TOPIC THREE: ACCOUNTING EQUATION AND DOUBLE

ENTRY SYSTEM
ASSETS = LIABILITIES + EQUITY
• Assets (what it owns)
• Liabilities (what it owes to others)
• Equity  what it owes to the owners)
For any business to start and continue operating, it requires recourses
known as assets. These assets are supplied either by the owner
(owners equity) or by external parties known as liabilities or debt
financing.
The business uses its resources to generate revenue/income. In the
process of generating income, the business incurs expenses/
costs. Also to note are the drawings.
Revenue- total value of all goods and services held by a business
within one financial year
Expenses- resources consumed in the process of generating income
Drawings- resources taken from the business by the owner for private
use 1
 ACCOUNTING EQUATION AND DOUBLE ENTRY SYSTEM

Definition of terms:
Capital (C)
This is the amount of resources invested in the business by the owner. It may
be in the form of cash or the monetary value of other property.
Assets (A)
Once a business starts operating, it may acquire physical property and other
forms of property. Assets are the property belonging to the business. They
are of different kinds and forms
i. Non current assets (NCA)
These are those assets that are acquired or crated and held permanently in the
business, not for resale, but for the purpose of being used in the business.
Such assets create productive capacity in the business. They represent
investment of long term nature. Noncurrent assets can further be divided
into two main categories:

2
Cont’d…
Tangible assets: these are those non current assets that one can touch
and see. They Include machinery, buildings, motor vehicles and
furniture.
Intangible assets: they are non current assets that have no body
texture but also assist in the earning capacity of the business. They
are used to earn revenue for a period of over one year or one
accounting period. Example include patents, copyrights, franchises,
goodwill and secret formulae. It is important to note that these
assets are created through legal provisions. One must acquire a
license for them.
ii.Current assets (CA)
These are properties belonging to a business which is of a temporary
nature. Current assets are completely changed in form or
consumed by use. They are also called floating or circulating assets
as they are circulate and change from one form to another in the
course of trading. Current assets are easily converted into cash and
so are readily available to pay off immediate financial obligations.
Examples include stocks of goods in trade, raw materials, finished
3
goods cash and bank balances, short term investments, trade
Cont’d…
Liabilities (L)
These are amounts of money for goods supplied or services rendered
on credit, for which the business has a legal obligation to pay. They
could also be loans advanced to the business to be paid at later
date. They are claims which other people build up on the business
for which it has an obligation to pay.
Types of liabilities:
i. Long term liabilities (LTL)
These are claims for which payment is made at a later date but not
within a year of incurring such liabilities. Examples include loans to
be paid within a period of five years. Long term liabilities also
represent borrowed or loan capital.
ii.Current liabilities (CL)
Current liabilities are those claims which must be paid in full, within a
short period. Examples include purchase of goods on credit
(creditors), interest on long term loans, bank overdraft, unpaid
salaries, outstanding rent etc.
4
Accounting Equation
The relationship between capital, assets and liabilities can be
expressed in the form of an equation known as the fundamental
accounting equation. This equation is expressed as:
A=C+L
NCA + CA = C + LTL + CL
NCA + {CA-CL} = C + LTL
 Assets represent the total claims of the owner of the business plus
those of the outsiders.
 Capital is the excess of the assets over liabilities. This difference is
also defined as the net worth of the business to the proprietor or
owner.
 Note: Assets represent uses of a firm’s resources while liabilities
and capital represent the sources of theses resources. Eg. The
motor vehicle represent money used to buy it and if it was bought
on loan, the loan represents the source of this money. Sources and
uses of resources are always equal

5
 Exercise

Use the accounting equation to compute the missing figures as at 20/02/15

ASSETS LIABILITIES CAPITAL

BUSINESS A 55,000 16,900 X

BUSINESS B Y 17,200 34,400

BUSINESS C 36,100 Z 28,500

BUSINESS D 119,500 15,400 S

BUSINESS E 88,000 W 62,000

BUSINESS F P 49,000 110,000

6
Statement of Financial Position
The accounting equation is presented in a
financial statement known as a statement
of financial position (formerly balance
sheet). A statement of financial position
is a financial statement showing the
financial position of a business as at a
particular date i.e. it shows the value of
the assets, liabilities and capital of a
business at a specific date. Statements of
financial position for business B and C
above can be prepared as follows:
7
Cont’d…
BUSINESS B
Statement of financial position as at 20/02/15
Sh
ASSETS 51,600
Financed by
CAPITAL 34,400
LIABILITIES 17,200
51,600
 
