Business Accounting Notes and Questions

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RECORDING THE NETWORK OF THE BUSINESS

Book keeping

– This is a systematic collection, recording, and analysis of financial information or business transactions.

A Transaction

– Any business activities that involves exchange of goods and services that can be valued in terms of money

A Balance sheet

– This is a financial statement that shows the financial position of a firm at a specific period/time.

A financial statement that shows the assets ,liabilities and capital of a firm at a given date.

Balance sheet items or parts

1. Assets

These are economic resources owned by a firm.
Anything of value owned by a business.

Types

Fixed assets – This are economic resources that stay in a business for a long time, e.g land, premises, building, free hold property
1. Current assets – These are economic resources whose value keeps on changing within a very short time e.g
Cash at hand
Cash at bank
Stock i.e. goods bought for resale

– Debtors– people /firms who owe the business money

2. Liabilities

These are debts a business owes other people /firms

Types

a) Long term liabilities – These are debts repaid for a long period of time of more than a year e.g

– Bank loans

– ICDC loans

-AFC loans

– Debentures

B )Current liabilities – These are debts repaid within a year e.g

Creditors.- Firms /people a business owes money when it gets goods and services on credit.

Capital /Owners equity –

This refers to any economic resource/anything of a value used to start a business.

Sources of capital

Bank loan
Personal savings
Sale of fixed assets
Ploughed back profits /retained profits
Trade credit
Hire purchase
Mortgages
Members financial contribution
Sale of shares

Changes in Capital

There are four items that can change capital of a business

Profits – increases capital
1. Investments – Increases capital
1. Loss – Decreases capital
1. Drawings – Decreases capital

A drawing

– refers to any asset taken from the business for personal /owners use without paying cash.

Investments

– refers to any additional asset brought into the business by the owner

without buying it
paying for it using business funds
owner uses personal funds to pay for the asset
converts own personal asset into business use

Features of assets liabilities and capital

(a)Assets

-Resource owned and controlled by the business.

-Must have been acquired in the past.

-An item of value that can be measured reliably in monetary terms.

-Future benefits associated with the net expected to be received by business entity.

-They are fixed or current.

(b) Liability

-A present obligation for a business to settle as a result of past commitments.

-Settlement would reduce business assets.

-Amount involved can be measured reliably in monetary terms.

-Owed to outsiders.

-They are long term or current/short term.

Capital

Used to start a business
Are assets and liabilities
Changes due to loss profit drawings or investments
Capital is owners worth in a business
Capital can be borrowed fixed employed or working

USERS OF FINANCIAL OR ACCOUNTING OR BOOKEEPING INFORMATION

1 Owners of the business

2 Management of the firm

3 Prospective or potential investors

4 Government agencies eg KRA

5 Lenders eg BANKS and suppliers

BALANCE SHEET /BOOKKEEPING /ACCOUNTING EQUATION

CAPITAL = ASSETS + LIABILITIES
ASSETS = CAPITAL- LIABILITIES
LIABILITIES =CAPITAL –ASSETS

In the table below fill in the missing figures S,T,U and V. (4 mks)

Business	Assets(shs)	Capital(shs)	Liabilities(shs)
A	20,000	S	5,000
B	42,000	32,000	T
C	U	17,000	53,000
D	18,000	V	6,000

Fill in the missing figures in the table below.
CAPITAL= FA+CA+LTL+CL
CAPITAL=FA+CA+L
ASSETS = LTL + CL+CAPITAL (4marks)

	FA	CA	C	L
a)	275 500	a	315 000	115 500
b)	182 000	108 700	b	217 100
c)	c	76 400	123 100	91 900
d)	313 450	211 340	189 170	D

Effects of transactions on the balance sheet

A Transaction is any business activity that involves exchange of goods/services for money or on credit.

Cash transaction

This is where goods and services are exchanged between a trader and buyer for money

Credit transaction

This is where goods and services are exchanged but the buyer promises to pay the seller later.

This is an Exchange of products and an invoice is given to the buyer by the seller.

Effects of transactions on the balance sheet

The formula used is Assets = liabilities +capital

Capital and cash at hand

1-1-2011 Jaribu traders started a business with cash sh 260000

Effects capital increased by sh260000 and cash at hand increased by sh260000 an asset

Jaribu traders

Balance sheet

As at 1-1-2011

A L+C

Cash at hand 2600000	Capital 260000
260000	260000

Stock and cash

2-1-2011 Bought stock and paid cash sh 100000

Effects stock increased by sh100000 and cash at hand reduced by sh100000 both are assets

Jaribu traders

Balance sheet

As at 2-1-2011

A L+C

Cash at hand 160000	Capital 260000
Stock 100000
260000	260000

Stock and creditors

3-1-2011 bought stock for sh 30000 on credit from leah

Effects -stock increased by sh 30000 as an asset and leah creditors increased by sh30000 as a liability

Jaribu traders

Balance sheet

As at 3-1-2011

A L+C

Cash at hand 160000	Capital 260000
Stock 130000	Leah creditors 30000
290000	290000

Stock /cash at hand (Sales)

4-1-2011 -Sold goods for cash shs 40000

Effects -stock reduced by sh 40000 and cash at hand increased by sh 40000 both are assets

Jaribu traders

Balance sheet

As at 4-1-2011

A L+C

Cash at hand 200000	Capital 260000
Stock 90000	Leah creditors 30000
290000	290000

Stock and debtors

5-1-2011 – Sold stock to mgala sh5000 on credit

Effects stock reduced by sh 5000 and mgala debtors increased by sh 5000 both are assets

Jaribu traders

Balance sheet

As at 5-1-2011

A L+C

Cash at hand 200000	Capital 260000
Stock 85000
Mgala debtors 5000	Leah creditors 30000
290000	290000

-Cash at hand and cash at bank

6-1-2011 opened a bank account and deposited cash sh 120000

Effects -cash at hand reduced by sh120000 and cash at bank increased by sh 120000 both are assets.

Jaribu traders

Balance sheet

As at 5-1-2011

A L+C

Cash at hand 80 000	Capital 260000
Stock 85000
Mgala debtors 5000	Leah creditors 30000
Cash at bank 120000
290000	290000

G –Stock and bank

6-1-2011 – Sold stock and got a cheque of sh 20000

Effects stock reduced by sh 20000 and cash at bank increased by sh20000 both are assets

Jaribu traders

Balance sheet

As at 6-1-2011

A L+C

Cash at hand 80 000	Capital 260000
Stock 65000
Mgala debtors 5000	Leah creditors 30000
Cash at bank 140000
290000	290000

Motor van and cash

7-1-2011 Bought a motor van and paid by cheque sh 90000

Effects motor van increased by sh 90000 and cash at bank reduced by sh 90000 both are assets

Jaribu traders

Balance sheet

As at 7-1-2011

A L+C

FA	Capital 260000
Motor van 90000	CL
CA	Leah creditors 30000
Cash at bank 50 0000
Cash at hand 80 000
Stock 65 000
Mgala debtors 5 000
290 000	290 000

Furniture and creditor

8-1-2011 Bought furniture for the business worth sh 25000 from chama traders

Effects furniture increased by sh 25000 and chama furniture creditors increased by 25000

Jaribu traders

Balance sheet

As at 8-1-2011

A L+C

FA	Capital 260000
Motor van 90000	CL
Furniture 25000	Leah creditors 30000
CA	Chama furniture creditors 25000
Cash at hand 80 000
Stock 65 000
Mgala debtors 5 000
Cash at bank 50 0000
315000	315000

Land /cash /creditors

9-1-2011 Bought land for sh 60000 . first paid cash sh 40000 and balance to be paid later to lazo traders

Effects land increased by sh 60000 . cash reduced by sh 40000 and lazo land creditors increased by sh 20000

Jaribu traders

Balance sheet

As at 9-1-2011

A L+C

FA
Land 60000	Capital 260000
Motor van 90000	CL
Furniture 25000	Leah creditors 30000
CA	Chama furniture creditors 25000
Cash at hand 40 000	Lazo land creditors 20000
Stock 65 000
Mgala debtors 5 000
Cash at bank 50 0000

335000	335000

Drawings /stock /cash

10-1-2011 The owner took stock worth sh 2500 and cash sh 3000 for own and family use.

Effects drawings increased by sh 5500 and cash at hand reduced by sh3000 and stock reduced by sh2500

Drawings will reduce capital since goods were not paid for and cash at hand was taken without offering goods or service to the business

Jaribu traders

Balance sheet

As at 10-1-2011

A L+C

FA	Capital 260000
	Minus Drawings 5500
Land 60000	Net capital 254500
Motor van 90000	CL
Furniture 25000	Leah creditors 30000
CA	Chama furniture creditors 25000
Cash at hand 37 000	Lazo land creditors 20000
Stock 62 500
Mgala debtors 5 000
Cash at bank 50 0000

329500	329500

Investment /bank / furniture

11-1-2011 The owner deposited sh 30000 from personal sources into business bank and converted personal furniture worth sh 20000 into business property

Effects Investments increased by sh 50 000 cash at bank increased by 30 000 and furniture increased by sh 20000. Cash and furniture are investment since they were introduced by owner to business and not bought.

Jaribu traders

Balance sheet

As at 11-1-2011

A L+C

FA	Capital 260 000
	Add Investment 50000
Furniture 45000	Minus Drawings 5500
Land 60000	Net capital 304500
Motor van 90000	CL
	Leah creditors 30000
CA	Chama furniture creditors 25000
Cash at hand 37 000	Lazo land creditors 20000
Stock 62 500
Mgala debtors 5 000
Cash at bank 80 0000

379500	379500

Cash /profit/stock

12-1-2011 –Sold goods worth sh 10000 for cash sh 12000

Effects Stock decreased by sh 10000 ,cash increased by sh 12000 and profits increased by sh 2000 since he sold goods at a higher price than the cost.

Jaribu traders

Balance sheet

As at 11-1-2011

A L+C

	Capital 260 000
FA	Add Profit 2 000
	Add Investment 50000
Furniture 45000	Minus Drawings 5500
Land 60000	Net capital 306500
Motor van 90000	CL
	Leah creditors 30000
CA	Chama furniture creditors 25000
Cash at hand 49 000	Lazo land creditors 20000
Stock 52 500
Mgala debtors 5 000
Cash at bank 80 0000
381500	381500

E) BANK LOAN , CASH AT BANK ,CASH AT HAND AND CREDITORS

13-1-2011-Got a bank loan of sh 70000

14 -1-2011 –Paid lazo creditors all his debt by cheque and settled part of leahs debt by cash sh20000

Effects 13 th Bank loan increased by sh 700000 and cash at bank increased by sh 70000

14^th lazo creditors reduced by sh 20000 and cash at bank reduced by sh 20000 and leahs debt reduced by sh 20000 while cash at hand reduced by sh 20000

Jaribu traders

Balance sheet

As at 11-1-2011

A L+C

	Capital 260 000
FA	Add Profit 2 000
	Add Investment 50000
Furniture 45000	Minus Drawings 5500
Land 60000	Net capital 306500
Motor van 90000	LTL
	Bank loan 70000
CA
Cash at hand 29 000	CL
Stock 52 500
Mgala 5 000	Chama furniture creditors 25000
Cash at bank 130 000	Leah creditors 10000

411500	411500

Reading the balance sheet

1 Ending Capital or Owners equity

Opening capital +profit+investment-drawings

260000+2000+50000-5500=306500

2 Working capital

Wc = current assets-current liabilities

Wc =(29000+52500+5000+130000)-(25000+10000)

Wc =216000-35000

Wc =181500

3 Borrowed capital= LONG TERM LIABILITIES

BANK LOAN =70000

4 CAPITALS EMPLOYED

CE=FA+WC or CE=ENDING CAPITAL+LTL(BC)

CE= 195000+181500

CE=376500

CE=306500+70000

CE=376500

4. (a) The following balance sheet was prepared from the books of Makori traders.

Makori traders

Balance sheet

As at 31^st Dec 2011

Sh sh sh sh

Fixed assets capital 280,000

Motor vehicle 600,000 long term liabilities

Furniture 80,000 680,000 bank loan (5 years) 500,000

Current assets short term liabilities

Stock 200,000 creditors 280,000

Cash 60,000 bank overdraft 20,000 300,000

Debtors 140,000 400,000

1,080,000 1,080,000

The following transactions then took place in January 2012

(i) Opened a bank account for the business and deposited shs 120,000 from personal sources.

(ii) Paid part of the bank loan shs 40,000 by cash.

(iii) Bought goods worth shs 50,000 on credit.

(iv) Sold part of the furniture worth shs 10,000 in cash

Required:

Prepare Makori traders balance sheet as at the end of January 2012.

(10 marks)

EFFECTS

I Cash at bank sh 120000

investment sh 120000

II Bank loan 500000- 40000 =460000

Cash at hand 60000-40000=20000

III Stock 200000+50000=250000

Stock creditors 50000

1v furniture 80000-10000=70000

Cash at hand 20000 +10000=30000

Makori traders

Balance sheet

As at 31^st January 2012

Fixed assets sh sh sh sh

Motor vehicle 600,000 capital 280,000

Investment 120, 000

Furniture 70,000 670,00 long term liabilities

Current assets bank loan (5 years) 460,000 Stock 250,000√ short term liabilities

Cash 30,000 creditors 280,000

Stock creditors 50,000

Debtors 140,000 bank overdraft 20,000 350,000

Bank 120,000

540,000

1,210, 000√ 1,210,000

Each mark (√) 1 mark 10 x1=10 marks

BALANCE SHEET FOMAT

Name of the business

Balance Sheet

As at (date)

Shs shs Fixed Assets Land xxxxx Buildings xxxxx Motor Vehicle xxxxx Any other fixed assets xxxxx xxxxxx Current Assets Stock xxxx Debtors xxxx Bank xxxx Cash xxxx Prepaid Expenses xxxx Accrued revenues xxxx Any other current assets xxxx xxxxxx Xxxxxx	Shs shs Capital xxxxx Add Net profit xxxx Add additional invest. xxx Less drawings xxx Net Capital xxxxx Long term liabilities Long term loans xxxx Any other ltl xxxx xxxx Current liabilities Creditors xxxx Short term loan xxxx Accrued expenses xxxx Prepaid revenues xxxx Bank ovedraft xxxx xxxxx xxxxxx

Reading a balance sheet /types of capital

Ending capital / Network /owners equity
Working capital (WC)
Current Ratio or working capital Ratio
Quick /Acid test ratio
Rate of return on capital
Borrowed capital
Capital employed

Types of Capital

The capital in the business can be classified as follows

Capital Owned/Owner’s Equity/Capital invested; – this is the capital that the owner of the business has contributed to the business. It is the Net capital/Closing capital of the business (C = A – L)

OR ENDING CAPITAL = BC+NP+INV-DRAWINGS-LOSSES

Borrowed capital: – They are the long term liabilities of the business.

Working capital: – these are resources in the business that can be used to meet the immediate obligation of the business. It is the difference between the total current assets and total current liabilities

Working Capital = Total Current Assets – Total Current Liabilities

CURRENT RATIO

CURRENT ASSETS/CURRENT LIABILITIES

QUICK /ACID TEST RATIO

Current assets –closing stock

CLOSING STOCK

Rate of return on capital

Net profit X100

CAPITAL

Capital employed: – these are the resources that has been put in the business for a long term. i.e.

Capital Employed = Total Fixed assets + Working Capital

Capital employed = Ending Capital + Long term liabilities

(a) The following information was extracted from the books of Jumbo Traders for the year ended 31

December ,2014

Jumbo Traders

Trial Balance

Dr Cr

Sh. Sh.

Land and buildings 50,000

Capital 94,000

Plant & machinery 20,000

Motor Vehicles 30,000

10 year Bank Loan 20,000

6 year ICDC Loan 10,000

Stock 10,000

Debtors 6,000

Creditors 7,000

Rent owing 1,000

Cash at Bank 10,000

Cash in hand 2,000

Drawings 4,000

132,000 132,000

Required prepare (i) a balance sheet for the year ended 31^st December
Ending capital / Network /owners equity
Working capital (WC)
Current Ratio or working capital Ratio
Quick /Acid test ratio
Rate of return on capital
Borrowed capital
Capital employed

(12mks)

Jumbo Traders

Balance Sheet

As at 31^st Dec 2014

ASSETS FIXED ASSETS Sh sh Land and building 50,000Ö Plant and machinery 20,000Ö Motor vehicles 30,000Ö 100,000 Current assets Stock 10,000Ö Debtors 6,000 Cash at Bank 10,000Ö Cash at hand 2,000Ö 28,000 128,000

CAPITAL AND LIABILITIES Sh Sh Capital 94,000Ö Less Drawings 4,000Ö 90,000 Long-term liabs 10 Year Loan 20,000Ö 6 year ICDC Loan 10,000Ö 30,000 Current Liab Creditors 7,000Ö Rent owing 1,000Ö 8,000 128,000

( 14x ½ =7mks)

ENDING CAPITAL

94000-4000= 90000

2 Working capital =current assets –current liabilities

=28,000Ö-8,000Ö

=20,000Ö (4x ½ =2mks)

Current ratio

28000=3.5 times

8000

4 QUICK RATIO

CA-CLOSING STOCK

28000-10000=2.25

8000

(b) Capital employed =Fixed assets + working capital

=capital + long term Liabilities

CE=FA+WC=100,000+20,000

=120,000 4x ½ =1mk

CE=C+LTL=90,000+30,000

=120,000

=20,000+10,000Ö

=30,000Ö

ASSIGNMENT (4x ¼=1mk

(b) The following balances were extracted from the books of Mbili Traders for the year ended 31^st

December, 2014.

