BFC1010: Fundamentals of Accounting

BFC1010: Fundamentals of Accounting
BFC1010: FUNDAMENTALS OF ACCOUNTING

DEPARTMENT OF APPLIED ACCOUNTING
ADDITIONAL STUDENT NOTES AND QUESTION
BANK
2019
Page 1
Table of Contents
1. SIMPLE AND COMPOUND INTEREST...........................................................................3
2. JOURNALS.....................................................................................................................14
3. CONTROL ACCOUNTS.................................................................................................47
4. GENERAL LEDGER AND TRIAL BALANCE.................................................................51
5. INVENTORY (PERIODIC METHOD).............................................................................63
Page 2
1. SIMPLE AND COMPOUND INTEREST
Every business at some time will borrow or invest money. If you wish to borrow money you must
pay for the use of that money (interest expense). If you invest money you will earn income on the
money invested (interest income), because you are giving up the right to use that money for a
certain period.
After studying these chapters, you should be able to:

- Understand the difference between simple and compound interest
- Calculate the different simple and compound interest formulae
1.1 Simple interest

Simple interest is used when a loan or investment is repaid in one lump sum and is usually used
for short-term loans or investments. The formula used to calculate simple interest is:
i = Pxrxt
The price paid for using the money is called interest ( i ) in Rand
The capital you borrowed is the principal (P) or present value (Pv)
The time period (t) or (n) is always expressed in terms of a year
The sum to be repaid (equal to the principal/present value plus interest) is called the
amount (A) or future value (Fv).
The interest rate is ( r).
Example 1
Find the simple interest on R600 for 4 years at 2% per annum.
i = Pxrxt where: P or Pv = R600

= R600 x 0.02 x 4 r = 0.02 or 2%
= R48 t or n = 4 years
Note: Time (t or n) is always expressed in terms of a year.
Page 3
Example 2
Find the simple interest on R10 000 invested for 9 months at 15% p.a..
i = Pxrxt where: P or Pv = R10 000

9
= R10 000 x 15 % x 12 r = 0.15 or 15%
= R1 125 t or n = 9 months
(12 months is 1 year)
9
Note: Time (t or n) is always expressed in terms of a year, therefore 12
Example 3
Find the simple interest on R350.60 for 82 days at 5% p.a.
i = Pxrxt where: P or Pv = R350.60

82
= R350.60 x 5 % x 365 r = 0.05 or 5%
= R3.94 t or n = 82 days
(365 days is 1 year)
82
Note: Time (t or n) is always expressed in terms of a year, therefore 365
82
Do not round off t or n in a sum. Thus 365 stays that, you do not use 0.22.
t or n (time period) Denominator (time periods in a year)

Days 365
Weeks 52
Months 12
Quarterly 4
Biannually 2
Annually 1
1.1.1 Calculating interest over a number of days

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Note: The first day is not counted, but the last day is counted.
Example 1
Find the number of days from 2nd March to 3rd July
March 29 days (31 – 2)

April 30 days
May 31 days
June 30 days
July 3 days
Total 123 days

123
t = 365
Example 2
Loan R15 000 from the bank from 7 April to 28 September at 20% simple interest per
annum. Calculate the interest.
April ………………..
May ………………..
June ………………..
July ………………..
August ………………..
September ………………..
Total ………………..
i = Pxrxt
= R15 000 x ………. x ……….
= ………………..
Page 5
Note: In a leap year February has 29 days and then there are 366 days in the year. A leap
year occurs every four years. (The year 2000 was a leap year therefore the next leap
year would occur in 2004, then 2008, then 2012 etc.)
Days in each month:

Januar Februar Marc Apri Ma Jun Jul Augus Septemb Octobe Novemb Decemb
y y h l y e y t er r er er
31 28 31 30 31 30 31 31 30 31 30 31
1.1.2 Finding the principal (P) / present value (Pv)
i = Px r x t or i = Pv x r x n
By using the rules for changing the subject of the formula:
Make P or Pv the subject of the formula (Calculate principal/present value)

i
P = rxt or Pv = ………………..
Example 1
An investment is made at the bank for 2 years at a simple interest rate of 20% per annum.
The interest received is R2 000. How much money was originally invested?
i = R2 000
r = 20%
t = 2
P = ?
i = Prt (to find the principal, make P the subject of the formula)
i
P = rxt
R2 000
P = 0. 20 x 2
P = R5 000
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1.1.3 Finding the principal (P)/present value (Pv), amount and (A)/future value (Fv),
The principal (P)/present value (Pv) is the original amount borrowed or invested.
The amount (A)/future value (Fv) is equal to the principal (P)/present value (Pv) plus
interest.
Example 1
Find the principal that will amount to R628.50 in 5 years, at 6.5% per annum simple
interest.
A = P+i but i = Pxrxt
Therefore:
A = P + (P x r x t), or
A = P(1 + {r x t}), or
A = P(1 + rt)
By using the rules for changing the subject of the formula:
Make P the subject of the formula: A = P(1 + rt)

A
P = 1 + rt
R628. 50
P = 1 + 0. 065 x 5
P = R474.34
Example 2
Invest R10 000 at 15% simple interest per annum. What will the value of the investment be
after 2 years?
A = P+i
A = P + (P x r x t)
A = R10 000 + (R10 000 x 0.15 x 2)
Page 7
A = R13 000
Example 3
after 9 months?
………………………………….
………………………………….
………………………………….
………………………………….
Example 4
after 200 days?
………………………………….
………………………………….
………………………………….
………………………………….
1.2 Compound interest
1.2.1 Basic concepts
When money is invested at simple interest rate, the investor draws the interest due to him at the
end of each year. Therefore, the interest for the following year is again calculated on the same
capital. Some investors, however, prefer to re-invest that interest so that the principal for the
following year may be greater. This means: interest is added to the initial investment (or loan) and
interest for the following period is calculated on the initial amount plus interest earned in the
previous period. The interest has been compounded.
Page 8
When money is borrowed for longer periods the interest is compounded, meaning interest is
calculated more than once during the term of the loan/investment and this interest is added to the
original principal. The new amount then becomes the principal for the next calculation of interest.
With this method you pay/earn interest on interest.
Example 1
Find the compound interest on R150.40 for 2 years at 6% per annum.
Principal/Present value at beginning of 1 st year R150.40

6
Interest = R150.40 x 100 R 9.02
Principal/Present value at beginning of 2 nd year R159.42
6
Interest = R159.42 x 100 R 9.57
Amount/Future value (at end of 2 years) R168.99
Less: Principal/Present value (R150.40)
Compound interest R 18.59
Therefore,
compound interest is equal to amount (A) - principal (P) or,
compound interest is equal to future value (Fv) - present value (Pv)
Example 2
Find the compound interest on R5 000 for 3 years at 15% per annum.
Principal/Present value at beginning of 1 st year R5 000.00
Interest = ……………………. R.………..
Principal/Present value at beginning of 2 nd year R…………
Interest = ……………………. R…………
Principal/Present value at beginning of 3 rd year R…………
Interest = ……………………. R…………
Page 9
Amount/Future value (at end 3 years) R…………
Less: Principal/Present value (R5 000.00)
Compound interest R…………
1.2.2 Compound interest formula
Compound interest for longer periods can be calculated by using a formula.

