Types of errors which do not affect the agreement of the trial balance

1. Errors of omission: Where a transaction is completely omitted from the books

(Journal or ledger). E.g. a sales invoice $ 245 to Bolton was completely omitted from the
accounts.
2. Errors of commission. Where a correct amount is entered in wrong persons account, for E.g.
Credit purchase from C. Clint has been recorded in the account of C. Clintons account.
3. Errors of principle: Where an item is entered in wrong class of accounts, E.g. Purchase of
plant had been debited to purchase account instead of debiting to plant account.
4. Compensating errors: Where errors cancel out each other, for E.g. Sales account was
overcast by $ 500 at the same time the purchase account was also overcast by $500, and then the
effect of these errors would cancel out in the trial balance
5. Errors of original entry: Where the original figure is incorrect but recorded in the correct
original entry. Eg. Credit sales of goods$ 400 was calculated in the invoice as $ 300 and
recorded in the same journal.
6. Complete reversal of entries: This occurs where the entries for transactions are reversed- the
account which should be credited is debited and the account which should be debited is credited.
Eg. The purchase of stationery for $ 200 for cash debited to cash and credited to stationery.
7. Transposition errors: Where the wrong sequence of the individual characters within a
number was entered. E.g. An amount of a transaction $ 172 was entered in the accounts as $127
One way to help remember the six errors is to memorize COPCORT
Commission
Omission
Principle
Compensating
Original entry
Reversal
Transposition

Types of errors which do affect the agreement of the trial balance

The following errors will stop the trial balance from agreeing because debit does not equal to
credit.
1. Incorrect addition to any accounts
2. Making an entry only on one side of one account i.e. Entering debit but not credit or entering
debit but not credit.
3. Entering a different amount on the debit side from the amount on the credit side
4. The double entry has been inaccurate. E.g. Cash sales $15 cash account debited with $5 and
sales account credited with $15.
5. Two debit or two credit entry has been made.
Casting: means adding figures.
Overcastting: means incorrectly adding a column of figures to give an answer which is greater
thanit should be.
Under casting: means incorrectly adding a column of figures to give an answer which is less than
it should be.
Suspense account: This is the account opened in the books of the business to show the
differencein trial balance, when it disagrees. When the errors are found out, the correction is
made to suspense account and it will be automatically cancelled.

Key points

Nature of balances of each class of accounts

Assets and expenses always debit

Liabilities and incomes always credit

To increase the balance of an account with debit balance debit the account.
To decrease the balance of an account with debit balance credit the account.
To increase the balance of an account with credit balance credit the account.
To decrease the balance of an account with credit balance debit the account.
The journal entries passed in the general journal to correct the errors found in the books
of the business are known as rectification entries.
The action to be taken for rectification of errors in the case of undercasting and
overcasting of accounts

Nature of balance
Account with a debit
balance
Account with credit
balance

In case of undercasting In case of overcasting

Dr. Account involved
Dr. Suspense account
Cr. Suspense account
Dr. Suspense account

Cr. Account involved

Dr. Account involved

Cr. Account involved

Cr. Suspense account

MCQ
1. Purchase of machinery was entered in the purchase account. What type of error was this?
A. Commission

B. Principle

C. Omission

D. Transposition

2. The purchases account was added up too much by $ 100 and sales account also added
up too much by $ 100. What kind of error is this?
A. Commission B. Principle

C. Omission

D. Compensating

3. A cash receipt from Moorthy was debited to Moortyhys account and credited to cash
account. What kind of error is this?
A. Error of omission

B. Error of commission

C. complete reversal of entries D. Transposition errors

4. A cash purchase of goods was completely omitted from the books of the business.
What kind of error is this?
A. Commission B. Principle

C. Omission

D. Compensating

5. Goods sold on credit to Saani had been debited to Sonis account. What kind of error is this?
A. Commission B. Principle

C. Omission

D. Transposition.

6. A sale of goods $ 250 to E.Ellis on credit had been completely omitted from the books.
What is the entry to correct this error?
1.
2.
3.
4.

Debit sales account $ 250 and credit E.ellis $ 250

Debit E.Ellis $ 250 and credit sales account $ 250
Debit cash account $ 250 and credit sales account $ 250
Debit bank account $ 250 and credit sales account $ 250

7. Sale of machinery had been recorded in the sales account.

What would be the entry to correct this error?
1. Debit sales account and credit machinery account
2. Debit machinery account and credit sales account
3. Debit cash account and credit machinery account

4. Debit machinery account and credit cash account

8. A sale of goods to Jeena $ 38 was entered in the books as $ 28.
How should this error be corrected?
1.
2.
3.
4.

Debit Jeena $ 38 and credit sales account $ 38

Debit sales account $ 38 and credit Jeenas account $ 38
Debit Jeena $ 10 and credit sales account $ 10
Debit sales account $ 10 and credit Jeena $ 10

9. A payment of cash $ 300 to M.Meenu was entered on the debit side of the cash book
and credit side of M.Meenu account. What entry is required to correct this error?
1.
2.
3.
4.

M,Meenu debit $ 300 and cash account credit $ 300

Cash account debit $300 and M.Meenu credit $ 300
M.Meenu debit $ 600 and cash account credit $ 600
Cash account debit $ 600 and M.Meenu credit $ 600

10. Closing stock was overvalued by $ 1400. What is the effect of this error on cost of goods
sold?
A. Overstated by $ 1400
C. No effect

B. Understated by $ 1400
D. Overstated by $ 2800

11. A purchase of fixed assets $ 300 was debited to the purchases account.
What would be the effect of this error?
1. Only net profit is overstated B. Only gross profit is overstated
2. No effect on gross profit or net profit
3. Gross profit & fixed assets are understated.
12. After which error will a trial balance still balance?
A. Purchase book was overcast by $ 200
B. Sales book was under cast by $ 300
C. Rent paid by cash $ 400 debited rent account only
D. Purchase of machinery $ 1000 was debited to purchase account and credited
to cash account.

13. Wages paid for the installation of new machinery debited to wages account.
What kind of error is this?
A. Omission

B. Commission

C. Principle D. Compensating

14. A revenue expenditure was treated as capital expenditure. What is the effect of this error on
the final account items?
1.
2.
3.
4.

The gross profit is unaffected, net profit and fixed assets are overstated.
The net profit and fixed assets are understated
The net profit is unaffected and fixed assets are overstated
No effect on any of final accounts items

15. A business paid $224 to X. The entry in the cash book was correct. But it was credited as $
242 in Xs account.
What is the difference between the totals of the trial balance?
1. $ 18

B. $ 36

C. $ 466

D. $ 484

Assignment questions:Q1. Pass rectification entries for the following errors found from the books of a business:1.
2.
3.
4.
5.

sales day book had been under cast by $200

sale of goods to J.Johnson on credit for $ 500 had been debited to J.Jackson
Salaries account had been overcast by $ 300.
Purchase of goods by cash recorded in the cash account only $ 400.
Goods returned to Manu $ 150 debited to returns outwards account and credited to
Manus account.
6. Repairs to motor car $ 400 debited to motor car account.
7. Returns outwards account had been overcast by $ 150.
8. A cheque received from Mathew $ 500 had been entered in the cash book only.
9. A payment made by cash $100 to Sunil was omitted from the books of the business.
10. Sales of machinery $ 1000 had been credited to sales account and debited to cash
account.
Q 2. The trial balance of a business was prepared on 31st Dec 2003 and it did not agree. Later,
the following errors were found out:1. Drawings account had been overcast by $ 250.
2. Goods bought for the owners personal use $ 400 had been included in the purchase account.
3. Capital brought into the business additionally $ 5000 was debited to bank account and
credited to cash account.
4. Sales of goods on credit to J.John $ 400 had been debited to J.Jeanss account.
5. Insurance account was overcast by $ 150.
6. Carriage on purchases $ 450 paid by cash was completely omitted from the books.
7. Discount received $ 200 had been debited to discount allowed account.
8. Interest on capital to the partner $ 100 had not been entered in the books of the business.
9. A cheque for $ 270 received from Albert recorded correctly in the cash book but recorded in
Alberts account as $ 207.
10. A debtor who owed $ 130 to the business was declared insolvent and the amount due from
him had to be written off. But this record was not made in the books.

Show the rectification entries for the above errors and prepare the suspense account showing
clearly the opening balance.
Q 3. On extracting a trial balance, a book keeper finds that it fails to agree. He enters the
difference in
a suspense account in the credit side. After checking the accounts, he finds the following errors:1. Purchase of goods from Mithal $ 400 posted to his account as $ 40 and correctly
posted to purchases account.
1.
2.
3.
4.
5.

Purchase day book had been overcast by $ 75.

Discount of $ 68 allowed to T. Brown entered on the debit side of T.Browns account.
Total of sales returns book $ 200 entered to the credit side of returns inwards account
Debit balance of debtors account $ 98 incorrectly b/d as $ 89.
$ 140 received from Makin credited to Maliks account.

