ACCOUNTING FOR LEGAL ASSISTANTS

TRIAL BALANCE

Introduction

Definitions

This is a list of debit and credit balances of the ledger accounts as at a specific date.

Uses of a trial balance

• To check the arithmetic accuracy of the work done when posting and balancing the ledger
accounts. If both the debit column total and the credit column total of the Trial balance agrees,
it is a confirmation that the arithmetic computations were correctly done. It is to mean that
correct additions and subtractions were done in the ledger accounts.

• It is used to check whether the double entry system has been observed when posting
transactions to the ledger accounts i.e. for every debit entry, make a corresponding credit entry.

• It provides a simple summary of the work done in the ledger accounts by listing down the
balances of the individual ledger accounts.

• The trial balance provides the information needed to prepare the trading and profit and loss
account and the balance sheet of the business at the end of the trading period.

Illustration

Post the following transactions to the ledger a/c, balance off the accounts and prepare a trial
balance as at 30/4/08.

• 1/4/98 Owner started business with shs50,000 cash

• 2/4/98 Received shs20, 000 cash as bank loan
• 4/4/98 Bought goods worth shs5, 000 and paid by cash
• 8/4/98 Deposited part of the cash in hand shs8,000 into the business bank
a/c
• 11/4/98 converted a personal vehicle worth shs10, 000 into a business
vehicle
• 15/4/98 Bought stock worth shs7, 000 on credit from Isaac
• 20/4/98 Bought furniture worth shs2, 000 and paid by cash.
• 24/4/98 Paid Isaac shs3, 000 using a cheque
• 30/4/98 Withdrew shs1, 000 cash from the business for own use

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Cashbook

Date Particulars Cash Bank Date Particulars Cash Bank

1/4/98 Capital a/c 50,000 4/4/98 Stock a/c 5,000

2/4/98 Bank loan a/c 20,000 8/4/98 Bank a/c 8,000

8/498 Cash a/c 8000 20/4/98 Furniture 2,000

24/4/98 Isack 3000

30/4/98 Drawings 1,000

30/4/98 Balance c/d 54,000 5000

70,000 8000 70,000 8000

1/5/98 Balance b/d 54,000 5000

DR CAPITAL A/C CR

Date Particulars Folio Shs Date Particulars Folio Shs

1/4/98 Cash a/c 50,000

11/4/98Motor vehicle 10,000

30/4/98 Balance c/d 60,000 _____

60,000 60,000

1/5/98 Balance b/d 60,000

DR Drawings account CR

30/4 Cash a/c 1000

____ 30/4 Bal cfwd 1000

1000 1000

1/5 Bal bfwd 1000

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DR BANK LOAN A/C CR

Date Particulars Folio Shs Date ParticularsFolio Shs

2/4/98 Cash a/c 20,000

30/4/98 Balance c/d 20,000 _____

20,000 20,000

1/5/98 Balance b/d 20,000

DR Purchases CR

Date Particulars folio Shs Date Particulars Folio Shs

4/4/98 Cash a/c 5,000

15/4/98 Creditor a/c 7,000

30/4/98 Balance c/d 12,000

12,000 12,000

1/5/98 Balance b/d 12,000

DR BANK A/C CR

Date Particulars Folio Shs Date Particulars Folio Shs

8/4/98 Cash a/c 8,000

24/4/98 Creditor(Isaac) a/c 3,000

30/4/98 Balance c/d 5,000

8,000 8,000

1/5/98 Balance b/d 5,000

DR MOTOR VEHICLE A/C CR

Date Particulars Folio Shs Date Particulars Folio Shs

11/4/98 Capital a/c 10,000 30/4/98 Balance c/d 10,000

10,000 10,000

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1/5/98 Balance b/d 10,000

DR CREDITOR (ISAAC) A/C CR

Date Particulars Folio Shs Date Particulars Folio Shs

15/4/98 Purchases 7,000

24/4/98 Bank a/c 3,000

30/4/98 Balance c/d 4,000 _____

7,000 7,000

1/5/98Balance b/d 4,000

DR FURNITURE A/C CR

Date Particulars Folio Shs Date Particulars Folio Shs

20/4/98 Cash a/c 2,000

_____ 30/4/98 Balance c/d 2,000

2,000 2,000

1/5/98 Balance b/d 2,000

TRIAL BALANCE AS AT 30/4/98

NAME OF ACCOUNT DEBIT BALANCES(Sh) CREDIT BALANCES (sh.)
Purchases account 12,000
Cash account 54,000
Capital account 60,000
Drawings account 1000
Bank account 5,000
Bank loan account 20,000
Motor vehicle account 10,000
Furniture account 2,000
Creditor‐Isaac account _____ 4,000
Totals 84,000 84,000

Drawings
• Drawings consist of the business assets e.g. Cash or stock taken out of the business by the
owner for private use. The owner has no obligation to refund the cash or to pay for those
goods. When the owner makes some drawings from his business he actually reduces his
investment or capital in that business. However, the value of such assets is debited in the
drawings account.
• Example

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• 1/2/99, the owner withdrew shs1, 000 cash from the business for personal use.
• 2/2/99, the owner withdrew stock worth shs4, 000 for his domestic use .
Post these transactions to the relevant ledger accounts.

