CHAPTER 7

BALANCING AND CLOSING ACCOUNTS

Question 1

Dr Cash account Cr
Aug 1 Balance 370 Aug 12 Purchases 120
14 Sales 130 28 Drawings 210
31 Balance c/d 170
500 500
Sept 1 Balance b/d 170

Dr Capital account Cr
Aug 31 Drawings 11 900 Aug 1 Balance 39 400
31 Balance c/d 45 900 31 Profit 18 400
57 800 57 800
Sept 1 Balance b/d 45 900

Dr Premises account Cr
Aug 1 Balance 74 000

Dr Trade payables account Cr

Aug 31 Balance c/d 4 200 Aug 1 Balance 2 100
11 Purchases 800
25 Purchases 1 300
4 200 4 200
Sept 1 Balance b/d 4 200

Question 2

Dr Bank account Cr
Jan 1 Balance 3 240 Jan 8 Rent 1 050
15 Cash 620 14 Drawings 450
28 Cash 290 29 Salaries 2 140
31 Balance c/d 510
4 150 4 150
Feb 1 Balance b/d 510

Dr Capital account Cr
Jan 31 Drawings 3 870 Jan 1 Balance 62 100
31 Balance c/d 73 310 31 Profit 15 080
77 180 77 180
Feb 1 Balance b/d 73 310

Dr Fittings account Cr
Jan 1 Balance 14 900
Dr Equipment account Cr
Jan 1 Balance 4 980 Jan 31 Balance c/d 8 050
18 Bank 3 070
8 050 8 050
Feb 1 Balance b/d 8 050

Question 3

Dr Purchases account Cr
Oct 14 Bank 3 820 Oct 31 Income statement 5 910
Trade
29 payables 2 090
5 910 5 910

Dr Sales account Cr
Income
Oct 31 statement 7 070 Oct 5 Cash 1 250
11 Bank 3 780
25 Trade receivables 2 040
7 070 7 070

Dr Rent account Cr
Oct 11 Bank 3 750 Oct 31 Income statement 3 750

Dr Drawings account Cr
Oct 15 Bank 1 980 Oct 31 Capital 1 980

Question 4

Dr Sales account Cr
Income
April 30 statement 5 810 April 7 Bank 3 720
14 Trade receivables 2 090
5 810 5 810

Dr Wages account Cr
April 14 Cash 2 640 April 30 Income statement 4 910
28 Cash 2 270
4 910 4 910

Dr General expenses account Cr

April 6 Bank 320 April 30 Income statement 410
18 Cash 90
410 410

Dr Insurance account Cr
April 17 Bank 560 April 30 Income statement 560
Question 5

Trade receivable account

Date Details Dr Cr Balance
$ $ $
June 1 Balance 4 800 Dr
11 Sales 3 450 8 250 Dr
17 Bank 3 600 4 650 Dr
24 Sales 1 400 6 050 Dr
30 Bank 2 900 3 150 Dr

Question 6

Trade payable account

Date Details Dr Cr Balance
$ $ $
Aug 1 Balance 2 700 Cr
5 Purchases 7 400 10 100 Cr
11 Purchases 1 200 11 300 Cr
18 Bank 6 300 5 000 Cr
24 Bank 3 500 1 500 Cr

Question 7

Cash account
Date Details Dr Cr Balance
$ $ $
May 1 Balance 630 Dr
8 Office expenses 170 460 Dr
17 Drawings 80 380 Dr
22 Sales 1 050 1 430 Dr
23 Bank 1 200 230 Dr

Trade payable account

Date Details Dr Cr Balance
$ $ $
May 1 Balance 1 820 Cr
17 Purchases 1 440 3 260 Cr
25 Bank 2 300 960 Cr

Capital account
Date Details Dr Cr Balance
$ $ $
May 1 Balance 85 400 Cr
31 Drawings 22 300 63 100 Cr
31 Loss for year 14 800 48 300 Cr
Question 8