Pass rectification entries for the above errors and prepare the suspense account clearly showing
the opening balance.
Q 4. The trial balance drawn up from the books of a business on 31st Dec 2003 did not balance,
the
debit total being $ 17698 and credit total $ 18210. A suspense account was opened and the
difference entered in that account. Subsequently, the following errors were discovered:1. A cheque for $ 64 received from M.Minu had been entered in the books as $ 46
2. The purchase account had been undercast by $ 140
3. Goods sold to J.Jaava $ 280 had been enterd correctly in the sales account but entered
as $ 208 in J.Jaavas account
1. The owner had taken goods costing $ 300 for own use during the year. No entry had
been made in the books
1. Discount allowed $ 150 had been credited to the discount received account.
Required to:a. Write up the journal entries to correct the above errors
b. Prepare a suspense account

Q 5. The trial balance prepared by a business did not agree. The difference was recorded in a
suspense account on the debit side. Later, the following errors were found out from the books:1. The drawings of cash from the business debited drawings account and credited to bank
account $ 550
2. Goods returned to Martin $ 120 had been credited to returns outwards account only
3. A credit note was received from Seema $ 160 was not entered in the books.
4. The provision for bad debts $ 250 had been debited to profit & loss account only
5. Commission received in cash recorded in the cash account only $ 170.
6. Goods returned by Simple $ 190 credited to both returns inwards account and Simples
account.
Pass rectification entries for the above errors and prepare the suspense account by writing the
opening balance.
Q 6. A trial balance was drawn up by L.Leena which did not agree. A suspense account was
drawn to show the balance in the credit side. The books were checked and the following errors
and
omissions were discovered:1. The sales book was overcast by $ 100
2. Discount allowed $ 340 had been posted from the cash book to the debtors account, but
no other entries have been made.
3. The purchase of office equipment for $ 1200 has been debited to the sundry expenses
account.
1. A payment of $ 140 for motor van repairs was entered correctly in the cash book but
posted
as $ 410 in the motor van repairs account.
1. L.Leena had taken goods worth $ 300 from stock for her personal use and these have
been charged to her account as drawings. No other entries have been recorded
Required to:
1 Write up the rectification entries required to correct the above errors.
2. Write up the suspense account after correction of the above errors.
Q 7. The trial balance prepared by a sole trader did not agree. Later the following errors and
omissions were found out from the books of the business:1. Purchase of goods from T Williams $ 190. posted to his account as $ 90
2. Purchase day book had been overcast by $ 25

3. Discount of $ 34 allowed to S. Burns, entered in the debit side of her account.

4. Debit balance on a debtors account of $ 94 incorrectly brought down as $ 49 and
included in
the trial balance.
1. Total of sales returns book $ 120 entered to credit of returns inwards account.
2. $ 20 received from C. Jenkins has been credited in error to C. Jenkinson.
Required to:
1. Write up the rectification entries required to correct the above errors.
2. Write up the suspense account after correction of the above errors clearly showing
the opening balance
Q 8. The trial balance drawn up from the books of Joan on 31st December, 2003 did not balance,
the debit total being $ 125 664 and the credit total $ 126 000. A suspense account was opened
and
the difference entered in that account. Subsequently the following errors were discovered.
a. A cheque for $ 32 received from J. Steve had been entered in the books as $ 23.
b. The purchases account had been undercast by $ 64.
c. Goods sold to N. Brown for $ 180 had been entered correctly in the sales account but entered
as $ 188 in N. Browns account
d. Joan had taken goods costing $ 100 for her own use during the year. No entry had been made
in the accounts.
e. Discount allowed $ 140 to Lames had been credited to discount received account.
Required to :
1. Write up the journal entries to correct the above errors.
2. Prepare a suspense account clearly showing the opening balance.
Q 9. The trial balance of S. Romsey, a wholesaler, drawn up on 31st December, 2003 did not
balance. The difference between the debit and credit totals was entered in a suspense account.
Subsequently the following errors were discovered.

A, Sales of $ 150 to B. Martin had been debited in error to D. Martin.

B. A cheque for $ 150 received from B.Tomy, a debtor, had been correctly posted in the cash
book but had been posted to Tomys account as $ 105
C. A debtor, G. Franks, who should have deducted 10% cash discount to which he was entitled,
failed to do so and paid an account of $ 200 in full. It was decided to credit the discount to
G. Franks account.
D. A bad debt of $80 had been written off during 2003 and although the correct entry had been
made in the debtors account, no other entry had been made.
E. Purchase returns to L. Lowry $ 300 had been credited to both the sales returns account and
L. Lowry account.
Required to:1. Write up the journal entries which are necessary to correct the above errors.
2. Prepare the suspense account after the correction of errors, clearly showing the opening
balance.
Q 10. Bakewell, a sole trader, prepared a trial balance. Unfortunately, the trial balance did not
agree
and a Suspense account was opened.
On checking the books on 31st Dec 2003 the following errors were disclosed:1. The purchases day book had been over added by $ 300.
2. A sales ledger debit balance of $ 370 for A. Jones had been omitted from the sales ledger.
3. Goods $ 160 returned by N.Nion had been entered in the returns inwards account but no
entry had been made in N.Nions account.
4. Discount allowed $ 320 had been incorrectly credited to the discount received account.
No entry had been made in the discount allowed account.
Prepare journal entries to correct the above errors.

Q11. On drawing up the trial balance, the book keeper found that the totals did not agree. A
suspense account was opened and the difference between the totals was entered on it. On
checking the books, the following errors were discovered:Purchases $ 600 from F. Frensham had been posted to S. Frenshams account.
No entry had been made for goods costing $ 800 taken by the proprietor for his own use.
Sales returns $ 60 had been entered in the debtors account only.
Repairs to premises $ 500 had been debited to the premises account. The correct credit
entry had been made.
5. Discount allowed $ 400 had been credited correctly to the debtors account but had been
credited to the discount received account in error.
1.
2.
3.
4.

Required to:
1. Write up the journal entries to correct the above errors.
2. Prepare the suspense account, clearly showing the opening balance.
Q12. On drawing the trail balance of a business the book keeper found that the totals did not
agree. A suspense account was opened and the difference between the total entered. On checking
the
books, the following errors were discovered:1. Goods for resale had been purchased by cheque for $ 615. The correct entry had been
made in the purchases account but the bank account had been credited with $ 651.
2. White, the owner of the business had taken goods costing $ 180 from the business for
his own use, was not recorded in the books.
1. Discount received $ 250 had been debited to discount allowed account.
2. Sale of goods for $ 150 had been omitted from the debtors account.
3. Sales returns had not been posted to the sales returns account in the general ledger
$ 126.
Required to:
1. Write up the rectification entries for the above errors.
2. Prepare a suspense account clearly showing the opening balance

Q13. On drawing the trial balance, the book keeper found that the totals did not agree. A
suspense account was opened and the difference entered in it. On checking the books, the
following errors were discovered:1. No entry had been made for the goods taken by the owner for own use $ 2150
2. A debtor paid $ 2 400 by cheque in full settlement of his account of $ 2 500. Both
accounts were entered for $ 2 400 only.
3. Purchased a motor car from A. Allen for $ 5 600 by cheque was not entered in the books.
4. A cheque received for $ 3 950 from Neena was credited in Neenas account only.
5. Discount allowed 125 were credited in discount received account.
Required to:1. Pass rectification entries for the above errors
2. Prepare suspense account showing the difference in trial balance.
Q 14. a. Explain with the help of an example the meaning of error of principle.
b. The trial balance of a company did not balance. The difference between the debit and credit
sides was entered in a suspense account. Subsequently, the following errors were discovered.
i. Sale of $ 2 750 to A .Allen had been debited in error to A.Alwins account.
ii. A cheque for $ 250 received from Saany, a debtor, had been correctly posted in the
cash book but had been posted to Saanys account as $ 205
Iii.A debt of $ 95 had been written off during the current year, debited to bad debts account but
no entry was made in the debtors account.
iv.Purchase returns to Lilly $ 350 had been credited both to the sales returns account and Lillys
account.
v. The owner took stock to home from the business was not recorded in the books $ 750
Required:1. Write up the rectification entries for the above errors
2. Write up the suspense account, after the corrections have been made, showing clearly the
opening balance.

Q 15. Amber is the owner of a sole trading concern. He prepared the trial balance of his business
at 31st December 2003, and it did not agree. The debit total being $ 28 750 and the credit total
being
$ 29 250.The difference was recorded in a suspense account. Later, the following errors were
discovered from the books of the business:1. The purchase return account had been over cast by $ 180
2. Discount allowed $ 200 had been credited to discount received account in error
3. An invoice of $ 600 for goods purchased on credit from Ancy was received before 31st
December 2003 but it was not recorded in the accounts of the business.
4. Bank charges of $ 40 were recorded in the bank statement but this entry did not appear in
the books of the business.
5. Goods taken by Amber $ 788 recorded in the drawings account with the correct amount,
credit entry was made with $ 708.
After the correction of the above errors the two totals of the trial balance were equal and
suspense account was cancelled.
Required to prepare
1. The necessary journal entries for correcting the above errors
2. The suspense account to show the correction of errors.