Workings

DR CASH A/C CR
shs
1/2/99 Drawings a/c 1,000

DR DRAWINGS A/C CR
Shs
1/2/99 Cash a/c 1,000
2/2/99 Stock a/c 4,000

DR STOCK A/C CR
Shs
2/2/99 Drawings a/c 4,000

ASSET OF STOCK
• Stock refers to the goods purchased by the business for resale purposes or for use in the
business e.g. stationery stock. Saleable stock can be analyzed in the following classes for
accounting purposes.

• Opening stock – this is the value of the goods in the business at the beginning of the accounting
period. It consists of the unsold stock in the previous period carried forward to the current
accounting period. The value of the opening stock is debited in the opening stock account.
• 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. E.g. on 1/3/98, the
business bought goods worth shs2, 000 and paid by cash.

DR PURCHASES A/C CR
Shs
1/3/98 Cash a/c 2,000

DR CASH A/C CR
shs
1/3/98 Purchases a/c 2,000

Sales
• Goods sold by the business to its customers and credited in the sales a/c at their selling price
value. E.g. 3/3/98, the business made cash sales amounting to shs1, 000.

DR SALES A/C CR
shs
3/3/98 Cash a/c 1,000

DR CASH A/C CR

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shs
3/3/98 Sales a/c 1,000
Sales returns or returns inwards
Goods returned to the business by the customers for various reasons, which include: Excess, expired,
poor quality, and damaged, substandard, poor color. e.g. on 4/3/98 One of the customers returned
goods which he had bought at shs200 complaining that they were of poor quality and was refunded cash
by the business.

DR Returns inwards a/c CR

shs
4/3/98 Cash a/c 200

DR Cash a/c CR
shs
4/3/98 Returns inwards a/c 200

Summary

Purchases Sales

Supplier Business Customer

Purchases returns/ Sales returns/

Returns outwards Returns inwards

Closing stock

• This is the value of the unsold stock at the end of the accounting period. Their value is
determined by making a physical count of each item. The number of stock items remaining is
multiplied with their cost price to get the value of the closing stock.

• The value of the closing stock is debited in the closing stock a/c

A Worked Out Example

The following transactions took place in the month of February 1998 in Kasuku’s business.

1/2/98 Kasuku invested shs50, 000 cash in the business

3/2/98 Bought stock worth sh15, 000 and paid by cash

5/2/98 Returned some broken stock items worth shs500 and was refunded cash

6/2/98 Bought more stock worth shs4, 000 from Isaac on credit

7/2/98 Deposited shs5, 000 cash into the business bank a/c

11/2/98 Made cash sales amounting to shs20, 000

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15/2/98 Bought furniture worth shs3, 000 and paid by cash

20/2/98 Made credit sales to Kamau worth shs6, 000

22/2/98 Kamau returned goods worth shs500 because they had expired

25/2/98 Paid Isaac shs2, 000 using cash

28/2/98 Received a cheque of shs3, 000 from Kamau

28/2/98 Kasuku withdrew shs1, 000 cash from the business for personal use

Required

Open the relevant ledger accounts and post the above transactions. Balance off the accounts as at
28/2/98

