I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

QUESTION 

Debit and credit

 

See if you can identify the debit and credit entries in the following transactions. 

A 

Bought a machine on credit from A, cost $8,000 

B 

Bought goods on credit from B, cost $500 

C 

Sold goods on credit to C, value $1,200 

D 

Paid D (a credit supplier) $300 

E 

Collected $180 from E, a credit customer 

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PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS 

 

76

 

F 

Paid wages $4,000 

G 

Received rent bill of $700 from landlord G 

H 

Paid rent of $700 to landlord G 

I 

Paid insurance premium $90 

J 

Received a credit note for $450 from supplier H 

K 

Sent out a credit note for $200 to customer I 

ANSWER 

  

 

$ 

$ 

A 

DEBIT 

Machine account (non-current asset) 

8,000 

 

 

CREDIT 

Sundry* accounts payable  

 

8,000 

B DEBIT 

Purchases 

account 

500 

 

 

CREDIT 

Trade accounts payable  

 

500 

C 

DEBIT 

Trade accounts receivable  

1,200 

 

 CREDIT 

Sales 

 1,200 

D 

DEBIT 

Trade accounts payable  

300 

 

 

CREDIT 

Cash at bank 

 

300 

E 

DEBIT 

Cash at bank 

180 

 

 

CREDIT 

Trade accounts receivable  

 

180 

F DEBIT 

Wages 

account 

4,000 

 

 

CREDIT 

Cash at bank 

 

4,000 

G DEBIT 

Rent 

account 

700 

 

 

CREDIT 

Trade accounts payable  

 

700 

H 

DEBIT 

Trade accounts payable  

700 

 

 

CREDIT 

Cash at bank 

 

700 

I DEBIT 

Insurance 

costs 

90 

 

 

CREDIT 

Cash at bank 

 

90 

J 

DEBIT 

Trade accounts payable 

450 

 

 CREDIT 

Purchase 

returns 

  450 

K DEBIT 

Sales 

returns 

200 

 

 

CREDIT 

Trade accounts receivable 

 

200 

* Note. Suppliers who have supplied non-current assets are included among sundry accounts payable, 

as distinct from trade suppliers (who have supplied raw materials or goods for resale) who are trade 

accounts payable. It is quite common to have separate 'total accounts payable' accounts, one for trade 

accounts payable and another for sundry other accounts payable. 

QUESTION 

Ledger entries

 

See now whether you can record the ledger entries for the following transactions. Ron Knuckle set up a 

business selling keep fit equipment, trading under the name of Buy Your Biceps Shop. He put $7,000 of 

his own money into a business bank account (transaction A) and in his first period of trading, the 

following transactions occurred. 

Transaction 

 $ 

B 

Paid rent of shop for the period 

3,500 

C 

Purchased equipment (inventories) on credit 

5,000 

D 

Raised loan from bank 

1,000 

E 

Purchase of shop fittings (for cash) 

2,000 

F 

Sales of equipment: cash 

10,000 

G 

Sales of equipment: on credit 

2,500 

H 

Payments for trade accounts payable 

5,000 

I 

Payments from trade accounts receivable 

2,500 

J 

Interest on loan (paid) 

100 

K 

Other expenses (all paid in cash) 

1,900 

L Drawings 

1,500 

Try to do as much of this question as you can by yourself before reading the answer. 

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CHAPTER 5  

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  LEDGER ACCOUNTS AND DOUBLE ENTRY 

 

77 

ANSWER 

Clearly, there should be an account for cash at bank, trade accounts receivable, trade accounts payable, 

purchases, a shop fittings account, sales, a loan account and a proprietor's capital account. It is also 

useful to keep a separate account for drawings until the end of each accounting period. Other accounts 

should be set up as they seem appropriate. In this exercise, accounts for rent, bank interest and other 

expenses would seem appropriate. 

It has been suggested to you that the cash at bank account is a good place to start, if possible. You 

should notice that cash transactions include the initial input of capital by Ron Knuckle, subsequent 

drawings, the payment of rent, the loan from the bank, the interest, some cash sales and cash 

purchases, and payments for trade accounts payable and from trade accounts receivable. (The 

transactions are identified below by their reference, to help you to find them.) 

CASH AT BANK 

 

$ 

 

$      

Capital – Ron Knuckle (A) 

  7,000 Rent (B) 

 3,500 

Bank loan (D) 

  1,000 Shop fittings (E) 

    2,000 

Sales (F) 

10,000 Trade accounts payable (H) 

  5,000 

Trade accounts receivable (I) 

  2,500 Bank loan interest (J) 

 100 

 

 

Other expenses (K) 

  1,900 

 

 

Drawings (L) 

   1,500 

 

 

 

 

CAPITAL (RON KNUCKLE) 

 

$ 

 

$   

 

 

Cash at bank (A) 

 7,000 

 

BANK LOAN 

 

$ 

 

$   

 

Cash at bank (D) 

 1,000 

 

PURCHASES 

 

$ 

 

$   

Trade accounts payable (C) 

5,000

 

 

TRADE ACCOUNTS PAYABLE 

 

$ 

 

$   

Cash at bank (H) 

 

5,000

 

Purchases (C) 

  

5,000

 

 

RENT 

 

$ 

 

$   

Cash at bank (B) 

3,500

 

 

NON-CURRENT ASSETS (SHOP FITTINGS) 

 

$ 

 

$   

Cash at bank (E) 

 2,000

 

 

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