Bank account
Date Details Dr Cr Balance
$ $ $
Sept 1 Balance 1 420 Dr
8 Rent 520 900 Dr
10 Loan 600 300 Dr
11 Trade receivables 1 600 1 900 Dr
15 Loan 3 000 4 900 Dr
27 Purchases 1 580 3 320 Dr

Trade receivables account

Date Details Dr Cr Balance
$ $ $
Sept 1 Balance 1 420 Dr
10 Sales 980 2 400 Dr
11 Bank 1 600 800 Dr
24 Sales 3 000 3 800 Dr

Bank loan account

Date Details Dr Cr Balance
$ $ $
Sept 1 Balance 10 000 Cr
10 Bank 600 9 400 Cr
15 Bank 3 000 12 400 Cr

Question 9

Dr Bank account Cr
Dec 1 Balance 2 040 Dec 5 Trade payables 5 840
8 Trade receivables 6 400 14 Purchases 1 290
18 Equipment 860
31 Balance c/d 450
8 440 8 440
Jan 1 Balance b/d 450

Dr Capital account Cr
Dec 31 Drawings 17 780 Dec 1 Balance 124 650
31 Balance c/d 134 560 31 Income statement 27 690
152 340 152 340
Jan 1 Balance b/d 134 560

Dr Cash account Cr
Dec 1 Balance 310 Dec 23 Wages 1 450
22 Sales 2 180 28 Drawings 290
31 Balance c/d 750
2 490 2 490
Jan 1 Balance b/d 750
Dr Drawings account Cr
Dec 1 Balance 17 490 Dec 31 Capital 17 780
28 Cash 290
17 780 17 780

Dr Equipment account Cr
Dec 1 Balance 12 200 Dec 31 Balance c/d 13 060
18 Bank 860
13 060 13 060
Jan 1 Balance b/d 13 060

Dr General expenses account Cr

Dec 1 Balance 2 080 Dec 31 Income statement 2 080

Dr Insurance account Cr
Dec 1 Balance 3 650 Dec 31 Income statement 3 650

Dr Premises account Cr
Dec 1 Balance 88 000

Dr Purchases account Cr
Dec 1 Balance 142 300 Dec 31 Income statement 143 590
14 Bank 1 290
143 590 143 590

Dr Sales account Cr
Dec 31 Income statement 245 300 Dec 1 Balance 238 560
1 Trade receivables 4 560
22 Cash 2 180
245 300 245 300

Dr Trade payables account Cr

Dec 5 Bank 5 840 Dec 1 Balance 5 840

Dr Trade receivables account Cr

Dec 1 Balance 3 140 Dec 8 Bank 6 400
1 Sales 4 560 31 Balance c/d 1 300
7 700 7 700
Jan 1 Balance b/d 1 300

Dr Vehicles account Cr
Dec 1 Balance 31 000

Dr Wages account Cr
Dec 1 Balance 66 840 Dec 31 Income statement 68 290
23 Cash 1 450
68 290 68 290
 Trial Balance at 31 December 2014
Dr Cr
$ $
Bank 450
Capital 124 650
Cash 750
Trade payables -
Trade receivables 1 300
Drawings 17 780
Equipment 13 060
General expenses 2 080
Insurance 3 650
Premises 88 000
Purchases 143 590
Sales (ie Revenue) 245 300
Vehicle 31 000
Wages 68 290
369 950 369 950

Income statement for the year ended

31 December 2014
$ $
Revenue 245 300
Purchases (143 590)
Gross profit 101 710
General expenses 2 080
Insurance 3 650
Wages 68 290
(74 020)
Profit 27 690

Statement of financial position

at 31 December 2014
$ $
NON-CURRENT ASSETS
Premises 88 000
Vehicle 31 000
Equipment 13 060
132 060
CURRENT ASSETS
Trade receivables 1 300
Bank 450
Cash 750
2 500
134 560
$
CAPITAL 134 560

