Theory of double entry

WELCOME BACK. As we continue to complete the external examination syllabus, we make a presentation in the form of a worked example of a question that covers a host of principles relevant to your course of study. It is supported with a pointer, identified as ‘reasoning’, and workings to help you fully understand some crucial points. Follow the steps and endeavour to retain them.

WORKED EXAMPLE

Question:

Janice started a business on October 1, 2016, with a motor van, $9,000, shop fixtures, $1,500, and cash of $3,000. To start the business, she had borrowed $3,600 from Patrick.

You are required to: a. Complete the following trial balance showing clearly the value of the capital. [>1]

Janice Trial Balance as at October 1, 2016

b. Janice buys and sells goods on credit. She maintains a full set of accounts. The table below contains a list of transactions carried out in the first week of trading. Complete the table below for EACH transaction, stating clearly the amount, if any, of increase or decrease in the value of capital.

The first transaction has been completed as an example. [>2]

REASONING

1. Capital = Total assets - total liabilities

2. Capital is effected by the following: i. Additional investment ii. Net profit or loss iii. Drawings

WORKINGS

1. $4,500 - $3,600 = $2,700 profit

2. $2,700 x 100 = 60% margin

Returned goods:

$600 x 60% =$360 profit. Therefore, the decrease in profit is $360.

SOLUTION WORKED EXAMPLE

a) Janice Trial Balance as at October 1, 2016 b) The first transaction has been completed as an example. [>2].

This is where we will end for this week. Join me next week as we continue to complete the syllabus. Grasp the concepts and retain them. You will need them as you progress to excellence. See you next week.