 10 11 12

Withdraw money for office use Pay cash into bank Buy stock/goods for resale Return stock/goods to supplier

Cash Bank Purchases Bank/Cash/Creditor

Bank Cash Bank/Cash/ Creditor Purchases Returns

13 14

Sell business stock/goods Stock /goods returned by customer

Bank/Cash/Debtor Sales Returns

Sales Bank/Cash/Debtor

Payment to creditor

Creditor

Bank/Cash

16 17 18

Receipt from debtor Carriage on purchases Carriage on sales

Bank/Cash Carriage Inwards Carriage Outwards

Debtor Bank/Cash/Creditor Bank/Cash

19 20 21

Discount to customers Discount from supplier Write off bad debt

Discount Allowed Creditor Bad debts

Debtor Discount Received Debtor

/ http://www.principlesofaccounting2.com/

Account to be Debited and Account to be Credited Q1. From the following transactions prepare account to be debited and account to be credited. (a) Started business with Cash $ 40,000 (b) Started business with Bank $ 30,000 (c) Started business with Land and Building $ 60,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (d) Started business with Furniture and Fittings $ 50,000 (e) Started business with Motor Car $ 50,000 Q2. From the following transactions prepare account to be debited and account to be credited.

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Accounting Rules - Principles Of Accounting (a) Started business with Cash $ 50,000 (b) Bought goods for cash $ 5,000 (c) Sold goods for cash $ 7,000 (d) Purchased goods for cash $ 10,000 (e) Goods sold for cash $ 15,000 Q3. From the following transactions prepare account to be debited and account to be credited. (a) Started business with Cash and Bank $ 40,000 and $ 50,000 respectively (b) Bought goods for cash $ 10,000 (c) Sold goods and received by cheque $ 12,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (d) Goods purchased and paid by cheque $ 7,000 (e) Goods sold for cash $ 5,000 Q4. From the following transactions prepare account to be debited and account to be credited. (a) Purchased Land and Building $ 1,00,000 (b) Bought Motor van for cheque $ 20,000 (c) Sold the old Furniture $ 500 (d) Plant and Machinery purchased for $ 25,000 (e) Sold Motor cycle for cash $ 1,000 Q5. From the following transactions prepare account to be debited and account to be credited (a) Rent paid by cash $ 2,000 (b) Paid Salaries by cash $ 10,000 (c) Telephone charges paid by cash $ 1,000

/ http://www.principlesofaccounting2.com/ (d) Paid Electricity charges by cash $ 1,500 (e) Paid Stationary by cash $ 500 Q6. From the following transactions prepare account to be debited and account to be credited. (a) Paid Insurance by cheque $ 2,000 (b) Paid Staff Welfare Fund by cheque $ 1,000 (c) Paid Salaries of employees by Cheque $ 20,000 (d) Telephone charges paid by cheque $ 3,000 (e) Paid Rent by cheque $ 2,000 Q7. From the following transactions prepare account to be debited and account to be credited. (a) Received Commission by cash $ 3,000 (b) Interest received by cash $ 2,000 (c) Salary received by cash $ 5,000 (d) Incentives received by cash $ 1,000 (e) Received Dividend by cash $ 500 Q8. From the following transactions prepare account to be debited and account to be credited. (a) Bought goods on credit from Lal Chand $ 10,000 (b) Sold goods to Azhar $ 15,000 (c) Purchased goods on credit from Sonia $ 2,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (d) Goods sold for credit to Zaheer $ 5,000

(e) Bought goods from Shilpa $ 4,000

(f) Sold to Saleem $ 3,000

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Accounting Rules - Principles Of Accounting Q9. From the following transactions prepare account to be debited and account to be credited. (a) Received cash from Sultan $ 3,000 (b) Paid cash to Smith $ 2,000 (c) Received cash from Pollock $ 5,000 (d) Paid cash to Rahul $ 6,000 (e) Received cash from Sony $ 10,000 Q10. From the following transactions prepare account to be debited and account to be credited. (a) Paid Cheque to Dravid $ 5,000 (b) Received cheque from Lara $ 10,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (c) Paid cheque to Simon $ 15,000

(d) Received cheque from Jack $ 5,000 (e) Paid cheque to Lee $ 7,000

Q11. From the following transactions prepare account to be debited and account to be credited. (a) Stalin bought goods from us $ 5,000 (b) Bought goods from Stella $ 3,000 (c) Sold goods to Black well $ 9,000 (d) Bought goods from Tony $ 15,000 (e) Tiny sold goods to us $ 10,000 Q12. From the following transactions prepare account to be debited and account to be credited. (a)Started business with cash $2,500 (b)Bought goods by cash $12,000

/ http://www.principlesofaccounting2.com/ (c)Sold goods for cash $20,000

(d)Paid carriage inwards in cash $1,500 (e)Received commission in cash $1,000

Q13. From the following transactions prepare account to be debited and account to be credited. (a)Bought goods for cheque $ 2,000 (b)Sold goods for cheque $ 3,000 (c)Bought furniture in cash $1,200 (d)Sold machinery for cash $12,000 (e)Returned goods to Ahmed $100 Q14. From the following transactions prepare account to be debited and account to be credited (a)Alwin returned goods to us $250 (b)Bought goods on credit from Sathya $1,500 (c)Sold goods on credit to Samuel $1,800 (d)Issued a cheque to Mathew for $ 2,800 (e)Paid travelling expenses in cash $25 Q15. From the following transactions prepare account to be debited and account to be credited

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (a)Returned furniture to Sunil $2,000

(b)Alfred issued a cheque to us $ 600

(c)Withdrew cash from the business for personal use $120 (d)Withdrew cash from the business bank account for personal use $1,250

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Accounting Rules - Principles Of Accounting (e)Cash sales deposited into business bank account $ 2,500 Q16. From the following transactions prepare account to be debited and account to be credited (a)Anand deposited cash in our bank account $ 4,000 (b)Paid cash to Sabig for the settlement of his account $1,000 (c)Raasi settled his account by cheque $1,400 (d)Introduced additional capital into the business $3,000 by cheque (e)Paid rent of building by cheque $600 (f)Received Interest in cash $5,000

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Q 17. From the following transactions prepare account to be debited and account to be credited a. Started business with cash $ 5 000

b. Deposited cash in the bank account $ 3 000 c. Bought goods on credit from Samson for $ 2 000 d. Sold goods on credit to Ramson for $ 2 500 e. Purchased a motor car from Universal Motors on credit for $ 3 500 f. Bought furniture for $ 500 and paid by cheque g. Paid Universal Motors by cash h. Received cheque from Ramson for $ 1 500 i. Paid office expenses in cash $ 100 j. Received commission from Tom by cheque $ 250 Q 18. From the following transactions prepare account to be debited and account to be credited a. Started business with cash $ 20 000

/ http://www.principlesofaccounting2.com/ b. Deposited cash into bank account $ 10 000

c. Purchased goods on credit from B. Blue $ 8 000 d. Credit sales to Y. Yellow $ 12 000 e. Paid salaries by cheque $ 500 f. Bought fittings by cash $ 1000 g. Paid B. Blue by cash $ 5 000 h. Received a cheque from Y. Yellow $ 8 000 i. Withdrew $ 300 from the bank for personal use

j. Took $ 1 000 from the cash till and put into bank Q 19. From the following transactions prepare account to be debited and account to be credited a. Started business with $ 2 000 in cash. b. Paid $ 1 800 of the opening cash into the bank account for the business. c. Bought office furniture on credit from Better Furniture for $ 120. d. Bought a motor van paying by cheque $ 150. e. Bought works machinery from Evansons on credit $ 160. f. Returned faulty furniture costing $ 62 to Better Furniture. g. Sold some of the works machinery for $ 75 cash. h. Paid amount owing to Better Furniture $ 58 by cash. i. Took $ 100 out of bank and put it in cash till. J. J. Smith lent us $ 500- Giving us money by cheque.

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Q 20. From the following transactions prepare account to be debited and account to be credited a. Started business with cash $ 2 000. b. Received a loan of $ 5 000from Micky by cheque.

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Accounting Rules - Principles Of Accounting c. Bought machinery for cash $ 200. d. Bought office equipment on credit from Goodview Ltd. For $ 800. e. Took $ 300 out of bank and put it into the cash till. f. Repaid part of Micky’s loan by cheque $ 2 000. g. Paid amount owing to Goodview Ltd. $ 800 by cheque. h. Repaid part of Micky’s loan by cash $ 500. i. Bought additional machinery on credit from Donald for $ 1 500. Q. 21. Based on the following transactions, find out the Account to be debited and Account to be credited. a) Started business with cash $2,500

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ b) Bought goods by cash $12,000 c) Sold goods for cash $20,000

d) Paid carriage inwards in cash $1,500 e) Received commission in cash $1,000 f) Bought goods for cheque $ 2,000 g) Sold goods for cheque $ 3,000 h) Bought furniture in cash $1,200 i) Sold machinery for cash $12,000 j) Returned goods to Ahmed $100 k) Alwin returned goods to us $250 l) Bought goods on credit from Sathya $1,500 m) Sold goods on credit to Samuel $1,800 n) Issued a cheque to Mathew for $ 2,800 o) Paid travelling expenses in cash $25

/ http://www.principlesofaccounting2.com/ p) Returned furniture to Sunil $2,000

q) Alfred issued a cheque to us $ 600

r) Withdrew cash from the business for personal use $120 s) Withdrew cash from the business bank account for personal use $1,250 t) Cash sales deposited into business bank account $ 2,500 u) Anand deposited cash in our bank account $ 4,000 v) Paid cash to Sabig for the settlement of his account $1,000 w) Raasi settled his account by cheque $1,400 x) Introduced additional capital into the business $3,000 by cheque y) Paid rent of building by cheque $600 z) Received Interest in cash $5,000

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Accounting concepts - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Accounting concepts 1. Cost concept: Assets are normally shown at cost price 2. Money measurement concept: The concept that accounting is concerned only with facts measurable in money, and for which measurement can obtain general agreement. 3. The business entity concept: Assumption that only transactions that effect firm and not the owner’s private transactions will be recorded. 4. The dual aspect concept: The concept that each transaction is recorded by taking both aspects, debit and credit. 5. Accrual concept: The concept that profit is the difference between revenue and expenditure. 6. Going concern concept: The assumption that the business will continue to operate for the foreseeable future or continue for a long time 7. Materiality concept: Recording something is a special way only if the amount is not a small one. 8. Subjectivity: Using a method that other people may not agree to derived from one’s own personal preferences.

/ http://www.principlesofaccounting2.com/ 9. Prudence: Ensuring that profit is not shown as being too high or that assets are shown at too high value.

10. Consistency: Each firm should follow constant method of treatment for each item. If the method is changing every year, then the profit calculated will be misleading one. 11. Time interval concept: Final accounts are prepared at regular intervals.

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Accounting concepts - Principles Of Accounting

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/ http://www.principlesofaccounting2.com/ Accounting Concepts MCQ 1. Fixed assets are generally shown at cost price. Which of the accounting concept is followed? A. Money measurement concept B. Historical cost concept C. Going concern concept D. The business entity concept 2. The motor car purchased by the owner of a business for his private use, did not record in the books of the business. Which one of the following is not followed? A. Business entity concept B. Money measurement concept C. Historical cost concept D. Going concern concept 3. A firm bought goods $ 300 by cash. The accountant recorded the entry in the purchase account, but did not record in the cash book. Which accounting concept is violated? A. Dual aspect concept B. Money measurement concept C. Going concern concept D. Consistency 4. According to which concept is the profit or loss calculated, by taking the income and expenditure? A. Dual spect concept B. Money measurement concept C. Matching concept D. Cost 5. Under which principle is the provision for bad debts created? A. Dual aspect concept B. Consistency C. Going concern D. Conservatism 6. According to which concept, monetary transactions only are recorded in the books? A. Money measurement concept B. Dual aspect concept C. Accrual concept D. Prudence concept

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7. What is the life of a business according to going concern concept? A. Limited life B. Indefinite life C. Very long life D. Very short life

8. Employees’ skills are not recorded in the books of account. Which accounting principle is involved? A consistency B money measurement C prudence D realization

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Accounting concepts - Principles Of Accounting 9. A business decides to use the same depreciation method every year. Which accounting principle is the business following? A consistency B duality C matching D prudence 10. A business charges $1500 to its Profit and Loss Account for electricity. This includes $200 for an electricity bill that is outstanding at the year end. Which accounting principle has been applied? A duality B matching C prudence D realization 11. The owner’s capital is regarded as a liability of the business. Which accounting principle is being applied? A business entity B consistency C matching D realization 12. Money received from a customer must be recorded in the debtor’s account and the bank account. What accounting principle is being applied? A business entity B duality C matching D money measurement 13. A trader wants his accounts to record his customers’ satisfaction with his business. Which accounting principle prevents this? A business entity B duality C money measurement D realization

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14. The owner of a business should not include his personal assets and liabilities in the business Balance Sheet. Which accounting principle is being applied? A business entity B consistency C money measurement D realization 15. The same accounting treatment should be applied to similar items at all times. Which accounting principle is being applied? A consistency B duality C money measurement D prudence 16. Unpaid rent is shown as a liability in a balance sheet. Which accounting principle is this an example of? A consistency B duality C matching D prudence 17. Raul is preparing his final accounts. What should he do to observe the principle of prudence? A include all foreseeable losses B include all foreseeable revenue C show expenses as low as possible D show prepayments as expenses 18. A business spends $100 000 on staff training. The $100 000 is entered as an expense in the business accounts, but the increased value of staff to the business is not recorded. Which accounting principle is being applied? A business entity B matching C money measurement D prudence Incoming search terms:

/ http://www.principlesofaccounting2.com/ difference between Going concern and time concept accounting concepts historical price

why should accounting principles be observed at all times whats is• the money measurement concept business accounting example money measurement principle accounting money measurement concept vs materiality concept money measurement concept of accounting

money measurement concept materiality concept entity concept going concern concept money measurement concept example of money measurement concept in accounting

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Accruals and Prepayments - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Accruals and Prepayments

A business makes a number of payments that give it the right to enjoy certain benefits over a period of time. Some of these payments, such as rates on the occupation of property, are paid in advance of the receipt of the bene-fit and are known as prepayments, while others, such as for the consumption of gas or electricity, are made in arrears and are known as accruals. The accruals concept is applied, and so, unless the period of time covered by these payments coincides exactly with the account-ing period, an adjustment is needed. The adjustment will either be an asset, to account for payments made in advance, or a liability, where payments are made in arrears. The value of accruals and prepayments for items that relate to a period of time is normally found by apportioning the cost on a time basis. Prepayments The entries in the accounts to record a prepayment are: Account debited Account credited With Prepayment Expense Value of prepayment The credit of the prepayment in the expense account reduces the expense, and the prepayment is shown in the balance sheet as a current asset. In practice, the prepayment may be carried down in the expense account to which it relates. This is illustrated in Example below:

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Solution:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Accruals The entries in the accounts to record an accrual are:

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Accruals and Prepayments - Principles Of Accounting Account debited Account credited with Expense Accrual Value of accrual The accrual increases the expense figure charged in the profit and loss account (debit) and is included as a current liability in the balance sheet (credit). In prac-tice, the accrual may be carried down in the expense account to which it relates. This is shown in Example:

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Solution:

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Reference: INTRODUCTION TO Accounting (Pru Marriott, J.R. Edwards and H.J. Mellett) Accruals and Prepayments Exercise Q1 Martin Sicey started a welders business on 1st April 2001, and used 31st March 2002 as his financial year-end. The electricity bills for his first year had been paid as follows (all payments were by cheque) 2001 2001 2002

date paid

amount

covering the period

18th July 16th Oct 20th Jan unpaid

$520 $860 $750

1st April to 30th June 2001 1st July to 30th Sept 2001 1st Oct to 31st Dec 2001

$940

1st Jan to 31st Mar 2002

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Prepare the electricity account showing the final amount transferred to profit and loss account.

Q2 A sole trader’s Electricity account for the year ended 31 March 2004 showed the following.

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Accruals and Prepayments - Principles Of Accounting $ 1 April 2003 electricity owing 3,000 Payments made during the year by cheque 18,000 On 31 March 2004, $4,000 was owing by the trader for electricity. REQUIRED 1. Prepare electricity account and show the amount transferred to the trader’s Profit and Loss Account for the year ended 31 March 2004. 2. Show relevant extract from Profit and Loss account

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 3. Show relevant extract from Balance Sheet

Q3 Kalim has a retail business and pays insurance on his premises. He pays an annual premium to the insurance company from 1 January to 31 December but prepares his accounts at 30 September. At 1 October 2005 he had prepaid insurance of $300. He paid the next year’s annual premium of $1320 on 1 January 2006. REQUIRED 1. Show the entries in Kalim’s insurance account for the year ended 30 September 2006 including the transfer to the Profit and Loss Account for the year and the balance carried down at 30 September 2006. 2. Show relevant extract from Profit and Loss account 3. Show relevant extract from Balance Sheet

/ http://www.principlesofaccounting2.com/ Q4

Salman’s financial year ends on 31 March.

He receives an invoice for telephone expenses quarterly in arrears. On 1 April 2008, the telephone expenses outstanding amounts to $59 During the year ended 31 March 2009, his payments for expenses included the following: 2008 5 April Telephone expenses paid in cash $59 2008 30 June Telephone expenses paid by cheque $60 2 October Telephone expenses paid by cheque $48 31 December Telephone expenses paid by cheque $56 An invoice for telephone expenses for $63 was received on 31 March 2009. This was for telephone expenses up to the end of March, but was not paid until 10 April 2009 Prepare Telephone expenses account and show the amount transferred to Salman’s Profit and Loss Account for the year ended 31 March 2009. Q5 Shah is a trader. His financial year ends on 31 July. He provides the following information. At 1 August 2004,

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Rent paid in advance $ 500 Rates owing $ 230

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Accruals and Prepayments - Principles Of Accounting During the year ended 31 July 2005, Total rent paid by cheques $ 3,750 Total rates paid in cash $ 2,230 At 31 July 2005, Rent paid in advance $750 Rates outstanding $130 REQUIRED

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a) Show the entries in Shah’s Rent and rates account for the year ended 31 July 2005 including the transfer to the Profit and Loss Account for the year. b) Show relevant extract from Profit and Loss account for the year ended 31 July 2005. c) Show relevant extract from Balance Sheet for the year ended 31 July 2005. Q6 Shazlyn paid the following expenditure on her business premises for the year 2006

2006 $ 1 January Insurance 2 500 31 July Rates 500 31 December Rates 1 500 The rates paid on 31 July 2003 was for the year 2005. Annual insurance premium is $3000 per annum.

/ http://www.principlesofaccounting2.com/ The rent and rates paid on 31 December 2006 was for three months ended 29 February 2007 Required Write up Rates account and Insurance a/c for the year ended 31 December 2003.Show clearly the amount transferred to the profit and loss account for the year 2003. Q7 Aishwary paid the following expenditure on her business premises for the year 2003 2003 1 January Ground rent 1800 31 December Ground rent 1400 The ground rent paid on 1 January 2003 was for the year 2004. It was agreed to pay a monthly rent of $100 from 1 January 2003. Required Write up Rent account for the year ended 31 December 2003.Show clearly the amount transferred to the profit and loss account for the year 2003 Q8 Ruth is a trader. Her financial year ends on 31 March. She provides the following information. April 1 Insurance prepaid for 3 months to 30 June 2004 amounted $ 60

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July 1 Paid insurance premium for 12 months to 30 June 2004 by cheque $264 Prepare the Insurance account as it would appear in Ruth’s ledger for the year ended 31 March 2004. Show clearly the amount transferred to the Profit and Loss Account.

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Accruals and Prepayments - Principles Of Accounting Q9 On 1 October 2002 the Green Jackets Sports Club had prepaid insurance amounting to $190. On 1 December 2002 the Club paid $1200 by cheque for 1 year’s insurance to 30 November 2003. Prepare the Insurance account as it would appear in the ledger of the Green Jackets Sports Club for the year ended 30 September 2003. Show clearly the amount transferred to the Income and Expenditure Account. Bring down the balance on 1 October 2003. Q5 On 1 January 2007the LX had the following balances Rent $100 Dr Loan interest $900 Cr

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On 1 December 2002 the Club paid $2000 by cheque for annual rent to 29 February 2008

The loan interest has to be paid at the rate of %10 per annum on the loan balance Loan balance as at 31 December 2007 %10 000 Loan interest paid during the year $ 950

Prepare the Rent a/c and loan interest a/c as it would appear in the ledger for the year ended 31 December 2007. Show clearly the amount transferred to the profit and loss Account. Bring down the balance on 1 January 2008 MCQ 1. How is the year-end insurance prepaid shown in the final accounts? A Current assets B Current liabilities C Trading expense D Capital expenditure

/ http://www.principlesofaccounting2.com/ 2. A trader provides the following information related to the insurance

Outstanding at 1 January 2005 $400 Cash refund for insurance $300 Annual insurance paid for the year $8000 Which amount should be shown in the profit and loss account? A $8 100 B $7600 C $7 9 000 D $8 000 3. The balance on the rent account showed $400 credit. How is this shown in the final account? A As assets and prepayment B An asset and accrual C A liability and prepayment D A liability and accrual 4. An electricity prepayment of $610 was treated as an accrual when preparing the final account of the sole trader. What effect does this have on the net profit? A It is overstated by $610

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ B It is overstated by 1220

C It is understated by $610

D It is understated by 1220

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Accruals and Prepayments - Principles Of Accounting 1. An expense prepayment of $10 was treated as an accrual when preparing the final account of the sole trader. What effect does this have on the net profit? A It is overstated by $10 B It is understated by 20 C It is overstated by $10 D It is understated by 20 1. Tom, a trader, sublets part of his premises to Jane. At the end of Tom’s financial year Jane owes $150 for rent. How will the adjustment for this amount affect Tom’s final accounts? A decrease expenses increase current liabilities B increase expenses increase current assets

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ C decrease income increase current liabilities D Increase income increase current assets 1. An electricity accrual of $450 is treated as a prepayment when preparing a trader’s Profit and Loss Account. What effect does this have on the trader’s net profit? A It is overstated by $450. B It is understated by $450. C It is overstated by $900. D It is understated by $900. 1. A trader’s net profit is $20 000. Later the trader discovers the following omissions from the Profit and Loss Account: closing stock of stationery $600

/ http://www.principlesofaccounting2.com/ rent receivable $200

What is the correct net profit?

A $19 200 B $19 600 C $20 400 D $20 800 1. In 2005 a business paid $3000 for electricity. On 1 January 2005 $600 was owed for electricity. On 31 December 2005 $1300 was owed for electricity. How much is charged for electricity in the Profit and Loss Account for 2005? A $3000 B $3600 C $3700 D $4300 1. J. Peters rents premises at an annual rent of $2800. He provides the following information. $ Rent accrued on 1 January 2005 350 Payments during 2005 3 600 What is the balance on the rent account at 31 December 2005? A $450 accrued B $450 prepaid C $1150 accrued D $1150 prepaid How is rent owing shown in the final accounts? A Current assets

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ B Current liabilities

C profit and loss expense D Fixed costs

How is rent received outstanding shown in the final accounts?

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Accruals and Prepayments - Principles Of Accounting A Current assets B Current liabilities C Fixed assets D Income Incoming search terms: accruals and prepayments exercises accruals and prepayments prepaid on accruals prepayments and accruals on balance sheet

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the effect of accurals on the profit and loss accounts accounting for accruals and prepayments treatment of prepayment and accruals when can account be prepaid and accrual why adjust prepayment and accruals

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Depreciation and Assets disposal - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Depreciation and Assets disposal Depreciation, Provision for depreciation and Asset disposal account Depreciation is the part of the cost of the fixed asset consumed during its period of use by the business. In other words, it is the gradual reduction in the value of the fixed asset due to several reasons. Like other business expenses, depreciation is also a business expense to be charged to the profit & loss account at the end of every year. Cases of depreciation a. Wear and tear: Because of the regular usage in the business, the fixed assets eventually wear out. b. Erosion, rust and decay: Erosion is subjected to asset like land, rust causes to the asset like plant & machinery and decay is a process which will also be present due to the elements of nature and the lack of proper attention. c. Obsolescence: This is the process of becoming out of date, then the value becomes less compared to the new and up-to-date equipment.

/ http://www.principlesofaccounting2.com/ d. Inadequacy: This arises when an asset is no longer used because of the growth and changes in the size of the firm. e. The time factors: This is applicable in the case of assets taken on the basis of lease.

When the years are finished the lease is worth nothing. f. Depletion: This is applicable to the wasting assets like mines, quarries and oil wells. According to the quantity of extraction of the raw material from the wasting asset, the value remaining will be less. Methods of calculating depreciation charges Straight line method: This method is also known as fixed instalment method or original cost method. Under this method, the cost of the asset (minus net residual value if any) is divided by the expected number of years of use of the asset. Thus under this method, depreciation is = Cost – estimated disposable value( residual value Number of expected years of use E.g.: A business bought a plant at a cost of $ 20 000, with an estimated life of 5 years and an estimated residual value of $ 2 000, the annual depreciation on this asset will be 20000 – 2000 =3600 (every year) 5 Reducing balance method: Under this method, a fixed percentage of reduced balance (cost less depreciation already charged )of the asset is calculated as depreciation at the end of every year. During the first year, the calculation will be made on the original cost of the asset E.g.: An asset was bought for $ 40 000 on 1-1-1988. It was decided to charge the depreciation on this asset @ 10% under reducing balance method. The depreciation on this asset will be:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 31 st Dec 1998 40000 = 4000

31 st Dec 1999 40000- 4000 = 3600 31 st Dec 2000 40000- 4000-3600= 3240

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Depreciation and Assets disposal - Principles Of Accounting Thus under this method, the yearly depreciation will be reducing year after year. But in the case of fixed instalment method, the amount of depreciation will be fixed or same every year. Revaluation method: Under this method, the depreciation is calculated by comparing the opening and closing values of the asset. The difference between these values will be taken as the amount of depreciation during that year. This method is suitable for the assets like small tools, screwdrivers, spanners etc. Residual value: This is the value that the business will get from the sale of an asset at the end of its useful life time. It is also known as scrap value or salvage value Provision for depreciation

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This is the provision created to cover the expense of depreciation on fixed assets. Every year the amount of depreciation is credited to this account and debited to the profit & loss account. The depreciation amount will accumulate year after year. At the end of the life of the asset or at the time sale of the asset, the accumulated depreciation is transferred to the asset account or the asset disposal account. At the end of every year, the balance in the provision for depreciation is shown as a deduction from the cost price of the concerned asset. The double entry for creating the provision for depreciation is: Profit & loss account Dr.

Provision for depreciation account Cr. Disposal of an asset When an asset is sold, the procedure will recorded in a separate account called asset disposal account. The following double entries are required for recording these transactions in the books of the business: 1. For transferring the cost price of the asset sold to the asset disposal account Asset disposal account Dr Asset account Cr.

/ http://www.principlesofaccounting2.com/ 2. For transferring the provision for depreciation already charged on the asset sold from the provision for depreciation account to the asset disposal account: Provision for depreciation account Dr. Asset disposal account Cr. 3. For recording the cash or cheque received from the sale of the asset: Cash / Cheque Dr. Asset disposal account Cr. 4. To record the profit on sale of the asset: Asset disposal account Dr. Profit & Loss account Cr. 5. To record the loss on sale of the asset: Profit & loss account Dr. Asset disposal account Cr

Key points Profit / loss on sale of asset = (Sale proceeds of assets + provision for depreciation to date) – Cost price of the asset sold. (Positive figure is profit on sale of asset and negative figure is loss on sale of asset) Under straight line method, the value of asset will be reduced to zero or the scrap value at the end of its useful life. Under the reducing balance method the amount of depreciation reduces year after year. Profit on sale of asset is credited to the profit & loss account

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Loss on sale of asset is debited to the profit & loss account. In the balance sheet, the total depreciation charged on the asset to the date of balance sheet, is deducted from the concerned asset.

MCQ

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Depreciation and Assets disposal - Principles Of Accounting 1. Under the fixed instalment method, the amount of depreciation will: A. Decrease every year B. Increase every year C. Be the same every year D. None of these 2. What is more correct about depreciation from the following? A. It is an income to be shown in the profit & loss account B. It is an expense to be shown in the profit & loss account only C. It is the decrease in the amount of expense D. It is the expense to be shown in the profit & loss account and shown deduction from the concerned asset in the balance sheet

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3. To calculate the depreciation the opening and closing balances are compared under which method? A. reducing balance method B. fixed instalment method

C. original cost method D. revaluation method 4. A Delivery van was purchased for $ 8 000 by cheque. The double entry to record this is:A. Debit bank account and credit delivery van account B. Debit delivery van account and credit cash account C. Debit cash account and credit delivery van account D. Debit delivery van account and credit bank account 5. The double entry to record the profit on sale of a fixed asset is: A. debit asset disposal account and credit profit & loss account

/ http://www.principlesofaccounting2.com/ B. debit asset account and credit cash account

C. debit profit and loss account and credit asset disposal account

D. debit profit and loss account and credit provision for depreciation account 6. A plant costing $ 40 000 is depreciated by 20% p.a. on cost. What will be the value of the plant account to be shown in the balance sheet at the end of the third year? A. $ 12 000 B. $ 16 000 C. $10 000 D. $ 8 000 7. A machinery was bought for $ 20 000. It was decided to depreciate this asset under the diminishing balance method @ 20% per annum. What is the amount of depreciation at the end of the second year? A. $ 2 000 B. $ 4 000 C. $ 3 600 D. $ 3 200 8. A furniture is bought for $4 000. The estimated life of the asset is 5 years. The estimate scrap value of the asset at the end of 5 th year is $ 1000. What is the yearly depreciation under the straight line method? A. $ 600 B. $ 500 C. $ 700 D. $ 1 000 9. Which of the following is not a fixed asset? A. Goodwill B. Plant & Machinery C. Filing cabinet D. Repairs to furniture 10. The double entry for creating the provision for depreciation is to:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. Debit profit & loss account and credit provision for depreciation account B. Debit provision for depreciation account and credit profit & loss account C. Debit profit & loss account and credit asset account D. Debit profit & loss account and credit asset disposal account

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Depreciation and Assets disposal - Principles Of Accounting Assignment questions Q1 A machinery which was bought on 1-1-2001 at a cost of $15 000 and depreciated @ 10% p.a under straight line method, sold for cash $ 6500 on 31 st Dec 2004. The accounting year of the business ends on 31 st Dec each year. Calculate the amount of profit or loss on sale of the machinery. Q2. A plant which was bought on 1-1-2003 at a cost of $ 20 000 and depreciated @ 20% under straight line method, sold by cash $ 10 000 on 31 st December 2004. The accounting year of the business ends on 31 st December each year. Calculate the amount of profit or loss on sale of the plant.

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Q3. A piece of furniture was bought on 1-1-2002 at a cost of $ 12 000 and depreciated @ 12% p.a. under straight line method, sold by cash $ 5 000 on 30 th June 2004. The accounting year of the business ends on 31 st December each year. Calculate the amount of profit or loss on sale of the furniture. Q4. A machine which was bought on 1-1-2001 at a cost of $ 25 000 and depreciated @ 20% p.a. under straight line method, sold by cheque $ 7 500 on 30 th September 2004. The accounting year of the business ends on 31 st December each year. Calculate the amount of profit or loss on sale of the machine. Q5. A plant which was bought on 1-1-2003 at a cost of $ 10 000 and depreciated @ 20% p.a. under straight line method, sold for $ 7 000 by cheque on 30 th June 2004.The accounting year of the business ends on 31 st December each year. Calculate the amount of profit or loss on sale of the plant.