To deduce a formula for calculating compound interest:
Say R 1 is invested at 15 % per annum compound interest.
Interest on R 1 at 5 % per annum for 1 year = Pxrxt

= R1 x 0.05 x 1
= R 0.05
Amount (A) / Present value (Pv) at the end of 1 year = R 1 + R 0.05

= R 1.05
or = R 1 x 1.05
Amount (A) / Present value (Pv) at the end of 2 years = (R1 x 1.05) x 1.05
= R1 (1.05) 2
Formula:
A = P(1 + r)t and Compound interest = A – P
or
Fv = Pv(1 + r)n and Compound interest = Fv – Pv
Recalculate examples 1 and 2 from 5.2.1 using the formula
Example 1
Find the amount (future value) and compound interest on R150.40 for 2 years at 6%per
annum.
A = P(1 + r)t
A = R150.40(1 + 0.06)2
Page 10
A = R168.99
Compound interest = A – P
= R168.99 – R150.40
= R18.59
Example 2
Find the amount (future value) and compound interest on R5 000 for 3 years at 15%per
annum.
A = …………………………
= …………………………
= …………………………
Compound interest = …………………………
= …………………………
= …………………………
Example 3
Find the amount (future value) and compound interest on R800 for 3 years at 13% per
annum.
A = …………………………
= …………………………
= …………………………
Compound interest = …………………………
= …………………………
= …………………………
Page 11
1.2.3 Finding the principal/(present value)
To find the amount/future value of any principal/present value invested at 5% for 1 year the
principal/present value is multiplied by 1.05. Therefore, if the amount/future value is known and we
are asked to find the principal/present value, the amount/future value must be decreased in the
same ratio as the principal/present value was increased previously:
To increase principal/present value to amount/future value: multiply by 1.05

AND
1
To decrease amount/future value to principal/present value: divide by 1.05, therefore, 1 . 05
1 1
For 1 year the ratio is 1 . 05 ; for two tears the ratio is 1 . 052 and for t years the ratio is
1
1 . 05t
1
P = A x 1 . 05t
A
P = 1 . 05t
A
P = (1 + r )t
By changing the subject of the formula A = P(1 + r)t, the principal/present value can
also be calculated.
Make P the subject of the formula A = P(1 + r)t:

A
P = (1 + r )t
Page 12
Example 1
Find the value a man has to invest now at 5% per annum compound interest for it to
produce a future value of R3 500 in 8 years.
A
P = (1 + r )t
R3 500
P = (1 + 0 .05)8
P = R2 368.94
Example 2
Jasper wants to buy a car for R22 350 in five years time. What sum must be invested now at
5% per annum compound interest?
………………………………….
………………………………….
………………………………….
QUESTION BANK
1.1 If you invest R28 400 on the principle of simple interest at 7% p.a. for the period 7 May
to 4 October 2014, calculate the interest earned.
1.2 Mrs Abrahams made an investment of R22 000 at a simple interest rate of 6% per
annum for 28 months. How much money will she have at the end of the investment?
1.3 You decided to borrow R54 900 from the bank at a simple interest rate of 4.5% per
annum to purchase a VW Polo on Gumtree. What is the amount payable to the bank
after 6 months?
1.4 Mrs Chalmers invested R40 000 at a compound interest rate of 6% per annum. The
investment was for 40 months. How much money will she have at the end of the
investment?
1.5 An investment of R2 500 is made at a compound interest rate of 11% per annum, for 4
years. How much interest is earned?
2. JOURNALS
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Source documents capture the transactions between a business and those with whom it trades.
The books of first entry, also known as subsidiary journals, consist of multiple journals used to
record information provided by the source documents. Each journal is dedicated to the recording
of specific transactions.
The following is a summary of the Books of First entry and the transactions specific to each:
Book of First Entry Transaction

Cash Receipts Journal Records all incoming money subsequently
deposited into the business’s banking
account.
Cash Payments Journal Records all outgoing money paid out of the
business’s banking account.
Purchases Journal Records all goods and services purchased
by the business on credit.
Sales Journal Records all goods and services sold by the
business on credit
Purchases Returns Journal Records all goods and services previously
bought on credit that are returned by the
business or claims for a reduction in the
price at which goods and services were
originally purchased.
Sales Returns Journal Records all goods and services previously
sold on credit that are returned to the
business or claims for a reduction in the
price at which goods and services were
originally sold.
Petty Cash Journal Records all outgoing money paid out of
petty cash for small items, such as tea and
sugar etc.
General Journal Records any transaction that cannot be
recorded in any one of the above journals.
2.1 Cash Receipts Journal
The Cash Receipts Journal records all money received by a business that is subsequently
deposited into the business’s banking account. Customers will pay for their purchases or
pay their accounts with cash, cheques, postal orders and credit card vouchers. The
business will deposit the cash, cheques, postal orders and credit card vouchers into its
banking account. At the end of each trading month the bank provides the business with a
bank statement which the business compares with the Cash Receipts Journal to ensure that
all deposits are recorded and accounted for.
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The format for the Cash Receipts Journal is not exactly the same for each business. It varies
from one business to another depending on the needs and preferences of each. The
following is an example of a typical Cash Receipts Journal. An explanation of each column
follows:
Blue Bull Traders

Cash Receipts Journal for the month ending ………………………………… CRJxx
Sundries
Doc Cost
No. Date Details Fol. Bank Sales of Accounts Amount Details
Sales Receivable
Totals
Page 15
 Document Number
This column records the source document number that initially captured the transaction.
As stated before source documents are filed after they have been recorded in the
journals for future reference.
 Date
This column records the date of the source document.
 Details
This column records the name of the other party involved in the transaction.
 Folio
This is a reference column that will be used later when posting transactions to the
general ledger.
 Sundries
As it is impossible to have a column for each account in the accounting records, the
sundries column allows the recording of the account name and the amount not
otherwise provided for in the Cash Receipts Journal.
 Sales
This column represents the sales account in the accounting records and records the
amount received for cash sales.
 Cost of sales
This column represents the cost price for each sales transaction.
 Accounts Receivable
This column represents the debtors account in the accounting records and records the
amount received for account payments.
 Bank
This column represents the bank account in the accounting records and records the
amount deposited into the business’s banking account. The totals of the sundries, sales
and accounts receivable column equals the total of the bank column.
Page 16
Class Example
Use the example of the Cash Receipts Journal above to record the following
transactions, which occurred during the March 2010 trading month of Blue Bull Traders.
1. On the 1st trading goods to the value of R7000.00 were sold for cash, cash sale 201,
cost of sales R5600.00.
2. On the 5th a debtor, Mr. B Habana paid R3000.00 in part settlement of his account,
receipt 101.
3. On the 15th a debtor, Mr. V. Matfield paid R360.00 in settlement of his account,
receipt 102.
4. On the 17th the owner, Mr. F. du Preez contributed R10 000.00 capital to the
business, receipt 103.
5. On the 25th trading goods to the value of R8000.00 less 10% trade discount were
sold for cash, cash sale 202, cost of sales R6400.
2.2 Cash Payments Journal
The Cash Payments Journal records all money paid by a business out of its
banking account. A business will issue cheques when paying for goods or services
or when paying its supplier accounts. The recipients will submit the cheques to the
business’s bank in exchange for cash. At the end of each trading month the bank
provides the business with a bank statement which the business compares with the
Cash Payments Journal to ensure that all issued cheques are recorded and have
been submitted.
The format for the Cash Payments Journal is not exactly the same for each
business. It varies from one business to another depending on the needs and
Page 17
preferences of each. The following is an example of a typical Cash Payments