Key points

A debt written off is recorded in the books by debiting bad debts

account and crediting debtors account.
The provision for bad debt is calculated on the debtors balance
obtained after deducting the bad debt written off.
In the balance sheet, always the new provision for bad debt is
deducted from the Debtors.
Increase in the provision for bad debt is debited in the profit & loss
account and credited in the provision for bad debt account.
Decrease in the provision for bad debt is credited to profit & loss
account and debited in the provision for bad debt account.
Increase in the provision for bad debt is an expense and decrease in
the provision for bad debt is an income to be shown to in the profit
& loss account.
The provision for discount on debtors is calculated on the debtors
balance after deducting the bad debt and the provision for bad debt
amount.
Always new provision for discount on debtors is deducted from
debtors, after deducting the provision for bad debt.
Increase in the provision for discount on debtors is debited to profit
& loss account and credited to provision for discount on debtors
account.
Decrease in the provision for bad debt is debited to provision for
discount on debtors account and credited to profit & loss account.
Increase in the provision for discount on debtors is an expense and
decrease in the provision for discount on debtors is an income to be
shown in the profit & loss account.

MCQ
1.
A debtor is unable to pay the amount owing to a business. The business decided to write off
this amount. How this transaction is recorded?
A. Debit debtor and credit bad debt
C. Debit bad debt and credit debtor

B. Debit cash and credit debtor

D. Debit provision for bad debt and credit debtor

2.
A business decides to decrease its provision for bad debts from 7% to 5%.What will be the
effect of this change?
A. Increase the cash or bank balance

B. Decrease the cash or bank balance

C. Increase net profit for the year

3.

D. Decrease net profit for the year

What is the double entry to create a provision for bad debt?

A. Debit bad debts and credit provision for bad debts account
B. Debit profit and loss account and credit provision for bad debts account
C. Debit provision for bad debts account and credit profit and loss account
D. Debit provision for bad debts account and credit bad debts account
4.

What is the treatment of provision for bad debts in the final accounts?

A. Debited in the profit and loss account only

B. Debited in the profit and loss account and shown as current asset
C. Debited in the profit and loss account and deducted from debtors
D. Credited in the profit and loss account and added with debtors

5.

What is the double entry to write off bad debt account?

A. Debit bad debt and credit debtors

B. Debit profit and loss account and credit bad debts account
C. Debit bad debts account and credit profit and loss account
D. Debit profit and loss account and credit debtors account
6.
At the end of a financial year a business has debtors of $ 20 000 and a provision for bad
debts of
$ 960. It is proposed to maintain provision for bad debts at 5%of debtors.
What is the entry in the profit and loss account?
A. Debit of $ 1000

B. Credit of $ 40

C. Debit of $ 40

D. Debit of $ 960

7.
is

At the beginning of the year the provision for doubtful account shows balance of $ 1 500. It

decided to write off a bad debt of $ 300 and to have a provision for doubtful debts $ 1 600. What
will be effect on net profit at the end of the year?
A. $ 100 increase

B. $ 400 decrease

C. $ 200 increase

D. Unaffected

8.

A business gives the following details for a year:-

Balance of provision for doubtful debt at the beginning $ 260

Bad debts written off during year $ 540
Total debtors at the end of the year $ 6 200
The provision for doubtful debts is to be made up to the rate of 5% on debtors at the end of the
year.
What amount on account of provision for doubtful debts will be transferred to profit and loss
account
at the end of the year?
A. $ 310

B. $ 260

C. $ 50

D. $ 510

9. A firm decided to increase the provision for doubtful debts by $ 150.What will be effect on
net profit
of this change?
A. Decrease by $ 150
10.

B. Increase by $ 150

C. Increase by $ 300

D. No effect

What is the double entry to write off bad debt from a debtors account?

A. Debit bad debts account and credit debtors account

B. Debit debtors account and credit bad debts account
C. Debit profit and loss account and credit bad debts account
D. Debit bad debts account and credit profit and loss account

Assignment questions
Q 1 The following information is relating to the business of Saras for three years ended 31st Dec
1997, 1998 and 1999:Year ended
31st Dec
1997
1998
1999

Bad debt written Debtors at year end Provision for bad

off
debt required at
each year end
500
18 000
5%
600
19000
5%
400
21000
5%

Required to prepare for the three years ended 31st Dec 1997, 1998 and 1999 :a. The bad debt account

b. The provision for bad debt account

c. The extracts from the profit & loss account

d. The extracts from the balance sheet

Q 2. The following details are available from the books of a business:Year Debtors at year
end
ended
2000 18000
2001 22000
2002 20000

Bad debt written off

during the year

Provision for bad debt

required

228
337
250

5%
5%
5%

Required to prepare for the three years ended 31st Dec 2000,2001 and 2002:a. The bad debt account

b. The provision for bad debt account

c. The extracts from the P&L A/C d. The extracts from the balance sheet

Q 3. The following information is relevant to a business:Debtors on 31-12- 2000

$ 40 000

Bad debt written off during the year ended 31st Dec 2000 $ 300
Provision for bad debt required at 31st Dec 2000
Debtors on 31-12-2001

6% on year end debtors.

$ 45 000

Bad debt written off during the year ended 31st Dec 2001 $ 1 020
Provision for bad debt required at 31st Dec 2001
Debtors on 31-12-2002

5%

$ 48 000

Bad debt written off during the year ended 31st Dec 2002 $ 900
Provision for bad debt required at 31st Dec 2002

7%

Required to prepare for the three years ended 31st Dec 2000, 2001 and 2002:a. The bad debt account .
c. The extracts from the P& L A/C

b. The provision for bad debt account.

d. The extracts from the balance sheet.

Q 4. On 1st Jan 2000, there was a balance of $ 500 in the provision for bad debt account and it
was decided to maintain the provision for bad debt at 5% of the debtors at each year end.
The debtors and bad debts written off at 31st Dec each year were:Debtors Bad debt written off
2000

$ 11 000

$ 500

2001

$ 7 000

$ 300

2002

$ 9 000

$ 400

Required to show the following for the three years ended 31st Dec 2000,2001 and 2002:a. The bad debts account
c. The extracts from the P& L A/C

b. The provision for bad debt account.

d. The extracts from the balance sheet.

Q 5. The following balances appeared in the books of business on 1st Jan 1999:
The provision for bad debts account

$ 560

The provision for discount on debtors account

$ 120

Debtors on 1-1-2000

$ 22 000

Debtors on 31-12-2000

$ 20 000

Debtors on 31-12- 2001

$ 21 000

Provision for bad debts required each year end is at 5% on debtors.

Provision for discount on debtors required each year end is at 2% on debtors.
The bad debts written off during the three years were:
1999$ 450;

2000 $ 300;

2001 $ 550.

Required to prepare for the three years ended 31st Dec 1999, 2000 and 2001:
a. The bad debts account.

b. The provision for bad debt account.

c. The provision for discount on debtors account.

d. The extracts from the P& L A/C

e. The extracts from the balance sheet.

Q 6. R.Rosemary is a sole trader. She keeps a full set of accounts. The following are the details
regarding her Debtors and Provision for bad debts for three years.
For the year ended
31st Dec 1994
Debtors at year end
$ 30 400
Bad debts written off during the year
$ 200
Provision for bad debts required at the end 5%
of each year
Required to prepare:
1. The bad debts account
2. The provision for bad debts account
3. The extracts from the balance sheet

31st Dec 1995

$ 28 000
$ 450
5%

31st Dec 1996

$ 29 000
$ 385
5%

Q 7. The following information is relating to the business of Martin for the three years ended 31st
Dec 1997, 1998 and 1999:Years ended
31st Dec

Bad debts
Debtors at year
written off at end
year end

1997
1998
1999

544
612
815

20 000
18 000
19 000

Provision for bad Provision for

debt required
discount on
each year end
debtors required
at year end
5%
2%
5%
2%
5%
2%

Required to prepare for the three years ended 31st Dec 1997,1998 and 1999:a. The bad debts account.

b. The provision for bad debt account.

c. The provision for discount on debtors account.

d. The extracts from the P& L A/C

e. The extracts from the balance sheet.

Q 8. Following are the information regarding bad debts and provision for bad debts and
provision for discount on debtors for the three years ending 31st Dec.1991, 1992,&1993.
For the year ended
Bad debts written off
Debtors at year end
Provision for bad debts required at
the year end
Provision for discount on debtors
required at the year end.

31st Dec1991
$450
$ 2 8000
10%

31st Dec 1992

$ 300
$ 26 000
10%

31st Dec1993
$ 250
$ 30 000
10%

5%

5%

5%

Required to prepare
1.
2.
3.
4.

The bad debts A/C for the three years

The provision for bad debts A/C for three years
The provision for discount on debtors A/C for three years
The extracts from the Balance Sheet for three years.

