Rules for Debit and Credit
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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
Use the following format in your answer book for writing the answer to the
Question given below.
S Account to be debited Amount Account to be credited Amount
$ $
A
B
.
.
.
Based on the following transactions, find out the Account to be debited
and Account t

be credited.
a) Started business with cash $2,500
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
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

Control Accounts
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Control Accounts
Control Accounts are the total accounts used for checking the arithmetical
accuracy of each of ledger separately. The two most common control
accounts are:
(i)The sales ledger control account (debtors ledger control a/c / total debtors
a/c) and
(ii)The purchase ledger control account (creditors ledger control a/c/total
creditors a/c)
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

The format of sales ledger control account
Balances b/d(large amount) ———– Balances b/d(small amount)
———–
Credit sales --—— Cash/cheque from debtors ————
Returned cheque - discount allowed ————
(unpaid cheque) ———- Sales returns ———–
Interest charged to debtors ———- Bad debts written off ———–
Cash refunds to customers ———–
Balances c/d(small amount) ———- Set off or contra entries ————
Balances c/d(large amount) ————
xxxxxxx xxxxxxx
Balances b/d (large amount) ———- Balances b/d (small amount) —
——-

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.
Format of purchase ledger control account
Balances b/d (small amount) ——— Balances b/d (large amount)
———
Cash /cheques paid to creditors ——— Credit purchases —
——
Discount received ——— Interest charged by Creditors —
——
Purchases returns ——– Balances c/d (small amount) —
——
Set off /contra entries ——– Refunds from suppliers
———

Balances c/d (large amount) ——–
xxxxx xxxxxx
Balances b/d (small amount) ——– Balances b/d (large amount) —
—–
Sources of information for items appearing in the purchases ledger control
account
a Credit purchases – purchases day book total
b. Interest charged by creditors – interest paid account.
c. Cash/cheque paid to creditors – cash book – payments side.
d. Discount received – cash book payment side or discount received account
e. Purchases returns – purchases returns day book total.
f. Set off or contra entries – general journal.
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
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.
MCQ
1. What is the source of information for credit sales for preparing
the control accounts?
1. Sales account in the General ledger

2. Sales journal C. General journal D. Sales
ledger
2. 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 inwards
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?
A. To calculate the total sales B. To calculate the closing
debtors only
C. To calculate the closing creditors only
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.
4. Credit side of purchase ledger control account.
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
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
Assignment questions
Q 1. 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

Q 2. From the following information prepare the sales
ledger control account and purchases ledger control
account.
$
Opening debtors 12 000
Opening creditors 8 000
Credit sales 30 000
Credit purchases 25 000
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
Customers cheques returned unpaid 1 000
Set off from sales ledger to purchases ledger 600

Q3. 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
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

Q4. The following information was obtained from the books of Vale. $
March 1 D 9 506
Creditors 2 580
March 31 Credit sales 20 345
Credit purchases at list price 7 200
Returns outwards at list price 200
Sales returns 120
Cash and cheques received from debtors 19 580
Customers’ cheques dishonored 250
Cash and cheques paid to suppliers 5 170
Discount received 190
Discount allowed 210
Interest charged to customers on overdue accounts 70
Bad debts written off 155
Balance in sales ledger set off against balance in the
purchases ledger 350
Cash refunds from suppliers for overpayments 60

Debit balances in purchases ledger 40
Credit balances in sales ledger 64
All purchases and purchases returns were subject to a trade discount of 10% off
the list price.
Prepare the sales ledger control account and purchases ledger control
account.
Q 5. The following information was obtained from the books of K. Kent:-
$
1st April, 2002 Trade debtors 28 518
Trade creditors 7 740
Stock in trade 22 500
31st March, 2003: Credit sales 61 440
Credit purchases at list price 21 600
Purchase returns at list price 600
Sales returns 360
Cash and cheque received from debtors 58 740
Customer’s cheque dishonored 750
Cash and cheque paid to creditors 15 510
Discount received 570