BUSINESS C
Statement of financial position as at 20/02/15
Sh
ASSETS 36,100
Financed by
CAPITAL 28,500
LIABILITIES 7,600
36,100
Prepare the Statements of financial position for business A, D & F as at
8
20/02/15
Further example
The following balances were obtained from the books of account of business C
as at 31/12/15.
Sh.
Premises 60,000
Furniture 10, 000
Cash in hand 5,000
Stock 2,000
Debtors 3,000
Capital 30,000
2 yrs bank loan 25, 000
Creditors 25,000
 
Required:
Prepare the statement of financial position of business C as at 31/12/15 clearly
showing the fixed assets, current assets, long term liabilities and current
liabilities separately.

9
Exercise
Using the figures below prepare Keli’s statement of
financial position as at 30/1/15.
Sh.
Capital 25,840
Motor vehicle 6,290
Equipment 11,500
Cash in hand 7,280
Debtors 5,770
3 years loan from James 6,000
Bank overdraft 11,200
Stock 12,200

10
Effects of Transactions on Accounting Equation
• A business transaction is an event which causes an immediate change in
the financial position of an entity and that can be measured objectively in
monetary terms.
• Every financial transaction has an implication on the accounting equation i.e.
the values of the some items in the accounting equation will change after
every transaction. A single transaction will affect at least two items in the
accounting equation as shown in the exercise given below.
1/1/2015 Owner started the business with shs10, 000 cash.
ASSETS = CAPITAL + LIABILITIES
Cash(10,000)=Capital(10,000)+Liability(0)
Statement of financial position as at 1/1/15
Sh.
Assets
Cash 10,000
Capital 10,000
Liabilities 0
10,000

11
Cont’d…
3/1/2015 Business borrowed shs20,000 cash from bank as a loan. Cash
increased by shs20, 000. Bank (loan) liability increased by shs20, 000
ASSETS = CAPITAL + LIABILITIES
Cash (10,000 + 20,000) = Capital (10,000) + Liabilities (Bank loan 20,000)
Statement of financial position as at 3/1/15
Sh.
Assets
Cash in hand 30,000
Financed by
Capital 10,000
Liabilities
Bank loan 20,000
30,000

12
Cont’d…
4/1/2015 Business opened a bank account and deposited part of the cash in
hand. Cash at bank increased by shs5, 000, cash in hand decreased by shs5,
000
 
ASSETS = CAPITAL + LIABILITIES
Cash (25,000)+Bank(5,000) = Capital(10,000)+Liability(Bank loan(20,000)
Statement of financial position as at 4/1/15
Sh.
Assets
Cash at bank 5,000
Cash in hand 25,000
30,000
Financed by
Capital 10,000
Liabilities
Bank loan 20,000
30,000

13
Exercise
Show the effect of the following transactions on the accounting
equation and draw aStatement of financial position after every
transaction.
1/1/2015 Started business with shs100,000 cash in hand
2/1/15 Received a bank loan amounting to shs200,000 cash
3/1/15 Bought stock worth shs50, 000 from Wambua but partly
paid for them shs20, 000 cash
4/1/15 Deposited shs60,000 business cash into the bank account
5/1/15 The owner withdrew stock worth shs5,000 for his
domestic use
6/1/15 The owner invested more cash into the business
shs100, 000 for expansion purposes
7/1/15 Bought business premises worth shs80, 000 and paid
by cash

14
THE DOUBLE ENTRY SYSTEM
Introduction
 Businesses carry out their activities on a daily basis yet the
decisions of such businesses are made periodically. A good
manager needs complete and accurate information about business
activities before making appropriate decisions
 Double entry system of recording business transaction was
invented for the purpose of allowing managers to accumulate
enough accurate information to make various decisions concerning
a business
Transaction
 A transaction is an exchange activity which business undertakes on
a daily basis.
 When recording a transaction, one must record essential and
relevant information that provides the answer to the following
specific questions:
- What took place/happened?
- Who were the parties involved?
15
- How much was exchanged?
Cont’d…
The recording of transactions must take place on a daily basis or any
time a transaction occurs and it is done in an account.
An account
 An account is a history of a given nature of transaction for a given
business. It has two sides referred to as:
Debit- meaning the left hand side
Credit- meaning the right hand side
 On the debit side of an account is recorded what has been done
with the funds in the business such as purchase of non current
assets, payment of expenses incurred and services rendered in the
course of trading. These are entered on the left hand side of the
account.
 The credit side of the account records the sources of funds for
meeting business expenses or payment for assets

