International Examinations

IGCSE

Accounting
Catherine Coucom
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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Chapter 1 Introduction to accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Double entry bookkeeping – Part A . . . . . . . . . . . . . . . . . . . . 6
3 The Trial Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4 Double entry bookkeeping – Part B . . . . . . . . . . . . . . . . . . . 29
5 Petty cash book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6 Business documents and books of prime entry. . . . . . . . . 48
7 Final Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8 Accounting rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
9 Accruals and prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10 Depreciation and disposal of fixed asssets . . . . . . . . . . . 103
11 Bad debts and provision for doubtful debts . . . . . . . . . . . 120
12 Bank reconciliation statements . . . . . . . . . . . . . . . . . . . . . 134
13 Journal entries and correction of errors . . . . . . . . . . . . . . 145
14 Control accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
15 Incomplete records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
16 Accounts of clubs and societies . . . . . . . . . . . . . . . . . . . . . 184
17 Partnership accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
18 Accounts of manufacturing businesses . . . . . . . . . . . . . . 213
19 Departmental accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
20 Analysis and interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 229

Answers to review questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

Examination papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

Contents v
CHAPTER

1 Introduction to accounting
The need for business accounts
Bookkeeping and accounting are both concerned with the financial
records of a business. The detailed recording of all the financial transac-
tions of a business is known as bookkeeping. Accounting makes use of
these records to prepare periodic financial statements, which can be used
to assess the performance of the business.
It is impossible, even in a small business, to remember the full details of
everything that takes place, so it is necessary to make a record of every
transaction which affects the business. Every business is different, so the
records maintained will vary because of the different information which is
required, but the basis of all the accounting systems is double entry
bookkeeping.
The main aim of the owner of a business is for the business to make a
profit. Periodically, a Trading and Profit and Loss Account is prepared
which shows the calculation of the profit earned by the business. Where a
business makes a profit, the owner can receive a proper return on the
money invested in the business and funds are available for expanding the
business, replacing equipment, and so on. Where a business makes a loss,
it may eventually result in the business being closed down as the owner’s
investment in the business falls, and the business is not able to obtain up-
to-date equipment and keep pace with competitors.
The owner of a business also needs to know the financial position of the
business, and so, periodically, a Balance Sheet is prepared. This summaris-
es the position of a business, in monetary terms, on a certain date. The
Balance Sheet shows what the business owns, known as assets, and what
the business owes, known as liabilities.
The Trading and Profit and Loss Account and the Balance Sheet collec-
tively are often referred to as final accounts. Whilst these provide valuable
information, they can only record the financial aspects of the business.
Non-monetary factors can play an important part in the success of a busi-
ness, but these cannot be recorded in the accounting records (see Chapter
8). It is also important to bear in mind that, whilst most of the information
recorded in the accounts is based on facts, some figures have to be based
on estimates (for example how much an asset has lost in value through
depreciation).
The progress of a business can be measured by comparing the final
accounts of one year with those of previous years, and with those of similar
businesses. Various accounting ratios can be calculated to measure the
relationship between figures within the final accounts, and these ratios
can also be used for comparison purposes.
All the terms mentioned above are explained in detail in following
chapters.

Chapter 1 – Introduction to accounting 1

 The Balance Sheet equation
A person starting a business usually provides the funds or resources neces-
sary to set up the business. This is known as capital. So the resources, or
assets, in the business will be equal to the resources or capital provided by
the owner of the business. This means that assets = capital.
Other people may also supply the business with assets. These amounts
owing by the business are liabilities. Applying the same formula as above,
the assets in the business will be equal to the resources provided by the
owner (the capital) plus the resources provided by other people (the liabili-
ties). This means that assets = capital + liabilities. Capital is also known as
owner’s equilty, therefore we say: assets = owner’s equilty + liabilities and
the abbreviated accounting equation is A = OE + L. This is known as the
Balance Sheet equation. The two sides of the equation will always be
equal. The individual amounts of assets, liabilities and capital may change,
but the total assets will always equal the total of the capital plus the
liabilities.
The accounting equation may be expressed in the form of a Balance
Sheet, which is a statement showing the financial position of a business on
a certain date. It lists the assets, the liabilities and the capital. Assets con-
sist of everything that the business owns, plus any money owing to the
business. Liabilities consist of anything the business owes. Capital is a
form of liability as it is the amount the business owes to the owner of the
business. It is important to remember that the accounting records are the
records of the business, not the records of the owner of the business.
A Balance Sheet must always have a heading, which should include the
date on which the Balance Sheet applied. It is also usual to show the name
under which the business trades (this may be the name of the owner if the
business trades under that name).
The Balance Sheet will be affected every time the business makes some
change to the assets, liabilities and capital.