Journal. An explanation of each column follows:
Blue Bull Traders

Cash Payments Journal for the month ending ………………………………… CPJxx
Sundries
Doc
No. Date Details Fol. Bank Inventory Accounts Payable Amount Details
Totals
 Document Number
This column records the cheque number issued. As stated before source documents
are filed after they have been recorded in the journals for future reference.
 Date
This column records the date the cheque was issued.
 Details
This column records the name of the party to whom the cheque was issued.
 Folio
general ledger.
Page 18
 Sundries
otherwise provided for in the Cash Payments Journal.
 Inventory
This column represents the purchase of inventory account (purchases = goods for
resale) in the accounting records and records the amount paid for cash purchases.
 Accounts Payable
This column represents the creditors account in the accounting records and records the
amount paid towards supplier accounts.
 Bank
This column represents the bank account in the accounting records and records the
amount paid out of the business’s banking account. The totals of the sundries, inventory
and accounts payable column equals the total of the bank column.
Class Example
Use the example of the Cash Payments Journal above to record the following
transactions that occurred during the March 2010 trading month of Blue Bull Traders.
1. On the 2nd cheque no. 0011 was issued to Mr. S. Burger for the rental of business
premises, R3000.00.
2. On the 7th cheque no. 0012 was issued to Telkom for the rental and usage of
telephone, R900.00 and cheque no. 0013 was issued to the Nelson Mandela
Metropolitan Municipality for water and lights, R500.00.
3. On the 15th cheque no. 0014 was issued to Small Wholesalers in full settlement of
the account balance, R9000.00.
4. On the 20th cheque no. 0015 was issued to The Best Suppliers for the purchase of
trading goods for resale, R5000.00.
Page 19
5. On the 31st cheque no. 0016 was issued to replenish petty cash, R1000.00.
2.3 Purchases Journal
The Purchases Journal records all goods and services purchased by the business
on credit. The supplier from whom the business obtains goods or services on credit
will issue an invoice to the business. The business will record all supplier invoices
in its Purchases Journal.
The format for the Purchases Journal is not exactly the same for each business. It
varies from one business to another depending on the needs and preferences of
each. The following is an example of a typical Purchases Journal. An explanation
of each column follows:
Blue Bull Traders

Purchases Journal for the month ending ………………………………… PJxx
Sundries
Doc
No. Date Details Fol. Accounts Inventory Amount Details
Payable
Totals
Page 20
 Document Number
This column records the invoice number issued by the supplier. As stated before source
documents are filed after they have been recorded in the journals for future reference.
 Date
This column records the date the invoice was issued by the supplier.
 Details
This column records the name of the supplier.
 Folio
general ledger.
total amount appearing on each supplier invoice. The total of inventory and sundries
columns equals the total of the accounts payable column.
 Inventory
This column represents the purchase of inventory account (purchases = goods for
resale) in the accounting records and records the amount for goods for resale
purchased.
 Sundries
otherwise provided for in the Purchases Journal.
Class Example
Use the example of the Purchases Journal above to record the following transactions
which occurred during the March 2010 trading month of Blue Bull Traders.
1. On the 1st trading goods for resale to the value of R12 000.00 was purchased on
credit from Small Wholesalers, supplier invoice 731.
2. On the 8th stationery to the value of R1500.00 was purchased from Just Stop
Stationers on credit, supplier invoice 012.
Page 21
3. On the 19th a new desk and chair for the office to the value of R3000.00 was
purchased from Smart Furnishers, supplier invoice 62.
4. On the 21st an advertisement was placed in The Weekly Advertiser at a cost of

R500.00, supplier invoice 1259.
5. On the 29th Pink Plumbers provided plumbing services costing R300.00, supplier
invoice 829.
2.4 Purchases Returns Journal

The Purchases Returns Journal records all goods and services previously bought
on credit that are returned by the business or claims for a reduction in the price at
which goods and services were originally purchased. The supplier will issue a
credit note to the business. The business will record all supplier credit notes in its
Purchases Returns Journal.
The format for the Purchases Returns Journal is not exactly the same for each
preferences of each. The following is an example of a typical Purchases Returns
Blue Bull Traders

Purchases Returns Journal for the month ending …………………… PRJxx
Sundries
Doc Accounts
No. Date Details Fol. Payable Inventory Amount Details
Totals
Page 22
 Document Number
This column records the credit note number issued by the supplier. As stated before
source documents are filed after they have been recorded in the journals for future
reference.
 Date
This column records the date the credit note was issued by the supplier.
 Details
This column records the name of the supplier.
 Folio
general ledger.
total amount appearing on each supplier credit note. The totals of the inventory and
sundries column equal the accounts payable column.
 Inventory
This column represents the purchase of inventory account (purchases = trading goods
for resale) in the accounting records and records the amount for trading goods returned
to suppliers or the amount of the price reduction claimed from the supplier.
 Sundries
otherwise provided for in the Purchases Returns Journal.
Class Example
Use the example of the Purchases Returns Journal above to record the following
transactions which occurred during the March 2010 trading month of Blue Bull Traders.
1. On the 2nd damaged trading goods to the value of R2000.00 was returned to Small
Wholesalers, supplier credit note 241.
Page 23
2. On the 8th Just Stop Stationers overcharged by R100.00 for stationery supplied on
credit, supplier credit note 03.
3. On the 21st The Weekly Advertiser misspelled the Business’s name in the
advertisement and agreed to a full refund, supplier credit note 141, R500.
2.5 Sales Journal
The Sales Journal records all goods and services sold by the business on credit to
customers. The business will issue an invoice to the customers who buy goods and
services on credit. The business will record all customer invoices in its Sales
Journal.
The format for the Sales Journal is not exactly the same for each business. It
varies from one business to another depending on the needs and preferences of
each. The following is an example of a typical Sales Journal. An explanation of
each column follows:
Blue Bull Traders

Sales Journal for the month ending ………………………………… SJxx
Sundries
Doc Cost
No. Date Details Fol. Accounts Sales of Amount Details
Receivable Sales
Totals
Page 24
 Document Number
This column records the invoice number issued to the customer. As stated before
reference.
 Date
This column records the date the invoice was issued to the customer.
 Details
This column records the name of the customer.
 Folio
general ledger.
total amount appearing on each customer invoice. The totals of the sales and sundries
column equal the accounts receivable column.
 Sales
This column represents the sales account in the accounting records and records the
amount for trading goods and services sold to customers on credit.
 Cost of Sales
This column represents the cost price for each sales transaction.
 Sundries
otherwise provided for in the Sales Journal.
Class Example
Use the example of the Sales Journal above to record the following transactions which
occurred during the March 2010 trading month of Blue Bull Traders.
1. On the 3rd trading goods to the value of R3000.00 were sold on credit to Pink Panther
and Partners, customer invoice 101, cost price R2400.00.
Page 25
2. On the 25th trading goods to the value of R4500.00 were sold on credit to Mr. B.
Botha, customer invoice 102, cost price R3600.00.
2.6 Sales Returns Journal
The Sales Returns Journal records all goods and services previously sold on credit
that are returned to the business or claims for a reduction in the price at which
goods and services were originally sold. The business will issue a credit note to the
customer. The business will record all customer credit notes in its Sales Returns
Journal.
The format for the Sales Returns Journal is not exactly the same for each
preferences of each. The following is an example of a typical Sales Returns
Blue Bull Traders