16
Cont’d…
In addition to the debit and credit amount columns, an account should
have either side, columns for:
a. Name of the persons affected which form the title of the account
b. Date on which the transaction took place
c. Particulars- summary of the transaction
d. The amount
e. Folio- the reference page for such an account. In general, a folio is a
ledger account or day book source for ease of reference

DR CASH A/C CR
Date Particular Folio Shs Date Particulars Folio Shs

1/3/15 Capital P2 20,000

17
 Double entry system
This is a system of recording transactions in
the ledger account whereby if the
bookkeeper make a debit entry in any
account, there must be a corresponding
credit entry in the same or in another
account. Corresponding means that the
amount debited must be equal to the
amount credited. The procedure for
recording is governed by universally
accepted rules and standards

18
Cont’d…
Rules for recording changes in the value of the assets
 
 An increase in the value of an asset is recorded on the
debit side of the respective asset account while a
decrease in the value of an asset is recorded on the
credit side of the respective asset account.
 
DR ASSET A/C CR
INCREASE(+) DECREASE(-)

19
Cont’d…
Example
1/1/2015 The business bought stock worth shs4, 000 and paid by cash
Stock asset – increase – make a debit entry in the stock a/c of shs4, 000
Cash asset – decrease – make a credit entry in the cash a/c of shs4, 000
2/1/15 – The business bought furniture worth shs1,000 and paid by cash.
Furniture asset – increase – make a debit entry in the furniture a/c of shs1,
000
Cash asset – decrease – make a credit entry in the cash a/c of shs1, 000
3/1/15 Bought additional stock worth shs5, 000 and paid by cash.
Stock asset – increase – make a debit entry in the stock a/c of shs5, 000
Cash asset – decrease – make a credit entry in the cash a/c of shs5, 000

20
Cont’d…
Rule for recording changes in value of the liability
 
 An increase in the amount of a liability is recorded on
the credit side of the respective liability account while a
decrease is recorded on the debit side of the respective
liability account.

DR LIABILITY A/C CR
Decrease(-) Increase (+)

Example
1/1/15 Business bought stock worth shs2,000 from James on credit.
Stock asset – increase – make a debit entry in the stock a/c of shs2, 000
Creditors – owings to James – increase – make a credit entry in the
creditors – James’
a/c of shs2,000
21
Cont’d…
Rules for recording change in the value of the capital
  An increase in the value of the capital is recorded on the credit side
of the capital account while a decrease in the value of capital is
recorded on the debit side of the capital a/c

DR CAPITAL A/C CR
Decrease(-) Increase (+)

 Example
1/3/15 The owner started the business with shs20, 000 cash
Cash asset – increase – make a debit entry in the cash a/c of
shs20, 000
Capital – increase – make a credit entry in the capital a/c of shs20,
000
22
Exercise
Open the relevant ledger a/cs and post the following
transactions
• 1/3/15 The owner started the business with shs20, 000
cash
• 2/3/15 Deposited part of this cash shs5,000 into a
business bank a/c
• 3/3/15 Bought stock worth shs8, 000 on credit from
Wafula
• 4/3/15 Received a bank loan shs15, 000 cash
• 5/3/15 Bought furniture worth shs3, 000 and paid by
cheque
• 6/3/15 Bought additional stock worth shs6, 000 and paid
by cash

23
Classification of accounts
For convenience and purpose of recording transactions in the ledger,
the accounts are grouped into classes. Each class comprises of a
fairly similar nature, which are classified into three main classes.
i. Personal Accounts
These are accounts which deal with business transactions carried out
with persons, firms etc. eg Kamau a/c, Opiyo and Co. a/c
They are accounts of debtors, creditors, loan capital , capital account
and drawing account. Any other account in the ledger are called
impersonal accounts.
ii. Real accounts
These are accounts contain records involving the assets of the
business such as cash a/c, office equipment a/c furniture a/c etc
iii. Nominal accounts
Theses accounts record items of expenses incurred in trading such as
purchase a/c, salaries a/c, electricity a/c etc. and also record items
of income earned in trading such as sales a/c, rent received a/c etc
24
Book keeping structure

