Westminster International University in Tashkent

4ECON008C Financial Accounting, Semester I, 2016/2017

Answers to Tutorial 4

TASK 1 Brian started in business on 1 January 2014. The following is a list of his transactions for his first month
of trading:

01.1.14 Opened a business bank account with $25,000 obtained from private resources.
02.1. 14 Paid one month’s rent of $2,000 by cheque.
03.1. 14 Bought goods costing $5,000 on credit from Linda.
04.1. 14 Purchased motor car from Savoy Motors for $4,000 on credit.
05.1. 14 Purchased goods costing $3,000 on credit from Sydney.
10.1. 14 Cash sales of $6,000.
15.1. 14 More goods costing $10,000 purchased on credit from Linda.
20.1. 14 Sold goods on credit to Ann for $8,000.
22.1. 14 Returned $2,000 of goods to Linda.
23.1. 14 Paid $6,000 in cash into the bank.
24.1. 14 Ann returned $1,000 of goods.
25.1. 14 Withdrew $500 in cash from the bank to open a petty cash account.
26.1. 14 Cheque received from Ann for $5,500; Ann also claimed a cash discount $500.
28.1.14 Office expenses of $250 paid out of petty cash.
29.1.14 Sent a cheque to Savoy Motors for $4,000.
30.1.14 Cheques sent to Linda and Sydney for $8,000 and $2,000 respectively. Cash discounts were also
claimed from Linda and Sydney of $700 and $100 respectively.
31.1.14 Paid by cheque another month’s rent of $2,000.
31.1.14 Brian introduced $5,000 additional capital into the business by cheque.

Required:
(a) Enter the above transactions in Brian’s ledger accounts for January 2014, balance off the accounts and
bring down the balances as at 1 February 2014.
(b) Prepare a trial balance as at 31 January 2014.

TASK 1 Answer

________________Bank ___________ Capital_______________

01.01 25,000 02.01 2,000 01.01 25,000
23.01 6,000 25.01 500 31.01 b c/d 30,000 31.01 5,000
26.01 5,500 29.01 4,000 30,000 30,000
31.01 5,000 30.01 8,000 01.02 b b/d 30,000
30.01 2,000
31.01 2,000
_____ 31.01 b c/d 23,000
41,500 41,500
01.02 b b/d 23,000

Rent (Expenses) ______ Linda (Trade Creditor)___

02.01 2,000 22.01 2,000 03.01 5,000
31.01 2,000 31.01 b c/d 4,000 30.01 8,000 15.01 10,000
4,000 4,000 30.01 700
01.02 b b/d 4,000 31.01 b c/d 4,300 _____
15,000 15,000
01.02 b b/d 4,300

Purchases Savoy Motors (Creditor)__

3.1 5,000 29.01 4,000 04.01 4,000
05.01 3,000
15.01 10,000 31.01 b c/d 18,000
18,000 18,000
01.02 b b/d 18,000

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 Motor car _____ Sydney(Trade Creditor)
04.01 4,000 31.01 b c/d 4,000 30.01 2,000 05.01 3,000
01.02 b b/d 4,000 30.01 100
31.01 b c/d 900 _____
3,000 3,000
01.02 b b/d 900

Sales Cash_ ______________

10.01 6,000 10.01 6,000 23.01 6,000
31.01 b c/d 14,000 20.01 8,000
14,000 14,000
01.02 b b/d 14,000

Ann(Trade Debtor) Returns outwards

20.01 8,000 24.01 1,000 31.01 b c/d 2,000 22.01 2,000
26.01 5,500 01.02 b b/d 2,000
26.01 500
_____ 31.01 b c/d 1,000
8,000 8,000
01.02 b b/d 1,000

Returns inwards Petty cash_____________

24.01 1,000 31.01 b c/d 1,000 25.01 500 28.01 250
01.02 b b/d 1,000 ___ 31.01 b c/d 250
500 500
01.02 b b/d 250

Discounts allowed ____ Office expenses ____

26/01 500 31.01 b c/d 500 28.01 250 31.01 b c/d 250
01.02 b b/d 500 01.02 b b/d 250

Discounts received
30,01 700
31.01 b b/d 800 30.01 100
01.02 b b/d 800

Trial balance:
Accounts Debit ($) Credit ($)
Bank 23,000
Petty cash 250
Motor car 4,000
Ann (Trade Debtor) 1,000
Linda (Trade Creditor) 4,300
Sydney (Trade Creditor) 900
Savoy Motors (Creditor) 0
Capital 30,000
Purchases 18,000
Sales 14,000
Returns outwards 2,000
Discounts received 800
Returns inwards 1,000
Rent 4,000
Discounts allowed 500
Office expenses 250
Total 52,000 52,000

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TASK 2
What action can you take if the trial balance does not balance?