Question 10

Dr Bank account Cr
May 1 Balance 1 720 May 4 Loan interest 70
5 Trade receivables 1 490 14 Bank 380
28 Bank loan 5 000 18 Furniture 1 300
 31 Balance c/d 6 460
8 210 8 210
June 1 Balance b/d 6 460

Dr Bank loan account Cr

May 31 Balance c/d 13 000 May 1 Balance 8 000
28 Bank 5 000
13 000 13 000
June 1 Balance b/d 13 000

Dr Capital account Cr
May 31 Drawings 23 840 May 1 Balance 62 810
31 Balance c/d 79 550 31 Income statement 40 580
103 390 103 390
June 1 Balance b/d 79 550

Dr Cash account Cr
May 1 Balance 690 May 23 Wages 870
22 Sales 3 130 31 Balance c/d 2 950
3 820 3 820
June 1 Balance b/d 2 950

Dr Drawings account Cr
May 1 Balance 23 460 May 31 Capital 23 840
14 Bank 380
23 840 23 840

Dr Furniture account Cr
May 1 Balance 18 500 May 31 Balance c/d 19 800
18 Bank 1 300
19 800 19 800
June 1 Balance b/d 19 800

Dr Light and heat account Cr

May 1 Balance 890 May 31 Income statement 890

Dr Loan interest account Cr

May 1 Balance 430 May 31 Income statement 500
4 Bank 70
500 500

Dr Trade payables account Cr

May 31 Balance c/d 4 160 May 1 Balance 3 210
8 Purchases 950
4 160 4 160
June 1 Balance b/d 4 160

Dr Premises account Cr
May 1 Balance 67 500
Dr Purchases account Cr
May 1 Balance 102 480 May 31 Income statement 103 430
8 Payables 950
103 430 103 430

Dr Sales account Cr
May 31 Income statement 187 490 May 1 Balance 184 360
22 Cash 3 130
187 490 187 490

Dr Trade receivables account Cr

May 1 Balance 1 490 May 5 Bank 1 490

Dr Wages account Cr
May 1 Balance 41 220 May 31 Income statement 42 090
23 Cash 870
42 090 42 090

Trial Balance at 31 May 2014

Dr Cr
$ $
Bank 6 460
Bank loan 13 000
Capital 62 810
Cash 2 950
Trade payables 4 160
Trade receivables -
Drawings 23 840
Furniture 19 800
Light and heat 890
Loan interest 500
Premises 67 500
Purchases 103 430
Sales (ie Revenue) 187 490
Wages 42 090
267 460 267 460

Income statement for the year ended

31 May 2014
$ $
Revenue 187 490
Purchases (103 430)
Gross profit 84 060
Light and heat 890
Loan interest 500
Wages 42 090
(43 480)
Profit 40 580
 Statement of financial position
at 31 May 2014
$ $
NON-CURRENT ASSETS
Premises 67 500
Furniture 19 800
87 300
CURRENT ASSETS
Bank 6 460
Cash 2 950
9 410
96 710
$ $
CAPITAL 79 550

NON-CURRENT LIABILITY
Bank loan 13 000

CURRENT LIABILITIES
Trade payables 4 160
96 710

EXAM-STYLE QUESTIONS

Q Ans Q Ans Q Ans Q Ans Q Ans

11 A 12 C 13 B 14 D 15 D
16 B 17 C 18 C 19 B 20 C

Question 21

(a) Capital.
(b) Non-current assets are resources that are owned by a business and have a
monetary value and which will benefit the business for a long time (i.e. more than one
year).
(c) Possible answers include: hotel premises; furniture and fittings; catering equipment;
crockery; bed linen, etc.
(d) Possible answers include: an error had been made in entering transactions in the
accounts – perhaps only one entry had been made for a transaction, or perhaps the
debit and credit entries for a transaction had been for different amounts.
(e)
Transaction Account to be debited Account to be credited