/ http://www.principlesofaccounting2.com/ Q6. A machine which was bought on 1-1-2002 at a cost of $ 8 000 and depreciated @ 10% p.a. under reducing balance method, sold for cash $ 5 500 on 31 st December 2004. The accounting year of the business ends on 31 st December each year.

Calculate the amount of profit or loss on sale of the machine. Q7. A machine which was bought on 1-1-2003 at a cost of $ 10 000 and depreciated@ 10% p.a. under written down value method, sold by cheque $ 8 200 on 31 st December 2004. The accounting year of the business ends on 31 st December each year. Calculate the amount of profit or loss on sale of the machine. Q8. A plant which was bought on 1-1-2003 at a cost of $ 12 000 and depreciated @ 10% p.a. under reducing balance method, sold by cheque $ 9 500 on 30 th June 2004. The accounting year of the business ends on 31 st December each year. Calculate the amount of profit or loss on sale of the plant. Q9. A plant which was bought on 1-1-2001 for $ 25 000 is depreciated @ 10% p.a. under reducing balance method. The financial year of the company ends on 31 st December each year. What is the value of the plant on 1-1-2005? Q10 A company bought a machinery on 1-1-2002 for $ 20 000. It is the policy of the company to charge depreciation @ 10% p.a. on cost on the principle that “one month’s ownership needs one month’s depreciation”. Calculate the value of machinery on 1-1-2005. Q11. A business bought a computer for $ 5 000 on 30 th June 2003. The business decided to charge depreciation on the computer @ 25% p.a. under fixed installment system. The financial year of the business ends on 31 st December each year. What is the value of the computer on 31 st December 2004?

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Q12. A business purchased a Machine at a cost of $ 40 000 on 1-11-2003. For the purchase of this asset, the business spends the following expenses also:Legal charges $ 2 000 Carriage on asset $ 1 500

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Depreciation and Assets disposal - Principles Of Accounting Cost of installation $ 4 000 On 31-12-2003, what is the value of the Machine to be shown in the balance sheet Long questions Q 1 The following information is relating to the business of Salvy:On 1-1-1998 Bought Plant costing $ 30000 by cheque On 1-7-1998 Bought Plant costing $ 40000 by cash On 1-1-1999 Bought Plant costing $ 50000 on credit from Simmons On 1-10 1999 Bought Plant costing $ 20000 by cheque On 1-1-2000 Bought Plant costing $ 50000 by cash On 1-4-2000 Bought Plant costing $ 60000 by cheque

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ The financial year of the business ends on 31 st Dec each year.

The provision for depreciation is to be calculated @ 10% p.a. under straight line method on the principle that “one month’s ownership needs one month’s depreciation policy.

Required to prepare for the three years ended 31 st Dec 1998, 1999 and 2000:a. The plant account b. The provision for depreciation account. Q 2. The following information is obtained for the books of a business for the three years :On 1-1-1998 Balance in the Machinery account $ 50 000 On 1-1-1998 Balance in the provision for depreciation account $ 5 000 On 1-7-1998 Bought Machinery on credit from Sansui Co. Ltd $ 40 000 On 1-4-1999 Bought Machinery by cheque $ 20 000 On 1-1-2000 Bought Machinery by cash $ 10 000 On 1-10-2000 Bought Machinery by cheque $ 60 000 It is the policy of the business to depreciate its fixed assets @ 15% p.a. under straight line method for each month of ownership.

/ http://www.principlesofaccounting2.com/ Required to prepare for the three years ended 31 st Dec 1998,1999 and 2000:-

a. The machinery account

b. The provision for depreciation account. Q 3. A company maintains the provision for depreciation account and the asset account separately. For the years ended 31 st Dec 1998, 1999 and 2000, the following information is available from the books of the business relating to its Machinery :On 1-1- 1998 the balance in the Machinery account $ 60 000 On 1-1-1998 the balance in the provision for depreciation account $ 12 000 On 1-7-1998 Bought Machinery costing $ 50 000 by cash On 31-12-1998 sold one of the machineries which was bought on 1-1-1996 at a cost of $ 20 000, for a sum of $ 5 600. On 1-1- 1999 Bought Machinery costing $ 40 000 by cheque On 1-10 1999 Bought Machinery costing $ 10 000 by cash. It is the policy of the business to create the provision for depreciation @ 10% p.a. on cost for each month of ownership. Required to prepare for the three years ended 31 st Dec 1998, 1999 and 2000:a. The plant account b. The provision for depreciation account c. The Plant disposal account d. The extracts from the profit & loss account

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ e. The extracts from the balance sheet

Q 4. A company depreciates its fixed assets @ 20% p.a. under straight line method for each month of ownership. Its plant at a cost of $ 50 000 was bought on 1-7-1997.

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Depreciation and Assets disposal - Principles Of Accounting on 1-7-1997 there was a balance of $ 10 000 in the provision for depreciation account. On 31-12-1998,the company sold a part of the plant costing $ 30 000, for a sum of $ 7 000 and received cash. On the same day the company bought another plant costing $ 20 000 on credit from United furniture Ltd. On 1 st Jan 1999, the company bought another plant at a cost of $ 40 000 by cheque. The financial year of the company ends on 30 th June each year. Required to prepare:a. The plant account for the years ended 30 th June 1998 and 1999 b. The provision for depreciation account for the years ended 30 th June 1998 and 1999 c. The plant disposal account d. The extracts from the profit & loss account for the years ended 30 th June 98 and 99

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e. The extracts from the balance sheet for the years ended 30 th June 1998 and 1999 Q 5. The following information is relating to the Motor Van owned by a business:1992 Jan 1 Bought motor van by cash $ 20 000 1992 July 1 Bought motor van by cheque $ 10 000 1992 Oct 1 Bought motor van by cash $ 15 000 1993 April 1 Bought motor van from Samson & company $ 25 000 1993 Oct 31 Settled the account of Samson & company. 1994 July 1 Bought motor van by cash $ 30 000

1994 July 1 Sold for cash $ 4 400 the motor van which had been bought on 1st July 1992, at a cost price of $ 10 000 The financial year of the business ends on 31 st Dec each year. It is the policy of the business to depreciate the motor van @ 10% p.a. under straight line method for each month of ownership. From the above information, prepare:

/ http://www.principlesofaccounting2.com/ a. The motor van account for 3 years ended 31 st Dec 1992, 1993 and 1994.

b. The provision for depreciation account for 3 years ended 31 st Dec 1992, 93& 94.

c. The extracts from the balance sheet for 3 years ended 31 st Dec 1992, 1993 & 1994

d. The motor van disposal account. Q 6. Alifulhu & Co. depreciates its fixed assets @ 5% on cost on the principle that “ one month’s ownership needs one month’s depreciation”. The following information is relating to its plant account:1991 Jan 1 Balance in the plant account $ 15 000 ( bought on 1-1-1990 ) 1991 Jan 1 Balance in the provision for depreciation account $ 750 1991 July 1 Bought plant on credit from S.Sita, costing $ 10 000 1991 Oct 1 Bought plant for cash $ 20 000 1992 July 1 Bought plant by cheque $ 10 000 1992 Oct 1 Sold the plant for cash $ 7 250, which had been bought on 1-1-1990 at a cost of $ 15 000 1993 Jan 1 Bought plant costing $ 15 000 by cheque. 1993 Oct 1 Bought plant costing $ 5 000 by cash. The final accounts of the company are prepared on 31 st December each year. From the above information, prepare: a. The plant account for 3 years. b. The provision for depreciation account for three years.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ c. The plant disposal account.

d. The extracts from the profit & loss account for 3 years. e. The extracts from the balance sheet for 3 years

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Depreciation and Assets disposal - Principles Of Accounting , Q 7. A business depreciates its Furniture @ 10% p.a. under straight line method for each month of ownership. On 1-1-1998, bought furniture costing $ 50 000 by cash. On 31 st December 1999, furniture costing $ 20 000 was sold for $ 7 500. On 1 st Jan 2000 bought another furniture costing $ 40 000 by cheque. The financial year of the business ends on 31 st Dec each year. Required to prepare: a. The furniture account for the years ended 31 st Dec 1998, 1999 and 2000 b. The provision for depreciation account for the years ended 31 st Dec 98, 99 & 2000 c. The Furniture disposal account d. The Extracts from the profit & loss accounts for the years ended 31 st Dec 98, 99& 2000

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e. The extracts from the balance sheets for the years ended 31 st Dec 1998, 1999&2000 Q 8. The following details were extracted from the books of a sole trader regarding his Motor car: 1-1-2000 Balance B/D in the motor car account $ 60 000 Provision for depreciation on motor car B/D $ 9 000 1-7-2000 Bought motor car by cheque from Jennifer car suppliers for $ 29 000 30-6-2001 Bought motor car by cash for $ 36 000

1-4-2002 Sold one old motor car for $ 22 000 to Neena on credit. This motor car was purchased on 1 st January 1999 at a cost of $ 45 000. The trader had a policy of depreciating the fixed assets @ 15% p.a using the principle that “One month’s ownership needs one month’s depreciation” Prepare for three years ending 31-12- 2000, 31-12-2001 & 31-12-2002:1. Motor cars account 2. Provision for depreciation on motor cars account 3. Motor cars disposal account

/ http://www.principlesofaccounting2.com/ Q9 The following information relates to the motor vehicles owned by Surya who commenced business on 1 st May 1998:-

1 st May 1998 Bought motor vehicles $ 20 000 0n credit from M Khanna.

1 st May 1998 Bought motor vehicles for $ 24 000 by cheque. 30 th June 1998 Paid M Khanna by cheque $ 20 000 1 st May 2000 Bought two motor vehicles on credit for $ 26 000 each form Balu motor vehicles suppliers. 30 th April 2000 Settled Balu Motor Suppliers by cheque 30 th April 2000 Sold for $ 10 000 cash the motor vehicles bought on 1 st May 98 for 20 000 to Baby. The financial year of Surya ends on 30 th April 1999, 2000 and 2001. Surya used to depreciate the vehicles by 20% per annum on cost using “one month ownership needs one month depreciation” policy. For the year ending 30 th April 1999, 2000 and 2001, write up the following accounts as they would appear in the books of Surya. 1. Motor vehicles account 2. Provision for depreciation account 3. Motor vehicles disposal account 4. State two factors which are considered in calculation of depreciation on fixed assets. Q 10 The following information relates to the motor vehicles owned by Boro Limited which commenced business on 1 st May 2000. 1 st May 2000 1 st May 2000 30 th June 2000

Bought motor vehicles $ 10 000 on credit from Parkside Garage Bought motor vehicle $ 12 000 by cheque

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Paid Parkside Garage $ 10 000 by cheque

1 st May 2002

Bought motor vehicles for $ 13 000 on credit from Parkside Garage

31 st May 2002 20 th July 2002

Settled Parkside Garage’s account by cheque

Sold for $ 5 000 cash the motor vehicle which was bought on 1 st May 2000, for $ 10 000 The financial year of Boro limited ends on 30 th April each year. It is company policy to depreciate motor

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Depreciation and Assets disposal - Principles Of Accounting vehicles owned by 20% p.a. on cost, but no depreciation is charged on a motor vehicle in the year in which it is sold. Required 1. Why do firms depreciate fixed assets 2. Briefly explain the reducing balance method of depreciation 3. For the years ending 30 th April 2001,2002 & 2003 write up the following accounts as they would appear in the books of Boro Limited 1. The motor vehicle account 2. The provision for depreciation account Q. 11 On 1 st January 1999, Shira, a business woman had the following balances in her books:Motor car (cost) $ 90 000 Provision for depreciation on motor car $ 18 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ On 1 st April 1999, she purchased two motor cars for $ 26 000 each by cheque.

On 1 st July 2000, she bought a new motor car for $ 30 000 on credit from Shemba motor car manufacturers. On 30 th June 2001, she sold one motor car for $ 12 000 which was purchased on 1 st January 1998 at a cost of $ 45 000.Shira depreciated the fixed assets @ 20% p.a. on cost using “one month’s ownership needs one months depreciation” policy Required to: 1. Prepare motor car account for three years ending 31 st December 1999, 2000 & 2001. 2. Prepare provision for depreciation accounts for three years ending 31 st December 1999, 2000 & 2001. 1. Prepare motor car disposal account. 2. Prepared balance sheets extracts for three years ended 31 st December 1999, 2000 & 2001. Q.12 ABC Company purchased three motor vehicles at $ 20 000 each by cheque on 1-1-1999. The estimated life of the three assets are five years. The company decided to depreciate these assets on fixed instalment method. The estimated scrap value of each asset is $ 2000.

/ http://www.principlesofaccounting2.com/ At the end the third year, the company decide to sell all these three assets due to over consumption of fuel. The three motor vehicles were sold on the last day of the third year for cash as follows. Motor vehicle – 1 for $ 11 000 Motor vehicle – 2 for $ 9 000 Motor vehicle – 3 for $ 10 000 On the same day the company bought two new motor vehicles on credit from Heera Engineering Limited at $ 25 000 each. Required to:1. Prepare the motor vehicles accounts for the three years. 2. Prepare the provision for depreciation on motor vehicles accounts for 3 years. 3. Prepare the motor vehicle disposal account. Incoming search terms: provision for depreciation of motor vehicles accounting for depreciation for motor vehicles disposal account extract disposal account on final accounts disposals furniture account at cost installments to depreciate accounting Motorvan(at valuation)incomplete record in accounting profit or loss on disposal of fixed assets provision fer depreciation account provison mototr vehicle expense fixed asset

http://www.principlesofaccounting2.com

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/

http://principlesofaccounting2.com/topics/depreciationand-asset-disposal/[8/11/2013 3:47:41 AM]

Bad debts and provision for bad debt - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

Topics

Pricacy Policy

â–º Accounting

â–º Credit Debts

â–º Bad Debts

QuickBooks 2013 Original Intuit Premier Reseller in Maldives Get the Best from the Best-7790989 www.echesconsultancy.com

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Bad debts and provision for bad debt The amount of the debtors which cannot be recovered is known as bad debt. At the end the accounting year, the amount of bad debt is shown as an expense in the profit & loss account and deducted from the debtors. The double entry for recording the bad debt is: Debit Bad debt account Credit Debtors account At the end of the year, while preparing the final accounts, the bad debt account is transferred to the profit & loss account by passing the following adjustment entry: Debit Profit & loss account Credit Bad debt account Provision for bad debt account or provision for doubtful debts account

/ http://www.principlesofaccounting2.com/ The provision created to cover the next year’s bad debt expense out of the current year’s debtors is known as provision for bad debts. This provision is created on the debtors after deducting the current year’s bad debt. The double entries required for creating the provision for bad debt are: First year Debit Profit & loss account and Credit Provision for bad debts account. Second year and subsequent years: For an increase in the provision for bad debt: Debit Profit & loss account and (with the amount increased) Credit Provision for bad debts account. For a decrease in the provision for bad debt: Debit Provision for bad debt account and Credit Profit & loss account The amount of decrease in the provision for bad debt is shown as an income in the profit and loss account While preparing the balance sheet, always the new provision for bad debt is deducted from the amount of debtors. Provision for discount on debtors This is the provision created to cover the expense of discount that may be allowed to the debtors during the coming year when they pay their debt on time. The increase in the provision for discount on debtors is also shown as an expense in the profit & loss account and the new provision for discount on debtors is deducted from the debtors in the balance sheet.

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The amount of provision for decrease in the provision for discount on debtors is shown as an income in the profit & loss account. The double entries required for the provision for bad debt are:

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Bad debts and provision for bad debt - Principles Of Accounting During the first year to create the provision for discount on debtors:Profit & loss account Dr. Provision for discount on debtors account Cr. During the subsequent years, for an increase in the provision for discount on debtors: Profit & loss account Dr. Provisions for discount on debtors account Cr.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ For a decrease in the provision for discount on debtors: Provisions for discount on debtors account Dr. Profit & loss account Cr. Key points A debt written off is recorded in the books by debiting bad debts account and crediting debtors account. The provision for bad debt is calculated on the debtors’ balance obtained after deducting the bad debt written off. In the balance sheet, always the new provision for bad debt is deducted from the Debtors. Increase in the provision for bad debt is debited in the profit & loss account and credited in the provision for bad debt account. Decrease in the provision for bad debt is credited to profit & loss account and debited in the provision for bad debt account. Increase in the provision for bad debt is an expense and decrease in the provision for bad debt is an income to be shown to in the profit & loss account.

/ http://www.principlesofaccounting2.com/ The provision for discount on debtors is calculated on the debtors balance after deducting the bad debt and the provision for bad debt amount. Always new provision for discount on debtors is deducted from debtors, after deducting the provision for bad debt.

Increase in the provision for discount on debtors is debited to profit & loss account and credited to provision for discount on debtors account. Decrease in the provision for bad debt is debited to provision for discount on debtors account and credited to profit & loss account. Increase in the provision for discount on debtors is an expense and decrease in the provision for discount on debtors is an income to be shown in the profit & loss account. MCQ 1. A debtor is unable to pay the amount owing to a business. The business decided to write off this amount. How this transaction is recorded? A. Debit debtor and credit bad debt B. Debit cash and credit debtor C. Debit bad debt and credit debtor D. Debit provision for bad debt and credit debtor 2. A business decides to decrease its provision for bad debts from 7% to 5%.What will be the effect of this change? A. Increase the cash or bank balance B. Decrease the cash or bank balance C. Increase net profit for the year D. Decrease net profit for the year 3. What is the double entry to create a provision for bad debt? A. Debit bad debts and credit provision for bad debts account

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ B. Debit profit and loss account and credit provision for bad debts account

C. Debit provision for bad debts account and credit profit and loss account D. Debit provision for bad debts account and credit bad debts account

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Bad debts and provision for bad debt - Principles Of Accounting 4. What is the treatment of provision for bad debts in the final accounts? A. Debited in the profit and loss account only B. Debited in the profit and loss account and shown as current asset C. Debited in the profit and loss account and deducted from debtors D. Credited in the profit and loss account and added with debtors 5. What is the double entry to write off bad debt account? A. Debit bad debt and credit debtors B. Debit profit and loss account and credit bad debts account C. Debit bad debts account and credit profit and loss account

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ D. Debit profit and loss account and credit debtors account

6. At the end of a financial year a business has debtors of $ 20 000 and a provision for bad debts of $ 960. It is proposed to maintain provision for bad debts at 5%of debtors. What is the entry in the profit and loss account? A. Debit of $ 1000 B. Credit of $ 40 C. Debit of $ 40 D. Debit of $ 960 7. At the beginning of the year the provision for doubtful account shows balance of $ 1 500. It is decided to write off a bad debt of $ 300 and to have a provision for doubtful debts $ 1 600. What will be effect on net profit at the end of the year? A. $ 100 increase B. $ 400 decrease C. $ 200 increase D. Unaffected 8. A business gives the following details for a year:-

/ http://www.principlesofaccounting2.com/ Balance of provision for doubtful debt at the beginning $ 260 Bad debts written off during year $ 540

Total debtors at the end of the year $ 6 200 The provision for doubtful debts is to be made up to the rate of 5% on debtors at the end of the year. What amount on account of provision for doubtful debts will be transferred to profit and loss account at the end of the year? A. $ 310 B. $ 260 C. $ 50 D. $ 510 9. A firm decided to increase the provision for doubtful debts by $ 150.What will be effect on net profit of this change? A. Decrease by $ 150 B. Increase by $ 150 C. Increase by $ 300 D. No effect 10. What is the double entry to write off bad debt from a debtors account? A. Debit bad debts account and credit debtors account B. Debit debtors account and credit bad debts account C. Debit profit and loss account and credit bad debts account D. Debit bad debts account and credit profit and loss account Assignment questions Q 1 The following information is relating to the business of Saras for three years ended 31 st Dec 1997, 1998 and 1999:Year ended 31 st Dec

Bad debt written Debtors at year end Provision for bad off debt required at

1997 1998

500 600

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 18 000 19000

each year end 5% 5%

1999 400 21000 5% Required to prepare for the three years ended 31 st Dec 1997, 1998 and 1999 :-

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Bad debts and provision for bad debt - Principles Of Accounting a. The bad debt account b. The provision for bad debt account c. The extracts from the profit & loss account d. The extracts from the balance sheet Q 2. The following details are available from the books of a business:YearendedDebtors at year 2000 2001 2002

Bad debt written off

Provision for bad debt

end 18000 22000

during the year 228 337

required 5% 5%

20000

250

Required to prepare for the three years ended 31 st Dec 2000,2001 and 2002:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ a. The bad debt account b. The provision for bad debt account

c. The extracts from the P&L A/C d. The extracts from the balance sheet Q 3. The following information is relevant to a business: Debtors on 31-12- 2000 $ 40 000 Bad debt written off during the year ended 31 st Dec 2000 $ 300

Provision for bad debt required at 31 st Dec 2000 6% on year end debtors. Debtors on 31-12-2001 $ 45 000 Bad debt written off during the year ended 31 st Dec 2001 $ 1 020 Provision for bad debt required at 31 st Dec 2001 5% Debtors on 31-12-2002 $ 48 000

/ http://www.principlesofaccounting2.com/ Bad debt written off during the year ended 31 st Dec 2002 $ 900

Provision for bad debt required at 31 st Dec 2002 7%

Required to prepare for the three years ended 31 st Dec 2000, 2001 and 2002:a. The bad debt account . b. The provision for bad debt account. c. The extracts from the P& L A/C d. The extracts from the balance sheet. Q 4. On 1 st Jan 2000, there was a balance of $ 500 in the provision for bad debt account and it was decided to maintain the provision for bad debt at 5% of the debtors at each year end. The debtors and bad debts written off at 31 st Dec each year were:Debtors Bad debt written off 2000 $ 11 000 $ 500 2001 $ 7 000 $ 300 2002 $ 9 000 $ 400 Required to show the following for the three years ended 31 st Dec 2000,2001 and 2002:a. The bad debts account b. The provision for bad debt account. c. The extracts from the P& L A/C d. The extracts from the balance sheet. Q 5. The following balances appeared in the books of business on 1 st Jan 1999: The provision for bad debts account $ 560 The provision for discount on debtors account $ 120

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Debtors on 1-1-2000 $ 22 000

Debtors on 31-12-2000 $ 20 000 Debtors on 31-12- 2001 $ 21 000

Provision for bad debts required each year end is at 5% on debtors.

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Bad debts and provision for bad debt - Principles Of Accounting Provision for discount on debtors required each year end is at 2% on debtors. The bad debts written off during the three years were: 1999—–$ 450; 2000 ——$ 300; 2001 —–$ 550. Required to prepare for the three years ended 31 st Dec 1999, 2000 and 2001: a. The bad debts account. b. The provision for bad debt account. c. The provision for discount on debtors account. d. The extracts from the P& L A/C e. The extracts from the balance sheet. Q 6. R.Rosemary is a sole trader. She keeps a full set of accounts. The following are the details regarding her Debtors and Provision for bad debts for three years.

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31 st Dec 1994 31 st Dec 1995 31 st Dec 1996 $ 30 400 $ 28 000 $ 29 000

For the year ended

Debtors at year end Bad debts written off during the year Provision for bad debts required at the end of each year

$ 200

$ 450

$ 385

Required to prepare: 1. The bad debts account 2. The provision for bad debts account 3. The extracts from the balance sheet Q 7. The following information is relating to the business of Martin for the three years ended 31 st Dec 1997, 1998 and 1999:Years ended 31 st Bad debts Dec written off at year end

Debtors at year end

1997 1998 1999

20 000 18 000 19 000

Provision for bad Provision for debt required each discount on debtors year end required at year end 5% 2% 5% 2% 5% 2%

/ http://www.principlesofaccounting2.com/ 544 612 815

Required to prepare for the three years ended 31 st Dec 1997,1998 and 1999:a. The bad debts account. b. The provision for bad debt account. c. The provision for discount on debtors account. d. The extracts from the P& L A/C e. The extracts from the balance sheet. Q 8. Following are the information regarding bad debts and provision for bad debts and provision for discount on debtors for the three years ending 31 st Dec.1991, 1992,&1993. For the year ended Bad debts written off Debtors at year end Provision for bad debts required at the year end Provision for discount on debtors required at the year end.

31 st Dec1991

31 st Dec 1992

31 st Dec1993

$450

$ 300

$ 250

$ 2 8000

$ 26 000

$ 30 000

10%

Required to prepare 1. The bad debts A/C for the three years 2. The provision for bad debts A/C for three years 3. The provision for discount on debtors A/C for three years 4. The extracts from the Balance Sheet for three years.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Q 9. David marks is a sole trader. He keeps his accounts under double entry system. The following

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Bad debts and provision for bad debt - Principles Of Accounting information is relating to his business debtors, provision for bad debts and provision for discount on debtors for three years ending 31 st December 1997,1998,1999: Balance in the provision for bad debts A/C on 1-1-1997 $ 1 000 Balance in the provision for discount on debtors A/C on 1-1-1997 $ 200 Debtors on 31stDec.1997 $ 11 000 Provision for bad debts required on 31 st Dec 1997 10% Provision for discount on debtors required on 31-12-1997 2% Debtors on 31 st Dec.1998 $ 10 000 Provision for bad debts required on 31 st dec.1998 9% Provision for discount on debtors required on 31 st Dec 1998 2%

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Debtors on 31 st Dec 1999 $ 12 000

Provision for bad debts required on 31 st Dec 1999 10%

Provision for discount on debtors required on 31 st Dec 1999 3% Required to prepare for three years ending 31 st Dec 1997, 98 &99 1. The provision for bad debts A/C. 2. The provision for discount on debtors A/C. 3. The extracts from the balance sheets. Q 10. Lee’s balance sheet at 31 st March 1997 included the following entry as part of the list of Current assets: Debtors Less Provision for bad debts

12 000 360

11 640

At the end of each of the two financial years, the amounts of debtors before deducting any

/ http://www.principlesofaccounting2.com/ provisions for bad debts were:-

Debtors

31 st March 1998 15 000

31 st March 1999 9 000

On each of these dates a provision for bad debts was calculated on the same percentage basis as at 31 st March 1997. The actual amounts of bad debts written off during each year were: 1998 760 1999 235 (a) Prepare the bad debts accounts and the provision for bad debts accounts for the years ended 31 st March 1998 and 1999. (b) Show, under appropriate heading, how debtors and provision for bad debts would appear in the balance sheet at 31 st March 1998 and 1999. (c) Explain why it is important to make the allowance for provision for bad debts in preparing the final accounts. Q 11. Albert is a wholesaler who maintains separate bad debt and provision for bad debt accounts for his business. During the year ended 31 st Dec 1999, he created 5% of the debtors as provision for bad debt and 2% as the provision for discount on debtors. The balance in the provision for bad debt account and the provision for discount on debtors accounts on 31 st Dec 1999 were $ 1 200 and $ 456 respectively. During the year ended 31 st Dec 2000, the amount of debtors before writing off the bad debt of that year was $ 26 000. The bad debt account on that date showed a total of $ 1 000. During the year ended 31 st Dec 2000, Albert decided to revise the percentage of the provision for bad debt at 6% on year end debtors and to create the provision for discount on debtors at the same percentage as last year.

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Required to prepare at 31 st Dec 2000:a. The bad debt account. b. The provision for bad debt account

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Bad debts and provision for bad debt - Principles Of Accounting c. The provision for discount on debtors account. Q 12. Gilbert is the owner of a business. The following information is available from the books of his business at 31 st Dec 1997:Debtors $ 20 000 Less provision for bad debts $ 1 000 $ 19 000 For the years ending 31 st Dec 1998 and 31 st 1999,the amount of debtors before deducting bad debts and provision for bad debts were:31 st Dec 1998 $ 18 200 31 st Dec 1999 $ 19 300

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On each of these dates a provision for bad debts was calculated on the same percentages basis at 31 st Dec 1997. The actual amount of bad debts was:31 st Dec 1998 $ 200 31 st Dec 1999 $ 300 Prepare for the years ended 31 st Dec 1998 and 1999:1. The Bad debts A/C 2. The provision for bad debts A/C 3. The relevant extracts from the Balance Sheet.

Incoming search terms: provision for bad debts provision for bad debt provision for bad debt expense provision for bad debts and credit creation in first bank

/ http://www.principlesofaccounting2.com/ provision for bad debts in balance sheet

provision for bad debts in manufacturing Provision for doubtful debt maintain at provision for doubtful debts entry provision t account provisions for bad debt

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Bank Reconciliation Statement - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Bank Reconciliation Statement

A bank reconciliation statement is prepared to reconcile the difference in the balances of bank statement received from bank and the cash book prepared by the business Reasons for the difference between cash book (bank column) balance and the bank statement balance. 1. Cheques issued but not yet presented to the bank for payment. 2. Cheques deposited but not collected and credited in the bank statement. 3. Bank charges recorded in the bank statement but not recorded in the cash book. 4. Direct deposits by a customer or debtor into the bank account not recorded in the cash

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book. 5. Payments made by the bank as per standing order, recorded in the bank statement but not recorded in the cash book. 6. Direct debits in the bank statement only.

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The format of Bank Reconciliation Statement

Bank reconciliation statement as at …………………………………….

Balance as per updated cash book Add Unpresented cheques : Less Uncredited deposits

xxxxxx Balance as per bank statement In case the updated cash book is having a credit balance,(overdraft) the above addition and subtraction will be reversed

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Key points:

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xxxxx xxxx (xxxx)

Unpresented cheque: A cheque paid by you but not yet passed through the banking system

* The cheque not yet produced to the bank to take money from our a/c (or) * The cheque is deposited in his a/c but money not yet transferred from our a/c to his a/c Credit Transfer: (Bank Giro credit) Debtors/ someone directly pay their amount in our bank a/c but we come to know it later. Dividend and interest bank collects: Bank collects dividends and interest from where we have invested our money. Uncredited deposits: (Uncredited Cheques) The cheque received by you but not yet passed through the banking system. (i.e. we receive cheques from customers, and deposit in our bank a/c but the amount of money not yet transferred or added to our a/c)

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Bank Charges:

Bank charges some amount of money for the service it provides to us. It is deducted from our a/c. Standing Order:

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Bank Reconciliation Statement - Principles Of Accounting We give instructions to the bank to pay regular amount of money to whom we have to pay every month. Eg: Pay 200 every month to a Society. Direct debit: This is also as same as standing order but we give permission to those, whom we have to pay, to obtain money directly from our bank a/c. In this case the amount not regular but it may vary from time to time. Eg: Electricity bill, telephone bill. Steps to draw out Adjusted Cash Book and BRS: 01. Check the opening balance of both the Cash book and bank statement to ascertain the two balances are the same. 02. Compare the cash book Dr Column (receipt) with the Cr column of bank statement,

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ tick all common items.