25
Summary of the rules

To increase an asset Debit the asset account

To increase a liability Credit the liability
account
To increase the capital Credit the capital
account
To decrease an asset Credit the asset
account
To decrease a liability Debit the liability
account
To decrease the capital Debit the capital
account
26
Cont’d…
Illustration
date transactions effect action
May Started a business Increase asset at Debit bk a/c
1 putting $1,000 into bk Credit capital
the business bank Increase capital of a/c
account proprietor
Debit
May Bought works Increases asset machinery a/c
3 machinery on credit machinery Credit Uni.
from Unique Increases liability Machinery a/c
Machines Ltd $275 to Unique
Machine Ltd Credit ban a/c
Withdrew $200 cash Decreases asset
May from the bank and of the bank Debit cash a/c
4 placed it in the cash Increases asset of
till cash Debit bank a/c
B. Barnes, a credit Increases asset of
customer pays the the bank Credit B.
May firm the amount Decreases asset Barnes a/c
5 owing, $15 by of money owing 27
cheque by B.Barnes
Example
H Jumps has the following assets and liabilities as on 30
November 2015: Creditors Sh.39,500; Equipment Sh.115,
000; Motor vehicle Sh.62,900; Stock Sh.61,500; Debtors
Sh.57,700;Cash at bank Sh.72,800 and Cash in hand
Sh.400.
Required: Compute the balance on the capital account as
at 30 November 2015.
During the first week of December 2015, Jump:
a. Bought extra equipment on credit for Sh.13,800.
b. Bought extra stock by cheque Sh.5,700.
c. Paid creditors by cheque Sh.7,900.
d. Received from debtors Sh.8,400 by cheque and Sh.600
by cash.
e. Put in an extra Sh.2,500 cash as capital.  
Required: You are to record the above transactions in 28
respective accounts.
Example 2
Write up the asset, capital and liability accounts in the books of M
Crash to record the following transactions:
2015
June 1 Started business with Sh.50,000 in the bank.
“ 2 Bought motor van paying by cheque Sh.12,000.
“ 5 Bought Fixtures Sh.4,000 on credit from Office Masters Ltd.
“ 8 Bought a van on credit from Motor Cars Ltd Sh.8,000.
“ 12 Took Sh.1,000 out of the bank and put it into the cash till.
“ 15 Bought Fixtures paying by cash Sh.600.
“ 19 Paid Motor Cars Ltd by cheque Sh.8000.
“ 21 A loan of Sh.10,000 cash is received from J Marcus.
“ 25 Paid Sh.8,000 of the cash in hand into the bank account.
“ 30 Bought more Fixtures paying by cheque Sh.3,000.

29
Accounting for sales, purchases, drawings, incomes and expenses

Sales: This is the sale of goods that were bought by a firm

(the goods must have been bought with the purpose of
resale). Sales are divided into cash sales and credit
sales. When a cash sale is made, the following entries
are to be made.
• i. Debit cash either at bank or in hand.
• ii.Credit sales account.
 
For a credit sale:
i. Debit debtors/ Accounts receivable account.
ii.Credit sales account.
A new account for sales is opened and credited with cash
or credit sales.

30
Cont’d…
Buying (Purchases:) of goods meant for resale. Purchases can also be for cash
or on credit.
For cash purchases:
i. Debit purchases.
ii. Credit cash at bank/cash in hand
For credit purchases, we:
i. Debit purchases.
ii. Credit creditors for goods.
• A new account is also opened for purchases where both cash and credit
purchases are posted. Note:no entry is made into the stocks account.
Note that saleable stock can be analysed in the following classes for accounting
purpose.
i. Opening stock- this is the value of goods in the business at the beginning of
the accounting period. It consists of unsold stock in the previous period
carried forward to the current accounting period (closing stock).
ii. Purchases- goods bought by the business for resale purposes within the
accounting period. The value of such stock is debited in the purchases
account at their cost price.

31
DRAWINGS
• Drawings consist of the business assets e.g. cash, stock taken out of the business by
owner for private use. Drawings may also include personal expense paid for by the
business
• The owner has no obligation to refund the cash or pay for those goods.
• When the owner makes drawings from his business, he actually reduces his
investment or capital in that business.
Accounting entries
If such drawings are made
Debit: The drawings a/c
Credit : The respective (cash or purchase) a/c
Or Credit: The expense a/c
Example:
On 1/2/2015 Miss T, the owner of the business withdrew sh.1,000 cash from the business
for personal use.
On 14/2/15, the owner withdrew stock worth sh.4,000 for her domestic use.
Required:
Post these transactions to the relevant ledger accounts

