Double Entry Book Keeping Rules Chapter -03

DOUBLE ENTRY BOOK KEEPING

RULES

QUESTION 1
1. Purchased building for cash $10,000
2. Purchased goods from C on credit $1,000
3. Sold goods to R on credit $2,000
4. Mr. X provided loan to the business $5,000
5. Purchase goods for $2,000
6. Sold goods for $1,000
7. Purchased furniture from Mr. Z on credit $10,000
8. Salaries paid $1,000 through bank
9. Loan from bank obtained $10,000
10. Loan of bank repaid $5,000
11. Mr. X invested in business of $5,000
12. Plant sold for $1,000
13. Furniture sold to Mr. C on credit $1,000
14. Trade payables were paid through bank $5,000
15. Rent of the building paid $500
16. Two tables costing $100 were purchased on credit from Mr. S
17. Repair and maintenance expenses paid $100
18. Salaries expenses paid $1,000
19. Machinery costing $100 purchased on credit from K & Co.
20. Computer costing $1,500 purchased against cash
21. Cash withdrawn from bank $1,000
22. Cash deposited into bank $500
23. Goods purchased for $100
24. Goods purchased from N & Co for $200 on credit
25. $100 was paid to N & Co
26. Computer sold to John & Co for $300
27. John & Co paid $200 to the business
28. Fresh capital invested by Mr. T $2,000
29. Two trade payables paid through bank $500
30. Paid office expenses $300

Required:
Pass the necessary double entries.
Double Entry Book Keeping Rules Chapter -03

QUESTION 2
Grace commenced business on 1 June 20X9 with cash of $5,000 and she introduced a car valued at
$4,500. The following transactions took place.
1 June Purchased goods for $1,000 cash
2 June Purchased fixtures and fittings $900 for cash
3 June Purchased goods on credit from Eileen $1,500
4 June Sold goods for $1,200 cash
5 June Sold goods on credit to Tom for $900
8 June Paid wages $100 in cash
9 June Bought goods from Eric for $850 on credit
10 June Sold goods to Trevor $800 on credit
11 June Sold goods on credit to Tom for $1,000
12 June Paid Eileen $1,350
15 June Tom paid in full
16 June Purchased $700 goods for cash
17 June Sold $500 goods for cash
18 June Trevor paid $500
19 June Paid wages $150
22 June Paid Eric in full
24 June Loan received from Guy$1,000
25 June Purchased a computer system for $4,000
26 June Paid wages $ 150.

Required:
1. Pass the necessary journal entries
2. Write up the ledger accounts for the month of June
3. Prepare a trial balance
4. Draw a Statement of Profit or Loss
5. Statement of Financial Position

(Ignore dates in the ledger accounts)

Double Entry Book Keeping Rules Chapter -03

PRACTICE QUESTIONS
1) What ledger entries would be made to record the purchase of an item of machinery on
credit?
a) Debit machinery, credit cash
b) Debit machinery, credit trade payables
c) Debit purchases, credit trade payables
d) Debit trade payables, credit machinery

2) What transaction is presented by the entries: debit bank, credit M Smith?

a) Sale of goods to Smith for cash
b) Purchase of goods from Smith for cash
c) Receipt of cheque from Smith
d) Payment of cheque to Smith

3) What ledger entries would be made to record cash withdrawn by the business
proprietor for his personal use?
a) Debit capital, credit drawings
b) Debit cash, credit drawings
c) Debit drawings, credit capital
d) Debit drawings, credit cash

4) What transaction is represented by the entries: debit rent, credit landlord?

a) The receipt of rental income by the business
b) The issue of an invoice for rent to a tenant
c) The payment of rent by the business
d) The receipt of bill rent payable by the business

5) What ledger entries would be made to record goods withdrawn by the business
proprietor for his personal use?
a) Debit drawings, credit purchases
b) Debit purchases, credit drawings
c) Debit capital, credit drawings
d) Debit purchases, credit sales

6) Customer Ltd receives goods from Supplier Ltd on credit. Subsequently, payment is
made by cheque. It then becomes apparent that the goods are faulty. This is discovered
just in time for Customer Ltd to record the cancellation of the cheque.
What would be the double entry for it?
a) Debit returns outwards, credit trade payables
b) Debit trade payables, credit returns outwards
c) Debit trade payables, credit bank
d) Debit bank, credit trade payables
Double Entry Book Keeping Rules Chapter -03

7) Which of the following is correct?

a) A debit entry will increase non-current assets
A debit entry will decrease drawings
A credit entry will increase trade payables
b) A debit entry will increase bank overdraft
A debit entry will decrease trade payables
A credit entry will increase profit
c) A credit entry will decrease drawings
A credit entry will increase profit
A credit entry will decrease fixed assets
d) A debit entry will increase profit
A credit entry will decrease drawings
A credit entry will increase bank overdraft

8) Which of the following statements concerning a debit entry is incorrect?

a) It records an increase in assets
b) It records a business expense
c) It records an increase in the liabilities of a business
d) It records a decrease in the liabilities of a business

9) Which of the following statement concerning a credit entry is incorrect?