03. Compare the cash book credit column (Payment), with the Dr Column of Bank statement, tick all common items. 04. All items un tiked in the bank statement will be adjusted in the cash book and all items Un ticked in the cash book will be recorded in the bank reconciliation statement

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Assignment Questions of Bank Reconciliation Statement (1) Vigo’s cash book (bank columns) showed the following entries. Dr. Cash Book Cr. $

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ July 11019 Balance b/dCashParker 31 Cash

1 450July 500

260 200

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71624

SinghRobinsonKings

920 480 220

Bank Reconciliation Statement - Principles Of Accounting The following bank statement was received by Vigo. Date Details July 11012 Balance b/fCashSingh

Withdrawn$ Paid in$ Balance$ 1 450 500 920

Parker

480

260

1 950

Robinson

260

1 030

Dishonoured cheque – Parker

Dividend

810

Bank charges

550

1 290

575

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555

REQUIRED (a) Calculate the cash book balance on 31 July. Prepare and update the cash book. Bring down the balance. (b) Prepare a bank reconciliation statement to reconcile the adjusted cash book balance with the bank statement balance at 31 July 2004. (c) Explain how the cash book is both a book of prime entry and a ledger account. (2) Murray’s Cash Book (bank columns) for May 2001 was as follows: Dr. Cash Book Cr. $ May11526 31

Balance b/dCashCurry

1 200July 450

KlerkLeeGupta

51925

540 180

120

Cash

100

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150

The following bank statement was received by Murray in early June. Date

Details

Payments

Receipts

Balance

May 1

Balance b/f

540

160

1 040

Bank error corrected –contra 30 April

180

450

1 200

Cash

120

1 650

Klerk

170

180

1 110

Lee

930

Curry

1 050

Unpaid cheque — Curry

930

Dividend

1 110

Bank service charges

940

You may assume that the bank balance was successfully reconciled at the end of April. Required: (a) Bring the Cash Book up to date, starting with the present balance at 31 May 2001. (b) Prepare a statement, under its correct title, to reconcile the difference between your amended Cash Book balance and the balance in the bank statement on 31 May 2001.

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(c) State the amount of the bank balance which would appear in Murray’s Balance Sheet as at 31 May 2001. (3) Mr. Rahim’s Cash Book (Bank columns only) for the month of October 2007 was as follows.

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Bank Reconciliation Statement - Principles Of Accounting Dr. Cr. $ Oct 1 4 16 24 25

$ 120

Balance

800Oct 2

b/dCashSutton

300

10 Petty Cash

Cash

220

23 Balance c/d

Dobie

Cash

UnwinThompsonMorgan

1 025 360

100

31 1 570

1 570

====

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The following bank statement was received in early November2007. Date1993

Details

Oct 114 Balance b/fError corrected –contra 30 SeptemberCash 8 Unwin 10 Banker’s Order –Fire Insurance 16 Cheque 17 Thompson 24 Cash 25 Cheque 26 Petty Cash 28 Unpaid Cheque – Dobie 31 Interest on Deposit a/c

Payments $

Receipts

Balance $

120

100

700

105

300

800

1 025

220

1 100

980

875

80 1 095 70 140 220

/ http://www.principlesofaccounting2.com/ 170 90

170 Required: (a) Bring the Cash Book up to date, starting with the present balance of $15 brought forward on 31 October 2007. (There is no need to copy down the whole Cash Book as shown above). (b) Prepare a statement, under its correct title, to reconcile the difference between your amended Cash Book balance and the balance in the bank statement on 31 October 2007. (c) State the amount of the bank balance which would appear in Dean’s Balance Sheet for 31 October 2007. (4) Kylie Johnson’s cash book (bank columns) had a debit balance of $460 on 30 April 2006. Use The bank statement at the same date showed that Kylie had a balance at the bank of $323. On checking the cash book against the bank statement the following differences were found. 1 A debtor, Nancy Tan, paid $80 directly into the bank. This had not been recorded in the cash book 2 Bank charges, $50, were included on the bank statement but had not been recorded in the cash book. 3 Insurance paid, $32, was recorded on the bank statement but not in the cash book. 4 A cheque, $140, sent to a creditor had not yet been presented to the bank for payment. 5 A transfer of $125 from the business bank account to Kylie’s private bank account had been entered in the cash book but not on the bank statement.

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6 An amount of $400 paid into the bank on 29 April did not appear on the bank statement. REQUIRED

(a) Starting with the balance on 30 April 2006, update the cash book and bring down the amended balance. (b) Prepare the bank reconciliation statement to reconcile the adjusted cash book balance Use with the

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Bank Reconciliation Statement - Principles Of Accounting bank statement balance at 30 April 2006 (c) Explain how the following would appear in the ledger accounts of Kylie Johnson: (i) Bank overdraft; (ii) Short term loan from the business to Kylie Johnson. (5) Sally Major’s cash book (bank column) had a debit balance of $619 on 31 July 2009. The bank statement balance on 31 July 2009 was $1594 credit. After checking the cash book against the bank statement the following differences were found: 1 A cheque for $710 issued to Jon Fletcher had not been presented to the bank for payment. 2 An amount of $1150 paid into a local bank branch by Sally did not appear on the bank statement.

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3 Bank charges of $170 were shown on the bank statement, but had not been recorded in the cash book. 4 Dividends received, $80, were shown on the bank statement but had not been recorded in the cash book. 5 A payment of $5 cash for travel expenses had incorrectly been credited in the bank column of the cash book. 6 The bank statement showed a bank loan for $1500 had been transferred into the bank current account. Sally Major was not expecting this transfer to take place until 1 August and had not yet recorded the transaction in her books. Prepare the updated cash book and the bank reconciliation statement Bank Reconciliation Statement. MCQ 01. A cheque paid by you, but not yet passed through the bank system is, A. A standing order. B. A dishonoured cheque

/ http://www.principlesofaccounting2.com/ C. A credit transfer

D. An unpresented cheque

02. Over draft in the bank statement is highlighted by A. Debit balance B. Credit balance C. Nil balance D. Debit and credit balance 03. Dishonoured Cheques are recorded in the A. Adjusted cash book-credit side B. Adjusted cash book-debit side C. Added to bank statement balance D. Deducted from bank statement balance 04. Bank reconciliation statement is drawn to reconcile A. Cash book with Bank Account Column of Cash book B. Cash at bank account with bank statement

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ C. Cash Book and ledgers D. The bank statement

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Bank Reconciliation Statement - Principles Of Accounting 05. In adjusting the cash balance, which of the following is not taken into account? A. Mistakes in the cash book B. Errors of last month corrected in the bank statement C. Interest and dividend credited in bank statement D. Salaries paid by bank 06. A bank overdraft is best described as A. A firm wasting its money

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ B. Having more receipts than payments

C. A firm having bought too many goods

D. A firm having paid more out of its bank account than it has put in it 07. Bank reconciliation statement is prepared by A. Bankers B. Accountant of the business C. Auditors D. Owners of the business 08. A cheque received by you, but not yet passed through the bank system is, A. A standing order.

/ http://www.principlesofaccounting2.com/ B. A dishonoured cheque

C. Bank lodgments not yet credited D. An unpresented cheque

09. The cheques which are issued for payments, but not taken into the bank for payment are A. Uncredited cheques B. Unpresented cheques C. Uncleared cheques D. Dishonoured cheques 10. A business maintains a two column cash book. At 1 st June, the debit balance of the bank column was $ 500. Transaction during June were: Cheques banked $ 120, Cheques drawn for cash $ 50. What was the debit balance of the bank column at the end of June? A. $ 330

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ B. $ 430 C. $ 570

D. $ 670 11. The table shows extracts from a business’s bank reconciliation statement.

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Bank Reconciliation Statement - Principles Of Accounting $ Cash book balance in hand at 31 December Balance per bank statement at 31 December Bank charge per bank statement not entered in cash book Outstanding cheques not presented at the year end2075 2250 150 325 What is the bank balance to be shown in the financial statement?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. $ 1600 B. $ 1925 C. $ 2075 D. $ 2225 12. Of all the items given, which would be added when attempting reconciliation starting with the cash book? A. Cheque not credited by the bank B. Bank charges C. Cheques not presented for payment at the bank D. Items that cause the cash book balance to be larger than that shown on the bank statement

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13. A cash book has separate column for bank and cash transaction. At 1 st March, the balance on the cash account was $ 200. Transaction during March were, Cash banked $ 30 Cheque drawn for cash $ 70

What was the balance on the cash account at end of March? A. $ 100 B. $ 160 C. $ 170 D. $ 240 14. Which statement is sent by the bank to its customers i.e. business to verify the balance at bank, at the end of the month? A. Bank statement B. Statement account C. Cash statement D. Bank reconciliation statement

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15. Cheques given by debtors not honored by their banks are, A. Uncredited cheques

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Bank Reconciliation Statement - Principles Of Accounting B. Unpresented cheques C. Standing order D. Dishonoured cheques 16. Unpresented cheques are added to the A. Bank statement balance in the reconciliation statement B. Overdraft in adjusted cash book C. Adjusted cash book balance D. Opening balance of the cash book

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17. On 20 th May 2006, S.Fusna’s bank statement shows a balance of $ 1750, but the cash book shows a balance of $ 2500. Fusna finds cheques totaling $ 750 have not been banked. Which bank balance figure will appear in Fusna’s balance sheet on 31 th May 2006? A. $ 1000 B. $ 1750 C. $ 2500 D. $ 3250 18. S.Vaseem receives a bank statement, which does not agree with his book balance. Which of the following is not responsible for this difference? A. Cheques paid in, have not been credited B. The bank has charged overdraft interest C. A cheque sent to supplier has not been presented

/ http://www.principlesofaccounting2.com/ D. Furniture purchased for cash

19. Bank reconciliation statement can be defined as one which, A. is sent by bank to their customers

B. is sent by banks to customers, who exceeds their agreed credit limit with the bank C. explains the difference between bank balance of cash book, and its bank statement D. None of the above 20. Cheques issued six month ago, A. Should be included in the Bank reconciliation statement B. Should be shown in the balance sheet under the heading accrual’s C. Should be cancelled D. Are stale cheques 21. Which one of the following does not create a difference between the bank balance of the firm and the balance shown by the bank statement? A. Errors made by the firm’s bank B. Cheques written by the firm which have not yet appeared on its bank statement C. Lodgments made by the firm which have not yet appeared on its bank statement

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22. Bank reconciliation statement is prepared to,

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Bank Reconciliation Statement - Principles Of Accounting A. Record receipts and payments B. Equalize the cash book balance and bank statement balance C. Record banking transactions D. None of the above 24. A cash book (bank Column) showed a balance of $ 1973 (credit) at 31 st March the following items did not appear in the bank statement at that date. Unpresented cheques $ 942 Cheques banked $ 865

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What was the balance on the bank statement at 31 st March?

A. $ 1896 (credit) B. $ 1896 (credit) C. $ 2050 (debit) D. $ 2050 (debit) Incoming search terms: brs format bank reconciliation format Bank reconciliation statements bank reconciliation statement questions how to update a cash book preparation of bank reconciliation statement prepare bank reconciliation statement principles of accounting bank reconciliation

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Rectification of errors - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Rectification of errors Rectification of errors and suspense account

While recording the transactions in the journal, posting them to the ledger accounts, casting or at the time of balancing the accounts, there are chances for errors. Such errors are to be found out and corrected in the books of the business Correction of errors After the errors are found out from the books, those should be corrected. The correction of errors is to be done by passing correction entries or rectification entries in the general journal. The preparation of trial balance is the test of arithmetical accuracy of the ledger accounts prepared under double entry system. It proves the equality of debit and credit. A trial balance, which agrees, indicates that for every debit there has been an equivalent credit entry or entries. It does prove that all the entries are for the correct amount or made to the correct account Types of errors which do not affect the agreement of the trial balance 1. Errors of omission: Where a transaction is completely omitted from the books

/ http://www.principlesofaccounting2.com/ (Journal or ledger). E.g. a sales invoice $ 245 to Bolton was completely omitted from the accounts.

2. Errors of commission. Where a correct amount is entered in wrong person’s account, for E.g. Credit purchase from C. Clint has been recorded in the account of C. Clinton’s account. 3. Errors of principle: Where an item is entered in wrong class of accounts, E.g. Purchase of plant had been debited to purchase account instead of debiting to plant account. 4. Compensating errors: Where errors cancel out each other, for E.g. Sales account was overcast by $ 500 at the same time the purchase account was also overcast by $500, and then the effect of these errors would cancel out in the trial balance 5. Errors of original entry: Where the original figure is incorrect but recorded in the correct original entry. Eg. Credit sales of goods$ 400 was calculated in the invoice as $ 300 and recorded in the same journal.

6. Complete reversal of entries: This occurs where the entries for transactions are reversed- the account which should be credited is debited and the account which should be debited is credited. Eg. The purchase of stationery for $ 200 for cash debited to cash and credited to stationery. 7. Transposition errors: Where the wrong sequence of the individual characters within a number was entered. E.g. An amount of a transaction $ 172 was entered in the accounts as $127 One way to help remember the six errors is to memorize COPCORT Commission Omission Principle Compensating Original entry Reversal Transposition

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Types of errors which do affect the agreement of the trial balance

The following errors will stop the trial balance from agreeing because debit does not equal to credit. 1. Incorrect addition to any accounts 2. Making an entry only on one side of one account i.e. Entering debit but not credit or entering debit but

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Rectification of errors - Principles Of Accounting not credit. 3. Entering a different amount on the debit side from the amount on the credit side 4. The double entry has been inaccurate. E.g. Cash sales $15 – cash account debited with $5 and sales account credited with $15. 5. Two debit or two credit entry has been made. Casting: means adding figures. Overcastting: means incorrectly adding a column of figures to give an answer which is greater than it should be. Under casting: means incorrectly adding a column of figures to give an answer which is less than it should be.

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Suspense account: This is the account opened in the books of the business to show the difference in trial balance, when it disagrees. When the errors are found out, the correction is made to suspense account and it will be automatically cancelled. Key points Nature of balances of each class of accounts Assets and expenses — always debit Liabilities and incomes — always credit To increase the balance of an account with debit balance – debit the account. To decrease the balance of an account with debit balance – credit the account. To increase the balance of an account with credit balance – credit the account. To decrease the balance of an account with credit balance – debit the account. The journal entries passed in the general journal to correct the errors found in the books of the business are known as rectification entries. The action to be taken for rectification of errors in the case of undercasting and overcasting of accounts

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In case of undercasting In case of overcasting Dr. Account involved Dr. Suspense account Cr. Suspense account

Cr. Account involved

Account with credit balance

Dr. Suspense account

Dr. Account involved

Cr. Account involved

Cr. Suspense account

MCQ 1. Purchase of machinery was entered in the purchase account. What type of error was this? A. Commission B. Principle C. Omission D. Transposition 2. The purchases account was added up too much by $ 100 and sales account also added up too much by $ 100. What kind of error is this? A. Commission B. Principle C. Omission D. Compensating 3. A cash receipt from Moorthy was debited to Moortyhy’s account and credited to cash account. What kind of error is this? A. Error of omission B. Error of commission C. complete reversal of entries D. Transposition errors 4. A cash purchase of goods was completely omitted from the books of the business. What kind of error is this? A. Commission B. Principle C. Omission D. Compensating 5. Goods sold on credit to Saani had been debited to Soni’s account. What kind of error is this?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. Commission B. Principle C. Omission D. Transposition.

6. A sale of goods $ 250 to E.Ellis on credit had been completely omitted from the books. What is the entry to correct this error? 1. Debit sales account $ 250 and credit E.ellis $ 250

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Rectification of errors - Principles Of Accounting 2. Debit E.Ellis $ 250 and credit sales account $ 250 3. Debit cash account $ 250 and credit sales account $ 250 4. Debit bank account $ 250 and credit sales account $ 250 7. Sale of machinery had been recorded in the sales account. What would be the entry to correct this error? 1. Debit sales account and credit machinery account 2. Debit machinery account and credit sales account 3. Debit cash account and credit machinery account 4. Debit machinery account and credit cash account 8. A sale of goods to Jeena $ 38 was entered in the books as $ 28. How should this error be corrected?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1. Debit Jeena $ 38 and credit sales account $ 38 2. Debit sales account $ 38 and credit Jeena’s account $ 38 3. Debit Jeena $ 10 and credit sales account $ 10 4. Debit sales account $ 10 and credit Jeena $ 10 9. A payment of cash $ 300 to M.Meenu was entered on the debit side of the cash book and credit side of M.Meenu’ account. What entry is required to correct this error? 1. M,Meenu debit $ 300 and cash account credit $ 300 2. Cash account debit $300 and M.Meenu credit $ 300 3. M.Meenu debit $ 600 and cash account credit $ 600 4. Cash account debit $ 600 and M.Meenu credit $ 600 10. Closing stock was overvalued by $ 1400. What is the effect of this error on cost of goods sold? A. Overstated by $ 1400 B. Understated by $ 1400 C. No effect D. Overstated by $ 2800 11. A purchase of fixed assets $ 300 was debited to the purchases account. What would be the effect of this error? 1. Only net profit is overstated B. Only gross profit is overstated 2. No effect on gross profit or net profit 3. Gross profit & fixed assets are understated.

/ http://www.principlesofaccounting2.com/ 12. After which error will a trial balance still balance? A. Purchase book was overcast by $ 200 B. Sales book was under cast by $ 300 C. Rent paid by cash $ 400 debited rent account only D. Purchase of machinery $ 1000 was debited to purchase account and credited to cash account. 13. Wages paid for the installation of new machinery debited to wages account. What kind of error is this? A. Omission B. Commission C. Principle D. Compensating 14. A revenue expenditure was treated as capital expenditure. What is the effect of this error on the final account items? 1. The gross profit is unaffected, net profit and fixed assets are overstated. 2. The net profit and fixed assets are understated 3. The net profit is unaffected and fixed assets are overstated 4. No effect on any of final accounts items 15. A business paid $224 to X. The entry in the cash book was correct. But it was credited as $ 242 in X’s account. What is the difference between the totals of the trial balance? 1. $ 18 B. $ 36 C. $ 466 D. $ 484 Assignment questions:-

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Q1. Pass rectification entries for the following errors found from the books of a business:1. sales day book had been under cast by $200 2. sale of goods to J.Johnson on credit for $ 500 had been debited to J.Jackson 3. Salaries account had been overcast by $ 300. 4. Purchase of goods by cash recorded in the cash account only $ 400.

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Rectification of errors - Principles Of Accounting 5. Goods returned to Manu $ 150 debited to returns outwards account and credited to Manu’s account. 6. Repairs to motor car $ 400 debited to motor car account. 7. Returns outwards account had been overcast by $ 150. 8. A cheque received from Mathew $ 500 had been entered in the cash book only. 9. A payment made by cash $100 to Sunil was omitted from the books of the business. 10. Sales of machinery $ 1000 had been credited to sales account and debited to cash account. Q 2. The trial balance of a business was prepared on 31 st Dec 2003 and it did not agree. Later, the following errors were found out:1. Drawings account had been overcast by $ 250. 2. Goods bought for the owner’s personal use $ 400 had been included in the purchase account. 3. Capital brought into the business additionally $ 5000 was debited to bank account and

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ credited to cash account.

4. Sales of goods on credit to J.John $ 400 had been debited to J.Jeans’s account. 5. Insurance account was overcast by $ 150. 6. Carriage on purchases $ 450 paid by cash was completely omitted from the books. 7. Discount received $ 200 had been debited to discount allowed account. 8. Interest on capital to the partner $ 100 had not been entered in the books of the business. 9. A cheque for $ 270 received from Albert recorded correctly in the cash book but recorded in Albert’s account as $ 207. 10. A debtor who owed $ 130 to the business was declared insolvent and the amount due from him had to be written off. But this record was not made in the books. Show the rectification entries for the above errors and prepare the suspense account showing clearly the opening balance.

Q 3. On extracting a trial balance, a book keeper finds that it fails to agree. He enters the difference in

/ http://www.principlesofaccounting2.com/ a suspense account in the credit side. After checking the accounts, he finds the following errors:1. Purchase of goods from Mithal $ 400 posted to his account as $ 40 and correctly

posted to purchases account. 1. 2. 3. 4. 5.

Purchase day book had been overcast by $ 75. Discount of $ 68 allowed to T. Brown entered on the debit side of T.Brown’s account. Total of sales returns book $ 200 entered to the credit side of returns inwards account Debit balance of debtors account $ 98 incorrectly b/d as $ 89. $ 140 received from Makin credited to Malik’s account.

Pass rectification entries for the above errors and prepare the suspense account clearly showing the opening balance. Q 4. The trial balance drawn up from the books of a business on 31 st Dec 2003 did not balance, the debit total being $ 17698 and credit total $ 18210. A suspense account was opened and the difference entered in that account. Subsequently, the following errors were discovered:1. A cheque for $ 64 received from M.Minu had been entered in the books as $ 46 2. The purchase account had been undercast by $ 140 3. Goods sold to J.Jaava $ 280 had been enterd correctly in the sales account but entered as $ 208 in J.Jaava’s account 1. The owner had taken goods costing $ 300 for own use during the year. No entry had been made in the books 1. Discount allowed $ 150 had been credited to the discount received account. Required to:a. Write up the journal entries to correct the above errors

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ b. Prepare a suspense account

Q 5. The trial balance prepared by a business did not agree. The difference was recorded in a suspense account on the debit side. Later, the following errors were found out from the books:-

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Rectification of errors - Principles Of Accounting 1. The drawings of cash from the business debited drawings account and credited to bank account $ 550 2. Goods returned to Martin $ 120 had been credited to returns outwards account only 3. A credit note was received from Seema $ 160 was not entered in the books. 4. The provision for bad debts $ 250 had been debited to profit & loss account only 5. Commission received in cash recorded in the cash account only $ 170. 6. Goods returned by Simple $ 190 credited to both returns inwards account and Simple’s account. Pass rectification entries for the above errors and prepare the suspense account by writing the opening balance. Q 6. A trial balance was drawn up by L.Leena which did not agree. A suspense account was drawn to show the balance in the credit side. The books were checked and the following errors and omissions were discovered:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1. The sales book was overcast by $ 100

2. Discount allowed $ 340 had been posted from the cash book to the debtors account, but no other entries have been made. 3. The purchase of office equipment for $ 1200 has been debited to the sundry expenses account. 1. A payment of $ 140 for motor van repairs was entered correctly in the cash book but posted as $ 410 in the motor van repairs account. 1. L.Leena had taken goods worth $ 300 from stock for her personal use and these have been charged to her account as drawings. No other entries have been recorded Required to: 1 Write up the rectification entries required to correct the above errors. 2. Write up the suspense account after correction of the above errors. Q 7. The trial balance prepared by a sole trader did not agree. Later the following errors and omissions were found out from the books of the business:-

/ http://www.principlesofaccounting2.com/ 1. 2. 3. 4.

Purchase of goods from T Williams $ 190. posted to his account as $ 90 Purchase day book had been overcast by $ 25 Discount of $ 34 allowed to S. Burns, entered in the debit side of her account. Debit balance on a debtor’s account of $ 94 incorrectly brought down as $ 49 and included in

the trial balance. 1. Total of sales returns book $ 120 entered to credit of returns inwards account. 2. $ 20 received from C. Jenkins has been credited in error to C. Jenkinson. Required to: 1. Write up the rectification entries required to correct the above errors. 2. Write up the suspense account after correction of the above errors clearly showing the opening balance Q 8. The trial balance drawn up from the books of Joan on 31 st December, 2003 did not balance, the debit total being $ 125 664 and the credit total $ 126 000. A suspense account was opened and the difference entered in that account. Subsequently the following errors were discovered. a. A cheque for $ 32 received from J. Steve had been entered in the books as $ 23. b. The purchases account had been undercast by $ 64. c. Goods sold to N. Brown for $ 180 had been entered correctly in the sales account but entered as $ 188 in N. Brown’s account d. Joan had taken goods costing $ 100 for her own use during the year. No entry had been made in the accounts. e. Discount allowed $ 140 to Lames had been credited to discount received account. Required to :

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1. Write up the journal entries to correct the above errors. 2. Prepare a suspense account clearly showing the opening balance.

Q 9. The trial balance of S. Romsey, a wholesaler, drawn up on 31 st December, 2003 did not

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Rectification of errors - Principles Of Accounting balance. The difference between the debit and credit totals was entered in a suspense account. Subsequently the following errors were discovered. A, Sales of $ 150 to B. Martin had been debited in error to D. Martin. B. A cheque for $ 150 received from B.Tomy, a debtor, had been correctly posted in the cash book but had been posted to Tomy’s account as $ 105 C. A debtor, G. Franks, who should have deducted 10% cash discount to which he was entitled, failed to do so and paid an account of $ 200 in full. It was decided to credit the discount to G. Franks account. D. A bad debt of $80 had been written off during 2003 and although the correct entry had been made in the debtor’s account, no other entry had been made.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/

E. Purchase returns to L. Lowry $ 300 had been credited to both the sales returns account and

L. Lowry account. Required to:-

1. Write up the journal entries which are necessary to correct the above errors. 2. Prepare the suspense account after the correction of errors, clearly showing the opening balance. Q 10. Bakewell, a sole trader, prepared a trial balance. Unfortunately, the trial balance did not agree and a Suspense account was opened. On checking the books on 31 st Dec 2003 the following errors were disclosed:1. The purchases day book had been over added by $ 300. 2. A sales ledger debit balance of $ 370 for A. Jones had been omitted from the sales ledger. 3. Goods $ 160 returned by N.Nion had been entered in the returns inwards account but no entry had been made in N.Nion’s account. 4. Discount allowed $ 320 had been incorrectly credited to the discount received account. No entry had been made in the discount allowed account. Prepare journal entries to correct the above errors.

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Q11. On drawing up the trial balance, the book keeper found that the totals did not agree. A suspense account was opened and the difference between the totals was entered on it. On checking the books, the following errors were discovered:1. 2. 3. 4.

Purchases $ 600 from F. Frensham had been posted to S. Frensham’s account. No entry had been made for goods costing $ 800 taken by the proprietor for his own use. Sales returns $ 60 had been entered in the debtors account only. Repairs to premises $ 500 had been debited to the premises account. The correct credit entry had been made. 5. Discount allowed $ 400 had been credited correctly to the debtor’s account but had been credited to the discount received account in error. Required to: 1. Write up the journal entries to correct the above errors. 2. Prepare the suspense account, clearly showing the opening balance. Q12. On drawing the trail balance of a business the book keeper found that the totals did not agree. A suspense account was opened and the difference between the total entered. On checking the books, the following errors were discovered:1. Goods for resale had been purchased by cheque for $ 615. The correct entry had been made in the purchases account but the bank account had been credited with $ 651. 2. White, the owner of the business had taken goods costing $ 180 from the business for his own use, was not recorded in the books. 1. Discount received $ 250 had been debited to discount allowed account. 2. Sale of goods for $ 150 had been omitted from the debtors account. 3. Sales returns had not been posted to the sales returns account in the general ledger

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ $ 126.

Required to:

1. Write up the rectification entries for the above errors. 2. Prepare a suspense account clearly showing the opening balance

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Rectification of errors - Principles Of Accounting Q13. On drawing the trial balance, the book keeper found that the totals did not agree. A suspense account was opened and the difference entered in it. On checking the books, the following errors were discovered:1. No entry had been made for the goods taken by the owner for own use $ 2150 2. A debtor paid $ 2 400 by cheque in full settlement of his account of $ 2 500. Both accounts were entered for $ 2 400 only. 3. Purchased a motor car from A. Allen for $ 5 600 by cheque was not entered in the books. 4. A cheque received for $ 3 950 from Neena was credited in Neena’s account only. 5. Discount allowed 125 were credited in discount received account. Required to:1. Pass rectification entries for the above errors

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 2. Prepare suspense account showing the difference in trial balance.

Q 14. a. Explain with the help of an example the meaning of error of principle. b. The trial balance of a company did not balance. The difference between the debit and credit sides was entered in a suspense account. Subsequently, the following errors were discovered. i. Sale of $ 2 750 to A .Allen had been debited in error to A.Alwin’s account. ii. A cheque for $ 250 received from Saany, a debtor, had been correctly posted in the cash book but had been posted to Saany’s account as $ 205 Iii.A debt of $ 95 had been written off during the current year, debited to bad debts account but no entry was made in the debtors account. iv.Purchase returns to Lilly $ 350 had been credited both to the sales returns account and Lilly’s account. v. The owner took stock to home from the business was not recorded in the books $ 750 Required:1. Write up the rectification entries for the above errors 2. Write up the suspense account, after the corrections have been made, showing clearly the opening balance.

/ http://www.principlesofaccounting2.com/

Q 15. Amber is the owner of a sole trading concern. He prepared the trial balance of his business at 31 st December 2003, and it did not agree. The debit total being $ 28 750 and the credit total being

$ 29 250.The difference was recorded in a suspense account. Later, the following errors were discovered from the books of the business:1. The purchase return account had been over cast by $ 180 2. Discount allowed $ 200 had been credited to discount received account in error 3. An invoice of $ 600 for goods purchased on credit from Ancy was received before 31 st December 2003 but it was not recorded in the accounts of the business. 4. Bank charges of $ 40 were recorded in the bank statement but this entry did not appear in the books of the business. 5. Goods taken by Amber $ 788 recorded in the drawings account with the correct amount, credit entry was made with $ 708. After the correction of the above errors the two totals of the trial balance were equal and suspense account was cancelled. Required to prepare 1. The necessary journal entries for correcting the above errors 2. The suspense account to show the correction of errors. Incoming search terms: Rectification of errors bookkeeping transposition purchase book is overcast rectification of errors in accounting rectification of errors in cpt undercasting rectification of errors of omission rectifying journal entries reversing wrong credit accounting error

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ types of rectification of errors what are rectifying entries

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Rectification of errors - Principles Of Accounting

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Control Accounts - Principles Of Accounting

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â–º Accounting

â–º Inventory Control

â–º Credit Control

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Control Accounts Control Accounts are the total accounts used for checking the arithmetical accuracy of each of ledger separately. A control account contains the same information as the individual ledger accounts which it controls, but in total. Purposes of control accounts 1. To act as a check on the accuracy of the totals of the balances in the sales and purchases ledgers. 2. To provide totals of debtors and creditors quickly when a trial balance is being prepared. 3. To identify the ledger(s) in which errors have been made when there is a difference on the trial balance. 4. To act as an internal check on the work of the sales and purchases ledger clerks – to detect errors and deter fraud, under the charge of a responsible person Set off / contra entries. Sometimes, the same person may be a debtor as well as a creditor for the business. At the end of the month, the smaller amount in his account from one ledger is transferred to his account in the ledger with large amount. The entry passed for recording this transfer is known as set off or contra entry. Key Points

/ http://www.principlesofaccounting2.com/ Control accounts are considered as total accounts.

Debtors ledger control account is also known as sales ledger control account or total debtors account.