Prepare a trial balance as at 28/2/98

SOLUTION

DR CAPITAL A/C CR

Shs shs

1/2/98 Cash a/c 50,000

28/2/98 Balance c/d 50,000

50,000 50,000

1/3/98 Balance b/d 50,000

DR CASH A/C CR

Shs shs

1/2/98 Capital a/c 50,000 3/2/98 Purchases a/c 15,000

5/2/98 Returns outwards 500 7/2/98 Bank a/c 5,000

11/2/98 Sales a/c 20,000 15/2/98 Furniture a/c 3,000

25/2/98 Creditors a/c 2,000

28/2/98 Drawings a/c 1,000

28/2/98 Balance c/d 44,500

70,500 70,500

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1/3/98 Balance b/d 44,500

DR PURCHASES A/C CR

Shs Shs

3/2/98 Cash a/c 15,000

6/2/98 Creditor a/c (Isaac) 4,000 28/2/98 Balance c/d 19,000

19,000 19,000

1/3/98 Balance b/d 19,000

DR RETURNS OUTWARDS A/C CR

Shs Shs

28/2/98 Balance c/d 500 5/2/98 Cash a/c 500

500 500

1/3/98 Balance b/d 500

DR CREDITOR A/C(Isaac) CR

Shs Shs

25/2/98 Cash a/c 2,000 6/2/98 Purchases a/c 4,000

28/2/98 Balance c/d 2,000 _____

4,000 4,000

• 1/3/98 Balance b/d 2,000

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DR BANK A/C CR
Shs Shs
7/2/98 Cash a/c 5,000
28/2/98 Debtors a/c 3,000 28/2/98 Balance c/d 8,000
8,000 8,000
1/3/98 Balance b/d 8,000
DR SALES A/C CR
Shs Shs
28/2/98 Balance c/d 26,000 11/2/98 Cash a/c 20,000
20/2/98 Debtors a/c 6,000
26,000 26,000
1/3/98 Balance b/d 26,000
DR FURNITURE A/C CR
Shs Shs
15/2/98 Cash a/c 3,000
_____ 28/2/98 Balance c/d 3,000
3,000 3,000
1/3/98 Balance b/d 3,000
•
DR BANK A/C CR
Shs Shs

7/2/98 Cash a/c 5,000

28/2/98 Debtors a/c 3,000 28/2/98 Balance c/d 8,000

8,000 8,000

1/3/98 Balance b/d 8,000

DR SALES A/C CR

Shs Shs

28/2/98 Balance c/d 26,000 11/2/98 Cash a/c 20,000

20/2/98 Debtors a/c 6,000

26,000 26,000

1/3/98 Balance b/d 26,000

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DR FURNITURE A/C CR

Shs Shs

15/2/98 Cash a/c 3,000

_____ 28/2/98 Balance c/d 3,000

3,000 3,000

1/3/98 Balance b/d 3,000

DR DEBTORS A/C (Kamau) CR

Shs Shs

20/2/98 Sales a/c 6,000 22/2/98 Returns inwards 500

28/2/98 Bank a/c 3,000

_____ 28/2/98 Balance c/d 2,500

6,000 6,000

1/3/98 Balance b/d 2,500

DR RETURNS INWARDS A/C CR

Shs Shs

22/2/98 Debtors a/c 500 28/2/98 Balance c/d 500

500 500

1/3/98 balance b/d 500

DR DRAWINGS A/C CR

Shs Shs

28/2/98 Cash a/c 1,000 28/2/98 Balance c/d 1,000

1,000 1,000

1/3/98 Balance b/d 1,000

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NAME OF ACCOUNT DEBIT BALANCE CREDIT BALANCE

Capital a/c 50,000

Cash a/c 44,500

Purchases a/c 19,000

Returns outwards a/c 500

Creditors a/c 2,000

Bank a/c 8,000

Sales a/c 26,000

Furniture a/c 3,000

Debtors a/c 2,500

Returns inwards a/c 500

Drawings 1,000 ______

TOTALS 78,500 78,500

EXPENSES

• These are the operating costs incurred by the business. Operating costs includes: advertising
expenses, insurance expenses, electricity bills, telephone bills, rent expenses, transportation
cost, etc. Expenses do not include the cost of goods sold.

Rule governing the recording of transactions on an expense account

• An increase in the amount of an expense/payment is debited in the respective expense a/c

while a decrease is credited in the respective expense a/c.

DR EXPENSE A/C CR

INCREASE (+) DECREASE (‐)

Carriage Inwards

• 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.

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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.

SUPPLIER BUSINESS CUSTOMER

Carriage inwards Carriage outwards
Transport cost on Purchase Transport cost on sales

Discount allowed account

• This is the allowance given by the business to the credit customers (debtors) who pay their
debts before the due date. In this case the customer pays less than the amount due from him or
her.
• The amount of discount allowed is a business operating expense that is debited in the discount
allowed a/c.
•
DR DISCOUNT ALLOWED A/C CR
Shs
15/1/98 Debtor (Xee Yii) 500

INCOMES
• These are business earnings from various sources. For example, sales income, rent income,
dividend income and bank interest earnings or deposits, discount received.

Rule governing the recording of transaction in an income account

• An increase in the amount of income is recorded on the credit side of the respective income a/c
while a decrease is recorded on the debit side of the respective income a/c

Discount received

This is an allowance given to the business by the creditors when the business makes an early settlement
of its debts. In this case the business pays less than what it owed and therefore makes some savings
that is treated as a form of income by the business.

Illustration

• On 1/1/99,a business bought goods worth shs10, 000 on credit from Naomi. The business was
given a credit period of thirty days to pay for those goods. The debt was settled by cash on
4/1/99 and therefore received a cash discount of 10% due to early settlement of its debts.

