financial accounting (2)
TRANSCRIPT
CIMA C02 Fundamental of Financial Accounting
Books of Accounts
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MCQ 1
(c) Transactions are entered prior to being recorded in ledger accounts
Sub-division of Journal
• In large business it is found inconvenient to journalize every
transaction in one journal
• Therefore, the journal is sub-divided into different journals
known as the subsidiary books
• The journal is divided in such a way that a separate book is
used for each class of transactions
• The important subsidiary books used in modern business world
are the following
Purchases Day Book
Purchases book or purchases day book is a book of original
entry maintained to record credit purchases
Continued
You must note that cash purchases will not be entered in
purchases day book because entries in respect of cash purchases
must have been entered in the cash book
Purchases Day Book (Example)
Example # 2.1: From the following transactions of a trader prepare the Purchases day book 2014 January 5 Purchased goods from Aamir Khan & Co Rs. 2,400 " 15 Purchased goods on account from Chand Bibi Garments 6,000 " 25 Purchased goods on credit from Abbas Ahmed & Friends 1,500 " 30 Purchased goods from Sahadat Ali Khan Motors 3,000
Sales Day Book
A sales book is also known as sales day book in which are recorded
the details of credit sales made by a businessman
Continued
Total of sales book shows the total credit sales of goods during the
period concerned
Sales Day Book (Example)
Example # 2.2: From the following transactions of a trader prepare the sales day book of M. Amin 2014 March 5 Sold goods on account to Ammar Ashraf Stuff Rs. 200 " 10 Sold goods on credit to Hashim Khan Inns 100 " 20 Credit sales to Shahnaz Fabrics 400 " 31 Sold goods to Sana Saleem Awan 100
Return Inward Book
Sales returns book is also called returns inwards book. It is used for
recording goods returned by credit customers
Continued
Customers who return goods should be sent a credit note. It is a
statement sent by a business to customer showing the amount credited
to the account
Return Inward Book (Example)
Example # 2.3: From the following transactions of a trader prepare
the sales returns book
2011
June 8 Goods returned by Faizan Nazar & Co Rs. 40
" 20 Goods returned by Saif Ullah & Brothers 52
Return Outward Book
Purchases returns book is a book in which the goods returned to
credit suppliers are recorded
Continued
It is also called returns outward book or purchases returns day book
Return Outward Book (Example)
Example # 2.4: From the following transactions of a trader prepare the purchases returns day book 2014 July 14 Qadeer Ahmed Equipment Ltd. Rs. 135 " 27 Fatima Malik & Co 150 " 31 Shahrukh Shakeel Room Decorators 25
Example # 2.5: ABC Ltd had the following transactions during the first week of July
2013:
1 Bought goods on credit from JB cost $1,000
Sold goods on credit to JSA & Co. for $800
2 Sold goods on credit to PB Ltd for $80
Returned goods to JB because they were faulty $80
3 Bought goods from AL Ltd cost $600
4 JSA & Co. returned unwanted goods $200
5 Returned goods to AL Ltd $120
6 Sold goods to CAL for $400
7 CAL returned goods as unsuitable $120
Sold goods to BC for $240
All items are subject to sales tax at 17.5 per cent
Continued
Note: Remember that if there was trade discount given on any of the above transactions, it would be deducted prior to calculating the sales tax, and the net amount would be recorded in the ‘goods value’ column
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Proper/ General Journal
Journal proper is book of original entry (simple journal) in which
miscellaneous credit transactions which do not fit in any other
books
It is also called miscellaneous journal or General Journal
General journal could be used include
• Opening Entries
• Closing Entries
• Adjustment Entries:
• Rectification Entries
• Purchase of Fixed Assets:
General Ledger
Posting is the name of transferring accounts from the book of
prime entry to related ledger accounts
Debit Credit
An account in its simplest form is a T-shape.
MCQ 4A credit balance of £1,834 brought down on B Ltd’s account in the
books of A Ltd means that?