Creditor’s ledger control account is also known as purchases ledger control account or total creditors account. Balance in sales ledger control account is the balance of debtors at the year end and balance in purchases ledger control account is balance of creditors. Cash sales and cash purchases are not recorded in the control accounts. The double entry to record set off from purchase ledger to sales ledger is to debit purchase ledger control account and credit sales ledger control account. Dishonoured cheque which was received from debtors is shown in the debit side of the sales ledger control account. Interest on overdue accounts charged from customers and refunds to customers for overpayments by them are shown on the debit side of sales ledger control account. Interest charged by suppliers and refunds received from suppliers for overpayments to them are recorded in the credit side of purchases ledger control account. Provision for bad debts is not included in sales ledger control account Small balance in a control account represents advance payments, overpayments etc. Sources of information for items appearing in the sales ledger control account 1. Credit sales- sales day book – total. 2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement. 3. Interest charged to debtors- Interest received account. 4. Cash or cheques from debtors – cash book-receipts side. 5. Discount allowed – cash book (debit side) or discount allowed account. 6. Sales returns – sales returns day book total. 7. Bad debts written off – general journal or bad debts account. 8. Set off or contra entries- general journal.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ The format of sales ledger control account

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Control Accounts - Principles Of Accounting

Sources of information for items appearing in the sales ledger control account 1. Credit sales- sales day book – total. 2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement. 3. Interest charged to debtors- Interest received account.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 4. Cash or cheques from debtors – cash book-receipts side. 5. Discount allowed – cash book (debit side) or discount allowed account. 6. Sales returns – sales returns day book total. 7. Bad debts written off – general journal or bad debts account. 8. Set off or contra entries- general journal. Format of purchase ledger control account

/ http://www.principlesofaccounting2.com/ Control Account Questions:

Q1.The following balances have been extracted from the books of a business on 31 may 2006 Prepare the Sales Ledger control account $ Opening Debtors 6 000

Receipts from debtors 11 400 Discounts allowed 600 Returns Inwards 500 Bad debts written off 500 Set off from purchase ledger 1 000 Credit sales of goods 15 000 Credit balances on 31 May 2006 200 Dishonored cheques 100 Interest charged from debtors 100 Cash refunds to customers 50 Q2.The following balances have been extracted from the books of a business on 31 may 2006 Prepare the Sales Ledger control account $ Opening Debtors 10 000 Receipts from debtors 21 500 Discounts allowed 500 Returns Inwards 300 Bad debts written off 100

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Set off from purchase ledger 800

Credit sales of goods 25 000

Credit balances on 31 May 2006 300 Dishonored cheques 1000

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Control Accounts - Principles Of Accounting Interest charged from debtors 200 Cash refunds to customers 100 Q3. The following balances have been extracted from the books of a business that uses control accounts. The business makes up the control accounts on 31 may 2006.Prepare the Purchases Ledger Control Account $ Opening Creditors 4 000 Payments to creditors 7 600 Discounts received 400 Purchases returns 500 Set off from Sales Ledger 1 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Interest charged by suppliers 200

Cash refunds from suppliers 100 Credit Purchases 12 000 Q4.The following balances have been extracted from the books of a business that uses control accounts. The business makes up the control accounts on 31 may 2006. Prepare the Purchases Ledger Control Account $ Opening Creditors 6 000 Payments to creditors 10 400 Discounts received 600 Purchases returns 750 Set off from Sales Ledger 1 500 Interest charged by suppliers 300

/ http://www.principlesofaccounting2.com/ Cash refunds from suppliers 150

Credit Purchases 18 000

Q5. The following details are available from the books of Weston for the month of May, 2003.Prepare Sales ledger control account and Purchases ledger control account. $ Opening debtors 4 000 Opening creditors 3 800 Cash received from debtors 8 000 Cheques received from debtors 60 000 Cheques paid to creditors 55 000 Cash paid to creditors 7 000 Bad debts written off during the year 750 Discount allowed 1 250 Discount received 1 000 Returns inwards 800 Returns outwards 500 Transfer from purchases ledger to sales ledger 500 Credit sales 80 000 Credit purchases 71 000 Q6. From the following information prepare the sales ledger control account and purchases ledger control account. $

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Opening debtors 12 000 Opening creditors 8 000 Credit sales 30 000 Credit purchases 25 000

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Control Accounts - Principles Of Accounting

Returns inwards 500 Returns outwards 800 Discounts allowed 1 000 Discounts received 300 Bad debts written off 200 Cash paid to creditors 2 500 Cheques paid to creditors 20 000 Cheques received from debtors 25 000 Cash received from debtors 4 500

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Customers cheques returned unpaid 1 000

Set off from sales ledger to purchases ledger 600

Q7. The following details are available from the books of Mathews for the month of June, 2003. Prepare the sales ledger control account and purchases ledger control account for the month of June, 2003. $ Sales ledger control account balance b/d 10 000 Purchases ledger control account balance b/d 8 000 Purchases for the month 12 000 Sales for the month 16 000 Returns inwards 1 000 Returns outwards 400 Payments to creditors 11 000 Receipts from debtors 15 000 Customers’ cheques returned unpaid 500

/ http://www.principlesofaccounting2.com/ Bad debts written off 300 Discount received 550 Discount allowed 750 Transfer from purchases ledger to sales ledger 600 Credit balance in sales ledger control account 600 Debit balance in purchases ledger control account 200 Q 10. The following information is relating to the business of Anson for the month ended 31 st March 2003:Credit sales and return inwards are subject to 10% trade discount on list price. 1 st March 2003

4,000

Debtors

2,000

Creditors 31 March

Credit sales at list price

2,00,00

Cash sales

5,000

Returns inwards at list price

1,500

Credit purchases

12,000

Discount allowed

1,500

Discount received

1,400

Customer’s cheque returned by bank with remarks of “insufficient funds”

900

Interest charged on overdue debts

250

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Return outwards

Cheques paid to suppliers

Cheques and cash received from credit customers Credit balance in sales ledger

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750 7,000 15,000 300

Control Accounts - Principles Of Accounting 600

Bad debts written off Required:-

1. Make sales ledger control accounts of Mr. Ibrahim for the month of March 2003. 2. Calculate total Turn over on 31 st March 2003 Q11. The following information was obtained from the books of K. Vasanthi. $ 1 st

April 2003

Trade debtors

19,012 5,160

Trade creditors Stock in trade

15,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 31 st March 2004 Credit sales

40,690

Credit purchase at list price*

14,400

Purchase return at list price*

400 240

Sales return Cash and cheque received from debtors

39,160 500

Customers cheque dishonored Cash and cheque paid to suppliers

10,340

Discount received

380

Discount allowed

420

Interest charged to customers on Overdue accounts

140

Bad debts written off

310

Balance in the sales ledger set off against balance in the purchase ledger Cash refunds from suppliers for over payments

700 120 80

/ http://www.principlesofaccounting2.com/ Debit balance in purchase ledger Credit balance in sales ledger

124

Overdue interest charged by our suppliers

260

Cash refunds for over payments made by customers

360

*All purchases and purchase returns were subject to a trade discount of 20%off the list price. During the year cash sales were $ 22 000 and cash purchase were $ 12,500. *On 31 st March 2004 the stock in trade was valued at $ 12,500. Required:1. Total Debtors Account for the year ended 31 st March 2004 2. Total Creditors Account for the year ended 31 st March 2004. 3. c. Calculate the Gross profit of the business for the year ended 31 st march 2004. Q12. The following details are available from the books of a business for the year ended 31 st December 2002:- $ On 1-1-2000 The balance in the provision for bad debts account $ 400 On 31-12-2000 Total debtors $12 000 On 1-1-2002 Purchase ledger control account balance $ 12 700 On 1-1-2002 Sales ledger control account balance $ 14 200 On 31-12-2002: Cheque issued to suppliers $ 19,200 Cheque received from customers $ 50,400 Discount allowed $ 400 Discount received $ 600

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Returns inwards $ 1 000 Return outwards $ 900 Bad debts written off $ 1 200 Dishonored cheque returned to us $ 1 200

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Control Accounts - Principles Of Accounting Credit sales $ 52 000 Credit purchases $ 28 000 Set off from purchase ledger to the sales ledger $ 2 000 5% of year end debtors should be created as provision for bad debts Required to prepare:a. Purchase ledger control account for the year ended 31 st December 2002 b.Prepare the sales ledger control account for the year ended 31 st Dec 2002. c.The provision for bad debts a/ct and the balance sheet extracts for the 3 years ended 31 st Dec 2000,2001 and 2002. Q13. The following details are available from the books of a business for the year ended 31 st December 2002:- $

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ On 1-1-2000 The balance in the provision for bad debts account 600 On 31-12-2000 total debtors 18 000

On 1-1-2002 Purchase ledger control account balance 19 150 On 1-1-2002 Sales ledger control account balance 21 300 On 31-12-2002: Cheque issued to suppliers 28 800 Cheque received from customers 75 600 Discount allowed 600 Discount received 900 Returns inwards 1 500 Return outwards 1 200 Bad debts written off 1 800 Dishonored cheque returned to us 1 800

/ http://www.principlesofaccounting2.com/ Credit sales 78 000

Credit purchases 42 000

Set off from purchase ledger to the sales ledger 3 000 5% of year end debtors should be created as provision for bad debts Required to prepare:- Purchase ledger and sales ledger control accounts for the year ended 31 st December 2002 MCQ 1. What is the source of information for credit sales for preparing the control accounts? 1. Sales account in the General ledger B. Sales journal C. General journal D. Sales ledger 1. Which of the following is not considered while preparing the sales ledger control account? A. Opening balance of debtors B. Discount received C. Discount allowed D. Returns inwar 3. Which item will appear on the debit side of a debtors ledger control account? A. Cash sales B. Cheques received C. Return inwards D. Sales on credit 4. Which item will appear on the credit side of a purchase ledger control account? A. Cheques paid B. Discount received C. Credit purchases D. purchases returns 5. What is the purpose of preparing the control accounts?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. To calculate the total sales

B. To calculate the closing debtors only C. To calculate the closing creditors only

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Control Accounts - Principles Of Accounting D. To check the arithmetical accuracy of each ledger separately. 6. What is the alternative name of the sales ledger control account? A. Total debtors account B. Total creditors account C. Purchases account D. sales account. 7. Cash is refunded to customer, who had overpaid his account. In which ledger control account it is recorded? 1. Debit side of sales ledger control account. 2. Credit side of sales ledger control account. 3. Debit side of purchase ledger control account.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 4. Credit side of purchase ledger control account. 5.

8. A refund was received from a supplier for excess payment made by us. Where should it be recorded? A. Debit side of sales ledger control account. B. Credit side of sales ledger control account. C. Debit side of purchase ledger control account. D. Credit side of purchase ledger control account. 9. A purchase ledger control account is prepared from the following list of items:Total creditors at the start of the month $ 900 Credit purchases $ 12000 Customers’ debts written off $ 200 Cash paid to creditors $ 11800

/ http://www.principlesofaccounting2.com/ Returns inwards $ 300 What is the closing balance?

A. $ 600 B. $900 C. $ 1100 D. 1400 10. The table shows details of sales ledger:Sales ledger opening balance $ 1894 Total credit sales $ 10290 Cheques received from customers $ 7284 Cash received form customers $ 1236 Returns inwards $ 296 What is the closing balance of debtors? A. $ 3664 B.$ 3072 C. $ 3368 D. $ 2664 Incoming search terms: control accounts what is control account debtors control account control account sales ledger control account sales ledger control account questions transferring sales day book to control uses of control account Uses of control accounts Cash control account

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Final Accounts - Principles Of Accounting

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â–º Accounting

â–º Principles

â–º Tax & Accounting Job Vacancies Dubai

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Final Accounts THE FINAL ACCOUNTS OF A SOLE TRADER The trading account, profit and loss account and the balance sheet are called final accounts. Usually, the final accounts are prepared at the end of an accounting period. * Trial balance is the basis for preparing the final accounts. TRADING AND PROFIT & LOSS ACCOUNT The purpose of preparing the trading account is to find out the gross profit or gross loss of the business during an accounting period. The purpose of preparing the profit and loss account is to find out the net profit or net loss of the business for an accounting period Gross Profit = Net sales – Cost of goods sold

/ http://www.principlesofaccounting2.com/ Gross Loss = Cost of goods sold – Net sales

Net Profit = Gross Profit + Incomes – Expenses Net Loss = Expenses – Incomes – Gross Profit

Note: Net sales = Total sales – Sales returns/ Return Inwards. Cost of goods sold = Opening stock + Purchases + Carriage Inwards – Return Outwards/ Purchase Returns – Closing Stock Format of the Trading & Profit and Loss Account (Vertical Form) $ Sales

xxxxxx

Less: Return Inwards

xxxx

LESS: COST OF GOODS SOLD Opening Stock

xxxxx

Add: Purchases Add: Carriage Inwards Less: Return Outwards Less: Closing Stock

xxxxxx

xxxxxxx xxxx

(–)

xxxxxx xxxx xxxxxxx xxxxx

xxxxxx xxxxxxx

GROSS PROFIT/ GROSS LOSS Add: Incomes: Discount Received

xxxx

Interest Received

xxxx

Commission Received etc.

xxxx

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(+)

xxxxx xxxxx

Final Accounts - Principles Of Accounting LESS: EXPENSES Rent paid

xxxx

Commission paid

xxxx

Discount allowed

xxxx

Interest paid

xxxx

Salary paid

xxxx

Power charges/ electricity charges

xxxx

Telephone charges

xxxx

Licence & taxes

xxxx

Depreciation on fixed assets

xxxx

Advertisement expenses

xxxx

Selling expenses

xxxx

Carriage outwards/ carriage on sales

xxxx

Repairs to fixed assets etc.

xxxx

(–)

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ xxxx xxxxxx

NET PROFIT/ NET LOSS BALANCE SHEET

This is the statement of assets and liabilities of a business prepared on a particular date to show the financial position of a business. The Balance sheet is prepared after the preparation of the trading, profit and loss account. The balance sheet is prepared with the account balances left after the preparation of the trading and profit & loss account.

/ http://www.principlesofaccounting2.com/ Usually, the trading account and the profit and loss account are prepared together. But the balance sheet is prepared separately.

Format of the Balance sheet of a sole trader (Vertical form) Balance sheet of Mr. Ahmed, as at 31 st December 2001 $

Fixed Assets: Plants & Machinery

xxxx

Land & Buildings

xxxx

Motor cars

xxxx

Furniture & Fixtures

xxxx

Motor vehicles

xxxx

Fixtures & Fittings

xxxx

Premises etc

xxxx

Current Assets: Stock (Closing)

xxxx

Debtors

xxxx

Cash in hand

xxx

Cash at bank

xxxx

xxxxxx

Expenses prepaid

Accrued incomes

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Less: Current Liabilities Creditors Bank Overdrafts

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xxxx xxx

(+) (-)

Final Accounts - Principles Of Accounting Expenses owing

Income received in advance

xxxx

Working capital

xxxxx xxxxx

(+)

Long Term Liabilities: xxxx

Loan from the Bank Loan from other financial Institutions Add: Net Profit/

xxxx

xxxx Xxxxxx

(+)/ (-) xxxx

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Less : Net Loss

xxxxx

Less : Drawings

(-)

(Cash & Goods)

xxx

Xxxxxx

Assignment Questions: Q. 1 The excess of net sales over the cost of goods sold in a particular period is called : (a) gross profit (b) gross loss (c) trading a/c (d) none of these. Q. 2 When the Gross profit is more than the total business expenses, the difference is called: (a) net loss (b) net Profit (c) cost of goods sold (d) none of these.

/ http://www.principlesofaccounting2.com/ Q. 3 At the end of the year, the net profit should be credited in the

(a) drawings a/c (b) profit and loss a/c (c) balance sheet (d) capital a/c

Q. 4 Carriage on goods out of the firm is called: (a) carriage inwards (b) carriage outwards (c) carriage on purchase (d) none of these. Q. 5 Bank overdraft is an example of a (a) current asset (b) current liability (c) long term liability (d) current asset Q.6 The cost of putting goods into a saleable condition should be charged to the (a) trading a/c (b) profit & loss a/c (c) balance sheet (d) manufacturing a/c Q.7 The net profit is added to capital by: (a) debiting in the capital a/c (b) crediting in the Trial balance (c) crediting in the capital a/c (d) debiting in the cash a/c

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/

Q. 8 Which of the following is correct? (a) Profit increases the drawings (b) Profit reduces the capital

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Final Accounts - Principles Of Accounting (c) Profit does not affect any item (d) Profit increases capital Q. 9 Name the account which should not be included in the Profit & Loss a/c: (a) Sales office expenses (b) Wages and Salaries (c) Carriage on Purchase (d) Carriage on sales Q. 10 Net profit is calculated in the:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ (a) sales a/c

(b) profit & loss a/c (c) trading a/c (d) balance sheet Q. 11 The transportation cost for bringing the goods into the business is: (a) travelling expenses (b) carriage inwards (c) carriage outwards (d) motor expenses Q. 12 Rent paid for the subsequent period is a (a) current liability (b) long term liability

/ http://www.principlesofaccounting2.com/ (c) current asset

(d) none of the above.

Q. 13 Insurance is paid in advance by $ 150. What does it mean? (a) The business has used $ 150 (b) The business has unused $ 150 (c) The business owes $ 150 (a) None of the above. Q. 14 A trader’s Turnover for the year were $ 3, 56,000, and his purchases were $ 2,68,000. The stock at the beginning of the year was $ 31,400 and the stock at the end was $ 34,600. He had returned goods to his suppliers for $ 2,600 What is his gross profit for the year? (a) $ 86,200 (b) $ 90,600 (c) $ 91,200 (d) $ 93,800 Q. 15 A business has fixed assets $ 10,000. Its current assets is $ 6,000, working capital $ 2,000 and balance sheet total is $ 12,000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ what is the amount of its current liability?

(a) $ 1,000 (b) $ 2,000 (c) $ 3,000 (d) $ 4,000

Q. 16 Fill in the following with most suitable terms

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Final Accounts - Principles Of Accounting 1) Working capital is the difference between ———— ————- &—– ———— 2) Gross profit = ————————- less ————————————-. 3) In the final accounts, the closing stock is shown in the —————————- a/c and in the ————4) Bank overdraft is shown in the balance sheet as —— ——– ———————–. 5) Drawings are usually deducted from ———————. 6) Net profit is added to ———————-. 7) In the balance sheet, the working capital is added to the total of ——————— 8) To find the amount of working capital, current liabilities total is deducted from

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ ————- ———————— total

9) The net profit is the difference between ——————— and———————– 10) Expense prepaid is an example of ——————- asset. 11) Expense payable is an example of ——————— —————— 12) Net sales – cost of goods sold = ——————————————–

13) Net sales = Sales less —————————– 14) A loan taken from the bank, repayable after 5 years will be shown as ————— ————- —————————- in the balance sheet 15) In the final accounts, the carriage inwards is taken to calculate the —————— 16) The total of income is added to ————————————17) Last year’s closing stock is the current year’s ——————————– 18) The principle of valuation of closing stock is —————————— 19) Closing Capital = opening Capital + Net profit (or – Net loss) ———————20) The balance sheet is prepared to know the ———————————————-

/ http://www.principlesofaccounting2.com/ 21) The purpose of preparing trading account is to calculate the———- ————or ——————— ———————-

22) The profit & loss account is prepared to calculate the ———— ———– or ———- ——23) Expenses – Incomes – Gross profit= ————————————— 24) The balance sheet is a statement of —————————- &———————— 25) ———————– are the cost of operating the business. 26) The balance sheet is not a part of ————————————————— 27) The trading and profit & loss account and balance sheet are known as ———— Q. 17 The following trial balance was extracted from the books of a business for the year ended 31 st December 2002 Account Balances

debit

credit

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ $

50,000

Capital

Plants & Machinery

18,000

Salaries

10,000

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Final Accounts - Principles Of Accounting 1,600

Repairs

28,000

Wages

2,500

Cash in Hand

74,500

Land & Buildings

1,23,500

Purchases

2,49,000

Sales Bank balance

3,800

Discounts

8,500

Commissions

1,500 45,000

Debtors & Creditors

26,300

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1,000

Bad debts

37,000

Stock 0n 1.1.2002

600

Advertising Office expenses

1,000

Fixtures & fittings

4,000 400

Stationery Interest

2,000

Rent & Rates

1,500 11,500

Bank Loan 3,50,600

Total

3,50,600

The closing stock on 31.12.2002 was valued at $ 28,000 Required to Prepare: (a) Trading, Profit & loss account for the year ended 31.12.2002

/ http://www.principlesofaccounting2.com/ (b) Balance sheet as at 31.12.2002

Q. 18 The following trial balance has been extracted from the books of Slim Traders for the year ended 31 st December 2001: Account Balances

debit

credit

$ 1,98,000

Sales Discount received

700

Bank interest

200 53,000

Purchases Carriage outwards

4,900

Carriage inwards

2,000 300

Bad debts Rent

44,100

Office salaries

26,200

Sales commission

37,600

Discount allowed

100

Stationery

2,400

Advertising

8,700

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 7,200

Electricity

Cash at bank Stock on 1

January 2001

Debtors & creditors

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4,700

39,000 10,000

11,300

Final Accounts - Principles Of Accounting 8,000

Office furniture Delivery van

37,300

Premises – cost

29,000 22,000

Loan from State Bank (repayable in 2012) Capital

98,300 14,000

Drawings

2,000

Interest on loan

3,30,500

Total

3,30,500

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ The closing stock on 31.12.2001 was valued at $ 41,000

Prepare (a) The trading, profit & loss account for the year ended 31 st December 2001 (b) The balance sheet of the business as at 31 st December 2001 Q. 19 The following trial balance was extracted from the books of a sole trader for the year ended 31 st December 2000: Account Balances

debit

credit

Salaries and wages

4,200

Insurance

1,200

Administrative expenses

2,670

Selling expenses

3,180

/ http://www.principlesofaccounting2.com/ 2,700

Carriage on purchases

400

Returns

700

1,255

Cash in hand

725

Carriage outwards

7,900

Bank overdrafts

12,000

Loan from ICICI Bank Drawings & Capital

7,550

Land and Buildings

29,500

Debtors & Creditors

21,000

Plants & Machinery

25,000

Purchases and Sales

93,250

Equipments

20,000

Stock of goods (on 1.1.2000)

8,250

Interest on Bank Loan

1,000 2,21,880

Total

31,280

9,600

1,60,400

2,21,880

The closing stock on 31.12.2000 was valued at $ 14,700 Required: (a) The trading, profit & loss account for the year ended 31.12.2000 (b) The balance sheet as at 31.12.2000 Q. 20 The following trial balance was extracted from the books of a sole trader for the year ended 31 st March 2002:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Debit Balances Purchases

AmountCredit Balances 37 000Sales

Amount 96 000

Returns Inwards

2 004Returns Outwards

195

Opening stock

8 851Discount received

480

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Final Accounts - Principles Of Accounting 456Interest received

Carriage inwards

1 150

16 251Creditors

Wages

12 133

237Bank Loan

Discount allowed

1 000

1 198Capital

Lighting & heating Travelling expenses

435

Repairs

518

Rent paid

2 450

Furniture & Fittings

2 650

Plants & Machinery

13 840

Motor Vehicles

6 825

Debtors

4 675

Cash in hand

1 384

Cash at bank

4 718

20 184

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 19 900

Salaries

7 750

Drawings Total

1 31 142

Total

1 31 142

Closing stock was valued at $ 9534 Prepare (a) The trading, profit & loss account for the year ended 31 st March 2002 (b) The balance sheet as at 31 st March 2002 Q. 21 From the following trail balance prepare a set of final accounts for the year ended 31 st December 2002 $ Credit

Debit

92,300 Sales

Purchases

1,90,300

Carriage inwards

5,200Capital

59,400

Drawings

5,000Creditors

13,200

Rent, Rates & Insurance

4,500Commission received

7,000

Postage

3,000Discount received

3,920

Stationery

2,700Returns outwards

700

/ http://www.principlesofaccounting2.com/ Machinery

55,000

Buildings

45,000

Fixture & Fittings

15,000

Opening stock

1,000

Bank balance

2,500

Cash balance

1,800 14,500

Debtors Discount allowed

250

Bad debts

800

Salaries & wages

22,120

Advertising

1,850

Carriage outwards

1,200

Returns inwards Total

800 2,74,520

Total

2,74,520

The closing stock on 31 st December 2002 was $ 12,400 Q 22. The following trial balance was extracted from the books L.Stokes, a sole trader, as at 31 st March 2003:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Debit $

Credit $

Drawings and capital

3 000

70 000

Cash at bank

1 800

Account balances

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Final Accounts - Principles Of Accounting Debtors and creditors

24 000

14 000

Purchases & sales

58 600

78 023

Returns

600

700

Carriage outwards

700

Carriage inwards

1 350

Salaries & wages

12 370 630

Commission paid

1 240

Interest

700

Bad debt

4 500

Depreciation

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General expenses

Plant & machinery

12 000

Building and land

30 000 4 000

Furniture & fixtures

500

Cash in hand

6 000

Opening stock

1 400

Discount on purchases 825

Discount on sales

2 120

Telephone charges

1 000

Salaries payable 1 65 123

Total

1 65 123

The closing stock is valued at $ 17 000

/ http://www.principlesofaccounting2.com/ From the above information, prepare a set of final accounts for the year ended 31 st March 2003

Q 23. Prepare the trading & profit & loss account for the year ended 31 st Dec 2003 and a balance sheet on that date from the following balances extracted from the books of a business

Opening stock

16 000Carriage outwards

250

Closing stock

4 000Returns inwards

150

Discount received

3 000Returns outwards

450

Discount allowed Purchases Sales Carriage inwards

1 500Salaries & wages 60 000Machinery 1 00 000Rent paid 950Power charges

4 400 20 000 1 000 300

5 300Commission received

3 500

Capital

28 250Repairs to machinery

750

Motor car

25 000General expenses

100

Drawings

Advertisement expenses Debtors

450Salary received 5 000Creditors

1 950 4 000

Q 24. The following trial balance is extracted form the books of a sole trader for the year ended 31 st Dec 2003:Debit balances Debtors Drawings

$ Credit balances 47 000Sales 7 300Return outwards

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/

$ 2 30 000 3 500

Opening stock

30 000Commission received

3 100

Motor car

26 350Rent received

1 200

Land

14 500Discount received

5 700

Equipment

17 400Loan from bank

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29 000

Final Accounts - Principles Of Accounting Petty cash balance

29 600Capital

1 50 000

Bad debts

3 000Interest received

Communication expenses

2 160Creditors

17 190

Insurance

9 900Loan from Ali

30 000

Return inwards

5 000Bank overdraft

Carriage outwards

2 550

Building repairs

8 690

Motor car diesel expenses Purchases

4 900

4 960

10 754 1 83 000

Stationery expenses

1 000

Electricity charges

4 900

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Machinery

21 700

Cash balance

42 700

Rent paid

6 746

Wages paid

4 400

License and taxes Total

900 4 79 550 Total

4 79 550

The stock on 31 st Dec 2003 was valued at $ 50 000 Prepare the trading & profit & loss account for the year ended 31 st Dec 2003 and a balance sheet as on that date Q 25. The following trial balance was taken from the books of a business for the year ended 31 st Dec 2003:

/ http://www.principlesofaccounting2.com/ Debit $

Credit $

14 282

42 380

Returns in & out

111

333

Carriage inwards

322

Carriage outwards

666

Account balances Purchases & sales

Debtors & Creditors

11 380

Opening stock

1 004

Salaries & wages

5 555

Cash in hand

444 223

Bank Depreciation

2 333 1 000

Salaries owing Rent & rates

600 400

Commission Discounts

188

Plant

6 000

Machinery

7 000

Furniture& fixtures

4 000

Advertising

1 023

Insurance

711

Heating & lighting

501

Bad debts written off

105

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Bank loan(long term)

Interest on bank loan Insurance prepaid

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6 777

200 50

244

2 000

Final Accounts - Principles Of Accounting 101

Repairs to machinery

3 219

Capital 56 576

Total

56 576

The stock at 31 st Dec 2003 was valued at $ 2 040. Prepare a set final accounts for the year ended 31 st Dec 2003 Q 26. The following account balances are extracted from the books of a sole trader for the year ended 31 st Dec 2003:$

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Plant & machinery

40 000Office expenses

1 800

Land & buildings

50 000Electricity charges

750

Furniture

10 000Returns outwards

2 700

Fixtures

5 000Capital

Cash in hand

2 400Lighting & heating

1 100

800Carriage inwards

2 100

Returns inwards

81 000

Purchases

72 400Opening stock

6 100

Salaries & wages

21 000Discount received

1 200

Insurance

5 000Commission received

Stationery

1 050Postage expenses

Discount allowed

1 000Bank overdraft

250 4 500

12 000Bad debts

Debtors

400

1 250Creditors

Rates & taxes Sales

2 000

6 500

1 20 000Selling expenses

500

/ http://www.principlesofaccounting2.com/ General expenses Bank loan

700Closing stock

7 200

17 700

You are required to prepare : a. The trial balance at 31 st Dec 2003. b. The trading & profit & loss account for the year ended 31 st Dec 2003. c. The statement showing the financial position of the business as at 31 st Dec 2003. Incoming search terms: accounting for losses in a return inward difference between final account and cost accounting how will you show the following item(a)drawings(b)return inwards(c)returnoutwards in which final account will sales returns be shown principles of accounting final accounting PROFIT &LOSS A/C FOR THE YEAR ENDED 31-12-2000 where do you put carriage inwards in the trading account where do you put freight inwrds and outwards charges on cost of goods sold

http://www.principlesofaccounting2.com

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Final Accounts with adjustments - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Final Accounts with adjustments

The Final Accounts of a sole trader ( With Adjustments) The trading and profit & loss account and balance sheet prepared at the end of a year is known as Final accounts. While preparing the final accounts, there may be some items so far not adjusted. These items are to be adjusted in the final accounts for calculating the correct profit or loss of the business. The usual adjustments in the final accounts are:a. Expenses owing :- These are the expenses incurred during the year but not paid in cash. This amount will be paid in the near future (next year). The owing expense is to be added with the amount of same expense already paid given in the trial balance and it should be shown in the balance sheet as a current liability. The double entry for recording the expenses owing is Debit Expenses account Credit Expenses owing account

/ http://www.principlesofaccounting2.com/ This expense is also known as outstanding expenses, expenses payable or expense payable.

b. Prepaid expense. :- This is the expense paid during the year for the benefit of the next year. The portion of the expense which is prepaid is to be deducted from the total expenses already paid during the year (given in the trial balance) and shown as current asset in the balance sheet. The double entry for recording the prepaid expense is Debit Prepaid expense account and Credit Expense account This expense is also known as expense paid in advance or unexpired expense

c. Accrued income:- The income earned during the year but not received in cash is known as accrued income. The amount of accrued income is to be considered as current year’s income and added with the concerned income received during the year(given in the trial balance) and shown as a current asset in the balance sheet. The double entry for recording the accrued income is: Debit Accrued income account and Credit Income account The accrued income is also known as outstanding income. d. Income received in advance:- This is the income received during the year for the services to be rendered during the next year. Since this income is not related to the current year, it should be deducted from the concerned income (given in the trial balance) and shown as a current liability in the balance sheet. The double entry for recording the income received in advance is: Debit Income account and Credit Income received in advance

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ This is also known as unexpired income.

e. Depreciation:- The part of the cost of a fixed asset that is consumed by a business during the period of its use is known as depreciation. It is considered as an expense in the business therefore shown as an expense in the profit & loss account and deducted from the cost price of the concerned fixed asset in the balance sheet.

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Final Accounts with adjustments - Principles Of Accounting The double entry for recording depreciation is: Debit Profit & loss account and Credit Depreciation account f. Bad debt:- The part of the amount of debtors which cannot be recovered is known as bad debt. It is an expense to be shown in the profit & loss account. If the bad debt appears in the trial balance, it is known as bad debt written off and shown in the profit & loss account only. If bad debt information appears among the adjustment points below the trial balance, then it should be shown as an expense in the profit & loss account and shown as a deduction from the debtors in the balance sheet under the heading “current assets”.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ The double entry for recording the bad debt is: Debit Bad debt account and Credit Debtors account g. Goods drawings by the owner for his personal use:The amount of goods withdrawn by the owner for his personal use is to be considered as drawing. The double entry for recording the goods drawings is: Debit Drawings account and Credit Purchase account or sales account The amount of goods drawings should be deducted form purchases and capital in the balance sheet. MCQ 1. A company which can offer its shares for subscription to the public is known as: A. Private company B. Public limited company C. Public corporation D.Corporation

/ http://www.principlesofaccounting2.com/ 2. What is the authorized share capital of a limited company?