Kshs

Stock 100,000

Capital 800,000

Debtors 50,000

Creditors 80,000

Cash 10,000

Net Profit 10,000

Bank Overdraft 70,000

Machines 600,000

Furniture 200,000

Required: Prepare Mbili Traders balance sheet as at 31^st December 2014. And work out the various balance sheet formulas (10mks)

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THE LEDGER

This is a book where transactions are recorded.

An Account

This is a page in the ledger where transactions are recorded.

Parts of an account

a) Debit (Dr) – This is the left side of the account

b) Credit(Cr) – This is the right side of an account

c) Debiting – This is the recording of transactions on the left side of the account.

d) Crediting – This is the recording of transactions on the right side of an account.

Debit Title Credit

Date Details Ratio Amount Date Details Folio Amount

Date – Shows the date when the transaction occurred.

Details – Gives a brief description of a transaction.

Folio – This is a page in the ledger book.

Amount – shows the value of the transaction.

Title – brief /summary of the transaction.

Uses of the ledger account

1 Show changes in the value of a given item

used for future reference
show the exact value or balance of a given item
used to prepare the trial balance
assists in tracing errors

`T’ ACCOUNT

This is an account that does not show all the details but resembles letter `T’

Rules of entering transactions in ledger account summary

Account /Item	Increases	Decreases	Balance
Assets	Dr	Cr	Dr
Expenses	Dr	Cr	Dr
Liabilities	Cr	Dr	Cr
Capital	Cr	Dr	Cr
Revenue	Cr	Dr	Cr

The rule of double entry

It states that equal debit and credit amounts are required to record any transaction .

Any total amount debited must also be credited in other accounts.

Expenses

This is the cost of goods and services used by a firm in the process of getting revenue e.g.

Rent
Rates
Water
Carriage /transport in and out
Bad debts
Depreciations
Stationery
Printing
Salaries
Repair
Interest paid
Discount allowed

Revenues

Income got from the sale of goods and services e.g.

sales
commission received
discount received
rent received
interest received

Effects of transactions on the ledger accounts

PROCEDURE

1Read the transaction

2Identify the items affected

3 Apply the rules of double entry

4Draw and label the accounts

5Enter the transaction using double entry rule

CHAMBITI TRADERS HAD THE FOLLOWING TRANSANCTIONS IN THE MONTH OF DECEMBER 2017

Capital and cash at hand

1-12-17 Started a business with cash sh 280,000

Effects Capital increased by sh 280,000 hence credit the account

Cash at hand increased by sh 280,000 hence debit the account as an asset

CR Capital account DR

Date	Details	Folio	Amount	Date	Details	Folio	amount
30-12-17	Bal c/d		280000	1-12-17	Cash at hand		280,000
			280 000				280,00

DR CASH AT HAND CR

Date	Details	Folio	amount	Date	Details	Folio	amount
1-12-17	Capital		280,000	2-12-17	Purchases		120,000
4-12-17	Sales		50,000	6-12-17	furniture		15 ,000
12-12-17	investment		40,000	8-12-17	Cash at bank		70,000
19-12-17	commission		7,000	16-12-17	salaries		3,000
				21-12-17	Paty		18,000
				29-12-17	Bal c/d		151 000
			377000				377000

Purchases and cash

2-12-17 Purchased goods worth cash sh 120,000

Effects Cash at hand decreased by sh 120,000 hence credit the account as an asset

Purchases increased by sh 120,000 as an asset hence debit the account as asset

DR Purchases account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
2-12-17	Cash at hand		120,000	10-12-17	Drawings		5000
3-12-17	John creditors		30,000
18-12-17	Paty creditors		25,000	29-12-17	Bal c/d		170000
			175,000				175000

Purchases and creditors

3-12-17 – Purchased goods worth sh 30,000 on credit from john

Effects Purchases increased by sh 30,000 hence debited as stock/asset

John creditors increased by sh 30,000 hence credited as a liability/debt

DR John creditors account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
15-12-17	Purchases returns		4000	3-12-17	Purchases		30,000
17-12-17	Cash at bank		26000
			30,000				30,000

Sales and cash

4-12-17 Sold goods for cash sh 50,000

Effects Sales increased by sh 50,000 hence as a revenue its credited

Cash increased by sh 50,000 hence debited as an asset

DR Sales account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
29-12-17	Bal c/d		105 000	4-12-17	Cash at hand		50,000
				5-12-17	Chazu debtors		25,000
				9-12-17	Cash at bank		30,000
			105 000				105 000
				30-12-17	Bal b/f		105 000

Sales and debtors

5-12-17 Sold goods on credit for sh 25000 to chanzu

Effects Sales increased by sh25000 hence credited as revenue

Chanzu debtors increased by sh 25,000 hence debited as an asset

DR Chanzu debtors account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
5-12-17	Sales		25,000	14-12-17	Sales returns		3,000
				20-12-17	Cash at bank		9,000
				20-12-17	Discount allowed		1,000
				29-12-17	Bal c/d		12,000
			25 000				25 000
30-12-17	Bal b/f		12 000

Furniture and cash

6-12-17 Bought furniture for cash sh 15000

Effects Furniture increased by sh 15000 hence debited as an asset

Cash at hand reduced by sh 15000 hence debited as asset

DR Furniture account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
6-12-17	Cash at hand		15,000
13-12-17	Investment		7,000	29-12-17	Bal c/d		22 000
			22 000				22 000
30-12-17	Bal b/f		22 000

Motor van and creditors

7-12-17 Bought a motor van for sh 90000 on credit from chango motors

Effects motor van increased by sh 90000 hence debited as an asset

Chango motors increased as a liability by sh 90000 hence credited

DR chango motors creditors CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
29-12-17	Bal c/d		90 000	7-12-17	Motor van		90,000
			90 000				90 000
				30-12-17	Bal b/f		90 000

CR motor van account DR

Date	Details	Folio	Amount	Date	Details	Folio	amount
7-12-17	Motor van		90 000	29-12-17	Bal c/d		90 000
			90 000				90 000
30-12-17	Bal b/f		90 000

Cash at bank and cash at hand

8-12-17 Opened a business bank account and deposited cash sh 70000

Effects cash at hand reduced by sh 70000 hence credited as an asset

Cash at bank increased by sh 70000 hence debited as an asset

CR Cash at bank account DR

Date	Details	Folio	Amount	Date	Details	Folio	amount
8-12-17	Cash at hand		70,000	11-12-17	drawings		8,000
9-12-17	sales		30,000	17-12-17	John creditors		26,000
20-12-17	Chanzu debtors		9,000	28-12-17	Bankloan		24,000
22-12-17	Bank loan		60,000	29-12-17	Bal c/d		111000
			169, 000				169 000
30-12-17	Bal b/f		111, 000

9 Sales and bank

9-12-17 sold goods and got a cheque of sh 30000

Effects sales increased as a revenue by sh 30000 hence credited

Cash at bank increased as an asset by sh 30000 hence debited

Nb both accounts are opened

10 Drawings and purchases

10-12-17 The owner took stock worth sh 5000 for family use

Effects Drawings increased by sh 5000 hence debited

Purchases reduce by sh 5000 hence credited as an asset

CR Drawings account DR

Date	Details	Folio	Amount	Date	Details	Folio	amount
10-12-17	Purchases		5 000	29-12-17	Bal c/d		13 000
11-12-17	Cash at bank		8 000
			13 000				13 000
30-12-17	Bal b/f		13 000

11 Drawings and cash bank

11-12-17 owner cashed a cheque for sh 8000 for family use

Effects Drawings increased by sh 8000 hence debited

Cash at bank reduced by sh 8000 hence credited as an asset

Nb both accounts are opened

12 Investment and cash

12-12-17 Owner brought into business cash sh 40,000 from personal savings

Effects Investments increased by sh 40,000 hence credited as capital

Cash at hand increased by sh 40,000 hence debited as an asset

CR Investment account DR

Date	Details	Folio	Amount	Date	Details	Folio	amount
29-12-17	Bal c/d		47 000	12-12-17	Cash at hand		40,000
				13-12-17	Furniture		7,000
			47 000				47,000
				30-12-17	Bal b/f		47 000

13 Furniture and investment

13-12-17 Converted personal furniture into business use worth sh 7000

Effects investments increased by sh 7000 hence credited

Furniture increased by sh 7000 hence debited

Nb both accounts are opened

14 Sales returns and debtors (returns inwards debit note issued)

14-12-17 Chanzu returned goods worth sh 3000

Effects Sales returns increased by sh 3000 hence debited

Chanzu debtors reduced by sh 3000 hence credited as an asset

CR sales returns account DR

Date	Details	Folio	Amount	Date	Details	Folio	amount
14-12-17	Chanzu debtors		3 000	29-12-17	Bal c/d		3 000
			3 000				3 000
30-12-17	Bal b/f		3 000

15 Purchase return and creditors (Returns outwards debit note received)

15-12-17 Returned goods worth sh 4000 to john

Effects purchases returns increased by sh 4000 hence credited as stock reduces

John creditors reduced by sh4000 hence debited as a liability

DR Purchases returns account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
29-12-17	Bal c/d		4 000	15-12-17	John creditors		4 000
			4 000				4 000
				30-12-17	Bal b/f		4 000

16 Salaries and cash (expenses)

16-12-17 paid salaries by cash sh 3000

Effects salaries increased by sh 3000 hence debited as an expense

Cash at hand reduced by sh 3000 as an asset hence credited

DR Salaries account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
16-12-17	Cash at hand		3000	29-12-17	Bal c/d		3000
			3000				3000
30-12-17	Bal b/f		3000

17 Bank and creditors

17-12-17 Settled johns account by cheque in full ie sh 26000

Effects cash at bank reduced by sh 26000 hence credited

John creditors reduced by sh 26000 hence debited as a liability

Nb both accounts are opened

18 PURCHASES AND CREDITORS

18-12-17 Bought goods from paty on credit sh 25,000

Effects paty creditors increased by sh 25000 hence credited as a liability

Purchases increased by sh 25000 hence debited as an asset

DR Paty creditors account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
21-12-17	Cash at hand		18 000	18-12-17	purchases		25,000
21-12-17	Discount received		2 000
29-12-17	Bal c/d		5 000
			25 000				25 000
				30-12-17	Bal b/f		5 000

19 Commission received and cash

19-12-17 Got a commission of sh 7000 cash for offering services to a customer

Effects commission received increased by sh 7000 hence credited as a revenue

Cash at hand increased by sh 7000 hence debited

DR commission received account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
29-12-17	Bal c/d		7000	19-12-17	Cash at hand		7,000
			7 000				7 000
				30-12-17	Bal b/f		7000

Download These Files for Free in Either .Pdf or Ms Word
ACCOUNTING NOTES AND ASSGNMTS.docx

20 DISCOUNT ALLOWED , DEBTORS AND CASH AT BANK

20-12-17 chanzu paid part his debt sh 10,000 less 10% discount by cheque

EFFECTS –cash at bank increased by sh 9000 and was debited

Discount allowed increased by sh 9000 and was debited

Chanzu debtors reduced by sh 9000 and discount amount sh1000

DR Discount allowed account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
16-12-17	Chanzu debtors		1000	19-12-17	Bal c/d		1000
			1000				1000
30-12-17	Bal b/f		1000

21 DISCOUNT RECEIVED CREDITORS AND CASH AT HAND

21-12-17 Paid Paty cash sh 20,000 less 10% discount

Effects paty creditors reduced by sh18,000 cash and discount of sh 2000 hence debited

Discount received increased by sh 2000 hence credited

Cash at hand reducedby sh 18,000 and was credited

DR Discount received account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
29-12-17	Bal c/d		2000	21-12-17	Paty creditors		2000
			2000				2000
				30-12-17	Bal b/f		2000

22 BANK LOAN AND CASH AT BANK

22-12-17 Got a bank loan and deposited money on his account sh 60000

EFFECTS Bank loan increased by sh 60000 hence credited as a liability

Cash at bank increased by sh 60000 hence debited

DR Bank loan account CR

Date	Details	Folio	Amount	Date	Details	Folio	amount
28-12-17	Cash at bank		24,000	22-12-17	Cash at bank		60,000
29-12-17	Bal c/d		36,000
			60000				60000
				30-12-17	Bal b/f		36 000

23 BANK LOAN REPAYMENT AND CASH AT BANK

28-12-17 Repaid part of the bank loan by cheque sh 24,000

Effects the Bank loan reduces by sh 24000 hence debited

Cash at bank reduces hence credited

NB BOTH ACCOUNTS ARE OPENED

CHAMBITI TRADERS

TRIAL BALANCE AS AT 30-12-17

NAME OF ACCOUNT	DEBIT	CREDIT
Capital Cash at hand Purchases Sales Chanzu debtors Furniture Motor vehicle Chango creditors Cash at bank Drawings Investments Sales returns Purchases returns Salaries Paty creditors Commission received Discount allowed Discount received Bank loan Total	151 000 170 000 12 000 22 000 90 000 111 000 13 000 3 000 3 000 1 000 576000	280 000 105 000 90 000 47 000 4 000 5 000 7 000 2 000 36 000 576000

Balancing ledger accounts

Procedure

Total the amount on the debit side and credit side.
Find the difference /the balance.
Carry down the balance on the side with less amount.
Show totals on both sides .
Bring forward the balance on the side with more amount.

Debit balance

This where the total amount on the debit side is more than the total amount on the credit side.

Accounts with debit balances

All assets
Sales and returns
Drawings
Net loss
Discount allowed
Fixed assets
Current assets

Credit balance

This is where the total amount on the credit side is more than the total amount on the debit side.

Accounts with credit balances

liabilities
capital
Investments
Sales
Purchase returns
Net profits
Discount received

Closed accounts

Are accounts with nil or zero balances hence they are not shown on the trial balance. The totals on the debit and credit sides are equal.

Trial balance

This is a list of debit and credit balances got from ledger account at a particular date

Uses of a trial balance

Check accuracy of posting transactions to the ledger
Check the arithmetic accuracy of ledger accounts
Provide account balances at year end
Check that debit and credit balances are in agreement
Summarizes the information in the ledger account
Facilitates the preparation of final accounts

ASSIGNMENTS

b) Kivunja started business on 1^st January 2017 with capital sh. 210,000 in cash. The following transactions took place during the first week of the month:

2017

Jan 2: Opened a bank account and deposited cash. Sh. 90,000

3: Bought stock of goods Sh. 40,000 on credit

4: Cash sales paid direct into the bank Sh. 12,000

5: Paid rent Sh. 2,000 in cash

5: Sold goods Sh. 21,000 payment received by cheque.

6: Bought office equipment for Sh. 150,000 by cheque

7: Received a commission from Taptok traders Sh. 1,000 cash

Required:

Prepare the relevant accounts, balance them off on 7^th January, 2017 and extract a trial balance as at that date. (12 marks)

(b) The accounts of Hakuna Matata Traders showed the following balances on 1^st January 2014.

Sh.

Cash 250,000

Debtors 60,000

Creditors 42,000

Stock 30,000

Bank loan 120,000

Motor vehicle 310,000

The following transactions took place during the month of January 2014.

Jan 2: Bought stock worth Sh. 50,000 on credit.

Jan 3: Cash sales Sh. 80,000

Jan 5: Received Sh. 20,000 cash from debtors

Jan 10: Paid part of loan Sh. 70,000 cash

Jan 12: Paid creditors Sh. 52,000

Jan 16: Bought office furniture Sh. 45,000 cash

Jan 20: Paid salaries Sh. 40,000 cash

Jan 25: Deposited Sh. 100,000 into the bank

Required:

Record the above transactions in the relevant ledger accounts and balance the accounts on 31^st January 2014. (10marks)

b) The accounts Hakuna Matata Traders showed the following balances on 1^st January 2014.10mks

DR PURCHASES A/C CR 2010 2010

Jan 2 creditors 50,000ü Jan 31^st Bal c/d 50,000ü

Jan 31 Bal b/d 50,000

DR BANK A/C CR

2010 SH 2010

Jan 25cash 100,000ü jan 31 bal c/d 100,000ü

Jan 31 b/d 100,000

DR CREDITORS A/C CR

2010 SH 2010 SH

Jan 12 cash 52,000 ü Jan 1 bal b/d 42,000ü

Jan 31 bal c/d 40,000 ü Jan 2 purchases 50,000ü

92,000 92,000

Jan 31 Bal b/d 40,000

DR STOCK A/C CR

2010 sh

Jan 1 bal b/d 30,000 ü bal c/d 30,000ü

DR MOTOR VEHICLE A/C CR

Bal b/d 310,000ü bal c/d 310,000ü

DR CASH A/C CR

2010 SH 2010

Jan Bal b/d 250,000ü JAN 10 loan 70,000ü

Jan 3 sales 80,000ü Jan 12 creditors 52,000ü

Jan 5 Debtors 20,000 ü Jan 16 furniture 45,000ü

Jan 20 salaries 40,000ü

Jan 25 bank 100,000ü

Jan 31 BAL C/D 43,000ü

350,000 350,000

Jan 31 bal b/d 43,000

DR DEBTORS A/C CR

2010 SH 2010

Jan 1 bal b/d 60,000 ü Jan 5 cash 20,000ü

Jan 31 bal c/d 40,000ü

60,000 60,000

Jan 31 bal b/d 40,000

DR BANK A/C CR

2010 SH 2010 SH

Jan 10 cash 70,000 ü Jan 1 bal b/d 20,000ü

Jan31 bal c/d 50,000 ü

120,000 120,000

Jan 31 bal b/d 50,000

DR FURNITURE A/C CR

2010 SH 2010

Jan cash 45,000 ü Jan bal c/d 45,000ü

JAN Bal b/d 45,000

DR SALARIES A/C CR

2010 SH 2010 SH

Jan 20 cash 40,000 ü bal c/d 40,000ü

Jan 31 bal b/d 40,000

(b) Record the following transaction in the affected accounts and balance them off on 10^th January 2015. (10mks)

2015

January 1: Start business with furniture worth Sh.130,000

2: Bought goods for Sh.50,000 on credit from Nyamwea.