Sales Returns Journal for the month ending ………………………… SRJxx
Cost Sundries
Doc Accounts Sales of
No. Date Details Fol. Receivable Returns Sales Amount Details
Totals
 Document Number
This column records the credit note number issued to the customer. As stated before
reference.
 Date
Page 26
This column records the date the credit note was issued to the customer.
 Details
This column records the name of the customer.
 Folio
general ledger.
total amount appearing on each customer credit note. The totals of the sales and
sundries column equals the accounts receivable column.
 Sales Returns
This column represents the sales returns account in the accounting records and records
the amount for trading goods and services returned by customers or the price reduction
claimed by the customer.
 Cost of sales
This column represents the cost price of the sales return transaction.
 Sundries
otherwise provided for in the Sales Journal.
Class Example
Use the example of the Sales Returns Journal above to record the following transactions
which occurred during the March 2010 trading month of Blue Bull Traders:
1. On the 4th Pink Panther and Partners claimed a price reduction of R300.00 for goods
sold on credit to them on the 3 rd as the original quote was for R2700.00, customer
credit note 51.
2. On the 26th Mr. B. Botha returned goods to the value of R1000.00 sold to him on the
25th, customer credit note 52 was issued to him.
Page 27
2.7 Petty Cash Journal
The Petty Cash Journal records all incoming money paid into petty cash and all
outgoing money paid out of petty cash. Petty cash is a small amount of cash kept
by the business on the business premises, which it uses to pay for small petty
items e.g. postage stamps, tea, coffee. As and when required a cash cheque is
issued by the business and paid into petty cash. When petty cash is paid out a
petty cash voucher is completed by the business. The business records the petty
cash vouchers in the Petty Cash Journal. Petty cash which is on hand at the
beginning of each month will always be the same. This is called the imprest
system, the amount which is restored every month (at the end of the month) is
known as the imprest amount.
The format for the Petty Cash Journal is not exactly the same for each
preferences of each. The following is an example of a typical Petty Cash Journal.
An explanation of each column follows:
Blue Bull Traders

Petty Cash Journal for the month ending …………………………………
Sundries
Doc Petty Cash
No. Date Details Fol. Amount Details
Page 28
Totals
Page 29
 Document Number
This column records the petty cash voucher completed when petty cash is paid out. As
stated before source documents are filed after they have been recorded in the journals
for future reference.
 Date
This column records the date the petty cash voucher was completed
 Details
This column records the items paid for with petty cash.
 Folio
general ledger.
 Petty Cash
This column represents the petty cash account in the accounting records and records
the amount paid out of petty cash. The total of the sundries column will equal the total
of the petty cash column.
 Sundries
otherwise provided for in the Petty Cash Journal.
Class Example
Use the example of the Petty Cash Journal above to record the following transactions
1. On the 3rd used R130.00 petty cash to buy tea. Coffee and milk, petty cash voucher
98.
2. On the 13th used R70.00 petty cash to buy a new scissors from CNA, petty cash
voucher 99.
3. On the 23rd used R30.00 petty cash to buy postage stamps, petty cash voucher 100.
Page 30
4. On the 31st used R500.00 petty cash to pay casual wages, petty cash voucher 101.
2.8 General Journal
The General Journal is used to record any transaction that cannot be recorded in
any one of the other journals and for year-end adjustments. Such transactions are
usually not captured on source documents and can include the following:
Bad debts written off

A debtor may be unable to pay the business what it owes, in such cases the
business must write the amount owing by the debtor off.
 Depreciation of assets
The values of the business’s assets are reduced at the end of each year so that
they are more representative of market values.
 Discount Allowed
A debtor may settle the amount it owes to the business sooner than agreed; in
such cases the business will allow the debtor a discount. Although discount
allowed is not a cash transaction it is associated with cash received from a debtor
and can be recorded in the Cash Receipts Journal. For the purposes of this
course discount allowed will be recorded in the General Journal.
 Discount Received
The business may settle the amount it owes to a creditor sooner than agreed; in
such cases the business will receive a discount from the creditor. Although
discount received is not a cash transaction it is associated with cash paid to a
creditor and can be recorded in the Cash Payments Journal. For the purposes of
this course discount received will be recorded in the General Journal.
Page 31
The format for the General Journal is not exactly the same for each business. It varies
from one business to another depending on the needs and preferences of each. The
following is an example of a typical General Journal. An explanation of each column
follows:
Blue Bull Traders
General Journal for the month ending ………………………… GJxx
Date Details Fol. Debit Credit
 Date
This column records the date the general journal transaction is occurs.
 Details
This column records the name of the accounts affected by the transaction. The account
to be debited is shown first followed by the account to be credited.
 Folio
general ledger.
 Debit
The amount to be debited is shown here.
 Credit
The amount to be credited is shown here.
N.B
Every transaction must be in balance i.e. the amount debited must equal the amount
credited.
Page 32
Every transaction must be followed by a narration that explains the reason for the
transaction.
Every transaction must be ruled off before the next transaction is recorded.
Class Example
Use the example of the General Journal above to record the following transactions
1. On the 15th the business allowed Mr. V. Matfield R80.00 for early settlement of his
account.
2. On the 15th the business received R1000.00 discount from Small Wholesalers for
early settlement of its account.
3. On the 31st a long outstanding amount of R700.00 owed to the business by Mr. P.
Peter was written off as bad debt.
QUESTION BANK
QUESTION 1
The following transactions are for Tannie Tracy's Traders during December 2009 :
1. Sold goods valued at R5 500 to A. Bricknell on credit.(goods marked up at 25% on cost)
3. Purchased goods on credit from T. Leo for R10 700, less 10% trade discount.
4. Sold stock to L. Bester for cash. The stock was marked at R1 500 (5% trade discount
was allowed). (Cost price R750)
5. Pay the weeks wages R2 525.
8. Receive a cheque from A. Bricknell for R5 200 in full settlement of her account.
10. Sold stock on account to T. Beck for R1 800. (cost price R1 250)
Page 33
12. Pay Telkom for use of the telephone, R924.
15. Cash sales, R5 400. (cost price R4 125)
20. Pay T. Leo the amount owing to him, less 5% settlement discount.
23. Cash purchases of stock from SAAA, R7 845.
25. Pay salaries to the amount of R4 100.
27. The owner took cash of R500, and stock valued at R1 250 (cost price) for her own use.
29. Received R10 800 from cash sales. (cost price R8 700)
31. T. Beck was declared insolvent. We received 50c in the rand, and the balance
of her account is to be written off as irrecoverable.
REQUIRED :
 You are required to prepare the relevant subsidiary journals.

 Use your own document numbers.
QUESTION 2
 You are required to prepare the relevant subsidiary journals for Brown Traders for May
2015. (Create own document numbers)
Transactions:
1. R. Brown introduced R93 000 as his capital contribution.
2. Cash purchases of merchandise from ABC Suppliers, R37 600.
3. Credit sales to R. Black, R31 200. Cost price of 25% on cost.
4. Purchase goods on credit from A. Green for R72 000, less
25% trade discount.
5. Bought a motor vehicle on account from Reds Garage for R73 600.
6. Wages paid in cash, R1 170.
7. R. Brown took cash for own use, R130.
8. Paid Mr. Min Repairers for repairs to building by cheque, R1 388.
9. Cash sales to P. White, R21 000. Cost price, R13 788.
Page 34
10. Issued a credit note to R. Black for goods returned, R100.

11. R. Brown took stock for own use. Cost price R312.
12. Payment received from R. Black of R25 000.
13. Bought stationery on credit from Swart Stationery Supplies for R344.
14. Advertising in the Local Press newspaper paid for by cheque of R124.
15. Paid the outstanding amount to A. Green by cheque, received R2 700
discount.
16. Paid monthly rent of R900 to McCain Properties.
17. Furniture purchased on account from AB Furnishers for R964.
18. Electricity of R376 paid by cheque to NMMM.
19. Office machines bought for R2 000 from A. Pinky on account.
20. Sold goods to R. Blouberg, R2 000. Cost price, R964.
21. Telephone calls of R400 paid by cheque to Telkom.
22. R1 900 paid to A. Pinky in full settlement of account.
QUESTION 3
Computer Traders sell all types of computer hardware and software. On 1 March 2010,
Computer Traders had R73 600 in its bank account. The following information is an
extract from their books:
Accounts Receivable Accounts Payable
K. Slater R28 000 D. Worry R9 968
P. Honda R6 926.40 C. Door R3 200
Inventory amounted to R48 000 on 1 March 2010.