A. The issued share capital B. Issued share capital plus reserves C. Issued share capital plus debentures D. The shares that a company is allowed to issue by law

3. The liability of share holders of a public limited company is limited to: A. paid up value of shares B. nominal value of shares C. extent of private assets D. called up share capital 4. What is the other name of authorized capital? A. issued capital B. Nominal capital C. Uncalled capital D. Calls in arrears 5. The debenture interest paid is recorded in which part of the final accounts of a limited company? A. Trading account B. Profit and loss account C. Profit and loss appropriation account D. Balance sheet 6. The dividend is calculated on which of the following values of shares? A. Authorized share capital B. Issued share capital C. Called up share capital D. Paid up share capital 7. Which of the following is not included in the share holders’ funds? A. Debentures B. General reserves C. Ordinary share capital D. Preference share capital 8. Retained profit of a limited company belongs to the: A. directors’ B. debenture holders’ C. shareholders D. company 9. Proposed dividends are;

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. shown as a current liability on the balance sheet

B. debited with other business expenses in the profit and loss account C. paid from capital reserves

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Final Accounts with adjustments - Principles Of Accounting D. credited to the appropriation account 10. In the final accounts of a limited company, directors’ remuneration is: A. debited in the trading account B. debited in the profit and loss account C. debited in the appropriation account D. deducted from share capital in the B.S 11. Under which heading is share premium account shown? A. Current assets B. Current liabilities C. Share capital D. Reserves & Surplus 12. The interim dividend paid is shown in the: A. profit and loss account B. profit and loss appropriation account only C. profit and loss account and balance sheet D. profit and loss appropriation account and balance sheet

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Assignment Questions

Q 1. The following trial balance was taken from the books of a sole trader for the year ended

31 st Dec 2003:Account balances

Debit $

Purchase & sales

92 300

Carriage inwards

5 200

Drawings

5 000

Rent, rates & insurance

4 500

Postage

3 000

Stationery

2 700

Credit $ 1 90 300

59 400

Capital Machinery

55 000

Buildings

45 000

Furniture & Fittings

15 000

Debtors & Creditors

14 500

/ http://www.principlesofaccounting2.com/ Opening stock

1 000

Cash at bank

2 500

Cash in hand

1 800

Discounts

250

Bad debt

800

Salaries & Wages

1 850

Carriage outwards

1 200

Total

3 920

22 120

Advertising

Returns in & out

13 200 7 000

Commission received

800

700

2 74 520

Consider the following points at 31 st December 2003:1. The closing stock was valued at $ 12 400 2. Rent, rates & insurance was owing by & 500. ` 3. Commission received in advance is $ 1 000. 4. Salaries & wages owing $ 880. 5. Advertisement expense is prepaid by $ 350. 6. Carriage inwards payable $ 800. From the above information, you are required to prepare at 31 st December 2003:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ a. The Trading & Profit & loss account b. The Balance Sheet

Q 2. The following account balances were extracted from the books of a sole trader

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Final Accounts with adjustments - Principles Of Accounting for the year ended 31 st December 2003:Stock on 1 st Jan 2003 12 300 Purchases 1 25 000 Sales 1 58 000 Discount received 2 400 Rent paid 7 000 Fixture & fittings 13 500 Motor Car 10 500 Advertising 1 960 Motor van expenses 1 120 Heating & lighting 1 200 Wages to assistant 6 000 Accountant’s fee 1 200 Insurance 700 Debtors 3 100 Creditors 2 700 Cash in hand 250 Bank overdraft 3 840 Bank charges 270

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Drawings 9 000 Interest received 1 400

Capital 27 210 License & taxes 500 Carriage inwards 1 000 Carriage outwards 950 The following points are to be considered at 31 st Dec 2003:1) The closing stock was valued at $ 10 500 2) Rent prepaid was $ 1 000 3) Motor van expenses owing $ 200 4) Interest earned but not received $ 600 5) Wages to assistant outstanding $ 1 200 6) License and taxes payable $ 300 From the above information, you are required to prepare:a. The trading & profit & loss account for the year ended 31 st Dec 2003-05-03 b. The balance sheet at 31 st Dec 2003. Q 3. The following trial balance was extracted from the books of a sole trader for the year ended 31 st March 2003:-

/ http://www.principlesofaccounting2.com/ Account balances Purchases & Sales Returns Carriage inwards Carriage outwards

Debit $ Credit $ 39 600 76 000 300

900

Opening stock

5 200

Salaries

7 550

Commission

450

1 200

670

Wages

3 000

Debtors & Creditors

8 000

4 200

500

800

Discounts Plant & Machinery Rates Furniture & Fittings

19 000 450 6 500 3 500

Bank overdraft Office expenses

150

General expenses

600

Cash in hand

250

Bank Loan

5 000

Capital

3 920

Total

93 870

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Adjustments:1) The stock on 31-3-2003 was valued at $ 6 500 2) Carriage outwards was owing by $ 100

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Final Accounts with adjustments - Principles Of Accounting 3) Rates prepaid $ 150 4) Rent for the year was earned but not received $ 700 5) General expenses owing $ 180 From the above information you are required to prepare at 31 st March 2003:a. The Trading and profit & loss account b. The Balance sheet

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Q 4. The following trial balance was extracted from the books of Martin klin for

the year ended 31 st Dec 2003:Debit balances

Purchases

22 600Sales

Stock on 1-1-2003

40 700 5 580

190Bank overdraft

7 000

1 400Discount received

900

810Returns out

Returns in

570

Carriage outwards

2 160Commission received

Rent & insurance

1 700Creditors

Fixtures & Fittings

1 000

Delivery van

2 300

Debtors

5 200Capital

Cash in hand Discount allowed

Credit balances

660 6 000

11 900

Drawings

2 800

Wages & salaries

8 900

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General office expenses Total

61 410 Total

61 410

Adjustments: 1. The closing stock was valued at $ 6 700 at 31 st Dec 2003-05-03 2. Wages & salaries was owing by $ 1 100 3. General office expenses owing $ 150 4. Rent prepaid is 280 5. Commission receivable $ 140 From the above information, Prepare:a. The trading and profit & loss account for the year ended 31 st Dec 2003 b. The balance sheet at 31 st Dec 2003 Q 5. The following trial balance had been taken from the books of a sole trader for the year ended 31 st Dec 2003:Account balances

Debit $

Credit $

70 000

1 46 000

Returns in & out

1 500

1 600

Carriage inwards

6 000

Carriage outwards

3 000

Purchases & sales

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Discount received

Telephone charges Rent paid Advertisement

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2 000 700 1 100

Final Accounts with adjustments - Principles Of Accounting 7 700

Debtors & Creditors

2 000 10 000

Bank loan Cash in hand

3 750

Power charges

1 000

Salaries & wages

12 000

Premises at cost

40 000

Plant at cost

35 000

Machinery at cost

15 000

Motor car at cost

38 000 75 800

Capital

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1 250

Stock on 1-1-2003

3 500

Total

2 41 500

Additional information:1. The stock on 31 st Dec 2003 was valued at $ 4 750 2. Power charges unpaid at 31 st Dec 2003 was $ 2 000 3. Salary paid in advance at 31 st Dec 2003 was $ 3 000 4. depreciate all the fixed assets @ 10 % p.a. on cost 5 Provide the provision for bad debts at $ 500 From the above , you are required to prepare:The trading and profit & loss account for the year ended 31 st Dec 2003 and a balance sheet Q 6. The following trial balance was taken from the books of a sole trader for the Year ended 31 st March 2004:-

/ http://www.principlesofaccounting2.com/ Account balances

Opening stock

Purchases and Sales Carriage inwards Stationery Debtors & Creditors

Debit $

25 600

500 8 000 10 000

Buildings

11 000

Furniture

4 000

Repairs to building

1 000

Carriage out

1 600

Salaries & wages

9 800

2 500

Drawings & Capital

2 500

Cash in hand

1 200

Interest paid

200

Commission paid Rent & rates

6 000

200

General expenses

Discount allowed & received

44 600

1 400

Plant & Machinery

Office expenses

Credit $

2 000

2 100

30 700

3 000

200 1 500

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200

700

Bank

Total Notes:-

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500

85 500

Final Accounts with adjustments - Principles Of Accounting 1. The stock on 31-3-2004 was valued at $ 4 200 2. Salaries & wages owing for the year ended 31 st March 2004 was $ 1 200 3. 2.5% of the debtors should be written off as bad debt 4. Provide provision for depreciation on all the fixed assets @ 10% p.a. 5. Rent & rates paid in advance $ 200 6 The owner had taken goods costing $ 600 for his own use not entered in the books of the business Required prepare :a. The trading and profit & loss account for the year ended 31 st March 2004. b. The balance sheet at 31 st March 2004.

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Q 7 Following is the trial balance extracted from the books of Mr. Young, a sole trader, for the Year ended 31 st Dec 2002:-

Account balances Capital on 1 st Jan 2002

Debit $

Debtors & Creditors Premises

Credit $ 37 470

1 500

250

50 000 10 000

Loan ( payable after 5 years) Furniture & Equipment at cost

10 000 4 000

Provision for depreciation on Furniture& equipment Cash in hand

120

Maintenance cost of equipment

750

Stock on 1-1-2002 Drawings

1 500 12 000

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1 100

Heating & lighting

1 300

Postage &telegram

1 250

Repairs to premises

1 400

Purchases and sales

14 000

Wages Total

45 000

1 800 96 720

96 720

Prepare Trading and profit & loss account for the year ended 31 st Dec 2002 and the balance sheet as at that date after taking into account the following:1. The closing stock was valued at $ 2 700 2. Heating & lighting unpaid at 31-12-02 was $ 250 3. Depreciate furniture & equipment by 10% on cost. 4. Rates paid in advance at the year end was $ 100 5. Interest on loan for the whole year @ 10% p.a. is outstanding

Q 8. The following trial balance was taken from the books of a sole trader for the year ended 31 st Dec 2002:Account balances Purchase & sales

Debit $ Credit $ 68 000 1 20 210

Returns in & out

1 000

Carriage

7 700

General expenses

700

360

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Salaries & wages

13 760

Commission

600

Discount from creditors

300

Discount to debtors

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550

Final Accounts with adjustments - Principles Of Accounting Interest

1 000

Rent

2 500 870

Rates & taxes

1 010

750

Office expenses Bad debt

1 200

Furniture

5 000 30 000

Land & buildings

15 000

Plant & Machinery Provision for depreciation on : Furniture

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Plant & machinery

1 500

Land & building

3 000

Debtors & creditors

8 000

4 500

Drawings & capital

2 000

38 920 760

Provision for bad debt Cash in hand

3 120

Cash at bank

4 000

Opening stock

5 000 1 70 990 1 70 990

Total Adjustments:1. The stock at the end was valued at $ 6 250

2. Salaries and wages owing at the end of the year was $ 1 240 3. Commission accrued $ 200

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5. Provide the provision for depreciation on all the fixed assets @ 10% p.a. 6. $ 4 500 of the carriage represents carriage on goods purchased

7. The owner had taken goods costing $ 900 for his own use, not recorded in the books Prepare the set of final accounts at 31 st Dec 2002

Q 9. The trial balance shown below was extracted from the books of a sole trader for the year ended 31 st March 2003:Account balances Purchases & Sales Returns inwards and outwards

Debit $ Credit $ 60 000 1 26 000 1 500

Carriage inwards

600

Carriage outwards

300 3 100

Discount received Rent paid

700

Communication expenses

2 000

1 100

Debtors and creditors

5 000

Power charges

2 000 10 000

Bank loan (long term) Cash in hand

1 600

3 750 1 000

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12 000

Premises

50 000

Plant

25 000

Machinery

10 000

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Final Accounts with adjustments - Principles Of Accounting 40 000

Motor Car

75 000

Capital Drawings

1 250

Stock on 1-1-2003

3 500

Total 2 17 700 2 17 700 Notes:- 1. Stock at 31 st March 2003 was valued at $ 4 750 2. Power charges unpaid at the end of the year was $ 2 000 3. Salaries paid in advance at the end of the year was $ 3 000 4. Depreciate all the fixed assets @ 10% p.a. 5. Interest on bank loan @ 7% p.a. is owing for the whole year

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 6. Create the provision for bad debt at 5% on debtors. Prepare the set of final accounts as at 31 st Dec 2003 Q 10. The following trial balance was taken form the books of Alfred for the year ended 31-12-03 Debit balances

Returns inwards

30 00 Capital

Drawings

70 00 Creditors

Credit balances

1 00 000 26 000

Land & building

20 000Sales

Plant & machinery

45 000Provision for bad debts

1 000

Debtors

40 500Purchase returns

4 000

Purchases

85 000

3 000

500

Advertising

10 000

Cash in hand

10 500

Stock on 1-1-03

23 000

Wages

13 000

500

13 250

890

Commission

5 100

Travelling

1 500

Carriage inwards

6 300

Motor van

1 900

10 060

Rent Postage & telegram

1 69 000

/ http://www.principlesofaccounting2.com/ Telephone charges Salaries Printing & Stationery

Cash at bank Total Adjustments:-

3 00 000 Total

3 00 000

1. The closing stock was valued at $ 15 000 2. Rent owed by $ 600 3. Salaries Payable at the end of the year was $ 250 4. Commission paid in advance was $ 1 100 5. Provide for the provision for bad debt at 5% on the year end debtors 6. Depreciate land and building @ 5% , Plant and Machinery and Motor Van @ 10% p.a. on cost Required to prepare at 31 st Dec 2003:a. The trading & profit & loss account b. The balance sheet

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Q 11. The following trial balance was related to a sole trader at 31 st Dec 2003 Account balances

Debit $

Credit $

Purchases & Sales

11 556

18 000

Opening stock

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3 776

Final Accounts with adjustments - Principles Of Accounting

Carriage outwards

326

Carriage inwards

234

Returns

440

Salaries & wages

2 447

Motor expenses

664

Rent

576

Sundry expenses

1 202

Motor vehicles

2 400

Fixtures & fittings

600 4 577

355

3 000

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Provision for bad debts

600

Prov: for depreciation : Motor vehicle

200

Fixtures &

Fittings Cash at bank

3 876

Cash in hand

120

Drawings and capital

2 050

12 639

Total

34 844

Adjustments:1) The closing stock was valued at $ 4 998 2) Salaries and wages unpaid at the end of the year was $ 533 3) Depreciate motor vehicle @ 10% and Fixture & fittings @ 5% p.a. on cost 4) Rent paid in advance was $ 176 5) Carriage inwards owing was $ 66 6) Increase the provision for bad debts to $ 800

/ http://www.principlesofaccounting2.com/ From the above information, you are required to prepare the set of final accounts at 31st Dec 2003

Q 12. From the following trial balance, prepare trading and profit & loss account and balance sheet at 31 st Dec 2001:Account balances

Debit $

Credit $ 50 000

Capital Plant & machinery

18 000

Salaries

8 500

Repairs

1 600

Wages

28 000

Cash in hand

2 500

Land & buildings

74 500

Purchases & Sales

1 23 500

3 800

Bank overdraft Discount allowed

2 49 000

1 500

Commission received

1 500

Provision for bad debt

500

Debtors & Creditors

45 000

26 300 8 000

Discount received Prov. For depreciation : Plant & machinery

500

Land & Buildings

1 500

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Bad debts

Stock on 1

Jan 2001

Advertising

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37 000 600

Final Accounts with adjustments - Principles Of Accounting Office expenses

1 000

Fixtures & fittings

4 000

Stationery

400

Interest

2 000

Rent & rates

1 500 9 500

Bank loan ( long term ) 350600

Total

350600

Adjustments:1. The closing stock was valued at $ 30 000 2. Salaries owing amounted to $ 1 500 and repairs outstanding $ 400

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 3. Commission received in advance $ 300

4. The provision for bad debts should be at 1% of the year end debtors 5. Depreciate all the fixed assets @ 10% p.a. on cost 6. Rent & rates was prepaid by $ 200

7. Goods taken by the owner for his personal use not recorded in the books $ 1 000 Q 13. T. Burton is a retailer whose trial balance at 31 st Dec 1999 is given below:Account balances

Debit $

Credit $

72 000

1 19 400

Purchases & Sales

750

Returns Carriage inwards

930

Wages and salaries

27 670

General expense

4 750

Cash at bank

4 210

Petty cash

150

Premises

62 520

/ http://www.principlesofaccounting2.com/ 9 000

Fixtures & Fittings Stock on 1

5 550

Jan 1999

Trade Debtors & Creditors

7 200

Motor Vehicles at cost

13 150 2 630

Provision for depreciation on Motor Vehicles Capital at 1 st Jan 1999

82 500 3 000

Drawings Total

4 850

210 130

The following additional information is also available:1. Stock at 31 st Dec 1999 was valued at $ 5 200 2. General expenses of $ 400 have been paid for the year 2000 3. A debt of $ 200 is to be written off as bad debt 4. A provision is to be made for doubtful debts of 5% on Debtors at 31 st Dec 1999 5. Depreciation for 1999 is to be provided as follows:Fixtures & Fittings at 10% using the straight line method Motor Vehicles at 20% using the reducing balance method Required to prepare:a. The Trading and Profit & loss account for the year ended 31 st Dec 1999 b. The Balance sheet at 31 st Dec 1999

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Incoming search terms: final accounts adjustments in final accounts of a partnership firm Final accounts with adjustments

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Final Accounts with adjustments - Principles Of Accounting partnership final accounts adjustments accounting adjustments for final accounts final accounts questions with adjustments owing for motor vehicle expense in profit and loss accont preparation of final accounts with adjustments trial balance adjustments and final accounts various adjustment in final account of partnership firm

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Incomplete Records - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Incomplete Records Accounts from Incomplete Records (Single Entry) Some times, businesses, especially small businesses do not maintain a full set of double entry records. Consequently, no trial balance will be produced and a complete set of final accounts cannot be prepared without further analysis of the records that do exist. Where only records available are the assets and liabilities at the beginning of the year and at the end of the year, it is not possible to prepare a Trading and Profit and Loss account. The assets and liabilities are usually listed in a Statement of Affairs (Similar to a Balance Sheet). This would have been called a Balance Sheet if it had been drawn up from a set of double entry records. Like a Balance Sheet, a Statement of Affairs can be prepared horizontally or vertically The only way the profit for the year can be found is by comparing the capital shown in the opening Statement of Affairs with the capital shown in the closing Statement of Affairs. The basic formula is: Profit Loss = Closing Capital – Opening Capital (Positive figure means Profit and Negative figure means Loss)

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It may be that the owner has made drawings during the year, which will account for some of the difference in the capital figures. Similarly the owner might have brought in additional capital during the year, which will also account for some of the difference in the capital figures. In this case the formula must again be modified:-

Profit or Loss = Closing Capital + Drawings during the year – Additional Capital during the year – Opening Capital (Positive figure means Profit and Negative figure means Loss) Calculation of Profit or Loss by converting the Incomplete Records into Double entry Records In this case, in order to calculate the profit or loss of the business during the year, the Trading and Profit and Loss accounts are prepared. For preparing the Trading and Profit and Loss accounts, all necessary information is not available in the books. So first the missing items have to be calculated which are necessary for the preparation of Trading and Profit and Loss accounts. Usual missing items are: Opening/ Closing balances of Debtors, Credit Sales, and Amounts received from Debtors. When any of these items is missing from the question, it can be calculated by preparing the Total Debtors Account as follows. Trade Debtors Account (Total Debtors A/C)

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Incomplete Records - Principles Of Accounting In another way Credit Sales = Closing Debtors + Bad debts written off + Return inwards + Discount Allowed + Receipts from Debtors (Cash and Cheques)- Opening debtors Opening/Closing balances of creditors/ Payments to creditors/ Credit purchases. When any of these items is missing, it can be calculated by preparing the following Trade Creditors A/C Trade Creditors Account (Total Creditors A/C)

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Similarly Credit Purchases = Closing Creditors + Payments to Creditors (By cash and Cheques) + Discount Received + Return Outwards – Opening Creditors Opening or Closing Bank Balance: To calculate any of these, the bank a/c is to be prepared in T form by showing the receipts on the debit side and payments on the credit side.

/ http://www.principlesofaccounting2.com/ Closing Bank Balance = Opening Balance + All Receipts – All Payments

Opening Capital:- It can be calculated by preparing opening Statement of Affairs by incorporating all the assets and liabilities on the opening date and calculating it as a balancing figure. Key point Before solving the question, find out the missing items. The next step should be to find out the missing items from the given items in the question. After making sure that, all the items necessary for the for the preparation of the required account, then start preparation. The final accounts will be prepared as in the case of a sole trader’s final account. The depreciation on fixed assets is calculated by comparing the opening and closing values of the concerned fixed asset. MCQ 1. Which of the following cannot maintain single entry system? A. Sole Proprietor B. Limited companies C. Partnership concerns D. Corporation 2. Why is a statement of affairs prepared? A. To find out capital B. To find out fixed assets C. To find out current assets D. To find out liabilities 3. How are the credit purchases calculated? A. By preparing debtors account B. By preparing purchases account C. By preparing creditors account D. By preparing capital account

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 4. Single entry system is defective because, under this system:

A. trial balance cannot be prepared B. balance sheet cannot be prepared C. trading and profit and loss account cannot be prepared D. all the above 5. The following information is available:-

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Incomplete Records - Principles Of Accounting Capital at the beginning $ 5 250 Drawings during the year $ 3 250 Additional capital introduced $ 1 750 What is the amount of capital at the end of the year? A. $ 3 750 B. $ 6 750 C. $ 10 250 D. $ 250 6. Following details are supplied to you:Opening capital $ 9 700 Closing capital $ 10 750 Drawings during the year $ 2 150 Additional capital introduced- nil

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ What is the amount of profit or loss?

A. $ 1 100 profit B. $ 1 100 loss C. $ 3 200 profit D. $ 3 200 loss 7. The following details are from the books of a business:Capital on 1st January 2003 $ 5 500 Profit during the year $ 2 500 Capital at 31 st December 2003 $ 7 250 What is the amount of drawings during the year? A. Nil B. $ 750 C. $ 5 000 D. $ 2 500 8. Following information is given: Opening debtors $ 6 000 Closing debtors $ 7 500 Cash received from debtors $ 12 500 Cash sales $ 4 000

/ http://www.principlesofaccounting2.com/ What is the amount of purchases?

A. $ 11 000 B. $ 14 000 C. $ 1000 D. Cannot be calculated

9. Cash paid to creditors can be calculated from: A. total debtors account B. total creditors account C. balance sheet D. statement of affairs 10. Net profit + expenses – cost of goods sold = A. gross profit B. income C. purchases D. sales 11. The books of a business show the following details: debtors on 1 st January $ 5 000 debtors at 31 st December $ 6 000 receipts from debtors $ 40 000 discount allowed $ 1 000 cash sales $ 10 000 What are the total sales for the year? A. $ 42 000 B. $ 41 000 C. $ 50 000 D. $ 52 000 12. The books of a business show the following details: creditors at the beginning $ 2 500 creditors at the end $ 3 000 paid to creditors $ 20 000 discount received $ 500

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ cash purchases $ 5 000

What are the total purchases for the year?

A. $ 21 000 B. $ 26 000 C. $ 20 500 D. $ 25 000 13. Closing debtors + payments received from debtors + returns inwards + discount allowed – opening

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Incomplete Records - Principles Of Accounting debtors =? A. bad debt B. capital C. credit sales D. cash sales 14. How are the credit sales calculated? A. By preparing supplier’s account B. By preparing creditor’s account C. By preparing sales account D. By preparing debtor’s account 15. Cash received from debtors can be calculated from: A. total debtors account B. total creditors account C. balance sheet D. statement of affairs Assignment questions:-

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Q1. The following information was obtained from the books of a business man who does not follow the double entry system, for the year ended 31 st Dec 2003: $ Trade Debtors 6 900

Bad Debts Provision 400 Premises 50 000 Trade Creditors 5 000 Stock 1 000 Drawings 15 000 Provision for Depreciation on furniture 2 000 Furniture 8 000 Salaries owing 200 Loan from Bank 5 000 Calculate the capital on 31 st Dec 2003 by preparing a Statement of Affairs on that Date.

/ http://www.principlesofaccounting2.com/ Q2. Rachel’s Capital on 1 st Jan 2003 was $25000 .Her assets and liabilities on 31 st Dec 2003 were:$ Cash in Hand 25 Cash at Bank 560 Long term Bank loan 5 000 Stock in Trade 2 500 Trade Debtors 4 300 Trade Creditors 926 Equipment 6 000 Premises 30 000 Expenses Prepaid 450 Expenses owing 29 Rent received in advance 96 Rent receivable 169 During the year ended 31 st Dec 2003, Rachel had withdrawn goods for Private use $3000, and had paid to the business $5000 from the proceeds of selling her holiday home. Prepare for Rachel: a) A closing statement of affairs at 31 st Dec 2003 to find the closing capital b) A calculation of net profit for the year ended 31 st Dec 2003

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c) The Capital A/C of Rachel which would appear in her ledger for the year ended 31 st Dec 2003

Q 3. Frank Bull is a sole trader, who does not keep complete accounting records. However, for the year ending 31 st Dec 2003 the following information was available:

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Incomplete Records - Principles Of Accounting 1) On 1 st January 2003: $ Trade debtors 12 400 Trade creditors 15 700 Creditors for expenses 352 2) During the year ended 31 st Dec 2003: Payments received from debtors 1 71 300 Payments made to trade creditors 90 600 Payments made to creditors for expenses 4 820 Cash sales for the year 24 200 Bad debts for the year 750

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Purchases on credit of goods for resale 02 300

Cash discount allowed to debtors 2 460 Purchases returns 840 3) On 31 st Dec 2003: Trade debtors 13 000 Creditors for expenses 510 1. Calculate credit sales and the total sales for the year ended 31 st Dec 2003 2. Calculate the amount of closing creditors for the year ended 31 st Dec 2003. c. Calculate the amount of expense to be transferred to the profit & loss account for the year ended 31 st Dec 2003. Q4. Harry Johnson, a sole trader does not keep a complete set of accounting records. However, for the year ended 31 st Dec2003, the following information was available: 1. On 1 st Jan 2003 $

/ http://www.principlesofaccounting2.com/ Stock 11 400

Trade debtors 9 300

Trade creditors 12 500 Creditors for expenses 650 2. During the year ended 31 st Dec 2003:Purchases on credit of goods for resale 63 000 Purchases returns 750 Payments made to creditors for expenses 8 200 Payments received from debtors 78 000 Cash discount allowed to debtors 3 100 Bad debts written off 1 500 3. On 31 st Dec 2003:Stock 12 600 Trade debtors 18 700 Trade creditors 23 750 Creditors for expenses 350 From the above information: Calculate: i) The credit sales for the year ended 31 st Dec 2003 ii) The total payments made to trade creditors for the year ended 31 st Dec 2003

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iii) The amount of expenses to be transferred to the profit and loss a/c for the year ended 31 st Dec 2003

Q 5. On 1 st June 2002, R. Ritha’s balances were:-

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Incomplete Records - Principles Of Accounting Stock $2600,Bank $4100, Trade Debtors $3500, Trade Creditors $1700, Capital $8500 R. Ritha does not keep full accounting records, but the following information relating to the year ended 31 st May 2003 is available:Cheques drawn for private expenditure $6400 Cheques drawn for expense items $5320 Discount Allowed $500 Credit Sales $32500 Cash paid into Bank from Cash Sales $25000 Cheques Received from Trade Debtors $ 26200

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Cheques Drawn for Payments to Suppliers $ 39150 Credit Purchases $40300

On 31 st May 2003, the closing stock was valued at $2600. Prepare: a) For the year ended 31 st May 2003: 1. The Trade Debtors total account and the Trade Creditors total account. 2. The Trading and Profit and Loss A/C b) The Balance Sheet at 31 st May 2003 Q 7. The following information was obtained form the books of a sole trader, who does not keep a full set of books for the year ended 31 st Dec 2003: 1) Balances on 1-1-2003: Cash in hand $ 2 500 Buildings at cost $ 20 000 Cash at bank $ 4 100 Plant & Machinery $ 25 000 Debtors $ 6 400 Creditors $ 4 200

/ http://www.principlesofaccounting2.com/ Salaries owing $ 800 Stock $ 3 400

2) The following receipts and payments were also recorded by him:

Cash sales banked $ 2 500 4) The balances on 31-12-2003 were:-

Cheques received form debtors $ 12 000 Debtors $ 7 000 Purchases by cash $ 1 500 Salaries owing $ 900 Salaries paid by cheque $ 2 500 Buildings $ 18 000 Administrative expenses in cash $ 1 020 Plant& machinery $ 22 000 Payments by cheque to creditors $ 8 000 Creditors $ 5 200 Cash sales $ 1 800 Stock $ 4 000 Drawings by cheque $ 1 000 3) Other information on 31 st Dec 2003:1. Discount allowed $ 250 and discount received $ 300 2. Goods returned by customers $ 380 and goods returned to suppliers $200 3. Out of cash sales, he took $ 100 per month for paying rent of the building and $ 15 a week for miscellaneous expenses and the remaining amount only banked. From the above information, you are required to prepare a set of final accounts for the year ended 31 st Dec 2003. Q 8. K.King started his business as a retailer on 1 st Jan 2002 and put $ 25000 into his business bank account as his opening capital. He found suitable shop premises at a rent of $ 6000 p.a. payable from 1 st January 2002. All sales were made on a cash basis. Part of the takings was used to pay for various expenses, business and private, and the remainder was banked.

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The following information is available, from his records , even though he did not keep a full set of accounts under double entry system, for the year ended 31 st Dec 2002:-

Sales takings banked 60550

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Incomplete Records - Principles Of Accounting Cheques issued for:Shop Fittings & Fixtures 2000 Furniture 4000 Rent 5500 Rates 1200 Insurance 600 Trade creditors 45000 Cash payments from takings General expenses 2500 Drawings for private expenses 9500

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Packing materials 270 Notes at 31-12-2002

1) The stock was valued at $ 6050 2) Discount received from creditors for prompt payments $ 400 3) $ 1800 was owing to creditors. 4) Shop Fittings and Furniture are to be depreciated by 10% p.a. 5) Rates are prepaid by $ 300 and provide for the rent owing at the end of the year. From the above, prepare the set of final accounts for the year ended 31 st Dec 200 Q 9. M, Muthu is a sole trader who does not keep a full set of accounts. The following summary of his bank account for the year ended 31 st March 2003 is available from his books :Balance on 1-4-2003 400 Payments to creditors 20 000 Receipts from debtors 36 000 Rent 1 200 Cash sales 2 000 Rates 600

/ http://www.principlesofaccounting2.com/ Sundry expenses 320

Stationery 150

Drawings 3 000 Balance c/d 3 130 38 400 38 400 All the business takings have been paid into the business bank account except $ 2500 which was used by M/Muthu for paying wages $ 2000 and personal purpose $ 500. The following additional information is also available for the year ended 31 st March 2003:Assets and liabilities 01-04-2002 31-03-2003 Stock ———————————- 12 000 14 500 Creditors for goods —————— 3 200 5 000 Debtors for goods ——————– 5 000 4 350 Rates prepaid ————————– 210 225 Rent owing ————————– 150 Fixtures at book value —————– 2 500 2 250 From the above information, you are required to prepare a set of final accounts for the year ended 31 st March 2003. Show all your workings. Q10. Silcy is the owner of a sole trading concern who does keep systematic record of his business transactions, however the following information is available from the records he maintained for the year ended 31 st Dec. 2000.