Discount allowed 630
Interest charged to customers on overdue accounts 210
Bad debts written off 465
Balance in sales ledger set off against balance in
purchases ledger 1050
Cash refunds from suppliers for overpayments 180
Debit balance in purchases ledger 120
Credit balance in sales ledger 186
Interest charged by our suppliers on overdue accounts 390
Cash refunds to customers for overpayments by them 540
All purchases and purchase returns are subject to a trade discount of
20% off the list price. during the year Cash sales were $ 22 000 and Cash
purchases were $ 12 500.
On 31st March, 2003 the stock in trade was valued at $ 12 500.
Required to:-
1. Prepare the sales ledger control account and purchases ledger control
account.
2. Calculate the gross profit of the business for the year ended 31st
March,2003.
Q 6. The following information is relating to the business of Anson for the
month ended 31st March 2003:-

Credit sales and return inwards are subject to 10% trade discount on list
price.
Required:-
1. Make sales ledger control accounts of Mr. Ibrahim for the month of March 2003.
2. Calculate total Turn over on 31st March 2003
Q 7. The following information was obtained from the books of K. Vasanthi.
*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 31st March 2004 the stock in trade was valued at $ 12,500.
Required:-
1. Total Debtors Account for the year ended 31st March 2004
2. Total Creditors Account for the year ended 31st March 2004.
3. c. Calculate the Gross profit of the business for the year ended 31st march
2004.
Q 8. The following details are available from the books of a business for the
year ended 31st 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
Returns inwards $ 1 000
Return outwards $ 900
Bad debts written off $ 1 200
Dishonored cheque returned to us $ 1 200
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 31st December 2002
b.Prepare the sales ledger control account for the year ended 31st Dec 2002.
c.The provision for bad debts a/ct and the balance sheet extracts for the 3

2000,2001 and 2002.
Q 9. The following details are available from the books of a business for the
year ended 31st 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
Returns inwards $ 1 000
Return outwards $ 900
Bad debts written off $ 1 200
Dishonored cheque returned to us $ 1 200
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:-
1. Purchase ledger control account for the year ended 31st December 2002
2. Prepare the sales ledger control account for the month ended 31st Dec 2002.
Q 10. Ander Paul, a sole trader, provided the following information from his
accounts for the year ended 31st Dec 2003.
$
Credit sales for 2003 75 500
Credit purchases for 2003 68 900
Credit sales return for 2003 700
Total debtors at 1 Jan 03 8 500
Total creditors at 1 Jan 03 4 800
Prov. for bad debts as at 1 Jan 01 600
The cash book extract figures are totals for the year.
The following points are also relevant.
1. $ 600 of trade debtors were written off as bad debts on 7th Oct 2003
2. A revised provision for bad debts is to be 5%of the trade debtor’s balance as at
31st Dec 2001.
3. Balance in the sales ledger set off against balance in the purchase ledger $ 300.
Required to prepare the Sales ledger control account and the provision for
bad debt account for the year ended 31st Dec

Revision Questions
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Revision theories Grade 10 – Principles of Accounts
1. Depreciation on fixed assets are usually deducted from
_______________________
2. Sate the meaning of business entity concept________________
3. The double entry for recording the transfer of profit on sale of assets is:
____________
4. The amount of depreciation changes year after year under
____________
5. The opening and closing balances of the assets are compared to
calculate the amount of depreciation under ________________ method.
6. The source of information for cheque dishonoured which was received
from a debtor is ___________________
7. The resources owned by a business is called ______________
8. The financial plan expressed in money is called _________________
9. Net worth is another name of ___________
10. The double entry for goods taken by the owner for his personal use is
_________________

11. The monetary value of goods and services supplied to the customers is
known as:___________________________
12. The purpose of preparing the trial balance is to
___________________________________________________________.
13. Sale – cost of goods sold = __________________________.
14. Opening stock + purchases + carriage inwards – return outwards –
closing stock = ____________________________.
15. The double entry for transferring sales account to the trading account at
the end of a year is : ___________________________
16. The double entry for bringing the closing stock into the accounts is :
____________________________
17. The double entry for transferring the purchase account to the trading
account is: __________________
18. Gross profit + incomes – expenses = __________________
19. The double entry for transferring the net profit to capital account is :
________________
20. The double entry to transfer the net loss to the capital account is :
______________
21. Working capital means: __________________