Capital amounted to R123 358.40 on 1 March 2010.
The following transactions took place during March 2010, a mark-up of 25% on
cost is used, enter the transactions in the relevant subsidiary journals:
2 Sold goods to K. Slater on credit for R4 560.
Bought merchandise from SA Suppliers and paid R7 296 by cheque.
Purchased furniture on credit from D. Worry for R5 107.20.
3 Paid wages for R800 by cheque.
Paid D. Worry the amount owing to him on 2 March.
Page 35
5 K. Slater returned goods, R547.20.

Bought merchandise on credit from C. Door, R6 019.20.
Returned furniture acquired on 2 March from D. Worry, R1 459.20.
15 Sold goods and received a cheque for R5 472.
Sent a debit note for R729.60 to C. Door and received his credit note. (see the
5th)
Received R7 360 cash from K. Slater in payment of account.
17 Bought goods from SA Suppliers and paid R9 120 by cheque.
Sold goods and received a cheque for R1 824.
18 Sold goods to P. Honda for R8 208 on credit.
21 Acquired a delivery vehicle on credit from D. Worry for R255 360.
Paid the deposit of R51 072 to D. Worry.
26 Settled the water and electricity account R1 094.40.
Charged K. Slater with R160 interest.
28 Paid amount owing to C. Door to settle the account.
31 Received a cheque from K. Slater to settle his account.
Donated R80 to NMMU. Donated goods which were purchased for R9 120
to Animal Welfare.
ANSWER SHEETS
Exercise 1
______________________________________________________
Cash Receipts Journal for the month ending …………………………………………………….. CRJ____
Sundries
Doc Cost
Sales Receivable
Page 36
Totals
________________________________________________________
Cash Payments Journal for the month ending …………………………………………………….. CPJ___
Doc
No.
Date
Details
Fol.
Bank
Inventory
Accounts Payable
Sundries
Amount Details
Page 37
Page 38
Totals
_________________________________________________
Purchases Journal for the month ending …………………………………………………. PJ---
Page 39
Doc
No.
Date
Details
Fol.
Accounts
Payable
Inventory
Sundries
Amount Details
Page 40
Page 41
Page 42
Totals
_____________________________________________________________
Sales Journal for the month ending ……………………………………………………………………………. SJ___
Doc
Page 43
No.
Date
Details
Fol.
Accounts
Receivable
Sales
Cost of
Sales
Sundries
Amount Details
Page 44
Page 45
Totals
______________________________________________________
General Journal for the month ending ………………………………………………………….. GJ___
Date
Details
Fol.
Debit
Credit
Page 46
Page 47
Page 48
Page 49
Page 50
Page 51
______________________________________________________________
Purchases Returns Journal for the month ending ………………………………………………. PRJ___
Sundries
Doc
Payable
Totals
_______________________________________________________________________
Sales Returns Journal for the month ending ……………………………………………………………….. SRJx___
Sundries
Doc Accounts Cost
No. Date Details Fol. Receivable Sales of Amount Details
Returns Sales
Totals
Page 52
Exercise 2
______________________________________________________
Sundries
Doc Cost
Sales Receivable
Totals
________________________________________________________
Sundries
Doc
Totals
Page 53
_________________________________________________
Sundries
Doc
Payable
Totals
_____________________________________________________________
Sundries
Doc Cost
Receivable Sales
Totals
Page 54
______________________________________________________
Page 55
______________________________________________________________
Sundries
Doc
Payable
Totals
_______________________________________________________________________
Sundries
Doc Accounts Sales Cost
No. Date Details Fol. Receivable Returns of Amount Details
Sales
Totals
Page 56
Exercise 3
______________________________________________________
Sundries
Doc Cost
Sales Receivable
Totals
________________________________________________________
Sundries
Doc
Totals
Page 57
_________________________________________________
Sundries
Doc
Payable
Totals
_____________________________________________________________
Sundries
Doc Cost
Receivable Sales
Totals
Page 58
______________________________________________________
Page 59
______________________________________________________________
Sundries
Doc
Payable
Totals
_______________________________________________________________________
Sundries
Doc Accounts Cost
No. Date Details Fol. Receivable Sales of Amount Details
Returns Sales
Totals
Page 60
3. CONTROL ACCOUNTS
After completion of this section the student must be able to:
 Understand the difference between an Accounts Payable and an Accounts

Receivable.
 Record all the Accounts Payable or the Accounts Receivable transactions and present
it in a ledger account (control account).
1. Accounts Receivable Control (Asset)

All transactions affecting debtors will be posted to this account in the General Ledger:
 Credit sales recorded in the Sales Journal (SJ);

 Returns from credit customers recorded in the Sales Returns Journal (SRJ);
 Cash and cheques received from debtors recorded in the Cash Receipts Journal
(CRJ);
 Discount allowed, bad debts and interest charged recorded in the General Journal
(GJ).
2. Accounts Payable Control (Liability)
All transactions affecting creditors will be posted to this account in the General Ledger:
 Credit purchases recorded in the Purchases Journal (PJ);

 Returns to credit suppliers recorded in the Purchase Returns Journal (PRJ);
 Cash and cheques paid to creditors recorded in the Cash Payments Journal (CPJ);
 Discount received and interest charged recorded in the General Journal (GJ).
Page 61
QUESTION BANK
QUESTION 1
The following information of World Wide Web Stores is available for November 2014:
1. Balance on 1 November 2014
Accounts receivable control 13 450
Accounts payable control 5 560
2. Totals posted on 30 November 2014
Cash and cheques received from debtors 8 866
Cash paid to creditors 8 450
Credit Sales 18 540
Cash Sales 4 890
Sales returns 1 721
Credit purchases of inventory 20 265
Cash purchases 11 288
Purchase returns 1 265
Interest charged to debtors 765
Discount allowed 214
Discount received 454
REQUIRED:
Prepare the following General ledger accounts for the month of November 2014:
1.1 Accounts receivable control account
1.2 Account payable control account
QUESTION 2
From the following information, compile the accounts receivable and accounts payable control
accounts in the general ledger:
Balances as at 1 January 2015: R
Sundry debtors 86 355
Sundry creditors 24 120
Page 62
Transactions for the month of January 2015:

Cash purchases 17 793
Credit purchases 54 720
Cash sales 43 381
Credit sales 168 075
Cash paid to creditors 35 019
Cash received from debtors 74 313
Goods returned by credit customers 3 879
Discount allowed 6 705
Discount received 3 690
Bad debts 333
Debtors’ cheques dishonoured 225
Purchases returned to creditors 1 053
Interest charged to debtors 135
QUESTION 3
Use the information below from the books of Gogo Stores to draw up the following accounts in the general
ledger for March 2014: 1. Accounts receivable control account and
2. Accounts payable control account.
Information: R
Balances 01/03/14
Total due by debtors 8 010
Total due to creditors 6 510
Transactions for March 2014:
Total cash sales of merchandise 40 541
Total credit sales of merchandise 8 085
Cash and cheques received from debtors 6 664
Cheques issued to creditors 4 004
Discount allowed to debtors 332
Discount received from creditors 666
Discount allowed to debtors cancelled (discount should not have been given) 112
Credit purchases: Merchandise 8 741
Page 63
Equipment 12 225
Packaging material 1 452
Advertising 2 210
Cash purchases: Merchandise 12 226
: Packaging material 687
Totals in the purchases returns journal: Merchandise 1 112
Equipment 780
Packaging material 323
Sales returns 796
Total of debtors written off as irrecoverable 700
Interest charged on overdue debtors’ accounts 320
Interest charged on overdue creditors’ accounts 150
4. GENERAL LEDGER AND TRIAL BALANCE
4.1 The General Ledger