a) Credit entries record increase in capital or liabilities
b) Credit entries record decrease in assets
c) Credit entries record increase in profits
d) Credit entries record increase in expenses

10) Horace started a business by paying $5,000 into a business bank account. What is the
accounting entries required to record this?
a) Dr Capital $5,000
Cr Bank $5,000
b) Dr Bank $5,000
Cr Capital $5,000
c) Dr Bank $5,000
Cr Drawings $5,000
d) Dr Drawings $5,000
Cr Bank $5,000

11) Andrea started a taxi business by transferring her car, worth $5,000, into the business.
What is the accounting entries required to record this?
a) Dr Capital $5,000
Cr Car $5,000
b) Dr Car $5,000
Cr Drawings $5,000
c) Dr Car $5,000
Cr Capital $5,000
d) Dr Car $5,000
Cr Bank $5,000
Double Entry Book Keeping Rules Chapter -03

12) The double entry for receipt of cash from a trade receivable is:
a) Debit sales Credit trade receivables
b) Debit trade receivables Credit cash
c) Debit cash Credit sales
d) Debit cash Credit trade receivables

13) A debit entry usually represents:

a) assets and Income
b) Liabilities and Income
c) Assets and Expenses
d) Liabilities and Expenses

14) The double entry to record the purchase of a motor van on credit is:
a) Debit: motor expenses Credit: cash
b) Debit: motor van Credit: cash
c) Debit: motor expenses Credit: Payable
d) Debit: motor van Credit: Payable

15) The double entry to record the withdrawal of cash from a business bank account by the
owner is:
a) Debit: drawings Credit: bank
b) Debit: drawings Credit: capital
c) Debit: liability Credit cash
d) Debit: capital Credit: drawings

16) The usual double entry to record the sale of stock for cash is:
a) Debit: stock account $300 Credit: sales account $300
b) Debit: cash account $300 Credit: sales account $300
c) Debit: cash account $300 Credit: stock account $300
d) Debit: cash account $300 Credit: stock account $200

17) A business sells goods on credit to a customer who pays one month later. When the
cash is received the double entry made is:
a) Debit: cash at bank account Credit: Trade receivables account
b) Debit: cash at bank account Credit: Trade payables account
c) Debit: trade receivables account Credit: Cash at bank account
d) Debit: Trade payables account Credit: Cash at bank account

18) A machine (cost $5,000) is bought on credit from X. Subsequently, $1,000 of the debt
to X is paid by cheque. Which of the following correctly records the transactions?
a) Debit X $5,000, credit machine $5,000. Debit bank $1,000, credit X $1,000
b) Debit X $5,000, credit machine $5,000. Debit X $1,000, credit bank $1,000
c) Debit machine $5,000, credit X $5,000. Debit bank $1,000, credit X $1,000
d) Debit machine $5,000, credit X $5,000. Debit X $1,000, credit bank $1,000
Double Entry Book Keeping Rules Chapter -03

19) The following entries appear in a cash account in March; payments by customers
$15,000, rents received $250, insurance paid $150, drawings $700, capital paid in
$2,000. The balance at 1st march was $2,000 (in hand) what was the closing balance at
31st March?
a) $14,400
b) $18,400
c) $15,800
d) $10,400

20) Which of the following would normally be a credit balance in the trial balance?
(i) Loan
(ii) Owner’s capital
(iii) Drawings
(iv) Purchases

a) (i) and (ii)

b) (i) and (iii)
c) (ii) and (iii)
d) (ii) and (iv)

21) A debit balance would be expected to arise when the accounts are balanced at the
period end on which of the following accounts:
a) Capital
b) Sales
c) Electricity
d) Loan

22) A credit balance would be expected to arise when the accounts are balanced at the
period end on which of the following accounts:
a) Drawings
b) Telephone
c) Trade receivables
d) Trade payables

23) Which of the following statement concerning a credit entry is incorrect?

a) Credit entries record increase in capital or liabilities
b) Credit entries record decrease in assets
c) Credit entries record increase in profits
d) Credit entries record increase in expense

24) What is the general ledger?

a) The book where all transactions are originally recorded before being posted to ledger accounts
b) The book which contains a ledger account for each type of asset, liability, expense and income
c) The book which contains all of the details of the fixed assets
d) The book which contains all of the details of the trade debtors
Double Entry Book Keeping Rules Chapter -03

25) Which of the following would normally be a debit balance on the ledger account?
(i) Sales
(ii) Rent
(iii) Drawings
(iv) Capital

a) (i) and (iii)

b) (ii) and (iii)
c) (i) and (iv)
d) (ii) and (iv)

26) Machinery account has a debit balance of $4,000. What entries will occur at the end of
the year to take this balance into the next period?
a) Dr Machinery balance c/d Cr Machinery balance b/d
b) Cr Machinery balance c/d Dr Machinery balance b/d
c) Dr Machinery balance c/d Dr Machinery balance b/d
d) Cr Machinery balance c/d Cr Machinery balance b/d