32
EXAMPLE
The following transactions took place in the month of Feb. 2015 in Omolo’s
business
1/2/15 Omolo invested sh.50,000 cash in the business
3/2/15 He bought stock worth sh. 15,000 and paid cash
5/2/15 Returned some broken stock items worth sh.500 and was refunded
cash.
6/2/15 Bought more stock worth sh. 4,000 from Isaac on credit
7/2/15 Deposited sh. 5,000 cash into the business bank account
11/2/15 Made cash sales amounting to sh. 20,000
15/2/15 Bought furniture worth sh.3,000 and paid by cash.
20/2/15 Made credit sales to Kamau worth sh. 6,000
22/2/15 Kamau returned goods worth sh. 500 because they had expired.
25/2/15 Paid Isaac sh. 2,000 using cash
28/2/15 Received a cheque of sh. 3,000 from Kamau
28/2/15 Omolo withdrew sh. 1,000 cash from business fro personal use
Required:
Open the relevent ledger accounts and post the above transactions

33
Cont’d…
Incomes:
A firm may have other incomes apart from that generated
from trading (sales). Such incomes include:
 Rent
 Bank interest
 Discounts received.
When the firm receives cash, from these incomes, the
following entries are made:
i. Debit cash in hand/at bank.
ii. Credit income account.
Each type of income should have its own account e.g. rent
income, interest income.
Incomes increase the value of capital and that is the
reason why they are posted on the credit side of their
respective accounts. 34
Cont’d…
Discount received
• This is an allowance given to the business by creditors when the
business makes an early settlement of its debts.
• In this case the business pays less than what it owes and therefore
makes some savings that is treated as a form of income by the
business.
Example
On 1/9/2015, the business bought goods worth sh.10,000 on credit
from Naomi. The business was given a credit period of thirty days to
pay for those goods
On 4/1/2015, the business settled its debt by cash and therefore
received a cash discount of 10% due to early settlement of its debt.
Required:
Open the relevant ledger accounts and post the above transactions.

35
Cont’d…
Expenses: These are amounts paid out for services rendered other
than those paid for purchases. Examples include:
 Postage and stationery
 Salaries and wages
 Telephone bills
  Motor vehicle running expenses
 Bank charges.
The rule: An increase in the amount of an expense/payment is debited
in the respective expense account while a decrease is credited in
the respective expense a/c . Hence;
When a firm pays for an expense, we:
i. Debit the expense account.
ii. Credit cash at bank/in hand.
Each expense should also have its own account where the
corresponding entry will be posted. Expenses decrease the value of
capital and thus the posting is made on the debit side of their
accounts. 36
Example:
1/3/15 Business paid rent expense sh.20,000 cash
2/3/15 Business paid electricity bill amounting to sh.5,000 using
cheque.
4/3/15 Business paid insurance expense amounting to sh. 1,000 and
paid by cash.
Required:
Post the above transactions in the relevant ledger accounts

Carriage inwards:
• This is the transport cost incurred by the business to move the
purchases from the suppliers’ premises to the business premises.
• This cost is debited in the carriage inwards a/c
Carriage outwards:
• This is the transport cost incurred by the business in moving the
sales (goods sold) from the business to the customer’s premises.
• This cost is debited in the carriage outwards a/c
37
Discount allowed
• This is the allowance given by the business to credit customers
(debtors) who pay their debts before the due date.
• In thus case the customer pays less than the amount due from him/
her.
• The amount of discount allowed is a business operating expense
that is debited in the discount allowed a/c
Example:
5/1/2015: Business made credit sales to Tom worth sh.5,000. the debt
was due for payment after 30 days.
15/1/2015: Tom paid in cash the amount due from him less 10% cash
discount. The discount was given to him for making an early
settlement of his debt.
Required:
Open the relevant ledger accounts and post the above transactions.

38
Return inwards and return outwards
Returns Inwards: These are goods that have been returned by
customers due to various reasons e.g.
i. They may be defective/damaged,
ii. Being of the wrong type.
iii. Excess goods being delivered.
Goods returned may relate to cash sales or credit sales. For the goods
returned in relation to cash sales and cash is refunded to the
customer the following entries are made:
i. Debit: returns - inwards
ii. Credit: cashbook.
For goods returned that relate to credit sales; no cash has been given
to customer, the following entry is to be made.
i. Debit: returns inwards.
ii. Credit: debtors.