A ledger account is opened for each item in the accounting equation. An account is an
individual record in which all items relating to an item are recognised. It has the form of the
letter T.
NAME OF ACCOUNT
Debit side Credit side
An entry on the left hand side is called a debit entry, and on the right hand side is called a
credit entry.
An account in the General Ledger has the following functions:

1. It forms a record of each transaction in the relevant accounts.
2. It distinguishes between the increases and decreases in each account.
3. It stores the transaction information for future reference.
4. It shows the balance of each account.
Page 64
Example:
 Account for vehicles: This account will tell you the “story” or history of the vehicles that is
in the books of the business. All the transactions to do with the vehicles, i.e. bought, sold,
depreciated, etc, as well as the balance at the end of the specific financial period, will be
recorded in this account.
 Account for capital: This account tells you how much the business “owes” to the owners,
or stated differently, how many the owners invested in the business.
 Account for salaries and wages: This account tells you how much have been paid to the
employees of the business.
 Account for interest received: This account tells you how much interest has been
received by the business from any party, i.e. Bank, accounts receivable etc.
Posting to the general ledger account:
If we look at a transaction where the owner deposited R3 000 in the bank account of the business,
the transaction would be recorded in the capital account as follows:
Date
The year, month and date on which the transaction took place must be written in the “date”
column. The year is entered only once at the top of the column and the month and day next to the
particulars of each transaction, e.g. the date of the transaction is for the 1 March 2013.
CAPITAL
Date Details Folio Amount Date Details Folio Amount
2013
01/3
Details
The name of the account in which the corresponding (other half) part of the double entry is entered
must be written in the “details” column, e.g. the corresponding part of the double entry with capital
is the bank.
CAPITAL
2013
01/3 Bank
Folio
Page 65
The folio number of the journal (reference where the transaction was recorded) must be written in
the “folio” column, e.g. CRJ1 shows us that the transaction comes from the cash receipts journal
number 1. This gives the source of the transaction.
CAPITAL
2013
01/3 Bank CRJ1
Amount
The amount of the transaction must be written in the “amount” column in rands and cents, e.g. the
amount of the transaction on the 1 March 2013 with the bank is for R3 000.
CAPITAL
2013
01/3 Bank CRJ1 3 000.00
4.1.1 The effect of debiting or crediting: Rules

We have already said that each account has two sides, a debit side on the left, and a credit side
on the right. We have also said that when you write something on the debit side (left hand side),
you are debiting the account. When you write something on the credit side (right hand side), you
are crediting the account.
When you record transactions in the general ledger you need to ensure that you correctly answer
the following questions regarding each transaction:
 Which elements of the accounting equation will be affected (assets, owner’s equity or
liabilities)?
 Are the elements increasing or decreasing?
 Must the accounts be debited or credit?
It is important to take note of the following:

 ASSETS ARE INCREASED BY DEBIT ENTRIES.
 EXPENSES ARE INCREASED BY DEBIT ENTRIES.
Page 66
 LIABILITIES ARE INCREASED BY CREDIT ENTRIES.

 INCOME ACCOUNTS ARE INCREASED BY CREDIT ENTRIES
4.1.2 Balancing of the Ledger Accounts

 If the total debits are greater than the total credits the account will have a debit balance,
 If the total credits exceed the total debits the account will have a credit balance.
LOAN: STANDARD BANK
2013 2013
29/3 Bank 1 000 01/3 Balance b/d 10 000
31/3 Balance c/d 11 500 02/3 Bank 2 500
12 500 12 500
01/4 Balance b/d 11 500
Steps in balancing an account
1. Add up both sides of the account. Check that the debit side amounts to
R1 000 and the credit side to R12 500.
2. Now find the difference between the two sides. Do you agree that the difference is R11
500? This is how much money the business still owes Standard Bank at the end of March
2013. This is called the balance on the loan account. It is a credit balance since the
credit side is bigger than the debit side. And we would expect a liability account to have a
credit balance.
3. The bigger total (R12 500) is written under each column of figures on both the debit and the
credit side, these totals are in line with each other. In order for the debit side to add up to
this total, the difference or balance must be written in above the total. This is called the
balance carried down.
4. The word Balance is written in the details column. The abbreviation c/d (carried down) is
written in the folio column. The entry is dated for the last day of the month.
5. Finally, the balance is written on the credit side under the totals. This is called the balance
brought down. The word Balance is written in the details column. The abbreviation b/d
(brought down) is written in the folio column. This is dated for the first day of the next
month (April).
It is important to take note of the following:

The balance brought down (b/d) and NOT the balance carried down (c/d) determines whether it
is a debit balance or a credit balance.
Page 67
Example 1:
Prepare the general ledger for ABC Traders for the month July 2010
On 30 June 2010 the following accounts have the following closing balances:
- Bank (DR) R6 000
- Capital contribution R8 000
- Accounts receivables R2 000
General Ledger of ABC Traders
DR CAPITAL B1 CR
2010
July 1 Balance b/d 8000
BANK B2
2010
July 1 Balanceb/d 6 000
ACCOUNTS RECEIVABLE B3
2010
July 1 Balanceb/d 2 000
e.g.: 01 July 2010: Purchase equipment for R4 000 by cheque:
BANK B2
2010 20.10
July 1 Balanceb/d 6 000 July 1 EquipmentCPJX 4 000
EQUIPMENT B4
20.10
July 1 Bank CPJX 4 000
e.g. 02 July 20.10: Receive a cheque for R100 from a receivable
BANK B2
20.10 20.10
July 1 Balance b/d 6 000 July 1 Equipment 4 000
2 Accounts
Receivable CRJX 100
ACCOUNTS RECEIVABLE B3
20.10 20.10
July 1 Balance b/d 2 000 July 2 Bank CRJX 100
Page 68
e.g. 03 July 20.10: Purchase furniture on credit from Furniture Ltd for R1 000
FURNITURE B5
20.10
July 3 Accounts Payable PJX 1000
ACCOUNTS PAYABLE B6
20.10
July 3 Furniture PJX 1 000
e.g. 14 July 20.10: Owner deposits R5 000 into the business bank account
BANK B2
20.10 20.10
July 2 Accounts 100
Receivable
14 Capital CRJX 5 000
CAPTIAL CONTRIBUTION B1
20.10
July 1 Balance b/d 8 000
July 14 Bank CRJX 5 000
e.g. 18 July 20.10: Owner purchases a bicycle for his son and pays R1 000 with a
business cheque
BANK B2
20.10 20.10
July 2 Accounts 100 18 DrawingsCPJ 1 000
Receivable X
14 Capital 5 000
DRAWINGS B7
20.10
July 18 Bank CPJX 1 000
e.g. 28 July 20.10: Received R1 900 cash for services rendered
Page 69
BANK B2
20.10 20.10
July 2 Accounts 100 18 Drawings 1 000
Receivable
14 Capital 5 000
28 Services 1 900
rendered CRJX
SERVICES RENDERED N3
20.10
July 28 Bank CRJX 1 900
e.g. 30 July 20.10: Paid for maintenance costs on credit R1000
ACCOUNTS PAYABLE B6
20.10
July 30 MaintenanceCPJX 1000
MAINTENANCE COSTS N4
20.10
July 30 Accounts payablePJX 1000
TO BALANCE THE BANK ACCOUNT (Apply to all accounts):
BANK B2
20.10 20.10
July 1 Balance b/d 6 000 July 1 Equipment 4 000 Only adds up to 5000 still need
Accounts 100 18 Drawings 1 000 8000
2 receivable
Capital 5 000 31 Balance 8 000
14 c/d
Services 1 900
28 rendered
13 000 13000
Aug Balance 8 000
01 b/d
Important to remember:
Every transaction affects two accounts – one account is debited and the other is credited.
Assets Liabilities
Page 70
+ - - +