■ Example 20–2 June 1 James Jones set up a business to trade under the name of
Jones Stores. He opened a business bank account and paid in
$50 000 as capital.
2 The business bought premises for $30 000 and paid by
cheque.
3 The business bought a stock of goods costing $4 500 on
credit.
4 The business sold goods, which had cost $500, on credit.

Prepare the Balance Sheet of Jones Stores, as it would appear at

the close of business on each of the dates given above.

2 Accounting: IGCSE
 Jones Stores
Balance Sheet as at 1 June 20–2

Assets $ Liabilities $

Bank 50 000 Capital 50 000

50 000 50 000

The assets of the business are equal to the liabilities of the business.

Jones Stores
Balance Sheet as at 2 June 20–2

Assets $ Liabilities $

Premises 30 000 Capital 50 000

Bank 20 000
50 000 50 000

The asset of bank has been reduced as money has been spent in obtaining
a new asset. The individual assets have changed, but the total of the assets
remains the same.

Jones Stores
Balance Sheet as at 3 June 20–2

Assets $ Liabilities $

Premises 30 000 Capital 50 000

Stock 4 500 Creditors 4 500
Bank 20 000
54 500 50 000

Buying goods on credit means that the business is supplied with the goods
but does not pay for them immediately. The business has obtained a new
asset in the form of stock of goods, but has also acquired a liability, as it
now owes the supplier of the goods (known as a creditor).

Chapter 1 – Introduction to accounting 3

 Jones Stores
Balance Sheet as at 4 June 20–2

Assets $ Liabilities $

Premises 30 000 Capital 50 000

Stock 4 000 Creditors 4 500
Debtors 4 500
Bank 20 000
54 500 50 000

The asset of stock has been reduced but a new asset has been obtained in
the form of money owed to the business by a customer (known as a
debtor).
In order to keep the example simple, the goods were sold to the cus-
tomer at the price the business paid for them. It is obvious that, in prac-
tice, they must be sold at a price above cost price to enable the business to
earn a profit.

A Balance Sheet can be displayed in different ways, and it is usual for the
assets and liabilities to be divided up into different classes. Balance Sheets
will be explained in more detail in Chapter 7.
In the above example, a new Balance Sheet was prepared after every
transaction. This is obviously impossible in practice, as, in one single hour,
there can be several changes to the business’s assets and liabilities. A system
of double entry bookkeeping has been developed where all the day-to-day
transactions are recorded. (This is dealt with in detail in chapters 2 and 4.) A
Balance Sheet is only prepared periodically – usually at the close of business
on the last day of the financial year of the business. A financial year does not
necessarily run from 1 January to 31 December. A business may be started
on any date. The final accounts will be prepared for twelve-month periods
from that date, which are known as financial years.

Review questions
1. (a) Explain the meaning of the terms – (i) assets
(ii) liabilities
(iii) capital
(b) State whether each of the following items is an asset or a liability:
Office equipment Loan from ABC
Creditor Cash
Machinery Expenses owing

4 Accounting: IGCSE
 * 2. Redraft the following Balance Sheet to correct any mistakes.

Farad
Balance Sheet for the year ended 31 March 20–6

Assets $ Liabilities $

Loan from bank 220 000 Capital 265 000

Cash 222 600 Fixtures and fittings 2222 00
Machinery 234 000 Debtors 213 400
Creditors 215 400
Stock 228 400
100 400 100 400

3. Rachel had the following items in her Balance Sheet at 30 September

20–5.
Capital $20 000 Equipment $12 900 Bank $2 200
Creditors $2 900 Stock $4 700 Debtor $3 100
During the first week of October Rachel had the following transactions:
(a) Received $2 500 by cheque from the debtors.
(b) Paid $1 000 by cheque to creditors.
(c) Bought further stock costing $900 on credit.
(d) Bought further equipment and paid $500 by cheque.