Q 9. David marks is a sole trader. He keeps his accounts under double entry system. The
following information is relating to his business debtors, provision for bad debts and provision
for discount on debtors for three years ending 31st December 1997,1998,1999:Balance in the provision for bad debts A/C on 1-1-1997

$ 1 000

Balance in the provision for discount on debtors A/C on 1-1-1997

$ 200

Debtors on 31stDec.1997

$ 11 000

Provision for bad debts required on 31st Dec 1997

10%

Provision for discount on debtors required on 31-12-1997

2%

Debtors on 31st Dec.1998

$ 10 000

Provision for bad debts required on 31st dec.1998

9%

Provision for discount on debtors required on 31st Dec 1998

2%

Debtors on 31st Dec 1999

$ 12 000

Provision for bad debts required on 31st Dec 1999

10%

Provision for discount on debtors required on 31st Dec 1999

Required to prepare for three years ending 31st Dec 1997, 98 &99
1. The provision for bad debts A/C.
2. The provision for discount on debtors A/C.
3. The extracts from the balance sheets.

3%

Q 10. Lees balance sheet at 31st March 1997 included the following entry as part of the list of
Current assets:
Debtors
Less Provision for bad debts

12 000
360

11 640

At the end of each of the two financial years, the amounts of debtors before deducting any
provisions for bad debts were:31st March
1998
15 000

Debtors

31st March
1999
9 000

On each of these dates a provision for bad debts was calculated on the same percentage basis
as at 31st March 1997.
The actual amounts of bad debts written off during each year were:
1998

760

1999

235

(a) Prepare the bad debts accounts and the provision for bad debts accounts for the years ended
31st March 1998 and 1999.
(b) Show, under appropriate heading, how debtors and provision for bad debts would appear in
the balance sheet at 31st March 1998 and 1999.
(c) Explain why it is important to make the allowance for provision for bad debts in preparing
the final accounts.

Q 11. Albert is a wholesaler who maintains separate bad debt and provision for bad debt
accounts for his business. During the year ended 31st Dec 1999, he created 5% of the debtors as
provision for bad debt and 2% as the provision for discount on debtors. The balance in the
provision for bad debt account and the provision for discount on debtors accounts on 31st Dec
1999 were $ 1 200 and
$ 456 respectively.
During the year ended 31st Dec 2000, the amount of debtors before writing off the bad debt of
that year was $ 26 000. The bad debt account on that date showed a total of $ 1 000. During the
year ended 31st Dec 2000, Albert decided to revise the percentage of the provision for bad debt at
6% on year end debtors and to create the provision for discount on debtors at the same
percentage as last year.
Required to prepare at 31st Dec 2000:a. The bad debt account.

b. The provision for bad debt account

c. The provision for discount on debtors account.

Q 12. Gilbert is the owner of a business. The following information is available from the books
of his business at 31st Dec 1997:Debtors

$ 20 000

Less provision for bad debts

$ 1 000

$ 19 000

For the years ending 31st Dec 1998 and 31st 1999,the amount of debtors before deducting bad
debts and provision for bad debts were:31st Dec 1998

$ 18 200

31st Dec 1999

$ 19 300

On each of these dates a provision for bad debts was calculated on the same percentages basis at
31st Dec 1997.
The actual amount of bad debts was:31st Dec 1998

$ 200

31st Dec 1999

$ 300

Prepare for the years ended 31st Dec 1998 and 1999:1.

The Bad debts A/C The provision for bad debts A/C The relevant extracts from the Balance Sheet.

Key points

Profit / loss on sale of asset = (Sale proceeds of assets + provision for

depreciation to date) Cost price of the asset sold.

(Positive figure is profit on sale of asset and negative figure is loss on sale of asset)

Under straight line method, the value of asset will be reduced to zero or the
scrap value at the end of its useful life.
Under the reducing balance method the amount of depreciation reduces year
after year.
Profit on sale of asset is credited to the profit & loss account
Loss on sale of asset is debited to the profit & loss account.
In the balance sheet, the total depreciation charged on the asset to the date of
balance sheet, is deducted from the concerned asset.

MCQ
1. Under the fixed instalment method, the amount of depreciation will:
A. Decrease every year

B. Increase every year

C. Be the same every year

D. None of these

2. What is more correct about depreciation from the following?

A. It is an income to be shown in the profit & loss account
B. It is an expense to be shown in the profit & loss account only
C. It is the decrease in the amount of expense
D. It is the expense to be shown in the profit & loss account and shown deduction
from the concerned asset in the balance sheet
3. To calculate the depreciation the opening and closing balances are compared under which
method?
A. reducing balance method B. fixed instalment method
C. original cost method

D. revaluation method

4. A Delivery van was purchased for $ 8 000 by cheque. The double entry to record this is:A. Debit bank account and credit delivery van account
B. Debit delivery van account and credit cash account
C. Debit cash account and credit delivery van account
D. Debit delivery van account and credit bank account
5. The double entry to record the profit on sale of a fixed asset is:
A. debit asset disposal account and credit profit & loss account
B. debit asset account and credit cash account
C. debit profit and loss account and credit asset disposal account
D. debit profit and loss account and credit provision for depreciation account
6. A plant costing $ 40 000 is depreciated by 20% p.a. on cost. What will be the value of the
plant account to be shown in the balance sheet at the end of the third year?
A. $ 12 000

B. $ 16 000

C. $10 000

D. $ 8 000

7. A machinery was bought for $ 20 000. It was decided to depreciate this asset under the
diminishing
balance method @ 20% per annum. What is the amount of depreciation at the
end of the second year?
A. $ 2 000

B. $ 4 000

C. $ 3 600

D. $ 3 200

8. A furniture is bought for $4 000. The estimated life of the asset is 5 years. The estimate scrap
value
of the asset at the end of 5th year is $ 1000. What is the yearly depreciation under the
straight line
method?
A. $ 600

B. $ 500

C. $ 700

D. $ 1 000

9. Which of the following is not a fixed asset?

A. Goodwill

B. Plant & Machinery C. Filing cabinet D. Repairs to furniture

10. The double entry for creating the provision for depreciation is to:A. Debit profit & loss account and credit provision for depreciation account
B. Debit provision for depreciation account and credit profit & loss account

C. Debit profit & loss account and credit asset account

D. Debit profit & loss account and credit asset disposal account
Assignment questions
Q1
A machinery which was bought on 1-1-2001 at a cost of $15 000 and depreciated @ 10%
p.a under straight line method, sold for cash $ 6500 on 31st Dec 2004.
The accounting year of the business ends on 31st Dec each year.
Calculate the amount of profit or loss on sale of the machinery.
Q2. A plant which was bought on 1-1-2003 at a cost of $ 20 000 and depreciated @ 20%
under straight line method, sold by cash $ 10 000 on 31st December 2004.
The accounting year of the business ends on 31st December each year.
Calculate the amount of profit or loss on sale of the plant.
Q3. A piece of furniture was bought on 1-1-2002 at a cost of $ 12 000 and depreciated @
12% p.a. under straight line method, sold by cash $ 5 000 on 30th June 2004.
The accounting year of the business ends on 31st December each year.
Calculate the amount of profit or loss on sale of the furniture.
Q4. A machine which was bought on 1-1-2001 at a cost of $ 25 000 and depreciated @ 20%
p.a. under straight line method, sold by cheque $ 7 500 on 30th September
2004. The accounting year of the business ends on 31st December each year.
Calculate the amount of profit or loss on sale of the machine.
Q5. A plant which was bought on 1-1-2003 at a cost of $ 10 000 and depreciated @ 20% p.a.
under straight line method, sold for $ 7 000 by cheque on 30th June 2004.The accounting year of
the business ends on 31st December each year.
Calculate the amount of profit or loss on sale of the plant.

Q6. A machine which was bought on 1-1-2002 at a cost of $ 8 000 and depreciated @ 10%
p.a. under reducing balance method, sold for cash $ 5 500 on 31st December 2004. The
accounting year of the business ends on 31st December each year.
Calculate the amount of profit or loss on sale of the machine.
Q7. A machine which was bought on 1-1-2003 at a cost of $ 10 000 and depreciated@ 10%
p.a. under written down value method, sold by cheque $ 8 200 on 31st December 2004. The
accounting year of the business ends on 31st December each year. Calculate the amount of profit
or loss on sale of the machine.
Q8. A plant which was bought on 1-1-2003 at a cost of $ 12 000 and depreciated @ 10% p.a.
under reducing balance method, sold by cheque $ 9 500 on 30th June 2004. The accounting year
of the business ends on 31st December each year.
Calculate the amount of profit or loss on sale of the plant.
Q9. A plant which was bought on 1-1-2001 for $ 25 000 is depreciated @ 10% p.a. under
reducing balance method. The financial year of the company ends on 31st December each year.
What is the value of the plant on 1-1-2005?
Q10 A company bought a machinery on 1-1-2002 for $ 20 000. It is the policy of the company
to charge depreciation @ 10% p.a. on cost on the principle that one months ownership needs
one months depreciation.
Calculate the value of machinery on 1-1-2005.
Q11. A business bought a computer for $ 5 000 on 30th June 2003. The business decided to
charge depreciation on the computer @ 25% p.a. under fixed installment system. The financial
year of the business ends on 31st December each year. What is the value of the computer on 31st
December 2004?
Q12. A business purchased a Machine at a cost of $ 40 000 on 1-11-2003. For the purchase of
this asset, the business spends the following expenses also:Legal charges

$ 2 000

Carriage on asset

$ 1 500

Cost of installation

$ 4 000

On 31-12-2003, what is the value of the Machine to be shown in the balance sheet

Long questions
Q 1 The following information is relating to the business of Salvy:On 1-1-1998

Bought Plant costing $ 30000 by cheque

On 1-7-1998

Bought Plant costing $ 40000 by cash

On 1-1-1999

Bought Plant costing $ 50000 on credit from Simmons

On 1-10 1999

Bought Plant costing $ 20000 by cheque

On 1-1-2000

Bought Plant costing $ 50000 by cash

On 1-4-2000

Bought Plant costing $ 60000 by cheque

The financial year of the business ends on 31st Dec each year.
The provision for depreciation is to be calculated @ 10% p.a. under straight line method on the
principle that one months ownership needs one months depreciation policy.
Required to prepare for the three years ended 31st Dec 1998, 1999 and 2000:a. The plant account

b. The provision for depreciation account.