4: Sold stock of goods for Sh.40,000 cash

5: Opened a bank account and deposited Sh.20,000 from cash till.

6: Obtained a loan from K.I.E Sh.30,000 by cheque.

7: Paid Nyamwea Sh.30.000 by cheque.

9: Withdraw cash Sh.60,000 from bank for office use.

b) Lurambi traders had the following transactions which took place for the month of March 2002

1^st Started a business with 90,000 in bank

3^rd Purchased furniture 5,000 by cheque

5^th purchased goods worth 20,000 and paid by cheque

8^th sold goods worth 15,000 to Masinde on credit

10^th withdrew shs, 10,000 from bank foe office use.

Prepare his ledger accounts balance them and extract a trial balance

(b) The following transaction belong to Kebareti traders for the month of april 2013

April 1^st :stated business with Ksh. 45,000 in the bank

3^rd Bought stock on credit sh. 15,000 from Rotich

4^th Bought furniture sh. 5,000 by cheque.

6^th withdrew Sh 15,000 from bank and put it in business cash fill

8^th Paid cash sh. 5,000 for goods bought on credit from Rotich.

9^th sold stock on credit Sh. 9,000 to Joan

Required :

Prepare Kebeneti traders ledger account duly balanced. (12mks)

Ali had the following assets and liabilities as at 1.7.2009.

Cash at Bank 50,000

Debtors 30,000

Creditors 50,000

Stock 20,000

Furniture 35,000

Additional information:

July 2: Purchased stock worth Sh.16,000 on credit.

6: Sold some furniture for Sh.4,000 by cheque.

9: Received Sh.11,000 cash from debtors.

13: Sold stock Sh.10,000 paid by cheque.

Required:

Prepare the relevant ledger accounts. (10 marks)

The follow balance sheet was extracted from the books of Uchumi enterprises on

1^stDecember, 2015.

Uchumi Enterprises

Balance Sheet

As at 1^st December, 2015

SH SH SH

FIXED ASSET Capital 830,000

Premises 564,000

SHORT TERM LIABILITIES

CURRENT ASSETS Creditor 54,000

Stock 280,000

Cash 40,000 320,000.

884,000 884,000

During the month of December, Uchumi Enterprises carried out the following transactions

December 2:- The proprietor sold her personal equipment for Sh.60, 000. She received payment in cash and invested it in her business.

“ 11:- Purchase goods for Sh.58, 000 on credit from Alpha distributors.

“ 19:- Returned goods worth Sh.6, 000 to Alpha Distributors after they were found

defective.

“ 24:- Sold goods for cash Sh.24, 000

“ 30:- She took away goods costing Sh.16, 000 for her domestic consumption.

Required:

Record the above transactions in ledger accounts and balance off the accounts.
Extract a trial balance as at 31^st December, 2015. (12 marks)

Limitations of a trial balance or errors not disclosed by atrial balance or errors not affecting the agreement of atrial balance

Even when the trial balance totals are equal, it does not mean that there are no errors made in the ledgers. This is because there are some errors that do not affect the trial balance.

A trial balance only assures the book keeper that the total of debit entries is equal to total credit entries.

The errors that do not affect the trial balances are;

I Error of total omission; This occurs when a transaction takes place and nothing about it is recorded in the books of accounts i.e. it is completely omitted such that neither a credit nor a debit entry is made in the ledgers.

II Error of original entry; this occurs where both the debit and credit entries are made using similar but erroneous figures. As the wrong amount is recorded in the two accounts.

III Error of commission; This occurs where double entry is completed but in the wrong persons accounts especially due to a confusion in names e.g. a debit entry of shs.2000 was made in Otieno’s account instead of Atieno’s account.

IV Compensating errors; These are errors whose effects cancel out e.g. over debiting debtors account by sh.300 and under debiting cash account by sh.300.

V Complete reversal of entries; This occurs where the account to be debited is credited and the account to be credited is debited e.g. the sale of goods to Lydia on credit may be recorded as follows;

Dr.sales a/c

Cr.Lydia a/c instead of

Dr.Lydia a/c

Cr.sales a/c

VI Error of principle; This is where a transaction is recorded in the wrong account of a different class from the correct one e.g. repairs of machinery was debited in the machinery instead of debiting the repairs account.

Errors that may cause a trial balance not to balance or agree

Partial omission of a transaction was recorded on only one account i.e. a debit or a credit entry might have been omitted in one of the affected accounts.
Transferring (posting) a wrong balance to a trial balance.
Different amounts for the same transaction might have been entered in the accounts(Amount Dr. different from amount cr)
Failure to post a balance to the trial balance or omission of a balance from the trial balance.
Posting a balance to the wrong side of the trial balance
Recording a transaction on the same side of the affected account
Arithmetic mistakes might have been made when balancing the ledger accounts
Arithmetic errors in balancing the trial balance

Types of Ledger Accounts

Real Account – This are accounts for tangible /visible assets e.g cash, furniture, land, buildings, machinery
Personal account – This are accounts for debtors and creditors
Nominal account – This are accounts for expenses and revenue, profits and loss
Private account – Accounts where capital, drawings, investments are recorded

L E D G E R S

I I

PERSONAL ACCOUNTS IMPERSONAL ACCOUNTS

I I I I I

DEBTORS CREDITORS REAL NOMINAL PRIVATE

I I I I I I

SALES PURCHASES CASH GENERAL NOMINAL PRIVATE

LEDGER LEDGER BOOKS LEDGER LEDGER LEDGER

Four accounts where changes in stock is recorded name their ledgers and source documents.
Purchases
Purchase returns
Sales
Sales returns

Complete the table below by indicating the account to be debited and credited

Transaction	Debit	Credit
Started business with cash at bank
Cash sales
Paid business electricity using private funds
Took cash for personal use
Cashed a cheque for own use
Converted personal furniture into business use
Took stock for private use
Started business with personal buildings worth sh. 10,000
Got a bank loan sh. 4,000
Gave a supplier a cheque
Got cash from a credit customer
A credit customer returned goods
Returned goods to a credit supplier
Withdraw cash from Bank for office use
Took cash from the cash till to the bank

State whether the following accounts have debit or credit balance.

Account	Balance
Cash at hand
Salaries
Prepaid expenses
Rent owing
Capital
Drawing
Net Profit
Carriage in and out
Sales returns
Purchase returns
Investment
Discount allowed
Discount received

FINANCIAL STATEMENTS

They are prepared at the end of a firms trading period to determine the profit and losses of the business, and also to show the financial position of the business at a given time.

They includes;

1 A trading account,

2 A profit and loss account,

3 A trading profit and loss account

4 The balance sheet.

DEFINITION OF A TRADING OR ACCOUNTING PERIOD

A trading period is the duration through which the trading activities are carried out in the business before it decides to determine it performances in terms of profit or loss and viability. The period may be one week, a month, six months or even a year depending on the type of the firm and the operations.

At the end of the accounting period, the following takes place;

All the accounts are balanced off
A trial balance is extracted
Profit or loss is determined
The balance sheet is prepared

Determining the Gross profit or loss of a business

When a business sells its stock above the buying price or cost of the stock, it makes a gross profit, while if it sells below it makes a gross loss.

GP = NET SALES –COST OF SALES (BUYING PRICE)

In calculating the gross profit, the following adjustments are put in place

Return inwards/Sales return: –

These are goods that have been returned to the business after being sold and therefore they reduce the value of sales.

Therefore Net sales = Sales – Return inwards

Return outwards/purchases return

These are goods that had been bought from the suppliers and have been returned to them

. It reduces the purchases and is therefore subtracted from the purchases to obtain the net purchases.

Carriage inwards/Carriage on purchases/Transport in

This is the cost incurred by the Trader in transporting the goods from suppliers up to their premises . It is treated as part of the purchases, and therefore added to purchases to determine the actual value of purchases/Net purchases as goods have not been sold.

Therefore Net Purchases = Purchases + Carriage inwards – Return Outwards

Opening stock is the value of stock of goods in the firm at the beginning of the trading period,
Closing stock is the value of stock of the goods not sold at the end of the trading period

Gross profit is therefore calculated as follows;

Gross Profit = Sales – Return inwards – (Opening stock + Purchases + carriage inwards – Return outwards – Closing stock)

Gross profit = Net sales – Cost of Goods Sold (COGS)

COGS = Opening Stock + Net Purchases – Closing stock

Trading Account

This is prepared by the business to determine the gross profit/loss during that trading period

It takes the following format;

Name of the business

Trading Account

Dr For the period (date) Cr

Shs Shs Opening stock xxxxxx add Purchases xxx add Carriage inwards xxx less Return Outwards xxx…… XXXXX Goods available for sale xxxxxx Less Closing Stock xxx Cost Of Goods Sold (COGS) xxxxxx Gross profit c/d xxxx xxxxxx

Shs Shs Sales xxxxxx Less Return inwards xxx Net sales xxxxxx xxxxxx Gross profit b/d xxxx

The following balances were obtained from the books of timoTraders for the year ending may 31^st 2010

Sales 670 000

Purchases 380 000

Return inwards 40 000

Carriage outwards 18 000

Return outwards 20 000

Carriage inwards 10 000

Additional information;

The stock as at 1^st June 2009 was shs 60 000, while the stock as at 31^st May 2011 was shs 70 000

Required; Prepare Ramera Traders trading account for the period ending 31^st May

2010

Ramera Traders

Trading Account

Dr For the period ending 31/5/2010 Cr

Shs Shs Opening stock 60 000 add Purchases 380 000 add Carriage inwards 10 000 less Return Outwards 20 000 Net purchases 370 000 Goods available for sale 430 000 Less Closing Stock 70 000 Cost Of Goods Sold (COGS) 360,000 Gross profit c/d 270,000 630,000

Shs Shs Sales 670 000 Less Return inwards 40 000 Net sales 630 000 630 000 Gross profit b/d 270 000

Importance of a Trading account

It is used to determine the gross profit/loss for a given trading period for appropriate decision making by the management.
It is used in determining the cost of goods that was sold during that particular accounting period.
It is used to reveal the volume of turnover i.e net sales
May be used to compare the performance of the business in the current accounting period and the previous period
It can also compare its performance with other similar businesses
It facilitates the preparation of profit and loss account, since the gross profit is carried forward to the profit and loss account.

NET PROFIT

The profit realized after the cost of all the expenses incurred have been deducted is what is referred to as Net profit.

The net profit can be determined through calculation or preparation of a profit and loss account.

EXPENSES – Refers to the cost of goods and services used by a firm to earn revenue. Eg salaries wages

INCOMES – Refers to the money got or realized from the sale of of goods and services by a firm eg sales, rent income , discount received

NET PROFIT= GROSS PROFIT – EXPENSES

NET PROFIT = GROFIT – EXPENSES +OTHE INCOMES

Profit and Loss account

In preparation of this account, the gross profit is brought down on the credit sides, with all other revenues/income/loss of the business being credited and the expenses together with the net profit being debited.

Name of the business

Profit and Loss Account

Dr For the period (date) Cr

Shs Expenses Insurance xxx Electricity xxx Water bills xxx Interest on loans xxx Bad debts xxx Insurance xxx Repairs/ maintenance xxx Advertising xxx Water/ electricity xxx Printing / stationery xxx Carriage Outwards xxx General expenses xxx Provision for Depreciation xxxx Discount allowed xxx Commission allowed/exp xxxx Rent paid /exp xxxx Any other expense xxxx Net profit c/d xxxx xxxxxx

Shs Gross profit b/d xxxxxx Discount received xxx Rent income xxx Commission received xxx Any other income received xxx xxxxxx Net loss …………….. xxxxxxxxx

For example

The following information relates to Akinyi’s Traders for the period ending March 28^th 2010. Use it to prepare profit and loss account.

Gross profit 100 000 Discount received 12 000

Salaries and wages 20 000 Power and lighting 10 000

Opening stock 150 000 Rent income 10 000

Commission allowed 15 000 Commission received 16 000

Repairs 10 000 Discount allowed 8 000

Provision for depreciation 6 000 Carriage outwards 4 000

Akinyi Traders

Profit and Loss Account

Dr For the period ending 28^th March 2010 Cr

Shs Expenses Power and lighting 10 000 Carriage Outwards 4 000 Salaries and wages 20 000 Provision for Depreciation 6 000 Discount allowed 8 000 Commission allowed 15 000 Repairs 10 000 Net profit c/d 65 000 138 000

Shs Gross profit b/d 100 000 Discount received 12 000 Rent income 10 000 Commission received 16 000 138 000 Net profit b/d 65 000

In case the expenses are more than the income, then the business shall have made a net loss, and the loss will be credited.

Net profit/loss can also be found through calculation as follows;

Net profit/loss = Gross profit + Total other revenues – Total expenses

For the above example;

Total other revenues = 12 000 + 10 000 + 16 000

= 38 000

Total expenses = 10 000 + 4 000 + 20 000 + 6 000 + 8 000 + 15 000 + 10 000

= 73 000

Therefore; Net profit = Gross profit + Total other revenues – Total expenses

= 100 000 + 38 000 – 73 000

= 65 000

(b) The following information was obtained from the books of Karanja traders for the year

ending 31/dec.2003 ( 10mks)

Kshs.

Opening stock 20,000

Purchases 270,000

Sales 300,000

Return inwards 15,000

Closing stock 50,000

Cariage on purchases 10,000

Prepare his gross profit and loss account

3. The following figures were extracted from Kipkelion stores for the month of October 2012

Sales 1,200 000

Cost of sales 800,000

Salaries and wages 200,000

Electricity 10,000

Rent and Rates 5,000

Office expenses 2,000

Water bill 2,000

Transport 3,000

Motor vehicle expenses 16,000

Require:

(i) Profit and loss account for the month ended 30^th Oct.2012 (6mks)

Gross profit ………………………………………………………………………………… 20,000 Commission allowed …………………………………………………………………… 200 Carriage on sales ………………………………………………………………………… 4,000 Discount received ……………………………………………………………………….. 8,000 Salaries …………………………………………………………………………………….. 6,000 Rent ………………………………………………………………………………………….. 2,000 Discount revived ………………………………………………………………………… 400 Commission received ………………………………………………………………….. 1,500 Interest on bank loan …………………………………………………………………… 500

The following transactions relate to the books of Amina traders as at 31st December 2015.

Prepare Amina‘s profit and loss account for the period ended 31st December, 2015.

(5 marks)

Importance of Profit and Loss account

It shows the revenue earned, and all the expenses incurred during the accounting period
It used to determine the net profit/net loss of a given trading period
It is a requirement by the government for the purpose of taxation
May be used by the employees to gauge the strength of the business, in terms of its ability to pay them well
It is vital for the prospective investor in the business, in terms of determining the viability of the business
The creditors or loaners may use it to assess the business ability to pay back their debts
It is used by the management to make a decision on the future of their business.

Trading, Profit and Loss Account

This is the combination of trading account and trading profit and loss account to form a single document. It ends when the net profit/loss brought down has been determined. That is;

Name of the business

Trading, Profit and Loss Account

Dr For the period ended (date) Cr

Shs Shs Opening stock xxxxxx add Purchases xxxxx add Carriage inwards xxx less Return Outwards xxx Goods available for sale xxxxxx Less Closing Stock xxx Cost Of Goods Sold (COGS) xxxxxx Gross profit c/d xxxx Xxxxxx Expenses Insurance xxx Electricity xxx Water bills xxx Carriage Outwards xxx General expenses xxx Provision for Depreciation xxxx Discount allowed xxx Commission allowed xxxx Rent paid xxxx Any other expense xxxx Net profit c/d xxxx xxxxxx

Shs Shs Sales xxxxxx Less Return inwards xxx Net sales xxxxxx xxxxxx Gross profit b/d xxxx Discount received xxx Rent income xxx Commission received xxx Any other income received xxxxxx Net profit b/d xxxx

Name of the business

Balance Sheet

As at (date)

Shs shs Fixed Assets Land xxxxx Buildings xxxxx Motor Vehicle xxxxx Any other fixed assets xxxxx xxxxxx Current Assets Stock xxxx Debtors xxxx Bank xxxx Cash xxxx Prepaid Expenses xxxx Accrued revenues xxxx Any other current assets xxxx xxxxxx
xxxxxx

Shs shs Capital xxxxx Add Net profit xxxx Add additional investt xxx Less drawings xxx Net Capital xxxxx Long term liabilities Long term loan xxxx Any other xxxx xxxx Current liabilities Creditors xxxx Short term loan xxxx Accrued expenses xxxx Prepaid revenues xxxx Any other xxxx xxxxx xxxxxx

————-

Mark with a tick to indicate in the appropriate column the financial statement in which each of the items in the table below

would appear. (4mks)

Item	Trading Account	Profit & Loss A/c.	Balance Sheet
Opening stock
Capital
Carriage in
Discount received
Carriage out
Cost of Sales
Turn Over
Bank Overdraft

USES OF A BALANCE SHEET

Show assets owned by a business
Shows debts a business owes other firms (creditors)
Shows sources of finance for a business
Shows the liquidity of a business
Shows the net worth of a business
Can be used to get loans from lenders
Helps in decision making by owners or management

(b) The following is the trial balance of Jomba traders as at 31-12-2011

	DR	CR
Purchases and Sales	700,000	1,600,000
Returns	30,000	40,000
Discounts	50,000	35,000
Capital		862,000
Commission	39,000	25,000
Carriage inwards	28,000
Carriage outwards	135,000
Debtors and creditors	400,000	300,000
salaries	220,000
Bank	266,000
Cash	94,000
Buildings	600,000
Equipment	200,000
Stock Jan. 1	100,000
	2,862,000	2,862,000

Additional information

Stock Dec. 31 was valued at shs.94, 000

Required

Prepare Trading and Profit and Loss Account
Balance sheet as at 31-12-2011

(b) JOMBA TRADERS

Trading and profit and loss account

FOR THE PERIOD ENDED 31-DEC.2011

Opening stock	100 000ü	sales	1 600 00ü
Add: purchases	700 000ü	Less returns inwards	30 00ü
	800 000		1,570,000
Add carriage inwards	28 000ü
	828 000
Less returns outwards	40 000ü
Goods available	788 000
Less closing stock	94 000ü
Cost of sales	694 000
Gross profit	876 000ü
	1570 000		1 570 000

Discount allowed	50 000ü	Gross profit b/d	876 000ü
Commission paid	39 000ü	Discount received	35 000ü
Carriage outwards	135 000ü	Commission received	25 000ü
Salaries	220,000ü
Net profit	492 000üü
	936 000		936 000

30 x ⅓ = 10 marks

JOMBA TRADERS

BALANCE SHEETü

AS AT 31/12/2011

Fixed Assets		Capital	862 000ü
Building	600 000ü	Add net profit	492 000ü
Equipment	200 000ü		1 354 000
	800 000
Current Assets
Debtors	400 000ü	Creditors	300 000ü
Bank	266 000ü
Cash	94 000ü
stock	94 000ü
	854 000
	1,654,000		1,654,000ü

30 x ⅓ = 10 marks

5(a) The following Trial Balance was extracted from the books of omba Traders on 31^st December 2015.