39
Cont’d…
Returns Outwards: These are goods returned to
suppliers/creditors. They may be for cash
purchases or for credit purchases. For cash
purchases a cash refund given to the firm by the
supplier,
i. Debit the cashbook (cash at bank/hand).
ii. Credit returns outwards.
For credit purchases and no refund has been made:
i. Debit: creditors.
ii. Credit: returns outwards.

40
Example
You are to enter the following transactions, completing the double entry in the
books for the month of May 2015.
2015
May 1 Started business with Sh.2,000 in the bank.
“ 2 Purchased goods Sh.175 on credit from M Rooks.
“ 3 Bought furniture and fittings Sh.150 paying by cheque.
“ 5 Sold goods for cash Sh.275.
“ 6 Bought goods on credit Sh.114 from P Scot.
“ 10 Paid rent by cash Sh.15.
“ 12 Bought stationery Sh.27, paying in cash.
“ 18 Goods returned to M Rooks Sh.23.
“ 21 Let off part of the premises receiving rent by cheque Sh.5.
“ 23 Sold goods on credit to U Foot for Sh.77.
“ 24 Bought a motor van paying by cheque Sh.300.
“ 30 Paid the month’s wages by cash Sh.117.
“ 31 The proprietor took cash for himself Sh.44.

41
Exercise
Mary- shop centre, is small business owned by Mary.
During the year to 31 December 2015 the following to tal transactions
occurred:
 a ) Mary withdrew a total of Sh.10,000.00 in cash
b ) Stock in trade was bought, all on credit, for Sh.34,000.00
c) Sales were made totaling 60,000.00 of stock i n trade which had
cost Sh.37,000.00. Of these sales Sh.51,000.00 were on credit and
Sh.9,000.0 0 for cash.
d) A total of Sh.16,000.00 was drawn from the bank in cash to the cash
till.
 e) Electricity for the year paid by cheque totaled Sh.2,000.00
f) Rates for the year paid by cheque totaled Sh.1,000.00
g) Wages for the year all paid cash totaled Sh.10,000.00
h) Sundry expenses all paid in cash totaled Sh.2,000.00
i) Creditors were paid a total of Sh.36,000.00 all by cheque
j) Debtors paid a total of Sh.54,000.00 all in cheques.
k) The bank charged interest on the loan deducting Sh.3, 000.00.   42
Further exercises
Question one
Complete the following table showing which accounts are to be credited and
which to be debited
transactions Account to be Account to be credited
debited
a. Bought motor
van for cash
b. Bought office
machinery on
credit from
T&Sons
c. Introduced
capital in cash
d. A debtor, M.
Cranch, pays
by cheque
e. Paid a creditor,
U Cope in cash
f. J. Smith lends
the business
money, giving
it by cheque 43
Cont’d…
Question two
Enter the following transactions in the records of E. Schofield’s business:
July 1 Started business with $10,000 in the bank.
July 2 T. Cooper lend us $400 in cash
July 3 Bought goods on credit from F.Jones $840 and Chipchase 3,600
July 4 Sold goods for cash $200
July 6 Took $250 of the cash and paid it into the bank
July 8 Sold goods on credit to C. Percy $180
July 10 Sold goods on credit to J. Noel $220
July 11 Bought goods on credit from F. Noel $370
July 12 C.Percy returned goods $40
July 14 Sold goods on credit to H. Morgan $190 and J.Peat $320
July 15 The business returned goods to F.Jones $140
July 17 Bought motor van on credit from Stock Motors $2,600
July 18 Bought office furniture on credit from Faster Supplies Ltd $600
July 19 The business returned goods to Chipchase $110
July 26 Goods returned to the business by H. Morgan $30
July 31 paid Stock Motors $2,600 by cheque 44
Cont’d…
Complete the following table, showing the accounts to be debited and
those to be debited.

transaction Account to be debited Account to be credited

a. Paid insurance by
cheque
b. Paid motor
expenses by cash
c. Rent received in
cash
d. Paid rates by
cheque
e. Received refund of
rates by cheque
f. Paid stationery
expenses by cash
g. Sold surplus
stationery receiving
proceeds by cheque
h. Received sales
commission by
cheque
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Question four
Write up the following transactions in the records of D. Deronde’s business:
Feb 1 Started a business with $3,000 in the bank and $500 cash
Feb 2 Bought goods on credit from T. Small $ 250
Feb 7 Returned goods to T.Small $20
Feb 9 Paid rent by cheque $10
Feb 18 Overpaid insurance. A refund of $8 received by cheque

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