22. Drawings ( both cash and goods ) are shown in the balance sheet as a
deduction from the ______________ account.
23. All items in the balance sheet are either _____________ or _______
24. Among the final accounts, __________ is not a part of double entry.
25. Carriage inwards means______________________________
26. Carriage outwards means______________________________
27. The cost of import duty, insurance and freight incurred on goods are
shown as part of _________________________________
28. The concept that profit is the difference between revenue and expenses
is: ______________________
29. The concept that profit is not shown as being too high, or that assets
are shown at too ____________________________
31. The journal which records the miscellaneous transactions is called
_______________
32. Sales journal records only __________________________
34. Purchases journal records only ___________________________
35. The journal which records returns of goods to the suppliers i9s known
as
___________________________
36. The journal for recording the returns inwards from customers is known
as __________________________

37. The subsidiary book for recording both receipts & payments of cash and
cheques is known as ___________________
38. Creditors ledger contains the accounts of ___________________
39. Sales ledger contains the accounts of ______________________
40. Nominal account is another name of general ledger. It contains the
accounts of : _________ __________ ___________ _____________
41. The debit side discount column total of a cash book is called
___________________
42. The credit side discount column total of a cash book is called
___________________
43. Cash account can have _____________ balance only.
44. Bank account can have ___________ or ___________ balance.
45. If both debit and credit entries of a transaction are shown in a cash
book itself, such entries are known as ___________ __________.
46. The discount allowed from the list price of the goods is known
as________________
47. ____________________ are given to encourage people pay their
accounts within a stated time limit.
48. The copy of our current account given to us by our bank in known as :
______________________________

49. Under which heading will the value of closing stock be found in the
balance sheet ? ____________________
50. Cash sales are not recorded in the sales journal. But these are recorded
in the : __________________
51. The total of sales journal is transferred to the _________ side of the
sales account in the ___________ ___________
52. The document received by a purchaser showing details of goods bought
and their prices : __________ _____________
53. A document showing details of goods sold and the prices of these goods
is known as : ____________ _________________
54. The total of purchases journal is transferred to the ________ side of the
purchase account in the __________ ________
55. A document send to a customer showing allowance given by a supplier
in respect of unsatisfactory goods is known as ___ _____________
56. The total of returns inwards journal is transferred to the _ side of_
account in the _ ledger.
57. The total of returns outwards journal is transferred to the side of
_account in the general ledger.
58. The purchase and sale of fixed assets on credit are recorded in the
_______________
59. When a firm spends money to buy or add value to a fixed asset that
cost is called
_______________ ________________

60. ____________ ______________are the expenditures needed for the
day to day running of the business.
61. The provision for bad debt is also known as____________
62. The double entry for creating the provision for bad debt is to
63. For an increase in the provision for bad debt, the profit & loss account is
to be______
64. Decrease in the provision for bad debt is shown as _________ in the
P&L account.
65. State the meaning of bad debt written off ___________
66. The provision for bad debt is shown as a deduction from ____ in the
B/S.
67. Mention two features of a fixed asset.
68. Mention three causes of depreciation. ___________________
69. Under method, the amount of depreciation reduces year after year.
70. The accounting entry to transfer the cost price of the asset sold to asset
disposal a/c is
71. Profit on disposal of asset is transferred to the _ side of profit & loss
a/c.
72. Loss on disposal of asset is transferred to the profit & loss account by
____________asset disposal account.
73. Accrued expense means _____________

74. Prepaid expenses are shown as ___________________ in the balance
sheet.
75. Revenue owing is also known as ____________________
76. The difference between total assets and total liabilities is known as
______________
77. In the absence of an agreement between the partners, they will share
the profit and loss _______________
78. The entry for transferring interest on capital is to ________ the
partner’s current a/c.
79. The interest on drawings is debited to the _________ _____________
80. The double entry for transferring share of profit is to
________________________________ ________________
81. Credit balance in a partner’s current account
means:__________________________
82. Debit balance in a partner’s current account means
:__________________________
83. Under fluctuating capital method, the adjustments such as interest on
capital, interest on drawings, share of profit, salaries etc.. are shown in each
partner’s __________a/c
84. The difference between net assets and the business purchase price is
know as
___________________ ____________________