Q 2. The following information is obtained for the books of a business for the three years :On 1-1-1998

Balance in the Machinery account

$ 50 000

On 1-1-1998

Balance in the provision for depreciation account $ 5 000

On 1-7-1998

Bought Machinery on credit from Sansui Co. Ltd $ 40 000

On 1-4-1999

Bought Machinery by cheque $ 20 000

On 1-1-2000

Bought Machinery by cash $ 10 000

On 1-10-2000

Bought Machinery by cheque $ 60 000

It is the policy of the business to depreciate its fixed assets @ 15% p.a. under straight
line method for each month of ownership.
Required to prepare for the three years ended 31st Dec 1998,1999 and 2000:a. The machinery account

b. The provision for depreciation account.

Q 3. A company maintains the provision for depreciation account and the asset account
separately.
For the years ended 31st Dec 1998, 1999 and 2000, the following information is available from
the
books of the business relating to its Machinery :On 1-1- 1998 the balance in the Machinery account $ 60 000
On

1-1-1998 the balance in the provision for depreciation account $ 12 000

On

1-7-1998 Bought Machinery costing $ 50 000 by cash

On 31-12-1998 sold one of the machineries which was bought on 1-1-1996 at a cost
of $ 20 000, for a sum of $ 5 600.
On 1-1- 1999

Bought Machinery costing $ 40 000 by cheque

On 1-10 1999 Bought Machinery costing $ 10 000 by cash.

It is the policy of the business to create the provision for depreciation @ 10% p.a.
on cost for each month of ownership.
Required to prepare for the three years ended 31st Dec 1998, 1999 and 2000:a. The plant account
b. The provision for depreciation account
c. The Plant disposal account
d. The extracts from the profit & loss account
e. The extracts from the balance sheet

Q 4. A company depreciates its fixed assets @ 20% p.a. under straight line method for
each month of ownership. Its plant at a cost of $ 50 000 was bought on 1-7-1997.
on 1-7-1997 there was a balance of $ 10 000 in the provision for depreciation account.
On 31-12-1998,the company sold a part of the plant costing $ 30 000, for a sum of $ 7 000 and
received cash. On the same day the company bought another plant costing $ 20 000 on credit
from United furniture Ltd. On 1st Jan 1999, the company bought another plant at a cost of $ 40
000 by cheque.
The financial year of the company ends on 30th June each year.
Required to prepare:a. The plant account for the years ended 30th June 1998 and 1999
b. The provision for depreciation account for the years ended 30th June 1998 and 1999
c. The plant disposal account
d. The extracts from the profit & loss account for the years ended 30th June 98 and 99
e. The extracts from the balance sheet for the years ended 30th June 1998 and 1999
Q 5. The following information is relating to the Motor Van owned by a business:1992 Jan 1

Bought motor van by cash

$ 20 000

1992 July 1

Bought motor van by cheque

$ 10 000

1992 Oct 1

Bought motor van by cash

$ 15 000

1993 April 1

Bought motor van from Samson & company $ 25 000

1993 Oct 31

Settled the account of Samson & company.

1994 July 1

Bought motor van by cash

$ 30 000

1994 July 1
Sold for cash $ 4 400 the motor van which had been bought on 1st July 1992, at a
cost price of $ 10 000
The financial year of the business ends on 31st Dec each year. It is the policy of the business to
depreciate the motor van @ 10% p.a. under straight line method for each
month of ownership.

From the above information, prepare:

a. The motor van account for 3 years ended 31st Dec 1992, 1993 and 1994.
b. The provision for depreciation account for 3 years ended 31st Dec 1992, 93& 94.
c. The extracts from the balance sheet for 3 years ended 31st Dec 1992, 1993 & 1994
d. The motor van disposal account.
Q 6. Alifulhu & Co. depreciates its fixed assets @ 5% on cost on the principle that one
months ownership needs one months depreciation. The following information is relating to its
plant account:1991 Jan 1 Balance in the plant account $ 15 000 ( bought on 1-1-1990 )
1991 Jan 1 Balance in the provision for depreciation account $ 750
1991 July 1 Bought plant on credit from S.Sita, costing $ 10 000
1991 Oct 1 Bought plant for cash $ 20 000
1992 July 1 Bought plant by cheque $ 10 000
1992 Oct 1 Sold the plant for cash $ 7 250, which had been bought on 1-1-1990 at a cost of
$ 15 000
1993 Jan 1 Bought plant costing $ 15 000 by cheque.
1993 Oct 1 Bought plant costing $ 5 000 by cash.
The final accounts of the company are prepared on 31st December each year. From the above
information, prepare:a. The plant account for 3 years.
b. The provision for depreciation account for three years.
c. The plant disposal account.
d. The extracts from the profit & loss account for 3 years.
e. The extracts from the balance sheet for 3 years

,
Q 7. A business depreciates its Furniture @ 10% p.a. under straight line method for each
month of ownership. On 1-1-1998, bought furniture costing $ 50 000 by cash. On 31st
December 1999, furniture costing $ 20 000 was sold for $ 7 500. On 1st Jan 2000 bought
another furniture costing $ 40 000 by cheque. The financial year of the business ends on 31st Dec
each year.
Required to prepare:
a. The furniture account for the years ended 31st Dec 1998, 1999 and 2000
b. The provision for depreciation account for the years ended 31st Dec 98, 99 & 2000
c. The Furniture disposal account
d. The Extracts from the profit & loss accounts for the years ended 31st Dec 98, 99& 2000
e. The extracts from the balance sheets for the years ended 31st Dec 1998, 1999&2000
Q 8. The following details were extracted from the books of a sole trader regarding his Motor
car:1-1-2000

Balance B/D in the motor car account

Provision for depreciation on motor car B/D

1-7-2000
30-6-2001

$ 60 000
$ 9 000

Bought motor car by cheque from Jennifer car suppliers for $ 29 000
Bought motor car by cash for

$ 36 000

1-4-2002
Sold one old motor car for $ 22 000 to Neena on credit. This motor car was
purchased on 1st January 1999 at a cost of $ 45 000.
The trader had a policy of depreciating the fixed assets @ 15% p.a using the principle that
One months ownership needs one months depreciation
Prepare for three years ending 31-12- 2000, 31-12-2001 & 31-12-2002:1. Motor cars account
2. Provision for depreciation on motor cars account
3. Motor cars disposal account

Q9 The following information relates to the motor vehicles owned by Surya who commenced
business on 1st May 1998:1st May 1998

Bought motor vehicles $ 20 000 0n credit from M Khanna.

1st May 1998

Bought motor vehicles for $ 24 000 by cheque.

30th June 1998 Paid M Khanna by cheque $ 20 000

1st May 2000
Bought two motor vehicles on credit for $ 26 000 each form Balu motor
vehicles suppliers.
30th April 2000 Settled Balu Motor Suppliers by cheque
30th April 2000 Sold for $ 10 000 cash the motor vehicles bought on 1st May 98 for 20 000 to
Baby.
The financial year of Surya ends on 30th April 1999, 2000 and 2001. Surya used to depreciate the
vehicles by 20% per annum on cost using one month ownership needs
one month depreciation policy.
For the year ending 30th April 1999, 2000 and 2001, write up the following accounts as they
would appear in the books of Surya.
1.
2.
3.
4.

Motor vehicles account

Provision for depreciation account
Motor vehicles disposal account
State two factors which are considered in calculation of depreciation on fixed assets.