Income Expenses
- + + -

Drawings Capital
+ - - +

QUESTION BANK
QUESTION 1
Scott started Scott Traders on 1 January 2015. The following transactions took place
during January 2015:
1. Scott started the business by depositing R150 000 in the firm’s banking
account as his capital contribution.
2. Scott purchased the following from Corcoran Dealers on credit:
Inventory R155 000
Office furniture 25 000
7. Sold goods on credit to R Arthur R25 000 (cost price, R15 000).
9. Paid the weekly wages, R2 500.
11 Sold goods for cash R35 000 (cost price, R21 000).
.
13 Bought goods for cash, R10 500.
.
15 A Dawn repaired equipment on credit, R185.
.
19 Donated R15 to a local charity.
.
Page 71
23 Paid for advertising in the local newspaper, R100.

.
28 Received a cheque from R Arthur for R24 500 to settle his account.
.
REQUIRED:
Record all these transactions in the General Ledger.
QUESTION 2
The following transactions took place during the first month of business of Ducksberry
Traders:
March 2015:
2. The owner introduces R80 000 as his capital contribution.
4. Bought goods and machinery on credit for R50 000 and R20 000
respectively from Kusak (Pty) Ltd.
7. Sold goods on credit to P Parker R10 000 (cost price, R4 000).
10 Wages paid in cash, R1 763.
.
15 Bought merchandise for cash, R25 100.
.
16 Bought office machines on account from Willey Office Suppliers for
.
R1 750.
18 Received a cheque from P. Parker for R9 800 in full settlement of his
. account.
Page 72
19 Paid Kusak (Pty) Ltd R40 000 on account.

.
23 P Beytell supplied shelving in the office on credit, R775.
.
25 R Ducksbery, the owner, takes cash for own use, R180.
.
27 Paid the following by cheque:
.
Telephone R156
Municipal Charges 110

30 Paid the balance owing to Kusak (Pty) Ltd.
.
REQUIRED:
Record all these transactions in the General Ledger.
QUESTION 3
Crusaders Limited trades from 1 September 2012. The following transactions took place during
September 2012:
DA
DETAILS
Y
1 The owners Mr Dan Carter, made a capital contribution of R75 000.
Buys a second hand vehicle to the value of R40 000 on credit from GM Motors and
2 pay R4 000 deposit by cheque. The remaining balance will be paid MONTHLY over
2 years.
5 Purchased trading inventory for R35 000 and paid by cheque.
6 Sold goods on credit for R12 000. The goods were originally bought for R9 000.
7 Paid casual wages, R1 200.
8 Paid for repairs and maintenance, R 550.
10 Purchased a computer on credit for R21 930 from Computer Bits & Pieces.
Page 73
15 Received a bill for the petrol used from Sasol for R770.
17 Purchased office refreshments and stationery by cheque, R4 500 and R3 000.
25 Sold trading goods for R18 000 cash. The goods were originally bought for R15 000.
Mr Carter took goods for his personal use, R5 000. This was originally bought for
26
R2 500.
28 A physical stock count revealed that unused stationery amounted to R600.
30 Pay Computer Bits & Pieces half of their balance.
31 Paid the first instalment on the vehicle.
REQUIRED:
1. Open all the accounts in the general ledger and post the transactions for Crusaders
Limited.
2. Balance the accounts at the end of September 2012.
QUESTION 4
Mr. W. Mtwisha started a concern on 2 January 2012 with a capital contribution of
R60 000.00. The service concern is licensed as W.S. Hairdressers.
Jan 2002
2 Issue a receipt for the capital contribution and deposit the amount in the current bank
account.
Pay the trade licence per cheque, R500.00.
3 Buy equipment for the concern and pay by cheque, R14 750.00.
4 Issue a cheque for stationery bought, R1 420.75.
5 Issue a receipt for service rendered, R2 007.50 and deposit the amount in the bank.
7 Cash received for services rendered and deposited, R406.75.
8 Draw a cheque to pay the cleaner’s wages, R300.00
10 Draw up a cheque to pay the assistant’s salary, R2 500.00
Page 74
17 Receive the deed of transfer and account for the purchase of the building from the attorney
and handed him a cheque for R40 000.00
The amount received for services rendered is deposited, R821.90.
20 The owner draws a cheque for his private use, R1 700.00.
REQUIRED:
a Post the transactions to the general ledger accounts.
b Balance the accounts properly prepare
c Prepare a trial balance.
Page 75
QUESTION 5
The following transactions took place during the month of August 2011, in The Corner Shop.
The owner, Norman Wildschut, made a capital contribution of R80 000 to his
2
business.
Took out a loan for R40 000 from Nedbank at 15% per year. Interest is payable
3
with effect from 1 August 2011.
5 Purchased trading stock for R25 000 and pay it by cheque.
Bought a delivery vehicle from Toyota for R120 000. An amount of R12 000 was
7
paid immediately and the balance will be paid off over the next few months.
9 Sold inventory of R17 000 cash. The goods were originally bought for R15 000.
12 Paid wages by cheque R7 500.
15 Purchased goods on credit for R40 000 from Productions Limited.

Sold inventory on credit to Mr Hero for R18 000. The goods were originally
18
bought for R16 000.
20 Bought stationery on credit from ABC Stationers, invoice received, R2 800.
25 Paid the first instalment on the vehicle, R8 000.
28 Issued a cheque in favour of Nedbank for the interest payable, 31 August 2011.
30 Received a cheque from Mr Hero’s for R9 000.
REQUIRED
1. Prepare the General Ledger Accounts for The Corner Shop for 31 August 2011.
2. Prepare the trial balance for The Corner Shop at 31 August 2011.
5. INVENTORY (PERIODIC METHOD)
Page 76
How to calculate the value of inventory on hand at the end of the financial period?
Do you remember this formula to calculate cost of sales in the Statement of Comprehensive Income?
Example 1 First-in-First-out method
R’
Sales 100 000