Draw up Rachel’s Balance Sheet as at 7 October 20–5 after the above

transactions have been completed.

Chapter 1 – Introduction to accounting 5

CHAPTER

2 Double entry bookkeeping –

Part A
Introduction
Chapter 1 explained that, as it is impractical to produce a new Balance
Sheet after every transaction, day-to-day transactions are recorded using
the double entry system. In the example given in Chapter 1 it was shown
that every transaction affected the Balance Sheet in two ways. This dual
aspect of a giving and a receiving is recorded in the day-to-day records.
The business will keep a separate ledger account for each debtor and
creditor with whom it has dealings, a separate ledger account for each type
of asset, expense, liability, and so on. Every transaction concerning a par-
ticular person, asset, expense, etc. is recorded in the appropriate account.
The ledger can be in the form of a bound book (in which case one
ledger account will appear on each page) or a file of separate sheets of
paper, with an account on each. Where accounts are maintained using a
computer, a ledger will consist of a computer file, which is divided into
separate accounts. A typical ledger account is shown below.

Account name
Debit Credit

Date Details Folio $ Date Details Folio $

The account is divided into two sides by the centre line. The left-hand side
is the debit side (usually abbreviated to Dr.) and the right-hand side is the
credit side (usually abbreviated to Cr.). On each side there are columns in
which to record the date, details and amount of each transaction. The folio
column is used for cross-referencing the accounts.
Because there is a giving and receiving in every transaction, two entries
are made – a debit in one account and a credit in another account. The
debit entry is made in the account which gains the value, which can be
assets gained by the business or expenses paid by the business. The credit
entry is made in the account which gives the value, which can be liabilities
incurred by the business or income received by the business.

6 Accounting: IGCSE
■ Example 20–2 March 1 Abdul set up a business. He opened a business bank
account and paid in $40 000 as capital.
2 Bought business premises for $20 000 and paid by cheque.

Enter the transactions in the ledger of the business.

Abdul

Bank account Page 1

Date Details Folio $ Date Details Folio $

20–2 20–2
(a) Mar 1 Capital 2 40 000 Mar 2 Premises 3 20 000 (b)

Capital account Page 2

Date Details Folio $ Date Details Folio $

20–2
Mar 1 Bank 1 40 000 (a)

Premises account Page 3

Date Details Folio $ Date Details Folio $

20–2
(b) Mar 2 Bank 1 20 000

Notes: 1. The first transaction has been labelled (a) for reference purposes.
The bank account was debited to show value being received and
the capital account was credited to show value being given.
2. The second transaction has been labelled (b) for reference
purposes. The premises account was debited to show value being
received and the bank account was credited to show value being
given.
3. In each case the details column of each account shows the name
of the account where the opposite half of the double entry is
made, and the folio number gives the page on which that account
will be found.

Care must be taken to ensure that a double entry is made for a transaction,
before going on to enter the next item. Examination questions give a list of

Chapter 2 – Double entry bookkeeping – Part A 7

 items to enter into the accounts, but, in practice, information for entering
in the accounts is obtained from business documents. These are explained
in Chapter 6.

Assets and liabilities, expenses and

incomes
Every type of asset, liability, expense and income has its own ledger
account. In practice, each ledger account has its own page or sheet. This is
obviously not possible in exercises, so it is usual to show several accounts
on one page.

■ Example 20–2 March 1 Abdul set up a business. He opened a business bank

account and paid in $40 000 as capital.
2 Bought business premises for $20 000 and paid by cheque.
3 Paid $950 for insurance by cheque.
4 Part of the premises was rented out to another business
and a cheque for $200 rent was received.
5 Bought equipment and paid by cheque, $8 000.
6 Paid for repairs to premises by cheque, $70.
7 Received a loan of $5 000 from ABC Ltd. which was paid
into the bank.

Enter the transactions in the ledger of the business.