Omba Traders

Trial Balance

As at 31/12/2015

	SHS	SHS
Capita and drawings	32,500	250,000
Stock (1/1/2015)	46,100
Sales and purchases	284,400	415,300
Return inwards and return outwards	3,600	6,700
Carriage inwards	27,900
Carriage outwards	10,000
Wages and salaries	47,200
Furniture	25,000
Motor vehicles	60,000
Debtors and creditors	48,500	52,800
Bank	29,100
Cash	600
Discount received and allowed	3,400	1,900
General expenses	31,700
Premises	100,000
Rent		23,300
	750,000	750,000

Closing stock was Sh. 55,300

REQUIRED

Prepare omba Trader’s Trading, profit and loss account for the period ended 31^st December 2015, and a Balance Sheet as at that date. (15 marks)

4. The following trial balance was extracted from the books of Ouma traders

as at 31/12/2012.

	Dr. (Shs.)	Cr. (Shs.)
Opening stock	30,000
Purchases/sales	275,000	390,000
Debtors	47,000
Commission received		36,000
Returns	10,000	6,000
Carriage inwards	16,000
Bad debts	3,000
Wages	20,000
Rates	12,000
Buildings	450,000
Furniture	180,000
Bank overdraft		210,000
Insurance	19,000
Discounts	5,000	7,000
Drawings	25,000
Creditors		52,000
Cash at bank	250,000
Cash at hand	40,000
Capital		689,000
	1,390,000	1,390,000

Additional information:

1. Closing stock Sh.50,000

2. Carriage outwards Sh. 8,000

Required:

Prepare Ouma traders trading, profit and loss account for the

period ended 31/12/2012.

Balance sheet as at 31/12/2012. (10 marks)
The following information was extracted from the books jamaa traders

Traders as at 31^st December 2009.

	Shs.
Bank loan	567,000
Bank loan interest	1,440
Capital	1,680,000
Closing stock	87,000
Creditors	272,400
Debtors	140,280
Discount allowed	170,400
Electricity	30,240
Furniture	489,804
Furniture repairs	86,436
Gross profit	624,720
Maintenance on premise	72,000
Motor vehicle	1,080,000
Motor vehicle maintenance	360,000
Premise	648,000
Rent received	144,000
Sundry expenses	122,520

Prepare;

Profit and loss account for the year ended 31^st December 2009
Balance sheet as at 31^st December 2009. (10 marks)

USES OF A TRADING PROFIT AND LOSS A/C

Shows the profit of a firm
Used to make decision
Can be used to borrow money from banks
Shows sources of income/revenue of a business
Shows the areas of expenditure/expenses and CoGS
Used to compare the financial performance in various years
Shows the types of business a firm is involved in i.e. purchases
Shows the viability of the investment
Business determines COGS.

FINAL RATIOS

Formulas from the trading A/C

GP = SALES – COGS/COS

GP=EXPENSES + NET PROFIT

COGS = OS + P – CS

COGS = SALES – GP

N.PURCHASES = COGS + CS – 0S

NP=PURCHASES + Cariage In – Purchase Returns

Net sales = Turnover

Net sales= G.P + COGS

Net sales= Sales – Sales returns

Expenses = GP – NP

BASIC FINAL RATIO/ FORMULAS

Mark-up % = G.P x 100

COGS

i.e GP as a % of COS

Margin % = GP x 100

Sales

i.e. GP as a % of Turnover

Gross profit ratio

Net profit % = Net profit x 100

Net sales

Net profit as % of net sales

Average stock = OS + CS

Rate of stock turnover = COGS

Rate of return on capital = Net Profit x 100

Capital

Return on capital employed = NP x 100

Current Ratio = CA

Quick / Acid test ratio = CA – CS

Creditors Ratio = Creditors x 365 days

Purchases

Debtors Ratio = Debtors x 365 days

Sales

Relationship between margin and mark-up

Since margin and mark-up are all the expression of Gross profit, it is possible to change one to the other.

Changing mark-up to margin

Mark-up can be changed to margin as follows:

Convert the mark-up percentage as a fraction in its simplest form.
1. Add the value of the numerator of the fraction to the denominator to come up with the new fraction (margin fraction) that is

If the mark-up fraction =

Margin fraction =

Convert the margin fraction as a percentage to obtain margin

MARK UP	MARGIN %
1 2	= 1 2+1 3 33.3%
1 3	1 = 1 3+1 4 25%
2 3	2 = 2 3+2 5 40%
3 5	3 = 3 5+3 8 37.5%

Changing margin to mark-up
Convert the margin percentage as a fraction in its simplest form
Subtract the value of the numerator of the fraction from the denominator to come up with the new fraction (mark-up fraction) that is

If the margin fraction =

Mark-up fraction =

Convert the margin fraction as a percentage to obtain mark-up

Margin	Mark –up %
1 3	1 = 1 3-1 2 50%
1 4	1 = 1 4-1 3 33.3%
2 5	2 = 2 5-2 3 66.6%
3 7	3 = 3 7-3 4 75%

Importance of Financial Ratios

Mark up and margin helps in the following; setting the selling price, calculating profit or losses and determining the sales for a given period of time
Final ratios are useful in analyzing the financial position of a business which helps in making investment decisions
Working capital and acid test ratio help in showing whether the business is in a position to meet its short term obligations and checking whether the business is utilizing its resources properly. That is high working capital ratio shows that most of the resources are idle
Return on capital shows the following;
The performance of the business in relation to other similar businesses
Comparison of the performance of the business over different periods
Whether the business finances have been invested or not
Help the potential investors on the decision on where to invest

Rate of stock turnover also help in determining how fast or slow the stock is moving. It also helps in computing the gross profit or loss.

EXAMPLE

b) The following information was extracted from the final accounts of Suba traders on

31^st Sept 2012.

Sh.

Sales 150,000

Purchase 65,000

Stock(2/9/2011) 18,000

Fixed assets 100,000

Current assets 45,000

Current Liabilities 37,000

Total expenses 10,000

Stock (31^st Sept 2012) 12,500

Calculate the following financial ratios;

i) Margin (3mk)

ii) Mark up (2mk)

iii) Return on capital (2mk)

iv) Working capital ratio (1mk)

v) Rate of stock turn over. (2mks)

i) Margin

Margin = gross profit x 100

Net sales

Gross profit = sales – cost of goods sold

= sh. 150,000 – sh(18,000 + 65,000 – 12,500)

= sh.150,000 – sh. 70,500

= sh. 79,500

Margin =

= 53%

ii) Mark up

Mark up = gross profit x 100

Cost of goods sold

= 112.77%

= 113%

iii) Return on capital

Net profit x 100

Capital employed

Net profit = gross – total expenses

= sh. 79,500 – sh. 10,000

= sh. 69,500

== 69500×100

100000 +8000

== 64.4%

iv) Working capital ratio= ca

45000 = 1.22:1

37000

v) Rate of stock turn over.= COGS = 70500

AS 15250

ROST0=4.623 TIMES

3. (a) Chapa kazi traders had the following balances as at 31^st March 2013.

Shs.

Capital 20,000

Sales 140,000

Purchases 90,000

Closing stock 70,000

7 year bank loan 30,000

Insurance expenses 25,000

General expenses 12,000

Debtors 25,000

Creditors 75,000

Cash at bank 20,000

Cash in hand 10,000

Premises 95,000

Calculate

(i) Mark up (2 mark)

(ii) margin (2 marks)

(iii) Rate of stock turn over. (2 marks)

(iv) Return on capital (2 marks)

(v) Current ratio. (2 marks)

3. (a) (i) mark up = gross profit

Cost of sales

Cost of sales = opening stock + purchases – closing stock

=160,000 + 90,000- 70,000

=180,000√√

Gross profit = sales – cost of sales

=240,000 – 180,000 = 60,000√

Mark up = 640,000 x100 = 33 ¹/₃%√

180,000

4 ticks x ½ = 2 marks

(ii) Margin =gross profit x100

Sales

60,000 x100 = 25%√

240,000 √

Alternative method

Mark up margin

¹/₃ 1 =¹/₄ = 25%

3+1

4 ticks x ½ = 2 marks

(iii) Rate of stock turnover = cost of sales

Average stock

Average stock = opening stock + closing stock

160,000+ 70,000 = 230,000 = 115,000

2 √ 2

Rate of stock turnover =180,000 = 1.565 times √√

115,000√

4 ticks x ½ = 2 marks

(iv) Return on capital = net profit x 100

Capital

Net profit = gross profit – expense

= 60,000 – (25,000 +12,000)

= 60,000 – 37,000 = 23,000√

Capital employed = total assets – total liabilities.

Total assets

Premises 95,000

Closing stock 70,000

Cash at bank 20,000

Cash in hand 10,000

Debtors 25,000 220,000

Less total liabilities

7 year loan 30,000

Creditors 75,000 105,000 115,000√

Return on capital employed = 23,000 x100

115,000

= 20%√√

4 ticks x ½ = 2 marks

(v) Current ratio= current assets

Current liabilities

Current assets

Stock 70,000

Debtors 25,000

Cash at bank 20,000

Cash in hand 10,000 125,000√

Current liabilities

Creditors 75,000

Current ratio = 125,000√ = 5:3 ≈ √√ 2:1

75,000

JAMBO WHOLESALERS HAD THE FOLLOWING ON 31-12-2005

SALES 500,000

PURCHASES 320,000

OPENING STOCK 80,000

CLOSING STOCK 40,000

DEBTORS 140,000

CREDITORS 90,000

EXPENSES 3,000

CALCULATE –
MARGIN
MARK UP
NET PROFIT
AVERAGE STOCK
RATE OF STOCK TURNOVER
RATE OF RETURN ON CAPITAL
Quick or acid test ratio
Current ratio
Creditors ratio
Debtors ratio

EXAMPLE II

The following information relate to Subra traders for the year ended 31^st Dec. 2012.

Opening stock sh. 16000

Sales 71,000

Profit margin 20%

Expenses sh. 10,000

ROSTO 4 times

Required :

1 cost of goods sold

Average stock
Closing stock
gross profit
Net profit (10mks)

3. a) (i) Rate of stock turn over (4 times) =

20 = GP x100

71 ,000

(iii) Rate of stock turn over 4 =

Average stock x 4 = shs 568,000

Average stock = shs 568,000 4 = 142,000

(iv)

(i) Gross profit = sales – cost of sales

= shs 710,000-shs 568,000=142,000

(ii) Net profit = Gross profit – expenses

=shs 142,000 – shs 100,000 = shs 142,000

b) The following information relates to Ingo Traders as at 31^st December 2015.

Shs.

Purchases 400,000

Stock 1-1-2015 150,000

Stock 31-12-2015 50,000

Mark up 25%

Capital 187,500

Expenses 40% of Gross profit

Turnover
Net Profit
Rate of Stock turnover
Return on capital

11. The following relates to Juma traders

Sales 600,000

Opening stock 40,000

Closing stock 25% of C.O.G.S

GROSSPROFIT MARGIN 20%

CALCULATE – G.P

C.O.G.S

PURCHASES

12. The following relates to butere traders

Net sales 220, 000

Margin 25%

R.O.S.TO 5 Times

Expenses 20,000

Calculate G.P

C.O.G.S

N.P

Average stock

13 The following relates to Dino traders

Sales 150,000

Opening stock 25,000

Margin 20%

Purchases 130,000

Required prepare his trading account

14 Sagala traders had the following on 31-12-2013

R.O.S.T.O 4 TIMES

Margin 20%

Expenses 5% of turnover

Opening stock 80,000

Closing stock 120,000

Capital 800,000

Calculate GP

Purchases

Sales

Rate of return on capital

15. Jawabu traders had the following

Opening stock – 60,000

Gross profit – 80,000

Rate of turnover – 4 times

Margin – 2/5

Calculate – COGS

Closing stock

16. Wathii enterprises had the following 31/12/2008

Turnover 150,000

Stock 1/1/2008 20,000

Purchases 120,000

Debtors 50,000

Stock 31/12/2008 20,000

Creditors 40,000

Calculate – Margin

Working capital

R O S T O

17.The following relates to Jacob traders

Opening stock 30,000

Closing stock 10,000

Turnover 300,000

Margin 25%

Determine – GP

Purchases

18. Matata traders had the following in his books

Rate of return on capital employed 20%

Fixed assets 600,000

Current Assets 100,000

Current Liabilities 40,000

Determine – Working capital

Net profit

19. XYZ traders had the following on 31/12/2009.

GP 80,000

Opening stock 40,000

Margin 16%

Returns inwards 30,000

RODTO 6 times

Determine – Sales

Closing stock

20. The following relates to Raha traders

Opening stock – 50,000

Sales – 360,000

GP – 25% of sales

Closing Stock – 80,000

Calculate – COGS

ROSTO

21. Complete the table below relating to a balance sheet

CO	CE	BC	FA	WC	CL	CA
16,000	–	110,000	255,000	–	48,000	63,000
–	450,000	20,000	–	150,000	25,000	175,000

The following relates to watu traders on 31/12/2010

Sales 60,000

Stock 1/1/2010 10,000

G.P. 4,000

Stock 31/12/2010 16,000

Prepare his trading a/c

Give the definition of the following terms:
Debiting
Folio
Double entry
Crediting

Explain five benefits of the following to a firm
Cash book
Ledger A/Cs
Trial balance
Financial statements

The following relates to Chavakali Traders in the month of February 2009.

Feb. 1 Started business with cash 100,000 bank 50,000

2 Bought stock for cash shs. 15,000

4 Sold stock and got a cheque shs. 12,000

10 Bought goods for shs. 20,000 on credit from Juma

15 Sold goods on credit to Ingo shs. 3,000

20 Returned goods for shs. 2,500 to Juma

21 Ingo returned goods shs. 500

22 Bought furniture gave a cheque shs. 13,000

23 Bought building on credit shs. 25,000 from Iddi

24 Took stock for shs. 3,000 for family use

26 Withdrew from Bank shs. 2,000 for family use

27 Paid Juma by cheque shs. 4,000 less 10% discount

28 Converted personal vehicle into business use shs. 30,000

Required : Ledger accounts, balance item and extract a Trial balance.

The following information relates to Chavakali traders

Drawings 10,000

Cash 45,000

Bank 30,000

Debtors 50,000

Purchases / Stock 48,000

Sales returns 5,000

Discount allowed 4,000

Capital 191,600

Carriage in 4,500

Sales 70,000

Investment 15,000

Prepaid expenses (Salaries) 30,000

Unpaid rent 2,000

Commission income due 2,500

Commission Income received in advance 3,400

Discount received 2,000

Required: Prepare his Trial Balance

The following information relates to Mudete traders for the year ended 2009.

Turnover 270,000

Margin 40%

Rate of turn over 6 times

Expenses 40,000

From the information above, calculate:

Gross profit
Cost of goods sold
Net profit
Average stock

SOURCE DOCUMENTS AND BOOKS OF ORIGINAL ENTRY

SOURCE DOCUMENTS

These are documents containing financial information of business transactions and they act as evidence that the transaction actually took place mainly in home trade.

They include

A receipt: – a document that shows that cash as been received or paid out of the business either in form of cash or cheque.

AN Invoice: – a document issued to demand for payments when the transaction was done on credit .

The invoice will be used to record the information on credit purchases and credit sales

A Credit note: -used to correct any overcharge that may have taken place when goods are returned to the business by the customer or the business return goods to the supplier. It will be used to record information in the purchases return journals, or the sales return journals/diaries

A Debit note: – a document used to correct an undercharge that may have taken place to inform the debtor to pay more. It therefore acts as an additional invoice

Payment voucher: – a document used where it is not possible to get a receipt for the cash/cheque that has been received or issued. The person being paid must sign on it to make it authentic. It is therefore used to record information just as receipts

BANK DEPOSIT SLIP – Shows money that has been deposited at the bank account directly by the payer

CONSIGNMENT NOTE– Shows the transport charges that have been paid to the transport company

A STATEMENT OF ACCOUNT– A Summary of all transactions between buyer and seller and shows the payments made and balance owed to the seller in a given period.

MINUTES – written resolutions by the management authorizing and allocating a given sum of money to be spent on a given project ‘

AUTHORITY TO INCUR EXPENDITURE – The manager is allowed or permitted in written to spent a given sum of money without consulting the management of the organization .

BANK STATEMENT – It shows cash that has been deposited and withdrawn from the bank and the balance.

