Bookkeeping 1: Lecture solution 1

What is the dual effect of the following?

1. Business was started with £50,000 cash
↑ Cash (= asset)
↑ Capital
2. Bought inventory on credit from Wholesale Ltd for £2,100
↑ Purchases
↑ Trade payables
3. Bought a piece of machinery (for long term use in the business) for £10,000 in
cash
↑ NCA
↓ Cash
4. Sold inventory which had cost £2,100 for £6,800 on credit to Sally
↑ Sales (Income)
↑ Trade receivables
5. Paid Wholesale Ltd £1,000 cash
↓ Trade Payables (=liability)
↓ Cash
6. Borrowed £2,000 as a long term loan from Bank Plc.
↑ Cash
↑ Loan (Non-current liability)
7. Received a cheque for £1,500 from Sally
↑ Cash
↓ Trade receivables
8. Paid rent of £2,000 in cash
↓ Cash
↑ Expense
9. Paid wages of £2,500 cash
↓ Cash
↑ Expense
10. The owner withdrew £2,000 cash
↓ Cash
↓ Capital (dividends / drawings)
 Bookkeeping 1: Lecture solution 2
Following on from Q1, write these dual effects out under the equation to prove
whether it holds true.

Assets = Liabilities + Capital

1 50,000 50,000
2 2,100 2,100
10,000
3
(10,000)
4 6,800 6,800
5 (1,000) (1,000)
6 2,000 2,000
1,500
7
(1,500)
8 (2,000) (2,000)
9 (2,500) (2,500)
10 (2,000) (2,000)
53,400 = 3,100 + 50,300

Therefore the accounting equation holds true.

 Bookkeeping 1: Lecture solution 3
Following on from Questions 1 & 2, record the transactions using double
entries:
1 Dr Cash 50,000
Cr Capital 50,000
2 Dr Purchases 2,100
Cr Trade payables 2,100
3 Dr PPE 10,000
Cr Cash 10,000
4 Dr Trade receivables 6,800
Cr Sales 6,800
5 Dr Trade Payables 1,000
Cr Cash 1,000
6 Dr Cash 2,000
Cr Loan 2,000
7 Dr Cash 1,500
Cr Trade receivables 1,500
8 Dr Rent expense 2,000
Cr Cash 2,000
9 Dr Wages expense 2,500
Cr Cash 2,500
10 Dr Drawings 2,000
Cr Cash 2,000
 Bookkeeping 1: Lecture solution 4

Following on from questions 1-3, record the transactions in ledger accounts (T

accounts).
Cash
1) Capital 50,000 3) PPE 10,000
6) Loan 2,000 5) Trade payables 1,000
7) Trade receivables 1,500 8) Rent expense 2,000
9) Wages expense 2,500
10) Drawings 2,000

Capital
1) Cash 50,000

Trade receivables
4) Sales 6,800 7) Cash 1,500

Trade payables
5) Cash 1,000 2) Purchases 2,100

Property plant and equipment

3) Cash 10,000
 Purchases
2) Trade payables 2,100

Sales
4) Trade receivables 6,800

Bank loan
6) Cash 2,000

Drawings
10) Cash 2,000

Wages expense
9) Cash 2,500

Rent expense
8) Cash 2,000
 Bookkeeping 1: Lecture solution 5
Close off the T accounts.
Cash
1) Capital 50,000 3) PPE 10,000
6) Loan 2,000 5) Trade payables 1,000
7) Trade receivables 1,500 8) Rent expense 2,000
9) Wages expense 2,500
10) Drawings 2,000

c/f 36,000

53,500 53,500

b/f 36,000

Capital
c/f 50,000 1) Cash 50,000

50,000 50,000

b/f 50,000

Trade receivables
4) Sales 6,800 7) Cash 1,500
c/f 5,300
6,800 6,800

b/f 5,300

Trade payables
5) Cash 1,000 2) Purchases 2,100
c/f 1,100
2,100 2,100
b/f 1,100

Property plant and equipment

3) Cash 10,000 c/f 10,000

10,000 10,000

b/f 10,000
 Purchases
2) Trade payables 2,100 c/f 2,100

2,100 2,100

b/f 2,100

Sales
4) Trade receivables 6,800
c/f 6,800

6,800 6,800

b/f 6,800

Bank loan
6) Cash 2,000
C/f 2,000
2,000 2,000

b/f 2,000

Drawings
10) Cash 2,000
C/f 2,000
2,000 2,000

b/f 2,000

Wages expense
9) Cash 2,500
C/f 2,500
2,500 2,500

b/f 2,500

Rent expense
8) Cash 2,000
C/f 2,000
2,000 2,000

b/f 2,000
 Bookkeeping 1: Lecture solution 6
Extract the trial balance.

Dr Cr

Cash 36,000

Capital 50,000

Trade receivables 5,300

Trade payables 1,100

Property, plant and equipment 10,000

Purchases 2,100

Sales 6,800

Loan 2,000

Drawings 2,000

Wages expense 2,500

Rent expense 2,000

TOTAL 59,900 59,900

 Bookkeeping 1: Lecture question 7
Get the accounts ready for next year.
Cash
1) Capital 50,000 3) PPE 10,000
6) Loan 2,000 5) Trade payables 8,000
7) Trade receivables 1,500 8) Rent expense 2,000
9) Wages expense 2,500
10) Drawings 2,000

c/f 36,000

53,500 53,500

b/f 36,000

SFP (=Statement of Financial Position = Balance Sheet) – the b/f is next

year’s starting point.

Trade receivables
4) Sales 6,800 7) Cash 1,500
c/f 5,300
6,800 6,800

b/f 5,300

SFP account – the b/f is next year’s starting point.

Trade payables
5) Cash 1,000 2) Purchases 2,100
c/f 1,100
2,100 2,100
b/f 1,100

SFP account – the b/f is next year’s starting point.

Property plant and equipment

3) Cash 10,000 c/f 10,000

10,000 10,000

b/f 10,000

SFP account – the b/f is next year’s starting point.

 Purchases
2) Trade payables 2,100 c/f 2,100

2,100 2,100

b/f 2,100 Transfer to P&L account 2,100

Sales
4) Trade receivables 6,800
c/f 6,800

6,800 6,800

Transfer to P&L account 6,800 b/f 6,800

Bank loan
6) Cash 2,000
C/f 2,000
2,000 2,000

b/f 2,000

SFP account – the b/f is next

year’s starting point.

Wages expense
9) Cash 2,500
C/f 2,500
2,500 2,500

b/f 2,500 Transfer to P&L account 2,500

Rent expense
8) Cash 2,000
C/f 2,000
2,000 2,000

b/f 2,000 Transfer to P&L account 2,000

 Drawings
10) Cash
2,000
C/f 2,000
2,000 2,000

b/f 2,000 Transfer to capital 2,000

P&L Account

Purchases 2,100 Sales 6,800

Wages 2,500
Rent 2,000

c/f 200
6,800 6,800
Transfer to capital 200 b/f 200

Capital
c/f 50,000 1) Cash 50,000

50,000 50,000

b/f 50,000

Transfer from drawings 2,000 Transfer from P&L account 200

c/f 48,200
52,200 52,200

b/f 48,200