Q 10 The following information relates to the motor vehicles owned by Boro Limited which
commenced business on 1st May 2000.
1st May 2000
1st May 2000
30th June 2000
1st May 2002
31st May 2002
20th July 2002

Bought motor vehicles $ 10 000 on credit from Parkside Garage

Bought motor vehicle $ 12 000 by cheque
Paid Parkside Garage $ 10 000 by cheque
Bought motor vehicles for $ 13 000 on credit from Parkside
Garage
Settled Parkside Garages account by cheque
Sold for $ 5 000 cash the motor vehicle which was bought on 1st
May 2000, for $ 10 000

The financial year of Boro limited ends on 30th April each year. It is company policy to
depreciate motor vehicles owned by 20% p.a. on cost, but no depreciation is charged on a motor
vehicle in the year in which it is sold.
Required
1. Why do firms depreciate fixed assets
2. Briefly explain the reducing balance method of depreciation
3. For the years ending 30th April 2001,2002 & 2003 write up the following accounts as
they would appear in the books of Boro Limited
1. The motor vehicle account
2. The provision for depreciation account
Q. 11 On 1st January 1999, Shira, a business woman had the following balances in her books:Motor car (cost)

$ 90 000

Provision for depreciation on motor car $ 18 000

On 1st April 1999, she purchased two motor cars for $ 26 000 each by cheque.
On 1st July 2000, she bought a new motor car for $ 30 000 on credit from Shemba motor car
manufacturers. On 30th June 2001, she sold one motor car for $ 12 000 which was purchased on
1st January 1998 at a cost of $ 45 000.Shira depreciated the fixed assets @ 20% p.a. on cost using
one months ownership needs one months depreciation policy
Required to:
1.
2.

Prepare motor car account for three years ending 31 st December 1999, 2000 & 2001.
Prepare provision for depreciation accounts for three years ending 31 st December1999, 2000 & 2001.

1.
2.

Prepare motor car disposal account.

Prepared balance sheets extracts for three years ended 31 st December 1999, 2000 & 2001.

3.

Q.12 ABC Company purchased three motor vehicles at $ 20 000 each by cheque on 1-11999. The estimated life of the three assets are five years. The company decided to
depreciate

these assets on fixed instalment method. The estimated scrap value of each asset is $ 2000.
At the end the third year, the company decide to sell all these three assets due to over
consumption of fuel. The three motor vehicles were sold on the last day of the third year for cash
as follows.
Motor vehicle 1 for $ 11 000
Motor vehicle 2 for $ 9 000
Motor vehicle 3 for $ 10 000
On the same day the company bought two new motor vehicles on credit from Heera Engineering
Limited at $ 25 000 each.
Required to:1. Prepare the motor vehicles accounts for the three years.
2. Prepare the provision for depreciation on motor vehicles accounts for 3 years.
3. Prepare the motor vehicle disposal account.

Key points:

Carriage on raw materials means carriage inwards and it is a part

of prime cost.
Carriage outwards is shown in the profit & loss account as an
expense.
Royalties paid is to be treated as direct expense.
Depreciation on Plant and Machinery or any other factory asset is
to be treated as factory overhead expense.
Stocks of raw materials and work-in-progress are taken in the
manufacturing account and stock of finished goods is taken in the
trading account.
Stocks at the end of the year (raw materials, work-in-progress and
finished goods) are shown in the balance sheet as current assets.
Owners raw materials drawings are shown in the manufacturing
account while calculating the prime cost.
Finished goods drawings are shown in the trading account while
calculating the cost of goods sold.
The purchase of finished goods is added with cost of production in
the trading account.
The depreciation of any asset used in the office should be shown as
an expense in theprofit & loss account.
Cost of readymade items bought for the production of items
manufactured should be treated as direct expense.
Unit cost of production = Total cost of productionNo of units
produced

MCQ.
Q 1.

The purpose of preparing the manufacturing account is to calculate:

A. Gross profit B. Manufacturing profit

Q 2.

C. Net profit D. Cost of production

What does production cost include in a manufacturing account?

A Factory power

B. Purchase of raw materials

C Carriage inwards on raw materials

D. All of these

Q 3.

Prime cost includes

A. Factory direct wages

B. Factory indirect wages

C. Finished goods

D. Work in progress

Q 4.

The costs of a manufacturing firm are as follows:

Raw materials purchased

$
5000

Direct Labour

3000

Cost of Raw material consumed

7000

Factory overheads

2000

What was the prime cost?

A. $10000
Q 5.

B. $15000

C. $12000

D. $17000

Prime cost In a Manufacturing account is equal to

A. All factory indirect costs

B. All factory costs

B. Direct factory costs only

D. Direct materials plus direct expenses

Q 6.

Carriage outward in manufacturing concern is included in which heading?

A. Direct expenses

B. Factory overhead expenses

C. Administrative expenses

D. Selling and distribution expenses

Q 7.

Which of the following is not included in the Manufacturing account?

A. Foremans wages

B. Depreciation on factory machinery

C. Indirect wages

D. Depreciation on office equipment

Q 8.

The following table shows the cost incurred for the production of an item.

Direct materials

$ 1200

Direct wages

$ 700

Manufacturing expenses

$ 100

Factory overhead expenses $ 300

What is the amount of prime cost?
A. $ 2300
Q 9.

B. $ 2 000

C. $ 1 700

D. $ 3 000

How is the production cost calculated in a manufacturing account?

A. Prime cost + administrative expenses

B. Prime cost + administrative expenses
C. Prime cost + Factory overhead expenses
D. Raw materials + direct labour.
Q 10. Which on of the following is not factory overhead expense?
A. Wages of cleaners

B. Carriage on raw materials

C. Factory lighting

D. Factory power

Q 11. Which are the stock figures shown in the manufacturing account?
A. Finished goods and raw materials

B. Finished goods only

C. Raw materials and working progress D. Finished goods, working progress and
raw materials.

Q 12.

In the balance sheet of a manufacturing concern, which stock is shown?

A. Finished stock

B. Raw materials

C. Work in progress

D. All three.

Q 13. A manufacturing firms costs were as follows:

Raw materials

55 000

Direct labour

86 400

Factory overhead

122 000

Depreciation of plant

6 400

Administrative expense

8 800

Selling & distribution expense 12 000

There was closing work in progress of $ 12 400
What was the factory cost of production?
A. $ 257 400
Q 14

B. $ 263 400

C. 269 800 D. 278 200

The material drawings are shown in the:

A. trading account

B. profit & loss account

C. manufacturing account

D. balance sheet only

Q 15

Royalties paid by a manufacturer is:

A. shown as factory overhead

C. a selling expense

B. a part of prime cost.

D. an indirect expense.

Assignment questions
Q 1. Jo Towbury is a manufacturer and the following balances appeared in his books for the year ended
31st Dec 2002:-

Stocks on 1-1-2002:- $
Raw materials
Work in progress
Finished goods

2 000
850
1 280

Stocks on 31-12-2002:Raw materials

Work in progress

1 250
750

Finished goods

1 120

Purchase of raw materials

8 700

Fuel and power

990

Direct expenses

200

Factory insurance

300

Depreciation of factory plant

420

Insurance of office machinery

Wages factory
Carriage on raw materials
Sales of finished goods

150
3 970
120
38 000

Return outwards

250

Return inwards

300

Required to prepare:
The Manufacturing account for the year ended 31 st Dec 2002.The trading & profit & loss account for the year ended
31st Dec 2002.

Q 2 The following balances are available from the books of a manufacturer for the year ended
31st Dec 2002:Account balances
Stocks on 1-1-2002:- Raw materials
Work in progress
Finished goods
Purchase of raw materials
Manufacturing wages
Direct expenses
Sales of finished goods
Salaries
General expenses
Carriage inwards
Discount allowed
Depreciation on :Plant & machinery
Factory building
Office building
Stocks on 31-12-2002:- Raw materials
Work in progress
Finished goods

$
4 914
300
2 592
42 786
46 800
3 600
1 20 000
6 720
5 493
696
1 530
4 800
280
450
2 058
600
3 714

General expenses include $ 592 incurred for the factory.

Carriage outstanding on 31-12-2002 was $ 400.
Required to prepare Manufacturing, trading and profit & loss account for the year
ended 31st Dec 2002.

Q 3. On 31st Dec 2003, the following balances appeared in the books of A. Allen, a manufacturer of a specialized product::Stocks on
Raw materials
Work in progress
Finished goods

1-1-2003
1000
25000
61000

31-12-2003
6000
19000
45000

Purchase of raw materials 1 25 000

Carriage inwards 5 000
Sales less returns 4 31 220
Advertisement 4 000
Insurance of the office building - 1 000
Bank charges 250
Salaries 22 000
Bad debts - 1 700
Power charges 35 000
Gas & water - 5 000
Carriage outwards 2 000
Factory rent 12 000
Factory rates & taxes 2 200
Insurance of plant 6 000
Direct wages - 75 000
Depreciation of plant 40 000
Depreciation of office furniture - 1 000
Office insurance prepaid - 200
Salaries outstanding (31-12-2003)-

2 000

Power charges outstanding(31-12-2003) 5 000

Rates & taxes prepaid (31-12-2003)- 1 000
Required to prepare at 31st Dec 2003:a. The manufacturing account clearly showing the prime cost and the cost of production 2The trading and Profit & Loss account
showing the gross profit or loss and net profit or loss.