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1. 1. He deposits all cash receipts into his business bank A/C and makes all payments by cheque. 2. 2. During the year he took $ 400 for purchasing packing materials and $ 25 a week for personal use out of cash sales.

3. 3. The summary of bank transactions during the year were Receipts banked $

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Incomplete Records - Principles Of Accounting Cash sales 12 500 Additional capital 5 000 Debtors 10 000 Cheques issued for Settlement of amount owing to creditors 6 820 Buying cosmetic items for his family 500 Business expenses 1 200 Advertisement 800 Carriage inwards 150 Rent of building 2 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Purchase of fixtures 6 000

1. 4. On 1-1- 2000, the following assets& liabilities were recorded:Furniture $ 4 500 Hand Machine $ 3 000 Debtors $ 4 800 Stock of the goods for resale $ 41 800 Rent of building paid in advance $ 200; Creditors for supplies of goods $ 800 On 31-12-2000 1. 2. 3. 4. 5.

The unsold stock was valued at $ 2 100 Total amount owed by credit customers was $ 3 100 The total amount owed to sundry suppliers amounted to $ 2 100 The annual rent of building payable is $ 2 400 Furniture & Fixtures and Hand Machines are to be depreciated by 10% p.a Full years depreciation on fixtures is to be charged. 6. The closing bank balance was $ 9 030. Required to:

/ http://www.principlesofaccounting2.com/ 1. Calculate-opening bank balance. Opening Capital, Credit purchases and Credit sales, Total sales, Total purchases. 2. Prepare the full set of final accounts for Silcy for the year ended 31 st December 2000.

Q11. Bobby Saxton is a general dealer. On 1 st November 2001, she had the following assets and liabilities Assets and liabilities

Equipment

35 865

Stock

14 920

Bank Overdraft

11 562

Cash in hand Trade debtors

576 11 354

Trade creditors

2 614

Vehicle

9 500

Owing for lighting and heating Capital

300 57 739

The only book of account that Bobbie keeps for recording her business transaction is a cash book. A summary is given below of the entries made in this cash book for the year ended 31 st October 2002. Receipts

Cash sales

18 240

Received from credit customers

18 830

Payments Assistant’s wages

10 940

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Rent and rates

8 200

New equipment

2 000

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Incomplete Records - Principles Of Accounting Stock for resale bought for cash

4 200

Paid to trade creditors

19 228

Drawings

15 000

Vehicle running expenses

3 590

Heating and lighting

1 328

General expenses

1 271

The following matters are to be taken into account:The stock of goods for resale was valued at $ 11 000 on 31 st October 2002. On 31 st October 2002, trade debtors and trade creditors were $ 7 806 and 5 600 respectively. Depreciation for the year:- equipment $ 345, vehicle $ 1 300 Cash in hand on 31 st October 2002, amounted to $ 230 and bank overdraft was

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ $ 39 903

Amounts owing at 31 st October 2002: $ 96 for rent and rates: $ 120 for heating and lighting. You are asked to do the following for Bobby Saxton. 1. Show your calculation of the total sales and total purchases to be included in the trading account for the year to 31 st October 2002. 2. Prepare trading and profit and loss accounts for the year ending 31 st October 2002 and the balance sheet at 31 st October 2002. Incoming search terms: incomplete records single entry and incomplete records Account for incomplete records of a business single entry and incomplete records in accounting

/ http://www.principlesofaccounting2.com/ notes on single entry and incomplete records

mcq related to single entry system List out Steps to convert from incomplete records to complete records incoplete acounting records incomplete sole trader account incomplete records(accounting)

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Clubs and Societies - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Clubs and Societies Accounts of non trading concerns The business concerns are of two types: Trading concerns and non trading concerns. Trading concerns are existing for the purpose of earning profit. But non trading concerns are existing for the purpose of rendering service to the public. E.g. of such concerns are clubs, societies, libraries etc. At the end of an accounting year the trading concerns prepare final accounts such as trading and profit and loss account and balance sheet. But non trading concerns prepare the following at the end of its accounting year: 1. Receipts and Payments accounts – it is summary of cash transactions of a non trading concern. It shows all receipts and payments during a year and the final balance of cash in hand or at bank or balance of bank overdraft. It is the cashbook prepared by a non trading concern. 2. The income and expenditure account- this is similar to the profit and loss account prepared by a trading concern. It lists all the incomes and expenses of the non trading organization for a year. The result of this account is referred to as surplus or excess of income over expenditure or deficit or excess of expenditure over income. When the income is more than the expenditure the result is known as surplus. When the expenditure is more than the income, the result is known as deficit. It is prepared by considering all expenditures and incomes relating to the current year whether it is paid or not.

/ http://www.principlesofaccounting2.com/ 3. Balance sheet- the balance sheet is prepared as in the case of a trading concern. But the excess of assets over liabilities of a non trading concern is known as accumulated fund. The surplus from income and expenditure account is added to and the deficit is deducted from accumulated fund.

Difference between receipts and payments account and incomes and expenditure account. Receipts and payments account 1 It is the cash book prepared by a non 1 trading concern 2 It records all receipts and payments 2 of cash and cheque only 3 It records receipts and payments 3 without considering whether for current year or previous year or for next year 4 The balance in this account is either cash in hand or cash at bank or balance of bank overdraft

Income and expenditure account It is the profit and loss account prepared by non trading concern It records only incomes and expenditures during the current year It records incomes and expenditures relating to the current year only

The balance in this account represents surplus or deficit

Trading account Some non trading organizations do carry out regular trading activity, but this is not the main purpose of the organization. Many clubs and societies have a café, a shop, a bar and so on, where goods are bought and sold. A trading account should be prepared for each trading activity in order to calculate the gross profit or loss earned. The gross profit or loss of a trading activity of a non trading concern is transferred to the income and expenditure account. If it is gross profit, it is shown as income and if it is gross loss, shown as expenditure in the income and expenditure account. Key points Accumulated fund on the opening date = total assets on the opening date – total liabilities on the opening date. It can be calculated by preparing an opening statement of affairs (balance sheet

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ format) on the opening date, as a balancing figure.

While preparing the trading account of bar or any other trading activity, if the purchase figure is not given, it can be calculated as:-

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Clubs and Societies - Principles Of Accounting Purchases = closing creditors + payments to creditors – opening creditors. The profit or loss as a result of sale of a fixed asset should be shown as income(if profit ) or expenditure( if loss) in the income and expenditure account. Usually the depreciation on fixed assets will be calculated by comparing the opening and closing values. The surplus is added with accumulated fund and deficit is deducted from accumulated fund. The stock items from trading activity are shown as current assets in the balance sheet. The subscription is one of the most important incomes for a non trading concern. It may be given as a single amount or separately for three years(for last year, this year and next year) If it is given as a single amount, to find out the amount of subscription to be shown in the income and expenditure account, use the following formula:

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/ http://www.principlesofaccounting2.com/ MCQ 1. What does a credit balance of income & expenditure account show at the end of a year? A. Surplus B. Loss C. Deficit D. Gross profit 2. The name of the account prepared by a non trading concern to calculate the balance of cash or balance at bank is called : A. bank account B. bank statement C. income & expenditure account D. receipts and payments account. 3. The difference between total assets and total liabilities of a club is known as : A. capital B. working capital C. accumulated fund D. total capital 4. The subscription details of a club are given below:Received during the year $ 1080 Subscription in advance on 1-1-2003 $ 300 Subscription in advance on 31-12- 2003 $ 50 What amount will be entered in the income & expenditure account for the year ended 31 st Dec 2003? A. $ 1330 B. $ 830 C. $ 1080 D. $ 1380

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 5.The following details are available:

Subscription arrears on 1-1-2003 $ 200 Subscription received during the year $ 2080 Subscription in advance on 31-12-2003 $ 150

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Clubs and Societies - Principles Of Accounting

Subscription in advance on 1-1-2003 $ 300 What is the amount to be shown in the income & expenditure account for the year ended 31 st Dec 2003? A. $ 3180 B.$1880 C. $2030 D. $2230 6. Which should be considered as capital receipt of a club? A. Donation B. Sale of news paper B. Sale of Furniture D. Sale of bar items 7. Which of the following items will not appear in the balance sheet of a club? 1. Subscription received for the current year. 2. Subscription received for the next year. 3. Subscription outstanding during the year.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 4. Insurance prepaid

8. How are the subscriptions paid in advance recorded in a club’s balance sheet? A. A current asset. B.A current liability. C. A fixed asset. D. Added to accumulated fund. 9. Which of the following will not be entered in income & expenditure account? A. Sale of old news paper. B. Loss on sale of an asset. C. Payment of honorarium. D. Amount received from sale of Furniture. 10. The following information is available from the books of club for the year ended 31 st Dec 2003:Stock of stationery on 1-1-2003 $ 600 Creditors for stationery on 31-12-2003 $ 260 Stock of stationery on 31-12-2003 $ 100 Amount paid for stationery during the year 2003 $ 1260

/ http://www.principlesofaccounting2.com/ What amount on account of stationery will be entered to income & expenditure account A. $ 2160 B. $ 2920 C. $ 2020 D. $ 2660

Incoming search terms: accumulation fund income expense account clubs bookkeeping Club revenues club expenditures surplus and deficit as well as accumulated funds mcq for accounts of non trading organisations principles of accounts clubs and societies

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Partnership - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Partnership PARTNERSHIP ACCOUNTS Definition: A ‘partnership’ (in this context) is the relationship between two or more persons carrying on business together with a view to make profit. A firm in which two or more people are working together as owners with a view of making profits is known as a partnership. The current (i.e. at the time of writing) legal situation in the UK is that a partnership can be created merely by a verbal agreement, although in practice many partners prefer to have important aspects of the agreement written down in a ‘deed of partnership’. Types of partnerships Joint Venture A joint venture is different from a general or limited partnership. It has the following characteristics: It has no common name under which the partners work and therefore cannot be identified by third

/ http://www.principlesofaccounting2.com/ persons.

It is not subject to the Act respecting the legal publicity of sole proprietorships, partnerships and legal persons. It has no head office or corporate name. It does not have the capacity to exercise legal rights.

General partnership Partners who wish to carry on a business and share in the profits may form a general partnership. In this type of partnership, all the partners participate in the administration and management of the business, unless they designate one partner to take on this role. The partners are each personally liable for certain debts and obligations of the business, regardless of their respective share of the business. Limited partnership A limited partnership is a partnership whose members include two types of partners: general partners and limited partners. General partners contribute their work, experience and expertise. They are the only persons authorized to administer and represent the partnership, and their liability for the debts and obligations of the partnership is unlimited. Limited partners provide capital or assets, and are not liable for the partnership’s debts beyond their capital contribution. A limited partnership must include at least one limited partner and at least one general partner. Whether the partners are natural persons or legal persons, they all work under the same name. Public investment partnership A public partnership of which all or substantially all of the FMV (fair market value) of the property it holds is related to units of public trusts; interests in public partnerships shares of the capital stock of public corporations; or

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ any combination of the above-mentioned property.

Nature of a Partnership A partnership has the following characteristics

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Partnership - Principles Of Accounting 1. Association of at least two persons At least two persons must joint together to form a partnership. 2. Contractual relation There must be an agreement between persons desirous of forming a partnership. 3. Earning of profit The agreement must be to share profit/loss of a business. 4. Mutual agency The business of partnership may be carried on by all the partners or by any of them acting for all. Thus every partner is an agent of other partners and at the same time of the firm. Partnership Deed or Agreement It is compulsory that in order to form a partnership there must be an agreement among the partners. This agreement may be in writing or oral. But is must be in writing for the settlement of disputes among the partners.

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It is most important document of the partnership, which includes the terms and conditions relating to the partnership and the regulations governing its internal management and organization. Partnership agreement in writing is called partnership deed. This is the document in which the rights and duties of the partners of the partnership are written. It should be stamped according to the law. All the partners must sign it. Each partner should have a copy of the deed. Need and Importance of Partnership Deed. It has been observed that partners start bickering and quarrelling after (he firm has worked for some time. It is, therefore, advisable that the articles of partnership should be drawn up through the lawyer. A partnership deed on stamp paper is considered to be valid in the court against any dispute. The importance of partnership deed can be judged from the following facts. 1. 2. 3. 4.

It It It It

forms the basis of formation of the partnership. defines the mutual rights, duties and liabilities of the partners. helps in minimizing the areas of disputes among the partners. serves as guidepost for the conduct of firm business.

Contents of the Deed of Partnership The ‘deed’ will often contain some or all of the following clauses: 1. 2. 3. 4. 5.

The The The Any The

capital to be contributed by each partner rate of interest to be allowed on partners capitals rate of interest to be charged on partners drawings salaries payable to partners ratio in which the remaining profit / loss is to be shared

/ http://www.principlesofaccounting2.com/ Advantages: 1. Business risks are spread among more that one person 2. Individual partners can develop specialist skills upon which the other partners can rely. 3. Certain partners may be able to inject more capital resources. 4. Less formal than setting up a company, which requires the issue of shares and the appointment of directors. If the partners wish to dissolve the business, that is easier to achieve by a partnership than by a company. Disadvantages: 1. Effect of disputes between partners. 2. ‘Joint and several liability’ for the debts of the partnership in some but not all countries). This means that id one partner is being sued in relation to the business of the partnership, the other partners share in the responsibility 3. In a company the share holders may be protected from the creditors of the company as regards the payment of outstanding debts. Accounting records required The way to prepare the accounts of partnerships is similar to that of other trading concerns. However, in partnerships, separate capital accounts, current accounts and advance (loan) accounts should be kept. These accounts can be prepared in columnar form for examination purposes. Also, when preparing the final accounts, an appropriation account is required to show the rights and interests of the various partners immediately after the preparation of the trading and profit and loss account. (1) Capital accounts – A separate capital account is required for each partner. This is to show the agreed amount of capital to be contributed by each of them. The amount should be kept fixed until further agreement is reached.

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(2) Current accounts – A separate current account for each partner. This shows the various amounts due to/from partners. Fluctuating Capital Accounts

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Partnership - Principles Of Accounting Since the capital account balances changes (fluctuates) with the regular transactions relating to capital, the Capitals accounts maintained under this method are known as “Fluctuating Capital Accounts”. Fixed Capital Accounts Under this method, partners’ capital amount remains fixed. The transactions relating to the partners are classified as capital and current natured. In recording the transactions which are of current nature, a separate account by name (Partners) Current a/c is used instead of the (Partners) Capital a/c. it avoids the partners to make drawings beyond their earnings during a financial year. Admission of a new partner For admission of a new partner, a new partnership deed should be drawn up to state the rights and obligations of each partner with their respective profit and loss sharing ratio. When a prospective partner is admitted into an existing partnership, the partnership assets including goodwill will be revalued.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Key points

In the absence of a partnership agreement:

The partners shall share the profits & losses equally. 5% interest shall be allowed on amount advanced by partners as loan. No salary or commission will be allowed. Interest on partner’s drawings is debited in the partner’s current account and credited in the profit & loss appropriation account. All appropriations are to be shown on the debit side of the profit & loss appropriation account. Share of loss is transferred to the partner’s current account debiting current account and crediting profit & loss appropriation account. Salary allowed to partners is credited in their current account. Debit balance in the current account means profit overdrawn and credit balance in the current account means profit undrawn. Under fluctuating capital method only one capital account is maintained. But under fixed capital method, one capital account and one current account are maintained.

/ http://www.principlesofaccounting2.com/ Both cash and goods drawings are shown on the debit side of the current account. If the salary allowed to the partner is given on monthly basis, then multiply by 12 to get annual salary. Interest on partner’s loan is debited to profit & loss account as an expense. Format of Profit and Loss appropriation A/c:

Format of Partners Current Accounts:

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Partnership - Principles Of Accounting

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Format of Balance sheet extract:

Partnership Account

/ http://www.principlesofaccounting2.com/ M CQ

1. Where capital Accounts of partners remain fixed, their share of profit is : Debited to their capital Accounts 1. Credited to their capital Accounts 2. Debited to their current Accounts 3. Credited to their current Accounts 1. Interest charged on a partner’s Drawings Account should be : 1. Debited to the profit and loss Account 2. Credited to the profit and loss Account 3. Debited to the Appropriation Account 4. Credited to the Appropriation Account 1. A firm in which two or more persons are working together as owners with a view to making profits is called : Private company 1. Partnership 2. Public company 3. Limited company 1. In a partnership, a separate current Account is maintained for each partner. Interest on loan given by the partner to the firm is treated as : 1. Dr Profit & Loss Account Cr Current Account 2. Dr Profit & Loss Account Cr Capital Account 3. Dr Profit & Loss Appropriation Account Cr Capital Account

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 4. Dr Profit & Loss Appropriation Account Cr Current Account

5. In the absence of a partnership agreement, Seema and Kalo entered into a partnership contributing $60,000 and $40,000 as capital respectively. The firm suffered a loss of $30,000 as a result

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Partnership - Principles Of Accounting of Kalo’s poor decision in a business deal. Seema was consulted on the deal. How Tte loss should be divided between Seema and Kalo? A. Seema $0 Kalo $30,000 B. Seema $15,000 Kalo $15,000 C. Seema $18,000 Kalo $15,000 D. Seema $30,000 Kalo $0 1. The current Account of a partner of a business is prepared from the following information 2001

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ January 1 balance b/d $200 Dr

December 31 share of profit $20,000

December 31 interest on drawings $800 December 31 Drawings $18,000 What is the balance of the account on 31 December? 1. 2. 3. 4.

$3000 $2600 $1000 $1000

Cr Cr Cr Dr

1. Information from a partnership’s account is shown $

/ http://www.principlesofaccounting2.com/ Net profit before interest Interest on partners loan to the firm Interest on capital accounts Drawings15,000 1,000 2,000 10,000 Which profit figure is to be appropriated between the partners? 1. $ 3,000 2. $13,000 3. $12,000 4. $15,000 9. A partner receives interest on capital. What are the book keeping entries? Debit Current Account

Credit Profit and loss Account

Current Account

Profit and loss Appropriation Account

C D

Profit and loss Account Current Account Profit and loss Appropriation AccountCurrent Account

What will be the total interest on capital allowed for the year?

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1. $ 800 2. $1,000 3. $1,200

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Partnership - Principles Of Accounting 4. $2,000 11. What does a credit balance on partner’s Current Account represent to Business? 1. Current assets 2. Current liability 3. Long- term liability 4. Part of the Capital 12. X and Y are in partnership sharing profits and losses equally, after X is paid a salary of $15,000. The net profit for the year is $55,000. Drawings for the year are X 12,000 and Y $16,000. What will be Y’s share of the profit?

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1. $20,000 2. $27,500 3. $34,000 4. $36,000

Exercises 1.Asif and Lqbal are in partnership providing business services. They share profits in proportion to their capital account balances and do not use current accounts. The following list of balance was extracted from the accounts of Asif and Lqbal on 30 April 2005. $ Fee income 77, 800 Advertising Expenses 12, 400 Heat and Light 1, 060

/ http://www.principlesofaccounting2.com/ Motor Expenses 7, 300 Rent Paid 12, 800

Official Expenses 12, 240

Motor Vehicles 40, 000 Equipment 12, 000 Capital-Asif 18, 000 Cr Capital- Lqbal 12, 000 Cr Drawings-Asif 8, 000 Drawings- Lqbal 2, 000 Required: a) Prepare the Trial Balance for the partnership as at 30 April 2005 b) Prepare the profit and loss Account for the partnership for the year ended 30 April 2005. c) Prepare the Appropriation Account for the partnership for the year ended 30 April 2005. d) Draw up the capital account of each partner at 30 April 2005. Q 2. Sunny and Thomas are in partnership. Their partnership agreement provides for the following: `a. Sunny to receive a salary of $ 12 000 p.a. b Interest on capital is allowed @ 6% p.a.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ c. Interest on drawings shall be charged @ 5% p.a.

d. Any remaining profits are to be shared between Sunny and Thomas in the ratio of 2:1 On 1 st January, 2003 the following balances appeared in their books: Sunny ($) Thomas ($)

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Partnership - Principles Of Accounting Capital accounts 20 000 25 000 Current accounts 400 Cr. 300 Cr. During the year Sunny and Thomas have withdrawn $ 6 000 and $ 5 000 respectively. The net profit before the adjustments for the year ended 31 st December, 2003 was $ 12 000. Prepare the partners’ accounts under fluctuating capital method and fixed capital methods. Q 3. Anees and Ameer are in partnership for the last 5 years. Their partnership agreement provides for the following: a. Anees to receive a salary of $ 1 000 p.m. b. Interest on capital shall be allowed @ 10% p.a.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ c. Interest on drawings shall be charged @ 5% p.a.

d. Any remaining profits are to be shared between Anees and Ameer in the ratio of 2:1 On 1-1- 2003, the balances in the partnership books were as follows: Anees ($) Ameer ($) Capital accounts 24 000 30 000 Current accounts 300 Cr. 150 Cr.

During the year ended 31 st December, 2003 partners’ drawings were: Anees $ 16 000 and Ameer $ 8 000. The net profit for the year ended 31 st December, 2003 was $ 27 600 Prepare the profit and loss appropriation account and the partners’ current accounts. Q 4. Allen and Susan are in partnership. Their partnership agreement provides for the following: a. Allen to receive a salary of $ 14 000 p.a. b. Interest on capital to be paid @ 10 % p.a.

/ http://www.principlesofaccounting2.com/ c. Interest on drawings to be charged @ 5% p.a.

d. Any remaining profits are to be shared between Allen and Susan in the ratio of 4:2 During the year ended 31 st December, 2003:-

Allen $ Susan $ Capital accounts 30 000 40 000 Current accounts (1-1-2003) 400 (Cr) 300 (Dr) The net profit for the year ended 31 st December,2003 was $ 33 100. You are required to prepare the profit and loss appropriation account for the year ended 31 st December, 2003 and the partners’ current account. Q 5. Graeme and Mendez are in partnership for several years. The terms of their partnership includes: a. Interest on capital to be paid @ 10% p.a. b. The profits are to be shared in the ratio of 2:1. c. Mendez to receive an annual salary of $ 8 000. The following information is available relating to their business during the year 2003: Graeme ($) Mendez ($) Capital accounts 10 000 12 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Current accounts (150) 230

Drawings:

Cash 5 750 8 580 Goods 400 1 000

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Partnership - Principles Of Accounting The net profits during the year ended 31 st December, 2003 amounted to $ 19 350(before appropriation) Required to: a. Prepare the profit and loss appropriation account for the year ended 31 st December, 2003 b. Partners’ current accounts. Q 6. Kate and Mate are partners sharing profits in the ratio of 3:2. Their partnership agreement provides for the following: a. Interest on capital is allowed on their fixed capitals @ 10%p.a. b. Interest on cash drawings is charged @ 3%p.a. The following information is available from their books for the year ended 31 st December, 2003:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Kate ($) Mate ($)

Capital account 60 000 40 000 Current account 1 000 Cr. 1 200 Cr. Cash drawings 10 000 8 000 Goods drawings 2 100 1 500 Salary allowed during the year 1 000 p.m. 8 000 p.a. Commission on sales 2 000 1 500 The net profit for the year ended 31 st December, 2003 was $ 50 360. You are required to prepare the profit and loss appropriation account and the partners’ current accounts. Q 7. Ash and Dash are in partnership for many years. Their partnership agreement provides for the following: a. Interest on capital to be allowed @ 10% p.a. b. A salary of $ 12 000 p.a. is to be allowed to Ash.

/ http://www.principlesofaccounting2.com/ c. The balance of profits are to be shared between Ash and Dash equally. d. Interest is charged on cash drawings @ 5% p.a.

The following information is available from the books of their firm for the year ended 31 st December, 2003: Ash ($) Dash ($) Capital account 25 000 30 000 Current account 1 200 Cr. 1 000 Cr. Drawings: Cash 5 000 7 000 Goods 700 500 The net profit for the year ended 31 st December, 2003 before appropriation was $ 35 000. Prepare the profit and loss appropriation account and partners’ current account. Q 8. Albin and Robbin are in partnership business sharing profits & losses in the ratio of 2:1. Their partnership agreement provides for the following: a) Albin will get a monthly salary of $ 1 000 and Robbin, an annual salary of $ 10 000. b) 5% interest is charged on partners cash drawings c) 10% interest is allowed on partners fixed capitals On 01.01.2000 the balances were:- Albin $ Robbin $ Capital account 30 000 20 000 Current account 1 000 Cr 800 Dr

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ On 31.12.2000 the balances were:-

Capital account 30 000 20 000

Current account 12 100 Cr 6 800 Cr Cash drawings 8 000 6 000

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Partnership - Principles Of Accounting Goods drawings 500 600 You are required to prepare: 1. The partners’ current accounts to calculate the share of profit and 2. The profit & loss appropriation a/c, clearly showing the net profit before appropriation. Q 9. Blue & Yellow are partners in business for several years and their partnership agreement includes the following: 1. Interest on fixed capital to be paid @ 10% p.a. 2. Profits & losses to be shared between Blue & Yellow in the ratio of 2:1. 3. Yellow shall receive an annual salary of $ 10 000. Balances on 01.01.1999:- Blue $ Yellow $

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Capital accounts 20 000 15 000

Current accounts 500 Cr 800 Dr

Balances on 31.12.1999:Capital accounts 20 000 15 000 Current accounts 1 250 Cr 1 700 Cr Cash drawings 4 900 9 700 Goods drawings 350 1 300 Interest on drawings 1 000 500 You are required to prepare: 1. The partners’ current accounts to calculate the share of profit and 2. The profit & loss appropriation a/c , clearly showing the net profit before appropriation.

/ http://www.principlesofaccounting2.com/ Q 10. The following information is obtained from the partnership business f Kate and Rita for the year ended 31 st Dec 2002. Current account balances on 1-1-2002 Current account balances on 31-12 2002 Salary allowed during the year Interest on capital allowed

Kate $ 400(Cr) $ 8 650(Cr) $ 500 p.m 10% on $ 30 000 fixed capital Drawings during the year $ 4 000 A total commission of, 2% on total sales during the year $ 7 500, according to their profit sharing ratio.

Rita $ 200(Cr) $ 6 450(Cr) $ 4 000 p.a 10% on $ 25 000 fixed capital $ 3 500 was allowed to both the partners

Required to:1. Calculate the partner’s share of profit for the year ended 31 st Dec 2002. 2. Calculate the profit before appropriation. Incoming search terms: partnership accounting format accounting for partnerships and partner loan accounts what is a partnership current account the nature and forms of partnership for accounting principles of accounting partnership principle of accounting (partnership) partnership format partnership final accounts fluctuating capital method partnership current account format partnership appropriation account when partners make a loss

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Manufacturing Accounts - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

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â–º Accounting

â–º Manufacturing

â–º Factory Format

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Manufacturing Accounts The businesses which produce and sell the items prepare the following accounts at the end of its accounting year:a. The Manufacturing account (to calculate the total cost of production) b. The Trading and profit & loss account (to find out the net profit or loss) c. The balance sheet.(to show the financial position of the business) The total cost of production = Prime cost + Factory overhead The Prime cost = Direct material + Direct labour + Direct expenses Direct material cost = Opening stock of raw materials + purchase of raw materials + Carriage inwards – returns outwards – closing stock of raw materials. Factory overhead expenses = All expenses related to the factory (indirect expenses) In a manufacturing concern, usually there are three kinds of stocks: Stock of Raw materials (the materials which are mainly used for production of the item)

/ http://www.principlesofaccounting2.com/ Stock of Work in progress (the materials on which some work process have been completed)

Stock of Finished goods (The materials on which all the production processes are completed and ready for sale to the customers) In the examination questions, the stock figures will be given separately. The format of a manufacturing account

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Manufacturing Accounts - Principles Of Accounting

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/ http://www.principlesofaccounting2.com/ Format of trading account of a manufacturing concern

The profit & loss account and the balance sheet preparations will be the same as that of a sole traderâ&#x20AC;&#x2122;s. So the students have to follow the previous method for the preparation of these. Â Fixed expenses and Variable expenses Some expenses will remain constant whether the level of activity increases or falls. These expenses are called fixed expenses E.g. rent of building The expenses which change with changes in activity are called variable expenses E.g: cost of materials. Key points:

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Carriage on raw materials means carriage inwards and it is a part of prime cost. Carriage outwards is shown in the profit & loss account as an expense. Royalties paid is to be treated as direct expense. Depreciation on Plant and Machinery or any other factory asset is to be treated as factory overhead expense.

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Manufacturing Accounts - Principles Of Accounting Stocks of raw materials and work-in-progress are taken in the manufacturing account and stock of finished goods is taken in the trading account. Stocks at the end of the year (raw materials, work-in-progress and finished goods) are shown in the balance sheet as current assets. Owner’s raw materials drawings are shown in the manufacturing account while calculating the prime cost. Finished goods drawings are shown in the trading account while calculating the cost of goods sold. The purchase of finished goods is added with cost of production in the trading account. The depreciation of any asset used in the office should be shown as an expense in the profit & loss account. Cost of ready made items bought for the production of items manufactured should be treated as direct expense. Unit cost of production = Total cost of production No of units produced MCQ.Q 1. The purpose of preparing the manufacturing account is to calculate:A. Gross profit B. Manufacturing profit C.Net profit D. Cost of productionQ 2. What does production cost include

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ in a manufacturing account? A Factory power B. Purchase of raw materials C Carriage inwards on raw materials D. All of these Q 3. Prime cost includes A. Factory direct wages B. Factory indirect wages C. Finished goods D. Work in progress Q 4. The costs of a manufacturing firm are as follows: $ Raw materials purchasedDirect LabourCost of Raw material consumedFactory overheads

5000 3000 7000 2000

/ http://www.principlesofaccounting2.com/ What was the prime cost?

A. $10000 B. $15000 C. $12000 D. $17000

Q 5. Prime cost In a Manufacturing account is equal to A. All factory indirect costs B. All factory costs B. Direct factory costs only D. Direct materials plus direct expenses Q 6. Carriage outward in manufacturing concern is included in which heading? A. Direct expenses B. Factory overhead expenses C. Administrative expenses D. Selling and distribution expenses Q 7. Which of the following is not included in the Manufacturing account? A. Foreman’s wages B. Depreciation on factory machinery C. Indirect wages D. Depreciation on office equipmentQ 8. The following table shows the cost incurred for the production of an item.Direct materials $ 1200 Direct wages $ 700 Manufacturing expenses $ 100 Factory overhead expenses $ 300 What is the amount of prime cost? A. $ 2300 B. $ 2 000 C. $ 1 700 D. $ 3 000 Q 9. How is the production cost calculated in a manufacturing account? A. Prime cost + administrative expenses B. Prime cost + administrative expenses C. Prime cost + Factory overhead expenses

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ D. Raw materials + direct labour.