Less: Cost of Sales 80 000
Opening Inventory 5 000
Add: Purchases 115 000
Less: Closing Inventory 40 000
Gross profit 20 000
This chapter focuses on how to value the closing inventory – how do we calculate the R40 000 in Example
1?
Let us look at the following information – this is how inventory will be carried in our business.
At the start of the financial period we have what is called opening inventory as it is left over from the
previous period – that means it was not sold.
Opening inventory: 250 products at R20 each = R5 000 (250 x 20)
During the current period we buy in new inventory from our suppliers, which we term purchases.
Purchases:
On 3 October we purchased 1 000 products at R25 each = R25 000 (1 000 x 25)
On 15 October we purchased 800 products at R30 each = R24 000 (800 x 30)
Therefore, we have R120 000 worth of inventory to sell to our customers.
Opening Inventory R 5 000
+ Purchases R115 000 (25 000 + 24 000 + 66 000)
= Inventory available to sell R120 000
We sell 2 700 products to our customers during the month of October. This means that there are
1 000 articles left in our business at the end of the month (closing inventory).
Therefore,
Page 77
Products: Rands:
Opening Inventory 250 5 000
Add: Purchases 3 450 115 000
= Available to sell 3 700 120 000
Less: units Sold 2 700
= Closing inventory 1 000
Do you notice we only have the number of products for closing inventory, 1 000 products are left at the end
of the month. We now need to give these products a value in Rands.
Look at the inventory we had available:
Opening inventory: 250 products at R20 each = R5 000
Purchases:
On 3 October we purchased 1 000 products at R25 each = R25 000
On 15 October we purchased 800 products at R30 each = R24 000
If we use the First-in-First out (FIFO) method, the products that were available to sell first (purchased = in)
must be sold first (sales = out).
That means that the 250 products were sold off first, then the 1 000 products, next the 800 products and so
on.
The 1 000 products that are left at the end of the month have to come from the batch that was purchased
last, these were valued at R40 each.
Opening inventory: 250 products at R20 each = R5 000
Purchases:
On 15 October we purchased 800 products at R30 each = R24 000
Page 78
1 000 products left from the batch of 1 650 which were purchased at R40 each
Therefore, closing inventory will be valued at R40 000 (1 000 products x R40).
Example 2 Weighted Average method
R’
Sales 100 000

Less: Cost of Sales 87 567.60
Opening Inventory 5 000
Add: Purchases 115 000
Less: Closing Inventory 32 432.40
Gross profit 12 432.40
This chapter focuses on how to value the closing inventory – how do we calculate the R32 432.40 in
Example 2?
Let us look at the following information – this is how inventory will be carried in our business.
At the start of the financial period we have what is called opening inventory as it is left over from the
previous period – that means it was not sold.
Opening inventory: 250 products at R20 each = R5 000 (250 x 20)
During the current period we buy in new inventory from our suppliers, which we term purchases.
Purchases:
On 15 October we purchased 800 products at R30 each = R24 000 (800 x 30)
Therefore, we have R120 000 worth of inventory to sell to our customers.
Opening Inventory R 5 000
+ Purchases R115 000 (25 000 + 24 000 + 66 000)
= Inventory available to sell R120 000
Page 79
We sell 2 700 products to our customers during the month of October. This means that there are
1 000 articles left in our business at the end of the month (closing inventory).
Therefore,
Products: Rands:
Do you notice we only have the number of products for closing inventory, 1 000 products are left at the end
of the month. We now need to give these products a value in Rands.
If we use the Weighted Average method we will use the following formula to calculate a price:
The available to sell in Rands ÷ The available to sell in products
120 000 ÷ 3 700 = R32.4324 per product
Look at our previous workings again:
Products: Rands:
The 1 000 products will be valued at R32.4324 each, therefore 1 000 x 32.4324 = R32 432.40
QUESTION BANK
QUESTION 1
Bokke Traders buys and sells goods in bulk. The following transactions took place during the
financial period:
Page 80
Unit
Units Cost Amount
Opening Inventory
………………. R5.00 R15 000
Purchases
3 October 4 500 R5.80

………………..
16 October 6 000 R6.00

………………..
24 October 12 000 R6.50

………………..
Goods available to sell ……………….. ………………..
Sales
10 October 5 100
units
26 October 17 700
units ………………..
Closing inventory
………………..
The selling
REQUIRED:
1.1 Calculate the closing inventory in UNITS.
1.2 Calculate closing inventory (in RANDS) and cost of sales using the FIFO method of
inventory valuation.
1.3 Calculate gross profit for the Bokke Traders.
QUESTION 2
Savvy Ltd. recorded the following transactions regarding a particular inventory item for the month
of January 2015:
Date: Transaction:
1 Opening inventory 90 units at R50 each
Page 81
2 Sold 30 units at R63

7 Purchased 60 units at R75 each
REQUIRED:
2.1 Calculate the closing inventory in UNITS.
2.2 Calculate the VALUE of closing inventory using the following methods of inventory
valuation:
2.2.1 the FIFO method
2.2.2 the Weighted Average method.
2.3 Calculate the gross profit using your answer calculated above.
QUESTION 3
Bay Traders buys and sells goods in bundles. Opening inventory is available on 1 October of 1 000 units at
R2.70 each.
Details of transactions for the period are as follows:
Purchases: Bundle 1 6 000 units @ R2.90 each
Bundle 2 10 000 units @ R3.10 each
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Bundle 3 12 000 units @ R2.50 each
Sales: Bundles 1 14 000 units
Bundle 2 11 000 units
REQUIRED:
3.1 Calculate closing inventory (units and Rand value) using FIFO.
3.2 Calculate cost of sales.
3.3 If the selling price per unit is R5.00 calculate the gross profit.
3.4 If Bay Traders decides to use the weighted average method, calculate their closing inventory. (Round
the price to four decimal places)
Page 83

BFC1010: Fundamentals of Accounting

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BFC1010: Fundamentals of Accounting

BFC1010: FUNDAMENTALS OF ACCOUNTING

ADDITIONAL STUDENT NOTES AND QUESTION

1. SIMPLE AND COMPOUND INTEREST...........................................................................3

4. GENERAL LEDGER AND TRIAL BALANCE.................................................................51

5. INVENTORY (PERIODIC METHOD).............................................................................63

1. SIMPLE AND COMPOUND INTEREST

After studying these chapters, you should be able to:

1.1 Simple interest

i = Pxrxt where: P or Pv = R600

Note: Time (t or n) is always expressed in terms of a year.

i = Pxrxt where: P or Pv = R10 000

i = Pxrxt where: P or Pv = R350.60

t or n (time period) Denominator (time periods in a year)

1.1.1 Calculating interest over a number of days

March 29 days (31 – 2)

Total 123 days

Days in each month:

1.1.2 Finding the principal (P) / present value (Pv)

By using the rules for changing the subject of the formula:

Make P or Pv the subject of the formula (Calculate principal/present value)

A = P+i but i = Pxrxt

By using the rules for changing the subject of the formula:

Make P the subject of the formula: A = P(1 + rt)

1.2 Compound interest

1.2.1 Basic concepts

With this method you pay/earn interest on interest.

Principal/Present value at beginning of 1 st year R150.40

Principal/Present value at beginning of 1 st year R5 000.00

Interest = ……………………. R.………..

Principal/Present value at beginning of 2 nd year R…………

Interest = ……………………. R…………

Principal/Present value at beginning of 3 rd year R…………

Interest = ……………………. R…………

Amount/Future value (at end 3 years) R…………

Less: Principal/Present value (R5 000.00)

Compound interest R…………

1.2.2 Compound interest formula

Compound interest for longer periods can be calculated by using a formula.

Say R 1 is invested at 15 % per annum compound interest.

Interest on R 1 at 5 % per annum for 1 year = Pxrxt

Amount (A) / Present value (Pv) at the end of 1 year = R 1 + R 0.05

Recalculate examples 1 and 2 from 5.2.1 using the formula

Compound interest = …………………………

Compound interest = …………………………

1.2.3 Finding the principal/(present value)

To increase principal/present value to amount/future value: multiply by 1.05

Make P the subject of the formula A = P(1 + r)t:

Book of First Entry Transaction

2.1 Cash Receipts Journal

Blue Bull Traders

2.2 Cash Payments Journal

preferences of each. The following is an example of a typical Cash Payments

Blue Bull Traders

2.3 Purchases Journal

Blue Bull Traders

4. On the 21st an advertisement was placed in The Weekly Advertiser at a cost of

2.4 Purchases Returns Journal

Blue Bull Traders

2.5 Sales Journal

Blue Bull Traders

2.6 Sales Returns Journal

Blue Bull Traders