Abdul

Bank account Page 1

Date Details Folio $ Date Details Folio $

20–2 20–2
Mar 1 Capital 12 40 000 Mar 2 Premises 13 20 0001
4 Rent received 15 0 0200 3 Insurance 14 20 950
7 ABC Ltd. Loan 18 45 000 5 Equipment 16 28 000
6 Repairs 17 20 770

8 Accounting: IGCSE
 Capital account Page 2

Date Details Folio $ Date Details Folio $

20–2
Mar 1 Bank 11 40 000

Premises account Page 3

Date Details Folio $ Date Details Folio $

20–2
Mar 2 Bank 11 20 000

Insurance account Page 4

Date Details Folio $ Date Details Folio $

20–2
Mar 3 Bank 11 20 950

Rent Received account Page 5

Date Details Folio $ Date Details Folio $

20–2
Mar 4 Bank 11 40 200

Equipment account Page 6

Date Details Folio $ Date Details Folio $

20–2
Mar 5 Bank 11 88 000

Repairs account Page 7

Date Details Folio $ Date Details Folio $

20–2
Mar 6 Bank 11 88 070

Chapter 2 – Double entry bookkeeping – Part A 9

 ABC Ltd. Loan account Page 8

Date Details Folio $ Date Details Folio $

20–2
Mar 7 Bank 11 85 000

Note: Repairs to premises do not increase the value of the asset. They are a
running expense and are entered into an expense account.

Balancing accounts
Where any accounts of assets and liabilities have several entries recorded
in them, it is usual to balance these accounts at the end of each month.
The balance shows the amount remaining in that account, and is the dif-
ference between the two sides of the account. The procedure may be sum-
marised as –
(a) On a separate piece of paper, or on a calculator, add up each side of the
account. Find the difference between the two sides of the account.
(b) (i) Enter this difference on the next available line on the side of the
account which has the smallest total.
(ii) Insert the date of balancing in the date column. This is usually the
last day of the month.
(iii) Insert the description ‘Balance’ in the details column.
(iv) Insert ‘c/d’ in the folio column to indicate that the balance is going
to be carried down.
(c) Total each side of the account by adding up and showing the amount
in total lines (a single line above the figure, and either a single or a
double line below the figure). These totals must be on the same level.
(d) Make a double entry for the balance carried down.
(i) On the line below the totals of the account enter the amount of the
balance on the opposite side of the account from where the words
‘Balance c/d’ appeared.
(ii) Insert the date. This is usually the first day of the next month.
(iii) Insert the description ‘Balance’ in the details column.
(iv) Insert ‘b/d’ in the folio column to indicate that the balance has
been brought down from the previous month.

10 Accounting: IGCSE
■ Example Balance the bank account which appeared in Abdul’s ledger at the end of
his first week of trading.
The entries already appearing in the bank account have been taken
from the previous example.

Abdul

Bank account Page 1

Date Details Folio $ Date Details Folio $

20–2 20–2
Mar 1 Capital 12 40 000 Mar 2 Premises 13 20 000
4 Rent received 15 0 0200 3 Insurance 14 20 950
7 ABC Ltd. Loan 18 45 000 5 Equipment 16 28 000
6 Repairs 17 20 770
7 Balance c/d 16 180
45 200 45 200
20–2
Mar 8 Balance b/d 16 180

Note: The debit side totalled $45 200 and the credit side totalled $29 020, so
the balance (the difference between the two sides) was $16 180.

Sales, purchases, and returns

Two accounts are needed to record the purchase of goods in which the
business trades, and the later sale of those goods. These must be kept sep-
arate, as the goods will come in at cost price and usually go out at a higher
price, which enables the business to earn a profit. Instead of a ‘Goods
account’ there is a ‘Purchases account’ and a ‘Sales account’. A Stock
account is only used at the end of each financial year to record the value of
the stock at that date.

Purchases
Whenever a business purchases goods, the purchases account will be deb-
ited. If the goods were paid for at the time of purchase, the double entry
will be made by crediting the bank account, if payment was made by
cheque, or crediting the cash account, if payment was made in cash.
If the business does not pay for the goods at the time of purchase, this
is known as buying on credit. In this case, the credit entry will be made in
the account of the supplier (to show the value coming from that account).
Until the account is paid, the supplier is a trade creditor of the business.
When payment is made to the supplier, his/her account is debited (to
show value going into that account) and the bank account or cash account
is credited (to show value coming out of that account).