Books of original entries/Journals/Diaries/day’s books/Subsidiary books

These are books where transactions are first recorded as they occur before they are posted to their respective ledger accounts.
The financial information in the source documents is used to make entries in these books.
Posting is where transactions are transferred to the ledger using double entry from the day books.

The books of original entries include:

Sales journals
Sales return journals/Return inwards journals
Purchases journals/creditors journals/bought journals
Purchases return journals/return outwards journal
Cash receipt journals
Cash payment/cash disbursement journals
Three column cash book
The petty cash book
Analysis cash book
General journals/journal proper

Uses or benefits of Journals or subsidiary books

Used to record transactions when they first occur
They record more details about the transaction that are not found in the ledger
They facilitate tracing of errors
They facilitate the preparation of control accounts
They help to curb fraud and promote efficiency, since they are prepared by different people from the ones handling ledgers
They reduce a lot of details to be recorded in the ledger accounts.
Act as back-up data from which other information may be extracted if need arise.
Used for future reference as they Contain information such as units, trade discounts

Sales journals
This is used to record credit sales of goods to debtors.
The outgoing invoice/invoice issued is used to record the information in this journal.
The total in the sales journal is credited to sales account in the general ledger
Individual debtors account in the sales ledger are debited.
The format is as follows

Sales journal

Date	Particulars/details	Invoice no	Ledger folio	amount

Example:

The following information relates to Tirop traders for the month of June 2010

June 1: Sold goods to wafula on credit of ksh 200, invoice no 0114

2: Sold to the following debtors on credit; Wanjiru ksh 400, Musyoka ksh 300, Wafula ksh 300

5: sold goods on credit to Wanjiru of ksh 300

10: Sold goods to the following on credit Kanini ksh 100, Wafula ksh 500, Wanjiru ksh 600

12: Sold goods on credit to musyoka of ksh 350

Required:

Prepare the relevant day book for the above transactions; hence post the various amounts to their respective individual accounts

Sales journal

Date	Particulars/details	Invoice no	Ledger folio	amount
June 2010: 1 2 2 2 5 10 10 10 12 15	Wafula Wanjiru Musyoka Wafula Wanjiru Wanjiru Wafula Kanini Musyoka Totals posted to the sales account (Cr)	0114	SL SL SL SL SL SL SL SL SL GL	200 400 300 300 300 600 500 100 350 3050

(Post the rest to their individual debtors account)

Sales Return Journals/Return inwards journals
This is for recording the goods that the customers/debtors have returned to the business.
It uses the credit note issued as a source document to prepare it.
The total is therefore recorded in the return inwards account in the general ledger,
The individual’s entries are credited in their respective debtors account .
It takes the following format

Sales return journal

Date	Particulars/details	Credit note no	Ledger folio	amount

For example;

Record the following transaction for the 2007 in their relevant diaries, hence post them to their respective ledger accounts;

May 1: goods that had been sold to M Okondo of shs 2600 on credit was returned to the business

“ 2: G. Otuya returned good worth shs 1320 that was sold to him on credit to the business

“ 8: the following returned goods that had been sent to them on credit to the business H Wati shs 3500, Muya shs 4700 M Okondo shs 2900

“ 12: G Otuya returned goods worth shs 5400 that were sold on credit to the business

“ 30: Goods worth sh 8900 that had been sold on credit to G Otuya were returned to the business

Sales Return journal

Date	Particulars/details	Credit note no	Ledger folio	amount
May 2007: 1 2 8 8 8 12 30	M Okondo G Otuya H Wati Muya M Okondo G Otuya G Otuya Totals posted to Return Inwards a/c (Dr)		S.L S.L S.L S.L S.L S.L S.L GL	2600 1320 3500 4700 2900 5400 8900 29320

(Post the entries to the individual ledger a/c’s (Cr))

Purchases Journal
This is used to record the credit purchase of goods for resale or stock
The totals are then debited in the purchases account in the general ledger,
The individual creditors accounts are credited.
It used the invoices received/incoming invoices as it source document.
It takes the following format;

Purchases journal

Date	Particulars/details	Invoice no	Ledger folio	amount

For example

The following information relates to Mikwa Traders for the month of April 2011. Record them in their relevant day’s book, hence post the entries to their relevant ledger accounts.

April 2011;

“ 2. Bought goods worth shs 25 000 on credit from Juma, Invoice no 3502

3. Bought goods worth shs 16 500 from kamau on credit, invoice no 2607

6. Bought goods worth shs 12 700 from Juma on credit, invoice no 3509

8. Purchased goods of shs 25 200 from juma, invoice no 3605; shs 17 500 from Kamau, invoice no 3700; shs 45 000 from Wamae wholesalers, invoice no 3750

15. Purchased goods of shs 9 200 from Wamae wholesalers on credit, invoice no 3762

18. Bought goods of shs 17 000 from Kamau on credit, invoice no 3802

24. Purchased goods of shs 36 000 from Juma suppliers on credit, Invoice no 3812

Purchases Day book

Date	Particulars/details	Invoice no	Ledger folio	amount
April 2011: 2 3 6 8 8 8 15 18 24	Juma Kamau Juma Juma Kamau Wamae Wamae Kamau Juma Totals posted to the Purchase account (Dr)	3502 2607 3509 3605 3700 3750 3762 3802 3812	PL PL PL PL PL PL PL PL PL GL	25 000 16 500 12 700 25 200 17 500 45 000 9 200 17 000 36 000 204100

(Post the individual entries to their relevant accounts in the ledger (crediting))

Purchases Return Journals/Return outwards Journals
This is used to record goods that have been returned to the creditors by the business,.
It uses the credit note received as the source documents,
With the totals being in the purchases return account
The individual creditor’s accounts are debited in their respective ledger accounts.
It takes the following format

Purchases return journal

Date	Particulars/details	Credit note no	Ledger folio	amount

For example;

Record the following transaction in the purchases return day book for Njiru’s traders for the month of June 2010, hence post the information into their relevant ledger accounts.

June 2010;

“ 3. Returned goods worth shs 400 that had been bought from Nairobi stores, credit note no 56

“ 8. Return goods of shs 1 200 to Matayos store, Credit no 148

“19. Had some of their purchases returned to the following; Njoka enterprises shs 700, credit note no 205, Nairobi Stores shs 600, credit note no 58, Matayos store shs 1 000 credit note no 191

“26. Returned goods worth shs 1 800 to Njoka enterprise credit note no 210

“30. Return goods worth shs 1 020 to Matayos store, credit note no 200

Cash receipt Diaries/JOURNAL
This is used to record all the cash and cheques that have been received in the business. It totals are posted to the cash and bank accounts in the general ledger (Dr), while the individual accounts are credited in their respective accounts in the ledger.
It uses the cash receipt issued and bank slips received as the source documents.
It takes the following format;

Cash receipt journal

Date	Particulars/details	Receipt no	Ledger folio	Disc allowed	cash	bank

Cash payment Journals
This is used to record cash and cheques that have been issued to the creditors of the business. Its totals are credited (Cr) in the cash and bank account and the individual accounts are debited (Dr) in their respective accounts
It uses the cash receipt received and bank slips issued as the source documents.
It takes the following format;

Cash Payment journal

Date	Particulars/details	Receipt no	Ledger folio	Disc received	cash	bank

For example:

Record the following transactions into their relevant day books of Onyango traders, hence post the entries to their respective ledger accounts and balance them off;

May 2011:

“1. Cash sales amounting to ksh 3 000, receipt no 0112

“2. Paid the following creditors by cheque after having deducted a cash discount of 10% in each case; H. Mwangi ksh 1 500, J. Mwaniki ksh 1 600, N. Mugo ksh 1 200

“3. Receive the following Chaques from debtors in settlement of their debts after having deducted 5% cash discount in each case; Lucy kshs 22 800 cheque no 0115, Otieno kshs 8 550 cheque no 0011, Martha ksh 1 330 cheque no 0016

“5. Paid for repairs in cash kshs 16 000, receipt no 0251

“10. Paid Juma in cash kshs 9 500, receipt no 0295

“14. Cash sales kshs 17 000, receipt no 02714

“15. Banked kshs 6 000 from the cash till

“15. Received cash from Mary of kshs 13 500, receipt no 0258

“16. Cash sales of kshs 26 400 was directly banked, bank slip no 40152

“20. Cash purchases of kshs 8 920, receipt no 117

“22. Cash purchases of kshs 15 200 was paid for by a cheque, cheque no 512

Cash receipt journal

Date	Particulars/details	Document no	Ledger folio	Disc allowed	cash	bank
May 2011 1 3 3 3 14 15 15 16	Sales Lucy Otieno Martha Sales Cash Mary Sales Totals to be posted to the cash and bank a/c (Dr)	0112 0115 0011 0016 02714 0258 40152	GL SL SL SL GL “c” SL GL	1200 450 700 2 350	3 000 17 000 13 500 33 500	22 800 8 550 1 330 6 000 26 400 65 080

(Post the totals and the entries to their respective accounts)

Cash Payment journal

Date	Particulars/details	Document no	Ledger folio	Disc Received	cash	bank
May 2011 2 2 2 5 10 15 20 22	H. Mwangi J. Mwaniki N. Mugo Repairs Juma Bank Purchases Purchases Totals to be posted to the cash and bank a/c (Cr)	0251 0295 117 512	PL PL PL GL PL “c” GL GL	166.70 177.70 133.30 477.30	16 000 9 500 6 000 8 920 40 420	1 500 1 600 1 200 15 200 19 500

(Post the totals and the entries to their respective accounts)

2. (a) The following transactions relates to Kaka Traders which took place during the Month of April 2012.

April 2: Sold goods on credit to Dada traders worth sh 80,000, Nyota sh 60 000

April 10: Bought goods on credit from Ndugu Enterprise for sh 50,000, Motari sh 100,000

April 18: Goods returned by Dada traders worth sh 7000

April 20: Returned goods bought on credit from ndugu Enterprise worth Sh 10,000 which were found to be defective.

April 22: Issued invoice to Onyango traders worth Sh 40,000

April 25: Issues credit note to Onyango traders worth Sh 2000

April 28: Sold goods on credit to Nyanya Enterprise worth Sh 90,000

April 30: Received invoice from Babu Traders worth Sh 75 000

Required:

Record the above transactions in the books of Original entry and post the totals to the general ledger. (12mks)

SALES JOURNAL

DATE	DETAILS	INVOICE NO.	L.F	AMOUNT
2012 2 – 04 2-04 22-04 28-04	Dada traders Nyota Onyango traders Nyanya enterprise Total taken to sales A/C (cr)		SL1 SL2 SL3 SL4	80,000ü 60,000ü 40,000ü 90,000ü 270,000

PURCHASES JOURNAL

DATE	DETAILS	INVOICE NO.	L.F	AMOUNT
2012 10 – 04 10 – 04 30 – 04	Ndugu Enterprise Motari Babu traders Total taken to purchases A/C (DR)		PL1 PL2 PL3	50,000ü 100,000ü 75,000ü 225,000

SALES RETURNS JOURNAL

DATE	DETAILS	CREDIT NOTE NO.	L.F	AMOUNT
2012 18 – 4 25 – 4	Dada traders Onyango traders Total taken to sales returns A/C (Dr)		SLR1 SRL2	7,000ü 2,000ü 9,000

PURCHASES RETURNS JOURNAL

DATE	DETAILS	CREDIT NOTE NO.	L.F	AMOUNT
2012 20 – 4	Ndugu Enterprise Total taken to purchases returns A/C (Cr)		PRL1	10,000ü 10,000

DR DADA TRADERS A/C CR
Sales 80,000ü	Sales returns 7,000ü

DR NYOTA A/C CR
Sales 60,000ü

DR ONYANGO TRADERS A/C CR
Sales 40,000ü	Sales returns 2,000ü

DR NYANYA ENTERORISE A/C CR
Sales 90,000ü

DR SALES A/C CR
	Total debtors 270,000ü

DR NDUGU ENTERPRISE A/C CR
Purchase returns 10,000ü	Purchases 750,000ü

DR MOTARI A/C CR
	Purchases 100,000ü

DR BABU TRADERS A/C CR
	Purchases 75,000ü

DR PURCHASES A/C CR
Total creditors 225,000ü

DR SALES RETURNS JOURNAL CR
Total debtors 9,000ü

DR PURCHASES RETURNS JOURNAL CR
	Total creditors 10,000ü

(b) The following transactions relate to Pumua Wholesalers for the month of

March 2011.

March 1: Bought goods on credit from Kawe distributors Shs.26,200,

Kamakia Ss.15600, Mambo Shs.33,360.

March 2: Sold goods on credit to Fuma retailers Shs.37,200, Tito grocers

Shs.25,500 and Wamba traders Shs.16,250.

March 6: Returned goods to Kamakia Shs.2,400 and Mambo Shs.4,160.

March 9: Sold goods on credit to Tamu Shs.5,500 and Patu Shs.18,200.

March 11: Bought goods on credit from Chuma Shs.33,840.

March 15: Goods returned by Tamu Shs.1,500 and Fuma retailers

Shs.1,820 and Patu Sh.2,600.

March 18: Bought goods on credit from Jama Shs.21,210 and Sama

Shs.53,850.

March 26: Credit sales to Kamanja Shs.16,600, Orengo Shs.19,260 and

Wama traders Shs.15,200.

REQUIRED:

Enter the above transactions in the respective books of original entry.

(10 marks)

The general Journal/Journal proper

It is used to record purchases or sales of fixed assets of the business on credit and other transactions that cannot be recorded in the above books .

Uses of the general journal;

To record purchases of fixed assets on credit
To record sales of fixed assets on credit
To correct errors by checking the balances
To record the opening and closing entries
To write off bad debts
To record the inter ledger transfers
To record issue of shares and debentures in companies
To make end of the year adjustments for the final accounts

In this journal, the account to be debited begins at the margin, while the account to be credited is indented from the margin, with a narration below them put in brackets.
The narration simply explains the nature of the transaction that has taken place.
The individual entries are then posted to their respective accounts by either debiting or crediting depending on the transactions.

It takes the following format;

General journal

Date	Particulars/details	Ledger folio	Dr shs	Cr shs

For example;

Journalise then following transactions which took place in the business of J Opuche during the month of March 2005

March 5; Purchased office furniture on credit for shs 25 000 from miugiza Furniture Limited

10; Sold old duplicating machine for shs 15 000 to samba academy on credit

15; Bought a new motor vehicle for shs 800 000 from explo motors Ltd, paying shs 300 000 in cash and balance was to be settled at a later date

18; Sold old vehicle to Mara Secondary school for shs 500 000 on credit

25;The owner converted personal electronic calculator valued at shs 9 000 into business asset

27; Sold old computers valued at shs 20 000 for shs 15 000 on credit to Mara secondary school

30; Sold old dining chairs worth shs 10 000 to Maendeleo for shs 15 000 on credit

General journal

Date	Particulars/details	Ledger folio	Dr shs	Cr shs
March 2005 5 10 15 18 25 27 30	Office Furniture a/c Miugiza a/c (Being a credit purchase of office furniture from Miugiza) Samba Academy a/c Duplicating Machine a/c (Being credit sales of duplicating machine to Samba academy) Motor vehicle a/c Cash a/c Explo Motors a/c (Being purchase of motor vehicle from explo. motors, paying part in cash and part on credit) Mara Sec sch a/c Motor vehicle a/c (being the credit sale of old motor vehicle to mara sec sch) Calculators a/c Capital a/c (being conversion of private calculator to business asset) Mara Sec. Sch. a/c Loss on disposal a/c Computer a/c (being credit sale of old computers to Mara school at a loss of 5 000) Maendeleo a/c Furniture a/c Gain on disposal a/c (being the credit sale of dining chairs to maendeleo at a gain of 5 000)		25 000 15 000 800 000 500 000 9 000 15 000 5 000 15 000 1 384 000	25 000 15 000 300 000 500 000 500 000 9 000 20 000 10 000 5 000 1 384 000

The entries are then transferred to their respective accounts in the ledger, with the ones debited in the journals being debited and the ones credited being credited.

The Journal proper can also be used to show the opening entries and the closing entries. That is;

Opening entries

The opening entries are the entries of the assets and liabilities at the beginning of the trading periods to facilitate the opening of different accounts for them. They are the balance b/d for the assets and liabilities of the business.

The assets to be debited are recorded first, followed by the liabilities and capital to be credited. In case the capital is not given, it can be calculated using the book keeping equation, that is A = C + L. the narration then follows the entries.

The opening entries are necessary when;

A business that did not keep complete accounting records would like to start keeping
Opening up new sets of accounting books, after closing the old ones
Starting accounting records for a business which has been bought, though was in full operation

For example;

The following balances were extracted from Martine’s store that did not keep complete records, and would like to start keeping on 1^st January 2011. Prepare for them their relevant subsidiary book to show the balances.

Shs

Motor vehicles 230 000

Machinery 40 000

Creditors 10 000

Debtors 5 000

Cash in hand 20 000

Stock 10 000

Insurance prepaid 5 000

Bank 25 000

Premises 335 000

Capital 660 000

Martine’s Store

General journal

On 1^st January 2011

Date	Particulars/details	Ledger folio	Dr shs	Cr shs
2011 January 1	Premises Motor vehicle Machinery Debtors Cash Insurance prepaid Bank Stock Capital Creditors (being the records of assets, liability and capital at the beginning of new period)		335 000 230 000 40 000 5 000 20 000 5 000 25 000 10 000 670 000	660 000 10 000 670 000

3. a) Kimemia had the following transactions during the month of January 2009.

You required to journalize the transactions. (10mks)

1 .1.08 Sold furniture at sh. 160 to Moyo traders on credit.

2 .1. 09 Bought a computer on credit from Bon-go at sh. 20,000

3. 1. 09 Bought some goods from Nyaga sh. 4,000 on credit the transaction was not entered in Kimemia books.

4. 1. 09 A transport expense of sh. 500 written in the books as sh. 50.