85. The excess of assets over business purchase price is called
____________________
86. The total of the share capital which the company is authorized to raise
from the public is known as _________ ___________
87. Debentures are the ________ capital of a company.
88. The debenture interest is shown as an expense in the _______
___________
89. Interim dividend paid is shown in the ___________only.
90. In which part(s) of the final accounts of a company, the proposed
dividends are shown? ___________________
91. In the balance sheet of a company, the share premium is shown under
the heading: _______________________
92. Shares that are entitled to an agreed rate of dividend before the
ordinary shareholders
receive anything is called : _____________ _____________
93. Shares entitled to dividend after the preference shareholders have
been paid their dividend is called ______________ ____________
94. A division of the capital of a limited company into parts is known as
____________
95. Dividend is always calculated on ________ share capital of the
company.

96. The profit expressed as a percentage on sales is called
_______________________
97. The profit expressed as a percentage on cost of goods sold is called
____________
98. The formula to calculate current ratio is ___________________
99. The formula to calculate acid test ratio is ___________________
100 Stock turn over ratio is calculated
_______________________________________
101 Mention the profitability ratios. ____________________
102. Expenses which remain constant whether activity rises or falls, within a
given range
of activity are known as _________ ____________
103. Expenses which change with change in activity are called _________
___________
104. Unpresented cheques means _______
105. The cheques deposited but not collected and credited is known as
____________ ___________
106. Where will you show the credit balance as per the bank statement, in
the balance sheet of a business? ________________________________
107. What is the source of information for discount received and allowed
while preparing

the control accounts? ______________________
108. What is the basic document for the transaction ―cheque dishonoured ―?
_________________________
109. Purchase ledger control account is also known as ___________ _
110. Total debtors account is also known as _______________ _
111. Where a transaction is completely omitted from the books, such errors
are known as
112. Errors of commission means _______________
113. When an item is recorded in the wrong class of account , such error is
known as:________________________
114. Errors of original entry means __________________
115. The account prepared by a club which records all the receipts and
payments is known as ________________ __________________
116. In a non trading concern, assets = ______________________ +
________________
117. The subscription in advance is shown as a ______in the balance sheet.
118. Direct materials + Direct labour + Direct expenses =
_____________________
119. In the final accounts of a manufacturing concern, the depreciation on
plant &

machinery is shown in ________________________
120. The royalties paid is a part of _____________________
121. Costs that can be traced to the item being manufactured is called
_______________
122. The cost of production calculated from the manufacturing account is
transferred to _________________________ .
123. Cheque counterfoil is used as a source of information for recording the
______
124. In a non trading concern, the amount of surplus is added with
__________________
125. In a company balance sheet, usually, under the heading reserves the
following items are shown : ____________ ____________
________________ _______________
126. Goodwill is shown as __________ ___________ in the balance sheet.
127. The closing balance in a sales ledger control account is taken as
_______________
128. Debit balance as per bank statement means
________________________________
129. With the debit balance as per updated cash book, the unpresented
cheque amount is_____________ and unrealized cheque amount is
________________________
130. Bank charges as per standing order is shown on ________ side of the
cash book.

131. In a manufacturing concern’s final accounts, the carriage outwards is
shown in
___________________ account.
132. In the balance sheet of a manufacturing concern, usually, ______ types
of stock
figures are shown.
133. The amount of salary allowed to a partner will be shown in the
_________________
and ___________________ at the end of a year.
134. While preparing the trial balance, if there is an error, it will be
transferred to a
separate account called ― _______________ ― .
135. Bank reconciliation statement is prepared to
________________________________
_____________________________________________________________
______
136. Debit balance as per bank statement means ________ balance as per
cash book.
137. In a purchase ledger control account, the refund of money overpaid by
us will be
shown on its ____________ side.