Q 10. Which on of the following is not factory overhead expense? A. Wages of cleaners B. Carriage on raw materials C. Factory lighting D. Factory power

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Manufacturing Accounts - Principles Of Accounting Q 11. Which are the stock figures shown in the manufacturing account? A. Finished goods and raw materials B. Finished goods only C. Raw materials and working progress D. Finished goods, working progress and raw materials. Q 12. In the balance sheet of a manufacturing concern, which stock is shown? A. Finished stock B. Raw materials C. Work in progress D. All three. Q 13. A manufacturing firm’s costs were as follows: Raw materials 55 000 Direct labour 86 400

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Factory overhead 122 000

Depreciation of plant 6 400

Administrative expense 8 800 Selling & distribution expense 12 000 There was closing work in progress of $ 12 400 What was the factory cost of production? A. $ 257 400 B. $ 263 400 C. 269 800 D. 278 200 Q 14 The material drawings are shown in the: A. trading account B. profit & loss account C. manufacturing account D. balance sheet only Q 15 Royalties paid by a manufacturer is: A. shown as factory overhead B. a part of prime cost. C. a selling expense D. an indirect expense

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Assignment questions

Q1) Zena owns a small manufacturing business. The following balances were taken from her books on 30 June 2001: $ Stocks 1 July 2000 Raw materials 23 300 Finished goods 28 500 Stocks 30 June 2001: Raw materials 25 700 Finished goods 21 500 Purchases of raw materials 265 500 Carriage on sales 3 300 Carriage on raw materials 3 100 Selling expenses 3 500 Bad debts 500 Factory overheads 30 300 Depreciation of factory equipment 14 000 Factory direct expenses 4 000 Factory wages 100 000

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Select the appropriate balances and prepare the Manufacturing account for the year Ended 30 June 2001. Show clearly within the account:

cost of raw materials consumed, prime cost, cost of production

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Manufacturing Accounts - Principles Of Accounting Q2) Justine is a manufacturer of beauty products. The following balances were extracted from her books on 31 December 2001 after the Manufacturing Account had been prepared. $ $ Stocks Raw Materials (31 December 2001) 3 530 Work in Progress (31 December 2001) 1 450 Finished Products (1 January 2001) 11 200 Cost of products manufactured 103 780 Sales of finished goods 137 560 Carriage on sales 1 230 Advertising 3 410

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Sales staff’s commission 8 970 Office expenses 11 860

Bank charges 60 Plant and machinery 51 410 Provision for depreciation on Plant and Machinery 9 030 Trade debtors 13 600 Trade creditors 5 210 Provision for doubtful debts (1 January 2001) 310 Bad debts 460 Cash in hand 90 Bank overdraft 1 740 Capital 60 450 Drawings 3 250 214 300 214 300

/ http://www.principlesofaccounting2.com/ The following additional information is available.

1. Stock of finished products at 31 December 2001 was valued at $10 640.

2. During the year, Justine took finished products valued at $600 from the current year’s production for personal use. No entries had been made in the books. 3. Sales staff’s commission outstanding amounted to $390. 4. The provision for doubtful debts is to be adjusted to 5% of debtors. 5. $50 for bank charges had not been recorded in the books. (a) Prepare Justine’s Trading and Profit and Loss Accounts for the year ended 31 December 2001. (b) Prepare the Balance Sheet as at 31 December 2001. Q:3 Allocate the following costs to Manufacturing account and Income statement Eg:Factory rent

Manufacturing account

a) Production supervisors’ salary b) Insurance of factory building c) Depreciation of office photocopier d) Revenue commission e) Raw material purchased f) Advertising g) Manufacturing Electricity h) Carriage on Revenue i) Carriage on raw materials j) Bad debts

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Q:4

Farhad owns a small workshop and he makes iron gates. The following information was taken from the books on 31 December 2009.

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Manufacturing Accounts - Principles Of Accounting 1 January 2010 31 December 2010 $ $ Inventories – Raw materials 22,400 20,700 Finished goods 14,400 20,000 Purchases of raw materials 172,100 Carriage on Revenue 4,200 Carriage on raw materials 3,200 Workshop wages 75,600

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Sales staff wages 42,100

Raw materials returned to suppliers 700

Workshop light and heat 9,200 Workshop general expenses 16,900 Depreciation of workshop equipment 9,600 Revenues from finished goods 366,000 REQUIRED: a) Select the appropriate balances and prepare the Manufacturing Account for the year ended 31 December 2010. b) Prepare the Income statement for the year ended 31 December 2010. Q:5 The following information for the year ended 31 December 2008 is extracted from the books of Sammad, the owner of a small fruit juice-bottling factory:

/ http://www.principlesofaccounting2.com/ 1 January 2010 31 December 201

$ $ Inventories –

Ingredients (Bulk Orange Juice) 950 1,070 Empty Bottles and Labels 260 230 Bottled Fruit Juice 3,900 4,300 Purchases of: Ingredients (Bulk Orange Juice) 13,400 Bottles and Labels 1,270 Revenue of Bottled Fruit Juice 71,400 Factory Wages 23,430 Supervisor’s Salary 5,200 Factory indirect expenses 2,690 Depreciation of Plant and Machinery 1,700 You are required to prepare 1. The Manufacturing Account showing clearly cost of raw materials consumed, prime cost and cost of production. 2. The income statement for the year ended 31 December 2010 Q:6 The following information for the year ended 30 September 2003 was extracted from the books of Preserves Ltd, manufacturers of jam and fruit juices.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1 October 2002 30 September 2003 $ $

Inventories: – raw materials 6 800 6 400 – jars, lids and labels 10 400 10 000

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Manufacturing Accounts - Principles Of Accounting – finished goods 21 000 21 600 Purchases: – raw materials 70 600 – jars, lids and labels 17 000 Revenues 365 000 Factory wages 36 800 Factory light and power 29 200 Factory machines repairs 11 400 Carriage on raw materials 11 000

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Depreciation of plant and machinery 12 600 REQUIRED: (a) Prepare, in good style, the Manufacturing Account for the year ended 30 September 2003. (b) Prepare the Income statement for the year ended 30 September 2003. Incoming search terms: manufacturing account manufacturing accounts format for manufacturing account accounting manufacturing Manufacturing acount formet manufatrring accoint format opening stock of raw materials in p&l account profit and loss manufacturing account

/ http://www.principlesofaccounting2.com/ stock material loss account

Manufacturing account is prepared in order to find the

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Departmental Accounts - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

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Pricacy Policy

â–º Accounting

â–º Retail Business

â–º Retail Industry

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Departmental Accounts Departmental Trading Account It is also known as columnar Trading Account. Departmental Store: It is a large retail organization It has number of departments situated under one roof. Each department deals with only one particular types of goods

/ http://www.principlesofaccounting2.com/ Use of Departmental Accounts: If trading A/c is prepared by adding all departments’ figures of purchases, sales etc, we won’t be able to know how much Gross profit (Loss) is made by each department. If Gross Profit is calculated taking the figures separately, we can see how well or how badly each part of business is doing. It is very useful for decision making If one department is running in loss, it can be closed so that we can avoid loss and make a great Gross profit. Or it can be replaced with some other business which is profitable. Format of Departmental Trading Account This is similar to Vertical format of Trading A/c.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ E.g.: S.Deen’s super store has two departments of clothing and Jewelry. S.Deen’s super store

Trading A/c for the year ended ………………………

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Departmental Accounts - Principles Of Accounting

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Most of the times, departmental trading account will appear as follows as few items of trading A/c are given, Suppose opening stock, Purchases, sales and closing stock, S.Deen’s super store Trading A/c for the year ended ………………………

/ http://www.principlesofaccounting2.com/ Departmental Account Questions: Q1.You are to draw up the Trading Account for S.Hasmath’s Departmental Store from the following information for the year ended 31 December 2005. Departments Electronic Furniture Sales 5000 4000 Purchases 3000 2500 Stock (1.1.2005) 1200 1600 Stock(31.12.2005) 800 700 Return Inward 300 200 Return Outward 450 350 Q2.From the following information, you are to draw up the Trading Account for S.Vaseem’s Departmental Store for the year ended 31march 2006. Stock: 01.04.2005 31 03.2006.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Clothing Department 16300 15700

Sports Goods Department 7500 6100 Electrical Department 12400 9600

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Departmental Accounts - Principles Of Accounting Sales for the year: Clothing Department 40900 Sports Goods Department 22500 Electrical Department 30200 Purchase for the year: Clothing Department 33450 Sports Goods Department 11275 Electrical Department 16750

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Question 03.

From the following you are to draw up the trading account for John Keels’s Department Store for the year ended 30 June 20×6. Stocks: 1.7.2005 30.6.2006

( $) ( $) Carpet Department 16,100 18,410 White Goods Department 37,916 35,119 Music Department 31,222 40,216 Sales of the year: ( $) Carpet Department 62,400 White Goods Department 151,300 Music Department 94,820 Purchase for the year:

/ http://www.principlesofaccounting2.com/ Carpet Department 43,600

White Goods Department 118,260 Music Department 55,924 Incoming search terms: departmental accounting departmental accounts departmental account departmental account format Departmental a/c departmental trading and profit and loss account Departmental accounts(types) departmental accounting trading profit and loss departmental a/c format principles for departmental accounts

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Business Purchase - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

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Pricacy Policy

â–º Accounting

â–º Balance Sheet

â–º Business Credit

â–º Loan for Business

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Business Purchase

A buyer may decide to purchase a business for several reasons. They may include 1. An attractive purchase price 2. An opportunity to expand business activities 3. An opportunity to acquire profit making businessUsually the purchaser does not takeover all the assets and liabilities of the vendor (i.e.) the vendor will retain the cash and be left to pay off some or all of the liabilities. Business Purchase price: This is the price to be given by the purchaser to the vendor. The purchaser and the vendor will calculate this price together (usually on the basis of the assets and liabilities taken over by the purchaser) or on the basis of the average profit of the business during the past years. Calculation of Goodwill or Capital Reserves(negative goodwill): Sometimes the purchaser will have to pay for Goodwill or receive Capital Reserve. Goodwill or capital reserve is the difference between net assets and business purchase price. Goodwill / Capital reserve = Business Purchase Price – Net Assets (Positive figure is goodwill and negative figure is capital reserve)

/ http://www.principlesofaccounting2.com/ Factors / reasons for Good will:

A person has to pay for goodwill when taking over a business or when admitted as a partner because of Profitability Reputation Locality Public relation Existing business means, the business is being operated and a balance sheet is there for the business at any time. The types of business purchase can be mentioned as follows: a) An individual (a person) purchases a business b) A partnership or a sole trader acquires the business of a sole trader c) Two or more sole traders join together to form a partnership d) A limited company takes over the business of a partnership or a sole trader

Why business purchases are taking places? a) To avoid competition ( competition will lead the business to “cutthroat” and lose) b) To enjoy the profit of the business which is to be purchased c) To enlarge the size of the business d) To avoid the burdens and toil of organizing a new business e) To enjoy the Good will of the business Double Entries necessary in the books of the Purchaser.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1. For the assets taken over-

Various Assets taken over Dr (including Goodwill)

Business Purchase Cr 1. 2. For the liabilities taken over-

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Business Purchase - Principles Of Accounting Business Purchase Dr Various Liabilities taken over Cr 1. 3. For recording the business purchase priceBusiness Purchase Dr (with Business Purchase Price) Vendor Cr 1. 4.For the capital brought in the businessBank/ Cash Dr Share Capital Cr

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1. 5. For recording the payments to vendor-

Vendor Dr Bank / cash Cr

Key points Only the revalued amounts are considered for the calculation of business purchase price and the purchaser’s balance sheet shows only these values. In the purchaser’s books goodwill is always debited as a fixed asset and capital reserve (negative goodwill) is always credited as capital profit.

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Q 1.Following is the Balance Sheet of M. Moof as at 31.12.1998. Assets

Liabilities

Land

30 000Creditors

17 000

Building

25 000Bank Loan

10 000

Furniture

15 500Capital

70 400

Debtors

12 300

Stock

8 700

Cash in Hand

1 300

Cash at Bank

4 600 97 400

97 400

G. Grant decided to purchase the business of M. Moof on 01.01.1999. He will take over the assets and liabilities on the following valuationsLand 32 000 Debtors 11 000 Building 23 000 Stock 9 000 Furniture 15 000 Creditors 16 000 He will not take over the cash in hand, cash at bank and bank loan. The purchase price is fixed at $ 80,000.

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You are required to calculate the amount of Goodwill and pass journal entries in the books of G. Grant assuming that G. Grant settled the amount payable to M. Moof by cheque. Q 2. M. Martin is a sole trader. His Balance Sheet as on 01.01.1998 was as follows.

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Business Purchase - Principles Of Accounting Assets

Liabilities

Buildings

37 000Creditors

Furniture

20 000Bank Overdraft

Fittings

10 000Capital

Stock

17 000

Debtors

1 000

Cash in hand

2 350

3 000 69 350

87 350

15 000

87 350

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R. Robin decided to purchase the business of M. Martin on 01.01.1998 and he decided to take over all the assets and liabilities except cash in hand and bank overdraft on the following valuations. Building at book value less $ 2 000 depreciation Furniture at book value less 10% depreciation Fittings at $ 9 000 Debtors at $ 950 Stock at $ 18 500 Creditors $ 15 500

The business purchase price was fixed at $ 70 000. He brought into the business sufficient amount of money to settle the business purchase price. You are asked to calculate the Goodwill or Capital Reserve. Prepare Journal Entries in the books of R. Robin assuming that he settled the account by cash on 01.01.1998 Q 3.The following Balance Sheet is taken from the books of l. Lawrence on 01.01.1998 on which date he decided to sell his business-

/ http://www.principlesofaccounting2.com/ Assets

Liabilities

Fixed Assets

Capital

1 00 000Creditors

Premises Fixtures & Fittings

7 000

Motor Van

4 000

Current Assets

1 26 300 12 000

Stock

13 000

Debtors

10 000 4 300

Bank

1 38 300

T. Terry decided to purchase the above business and take over all the assets and liabilities except bank balance on the revaluations of the following assets. Premises $ 1 05 000 Stock $ 11 000 Furniture & Fittings $ 5 000 T. Terry has to pay an additional amount as Goodwill, which is equal to 2 years purchase of average of past 3 year’s profits which were: 1995 $ 10 000 1996 $ 12 000

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1997 $ 14 000

On 01.01.1998 T. Terry deposited $ 1 55 000 into the business bank account as Capital and settled the business purchase price by cheque. You are required to:

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Business Purchase - Principles Of Accounting

a) Calculate the business purchase price b) Pass Journal Entries in the books of T. Terry c) Prepare his Balance Sheet after the purchase transactions are over

Q 4. M. Mortan decided to purchase the business of R. Rocky on 01.01.1997. He deposited into the business bank account an amount of $ 80,000, out of which $ 30,000 he borrowed from a bank. The Balance Sheet of R. Rocky on 01.01.1997 was as shown below. Assets

Liabilities

Premises

50 000Capital

60 050

Fixtures

10 000Creditors

14 200

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Stock

9 000

Debtors

4 000

Bank

1 250 74 250

74 250

It was agreed that:a) M. Mortan should take over all the assets, except the balance at bank, and all liabilities but that the following assets should be revalued: Premises $ 55000 Stock $ 8550 b) M. Mortan should pay an additional amount equal to the average profit of R. Rocky’s business over the last three years. The profits were: 1994 $ 12500 1995 $ 13000 1996 $ 15000

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The sale was completed on 01.01.1997 and the payment was made by cheque. (I) Calculate the amount paid for the business by M. Mortan

(II) Show the Journal Entries necessary in M. Mortan’s books to record the purchase of R. Robbins business. (III) Assuming no other transactions except the settlement of the business purchase price, calculate M. Mortan’s working capital. Q 5. Sanal is the owner of a business. His Balance Sheet on 01.01.1998 was as follows. Liabilities

Assets

1 09 300Land

Capital Creditors Bank Overdraft

50 000

12 000Buildings

40 000

4 200Furniture

7 500 5 000

Fittings

Stock

12 500

Debtors

10 000

Cash in hand

500

1 25 500

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Amal is also a businessman carrying on a similar business concern. His balance sheet on the above date appeared as follows: Liabilities Capital

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Amount 110500Land

Assets

Amount 70000

Business Purchase - Principles Of Accounting 25000 Building

30000

Fixtures

7000

Stock

12000

Debtors

10000

Cash in hand

2500

Cash at bank

4000

Creditors

135500

Amal decided to purchase the business of Sanal on the following conditionsa) Amal will take over all the assets and liabilities except bank overdraft and cash in hand.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ b) Sanal revalued the assets and liabilities as follows: $ Land 57 000 Furniture 7 000 Buildings 38 000 Fittings 4 000 Stock 13 000 Debtors Book value less 1 000 as bad debts Creditors 12 200 c) The purchase price is fixed at 130800.

d) Amal has to pay an additional amount equal to the average of Sanal’s Business over the past 3 years profit. The profits were:1995 $ 20 000, 1996 $ 15 000, 1997 $ 10 000.

/ http://www.principlesofaccounting2.com/ Amal took a loan from the bank $ 75 000 and the balance amount of business purchase price he arranged from his private property and deposited the amount in the business bank account.. On 01.01.1998 he settled the Business Purchase Price. Required toi) Calculate the Goodwill ii) Prepare the journal entries including the bank transactions iii) Prepare the business purchase account Prepare Amal’s revised balance sheet after the purchase transactions have been completed. Incoming search terms: accounting entries for acquisition of a business journal entry goodwill account and capital reserve journal entry for purchase of business acquisition of business accounting entries accounting for the purchase of a business accounting for purchase of new business accounting for purchase of a business accounting entry for purchas of company accounting entry for acquisition of company accounting entries when buying business

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Amalgamation - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

Topics

Pricacy Policy

â–º Accounting

â–º Balance Sheet

â–º Business Cash

â–º Principles

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Amalgamation When two traders decide to merge their separate business to form a partnership then it is known as Amalgamation of two sole traders. The entries and balance sheet are prepared in the books of partnership concern. Q 1. Following are the balance sheets of two sole traders who decided to amalgamate their business. You are required to prepare the amalgamated balance sheet of their business. Balance Sheet of Mr. Brown. Assets

Liabilities

Premises

20 000Capital

70 000

Fixtures

35 000Creditors

18 000

Stock

14 000

Debtors

16 000

Bank Loan

3 000

/ http://www.principlesofaccounting2.com/ 88 000

88 000

Balance Sheet of Mr. Owen. Assets

Liabilities

Land

30 000Capital

68 000

Premises

25 000Creditors

16 000

5 000

Fixtures Stock

10 000

Debtors

12 000 2 000

Cash in hand

84 000

Q 2. T. Terry is a businessman carrying on a small business. His balance sheet as on 01.01.2003 is as follows: Assets

Liabilities

Land

75 000Creditors

Building

40 000Capital

Machinery

25 000

$ 15 000 1 72 300

5 000

Furniture Stock

21 000

Debtors

18 000 3 300

Bank

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1 87 300

1 87 300

B. Berry is another sole trader carrying on a similar business and his balance sheet as on 01.01.2003 is as follows: Assets

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Liabilities

Amalgamation - Principles Of Accounting Building

35 000Creditors

12 600

Furniture

2 000Capital

84 700

Machinery

25 000

Stock

18 000

Debtors

15 300 2 000

Cash

97 300

On 01.01.2003 they decided to amalgamate their separate business and form a partnership. For the purpose of which partnership assets and liabilities are revalued as follows:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ T. Terry B. Berry

Land Increase by 5000 —-

Building 10% depreciation 5% depreciation Machinery 20% depreciation 15% depreciation Furniture Book Value Book Value Stock Less 10% Less 10% Debtors Book Value 1300 Provision for bad debts Cash, bank and creditors for both the sole traders are at book value. You are required to: a. Calculate the Capital for each partner. b. Prepare the balance sheet of the Partnership. Q 3. Mr. X and Mr. Y are two sole traders carrying on similar business concerns. Their balance sheet as on 01.01.2001 was as follows:

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Balance Sheet of Mr. X Assets

Liabilities

Premises

80 000Creditors

15 500

Buildings

45 000Bank Overdraft

14 000

Machinery

28 000Capital

Fittings

6 000

Stock

8 500

1 65 000

22 000

Debtors Cash in hand

1 500

Cash at bank

3 500 1 94 500

1 94 500

Balance Sheet of Mr. Y Assets

Liabilities

Land

38 000Creditors

18 000

Furniture

21 000Bank Loan

21 000

Fittings

3 100Capital

Machinery

49 000

Stock

16 000

1 10 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Debtors

15 900

Cash in hand

2 000

Cash at bank

4 000

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1 49 000

Amalgamation - Principles Of Accounting On 01.01.2001, they decided to amalgamate their sole trading business into a partnership concern. They revalued assets and liabilities as follows: Mr. X Mr. Y Premises Less 10% depreciation ———————Land ————————– Increased by 20000

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Buildings Less 10% depreciation ——————– Machinery Less 12% depreciation Less 10% depreciation

Furniture Book value Book value Fittings Book value Book value Stock Decrease by 5% Decrease by 5% Debtors Book value less 2000 as Book value less 900 as bad debts. Bad debts. Creditors Less 1500 from book value. Less 1500 from book value. The amount of cash in hand and cash at bank for both the sole traders are at book value. You are required to: (a) Calculate the capital for each partner. (b) Prepare the balance sheet of the partnership. Q 4. The following balance sheet appeared in the books of Neena as at 31.12.2002. Liabilities

Assets

/ http://www.principlesofaccounting2.com/ Capital

72 000Premises

29 000

Creditors

25 000Machinery

25 000

Furniture

14 000

Stock

12 000

Debtors

10 000

Cash at bank

5 000 2 000

Cash in hand 97 000

97 000

Balance sheet of Beena as at 31.12.2002 was as follows: Liabilities

Assets

Capital

60 000Machinery

30 000

Creditors

25 000Furniture

20 000

Stock

15 000

Debtors

12 000

Cash in hand

1 000

Cash at bank

7 000

85 000

Both of them decided to amalgamate on the following conditions:

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 1. The assets and liabilities were revalued as follows-

Neena Beena Debtors 9 800 11 500

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Amalgamation - Principles Of Accounting Premises 30 000 —Machinery 20 000 28 000 Furniture 12 000 17 000 Stock 11 500 15 500 Creditors 26 000 27 000 All the other items are at Balance sheet values. 2. The business purchase price was fixed at Neena $ 68000 and Beena $ 60000. 1. The Goodwill is recorded in the books. You are required to show the balance sheet of Neena and Beena.

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Q 5. The following balance sheets were available on 31.12.2002. Balance Sheet of X Liabilities

Assets

Capital

52 500Premises

40 000

Creditors

16 000Furniture

15 000

4 000Stock

Bank Overdraft

9 000 8 000

Debtors

500

Cash in hand 72 500

72 500

Balance Sheet of Y Liabilities

Assets

/ http://www.principlesofaccounting2.com/ Capital

35 700Furniture

35 000

Creditors

27 000Stock

12 000

Bank Loan

5 000Debtors

15 000 5 000

Cash at bank

700

Cash in hand 67 700

67 700

X and Y decided to amalgamate their business on the following conditions on 01.01.2003. 1. Assets and Liabilities are revalued as follows: X Y Premises 45 000 —Furniture 12 000 30 000 Stock 10 000 11 500 Debtors 7 000 14 200 Creditors 17 000 26 000 1. Bank Overdraft for X and Bank loan for Y will be taken at book value. 1. X’s Goodwill was considered value less and Y’s Goodwill was valued at $ 400. The amalgamation procedure was completed on 01.01.2003. You are required to amalgamate the balance sheet of X and Y as at 01.01.2003. Incoming search terms:

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amalgamation of business

amalgamation of sole traders to form partnership amalgamation principle partnershgp amalgametion

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Amalgamation - Principles Of Accounting partnership amalgamation accounting Patnership amalgamation accounting poa amalgamation capital account

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Company Accounts - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

Topics

Pricacy Policy

â–º Accounting

â–º Stock Fund

â–º Stock Values

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Company Accounts

The capital of a limited company is divided into shares. A person can become the member of a company if he buys a share. Then he is known as the shareholder. If the shareholder has paid in full for the shares he has taken, his liability is limited to the nominal value of those shares only. When the company loses its assets, it cannot ask the shareholders to pay anything out of their private property in respect of the company’s losses. If the shareholder has paid partly only for the shares, he can be forced to pay the balance owing on the shares. In short, the liability of each member is limited to the nominal value of the shares he has taken. This is known as limited liability and the company is known as limited company. Share capital (different meaning) 1. Authorized/registered/nominal share capital. This is the total of the share capital which the company is allowed to issue to the shareholders. 2. Issued share capital: This is the total of the share capital actually issued to the shareholders. 3. Called up capital: Where only part of the amounts payable on each share has been asked for, the total amount asked for on all the shares is known as the called up capital. 4. Uncalled capital: This is the total amount which is to be received in future, but which has not yet been asked for.

/ http://www.principlesofaccounting2.com/ 5. Calls in arrears: The total amount for which payment has been asked but has not been paid by share holders. 6. Paid up capital: This is the total of the amount of share capital which has been actually paid by the shareholders.(Paid up capital = Called up capital – Calls in arrears) Types of shares Preference shares: the preference shares will be having some preferential rights over ordinary shares. The preference dividend will be paid prior to the ordinary shares dividends. The preference dividend is fixed. Ordinary shares: The ordinary share holders are the real owners of the company Their dividend will vary according to the amount of profit available. Ordinary share dividend will be paid after the payment of preference share dividend. Debentures: Debentures are the credit documents issued for borrowing from the public. Debenture holders are long term creditors of the company. They get fixed rate of interest. Difference between Ordinary shares and preference shares. Preference share holders get fixed rate if dividend, ordinary share dividend varies year to year according to the amount of profits available. Preference share holders get dividend first before ordinary share holders. Ordinary shares holders get dividend after preference share holders are paid. At the time of liquidation, preference share holders get capital back first before ordinary share holders. Ordinary share holders get capital back last.

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Difference between Debentures and shares. Debenture holders are long term creditors of the company. But share holders are the owners of the company.

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Company Accounts - Principles Of Accounting

Debenture holders get fixed rate of interest. But share holders are getting dividend. Debenture holders do not have voting rights. But share holders have voting rights.

Types of Capital: Authorized share capital . The maximum amount of share capital that a company is allowed to be raised. It is also called nominal or registered share capital. Issued share capital The part of authorized capital which is already issued to the public. It is the total value of shares issued. Paid up capital It is the actual amount of share value paid to the company by its share holders

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Limited companies

Limited company Limited company means an organization owned by its shareholders whose liability is limited to the share capital. Share capital (different meaning) 1. 1. Authorized/registered/nominal share capital This is the total of the share capital which the company is allowed to issue to the shareholders 1. 2. Issued share capital This is the total of share capital actually issued to the share holders 1. 3. Called up capital Where only part of the amount payable on each share has been asked for, the total amount asked for on all the shares is known as the called up capital 1. 4. Uncalled capital

/ http://www.principlesofaccounting2.com/ This is the total amount which is to be received in future, but which has not yet been asked for 1. 5. Calls in arrears:

The total amount for which payment has been asked but has not been paid by share holders 1. 6. Paid up capital This is the total of the amount of share capital which has been actually paid by the share holders Paid up capital =called up capital-calls in arrears Features of ordinary share v Owners of the company v They have voting rights v No fixed % of dividend Features of preference shares v Not the Owners of the company v Have no voting rights v Have fixed % of dividend Debentures v Debentures are the loan to the company v They are creditors of the company

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Key points 1. 1. Debentures

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Company Accounts - Principles Of Accounting Loan to the company from the public carrying fixed rate of interest 1. 2. Debenture interest This is the interest paid on debentures to the debentures holders. This is as expense to be charged in the profit and loss account and if it owes it is known as a current liability in the balance sheet (it is nor the item to be entered In the appropriation account) 1. 3. Long term loan interest This is also an expense to be charged in the profit and loss account (not in the appropriation account) and it owes it is known as a current liability

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1. 4. Ordinary shares

Shares entitled to divided after the preference shareholder have been paid their dividends 1. 5. Preference shares Shares that are entitled to an agreed rate of dividend before the ordinary shareholders receive anything 1. 6. Dividends The profit that is being distributed to the shareholders is called dividends 1. 7. Interim dividend The dividend paid to the share holders in between two annual general meetings (it is the item to be entered in appropriation account) 1. 8. Proposed divided

/ http://www.principlesofaccounting2.com/ This is the dividend agreed by the board of directors, but not paid. It is deducted from the profit and loss appropriation account and shown as a current liability in the balance sheet 1. 9. Dividend is calculated on the paid up capital only If all issued have been paid up, then both the same 1. 10. Reserves The transfer of apportioned profits to accounts for use in future 1. 11. Director’s remuneration This is the remuneration given to the directors and an expense to be shown in the profit and loss account (it is not the item to be entered in appropriation account) 1. 12. For preference shares prefixed rate of dividend is paid Preference dividend =issued preference share capital X Rate 1. 13. For ordinary shares If dividend paid is as percentage of capital Dividend =issued ordinary share capital X Rate If dividend is payable per share Dividend =Number of issued ordinary share capital X Dividend per share Distinction between shares and debentures

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Shares

Debentures

1 2

Owner’s capital. Owners/ Share holders.

1 2

Loan capital. Creditors.

Dividend paid is appropriation of profit.

Interest paid is a charge or expense

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Company Accounts - Principles Of Accounting 4

Dividends paid according to the 4 profit earned and at the direction of the directors.

Interest payment is compulsory whether profits are earned or not.

Not repaid or redeemed except redeemable preference shares.

Redeemed after certain period at the option or discretion of the company.

Unsecured. The shareholders will get the repayment of capital on

Normally having fixed charge or floating charge on the assets of the company.

winding up, only if there is surplus. 14. Distinction between ordinary shares and preference shares 1 2

Ordinary shares Ultimate control of the company

Preference shares No control of the company

Dividend is available only if there are sufficient profits.

Fixed rate of dividends. If cumulative preference shareholders miss dividends in one year, they get arrears of dividends in

No preferential treatment of dividend

good years. Preferential treatment of dividend and repayment of capital

Treated as own capital

Treated as prior charge capital, that is part

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ of loan capital Profit and loss appropriation account.