(a) A Ltd owes B Ltd £1,834
(b) B Ltd owes A Ltd £1,834
(c) A Ltd has paid B Ltd £1,834
(d) A Ltd is owed £1,834 by B Ltd
(a) A Ltd owes B Ltd £1,834
On 1 January, a business had a customer, Junior, who owed £1,200.
During January, Junior bought goods for £2,100 and returned goods
valued at £750. He also paid £960 in cash towards the outstanding
balance. The balance of Junior’s account on 31 January is?(a) £1,590 debit(b) £1,590 credit(c) £810 debit(d) £810 credit
MCQ 5
(a) £1,590 debit
Which one of the following statements regarding the balance on a ledger account is not correct?(a) A credit balance exists where the total of credit entries is more than the total of debit entries.(b) A debit balance exists where the total of debit entries is less than the total of credit entries.(c) A credit balance exists where the total of debit entries is less than the total of credit entries.(d) A debit balance exists where the total of debit entries is more than the total of credit entries.
MCQ 6
(b) A debit balance exists where the total of debit entries is less than the total of credit entries.
MCQ 7The Cash account has a Rs. 15,000 debit balance. A Rs. 5,000 credit
entry and a Rs. 7,000 debit entry are posted to the account. The final
balance of the Cash account is?
(a) A Rs. 3,000 debit balance
(b) A Rs. 27,000 debit balance
(c) A Rs. 13,000 debit balance
(d) A Rs. 17,000 debit balance
(d) A Rs. 17,000 debit balance
MCQ 8Posting the transactions in bookkeeping means?
(a) Entering items in a cash book
(b) Making the second entry of a double entry transaction
(c) Making the first entry of a double entry transaction
(d) Something other than the above
(b) Making the second entry of a double entry transaction
Example # 2.7: Prepare T accounts?
May 1 BR starts business as a sole proprietor with $20,000 in cash 2 Pays $15,000 cash into a business bank account 4 Purchases goods on credit from JM for $2,000 6 Purchases goods from ERD on credit for $3,000 7 Pays wages in cash $60 10 Pays rent by cheque $80 12 Sells goods for cash $210 16 Buys furniture for $1,500 paying by cheque 19 Sells goods on credit to SP for $580 22 Buys goods for cash $3,900 24 Buys fittings for cash $600 25 Pays wages by cash $110 and sells goods for cash $430 27 Receives part payment from SP of $330 by cheque 28 Pays advertising by cheque $25 and sells goods for cash $890 29 Sells goods on credit to KM for $8,090 30 Withdraws $100 cash for his personal use
Continued
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Solution:
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[email protected] 31Continued
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Example # 2.8: Work out the Trial Balance of example # 2.7?
Heads of Accounts Debit Credit
Cash 1,760
Capital 20,000
Bank 13,725
Purchases 8,900
JM 2,000
ERD 3,000
Wages 170
Rent 80
Sales 10,200
Furniture 1,500
SP 250
Fittings 600
Advertising 25
KM 8,090
Drawings 100
Total $ 35,200 $ 35,200
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Debtors Ledger & Creditors Leger Accounts
Debtors Ledger Account (DLCA)/Account Receivable Control
Account or Sales Leger Control Account (SLCA)
Creditor Ledger Account (CLCA)/Account Payable Control
Account or Purchase Leger Control Account (PLCA)
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Creditors Ledger Accounts
MCQ 9From the following information, calculate the value of purchases:
£
Opening creditors 71,300
Cash paid 271,150
Discounts received 6,600
Goods returned 13,750
Closing debtors 68,900
£289,100
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You are given the following information:
£
Debtors at 1 January 2003 30,000
Debtors at 31 December 2003 27,000
Total receipts during 2003 (including cash sales of £15,000) 255,000
Sales on credit during 2003 amount to…………………………
MCQ 10
£237,000
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MCQ 12
(a) A sales ledger control account ensures that there are no errors in the personal ledger
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MCQs 14
$ 289,100
Trial Balance
Trial balance shows the mathematical accuracy of the books of
accounts. For every transaction in the double entry system, equal
amount of debit and credits are recorded in the books of account
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MCQs 15The debit side of a trial balance totals $50more than the credit side. This
could be due to?