138. The preference share holders get an __________ rate of dividend at
the end of a year
139. Debenture holders get _________ ____ __ ___________ at the end
of every year.
140. The cost of extension of the business building is a ____________
______________
and the cost of painting of the old building is a ______________
______________
141. The closing stock of this year will be the ________ _______ of the
next year.
142. Cost of goods sold + closing stock + opening stock =
_________________
143. What is deducted from purchase to get net purchases?
_________________
144. Return inwards and carriage outwards show _________ balance.
145. Bank paying in slip is used for
__________________________________________
146. When the trial balance debit side is less than the credit side then, the
difference is
shown on the _________ side of the suspense account.
147. Net asset means
___________________________________________________

148. The double entry to set off the purchase ledger control account to the
sales ledger
control account is to
__________________________________________________
149. The amount of provision for discount on debtors is calculated on the
amount after
deducting the bad debt ad the _________________________
150. Prepaid expenses are also known as _____________ expenses.

Errors
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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
(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
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 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.
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
Nature of balance In case of In case of overcasting
undercasting
Account with a debit Dr. Account involved Dr. Suspense account
balance
Cr. Suspense account Cr. Account involved
Account with credit Dr. Suspense account Dr. Account involved
balance
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?
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
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?
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.
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:-
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.
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 31st 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
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
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. Purchase day book had been overcast by $ 75.
2. Discount of $ 68 allowed to T. Brown entered on the debit side of
T.Brown’s account.
3. Total of sales returns book $ 200 entered to the credit side of returns
inwards account
4. Debit balance of debtors account $ 98 incorrectly b/d as $ 89.
5. $ 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
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:-
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:-
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:-
1. Purchase of goods from T Williams $ 190. posted to his account as $ 90
2. Purchase day book had been overcast by $ 25
3. Discount of $ 34 allowed to S. Burns, entered in the debit side of her
account.
4. 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 :
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 31st
December, 2003 did not 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.
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 31st 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.
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. Purchases $ 600 from F. Frensham had been posted to S. Frensham’s
account.
2. No entry had been made for goods costing $ 800 taken by the proprietor
for his own use.
3. Sales returns $ 60 had been entered in the debtors account only.
4. 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
$ 126.
Required to:
1. Write up the rectification entries for the above errors.
2. Prepare a suspense account clearly showing the opening balance
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
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.
Q 15. Amber is the owner of a sole trading concern. He prepared the trial
balance of his business at 31st 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 31st 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.
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
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
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.
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‖.
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
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;
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
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. The following trial balance was taken from the books of a sole trader
for the year ended
31st Dec 2003:-
Account balances Debit $ Credit $
Purchase & sales 92 300 1 90 300
Carriage inwards 5 200
Drawings 5 000
Rent, rates & insurance 4 500
Postage 3 000
Stationery 2 700

Capital 59 400
Machinery 55 000
Buildings 45 000
Furniture & Fittings 15 000
Debtors & Creditors 14 500 13 200
Commission received 7 000
Opening stock 1 000
Cash at bank 2 500
Cash in hand 1 800
Discounts 250 3 920
Bad debt 800
Salaries & Wages 22 120
Advertising 1 850
Carriage outwards 1 200
Returns in & out 800 700
Total 2 74 520 2 74 520
Consider the following points at 31st 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:-
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
for the year ended 31st December 2003:-
Stock on 1st 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
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 31st 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 31st Dec 2003.
Q 3. The following trial balance was extracted from the books of a sole
trader for the year ended
31st March 2003:-
Account balances Debit $ Credit $
Purchases & Sales 39 600 76 000
Returns 300 450
Carriage inwards 1 200
Carriage outwards 900
Opening stock 5 200
Salaries 7 550

Commission 670
Wages 3 000
Debtors & Creditors 8 000 4 200
Discounts 500 800
Plant & Machinery 19 000
Rates 450
Furniture & Fittings 6 500
Bank overdraft 3 500
Office expenses 150
General expenses 600
Cash in hand 250
Bank Loan 5 000
Capital 3 920
Total 93 870 93 870
Adjustments:-
1) The stock on 31-3-2003 was valued at $ 6 500 2) Carriage outwards
was owing by $ 100
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 31st March 2003:-
a. The Trading and profit & loss account
b. The Balance sheet
Q 4. The following trial balance was extracted from the books of Martin klin
for
the year ended 31st Dec 2003:-
Debit balances $ Credit balances $
Purchases 22 600 Sales 40 700
Stock on 1-1-2003 5 200 Capital 5 580

