Theory question 107
Double Entry and the Ledger7. S. Momoh commenced business on 1st April, 2005 with D 800,000 paid into the bank. During the month, he made the following transactions:
April 2 Bought goods by cheque D360,000
3 Withdrew cash of D200,000 for office use.
6 Received cash loan of D40,000 from S. Fowe.
10 Bought goods on credit for D80,000 from L. Maw.
13 Rent of D100,000 for business premises was paid by cheque.
16 Bought goods on credit from Lawrenco Ltd for D60,000.
18 Insurance premium of D30,000 was paid by cheque.
21 Sold goods for D120,000 receiving cheque in payment
25 Paid Lawrenco Ltd a cheque for D60,000
26 Bought an equipment for D40,000 from Nwoke and Co. on credit
27 Paid L. Maw a cheque of D80,000
28 Paid Nwoke and Co. a cheque for D40,000
29 Sold goods for D47,000 receiving a cheque in payment
30 Wages and salaries of D90,000 was paid in cash.
You are required to enter the above transactions in ledger accounts, balance the accounts, and extract a trial balance as at 30th April, 2005.
Show the model answer
Bank: Dr capital 800,000, sales 120,000 + 47,000 = 967,000; Cr purchases 360,000, cash 200,000, rent 100,000, insurance 30,000, Lawrenco 60,000, L. Maw 80,000, Nwoke 40,000; balance 97,000.
Cash: Dr bank 200,000, loan 40,000; Cr wages 90,000; balance 150,000.
Purchases 360,000 + 80,000 + 60,000 = 500,000. Sales 167,000. Equipment 40,000. L. Maw, Lawrenco and Nwoke accounts all balance to nil.
Trial balance at 30th April 2005: Debit – bank 97,000; cash 150,000; purchases 500,000; rent 100,000; insurance 30,000; equipment 40,000; wages and salaries 90,000; total 1,007,000. Credit – capital 800,000; sales 167,000; loan (S. Fowe) 40,000; total 1,007,000.
Withdrawing cash for office use is a transfer from bank to cash, not drawings.