5. 1. 09 Sold a motors vehicle for sh. 80,000 on credit to Omega.

b) The following transactions related to Kioko Traders for the month of May 2012 May 2: Sold goods on credit to Asunta sh.24, 000 and Janet sh.32, 000 May 8: Bought goods on credit from Patel Traders sh.80, 000

May 12: Asunta returned goods worth sh.4, 000

May 15: Purchased goods on credit from Karoki sh.68, 000 and Petero sh.62, 100

May 20: Goods worth sh. 12,000 were returned to Patel Traders and goods worth sh.6, 000 to Karoki May 23: Goods sold on credit to Asunta sh. 16,000, Tom sh.22000 and Joseph sh.26, 000 May 27: Goods

returned by Janet sh.4, 000

May 30: Purchased a motor vehicle on credit worth sh. 1,000,000 from General motors

Prepare the relevant journals. (10mar)

In the table below, indicate the books of original entry that the information obtained from the given source documents are used to prepare

Source Document	Books of Original entry
SalesInvoice/invoiceissued/Invoice retained/invoice copy	Sales journals
Purchases Invoice/Invoice received/Original invoice	Purchases journals
Credit note issued/Credit note retained/Credit note copy	Return inwards/Sales return journals
Credit note received/credit note original	Return outwards/purchases return journals
Original receipt/Receipt received	Cash payment/Analysis cash book/ Cash book
Receipt copy/Retained receipt	Cash receipt journal/Analysis cash book/cash book
Petty cash voucher	Petty cash book

Complete the table below by indicating the relevant information

Item Transaction	Type of A/C	Type of Ledger	Source document
Debtors
Creditors
Fixed Assets
Salaries
Cash sales
Capital
Drawings
Credit Purchases

Complete the table below given the following source documents.

Source documents	Books of Original entry	Ledger accounts
Incoming invoice
Outgoing invoice
Incoming credit note
Outgoing credit note
Incoming debit note
Outgoing debit note
Incoming receipt
Outgoing receipt

CASH BOOK

DEFINITION

A book which records any cash received and cash paid out by a trader

Credit transactions are not recorded in this book since cash or cheques are not involved.

Cash or cheques received are debited and cash or cheques paid out are credited

Uses of a cash book

1 shows sources of revenue of a business

shows areas of expenditure of afirm
shows cash and bank balances at a given date
shows sources of capital
used for future reference
shows discount received and discount allowed
Shows total cash received and cash paid out at bank and at hand

TERMS USED IN THE CASH BOOK

1 CONTRA-ENTRY (C)

An entry that affects both the cash at hand and cash at bank at the same time ie cash deposit to the bank or cash withdrawal from the bank (cash a cheque for office use)

2 BANK OVERDRAFT

A credit balance in the bank account
It’s a short term loan given to current account holders by banks whereby they are allowed to withdraw more amount than what is at the bank account

Types of cash books

1 Single column cash book

Double or two column cash book
Three column cash book

1 SINGLE COLUMN CASH BOOK

1-1-2001 Juma started a business with cash at hand of sh 45000

2-1-2001 He purchased goods worth sh 15000

3-1-2001 He opened a bank account and deposited sh 20000

4-1-2001 He sold goods for cash sh 5000

5-1-2001 He deposited sh 3000 to the bank from the cash till.

6-1-2001 He sold goods and got a cheque of sh 8000

7-1-2001 He invested cash sh 12000 into the business

8-1-2001 He deposited sh 10000 into the business bank

9-1-2001 He purchased goods worth sh 4500 by cheque

-1-2001 He paid salaries cash sh 600
-1-2001 He bought stationery by cheque sh 1200
-1-2001 He got a commission of cash sh 3500 for work done
-1-2001 He took cash sh 2000 for personal use
-1-2001 He bought furniture worth sh 2500 by cheque

REQUIRED 1 PREPARE SINGLE COLUMN CASH BOOKS

CASH AT HAND

DATE	DETAILS	AMOUNT	DATE	DETAILS	AMOUNT
1-1-2001	capital	45000	2-1-2001	purchases	15000
4-1-2001	sales	5000	3-1-01	bank	20000
7-1-01	investment	12000	5-1-2001	bank	3000
11-1-01	Commission	3500	8-1-01	bank	10000
			10-1-01	Salaries	600
			12-1-01	drawings	2000
			14-1-01	Bal c/d	14900
		65500			65500

CASH AT BANK

DATE	DETAILS	AMOUNT	DATE		AMOUNT
3-1-01	Cash at hand	20000	9-1-01	purchases	4500
5-1-01	cash	3000	11-1-01	stationery	1200
6-1-01	sales	8000	13-1-01	furniture	2500
			14-1-01	Bal c/d	22800
		31000			31000

DISCOUNT

A Cash allowance that a seller of good and services gives to the buyer for paying promptly or for buying in large quantities.

TYPES OF DISCOUNTS

1 QUANTITY DISCOUNT

A Cash allowance that sellers give to buyers who have bought goods in large quantities eg buying 20 bags of sugar costing sh10,000 but buyer pays sh9800 hence sh200 is quantity discount.

2 TRADE DISCOUNT

A quantity discount given by a trader to another trader who has bought many goods for resale eg offered by wholesalers to retailers so that they get profit.

NB-QUNANTITY AND TRADE DISOUNTS ARE NEVER RECORDED IN THE BOOKS OF ACOUNT SINCE THEY ARE NOT PART OF THE INVOICE OR RECEIPT

CASH DISCOUNT

A cash allowance or deduction from invoice price that sellers give to debtors to encourage them pay debts promptly.

Types

Discount allowed

-A cash allowance given to debtors to pay promptly.

-Its an expense hence account is debited.

Discount received

-Acash allowance got from creditors for paying them promptly.

-It’s a revenue hence account is credited

NB DA and DR are day books in the 3- column cash book

2 A TWO COLUMN CASH BOOK

It’s a combination of cash at hand and cash at bank cash books into one book’

On 1st July 2012, Mara traders had Sh.6,000 cash in hand and bank overdraft of Sh.2,000. During the month the following transactions took place:

2012

July 2: Received cheques from debtors totaling to Sh.50,000 July 5: Paid rent Sh.2,000 cash.

July 15: Withdrew Sh.5,000 from the bank for personal use. July 25: Banked all the cash except Sh.1000

Prepare a Two-column Cash Book for the month. (5 marks)

8. On 1 Match, 2001, Mingi traders had Ksh. 13,200 in cash and bank balances of Sh 56,000. The following transaction took place during the month.

2001 2 Cash sales sh. 12,000

12 paid a creditor sh. 8,200

27 received a cheque for sh. 4,500 from debtors

31 paid rent 7,500 in cash

Record the above information in a two column cash book and balance it off. (4 mks)

THREE COLUMN CASH BOOK

A cash book that combines cash at bank ,cash at hand , discounts allowed and discount received.

(b) On 1^st October 2013, Nyati Traders Had shs.10 000 and shs.40 000 at the bank. During the

month, the following transactions took place.

Oct 2	Bought goods worth shs3,100 by cheque
3	Paid motor expenses shs.6000 in cash
6	Sold goods worth 8200 cash
10	paid a creditor shs.9500 by cheque after deducting a 5% cash discount
12	Received a commission of shs.580 directly into the bank account.
14	Shelby, a debtor, settled her account of shs.30,000 by cheque less a 2.5% cash discount
15	The bank deducted shs. 850 from the business account for services rendered
19	The owner took shs.1500 by cheque for personal use
23	Paid Maboko traders shs.39,200 by cheque in full settlement of their account less 3% cash discount
24	Withdrew shs.15,000 from bank for business use
26	Received shs.8,200 cash from a debtor in full settlement of a debt of shs.8,500
30	Took all the cash to the bank leaving only shs.1800 in the cash till

Required:

Prepare a duly balanced three column cash book (10 marks)

(b) NYATI TRADERS

CASH BOOKü

Date	Details	Discount	cash	Bank	Date	Details	Discount	cash	Bank
2013					2013
Oct 1	Balance b/d		10 000ü	40 000ü	Oct.2	Purchases			3100ü
6	sales		8 200		3	Motor expenses		6 000ü
12	commission			580ü	10	creditor	500ü		9 500ü
14	Shelby	750ü		29 250ü	15	Service charge			850ü
23	Mobeke traders	1 176ü		38 024ü	19	Drawings			1 500ü
24	Bank		15 000ü		24	cash			15 000ü
26	Debtors	300ü		8 200ü	30
	cash			25 400ü		bank		25 400üü
						Bal c/d		1 800ü	111 504üüü
		2 226.00ü	33 200ü	141 454ü			500ü	33 200ü	141 454ü

30 x ⅓ = 10 marks

(b) The following were the balances of KILO Traders as at 1^st January

2009. Cash Sh.40,000, bank overdraft Sh.17,000. During the month

the following transactions took place.

January 2^nd : Mutiso a debtor settled his account of Sh.32,000 by

cheque of Sh.30,000

4^th : Paid salaries amounting to Sh.16,000 by cash.

10^th: Deposited Sh.12,000 into the business bank account

from the cash till.

14^th: Settled Wayua’s account of Sh.40,000 and she was

allowed a discount of 1% through a cheque.

16^th: Deposited Sh.56,000 in the bank from private resources.

17^th: Sold goods for cash Sh.24,000.

20^th: Mutua, a debtor, settled his account by a cheque of Sh.16,000 having been allowed a discount of 2%.

24^th: Purchased furniture Sh.10,400 paying by cheque.

26^th: Received Sh.7,200 cash from Odhiambo.

30^th: Banked all the available cash except Sh.3200.

Required: Prepare a three column cash for KILO Traders. (10 marks)

The following cash book was poorly prepared, prepare the correct one.

CASH BOOK

Date	Details	F	Cash	Bank	Date	Details	F	Cash	Bank
1/1/01	Bal b/f Cash Purchases Bank loan Salaries Investment	C	10000 4000 2000 1000	5000 3000 6000		Drawings Sales Bank Rent Income Debtors Bal c/d	C	3000 400 2000 500	3000 4000 600
			18000	14000				18000	14000

Assignment:

(Exercise 1B pages 50 and 51, Nos16 and 18 in Inventor book 4, KLB Students book)

b) On 1^st March 2006 Mokaya traders had cash in hand Ksh.10,000 and cash at bank ksh.15,000. The following transactions took place during the month.

March 2: Bought goods in cash sh.1,500

March 4: Paid salaries by cash 7,500

March 5: Received cheques from the following debtors after allowing 2% discount

in each case Salga Sh.980, Gumbo Shs.1,960

March 8: Paid the following accounts by cheques in each case deducting 5%

discount

Kiimo Ksh.3,000, Karani Ksh.1,200

March 12: Bought machinery by cheque Shs.5,000

March 20: Withdrew Sh.1000 from bank for personal use

March 25: Cash sales Shs.2000

March 26: Banked cash amounting to Ksh.1000

March 29: Received Shs.3000 cash from Alex a debtor.

Required:

Prepare a three column cash book duly balanced as at 31^st March 2006 (12 Marks)

2. (a) On 1^st November 2013:Tabagon Co. Ltd. had a balance of shs. 12,000 at the

bank and shs. 2500 in hand. During the month, the following transaction took place;

Nov. 1 Cash sales Shs. 2500, cash purchase Shs. 1750

Nov. 3 Paid the following accounts by cheque.

Kirop Shs. 1500 less 5% cash discount

Kirui Shs. 2000 less 5% cash discount

Nasimiyu shs. 2100 less 3 % cash discount

Nov. 5 Received the following amounts from debtors,

Ondiek shs. 1200, Jane shs. 3850 and Mueni by cheque shs. 2050 after allowing her shs. 300 cash discount.

Nov. 14 Paid office cash to the bank shs. 2000

Nov. 17 Cash sales 8500

Nov. 22 Mueni paid her account of shs. 5000 by cheque less 10% cash

discount

Nov. 28 Withdrew all the money from the bank for office use except shs. 1000

Nov. 29 Paid salary cash shs. 8000

Nov. 30 A cheque received from Mueni on Nov. 5^th was dishonoured.

Prepare Tabagon Co. Ltd. three column cash book. (10 marks)

(b) The following were the balances of Kiboko Traders as at 1^st January

2009. Cash Sh.40,000, bank overdraft Sh.17,000. During the month

the following transactions took place.

January 2^nd : Mutiso a debtor settled his account of Sh.32,000 by

cheque of Sh.30,000

4^th : Paid salaries amounting to Sh.16,000 by cash.

10^th: Deposited Sh.12,000 into the business bank account

from the cash till.

14^th: Settled Wayua’s account of Sh.40,000 and she was

allowed a discount of 1% through a cheque.

16^th: Deposited Sh.56,000 in the bank from private resources.

17^th: Sold goods for cash Sh.24,000.

20^th: Mutua, a debtor, settled his account by a cheque of

Sh.16,000 having been allowed a discount of 2%.

24^th: Purchased furniture Sh.10,400 paying by cheque.

26^th: Received Sh.7,200 cash from Odhiambo.

30^th: Banked all the available cash except Sh.3200.

Required: Prepare a three column cash for Kubuka Traders. (10 marks)

Date 2002	Particulars	Cash	Bank	Date	Particulars	Cash	Bank
2/5 12/5 20/5 28/5	Bal Sales Sales	W 20000 50000	X 120000	6/5 18/5 22/5 30/5	Wages Purchases Rent Bal c/d	6000 Y	60000 30000 150000

(

Determine the figures represented by W, X, Y,Z (4 mks)

REVISION ACCOUNTING QUESTIONS

The following balances were obtained from the books of Jomba Traders as at 30^th July 2014

Shs.

Opening stock 50,000

Sales 360,000

Gross profit 25% of sales

Closing stock 70,000

Calculate

Cost of goods sold (2Marks)
Rate of stock turnover (2 Marks)

Enter each of the following transactions in the relevant ledger accounts
Started business in June 15^th 2014 with Ksh. 500,000 in bank.
Bought a motor vehicle in June 16^th 2014 for KSh. 250,000, payment made by a cheque.
Withdrew Ksh. 50,000 in June 20^th 2014 from the business bank a/c to be used in the office.
June 24^th, 2014, paid salaries Ksh. 18,000 cash.

On June 1^st 2015, Kelly had KSh. 6000 cash in hand and a bank overdraft of Sh. 2000; during the month the following transactions took.
Received cheques from debtors totaling to KSh. 80,000 on June 2^nd
June 5^th, paid telephone bills Sh. 1200 cash
June 8^th, withdrew Sh. 16000 from bank for office use.

Enter the above information in the two – column cash book given below and balance it off (4 Marks)

Kelly Traders

Two – Column Cashbook

for the month of June 2015

Date	Particulars	Bank	Cash	Date	Particulars	Cash	Bank

4. The following balances were extracted from books of Masaku Traders for the year ended 31/12/2004

Rent 48,000

Lighting 7,200

Water 9,220

Salaries 75,000

Commission received 12,370

Discount allowed 4,600

Discount received 8,500

Gross profit 320,000

General expenses 98,000

Stock 25,250

Motor Vehicle 2,300,000

Furniture & equipment 650,000

Debtors 270,000

Creditors 396,400

Bank 200,000

Cash 50,000

Capital 3,000,000

Prepare

(i) Profit and loss a/c for the year ended 31/12/2004 (5 ½ marks)

(ii) Balance sheet as at 31/12/2004 (4 ½ marks)

5.The accounts of Hakuna Matata Traders showed the following balances on 1^st January 2014.

Sh.

Cash 250,000

Debtors 60,000

Creditors 42,000

Stock 30,000

Bank loan 120,000

Motor vehicle 310,000

The following transactions took place during the month of January 2014.

Jan 2: Bought stock worth Sh. 50,000 on credit.From omba traders

Jan 3: Cash sales Sh. 80,000

Jan 5: Received Sh. 20,000 cash from debtors

Jan 10: Paid part of loan Sh. 70,000 cash

Jan 12: Paid creditors Sh. 32,000

Jan 16: Bought office furniture Sh. 45,000 cash

Jan 20: Paid salaries Sh. 40,000 cash

Jan 25: Deposited Sh. 100,000 into the bank

Required:

Record the above transactions in the relevant ledger accounts and balance the accounts on 31^stJanuary 2014. (10marks)

6.Kiganjo Traders had the following balances as at 31^st December, 2014.

Sh.

Capital (1^st December, 2014) 350,000

Additional investments 100,000

Drawings each month 48,000

Capital (31^st Dec’ 2014) 470,000

Determine the profit for the year. (4 marks)

7. The following balances relates to the retail business of Omondi for the month of July 2012.

Sales 50,000

Expenses 10% of sales

Cost of goods sold 40,000

Calculate:

(i) Mark up. (1 mark)

(ii) Margin. (1 mark)

(iii) Total expenses. (1 mark)

(iv) Net profit. (1 mark)

8. For each of the following transactions, state the account to be debited and account to be credited. (4 marks)

	Transactions	A/c debited	A/c credited
(i)	The owner brought in cash from private sources.
(ii)	Bought goods and paid by cheque.
(iii)	Withdrew cash for personal use.
(iv)	Paid a creditor by cheque.

9. The following trial balance was extracted from the books of Okumu traders as at 31/12/2012.

	Dr. (Shs.)	Cr. (Shs.)
Opening stock	30,000
Purchases/sales	275,000	390,000
Debtors	47,000
Commission received		36,000
Returns	10,000	6,000
Carriage inwards	16,000
Bad debts	3,000
Wages	20,000
Rates	12,000
Buildings	450,000
Furniture	180,000
Bank overdraft		210,000
Insurance	19,000
Discounts	5,000	7,000
Drawings	25,000
Creditors		52,000
Cash at bank	250,000
Cash at hand	40,000
Capital		689,000
	1,390,000	1,390,000

Additional information:

1. Closing stock Sh.50,000

2. Carriage outwards Sh. 8,000

Required:

Prepare Okumu traders trading, profit and loss account for the period ended 31/12/2012.
Balance sheet as at 31/12/2012. (10 marks)

10. The following were the balances of Kiboko Traders as at 1^st January 2009. Cash Sh.40,000, bank overdraft Sh.17,000. During the month the following transactions took place.