Q 4. From the following items appeared in the books of a manufacturer, for the year ended 31st
March 2003, prepare the Manufacturing account and the trading & profit and loss account for
the same date.
Items
Stocks on 1-4-2002:- Raw materials
Work in progress
Finished goods
Purchase of raw materials
Factory wages
Indirect wages
Rent, rates & taxes (factory)
Lighting & heating (factory)
Electricity
Repairs to factory buildings
Carriage outwards
Carriage inwards
Salaries
General expenses
Cash discount allowed
Sales
Advertisement
Depreciation on fixed assets:- Plant
Factory building
Office furniture
Stocks on 31-3-2003:- Raw materials
Finished goods
Work in progress

$
16 000
1 000
8 640
1 42 620
1 48 000
8 000
7 200
600
9 400
800
2 320
12 000
22 000
19 310
5 100
4 00 000
2 500
16 000
600
500
6 860
12 000
2 000

*Electricity expenses are to be charged to Factory and Office in the ratio of 3:2.
*Salaries owing on 31-3-2003 was $ 2 400
*Rent, rates and taxes include rent paid in advance $ 200.
*There was an item of cash discount received $ 300 which did not appear in the books
of the business.
*During the year, the owner had taken finished goods costing $ 4 000 for his own use.
*This transaction was not recorded in the books of the business.

Q 5. Prepare Manufacturing, trading and profit & loss account from the following balances
extracted form the books of Berten, a Manufacturer, for the year ended 31st Dec 2003:
Stock at 1st Jan 2003:- Raw materials - 17 450
Work in progress 17 500
Finished goods 20 300
Purchases of raw materials 73 480
Carriage on raw materials
Direct labour cost

1 280

64 350

Office salaries 15 400

Rent

Office lighting &n heating

Depreciation on :- Works Machinery

office equipment -

3 000
5 300
6 000

1 900

Sale of finished goods 2 02 000

Factory fuel & power Insurance

3 250
2 500

*Rent and insurance are to be apportioned: Factory 3/5, Office 2/5

*Fuel & power unpaid on 31st Dec 2003 amounted to $ 300.
*The stock figures on 31st Dec 2003 were;Raw materials

18 300

Work in progress 16 700

Finished goods

22 465

Q 6. Jo Towbury is a manufacturer and the following balances appeared in her books at 31 st Dec 2003, the end of her business
financial year.
Stock at 1st January 2003:Raw materials

15 000

Work in progress

2 000

Finished goods

20 500

Wages:
direct manufacturing

3 00 200

factory supervisors

40 000

general office

20 200

warehouse

25 500

Heating & lighting

12 000

Carriage outwards

920

Purchase of raw materials

2 12 000

Administrative expenses
Sales

2 500
9 50 000

Stock at 31st Dec 2003:Raw materials

12 500

Work in progress

3 100

Finished goods

20 000

Notes
Heating & lighting is to be apportioned:Factory

Warehouse

1/3

Office

1/6

Warehouse costs are to be included in the trading account.

Prepare for Jo Towbury, for the year ended 31st Dec 2003:The manufacturing account, clearly showing the prime cost and the
cost of production. The trading account, showing the gross profit or gross loss.

Q 7. Fred Dyer, a manufacturer of furniture, rents premises which consist of a workshop in which the furniture is made and a
shop through which the furniture is sold. For the year ended 31 st Dec 2003, the following information is available:Stocks on 1st Jan 2003:Raw materials
Work in progress
Finished goods

2 450
2 000
6 700

Stocks on 31st Dec 2003:Raw materials

Work in progress
Finished goods

1 900
2 460
5 320

During the year ended 31st December 2003:Purchase of raw materials

15 300

Purchase of readymade handles& locks

850

Sales of finished goods

81 900

Rent of premises

1 500

Wages (work shop)

24 000

Wages (shop)

6 200

Electricity

1 350

Motor vehicle expenses for delivery of

Finished goods to customers

1 500

Depreciation of workshop machinery

2 500

Purchase of new workshop machinery

3 000

Fred Dyer apportions the cost of the rent and the electricity between the workshop and the shop
in the ratio of 2:1. He does not maintain any readymade handles and locks.
Prepare for the year ended 31st Dec 2003:i. A manufacturing account showing clearly the prime cost and the cost of production.
ii. A trading account showing the gross profit or gross loss.Calculate the % of gross profit on sales.

Q 8. Mann is a manufacturer of mini computer, provides you the following information for the
year
ended 30th June 2002
Stocks
Raw materials
Work in progress
Finished goods

1-7-2001
$ 19 000
$ 40 000
160 units

30-6-2002
$ 24 500
$ 15 000
?

The following details are also available for the year ended 30th June 2002:-

Purchase of raw materials

Carriage inwards
Return inwards
Carriage outwards
Return outwards
Rent and rates
Lighting and hearting
Direct factory expenses
Factory labour ($38 000 direct and $ 4000 indirect)
Factory machinery (cost)
Office machinery(cost)
Indirect expenses
Office staff salary
License and taxes
Factory supervisors salary

$
1 99 000
1 4000
1 590
4 100
600
14 000
7600
10 900
42 000
60 000
96 000
3 600
14 600
3 910
9 000

Notes:1. Lighting charges unpaid by $ 400 on 30th June 2002.

2. Allocate lighting & heating and rent & rates in the ratio of 3:2 between factory and
office.
3. Depreciate all the fixed assets @ 20% p.a. on cost.
4. During the year 620 computers were produced and 480 computers were sold for $ 590
each.
Prepare the manufacturing account for the year ended 30th June 2002 showing clearly the prime
cost and cost of production.

Q 9. James is a manufacturer of a single product. He provides the following information relating

to his business for the years ended 31st December 2003.
Stocks
Raw materials
Work in progress
Finished goods(at factory cost)
For the year ended 31st December 2003
Purchase of raw materials
Carriage inwards
Manufacturing wages
Factory power
Rent and rates
Direct factory expenses
General expenses(factory)
Returns outwards
Plant and machinery at cost

On 1-1-2003
$ 13 500
$ 1 000
85 units

0n 31-12-2003
$ 14 800
$ 730
?
$
97 150
1 200
32 100
5 310
4 000
985
1 835
850
44 800

Additional information
1.
2.
3.
4.
5.

Manufacturing wages outstanding $ 300

Depreciate plant and machinery at 10% p.a. on cost
Rent rates are to apportioned to the factory and to the office in the ration of 3:1
The cost of production for the year ended 31st December 2002 was $125per unit
During the year 2003, 1120 units were produced and 1095 units were sold for $ 210 each.

Prepare the manufacturing account and trading account for the year ended 31st December 2003,
clearly showing the cost of raw materials consumed, prime cost and cost of production per unit.

Key Points

Control accounts are considered as total accounts.

Debtors ledger control account is also known as sales ledger
control account or total debtors account.
Creditors ledger control account is also known as purchases
ledger control account or total creditors account.
Balance in sales ledger control account is the balance of debtors at
the year end and balance in purchases ledger control account is
balance of creditors.
Cash sales and cash purchases are not recorded in the control
accounts.
The double entry to record set off from purchase ledger to sales
ledger is to debit purchase ledger control account and credit sales
ledger control account.
Dishonoured cheque which was received from debtors is shown in
the debit side of the sales ledger control account.
Interest on overdue accounts charged from customers and refunds
to customers for overpayments by them are shown on the debit
side of sales ledger control account.
Interest charged by suppliers and refunds received from suppliers
for overpayments to them are recorded in the credit side of
purchases ledger control account.
Provision for bad debts is not included in sales ledger control
account
Small balance in a control account represents advance payments,
overpayments etc.

MCQ
1. What is the source of information for credit sales for preparing the control accounts?
1. Sales account in the General ledger
2. Sales journal
C. General journal D. Sales ledger
2. Which of the following is not considered while preparing the sales ledger control
account?
A. Opening balance of debtors

B. Discount received

C. Discount allowed

D. Returns inwards

3. Which item will appear on the debit side of a debtors ledger control account?
A. Cash sales
C. Return inwards

B. Cheques received
D. Sales on credit

4. Which item will appear on the credit side of a purchase ledger control account?
A. Cheques paid

B. Discount received

C. Credit purchases

D. purchases returns

5. What is the purpose of preparing the control accounts?

A. To calculate the total sales

B. To calculate the closing debtors only

C. To calculate the closing creditors only

D. To check the arithmetical accuracy of each ledger separately.
6. What is the alternative name of the sales ledger control account?
A. Total debtors account
C. Purchases account

B. Total creditors account

D. sales account.

7. Cash is refunded to customer, who had overpaid his account. In which ledger control account
it is recorded?
1.
2.
3.
4.

Debit side of sales ledger control account.

Credit side of sales ledger control account.
Debit side of purchase ledger control account.
Credit side of purchase ledger control account.

8. A refund was received from a supplier for excess payment made by us.
Where should it be recorded?
A. Debit side of sales ledger control account.
B. Credit side of sales ledger control account.
C. Debit side of purchase ledger control account.
D. Credit side of purchase ledger control account.
9. A purchase ledger control account is prepared from the following list of items:Total creditors at the start of the month $ 900
Credit purchases
Customers debts written off

$ 12000
$ 200

Cash paid to creditors

$ 11800

Returns inwards

$ 300

What is the closing balance?