Chapter 2 – Double entry bookkeeping – Part A 11

■ Example 20–2 March 10 Abdul purchased goods, $950, and paid by cheque.
12 Abdul purchased goods, $1 000, on credit from East & Co.
16 Abdul paid the amount due to East & Co. by cheque.

Record the above in Abdul’s ledger.

Abdul

Bank account Page 1

Date Details Folio $ Date Details Folio $

20–2
Mar 10 Purchases 9 20 950
16 East & Co. 10 11 000

Purchases account Page 9

Date Details Folio $ Date Details Folio $

20–2
Mar 10 Bank 11 20 950
12 East & Co. 10 11 000

East & Co. account Page 10

Date Details Folio $ Date Details Folio $

20–2 20–2
Mar 16 Bank 11 21 000 Mar 12 Purchases 19 21 000
21 000 21 000

Note: East & Co.’s account has been totalled as both sides equal $1 000, so
the account is ‘in balance’ and is closed.

Sales
Whenever a business sells goods, the sales account is credited. If the goods
were paid for at the time of sale, the double entry will be made by debiting
the bank account, if a cheque was received, or the cash account, if cash
was received.
If the customer does not pay for the goods at the time of sale, this is
known as selling on credit. In this case, the debit entry will be made in the
account of the customer (to show value going into that account). Until the
account is paid, the customer is a trade debtor of the business. When

12 Accounting: IGCSE
 payment is received from the customer, his/her account is credited (to
show value coming out of that account) and the bank account or cash
account is debited (to show value going into that account).

■ Example 20–2 March 17 Abdul sold goods, $650, on credit to North.

20 Abdul sold goods, $180, for cash.
21 North gave Abdul $500 in cash, on account.

Record the above in Abdul’s ledger. Balance North’s account

and bring down the balance.

Abdul

Sales account Page 11

Date Details Folio $ Date Details Folio $

20–2
Mar 17 North 12 20 650
20 Cash 13 20 180

North account Page 12

Date Details Folio $ Date Details Folio $

20–2 20–2
Mar 17 Sales 11 20 650 Mar 21 Cash 13 21 500
21 Balance c/d 21 150
20 650 20 650

20–2
Mar 22 Balance b/d 20 150

Cash account Page 13

Date Details Folio $ Date Details Folio $

20–2
Mar 20 Sales 11 20 180
21 North 12 20 500

Notes: 1. The term ‘on account’ is used to indicate that only part of the
amount owing is being paid at that point. The balance will be
paid at a later date.
2. On 22 March North is a debtor as he owes Abdul $150.

Chapter 2 – Double entry bookkeeping – Part A 13

 Returns
It can happen that goods purchased are not satisfactory – they may be
damaged, faulty, or not what was ordered. These will be returned to the
supplier and are known as purchases returns or returns outward. Instead
of crediting the purchases account to record the value going out, it is usual
to credit a separate account, the purchases returns account (or returns
outward account). The debit entry will be made in the account of the sup-
plier (to show the value coming into that account). This entry will reduce
the amount owing to the supplier.
Where goods sold by a business prove to be unsatisfactory, a customer
may return them to the business. These are known as sales returns or
returns inward. When a customer returns goods, the sales returns account
(or returns inward account) is debited, to show value coming into that
account. The account of the customer is credited (to show value going out
of that account). This entry will reduce the amount owing by the customer.

■ Example 20–2 March 22 Abdul purchased goods, $690, on credit from Western.
23 Abdul sold goods, $830, on credit to Southern.
25 Abdul returned damaged goods, $75, to Western.
27 Southern returned goods, which were not as ordered, $43,
to Abdul.
28 Abdul paid, by cheque, the balance owing to Western.

Record the above in Abdul’s ledger. Total the account of

Western and balance the account of Southern on 28 March.