Cash in hand 190 Bank overdraft 7 000
Discount allowed 1 400 Discount received 900
Returns in 810 Returns out 570
Carriage outwards 2 160 Commission received 660
Rent & insurance 1 700 Creditors 6 000
Fixtures & Fittings 1 000
Delivery van 2 300
Debtors 11 900
Drawings 2 800
Wages & salaries 8 900
General office expenses 450
Total 61 410 Total 61 410
Adjustments:-
1. The closing stock was valued at $ 6 700 at 31st 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 31st Dec 2003
b. The balance sheet at 31st Dec 2003
Q 5. The following trial balance had been taken from the books of a sole
trader for the year ended
31st Dec 2003:-
Account balances Debit $ Credit $
Purchases & sales 70 000 1 46 000

Returns in & out 1 500 1 600
Carriage inwards 6 000
Carriage outwards 3 000
Discount received 6 100
Telephone charges 2 000
Rent paid 700
Advertisement 1 100
Debtors & Creditors 7 700 2 000
Bank loan 10 000
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
Capital 75 800
Drawings 1 250
Stock on 1-1-2003 3 500
Total 2 41 500 2 41 500
Additional information:-
1. The stock on 31st Dec 2003 was valued at $ 4 750
2. Power charges unpaid at 31st Dec 2003 was $ 2 000
3. Salary paid in advance at 31st 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 31st March 2004:-
Account balances Debit $ Credit $
Opening stock 2 000
Purchases and Sales 25 600 44 600
Carriage inwards 1 400
Stationery 500
Debtors & Creditors 8 000 6 000
Plant & Machinery 10 000
Buildings 11 000
Furniture 4 000
Repairs to building 1 000
Carriage out 1 600
Salaries & wages 9 800
Office expenses 200
General expenses 2 500
Drawings & Capital 2 500 30 700
Cash in hand 1 200
Interest paid 200
Discount allowed & received 2 100 3 000
Commission paid 200
Rent & rates 1 500
Returns 200 500
Bank 700
Total 85 500 85 500
Notes:-
1. The stock on 31-3-2004 was valued at $ 4 200
2. Salaries & wages owing for the year ended 31st 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 31st March 2004.
b. The balance sheet at 31st March 2004.
Q 7 Following is the trial balance extracted from the books of Mr. Young, a
sole trader, for the
Year ended 31st Dec 2002:-
Account balances Debit $ Credit $
Capital on 1st Jan 2002 37 470
Debtors & Creditors 1 500 250
Premises 50 000
Loan ( payable after 5 years) 10 000
Furniture & Equipment at cost 10 000
Provision for depreciation on 4 000
Furniture& equipment
Cash in hand 120
Maintenance cost of equipment 750
Stock on 1-1-2002 1 500
Drawings 12 000
Rates 1 100
Heating & lighting 1 300
Postage &telegram 1 250
Repairs to premises 1 400
Purchases and sales 14 000 45 000
Wages 1 800
Total 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
31st Dec 2002:-
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
4. Increase the provision for bad debts by $ 240
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 31st Dec 2002

Q 9. The trial balance shown below was extracted from the books of a sole
trader for the year ended
31st March 2003:-
Account balances Debit $ Credit $
Purchases & Sales 60 000 1 26 000
Returns inwards and outwards 1 500 1 600
Carriage inwards 600
Carriage outwards 300
Discount received 3 100
Rent paid 700
Communication expenses 2 000
Advertisement 1 100
Debtors and creditors 5 000 2 000
Bank loan (long term) 10 000
Cash in hand 3 750
Power charges 1 000
Salaries & wages 12 000
Premises 50 000
Plant 25 000
Machinery 10 000
Motor Car 40 000
Capital 75 000
Drawings 1 250
Stock on 1-1-2003 3 500
Total 2 17 700 2 17 700
Notes:- 1. Stock at 31st 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
6. Create the provision for bad debt at 5% on debtors.