27) Capital account has a credit balance of $40,000. What entries will occur at the end of
the year to take this balance into the next period?
a) Dr Capital balance c/d Cr Capital balance b/d
b) Cr Capital balance c/d Dr Capital balance b/d
c) Dr Capital balance c/d Dr Capital balance b/d
d) Cr Capital balance c/d Cr Capital balance b/d

28) A business buys equipment costing $1,000 and sells equipment costing $800 in the
year. The opening balance of the equipment account is $1,000. What will be the balance
brought down to the next period?
a) Dr $800
b) Cr $800
c) Dr $1,200
d) Cr $1,200

29) A business buys machinery costing $2,000 and sells machinery costing $1,800 in the year. The
opening balance of the equipment account is $2,000. What will be the balance brought down in the
next period?
a) Dr $1,800
b) Cr $1,800
c) Dr $2,200
d) Cr $2,200

30) A company had a cash balance of $800 at the start of the month. During the month, the
following transactions occurred.
(i) Sales on credit $7,200
(ii) Cash from trade receivables $4,900
(iii) Purchases on credit $3,300
(iv) Payments to trade payables $3,500
Double Entry Book Keeping Rules Chapter -03

What was the cash balance at the end of the month?

a) $4,500
b) $2,900
c) $2,400
d) $2,200

31) Which of the following best describes the process known as ‘double entry
bookkeeping’?
a) It is a process whereby every transaction is recorded by two equal accounting entries, a debit and
a credit
b) It is a process whereby every transaction is recorded by two accounting entries, a debit and a
credit
c) It is an accounting system which automatically producers the accounts of a business
d) It is an accounting system which guarantees that errors cannot occur

32) Where do drawings appear?

a) They do not appear in the Statement of Financial Position, they are added in expenses in the
Statement of Profit or Loss and Comprehensive Income
b) They do not appear in the Statement of Comprehensive Income, they are deducted from owner’s
capital in the Statement of Financial Position
c) They do not appear in the Statement of Financial Position or the Statement of P & L and OCI
d) They are added in owner’s capital in Statement of Financial Position

33) Oscar runs a sole trader business selling computers. On 12 January 20X7, he employed
his daughter as an administrator for the business and took a computer from the store
room for her to use in the office.

What is the double entry for this transaction?

a) Dr Drawings Cr Cost of sales
b) Dr Non-current assets Cr Cost of Sales
c) Dr Cost of Sales Cr Drawings
d) Dr Cost of sales Cr Non-current assets

34) Which of the following items appear on the same side of the trail balance?
a) Drawings and accruals
b) Carriage outwards and prepayments
c) Carriage inwards and rental income
d) Opening inventory and purchase returns

35) The double –entry system of book-keeping normally results in which of the following
balances on the ledger accounts?
Debit balances : Credit balances :
a) Assets and revenues Liabilities , capital and expenses
b) Revenues , capital and liabilities Assets and expenses
c) Assets and expenses Liabilities , capital and revenues
d) Assets, expenses and capital Liabilities and revenues
Double Entry Book Keeping Rules Chapter -03

36) The most important reason for producing a trial balance prior to preparing the final
accounts is:
a) it confirms the accuracy of the ledger accounts
b) it provides all the figures necessary to prepare the final accounts
c) it shows that the ledger accounts contain debit and credit entries of an equal value
d) it enables the accountant to calculate any adjustments required

37) Elijah started the month with a positive balance of $1,780 on his bank account. What is
the balance after the following transactions in June?
1. Elijah withdraws $200 per week to cover living expenses.
2. A settlement discount of $30 is taken by a customer on a sale of $600.
3. An amount of $400 is received from a credit customer.
4. Banking of $ 1,200 cash sales.

a) $3,750
b) $3,150
c) $3,180
d) $2,580

38) Andrea started a taxi business by transferring her car, worth $5,000, into the business.
What is the accounting entry required to record this?
a) Dr Capital $5,000, Cr Car $5,000
b) Dr Car $5,000, Cr Drawings $ 5,000
c) Dr Car $5,000, Cr Capital $ 5,000

39) Wilson has returned goods which he bought on credit. What journal entry should Wilson
make in his general ledger?
a) Debit Purchase returns
Credit Trade payables
b) Debit Trade payables
Credit Bank
c) Debit Bank
Credit Trade payables
d) Debit Trade payables
Credit Purchase returns

40)Harvey’s trial balance includes a balance for his drawings.

How should this balance be treated in the final accounts?
a) as expenses in the Statement of P & L and OCI
b) as income in the Statement of P & L and OCI
c) as a reduction in capital
d) as an increase in capital
Double Entry Book Keeping Rules Chapter -03

41) Sasha has prepared a draft income statements for her business:
$ $
Sales 256,800
Cost of sales
Opening inventory 13,400
Purchases 145,000
Closing inventory 14,200
(144,200)
Gross Profit 112,600
Expenses (76,000)
Net Profit 36,600

Sasha has not yet recorded the following items:

 Carriage in of $2,300

 Discounts received of $3,900

 Discounts allowed of $1,950

After these amounts are recorded, what are the revised gross and net profits of Sasha s business?

Gross profit Net Profit

$ $
a) 108,350 36,250
b) 108,350 28,450
c) 110,300 28,450
d) 110,300 36,250