A. $ 600

B. $900

C. $ 1100

D. 1400

10. The table shows details of sales ledger:Sales ledger opening balance

$ 1894

Total credit sales

$ 10290

Cheques received from customers

$ 7284

Cash received form customers

$ 1236

Returns inwards

296

What is the closing balance of debtors?

A. $ 3664

B.$ 3072

C. $ 3368

D. $ 2664

Assignment questions
Q 1. The following details are available from the books of Weston for the month of May,
2003.Prepare Sales ledger control account and Purchases ledger control account. $
Opening debtors

4 000

Opening creditors

3 800

Cash received from debtors

8 000

Cheques received from debtors

60 000

Cheques paid to creditors

55 000

Cash paid to creditors

Bad debts written off during the year

7 000
750

Discount allowed

1 250

Discount received

1 000

Returns inwards
Returns outwards
Transfer from purchases ledger to sales ledger

800
500
500

Credit sales

80 000

Credit purchases

71 000

Q 2. From the following information prepare the sales ledger control account and
purchases ledger control account.
$
Opening debtors
Opening creditors

12 000
8 000

Credit sales

30 000

Credit purchases

25 000

Returns inwards

500

Returns outwards

800

Discounts allowed

1 000

Discounts received

300

Bad debts written off

200

Cash paid to creditors

2 500

Cheques paid to creditors

20 000

Cheques received from debtors

25 000

Cash received from debtors

4 500

Customers cheques returned unpaid

1 000

Set off from sales ledger to purchases ledger

600

Q3. The following details are available from the books of Mathews for the month of June, 2003.
Prepare the sales ledger control account and purchases ledger control account for the month of
June, 2003.
$
Sales ledger control account balance b/d
Purchases ledger control account balance b/d

10 000
8 000

Purchases for the month

Sales for the month

12 000
16 000

Returns inwards
Returns outwards

1 000
400

Payments to creditors

11 000

Receipts from debtors

15 000

Customers cheques returned unpaid

500

Bad debts written off

300

Discount received

550

Discount allowed

750

Transfer from purchases ledger to sales ledger

600

Credit balance in sales ledger control account

600

Debit balance in purchases ledger control account

200

Q4. The following information was obtained from the books of Vale.
March 1

Debtors

Creditors
March 31

$
9 506

2 580
Credit sales

20 345

Credit purchases at list price

7 200

Returns outwards at list price

200

Sales returns
Cash and cheques received from debtors
Customers cheques dishonored

120
19 580
250

Cash and cheques paid to suppliers

5 170

Discount received

190

Discount allowed

210

Interest charged to customers on overdue accounts

Bad debts written off

70
155

Balance in sales ledger set off against balance in the

purchases ledger

350

Cash refunds from suppliers for overpayments

Debit balances in purchases ledger
Credit balances in sales ledger

60
40
64

All purchases and purchases returns were subject to a trade discount of 10% off the list
price.

Prepare the sales ledger control account and purchases ledger control account.

Q 5. The following information was obtained from the books of K. Kent:1st April, 2002 Trade debtors
Trade creditors
Stock in trade

28 518
7 740
22 500

31st March, 2003: Credit sales

61 440

Credit purchases at list price

21 600

Purchase returns at list price

600

Sales returns

360

Cash and cheque received from debtors

58 740

Customers cheque dishonored

Cash and cheque paid to creditors

750
15 510

Discount received

570

Discount allowed

630

Interest charged to customers on overdue accounts

Bad debts written off

210
465

Balance in sales ledger set off against balance in

purchases ledger
Cash refunds from suppliers for overpayments

1050
180

Debit balance in purchases ledger

120

Credit balance in sales ledger

186

Interest charged by our suppliers on overdue accounts

390

Cash refunds to customers for overpayments by them

540

All purchases and purchase returns are subject to a trade discount of 20% off the list price. during the year Cash sales were $ 22 000
and Cash purchases were $ 12 500.
On 31st March, 2003 the stock in trade was valued at $ 12 500.Required to:- Prepare the sales ledger control account and purchases
ledger control account.Calculate the gross profit of the business for the year ended 31 st March,2003.

Q 6. The following information is relating to the business of Anson for the month ended 31st
March 2003:Credit sales and return inwards are subject to 10% trade discount on list price.
1st March 2003 Debtors
Creditors
31 March
Credit sales at list price
Cash sales
Returns inwards at list price
Credit purchases
Discount allowed
Discount received
Customers cheque returned by bank with remarks of
insufficient funds
Interest charged on overdue debts
Return outwards
Cheques paid to suppliers
Cheques and cash received from credit customers
Credit balance in sales ledger
Bad debts written off

4,000
2,000
2,00,00
5,000
1,500
12,000
1,500
1,400
900
250
750
7,000
15,000
300
600

Required:1. Make sales ledger control accounts of Mr. Ibrahim for the month of March 2003.
2. Calculate total Turn over on 31st March 2003

Q 7. The following information was obtained from the books of K. Vasanthi.

1st April 2003

Trade debtors
Trade creditors
Stock in trade
st
31 March 2004 Credit sales
Credit purchase at list price*
Purchase return at list price*
Sales return
Cash and cheque received from debtors
Customers cheque dishonored
Cash and cheque paid to suppliers
Discount received
Discount allowed
Interest charged to customers on Overdue
accounts
Bad debts written off
Balance in the sales ledger set off against balance
in the purchase ledger
Cash refunds from suppliers for over payments
Debit balance in purchase ledger
Credit balance in sales ledger
Overdue interest charged by our suppliers
Cash refunds for over payments made by
customers

$
19,012
5,160
15,000
40,690
14,400
400
240
39,160
500
10,340
380
420
140
310
700
120
80
124
260
360

*All purchases and purchase returns were subject to a trade discount of 20%off the list price.
During the year cash sales were $ 22 000 and cash purchase were $ 12,500.
*On 31st March 2004 the stock in trade was valued at $ 12,500.
Required:1. Total Debtors Account for the year ended 31st March 2004
2. Total Creditors Account for the year ended 31st March 2004.
3. c. Calculate the Gross profit of the business for the year ended 31st march 2004.

Q 8. The following details are available from the books of a business for the year ended 31st
December 2002:$
On 1-1-2000

The balance in the provision for bad debts account

$ 400

On 31-12-2000 Total debtors

$12 000

On 1-1-2002

Purchase ledger control account balance

$ 12 700

On 1-1-2002

Sales ledger control account balance

$ 14 200

On 31-12-2002:
Cheque issued to suppliers
Cheque received from customers

$ 19,200
$ 50,400

Discount allowed

400

Discount received

600

Returns inwards

$ 1 000

Return outwards

Bad debts written off

900
$ 1 200

Dishonored cheque returned to us

$ 1 200

Credit sales

$ 52 000

Credit purchases

$ 28 000

Set off from purchase ledger to the sales ledger

$ 2 000

5% of year end debtors should be created as provision for bad debts

Required to prepare:a. Purchase ledger control account for the year ended 31st December 2002
b.Prepare the sales ledger control account for the year ended 31st Dec 2002.
c.The provision for bad debts a/ct and the balance sheet extracts for the 3 years ended 31st Dec
2000,2001 and 2002.

Q 9. The following details are available from the books of a business for the year ended 31st
December 2002:$
On 1-1-2000

The balance in the provision for bad debts account

On 31-12-2000 total debtors

$ 400
$12 000

On 1-1-2002

Purchase ledger control account balance

$ 12 700

On 1-1-2002

Sales ledger control account balance

$ 14 200

On 31-12-2002:
Cheque issued to suppliers
Cheque received from customers

$ 19,200
$ 50,400

Discount allowed

400

Discount received

600

Returns inwards

$ 1 000

Return outwards

Bad debts written off

900
$ 1 200

Dishonored cheque returned to us

$ 1 200

Credit sales

$ 52 000

Credit purchases

$ 28 000

Set off from purchase ledger to the sales ledger

$ 2 000

5% of year end debtors should be created as provision for bad debts

Required to prepare:1. Purchase ledger control account for the year ended 31st December 2002
2. Prepare the sales ledger control account for the month ended 31st Dec 2002.

Q 10. Ander Paul, a sole trader, provided the following information from his accounts for the
year ended 31st Dec 2003.
$
Credit sales for

2003

75 500

Credit purchases for

2003

68 900

Credit sales return for

2003

Total debtors at
Total creditors at

700
1 Jan 03

1 Jan 03

Prov. for bad debts as at 1 Jan 01

Sales
Debtors

Discount Cash
4 000
9 000

Bank
1 000

8 500
4 800
600

Debtors

60 000 (dishonored
Cheque)

Discount Cash Bank

1 800
1 500 600
5 000 40 000

Purchase
Creditors
The cash book extract figures are totals for the year.
The following points are also relevant.
1. $ 600 of trade debtors were written off as bad debts on 7th Oct 2003
2. A revised provision for bad debts is to be 5%of the trade debtors balance as at 31st Dec
2001.
3. Balance in the sales ledger set off against balance in the purchase ledger $ 300.
Required to prepare the Sales ledger control account and the provision for bad debt account for
the year ended 31st Dec 2003.