ECOM 058 – Principles of Accounting 2020/21 Lecture 2
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ECOM 058 – Principles of Accounting 2020/21
Lecture 2 – Problem set
Give three reasons why a business needs to keep accounts
Explain what a trial balance is and what it is used for. What are its key features? 
What are books of prime entry and why might a business use them?
What is the effect of a Debit entry on:
i) An asset account
ii) A liability account
iii) An expense account
iv) An income account
Exercise 1
Adam has just gone into business. The following is a list of his transactions for the month of January 2010:
(a) Cash paid into the business by Adam.
(b) Goods for resale purchased on cash terms.
(c) Van bought for cash.
(d) One quarter’s rent for premises paid in cash.
(e) Some goods sold on cash terms.
(f) Adam buys some office machinery for cash.
State which account in Adams’ books of account should be debited and which account should be credited for each transaction.
Exercise 2
Davies buys and sells goods on cash and credit terms. The following is a list of her transactions for April 2010:
1 Capital introduced by Davies paid into the bank.
2 Goods purchased on credit terms from Swallow.
3 Goods sold to Hill for cash.
4 Cash paid for purchase of goods.
5 Dale buys goods from Davies on credit.
6 Motoring expenses paid by cheque.
State which account in Davies’ books of account should be debited and which account should be credited for each transaction.
Exercise 3
Nathalie Dupont set up a French restaurant in 1st August. Its transactions for the first month were as follows:
01-Aug
02-Aug
03-Aug
03-Aug
04-Aug
04-Aug
05-Aug
06-Aug
09-Aug
15-Aug
16-Aug
18-Aug
20-Aug
26-Aug
31-Aug
Capital put into business (£2,000 into bank account and £1,000 into cash account)
Bought some food with cash
Bought a freezer with a cheque
Paid rent by cheque
Cash sales
Sales by cheque, paid into bank account
Bought a cash register with cash
Cash sales
Paid wages by cheque
Bought some food on credit from C. Bleu Ltd
Cash Sales
Paid C. Bleu Ltd by cheque
Paid insurance premium with cash
Sales by cheque, paid into bank account
Paid wages by cash
3,000
300
500
100
200
100
200
200
100
300
100
300
50
200
200
NOTE THAT THIS EXERCISE REQUIRES YOU TO KEEP SEPARATE CASH AND BANK ACCOUNT, BUT NOT AN INVENTORY: JUST USE A PURCHASES ACCOUNT
a) Prepare Nathalie’s ledger accounts and balance them off on 31st August.
b) Prepare Nathalie’s trail balance at 31st August
Exercise 4
Vale has been in business for some years. The following balances were brought forward in his books of account as at 1 January 2011:
NOTE THAT THIS EXERCISE REQUIRES YOU TO KEEP SEPARATE CASH AND BANK ACCOUNT, BUT NOT AN INVENTORY: JUST USE A PURCHASES ACCOUNT
Bank
Capital
Cash
Dodd
Fish
Furniture
£
Dr
5000
1000
6000
10000
––––––
22000
£
Cr
20000
2000
––––––
22000
During the year to 31 December 2011 the following transactions took place:
1 Goods bought from Dodd on credit for £30,000.
2 Cash sales of £20,000.
3 Cash purchases of £15,000.
4 Goods sold to Fish on credit for £50,000.
5 Cheques sent to Dodd totalling £29,000.
6 Cheques received from Fish totalling £45,000.
7 Cash received from Fish amounting to £7000.
8 Office expenses paid in cash totalling £9000.
9 Purchase of delivery van costing £12,000 paid by cheque.
10 Cash transfers to bank totalling £3000.
(a) Compile Vale’s ledger accounts for the year 31 December 2011, balance off the
accounts and bring down the balances as at 1 January 2012.
(b) Extract a trial balance as at 31 December 2011.
2023-03-07