Prepare the set of final accounts as at 31st Dec 2003
Q 10. The following trial balance was taken form the books of Alfred for the
year ended 31-12-03
Debit balances $ Credit balances $
Returns inwards 30 00 Capital 1 00 000
Drawings 70 00 Creditors 26 000
Land & building 20 000 Sales 1 69 000
Plant & machinery 45 000 Provision for bad 1 000
debts
Debtors 40 500 Purchase returns 4 000
Purchases 85 000
Rent 3 000
Postage & telegram 500
Advertising 10 000
Cash in hand 10 500
Stock on 1-1-03 23 000
Wages 13 000
Telephone charges 500
Salaries 13 250
Printing & Stationery 890
Commission 5 100
Travelling 1 500
Carriage inwards 6 300
Motor van 1 900
Cash at bank 10 060
Total 3 00 Total 3 00 000
000
Adjustments:-
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 31st Dec 2003:-
a. The trading & profit & loss account b. The balance sheet
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 3 776
Carriage outwards 326
Carriage inwards 234
Returns 440 355
Salaries & wages 2 447
Motor expenses 664
Rent 576
Sundry expenses 1 202
Motor vehicles 2 400
Fixtures & fittings 600
Debtors & Creditors 4 577 3 000
Provision for bad debts 600
Prov: for depreciation : Motor 200
vehicle
Fixtures & Fittings 50
Cash at bank 3 876
Cash in hand 120
Drawings and capital 2 050 12 639
Total 34 844 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
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 31st Dec 2001:-
Account balances Debit $ Credit $
Capital 50 000
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 2 49 000
Bank overdraft 3 800
Discount allowed 1 500
Commission received 1 500
Provision for bad debt 500
Debtors & Creditors 45 000 26 300
Discount received 8 000
Prov. For depreciation : Plant & 500
machinery
Land & Buildings 1 500
Bad debts 1 000
Stock on 1st Jan 2001 37 000
Advertising 600
Office expenses 1 000
Fixtures & fittings 4 000
Stationery 400
Interest 2 000
Rent & rates 1 500
Bank loan ( long term ) 9 500
Total 350600 350600

Adjustments:-
1. The closing stock was valued at $ 30 000
2. Salaries owing amounted to $ 1 500 and repairs outstanding $ 400
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 31st Dec 1999 is given
below:-
Account balances Debit $ Credit $
Purchases & Sales 72 000 1 19 400
Returns 750
Carriage inwards 930
Wages and salaries 27 670
General expense 4 750
Cash at bank 4 210
Petty cash 150
Premises 62 520
Fixtures & Fittings 9 000
Stock on 1st Jan 1999 5 550
Trade Debtors & Creditors 7 200 4 850
Motor Vehicles at cost 13 150
Provision for depreciation on Motor 2 630
Vehicles
Capital at 1stJan 1999 82 500
Drawings 3 000
Total 210 130 210 130

The following additional information is also available:-
1. Stock at 31st 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 31st 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 31st Dec 1999
b. The Balance sheet at 31st Dec 1999
Q 14. P.Day is a merchant dealing in imported goods. The following
balances were extracted from
the books of the business on 31st Dec 2003.
Purchases 74 400
Sales 141 600
Sales returns 4 900
Sundry expenses 370
Air freight charges 6 240
Motor Vehicle expenses 7 250
Rent & Rates 5 720
Wages 19 600
Loan interest 300

Loan ( Repayment on 31st Dec 2008) 6 000
Debtors 15 000
Creditors 6 050
Stock on 1st Jan 2003 8 540
Fittings and Equipments 5 800
Motor Vehicles 26 400
Drawings 12 000
Capital 35 700
Cash at bank 2 830
Notes: – 1. The closing stock was valued at $ 10 750 (2) One – quarter of
the wages expense
was for the cost of re-packing the goods for resale (3) The rent & rates
amount given above
includes rent of $ 900 paid for the three months ended 31 st Jan 2004. (4)
Interest on the loan
is at the rate of 10% p.a. and has paid to 30th June 2003 (5)Motor vehicles
are to be depreciated
by 20 % of the cost (6) A provision for doubtful debts of 3% of debtors is to
made.
Required to prepare at 31st Dec 2003:-
a. The Trading and profit & loss account
b. The Balance sheet