This is the account prepared after the preparation of the trading and profit & loss account of a limited company. This account starts with the net profit obtained from the profit & loss account and the last year’s retained profit (if any). The appropriations of profits are shown in this account. After the appropriation, if there is any profit left over, it is called retained profit and it will be carried forward to the next year. Formats:

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Balance sheet extract

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ MCQ

1. A company which can offer its shares for subscription to the public is known as:

A. Private company B. Public limited company C. Public corporation D.Corporation

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Company Accounts - Principles Of Accounting 2. What is the authorized share capital of a limited company? A. The issued share capital B. Issued share capital plus reserves C. Issued share capital plus debentures D. The shares that a company is allowed to issue by law 3. The liability of share holders of a public limited company is limited to: A. paid up value of shares B. nominal value of shares C. extent of private assets D. called up share capital 4. What is the other name of authorized capital? A. issued capital B. Nominal capital C. Uncalled capital D. Calls in arrears 5. The debenture interest paid is recorded in which part of the final accounts of a limited company?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. Trading account B. Profit and loss account C. Profit and loss appropriation account D. Balance sheet

6. The dividend is calculated on which of the following values of shares? A. Authorized share capital B. Issued share capital C. Called up share capital D. Paid up share capital 7. Which of the following is not included in the share holders’ funds? A. Debentures B. General reserves C. Ordinary share capital D. Preference share capital 8. Retained profit of a limited company belongs to the: A. directors’ B. debenture holders’ C. shareholders D. company 9. Proposed dividends are: A. shown as a current liability on the balance sheet B. debited with other business expenses in the profit and loss account C. paid from capital reserves

/ http://www.principlesofaccounting2.com/ D. credited to the appropriation account

10. In the final accounts of a limited company, directors’ remuneration is:

A. debited in the trading account B. debited in the profit and loss account C. debited in the appropriation account D. deducted from share capital in the B.S 11. Under which heading is share premium account shown? A. Current assets B. Current liabilities C. Share capital D. Reserves & Surplus 12. The interim dividend paid is shown in the: A. profit and loss account B. profit and loss appropriation account only C. profit and loss account and balance sheet D. profit and loss appropriation account and balance sheet Assignment Questions Q 1. Union ltd. is registered with an authorized capital of $ 800 000 divided into 300 000 Ordinary share of $ 2 each and 200 000, 10 % preference shares of $ 1 each. On 30 the April, 2001 after the completion of trading and profit & loss account the following balances remained in the books. Account balances

Debit $

Credit $ 5 00 000

Ordinary share capital

1 00 000

10 % Preference Share Capital Premises at cost

3 80 000

Machinery and Plant at cost

3 10 000

Motor vans at cost

60 000

Retained earnings b/f

10 000

Preference dividends owing

10 000

Ordinary share dividend owing

20 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Stock

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52 000

Company Accounts - Principles Of Accounting 40 000

Debtors

15 000

Creditors 31 000

Cash in hand and at bank Provision for depreciation

1 35 000

Machinery and Plant Motor vans

20 000

!0% Debentures redeemable 2010

30 000 3 000

Debenture interest owing

30 000

Share premium 8 73 000

Total

8 73 000

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Prepare for Union Ltd. a balance sheet at 30.04.2001 showing clearly the working capital and the shareholders’ fund. Q2 . The final accounts of Moir Ltd. are prepared on 30 th April each year. On 30 th April, 2002 after the profit and loss account had been prepared the following information was available. $ Authorized capital 300 000 Ordinary shares of $ 1 each 300 000 Issued capital, fully paid 120 000 ordinary shares of $ 1 each 120 000 Freehold premises at cost 100 000 Plant and Machinery at cost 75 000

Provision for depreciation on Plant and Machinery 35 000 Profit and loss account credit balance 33 190 10 % debentures 10 000

/ http://www.principlesofaccounting2.com/ Cash at bank 8 500

Stock at 30 th April, 2002 25 000 Trade creditors 9 450 Trade debtors 8 200 Expenses prepaid 940

General reserve 10 000 From the above information prepare a balance sheet as at 30 th April, 2002. Your balance sheet must show sub-totals for fixed and current assets, current and long-term liabilities. Working capital must be identified within your balance sheet. Q 3. Summertime Ltd, has an authorized capital of $ 10 00 000 consisting of $ 8 00 000 Ordinary Shares of $ 1 each and $ 2 00 000, 10% Preference Shares of $ 1 each. After completing the trading, profit & loss a/c for the year ended 31.03.2003, the following balances remain in their books:Account Balances

Debit $

Credit $

Issued Share Capital Ordinary Shares

8 00 000

10 % Preference Shares

1 00 000

Land and buildings at cost

6 64 000

Motor vehicles at cost

2 40 000

Fixtures & Fittings at cost

1 50 000

Provision for depreciation 60 000

Motor Vehicles

38 000

Fixtures & Fittings

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Debtors & Creditors

18 000

Stocks

68 000

Bank

60 000

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12 000

Company Accounts - Principles Of Accounting 4 000

Cash

32 000

General Reserve Profit for the year

1 40 000

Retained Earnings

12 000

9% Debentures

50 000 40 000

Interim Dividend paid Total

12 44 000

The directors proposed: 1. to pay the preference dividend in full 2. to pay a final dividend of 8% on the ordinary shares 3. to transfer $ 20 000 to general reserve

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Prepare the profit and loss appropriation a/c and the balance sheet of the company. Q 4 . The following balances appeared in the books of XL ltd, as at 31.12.2003 $ Premises 1 06 000 Equipment 27 000

Authorized & Issued Capital 70 000 10% Debentures 20 000 Stock in trade 4 500 Debenture interest owing 1 500 Profit & loss a/c on 01.01.03 3 200 Cash at bank 5 220 Creditors 6 000 Debtors 3 000

/ http://www.principlesofaccounting2.com/ Provision for depreciation on equipment 12 600 Net Profit for the year 32 420

The following additional information is also available: 1. $ 5 000 is to be transferred to general reserve 2. A dividend of 12% is proposed on ordinary shares Prepare the profit & loss appropriation a/c for the year ended 31.12.2003 and a balance sheet extract showing working capital and shareholders’ funds. Q 5. Sound Sense plc. has an authorized share capital of 500 000 ordinary shares of $ 1 each and 200 000 10% preference shares of $ 2 each. After the trading and profit & loss a/c had been prepared for the year ended 31.03.2003, the following balances appeared in the books of the company. $ Issued Share Capital 400 000 ordinary shares of $ 1 each 4 00 000 50 000, 10% preference shares of $ 2 each 1 00 000 Net trading profit for the year 60 000 Retained earnings b/f 17 000 Debtors 26 000 Creditors 14 000 Bank (credit balance) 10 000 General Reserve 12 000 Interim ordinary dividend paid 12 000 Premises at cost 3 00 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Equipment at cost 2 25 000 Motor Vehicle at cost 86 000 Provision for depreciation

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Company Accounts - Principles Of Accounting on Equipment 62 000 on Motor Vehicles 20 000 Closing Stock 46 000 Additional Information; 1. $ 35 000 should be transferred to general reserve 2. Preference dividend to be paid in full 3. A final dividend of 2% on ordinary shares is proposed by the directors Prepare the profit & loss appropriation a/c for the year ended 31.12.2003 and a balance sheet extract showing working capital shareholders’ funds. Q 6. Hallom Limited has a registered capital of $ 6 00 000 divided into 4 00 000 ordinary shares of $1 each and 2 00 000 6% preference shares of $ 1 each.

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The following balances remained in the accounts of the company after the trading and profit and loss accounts had been prepared for the year ended 30 th April 2003. Debit $

175

Debenture interest accrued

15 000

7% debentures

4 00 000

Ordinary share capital: fully paid

10 000

6% preference share capital: fully paid 25 000

Cash at bank Profit and loss account balance on 1 st May 2002

90 000 20 000

Debtors & creditors Net profit for the year ended 30

Credit $

40 400

April 2003

Machinery and plant at cost

8 600

200 000 50 000

Provision for depreciation on machinery and plant

/ http://www.principlesofaccounting2.com/ Stock

Premises at cost

39 175

3 50 000

20 000

General reserve Total

6 34 175

The directors have recommended the following:1. a transfer of $ 5000 to general reserve 2. an ordinary share dividend of 10% 3. a provision for the full years preference share dividend You are asked to:1. Prepare the profit and loss appropriation account for the year ended 30 th April 2003 2. Prepare a balance sheet at 30 th April 2003, showing fixed assets, current assets, current liabilities, working capital and shareholders’ fund. Q 7. Perez plc. had an authorized capital of $ 2 00 000 divided into 1 50 000 0rdinary shares of $ 1 each and 50 000 8% preference shares of $1each. The following balances remained in the accounts of the company after the trading and profit loss accounts had been prepared for the year ended 31 st Dec 2003. Debit $

Credit $

Ordinary share capital; fully paid

1 00 000

8% preference shares; fully paid

20 000

Machinery and plant at cost

60 000 20 000

Provision for depreciation on machinery and plant

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Premises at cost

1 00 000

Profit and loss account balance(1-1-2003)

16 450

Net profit (for the year ended 31 st Dec. 2003)

18 052

Light and heat

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560

Company Accounts - Principles Of Accounting Cash at bank

8 500

Stock

6 000

Debtors and creditors

2 200

1 788

150

Insurance

1 76 850

Total

1 76 850

Directors have recommended an ordinary dividend of 7% and wish to provide payment of the preference share dividend for the year. Prepare for the Perez plc:1. the profit and loss appropriation account for the year ended 31 st Dec 2003 2. the balance sheet as at 31 st Dec 2003 only the part which shows the share holders fund and the working capital.

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Q 8. Graphic Limited has the registered capital of $ 5 00 000, divided into 3 00 000 ordinary shares of $1 each and 2 00 000 10 % preference shares of $ 1 each. The following balances remained in the books of the company after the trading and profit and loss accounts had been prepared for the year ended 30 th April 2003:Debit $

Credit $

3 20 000

Premises at cost Ordinary share capital(fully paid)

2 00 000

10% preference shares ( fully paid)

1 00 000

General reserve

8 000

8% debentures

30 000 10 000

Share premium 10 000

Cash at bank

9 800

Debtors & creditors Profit and loss account balance on 1 st May 2002

15 000 60 000

/ http://www.principlesofaccounting2.com/ 40 000

Net profit during the year

1 70 000

Machinery and plant at cost

95 000

Provision for deprecation on machinery and plant Good will

20 000

Stock

15 920 920

Provision for bad debts

1 200

Debenture interest accrued

600

Salaries 5 000

Insurance Interim ordinary dividend paid Total

10 000

5 60 720

At 30 th April 2003, the directors recommended:1. to increase the general reserve by $ 20 000 2. an ordinary share dividend of ¢ 8 per share on ordinary share capital 3. a provision for preference share dividend in full Required to prepare at 30 th April 2003 1. the profit and loss appropriation account 2. the extracts of balance sheet showing shareholders fund. Q 9. The authorized capital of XYZ Limited is $ 5 00 000 divided into 5 00 000 0rdinary share of $ 1 each. The following balance sheet was extracted from the companies’ books for the year ended 30 th September 2003:-

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Assets

Land and buildings Motor vehicles

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$ Liabilities

1 50 000Issued and paid up capital 170 000Ordinary shares of $1 each

4 00 000

Company Accounts - Principles Of Accounting Machinery

1 20 000Trade creditors

17 500

Stock

30 000Bank loan

27 500

Trade debtors

13 000General reserves

50 000

Cash in hand

17 000Retained profit

30 000

Cash at bank

25 000 5 25 000 Total

Total

5 25 000

During the 1 st week of October 2003, the following transactions took place:1. $ 10 000 of the debtors was paid by cash $ 9 500 in full settlement. 2. Remaining ordinary shares were issued and fully paid up by cheque. 3. $ 21 000 cost of goods was sold for $ 28 000 on credit. 4. One old motor vehicle was sold for $ 10 000. The payment was received by cheque immediately. The book value of the motor vehicle was $ 9 500.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 5. Cash deposited in the bank $ 10 000 6. Bought goods on credit for $ 7 500

Prepare the balance sheet of XYZ Limited in vertical form at 7 th October 2003, after showing the adjustments to each item regarding the above transactions.(the adjustments should be shown in brackets)

Q 10. The following trial balance was extracted from the books of a Limited Co. at 31 st Dec 2002, immediately after the preparation of its Trading & profit and Loss A/C. Its Authorized capital consists of 3 00 0000 ordinary shares of $ 1 each and 1 50 0000 preference shares of $ 1 each. Dr $

Account balances

Cr $

Issued share capital 2 00 000 ordinary share of $ 1 each

2 00 000

1 00 000 15% Preference shares of $ 1 each

1 00 000

12% Debentures

15 000

/ http://www.principlesofaccounting2.com/ Interim dividend paid on Ordinary shares

12 000

5 000

Share Premium Account Good will Debtors and Creditors

8 000 16 000

1 300

Salaries owing Plant & machinery at cost

1 50 000

Buildings at cost

1 10 000

Stock of goods

42 500

Cash at Bank and in hand

23 300 57 000

Net profit during the year Furniture & fixtures at cost

9 000

40 000

Provision for depreciation on: Plant and Machinery

5 000

Buildings

5 500

Furniture and Fixtures

4 000 4 01 800

Total

4 01 800

Additional information:1. The Co decided to pay the dividend on preference share capital 2. A final dividend of 5p per share is to be paid on ordinary share capital 3. $ 5 000 should be transferred to the General Reserve Account. Required to:1. Prepare the Profit and Loss appropriation A/C and the Balance Sheet as at 31 st Dec. 2000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 2. After preparing the balance sheet, calculate:1. the current ratio

2. the liquid ratio 3. the N/P to sales ratio if the cost of goods sold was $ 1 25 000 and G/P was 1/5 on cost. Incoming search terms:

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Company Accounts - Principles Of Accounting appropriation of shares and dividends in accounting called up share accounting entry paid up capital not paid accounting entry

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Accounting Ratios - Principles Of Accounting

Principles Of Accounting Principles of Accounting Made Easy Home

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Accounting Ratios Aims:to explain the importance of the comparison of financial results

to demonstrate the calculation of, and explain the usefulness of, the main accounting ratios Accounting ratios are useful measurements with which to identify financial results which need further investigation. There are several results of a business which can be usefully measured using ratios. The main groupings are:Profitability ratios (to measure the profitability of the business) Solvency ratios ( to measure the liquidity position of the business) Use of assets ratios ( to measure the efficiency of the business ) In all cases, the figures concerned must be compared with other figures from: previous periods of the same business other organizations of carrying on similar business plans and budgets

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Profitability (performance) ratios

These ratios measure the level of profitability of the business. the following are commonly used profitability ratios: 1. Gross profit percentage This ratio measures the gross profit as a percentage of sales (i.e. net sales or turn over) Gross profit percentage (margin) = Gross Profit x 100 Net sales 2. Net profit percentage This ratio expresses the net profit as a percentage of sales revenue and this ratio is most often used by firms to compare their profit with other firms. Net profit percentage = Net profit X 100 Net sales 3. Return on capital employed This ratio expresses the net profit as a percentage of capital invested Return on capital employed (ROCE) = Net profit X 100 Capital employed Capital employed can have different meanings. The most widely used formula for capital employed is as follows:

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Capital employed = Capital on the closing date. (Total assets – Total liabilities) In the case a limited company, it is the total of the shareholders’ funds.

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Accounting Ratios - Principles Of Accounting Liquidity (solvency ratios) These ratios measure the ability of a firm to pay its debts as they fall due. 1. Current (working capital ) ratio This ratio compares the current assets with the current liabilities. Current ratio = Current assets Current liabilities A ratio of 2:1 is considered to be a good standard, but it may vary depending upon the nature of the business and other organizations in the same line of business.

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2. Acid test (quick ratio) This ratio tests for insolvency – if a business has sufficient liquid resources ( quick assets) to meet its current liabilities. To calculate this ratio, closing stock should be removed from the current assets where the stocks are not likely to be sold very quickly. Acid test ratio = Current assets – closing stock Current liabilities The standard for this ratio is 1:1, a lower ratio indicating insolvency Use of assets (efficiency ratios) 1. Stock turn over (stock turn) ratio This ratio shows how quickly the business sells its stock – how many times the stock ‘turns over” in a year.

/ http://www.principlesofaccounting2.com/ The rate of stock turn over = Cost of sales

Average stock

Where, average stock = Opening stock + closing stock 2 If the rate increases, it may indicate efficiency is improving (sales are increasing) and if it reduces it may mean that the efficiency is deterioting (the business has too much stock because the sales are slowing down) 2. Debtors turn over ratio( Debtors collection period) This ratio shows how long it is taking to collect debts from customers. The faster cash is collected from debtors, the better the cash flow of the business. It also shows the credit control policy of the business. Debtors’ collection period = Debtors x 365 days ( or 52 weeks or 12 months) Credit sales 3. Creditors turn over ratio (creditors payments period) This ratio shows how quickly the business pays its creditors. A longer period indicates that the business is taking longer to pay its creditor and hence is holding on to cash which may lead the creditors to refuse to sell to the business. Creditors payments period = Creditors x 365 days ( or 52 weeks or 12 months) Credit purchases It is also important to compare the creditors payments period with the debtors collection period - ideally, it should take longer to pay creditors than to collect monies from debtors.

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Relationship between Mark – up and Margin Cost price + profit = Selling price. Cost of sales + profit = Sales

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Accounting Ratios - Principles Of Accounting

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Advantages of accounting ratios 1. 2. 3. 4.

It helps to compare two or more business units. We can compare the results of a business over two periods. On the basis of ratios, the growth or the decline of the business can be understood very easily. To plan for the future.

Limitations of accounting ratios 1. Only past events expressed in terms of money alone can be analysed. 2. Different accounting methods give different results that cannot not be compared. 3. No allowance is made for inflation, which makes comparison of results between different periods meaningless. 4. Other non monetary and non financial factors are ignored (eg: staff relations, efficiency of the management, business location, environmental conditions etc…) 5. Only like – with – like items can be compared (similar sized businesses, different periods for the same business, Plans and budgets.

/ http://www.principlesofaccounting2.com/ MCQ 1. How is mark up shown as a fraction? A. Cost price/ profit B. Profit / selling price C. Profit / cost price D. Cost price / loss 2. How is margin percentage calculated? A. Profit / cost price x 100 B. Profit / selling price x 100 C. Profit / selling price D. Loss / selling price. 3. A trader charges 25% profit on cost price. What is this profit called? A. Mark up B. Profit C. Surplus D. Margin 4. A shop keeper is making 25% profit on sale price. What is this profit called? A. Profit B. Surplus C. Mark up D. margin 5. Which of the following equations is correct? A. Cost price – profit = selling price B. Cost price + profit = selling price C. Cost price – selling price = profit D. Selling price + cost price = profit 6. How is the rate of stock turn over calculated?

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. Cost of goods sold / opening stock B. Cost of goods sold / average stock C. Cost of goods sold / closing stock D. Cost of goods sold / sales 7. The following relates to a sole trader’s business: Average stock $ 12 600

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Accounting Ratios - Principles Of Accounting Mark up 50% on cost Stock turn over 7 times. What is the amount of gross profit? A. $ 44 100 B. $ 88 200 C. $ 25 200 D. $ 34 100 8. A firm’ sales are $ 150 000, the cost of sales is $ 90 000 and the expenses are $ 45 000. What is the gross profit % to sales? A. 10% B. 30% C. 40% D. 70% 9. A trader supplies the following details: Cost of goods sold $ 5 600 Opening stock $ 500

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Closing stock $ 900

What is the rate of stock turn over?

A. 7 times B. 6 times C. 8 times D. 9 times 10. K.King gives the following information at 31 st Dec Stock on 1 st Jan $ 600 Purchases during the year $ 5 400 Average stock during the year $ 1 200 What is the amount of closing stock as at 31s Dec? A. $ 3 600 B. $ 1 800 C. $ 600 D. $ 6 000 11. A trader bought goods for $15 000 and then sold 2/3 of them for $ 13 000. What would be his G.P? A. $ 3 000 B. $ 15 000 C. $ 2 000 D. $ 13 000 Assignment questions Q1. From the following information for two firms, Firm A and Firm B calculate

/ http://www.principlesofaccounting2.com/ 1. The gross profit percentage on sales for each firm. 2. The net profit percentage on sales for each firm.

Sales Gross profit Net profit

Firm A ($) 100 000 20 000 5 000

Firm B ($) 100 000 25 000 5 000

1. Give one reason why the gross profits of the firms differ? Q2. Here is a trading account. Sales 50 000 Less Cost of goods sold Opening stock 5 000 Add Purchases 42 500 47 500 Less Closing stock 10 000 37 500 Gross Profit 12 500 From the above, calculate :1. The gross profit percentage 2. The stock turn over for the year 3. If debtors are $ 6 250, the credit that is being taken on average 4. If creditors are $ 10 625, the credit that is being received on average 5. If net profit for this business is $ 7 500, the net profit percentage Q3. Here is a balance sheet.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Fixed assets

Premises 13 000 Machinery 5 000

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Accounting Ratios - Principles Of Accounting Office equipment 2 500 20 500 Current assets Stock 12 000 Debtors 4000 Bank 2000 18 000 Less Current liabilities Creditors 6 000 Working capital 12 000

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 32 500

Financed by

Capital 30 000 + Net profit 10 000 40 000 - Drawings 7 500 32 500 From the above, calculate ;1. Current ratio 2. Acid test ratio 3. Return on capital employed 4. Comment on the figures you have calculated, comparing them with last year’s balance sheet which showed a current ration of 1.5:1, a liquid ratio of 0.8:1 and a return on capital employed of 20%. Incoming search terms: accounting ratio results accounting ratios

/ http://www.principlesofaccounting2.com/ Average collection period (debtor days) This ratio is used widely within businesses to measure the calculating closing stock using current asset and liabilities and acid ratio test what would a 2:1 ratio be for net income

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Payroll Accounting - Principles Of Accounting

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http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Payroll Accounting Employees are paid either a wages or a salary. ¨ The

term payroll refers to the wages paid to a firm’s employees for a certain pay period.

¨ The

pay period is usually weekly, monthly, or semi monthly.

Records of Attendance

There are many different ways in which the attendance of employees is recorded. Two main methods are clock cards and time sheets.

Clock cards

/ http://www.principlesofaccounting2.com/ A mechanical device on the factory floor that records the precise hours that the employee works for.A clock card for each employee is placed in a rack with a time recorder clock. The employee inserts his/her card into the time recorder clock on arrival at work where it is stamped with the time. A similar pattern is followed when the employee leaves the work place.

Time Sheets

A record of hours worked kept by the employee himself. Those employees who work away from the premises of the business may be required to complete a time sheet showing the hours worked each day. Sometimes the time spent travelling to and from work is recorded separately to actual working time

Remuneration Methods

There are several ways in which wages are calculated. Two main methods of calculating wages are time basis and piece rate basis.

Time basis Time rate (or day rate)

The employee is paid an agreed amount for each hour worked (often up to a set number of hours) each week. Wages are calculated by multiplying the fixed rate per hour by the number of hours worked.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ The standard rate per hour is called basic rate

If the hours worked exceeds a per-set maximum, OVERTIME is often paid at a higher rate, say, time and a half, which means 1 1/2x basic rate

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Payroll Accounting - Principles Of Accounting This Method is appropriate if the quality of the output is more important than the quantity. Piece rate basis The employee is paid an agreed amount for each unit produced or each task performed. Under this method, wages are directly related to the quantity of work produced and this is an incentive to employees to work more. Differential piecework It offers high rates as production increases. Gross pay The total wages which an employee has earned is known as Gross Pay

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ It is what an employee earns -Not what the employee receives This includes: Basic pay Overtime Bonus Net pay This is the final amount the employee is paid and receives either with a live paper check or a direct deposit. It is the take home pay or or what is deposited into the bank a/c. From the gross pay figure statutory deductions and voluntary deductions are made in order to calculate the amount of “take home pay” or Net Pay. Statutory deductions: The deductions from an employee‘s gross pay that are required by law Income Tax: An employer must deduct the correct amount of income tax from the gross pay of each employee. This must be forwarded to the appropriate government department at regular intervals (often monthly). Social Security:

/ http://www.principlesofaccounting2.com/ The employer must calculate and deduct social security / national insurance contributions (NIC) from the gross pay of each employee. Such deductions allow employees to benefit from services provided by the government such as unemployment benefits, health benefits, and retirement benefits. In addition to the contribution by the employee, a larger contribution is also made by the employer. The total of these contributions must be forwarded by the employer to appropriate government department at regular intervals (often monthly or quarterly). Non-Statutory deductions Voluntary deductions are deductions which an employee chooses to have deducted from his/her gross wages. Voluntary deductions or non-statutory deductions include the following: Contribution to Subscriptions to trade unions Subscriptions to social clubs Donations to charities Pension contributions Pay Slip When an employee is paid, the employer provide a pay slip which shows the gross pay and net pay and gives details of the various deductions A pay slip includes An employee’s gross pay Deductions from gross pay and Net pay Payroll register The employer keeps these details of each employee and this is known as a payroll register.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Book keeping entries for Payroll

After the wages have been calculated and payroll register is completed, entries are made in the books. The simplified bookkeeping entries involve an expense account for salaries and wages and accounts for each of the main types of statutory and voluntary deductions.

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Payroll Accounting - Principles Of Accounting An employer often has to forward amounts deducted from employees’ wages to the appropriate government department or organization at monthly intervals. Until these amounts are paid, the accounts will have credit balances as they are liabilities of the business. Entry #1: To record employees’ withholdings and employer’s contribution. a pension scheme

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Entry #2: To record the remittance of payroll withholdings and employer’s contribution.

Payroll Accounting Procedure

/ http://www.principlesofaccounting2.com/ 1. Answer the following

a) What details should a pay slip show by law? b) What is a clock card?

c) What is the formula to calculate wage on time rate? d) What information should a payroll register include e) For what kind of jobs is piece work method more suitable? f) Give two examples of statutory deductions? g) Name two Non-statutory deductions 2. Multiple Choice questions Underline the correct answer a) Sara has a working week of 40 hours for which she is paid $10 per hour. For hours worked in excess of this she is paid 1 ¼ times the basic rate. Sara worked a total of 50 hours in the 1 st week of July. What is Sara’s gross pay for this week? A $400 B $500 C $525 D $625

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ b) Shathira works 50 hours a week for which she is paid $10 per hour. For hours worked in excess of this she is paid 1 ½ times the basic rate. Shathira worked a total of 55 hours in the 1 st week of February. What is Shathira’s basic pay for this week?

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Payroll Accounting - Principles Of Accounting A $425 B $500 C $550 D $575 c) A business pays a weekly government tax of 10% on the total weekly wages to employees. For the week of 30April the total paid to employees amounted to $5000 Which entries will record the payment on 30 April? Wages account

Government tax account

Bank statement

Debit

Credit

Debit

Credit

Debit

Credit

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4500

5000

500

5000

500

5500

4500

500

5000

500

5500

3. Calculate the Gross pay a) Suppose Shazna work for $8.25 per hour. She works 40 hours during the week. What is her gross pay at the end of the week? b) Nizam works in a laundary service he is paid $1.5 for each peice he wash. Calculate his wage for a month if he washes 150 pieces during the month?

/ http://www.principlesofaccounting2.com/ c) Naruto works a regular work week of 40 hours for $3.50 an hour, plus one hour overtime each day. Overtime is paid 1 ½ basic rate. What is his gross pay? 4. Hamdha has been in business for a year.

She had one employee. The employee was paid for 120 hours at $5 per hour, and six hours overtime at time and a half. $136 was deducted from pay for tax and social security. Hamdha must pay $45 employer’s contribution to social security. The total tax and social security is due to be paid to the tax authorities on 19 August. Required a) Prepare journal entries for wages and social security contributions for July 2009. Narratives are not required. (Show your calculations. 5. Shameem is a trader. He employs two part-time staff. Each work 50 weeks a year. One is employed for 25 hours a week at $6 per hour. The other works 30 hours each week at $8 per hour (a) i) Calculate the total wages Shameem pays the part-time staff during the year ii) One additional cost Shameem would incur Both employees have asked for a 10% increase in pay. Shameem can use the information in his final accounts when considering this request (b) Explain three different ways in which the final accounts can help Shameem to decide about the pay rise 6. CROSSWORD PUZZLE

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Payroll Accounting - Principles Of Accounting

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Across 1. 2. 3. 4. 5. 6. 7. 8.

………. pay is rate for the job, and is what you expect to receive for the normal periods work Statutory deductions means the deductions from employees pay that are required by ….. Hours in excess of over and above the agreed basic hours for the period. The additional percent that employers pay when employees work over and above the agreed basic hours for the period is known as the overtime………………… ………….. wages is the amount an employee earns before deduction is made for payroll taxes and other items. (Wages = Hours Worked × Basic rate of pay per hour) is the formula to calculate……… …………………………states the gross pay and deductions from the gross pay. Employer’s take –home pay is ……………pay

/ http://www.principlesofaccounting2.com/ Down

1. Payment for labour or services to a worker, especially remuneration on an hourly, daily, or weekly basis or by the piece. 2. ……………. Tax is an example of PAYE (Pay As You Earn) 3. A record of hours worked kept by the employees. 4. A non statutory deduction. 5. An amount is paid for each unit or task successfully completed, acting an INCENTIVE to produce more. 6. Fixed compensation for services, paid to a person on a regular basis.

Worksheet on payroll accounting Problems based upon time rate Qus.1. Wage rate per hour- $2 Javed works for six hours and prepared 100 units. Anwar works for seven hours and prepared 90 units. Calculate the earning of Javed and Anwar for the day as per time rate. Qus.2. Calculate monthly wages due to Abdulla and Hameed as per the following dataWorking hour in a day- 7 Daily wages - $6 Working day in a month- 28 Abdulla was absent for two days and Hameed for five days during the month.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Problems based upon piece rate

Qus.3. Calculate the wages of Iqbal and Ali from the data given below based on piece rate workWages per chair $1.2

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Payroll Accounting - Principles Of Accounting Number of chairs made by Iqbal in a day – 12 Number of chairs made by Ali in a day - 14 Calculate monthly wages received by Iqbal and Ali if there are twenty six working days in a month. Qus.4.Calculate total monthly remuneration of three workers Mariyam, Fathima and Aysha from the following data. Actual production during the month. Mariyam – 1700 units Fathima – 1500 units

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Aysha – 1900 units

Piece work rate is $ 2 per unit. Qus.5. Following is the detail of packets prepared during the week by Amit and Sumit: Amit Sumit Saturday 10 12 Sunday 11 14 Monday 09 06 Tuesday — 10 Wednesday 07 09 Thursday 08 —

/ http://www.principlesofaccounting2.com/ If the rate of wages is $2.5 per packet calculate weekly wages for Amit and Sumit.

Problem based on both piece rate and time rate

Qus.6. Following data supplied to you for the calculation of wages:Daily working hours in the factory—8 hours Wages per hour —$1.2 Wages per piece —-$0.80 Production of X and Y during the week in units are: X Y Saturday 15 18 Sunday 16 15 Monday 12 16 Tuesday 14 10 Wednesday 10 12 Thursday 11 14 Friday is holiday. Calculate weekly wages as per piece rate and time rate and find out the difference in wages. Qus.7.In an assembly shop of motor cycle factory 4 workmen A, B, C and D work together as a team and are paid on group piece rate. They also work individually on day rate jobs. In a 44 hour week, the following hours have been spent by A, B, C and D on group piece work Viz. A – 40 hours, B – 40

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hours, C – 30 hours and D – 20 hours. The balance of time has been booked by each worker on day work jobs. Their hourly rates are: A – $ 0.50

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Payroll Accounting - Principles Of Accounting

B – $ 0.75 C – $ 1.00 D – $ 1.00 The group piece rate is $ 1.00 per unit and the team has produced 150 units. Calculate the gross weekly earnings of each workmen taking in to consideration that each individual is entitled to Dearness allowance of $ 20 per week. Problem based on over time Qus.8.Calculate the normal and overtime wage payable toYounas from the following data.

http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Days Hours worked Saturday 9 Sunday 4 Monday 8 Tuesday 10 Wednesday 9 Thursday 11 Normal working hours 8 per day Normal rate is $ 1 per hour. Over time rate :- Up to 9 hours in a day at single rate and over 9 hours at double rate. Qus.9. Calculate wage due to Naeem concerning who the following data applied. Normal working hours in a week – 44 hours.

/ http://www.principlesofaccounting2.com/ Actual booked hours – 50 hours.

Rate per hour: Normal – $1.25

Problems based upon gross salary and net salary Qes.10. Following is the particular of wages for Murad during the year:Basic Pay – $ 25000 Bonus – 1/5 of basic pay Income tax deduction – 10% Calculate gross and net salary of Murad. Ques.11. Robert is a employee of Nestle limited. He worked 250 hours during the month. Wages are $2.5 per hours. Following are the deductions from his salary(i) Income tax-5% of gross salary (ii) Insurance-$13 (iii) Co-operative society-$10 (iv) Pension Fund contribution-12% of gross salary Calculate the net amount received by the Robert for the month. Incoming search terms: payroll accounting entries payroll gross accounting entry payroll wages paid accounting entry

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