Abdul

Purchases account Page 9

Date Details Folio $ Date Details Folio $

20–2
Mar 22 Western 14 20 690

Western account Page 14

Date Details Folio $ Date Details Folio $

20–2 20–2
Mar 25 Purchases 20 6 Mar 22 Purchases 19 21 690
returns 16 20 675
Mar 28 Bank 11 20615 2
2 20690 21 690

14 Accounting: IGCSE
 Sales account Page 11

Date Details Folio $ Date Details Folio $

20–2
Mar 23 Southern 15 40 830

Southern account Page 15

Date Details Folio $ Date Details Folio $

20–2 20–2
Mar 23 Sales 11 20 830 Mar 27 Sales
returns 17 21 543
28 Balance c/d 21 787
20 830 21 21 830

20–2
Mar 29 Balance b/d 20 787

Purchases Returns account Page 16

Date Details Folio $ Date Details Folio $

20–2
Mar 25 Western 14 40 875

Sales Returns account Page 17

Date Details Folio $ Date Details Folio $

20–2
Mar 27 Southern 15 40 843

Bank account Page 1

Date Details Folio $ Date Details Folio $

20–2
Mar 28 Western 14 40 615

Chapter 2 – Double entry bookkeeping – Part A 15

 Carriage inwards and carriage outwards
Both carriage inwards and carriage outwards relate to the cost of trans-
porting goods. It is important that they are treated separately in the
accounts as carriage inwards is part of the cost of purchasing goods,
whereas carriage outwards is a selling expense.
Carriage inwards occurs when a business has to pay for purchased
goods to be delivered to its premises. This cost is debited to a carriage
inwards account. Carriage outwards occurs when a business pays for sold
goods to be delivered to its customers’ premises. This cost is debited to a
carriage outwards account.
In each case a credit entry will be made in the cash account or bank
account if payment was made, or the account of the supplier of the service
if no payment was made at the time.

Drawings
‘Drawings’ is the term used when the owner of a business takes any value
from the business for his/her own use. This may be in the form of money,
goods, or even fixed assets. To avoid the capital account having a large
number of entries, a drawings account is used to record all amounts with-
drawn by the owner. At the end of the financial year the total of the draw-
ings account is transferred to the capital account, and so reduces the
amount the business owes the owner.
Whenever the owner makes drawings, the drawings account is debited
(to show value going into that account). If money is withdrawn, the cash
account or the bank account is credited (to show value going out of that
account). If a fixed asset is withdrawn, the appropriate fixed asset account
is credited (to show value going out of the account). If the owner of the
business withdraws goods for his/her own use, the purchases account is
credited with the cost of these goods (to show value going out of the
account). The business originally purchased these goods with the intention
of selling them to customers. The amount of goods available for sale to
customers has been reduced as the owner has removed some of those
goods, so the purchases account must record this reduction.

Running balance accounts

The traditional form of presentation has been used for all ledger accounts
prepared in this Chapter. These are often referred to as ‘T’ accounts
because of their shape (a debit side and a credit side and a line down the
centre).
A modern alternative is known as the running balance format. This
style of presentation is used in computerised accounting systems, for
example, the preparation of bank statements. Instead of appearing on dif-
ferent sides of the account, the debit and credit transactions are recorded
in adjoining columns. The third column, the balance column, is updated

16 Accounting: IGCSE
 after every transaction (hence the term ‘running balance’). The advantage
of this form of presentation is that the balance of the account is shown
after every transaction. Where the accounts are prepared manually, the
greater number of calculations may lead to an increase in errors.

■ Example 20–2 March 1 Abdul set up a business. He opened a business bank

account and paid in $40 000 as capital.
2 Bought business premises for $20 000 and paid by cheque.
3 Paid $950 for insurance by cheque.
4 Part of the premises were rented out to another business
and a cheque for $200 rent was received.
5 Bought equipment and paid by cheque, $8 000.
6 Paid for repairs to premises by cheque, $70.
7 Received a loan of $5 000 from ABC Ltd. which was paid
into the bank.

Write up the Bank account in Abdul’s ledger using the running

balance format.

Bank account Page 1

Date Details Folio Debit Credit Balance

40 $ 40 $ 40 $
20–2
Mar 1 Capital 22 40 000 40 000 Dr.
2 Premises 23 20 000 20 000 Dr.
3 Insurance 24 20 950 19 050 Dr.
4 Rent received 25 40 200 19 250 Dr.
5 Equipment 26 28 000 11 250 Dr.
6 Repairs 27 28 070 11 180 Dr.
7 ABC Ltd. Loan 28 25 000 16 180 Dr.

