Case study 1
ABC is a new business that started on 1 July, the business pays £3,000 into the business bank account.
What is the dual effect of this transaction?
What is the accounting equation after this transaction?
Case study 2
XYZ business on started on the 1 January by paying £40,000 into a business bank account. The business then spent £600 on a second-hand van paid by debit card, £2,000 on purchases of inventory for cash, took £600 cash for his own use and bought goods on credit worth £500.
What are the two effects of each of these transactions?
What would the accounting equation look like after each of these transactions?
Case study 3
XYZ business then spends £2,000 on purchases of goods for cash. The bank balance goes down by £2,000 but the business has other assets, inventory of £3,000. Inventory is a short-term asset as it is due to be sold and is known as a current asset. The assets of the business are now: £600 (Van) Inventory
£3,000 Bank (£39,400 – £1,000) = £38,400
Accounting equation: Assets – Liabilities = Capital £40,000 – £0 = £40,000
XYZ business took £600 of cash out of the business. The bank balance has decreased by £600 and capital has also decreased as the owner has taken money out of the business – this is known as drawings. The owner is a completely separate entity from the business itself and if he takes drawings then this means that the business owes him less.
The assets of the business are now: £600 (Van) £3000 Inventory. The capital of the business is now £ (40,000 – 600) = £39,400.
Accounting equation: Assets – Liabilities = Capital £39,400 – £0 = £39,400
Using the information above enter the Debits and Credits in the correct columns
Debits Credits Assets Liability
Case study 4
XYZ business started on 1 January and made the following transactions.
Paid £30,000 into a business bank account.
Spent £600 on a second-hand van.
Paid £2,000 on purchases of inventory.
Took £60 cash for his own personal use.
On 5 January bought goods for cash costing £700.
Made sales for cash of £2,500.
On 15 January paid £400 of rent.
Task 1: Identify how the debit and credit entries for each transaction are determined.
Task 2: Detail the transactions into the relevant ledger accounts.
Task 3: Use the figures identified above create a trail balance in the table below.
Debit Credit
£ £ Sales
Opening inventory
Purchases
Rent
Car
Receivables
Payables
Task 4: XYZ Business at 31 December has the following balance.
£ 47,140 Sales
£ 26,500 Purchases
£7,640 Receivables
£4,320 Payables
£ 9,430 Expenses
£5,000 Loan
£7,300 Plant and machinery
£2,650 Van at cost
£7,500 Drawings
£ 6,450 Rent
£1,560 Insurance
£2,570 Overdraft
£10,000 Capital
Prepare XYZ Businesses trial balance as at 31 December.
Question: What is the reason for extracting a trial balance?
Case study 4
Double entry book-keeping into a trail balance.
Given below is a bank account ledger account for the month of March. You are required to ‘balance off’ the ledger account and put the information into a trail balance.
Bank
Date £ Date £
1 Mar Capital 12,000 3 Mar Purchases 3.000
7 Mar Sales 5,000 15 Mar Non-current asset 2,400
19 Mar Sales 20 Mar Purchases 5,300
22 Mar Sales 24 Mar Rent 1,000
28 Mar Drawings 1,000
31 Mar Balance C/f 8,300
22,000
1 Apr Balance b/d
Question: What is the purpose of double entry book-keeping?
Trail Balance
Dr Cr
£ £
Bank
Capital
Van
Drawings
Sales
Rent