January 2^nd : Mutiso a debtor settled his account of Sh.32,000 by cheque of Sh.30,000

4^th : Paid salaries amounting to Sh.16,000 by cash.

10^th: Deposited Sh.12,000 into the business bank account from the cash till.

14^th: Settled Wayua’s account of Sh.40,000 and she was allowed a discount of 1% through a cheque.

16^th: Deposited Sh.56,000 in the bank from private resources.

17^th: Sold goods for cash Sh.24,000.

20^th: Mutua, a debtor, settled his account by a cheque of Sh.16,000 having been allowed a discount of 2%.

24^th: Purchased furniture Sh.10,400 paying by cheque.

26^th: Received Sh.7,200 cash from Odhiambo.

30^th: Banked all the available cash except Sh.3200.

Required:Prepare a three column cash for Kubuka Traders.(10 marks)

23. Ouma enterprise started business one year ago with an investment of Ksh 1200 000. At the

end of the year his capital was Ksh 1600000 and his monthly drawing was ksh 20000, calculate his profit for the year ( 4marks)

11. Prepare Sunshine Traders Balance sheet from the following list of balances extracted from his books as at31 December 2013. (4mks)

Capital 357,000

Stock 40,000

Machines 150,000

Furniture 7,000

Motor vehicles 200,000

Bank 20,000

Creditors 25,000

Cash 5,000

Debtors 60,000

Loan from KCB 100,000

12. Tripple SSS wholesalers had the following information as at 31 December 2013 (4mks)

Closing capital 70,000

Total expenses 5,000

Drawings of goods 6,000

Total incomes 3,000

Calculate the capital at the beginning of the year.

Identify the day book associated with the following source documents given below. (4mks)

Source documents	Day books
Invoice received
Credit note received
Receipt issued
Debit note received

The following balances were extracted from the books of Okinda wholesalers on 31^st December 2006. (4mks)

Capital 800,000

Sales 250,000

Debtors 70,000

Purchases 160,000

Creditors 45,000

Opening stock (1.1.2006) 40,000

Closing stock (31.12.2006) 20,000

General expenses 50,000

5 year bank loan 200,000

Insurance expenses 20,000

Salaries and wages 80,000

Required, calculate

Mark up (1mk)
Current ratio (1mk)
Rate of stock turnover (1mk)
Rate on return on capital (1mk)

15. On 1^stjan 2017,Lyon opened a stationery shop with shs 65000.During the month,she invested an additional shs 12000 and withdrew shs 23400 for personal use.On 28^thfeb 2017,the final capital was kshs 40,000.Calculate the profit or loss made in the course of that trading period. (4 marks)

The following transactions relate to Vivylex wholesalers for the month of December 1998.

1998Dec. 1 Bought goods on credit from Weka Distributors sh.46,200, Micko sh15,600 and Limo shs38,360.

3 Sold goods on credit to Lwanda Retailers shs.39,200, Motor Grocers sh.25,560

and Mawe shs.12,650.

7 Returned goods to Micko sh4,200 and Limo shs6,140.

11 Bought goods on credit from Tuktuk sh34,830.

12 Goods returned by motor Grocers hs4,550 and Lwanda Retailers sh1,280.

15 Sold goods on credit to Motor Grocers shs6,800, Marion traders shs12,800.

18 Goods returned by Marion Traders shs2,060.

22 Bought goods on credit from Fatuma shs22,100, Temo shs38,350.

28 Credit sales to Ngula shs16,060, Oyunga shs12,960 and Mawe shs15,260.

Enter the above transaction in the respective books of original entry (10mks)

16. The following trial balance was extracted from the books of Mugoya Traders as at 30^th

June, 2014

Mugoya Traders

Trial balance

As at 30^th June 2014

Details	Dr (shs)	Cr (shs)
Premises	1,500,000
Debtors and creditors	20,000	30,000
Cash at bank	90,000
Cash in hand	10,000
Purchases and sales	140,000	320,000
Stock of good on 1^st July 2013	45,000
Discounts	6,000	2,000
Salaries and wages	50,000
Commissions		8,000
Power and lighting	12,000
Returns	15,000	19,000
Carriage outwards	2,300
Carriage inwards	5,400
Capital		1,543,700
Furniture	27,000
	1,922,700	1,922,700

Additional information

Stock of goods on 30^th June, 2014 was worth sh22, 000.

Required: prepare trading, profit and loss account for the period ended 30^th June, 2014. (10mks)

State whether each of the following transactions will increase, decrease or have no effect on the Balance Sheet totals (4mks)

Transaction	Effect on Balance sheet totals
Sold a private car and deposited the money in business bank account
Withdrew money from bank for office use
Paid Mr. Kimeli, a creditor in cash
Purchased a Motor car by cheque

Enter the following transactions in the relevant book of original entry (4mks)

2014 June 1. Made cash purchases worth sh. 25,000

5. Paid sh.38,000 by cheques in full settlement of a debt owed to Kibogong after deducting 5% cash discount.

12. Bought stationery and paid by cash sh.19,000.

19. Settled a debt of sh.90,000owed to Yatich stores by cheque after deducting a 3% cash discount.

28. Paid the month’s salaries of sh 80,000, by cash, sh. 30,000 and the balance by cheques.

The following balances relate to the business of Roba Traders during the period ended 31^st March 2014.

Shs.

Cash at bank 680,000

Premises 500,000

Machinery 175,000

Creditors 190,000

Furniture 85,000

Motor van 200,000

Cash in hand 50,000

Extract the trial balance of Roba Traders as at 31^st March 2014. (4mks)

Prepare ledger accounts from the following transactions relating to Tito Traders for the month of January 2015 (4mks)

January 5^th sold goods for Shs 20,000 cash

10^th bought furniture for Shs 50,000 on credit from Jamwal Traders

21^st Paid Shs 10,000 cash to Jamwal traders

21^st Returned furniture worth Shs 6,000 found damaged to Jamwal Traders

The following balances were extracted from the books of Njoro Traders for the period ended 31^st December 2013

Ksh.

Gross profit 10,000

Salaries 2,000

Commission income 4,000

Rent received 3,000

Electricity 2,000

Carriage outwards 4,000

Prepare a profit and loss account (4mks)

The following information relates to Waruhio Traders as at 31^st December 2011.

Waruhio Traders

Balance Sheet

As at 31^st December 2011

Fixed Assets: Shs. Sh.

Furniture 203,000 Capital 359,000

Plus Net profit 114,000

Current Assets: 473,000

Stock 174,000 Less Drawings 73,000

Debtors 113,000 400,000

Cash at Bank 53,000 Short term liabilities:

1 year Loan 79,000

Creditors 64,000

543,000 543,000

Calculate the total current assets. (1mk)
Determine the capital owned. (2mks)
Calculate the working capital (1mk)

On 1^st November 2013:Tabagon Co. Ltd. had a balance of shs. 12,000 at the bank and shs. 2500 in hand. During the month, the following transaction took place;

Nov. 1 Cash sales Shs. 2500, cash purchase Shs. 1750

Nov. 3 Paid the following accounts by cheque.

Kirop Shs. 1500 less 5% cash discount

Kirui Shs. 2000 less 5% cash discount

Nasimiyu shs. 2100 less 3 % cash discount

Nov. 5 Received the following amounts from debtors,Ondiekshs.1200, Jane shs.3850 and Mueni by chequeshs.2050 after allowing her shs. 300 cash discount.

Nov. 14 Paid office cash to the bank shs. 2000

Nov. 17 Cash sales 8500

Nov. 22 Mueni paid her account of shs. 5000 by cheque less 10% cash discount

Nov. 28 Withdrew all the money from the bank for office use except shs. 1000

Nov. 29 Paid salary cash shs. 8000

Nov. 30 A cheque received from Mueni on Nov. 5^th was dishonoured.

Prepare Tabagon Co. Ltd. three column cash book. (10 marks)

The following trial balance was extracted from the ledgers of Gathioro’s mobile phones business for the year

ended 31^st Oct 2013.

Gathioro’s mobile phones

Trial Balance

As at 31^st Oct 2013

Details	Dr.(Shs)	Cr.(Shs)
Sales		855 000
Purchase	420 000
Sales returns	12 000
Purchase returns		20 000
Creditors		165 000
Debtors	63 000
Motor vehicle	480 000
Cash in hand	65 000
Furniture	190 000
Carriage inwards	14 000
Stock	280 000
Capital		626 250
Drawing	88 000
Telephone	6 400
Insurance	8 200
Postage	3 850
Rent	19 600
Discounts received		4 000
Advertising	12 900
Discount allowed	7 300
	1 670 250	1 670 250

On 31^st Oct. 2013, the business had closing stock valued at Shs. 60,000

Required

The trading, profit and loss a/c for the year ended 31^st Oct 2013. (8 marks)
A balance sheet as at that date. (4 marks)
The following information was extracted from the books of Dawida business enterprise for the year ended 30^th June 2000.

Capital as at 30^th June, 2000 640,000

Capital as at 1^st July 1999 420,000

Drawing for the year 180,000

Net profit for the year 140,000

Determine the additional capital during the year. (4 mks)

Identify the book of original entry in which the following transactions can be recorded. (4 mks)

Transaction	Book of Original Entry
Paid salaries by cheque
returned goods to a supplier
Sold goods on credit
Bought delivery van on credit

Kiburu carried out the following transactions during the month of February 2015.

February 1: Started business by depositing sh 220,000 in business bank account

7: Bought goods on credit from MiyogoSh 72,000

8: Paid rent by chequeSh 20,000

16: Sold goods to Kamula on credit Sh 50,000.

Required: Post the above transaction in the relevant ledge accounts.

Mention whether the following transactions have an increase, decrease or no effect on the assts, capital and liabilities of a business. (4 mks)

	Transaction	Assets	Capital	Liabilities
(a)	Bought premises on credit
(b)	Took stock of goods and donated to a local dispensary
(c)	Withdrew money from bank for office use
(d)	Sold furniture receiving cash

The following information relates to Liston traders for the period ended 31^st March 2012.

Opening stock Sh 40,000

Sales Sh 100,000

Closing stock 25% on cost of sales

Mark-up 25%

By clearly calculating gross profit and purchases, prepare a trading account

Gross profit (1 mk)
Purchases for the year (2 mks)

The following information relates to Maralal Traders for the month of May 2014.

May 1: Balance brought forward:

Cash Shs. 180,000

Bank Shs. 450,000 (Cr)

3: Received a cheque of 1,500,000 from Mpasha, a debtor

7: Cash sales Shs. 280,000

11: Jolloimat, a creditor of Shs.600, 000 was paid by cheque of sh 400,000 and the balance by cash.

14: Received commission in cash sh. 150,000

17: A debtor, Leteipa, paid his account of 185,000 by cheque less 2% cash discount.

19: Paid the following expenses by cheque:

Rent Shs. 75,000, Electricity Shs. 32,000, Water Shs. 25,000

21: Withdrew Shs. 100,000 from bank for personal use

24: Paid cash Shs 133,280 to Kinai after deducting a cash discount of 2%

25: Received a cheque of sh. 200,000 from Kiyapi, a debtor

28: Paid Salaries Shs. 120,000 by cheque.

31: Banked all cash except sh. 50,000.

Required: Record the above transactions in a three column cash book. (10marks)

31. The following trial balance has extracted from the books of Bishar Retailers on 30^thApril, 2006.

	Dr shs	Cr shs
Sales		186,000
Purchases	115,560
Stock 1.5.2005	37,760
Carriage outwards	3,260
Carriage inwards	2,340
Returns outwards		3,550
Returns inwards	4,400
Motor expenses	6,640
Rent	4,560
Salaries and wages	24,490
General expenses	12,000
Rates	1,200
Equipment	60,000
Machinery	31,960
Trade debtors	45,770
Trade creditors		30,450
Bank	38,760
Cash	12,000
Drawings	20,500
Capital	_______	128,440
	348,440	348,440

Stock at 30^th April, 2006 was shs 49,980.

Required; i) Prepare Trading, profit and loss Account for the year ended 30^th April 2006. (7marks)

ii) Balance as at 30^th April 2006. (5marks)

The following information relates to Ogello Traders as at 31^st December 2009.

Capital (1-1-2009) Kshs. 100,000

Loss during the year Kshs. 40,000

Investment Kshs. 35,000

If the trader took goods worth Kshs. 15,000 during the year for private use, calculate the capital of the business as at 31.12.2009. (4mks)

Prepare Betty’s trial balance from the following information. (4mks)

Items Kshs.

Purchase 130,000

Capital 150,000

Sales 165,000

Debtors 45,000

Creditors 40,000

Motor vehicles 120,000

Stock 50,000

Cash at Bank 10,000

Ondiko Traders had Kshs. 100,000 cash in had, Kshs. 243,000 cash at bank during the month of March 2008. The following transactions took place in that month.

March 3 – Paid insurance Kshs. 5,000 cash.

March 11 – Cash sales Kshs. 14,000

March 14 – Purchased equipment worth Kshs. 37,000 paying by cheque.

March 20 – Deposited Kshs. 30,000 into Bank from cash till.

March 31 – Took Kshs. 10,000 cash for personal use.

Prepare Ondiko Trader’s Two-column Cash Book for March 2008. (5mks)

State the journal that deals with each of the following types of transactions. (4mks)

	Type of transaction	Journal
(i)	Credit sales
(ii)	Return of goods by customers.
(iii)	Return of goods to suppliers.
(iv)	Cash cheques received.
(v)	Credit purchases
(vi)	Sale of fixed assets
(vii)	Purchase of motor van on credit from General Motors
(viii)	Correction of errors.

The following information relates to Bahari retailers for the month of January 2013.

Invoices received

Jan 6 Mandela Ltd shs. 70,000

12 Othiambo Traders shs. 150,000

18 Jua Kali Enterprises shs. 50,000

Invoices

Jan 5 Jambini Traders shs. 10,000

10 Fedha Ltd shs. 100,000

15 Kalu Works Ltd shs. 120,000

Credit Note issued

Jan 5 Jambini Traders shs. 12,000

13 Fadhili Ltd shs. 6,000

Credit Note received

Jan 7 Mandela Ltd shs. 5,000

14 Othiambo Traders shs. 1,000

Additional Information:

Jan 8 Sold machinery on credit to Kwetu retailers shs. 50,000

9 Bought electronic equipment on credit from lowland retailersshs. 8,000

10 Brought shs. 5,000 cash into the business from own sources.

Required: Record the above transactions in the appropriate diary books.

The following information relates to the books of Mwalimu Traders as a 31^st December 2014.

Sale 670,000

Purchases 380,000

Opening stock 60,000

Closing stock 40,000

Return inwards 70,000

Carriage on purchases 10,000

Commission received 15,000

Rent paid 18,000

Salaries and wages 33,000

Postage 2,000

Discount received 7,000

Travelling 12,000

Repair and maintenance 4,000

Required:

Prepare Mwalimu Traders Trading Profit & Loss Account for the year ended 31^st December 2014. (10mks)

The following balances were extracted from the books of Mwenge Traders on 30^th June2010.

Shs.

Debtors 120 000

Creditors 240 000

Ten-year loan Loan 400 000

Closing Stock 25 000

Cash in hand 50 000

Drawings 30 000

Furniture 700 000

Required: Prepare a Balance Sheet as at 30^th June 2010 (4mks)

The following transactions were carried out by Ushirika Stores during the month of July2012.

July 1 :Started a business with sh. 10 000 in cash

July 2 :Opened a bank account for the business by depositing Sh. 20 000 from Personal savings

July 10 :Bought goods worth Sh.10 000 and paid by cheque

July 20 :sold goods worth Sh. 20 000 which were paid in cash

Required: Record the above transactions in the relevant ledger accounts (4 mks)

The following information was extracted from the books of Ngikwa Stores for thefollowing years

2014 2013

Shs. Shs.

Stock 120 000 224 000

Bank 20 000 60 000

Debtors 268 000 120 000

Creditors 272 000 200 000

a) Determine the current Ratio for 2014 and 2013 (3mks)

b) Comment on the significance of the change in current Ratio (1mk)

Kitinga Enterprises runs a general Merchandise business. The transactions during the month of June

2014 were as follows:

2014

June 1 – Bought on credit from Orina Ltd. goods worth shs. 100 000, received a 20% trade discount.

June 4 – Sold goods on credit to Rono Ltd. shs. 30 000 and allowed them a 10% trade discount.

June 8 – Sent Rono Ltd. a credit note for goods returned, which had a value ofshs. 30 000.

June 10 – Sold goods on credit to Akinyishs. 60 000

June 12 – Purchased goods from Wamalwa ltd for shs. 100 000 and he allowed a 30% trade discount.

June 15 – Purchased goods on credit from Nyamburashs. 45 000

June 16 – Sent Akinyi a credit note for goods returned worth shs. 10 000

June 18 – Wamalwa Ltd. sent us a credit note for sh.30 000 for goods returned.

June 19 – Received a credit note for goods returned to Orina worth sh.25 000

June 25 – Sold goods to Wairimu on credit sh. 25 000

June 27 – Sent Wairimu a credit note for sh.5 000 to rectify an overcharge on their invoice.

