CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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Solution 1
1.1 Answer: (A)
A credit balance in the books of X Ltd indicates that it owes money; none of the
other distractors would result in a credit balance.
1.2 Answer: (D)
1.3 Answer: (A)
The ledger account would be as follows:
J King
$ $
1 Jan. Balance b/f 400 Jan. Returned goods 250
Jan. Sales 700 Cash 320
The balance is the debit total ($1,100) less the credit total ($570): $530 debit.
1.4
Capital ssets Liabilities
($ $
$ ) ($ $ )
$
350 400 880 700 125
8005
1.5 Answer: (C)
1.6
Answer: (B)
1.7 Answer: (C)
The inventories account is never used to record purchases.
1.8 Answer: (C)
Solutions to Revision
Questions
3
THE ACCOUNTING SYSTEM IN ACTION
SOLUTIONS TO REVISION QUESTIONS C2
62
Solution 2
●
This question tests your ability to determine the debit and credit entries of a range of
simple transactions.
●
It is common for students to reverse the entries at this stage in their studies. Keep refer-
ring to the table until you are sure of your accuracy.
Debit Credit
Increases in assets Decreases in assets
Decreases in liabilities Increases in liabilities
Decreases in capital Increases in capital
Increases in expenses Decreases in expenses
Decreases in revenue Increases in revenue
Account to be debited Account to be credited
1. Bashir Sales
2. Purchases P Walker
3. Carriage inwards Cash
4. P Walker Purchase returns
5. Offi ce machinery W Print
6. W Print Offi ce machinery
7. Bank P Wright
8. Bank T Wilkes
9. Car Capital
10. P Wright Bank
Solution 3
Capital
$
1 Jan. Bank 1,000
Bank
$ $
1 Jan. Capital 1,000 8 Jan. Puchases 250
28 Jan. K Orme 250
Motor van
$
3 Jan. AB Garages 3,000
AB Garages
$
3 Jan. Motor van 3,000
THE ACCOUNTING SYSTEM IN ACTION
63
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Tools and equipment
$ $
4 Jan. B & P Ltd 650 18 Jan. B & P Ltd 80
B & P Ltd
$ $
18 Jan. Tools 80 4 Jan. Tools 650
Purchases $
$
8 Jan. Bank 250
12 Jan. Cash 150
Sales
$
10 Jan. Cash 400
14 Jan. K Orme 750
Cash
$ $
10 Jan. Sales 400 12 Jan. Purchases 150
23 Jan. Drawings 50
K Orme
$ $
14 Jan. Sales 750 28 Jan. Bank 250
Drawings
$
23 Jan. Cash 50 ? ? ?
The balances on the accounts are as follows:
$
Capital 1,000 credit
Bank 1,000 debit
Motor van 3,000 debit
AB Garages 3,000 credit
Tools and equipment 570 debit
B & P Ltd 570 credit
Purchases 400 debit
Sales 1,150 credit
Cash 200 debit
K Orme 500 debit
Drawings 50 debit
THE ACCOUNTING SYSTEM IN ACTION
SOLUTIONS TO REVISION QUESTIONS C2
64
Solution 4
Rent payable
$
1 Mar. Capital 70
Capital
$
1 Mar. Rent 70
8 Mar. Purchases 2,000
JK Ltd
$
4 Mar. Equipment 400
Equipment
$
4 Mar. JK Ltd 400
Purchases
$
8 Mar. Capital 2,000
18 Mar. BH Horticultural Ltd 800
Sales
$
10 Mar. Cash 100
12 Mar. Bank 1,200
18 Mar. PB 500
31 Mar. Cash 240
Cash
$ $
10 Mar. Sales 100 15 Mar. Wages 50
31 Mar. Sales 240 28 Mar. Wages 20
Bank
$ $
12 Mar. Sales 1,200 23 Mar. Local business tax 100
Wages
$
15 Mar. Cash 50
28 Mar. Cash 20
THE ACCOUNTING SYSTEM IN ACTION
65
FUNDAMENTALS OF FINANCIAL ACCOUNTING
BH Horticultural Ltd
$
18 Mar. Purchases 800
PB
$
20 Mar. Sales 500
Local business tax
$
23 Mar. Bank 100
The balances on the accounts are as follows:
$
Rent payable 70 debit
Capital 2,070 credit
Equipment 400 debit
JK Ltd 400 credit
Purchases 2,800 debit
Sales 2,040 credit
Cash 270 debit
Bank 1,100 debit
Wages 70 debit
BH Horticultural Ltd 800 credit
PB 500 debit
Local business tax 100 debit
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4
Summarising the
Ledger Accounts
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69
4
LEARNING OUTCOMES
When you have completed this chapter, you should be able to:
䉴 prepare a trial balance;
䉴 explain the nature of errors;
䉴 prepare a trading account, income statement and statement of fi nancial position
from a trial balance.
4.1 Introduction
In this chapter, you will learn how the balances on the ledger accounts can be listed in a
trial balance, where the total of the debits equals the total of the credits. This does not,
however, prove that there are no errors as a trial balance can still balance and yet contain
errors. A trial balance is a useful step before a trading account, income statement and state-
ment of fi nancial position are prepared. After these fi nancial statements have been pre-
pared the ledger accounts can be balanced off.
4.2 Preparing the trial balance
One way of checking the accuracy of the ledger entries is by listing the balances on each
account, and totalling them. Because of the ‘ double-entry ’ rule that has been employed,
the total of all the accounts with debit balances should equal the total of all the accounts
with credit balances. This list is known as a trial balance.
Summarising the
Ledger Accounts