“Backtrack” down the accounting cycle: check the trial balance for any error first if none, then move
down to the ledger and check all ledger accounts for any error; if none, go down to the journals and
check for any error.

TASK 3 Examples for errors that are not detected by a trial balance. How would you correct them?

1. A sale of goods $678 to J Harris had been entered in J Hart’s account.

2. The purchase of a machine on credit from L Pyle for $4390 had been completely omitted from
the accounting books.
3. A sale of $221 to E Fitzwilliam had been entered in the books, both debit and credit, as $212.
4. Commission received $257 had been entered in error in the Sales account.
5. A receipt of cash from T Heath $77 had been entered on the credit side of the cash book and the
debit side of T Heath’s account.

Hint: First record each error in a General Journal then transfer entries to their ledger accounts.

1. Dr J Harris’s account $678 Error of commission

Cr J Hart’s account

2. Dr Purchase account $4390 Error of omission

Cr L Pyle

3. Error of original entry

$221-$212=$9 additional amount should be debited to Fitzwilliam’s debtor account.
Dr E Fitzwilliam $9
Cr Sales account

4. Dr Sales account $257 Error of principle

Cr Commission received (Revenue)

5. Error of complete reversal of entries

This is somewhat more difficult to adjust. First, we must make entry which cancels the error, and
then we make the actual entry. Because of his, the correcting entry is double the actual amount first
recorded.

Journal
DR CR
Cash account $154
T Health $154
Error in T Hearth’s account… Error now corrected.

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TASK 4 The trial balance of Joy McDowell Tutoring Service, Inc., at March 31, 2014, does not balance:

Balance
Account Title Debit Credit
Cash 3,000
Accounts receivable 2,000
Supplies 600
Computer equipment 26,000
Accounts payable 11,500
Common Stock 11,600
Service revenue 9,700
Salary expense 1,700
Rent expense 800
Utilities expense 300
Total 34,400 32,800

Investigation of the accounting records reveals that the bookkeeper:

a. Recorded a $400 cash revenue transaction by debiting Accounts Receivable. The credit entry
was correct.
b. Posted a $1,000 credit to Accounts Payable as $100.
c. Did not record utilities expense or the related account payable in the amount of $200.
d. Understated Common Stock by $700.

Required: Prepare the correct trial balance at March 31, journal entries are not required.

Answer:
Balance
Account Title Debit Credit
Cash 3,000 (a) +400
Accounts receivable 2,000 (a) -400
Supplies 600
Computer equipment 26,000
Accounts payable 11,500 (b) +(1000-100=900)
(c ) +200
Common Stock 11,600 (d) +700
Service revenue 9,700
Salary expense 1,700
Rent expense 800
Utilities expense 300 (c ) +200
Total 34,400 +200 32,800 + 1,800

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The final TB:

JOY McDOWELL TUTORING SERVICE Inc.

Trial Balance
March 31, 2014
Balance
Account Title Debit Credit
Cash 3,400
Accounts receivable 1,600
Supplies 600
Computer equipment 26,000
Accounts payable 12,600
Common Stock 12,300
Service revenue 9,700
Salary expense 1,700
Rent expense 800
Utilities expense 500
Total 34,600 34,600

TASK 5 The following transactions relate to the business of Aziza for the month of April 2014:

April 1 Sales on credit to Z Zidane $690, L Ronaldo $153, R Baggio $420.

April 10 Returns inwards from Z Zidane $40, R Baggio $20.
April 18 L Ronaldo paid $153 by cheque.
April 20 R Baggio paid $400 by cheque.
April 30 Z Zidane paid $300 by cash.

Required:
(i) Enter the transactions in the ledger accounts of Aziza;
(ii) Balance off the debtors accounts only at the end of the month

Z Zidane(Trade Debtor)__ L Ronaldo(Trade Debtor)________

01.04 Sales 690 10.04 ret. in 40 01.04 Sales 153 18.04 bank 153
30.04 cash 300
___ 30.04 b c/d 350
690 690
01.05 b b/d 350

R Baggio (Trade Debtor) ________ Returns inwards ____

01.04 Sales 420 10.04 ret. In 20 10.04 60
___ 20.04 bank 400
420 420

Sales_____________ Bank________________
01.04 1,263 18.04 153
20.04 400

Cash_______________
30.4 300