Using the information given in exercise 2.

6, analyse the transactions in debit_credit form showing, in each

case, that the extended accounting equation is maintained, e.g.

Williams bought a car for £10,000 cash, on 1 February 20X4.

Debit
Credit

Exercise 2.6:
Treat each of the following transactions separately.
1. On 3 November 20X3 Williams sold goods, for £7,000 cash, the cost of the goods to him being £5,000.
2. He received a legacy of £2,000 which he paid into his business bank account on 7 February 20X4.
3. He ordered a new van costing £9,000 on 15 March 20X4.
4. He received £13,000 from a customer on 1 November 20X3 in settlement of a debt.
5. In December 20X3 Williams sent the wrong type of goods to Smith. The goods which had cost Williams
£2,500 were invoiced to Smith at £3,000. In January, Smith drew Williams’s attention to the error and Williams
agreed the fault was his. Smith, who had not paid for the goods, returned them to Williams in January. Analyze
the January transaction.
6. As (5) except that Smith had paid for the goods before discovering the error.
7. Williams paid his rent in arrears. On 2 January 20X4 he paid £5,000 for the quarter from 1 October 20X3 to
31 December 20X3.
8. On 13 October 20X3 Williams withdrew £500 from his business bank account for his own use.
9. Some of the goods sold on 5 November 20X3 by Williams to Jones were defective. The selling price of the
goods was £10,000, the cost price was £8,000. After some correspondence, Williams agreed, on 1 December,
that the matter would be settled by his reducing the selling price from £10,000 to £9,500. Jones had not paid
for the goods by 1 December. Analyze the December transaction.
10. Davies ordered 2 gross of goods from Williams in December 20X3. Since Williams did not know Davies, he
asked Davies to pay a deposit of £3,000 which Davies did on 18 December 20X3; Williams thereupon ordered
the goods from his supplier on 20 December 20X3. He received the goods on 5 January 20X4; the goods cost
Williams £4,500. Williams sent them to Davies on 12 January, invoicing him for £6,000. Williams paid his
supplier on 10 February 20X4 and Davies paid Williams the balance due on 22 February 20X4. Analyze all the
above transactions.
Complete an analysis sheet (as used in Figure, but keeping each transaction separate), recording the above
transactions.
£10,000 increase assets (car)
£10,000 reduce assets (cash)

Answer 2.6
Cash Inventory Accounts Receivable Unearned revenue
1 £ 7,000 -£ 5,000
2 £ 2,000
3 No entry
4 £ 13,000 -£ 13,000
5 £ 2,500 -£ 3,000
6 -£ 3,000 £ 2,500

7 -£ 5,000
8 -£ 500

9 -£ 500
18-Dec £ 3,000 £ 3,000

5-Jan £ 4,500

12-Jan £ 3,000 -£ 4,500 -£ 3,000

22-Feb -£ 4,500
Accounts payable Rent payable Equity
£ 2,000
£ 2,000

-£ 500
-£ 500

-£ 5,000
-£ 500

-£ 500

£ 4,500

£ 1,500

-£ 4,500
(7000 less 5,000)
owner's equity

sales returns & allowances 3,000 and cost of goods sold 2,500
sales returns & allowances 3,000 and cost of goods sold 2,500

owner's drawings

reduction in sales of 500(10,000 less 500)

sales 6,000 less cost of goods sold 4500