The traditional ‘T’ format is used throughout this book. Whenever a ledger
account is required, either form of presentation is acceptable.
Examination questions often require only one account to be presented,
instead of a set of double entry records. This is simply because of the
limited time available.

Review questions
1. (a) Name the system which records the two aspects of all business
transactions.
[IGCSE 1997]

Chapter 2 – Double entry bookkeeping – Part A 17

 (b) Explain what is meant by Trade Creditors.
[IGCSE 1997]
(c) Which one of the following describes a credit transaction?
Payment is made: before goods are received
when goods are received
after goods are received.
[IGCSE 1998]
(d) Ann, a sole trader, took goods from the business for her own use.
Name the two ledger accounts in Ann’s ledger in which this is
recorded.
[IGCSE 2000]
2. Ester made the following transactions. State which account would be
debited and which account would be credited in each case.
(a) Goods for resale were purchased on credit from Moses.
(b) Cost of delivering these goods to Ester’s premises was paid in cash.
(c) Equipment was purchased on credit from Machines Ltd.
(d) Ester took cash from the business for her own use.
(e) Unsatisfactory goods were returned to Moses.
(f) Repairs to equipment were paid by cheque.
(g) A cash loan was made to Ester’s son David.
(h) A cheque was received from the sale of surplus equipment.

3. Joe King is a self-employed builder. ABC Ltd. are builders’ merchants,

who supply sand, bricks and other materials to Joe King on credit
terms. These goods are used by Joe in the day-to-day running of his
business. Joe King’s transactions for March 1995 included the following:
March 10 Bought sand and bricks from ABC Ltd. on credit for $2 000.
12 Returned unwanted bricks to ABC Ltd., value $600.
18 Paid ABC Ltd. by cheque $1 000.
(a) From the information given, write up the ledger account of ABC
Ltd. in Joe King’s books, showing the balance at 18 March 1995.
(b) Is ABC Ltd. a debtor or a creditor of King?
[IGCSE 1995]
*4. On 1 August 20–5 Barry Bandara decided to set up a business, which
would trade under the name of Bandara Bargains. The following are the
transactions of the business for the month of August 20–5:
20–5 August 11 Capital of $25 000 was paid into a business bank
account.
12 Paid rent of premises by cheque, $400.
15 Bought goods, $1 850, and paid by cheque.
19 Bought goods, $2 600, on credit from John Kamati.
13 Sold goods, $260 for cash.
18 Returned unsatisfactory goods, $140, to John Kamati.
21 Paid advertising expenses, $90, in cash.
25 Received commission, $50, in cash from Hangula & Co.
28 Paid the amount owing to John Kamati by cheque.
29 Barry Bandara withdrew $100 from the bank for
personal use.
18 Accounting: IGCSE
 Enter the transactions in the ledger of Bandara Bargains for
the month of August 20–5. Balance the Bank account and
the Cash account at the end of the month.

5. George Metwali set up a business on 1 November 20–8, to trade under

the name of Metwali Stores. The following are the transactions for the
first month of trading:
20–8 November 11 Capital of $30 000 was paid into a business bank
account.
12 Purchased premises, $20 000 and paid by cheque.
14 Purchased goods, $1 900, and paid by cheque.
17 Sold goods, $1 250, on credit to E. Helmuth.
11 E. Helmuth returned goods, $120, which were
damaged.
15 Sold goods, $90, for cash.
15 Paid $5 in cash for the goods to be delivered to the
customer.
19 Purchased office stationery, $15, and paid in cash.
24 George Metwali took goods, costing $20, for
personal use.
29 E. Helmuth sent a cheque for $700, on account.

Enter the above transactions in the ledger of Metwali

Stores for the month of November 20–8. Balance the
Bank account, Cash account, and E. Helmuth account
at the end of the month.

6. The following account appears in the ledger of Elisabeth Eaves. Explain

each item in the account, and also state where the double entry for
each item will be found.

Jenny Jones account

Date Details Folio $ Date Details Folio $

20–6 20–6
Jan 24 Sales 20 260 Jan 26 Returns 20 215
21 Sales 20 330 19 Bank 20 245
31 Balance c/d 20 330
20 590 20 590
20–6
Feb 1 Balance b/d20 20 330

Chapter 2 – Double entry bookkeeping – Part A 19