1 Paid for some stationery for office Office Cash

use in cash expenses/Stationery

2 A hotel guest paid by cheque Bank Sales

3 Mustafa withdrew a cheque for Drawings Bank

private use

4 A supplier had been overpaid and Bank Supplier/Trade payable

sent Mustafa a cheque as a
refund
5 Mustafa made a gift of $50 to a Drawings Cash
friend using the business’s cash

Question 22

(a) Non-current liability: an amount owed by a business which will be repaid in the long
term (longer than one year).
(b) Capital on 1 September 2014 is:

$ $
Assets
Cash at bank 3 000
Equipment 8 000
Inventory 14 000
Shop fittings and fixtures 12 000
Shop premises 220 000
257 000
less Liabilities
Bank loan (30 000)
Trade payables (9 000)
Capital 218 000

CHERRY
Statement of financial position at 1 September 2014
$ $
NON-CURRENT ASSETS
Shop premises 220 000
Shop fittings and fixtures 12 000
Equipment 8 000
240 000
CURRENT ASSETS
Inventory 14 000
Cash at bank 3 000
17 000
257 000
$
CAPITAL 218 000

NON-CURRENT LIABILITY
Bank loan 30 000

CURRENT LIABILITY
Trade payables 9 000
287 000

Question 23

(a) Advantage of buying goods on credit: payment for the goods is delayed by a month
(usually) which puts less pressure on the business’s cash flow/cash resources. It is
possible that the goods will be sold by the time payment is due, in which case Farad
will not have to find additional cash to pay for the goods.
(b)

Dr Trade payables account Cr

Aug Bank 15 300 Aug Balance 11 900
Balance c/d 3 900 Purchases 7 300
19 200 19 200
Sept Bank 13 200 Sept Balance b/d 3 900
Purchases 9 300
13 200 13 200

(c) One advantage of balancing accounts – answers could include: breaking up

accounts into more manageable sections; providing an update on the net value
shown in an account; providing information for other financial statements (trial
balances, income statements, balance sheets, etc.).

Question 24

(a) Typical expenses for a taxi business – answers could include: vehicle repairs and
maintenance charges; fuel charges; wages of taxi drivers; cost of licensing taxis; rent
of garage space for taxis, etc.
(b) Drawings is not shown in an income statement because it is not a cost of running the
business. Drawings is the withdrawal of capital by the owner of a business and has
no effect on the profit or loss made by a business which is dependent on the amount
of revenue earned by the business and the cost of running the business.

Question 25

Transaction Account debited Account credited Indicate:

 if correct
X if incorrect
(a) Paid wages in cash Wages Cash 
(b) Sold some unwanted Cash Shop fittings 
shop fittings for cash
(c) Purchased goods for Purchases Bank X
resale on credit
(d) Tony withdrew Bank Drawings X
cheque for own used
(e) Sold goods for cash Cash Sales 
(f) Paid a credit supplier Trade payable Bank 
by cheque
(g) Purchased some Purchases Bank X
equipment for office
use by cheque

Question 26

Trial balance at 31 March 2012

Dr Cr Indicate:
 if correct
X if incorrect
$ $
Bank overdraft 750 X
Bank loan 2 100 
Capital 18 020 X
Drawings 12 960 X
General expenses 6 180 X
Non-current assets 22 500 
Purchases 31 640 X
Sales 49 930 X
Trade payables 2 480 X
93 680 52 880

Question 27

(a)
Trial Balance at 31 December 2014
Dr Cr
$ $
Total of entries made by Salma 236 600 44 300
Capital 145 000
Drawings 18 300
Purchases 92 400
Sales (i.e. Revenue) 161 900
Trade payables 8 100
Trade receivables 6 200
353 500 359 300

(b) The totals of the trial balance do not agree; this means that there is an error (or
errors) in the double-entry records.
(c) Trial balances provide a summary of all the balances in the accounting system
which can then be used to prepare end-of-year financial statements.