(a) A purchase of goods for $50 being omitted from the payables account
(b) A sale of goods for $50 being omitted from the receivables account
(c) An invoice of $25 for electricity being credited to the electricity
account
(d) A receipt for $50 from a debtor being omitted from the cash book
(a) A purchase of goods for $50 being omitted from the payables account
MCQs 16Why does a business prepare a Trial Balance?
(a) To calculate the profit and loss
(b) To check the cash and bank balance
(c) To check the arithmetical accuracy of the ledgers
(d) To show the financial position
(c) To check the arithmetical accuracy of the ledgers
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MCQs 17Which most important reason for producing a trial balance prior to
preparing the final accounting is?
(a) It confirms the accuracy of the ledger accounts
(b) It provides all the figures necessary to prepare the final accounts
(c) It shows that the ledger accounts contain debit and credit entries of
an equal value
(d) It enables the accountant to calculate any adjustments required
(c) It shows that the ledger accounts contain debit and credit entries of an equal value
MCQs 18Where a transaction is credited to the correct ledger account, but
debited incorrectly to the repairs and renewals account instead of to
plant and machinery account, the error is known as an error of?
(a) Omission
(b) Commission
(c) Principle
(d) Original entry
(c) Principle
MCQs 19If a purchase return of $48 has been wrongly posted to the debit side
of the sales returns account, but has been correctly entered in the
supplier’s account, the total of the trial balance would show?
(a) The credit side to be $48 more than the debit side
(b) The debit side to be $48 more than the credit side
(c) The credit side to be $96 more than the debit side
(d) The debit side to be $96 more than the credit side
(d) The debit side to be $96 more than the credit side
MCQs 20An invoice from a supplier of office equipment has been debited to
the stationery account. This error is known as?
(a) An error of commission
(b) An error of original entry
(c) A compensating error
(d) An error of principle
(d) An error of principle
MCQs 21
(a) Debited and credited to the correct accounts using incorrect amount in both cases
Rectification & Suspense Account
An accountant can also commit errors while recording business transactions in
books of accounts, in their recording, posting or balancing the accounts and so on
An accountant can also commit errors while recording business transactions in
books of accounts, in their recording, posting or balancing the accounts and so on
There are certain errors which will disturb the Trial Balance in the sense that the
Trial Balance will not agree. These errors are easy to detect and their rectification
is also simple
However, there are certain errors which are not detected through a Trial Balance.
In other words, a Trial Balance would agree in spite of these errors. These errors
are very difficult to detect
MCQs 25Suspense account having credit balance will be shown on the?
(a) Credit side of the profit and loss A/c
(b) Liabilities side of the balance sheet
(c) Assets side of the balance sheet
(d) Revenue side of income statement
(b) Liabilities side of the balance sheet
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Cash Book
Cash book is a book of original entry in which transactions relating only to
cash receipts and payments are recorded
When cash is received it is entered on the debit or left hand side Similarly, when cash is paid out it is recorded on the credit or right hand side
of the cash book
Cash Book is dual purpose book; it is Journal as well as Ledger
Petty Cash
It is most common to find with large commercial businesses that all receipts
and payments are made through bank
Since expenses like conveyance, carriage, postage, telegrams, traveling etc.
cannot be made by means of checks
The maintenance of a small cash balance to meet these petty payments
The Imprest System is used for petty cash maintenance
For example, On June 1, 2012, Rs. 1,000 was given to the petty cashier. He had
spent Rs.940 during the month. He will be paid Rs. 940 on 30th June by the
cashier so that he may again have Rs. 1,000 for the next month of July