June 28 – Sold goods on credit to Rono for sh. 56 000

June 29 – Purchased a Motor Van on credit from Awori Ltd. worth shs. 80 000

June 30 – Sold on credit Old machinery to Nairobi Trading Company for sh.35 000 (prior to this

owned machines worth shs. 100 000

Required: Make the necessary entries in the relevant books of original entry (10 mks)

(NB. Posting to the ledger Accounts is not necessary)

The following trial balance was extracted from the books of Mwelu Traders on 30th April 2015

Account name	Dr	Cr
Sales		186 000
Purchases	115 560
Stock on 1/5/2014	37 760
Carriage outwards	3 260
Carriage inwards	2 340
Returns inwards	4 400
Return outwards		3 550
Salaries	24 470
Electricity	6 640
Rent	5 760
Sundry Expenses	12 020
Equipment	24 000
Furniture	6 000
Debtors	45 770
Creditors		30 450
Bank	38 760
Cash	1 200
Drawings	20 500
Capital		128 440
	348 440	348 440

Stock as at 30^th April 2015 was Shs. 49 980

Required: Prepare Trading profit and Loss Account for the period ending 30^th April 2015. (10 mks)

State the books of original entry in which each of the following transactions would be recorded (4marks)

Transactions	Books of original entry
Bought a machinery on credit
Received sh. 40,000 from Mweni a debtor
Sold goods worth sh. 20,000 on credit to Salama
Returned goods previously bought on credit to Wainaina

The following balances of assets and liabilities were provided by mawazo Traders as at 31^st/12/2014. (4marks)

Item shs

Bank overdraft 80,000

Land 200,000

Accrued electricity bill 50,000

Stock 10,000

Debtors 20,000

The business had drawings amounting to sh. 20,000 during the year.

Prepare a balance sheet to determine the net worth of the year

The following information relates to commodity ‘X’.

Year Price (shs)

2010 450

2014 675

(i) Calculate the consumer price index

(ii) Comment on your answer. (4marks)

A business enterprise had the following transactions on 3^rd June 2008.

(i) Returned goods worth sh. 15,000 to Kombo traders.

(ii) Awino, a customer returned goods worth 3,500 to the business.

Required: Record the above transactions in the relevant ledger accounts (4marks)

The following information relates to Kitui Traders for the year 2013.

Turn over shs 270,000

Margin 40%

Rate of turnover 6 times

Expenses sh 40,000

From the information given above, Calculate:-

Gross profit
Cost of goods sold
Net profit
Average stock (4marks)

State the effect of the following transaction on the balance sheet totals indicating either “increase, decrease or No effect” (4marks)

	Transaction	Effect on Balance sheet total
a)	Dec 14 Received a cheque for sh 150,000 being amount borrowed from a lending institution.
b)	December 15 – paid creditors sh 10,000 in cash
c)	Dec 26- owner took cash sh 10,000 from business for own personal use
d)	Dec 3 – Deposited cash sh 15,000 in to the business bank account.

The following balances relate to Brian traders as at 31^st December 2013

Shs.

Salaries 70,000

Stock (1/1/2013) 30,000

Creditors 35,000

Capital 700,000

Purchases 150,000

Insurance 10,000

Electricity 40,000

Debtors 60,000

Sales 350,000

Stock (31/12/2013) 20,000

2 year bank loan 200,000

Returns inwards 15,000

Required:

Prepare a trading, profit and loss account for the year ending 31^st December 2013 (5 Marks)
Calculate the following ratios
Margin (1 mark)
Rate of stock turn over (2 marks)
Rate of return on capital (2 marks)

On 1^st July 2014 moshi traders had cash in hand Ksh.560,000 and a bank overdraft of Ksh. 175,000.

The following transactions took place during the month:

July 9: Paid the following creditors by cheque after deducting 10% cash discount:

Betty Ksh. 140,000

Mary Ksh. 98,000

July 12: Settled kithekas account Ksh.70, 000 by cheque after deducting 10% cash discount

July 16: Received cheques from the following debtors after deducting 10% discount in each case:

Ali Ksh. 350,000

Hassan Ksh.105,000

July 23: Received the following cheques from debtors after having deducted cash discount of 2%

In each case:

Joseph Ksh. 411,600

Daniel Ksh. 123,480

July 29: Received the following amounts in cash from debtors having deducted cash discount 2%

Josephine Ksh.82, 320

Fatuma Ksh.246, 960

Required:

Record the above transactions in a three column cash book and balance it off at the end of the month (10 marks)

51. Show the accounts to be debited or credited for the following transactions. (4 marks)

	Transactions	Account to Debit	Account to Credit
A	Paid wages in cash
B	Took business cash for private use
C	Purchased office furniture on credit from Ritho Ltd
D	Paid electricity bill by cheque

The following information was extracted from the books of Juma Traders as at 31^st December 2009,

Shs

Opening stock 2,500

Purchases 46,000

Closing stock 1,500

Mark-up 20%

Require;Prepare Juma Trader’s Trading Account (4 marks)

State the source documents for each of the following subsidiary day Books (4 marks)

	Subsidiary Books	Source Documents
A	Sales Journal
B	Purchase Sales Journal
C	Returns Inwards Journal
D	Returns Outward Journal

The following balances of assets and liabilities were provided by Pati Traders as at 31^st December 2012

Items Shs

Bank overdraft 80,000

Land 200,000

Accrued electricity 50,000

Stock 10,000

Debtors 20,000

The business had drawings amounting to sh 20,000, during the year.

Required:

Prepare balance sheet for Pati Traders. (4 marks)

A business enterprise had a cash balance of 50,000 and overdraft of sh 15,000 on 1^st June 2007.

The following transactions were conducted.

June 2, A debtor paid sh 40,000 by cheques

June 10, The business bought stock sh 10,000 in cash

June 15, Sold goods sh 30,000 cash.

Required:

Prepare a two column cash book. (4 marks)

The following trial balance was extracted from the books of Tausi Traders as at 30^th June 2014

Details	Dr	Cr
Stock on 1^st July 2013 Debtors and creditors Discounts Sales and purchases Premises Carriage outwards Returns Fixtures and fittings Carriage in wards Machinery Commissions Capital Wages and salaries Cash in bank Rent income	180,000 195,000 75,000 1,200,000 1,630,000 24,000 60,000 300,000 100,000 600,000 48,000 90,000 420,000 4,712,000	120,000 96,000 1,740,000 150,000 42,000 2,454,000 110,000 4,712,000

Closing stock 210,000

Required: Prepare a trading, profit and loss account for the year ended 30^th June 2014. (8 marks)

Prepare tausi’s balance sheet as at 31^st June 2014 (4 marks)

Record the following information relating to the traders in the relevant books of original entry for

the month of June 2013 and post them to the relevant ledger Accounts. (10 marks)

June 2: Credit sales to Wako retailers worth sh 8,000 issued invoice No. 0111.

June 5: Credit purchases from Jamu suppliers worth sh 30,000 received invoice No. 20

June 8: Credit sales to Mwenda worth sh 12,000 issued invoice No.12

June 16: Credit purchases from Sam Traders and Mwiti traders worth sh 5,300 and sh 6,200 and issued with an invoice No.13 and 14 respectively.

June 18: Credit sales Wako retailers and Mwiti traders worth sh 5,300 and 6,200 and issued with an invoice No. 13 and 14 respectively.

June 24: Credit purchases from Sam and Wangu traders sh 1000 and 2,800, invoice No.451 and 722 respectively

The following transaction took place in the business of JohanaMakembo in the month of May 2013.

2013

May 1: started business with sh 100,000 in bank and sh 20,000 in cash

May 3: Purchased goods values at sh 24,000 from Kanyua on credit

May 6: Paid rent sh 1200 by cheques.

May 10: Purchased a delivery van valued at sh 720,000 from Mwema Motors and paid by cheques.

May 12: Sold goods in cash sh 45,000.

May 15: Paid Kanyuash 10,000 by cheques.

Required: Use the above information to:

Prepare the relevant ledger accounts and balance them off as at 15^th May 2013 (7 marks)

Extract a trial balance.

The following balance sheet was extracted from the books of Tumaini Investment as at 31st December 2014.

Calculate:-

i) Borrowed capital (1 mk)

ii) Capital employed (2 mk)

iii) Working capital (2 mk)

From the transactions given below name the account to be debited (Dr.) and the account to be credited (CR)

(4 mks)

TRANSACTION DEBIT (DR) CREDITED (CR)

i) Deposited shs. 2000 into the bank from

the cash box

ii) Sold goods on credit worth shs 5,000

iii) Purchased goods in cash worth shs 4,000

iv) Withdrew goods worth shs 2,500 for own

consumption.

61 . The following balances were extracted from the books of Rioba Agencies for the period ended 30th June 2013.

shs

Stock (1/7/12) 14,700

Sales 86,400

Purchases 65,000

Returns outwards 4,700

Carriage inwards 2,200

Commission received 8,100

Salaries 2,500

Stock on 30th June 2013 20,000

Required:

Prepare the trading account for Rioba Agencies for the year ended 30th June 2013. (4 mks)

62. The following cash transactions took place in he business of Ochieng during the first week of June

2013.

2013 June

2013 June 1. Balance brought down was cash shs 20,000, bank shs 45,000

2013 June 2. Sold goods worth shs 10,000 by cash

2013 June 3. Sold a piece of furniture for shs 8,000 and the amount was directly paid to the bank.

2013 June 4. Bought goods worth shs 16,000 paying partly by cheque worth shs 9,000 and the balance

was paid in cash.

2013 June 5. Banked all the cash except shs 5,000

Required

Prepare a two column cash book.

63. The following information was obtained from the books of Nyota Njema Traders

Invoices Received

Jan 2,2015 Shari Traders for sh. 80,000 invoice No. 41

Jan 18,2015 Chacha traders for sh. 120,000 invoice no. 72.

Jan 25,2015 Nala traders for sh. 200,000 invoice no 31

Invoices issued

Jan 5,2015 Song traders for sh. 50,000 invoice no.1

Jan 6,2015 Mali traders for sh. 6,800 invoice no. 2

Jan 10,2015 Mamba traders for sh. 22,000 invoice no. 3

Credit Notes received

Jan 10,2015 Shari traders sh. 4,000 Credit Note number 16

Jan 28,2015 Malo traders for sh. 3,500 Credit Note no. 23

Credit notes issued

Jan 8,2015 Song traders for sh. 3,000 credit note No. 1

Jan 26,2015 Mali traders for sh. 7,200 credit note no. 2

Required: Journalize the information above in the relevant subsidiary books (10 mks)

64. The following transactions relate to Leo traders for the Month of Feb 2015

Feb 1 started a business with sh. 180,000 in bank

6 Bought goods on credit from Mato sh. 80,000 and King sh. 50,000

10 Sold goods for credit to Edna sh. 141,500

12 Paid Mato sh. 25,000 and King sh. 31,000 by cheque

15 Recieved a cheque worth sh. 24,000 from Edna

28 Returned goods to Mato sh. 1,000

28 Withdrew sh. 5,000 from bank for personal use.

Required: Enter the transaction above in the relevant ledger accounts and balance them off. (13 mks)

65. The following information relates to Karima Kogi stores for the year ending 31st Dec 2014

Stock 50,000

Cash at Bank 15,000

Machinery 240,000

Creditors 75,000

Debtors 55,000

Required: Draw Karima Kogi stores Balance Sheet as at 31st December 2014 (3mks)

66. Classify the following account as real, nominal or personal

(a) Purchases

(b) Stock

67. Record the following transactions in a 2 – column cash book of Waigwa Traders and balance it off (5mks)

2012

Jan 1 Balance b/d Cash Sh. 10000

Bank Sh .25000

Jan 2 Bought stock in cash Sh. 6000

Jan 7 Cash sales Sh. 2500

Jan 12 Withdrew cash from bank for office use Sh. 4000

Jan 15 Paid wages in cash Sh. 3000

Jan 21 Received sh 4500 from Karanja by cheque

68. Indicate whether the transactions given below will increase, decrease or have no effect on the capital of a business (4mks)

(a) Bought stock on credit

(b) Losses incurred by the firm

(d) Additional cash invested by the owner

69. The following Trial balance was extracted from books of Maragwa Traders as at 31st December 2014

Maragua Traders

Trial Balance

As at 31st Dec 2014

Details Dr. (sh) Cr. (sh)

Purchases 300,000

Sales 450,000

Returns inwards 40,000

Returns outwards 10,000

Capital 89,000

Machinery 90,000

Bank 30,000

Carriage inwards 20,000

Carriage outwards 1,500

Stock (Jan 1.2014) 50,000

Creditors 85,000

Debtors 60,000

Salaries 9,000

General expenses 3,500

Rent 30,000

634,000 634,000

Stock on 31 Dec 2014 was valued at sh. 67,500

Required

(i) Prepare a Trading and profit and loss account for the year ended 31st December 2014

(ii) Prepare a Balance sheet as at 31st Dec 2014 (12mks)

70. Mega Traders had the following transactions that took place in the month of April 2014

Invoices received

April 1 K.K. Suppliers Sh. 40,000

2 Onchoke Sh. 8,000

6 K.K. Supplier Sh. 15,000

Invoices issued

April 3 Onyango Sh. 50,000

4 Moturi Sh. 30,000

Credit notes issued

April 5 Moturi Sh. 3000

Credit notes received

April 7 K.K. Suppliers Sh. 1000

7 Onchoke Sh. 1500

Required : Record the above transactions in the relevant subsidiary books and relevant post to the ledger accounts (10mks)

71. The following balance sheet relates to Uzuri traders

UZURI TRADERS Balance Sheet

As at 31^st May 2015

sh. Sh. Fixed Assets Land 1,800,000 Motor vehicle 1,000,000 Furniture 30,000 2,830,000 Current assets Stock 80,000 Debtors 50,000 Cash at bank 32,000 Cash in hand 20,000 182,000 3,012,000 ======

Capital and Liabilities Capital 2,172,000 Long term liabilities Loan from KCB 400,000 Loan from K.I.E 300,000 700,000 Short term liabilities Creditors 100,000 Salary owing 40,000 140,000 ________ 3,012,000 =======

Required:

Calculate (i) Capital owned (1 mark)

(ii) Borrowed capital (1 mark)

(iii) Working capital (1 mark)

(iv) Capital employed (1 mark)

72. Record the following transaction in a two column cash book.

2012

Jan 1 : Started business with capital of sh20,000 cash and sh 50,000 at bank.

2 : Bought stock in cash sh 120,000

3 : Cash sales sh 5,000

7 : Bought stock worth sh 10,000 on credit.

12 : Withdrew cash from bank for office use sh.8,000.

15 : Paid rent by cheque shs 6000.

20 : Received shs 4000 by cheque from a debtor.

73. Enter the following transactions in the relevant ledger accounts. (4 marks)

2011

July 1: Opening balances cash ksh 24,000, bank kshs 8000 (cr)

3: Paid rent kshs 4,000 in cash

4: Bought goods worth ksh 8,000 and paid by cheque

5: Deposited ksh. 5,000 from the business into the bank.

74. Peterson started a hardware business on 1^st January 2010. The following is a summary of his transaction during the month

Invoices issued

Jan 2: Mwiti Traders kshs 50,000

Jan 5: Mutahi Traders ksh 150,000

Invoices received

2010 Jan 3: Solomon Traders kshs 80,000

4: Kanake Enterprises kshs 160,000

Required:

Record the above details in the appropriate subsidiary books. (4 marks)

75. The following trial balance was extracted from the books of Kigumo Enterprises for the year ended 31/12/2014.

KIGUMO ENTERPRISES

TRIAL BALANCE

AS AT 31^ST DEC. 2014

	DR (shs)	CR(shs)
Capital		250,000
Drawings	33,000
Opening stock	47,000
Purchases	300,000
Sales		420,000
Returns inward	4,000
Returns outward		7,000
Carriage outward	10,000
Carriage inward	28,000
Discount allowed	4,000
Furniture	25,000
Motor vehicle	145,000
Creditors		55,000
Discount received		14,000
Premises	100,000
debtors	50,000	_______
	746,000 ======	746,000 ======

Closing stock was valued at shs 55,000 while depreciation on motor vehicles was shs 15,000

Required:

Trading and profit and loss account for the year ended 31^st Dec. 2014.
Balance sheet as at 31^st Dec. 2014 (10 marks)

76. On 2nd November 2010, Kamu received an Invoice for sh. 24,000. Terms of payment were trade discounts 10% and cash discount 20% , if payment is made within 30 days . Determine the amount paid if payment was made on 28th November 2010 (4mks)

77. In the spaces below indicate the source documents that correspond to the books of original entry (4mks)

Source Document Books of original entry

(a) Sales journal

(b) Purchase Journal

(d) Purchase Returns Journal.

78. The following information relates to Maguna – Andu Traders

Sh .

Stock 31/12/06 60000

Average stock 55000

Rate of stock turnover 6 times

Mark up 25%

Required

Prepare a trading account

79. The cash book below was incorrectly prepared (4mks)

Identify four transactions that were wrongly entered in the cash book

80. The following transactions were extracted from the books of Rehema traders on 1st January 2009

Shs

Capital 600,000

Creditors 180,000

Motor van 200,000

Furniture 200,00

Stock 60,000

Debtors 80,000

Cash 240,000

The following transactions took place during the year ended 31st Dec 2007

(i) Sold furniture worth sh. 60,000 for which sh. 40,000 cash was received and the balance was due at the end of the year

(ii) Purchased goods worth sh. 100,000 for which cash of sh. 70,000 was paid and the balance was still outstanding at the end of the year .

(iii) Cash of sh. 10,000 was taken from the business by the proprietor for personal use

Required :

Prepare Rehema’s balance sheet as at 31:12:07

81. The following balances were extracted from the books of Tahidi high as at 31st Dec 2011

Shs.

Furniture 20,000

Carriage outwards 5,000

Discount received 3,000

Gross profit

ByDean of Studies

ACCOUNTING NOTES AND ASSGNMTS.docx

ACCOUNTING NOTES AND ASSGNMTS.docx

ACCOUNTING NOTES AND ASSGNMTS.docx