Note: Discount received from the suppliers is a savings to the business and therefore treated as a
business income Double entries for the above transactions are as shown below.

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Solution
DR PURCHASES A/C CR
Shs Shs
1/1/99 Creditors a/c (N) 10,000
DR CREDITORS (N) A/C CR

Shs Shs
4/1/99 Cash a/c 9,000 1/1/99 Purchases 10,000
4/1/99 Discount received a/c 1,000 ______
10,000 10,000

DR DISCOUNT RECEIVED A/C CR

Shs
4/1/99 Creditors a/c 1,000

DR CASH A/C CR
Shs
4/1/99 Creditors a/c(Net) 9,000

Main Illustration

The following transactions took place in Naikuni’s business during the month of August 1998.
1/3/98 Owner started business with shs40, 000 cash
2/3/98 Bought furniture worth shs4, 000 and paid by cash
3/3/98 Deposited shs10, 000 cash into the business bank a/c
5/3/98 Paid electricity expense worth shs3000 by a cheque
9/3/98 Bought goods worth shs30, 000 on credit from Beatrice
9/3/98 Paid shs800 cash as transportation costs of moving the purchases from the suppliers premises to
the business premises
14/3/98 Returned goods worth shs1400 to Beatrice as they had expired
16/3/98 Made credit sales to Moses worth shs 36,000
18/3/98 Received bank interest income amounting to shs2, 000 in form of cash
19/3/98 Bought goods worth shs6, 000 from Tom on credit
26/3/98 Sold goods on credit to Irene worth shs8, 000
29/3/98 Irene paid her dues using a cheque less 5% cash discount
31/3/98Received a cheque of shs8, 000 as rent income

Required
I. Open the relevant ledger accounts and post the above transactions

II. Balance off the accounts as at 31/8/98

III. Prepare (extract) the trial balance as at 31/8/98

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Dr Cash Book Cr
Date Details Cash Bank Date Details Cash Bank
1/3 Capital 40000
2/3 Furniture 4000
3/3 Cash 10000 3/3 Bank 10000
5/3 Electricity 3000
9/3 Carriage 800
18/3 Interest 2000
29/3 Irene – Debtor 7600
31/3 Rent Income 8000
31/3 Balance cfwd 27200 22600
42000 25600 42000 25600

Dr Capital Cr
31/3 Bal cfwd 40000 1/3 Cash 40000
31/3 Bal cfwd 40000

Dr Furniture Cr
2/3 Cash 4000 31/3 Bal Cfwd 4000
31/3 Bal bfwd 4000

Dr Electricity Expe a/c Cr

5/3 Bank 3000 31/3 P&L 3000

Dr Purchases a/c Cr
9/3 Beatrice 30000
19/3 Tom 6000 31/3 Trading a/c 36000
36000 36000

Dr Carriage In a/c Cr
9/3 Cash 800 31/3 Trading a/c 800

Dr Creditor – Beatrice a/c Cr

9/3 Purchases 30000
14/3 Creditors – Beatrice 1400
31/3 Bal cfwd 28600 ____
30000 3000
1/4 Bal cfwd 28600

Dr Returns Outwards a/c Cr

31/3 Trading a/c 1400 14/3 Creditor 1400

Dr Sales a/c Cr
14/3 Debtors ‐ Moses 36000
26/3 Debtors‐ Irene 8000
31/3 Trading a/c 44000 _____
44000 44000

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Dr Debtors‐Moses a/c Cr
14/3 Sales 36000
______ 31/3 Bal cfwd 36000
36000 36000
1/4 Bal bfwd 36000

Dr Bank Interest a/c Cr

18/3 Cash 2000
31/3 P & L a/c 2000 ____
2000 2000
Dr Creditor‐Tom a/c Cr
14/3 Purchases 6000
31/3 Bal cfwd 6000 _____
6000 6000
31/3 Bal bfwd 6000
Dr Debtors‐Irene a/c Cr
26/3 Sales 8000 29/3 Bank 7600
29/3 Disc Allowed 400
8000 8000

Dr Discount Allowd a/c Cr

29/3 Debtor ‐ Irene 400 31/3 P& L 400

Dr Rent Income a/c Cr

31/3 P & L 8000 31/3 Bank 8000

Naikuni’s
Trial Balance as at 31.3.98
Account Dr Cr
Capital 40000
Bank 27200
Cash 22600
Furniture 4000
Electricity expense 3000
Purchases 36000
Carriage In 800
Creditors ( 28600 + 6000) 34600
Return outwards 1400
Sales 44000
Debtors 36000
Interest Income 2000
Discount Allowed 400
Rent Income ______ 8000
130000 130000

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