Assignment Cover

Region : Mashonaland Central, Zimbabwe

Programme : Bachelor of Commerce Honours in Marketing Management

Intake : 35

Full Name (Student) : Muzondo Itai Lionel

Student Pin : P2019517B

National ID Number : 63-2255872 S18

Mailing address : 1884 Mutamba Circle, Chiwaridzo Bindura

Email address : lionelitai.muzondo@gmail.com

Contact Number : +263 77 396 9160 / +263 77 449 8984 / +263 71 410 5122

Course name : Financial Accounting I

Course Code : BACC101

Assignment Number : 1 Due Dates : January 18th 2021

Date of submission : December 30th 2020

Assignment Title : Financial Accounting I (Assignment 1)

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Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 1|Page

Question 1
a) Accounts are mainly classified into two main classes namely Personal and Impersonal
accounts. Giving clear definitions and examples, analyse these classes and their sub
classes. State three types of ledgers and classes of accounts recorded in them
(15 marks)
b) Define and illustrate an accounting cycle (10 marks)
c) The following items are found in Gambaza’s statement of financial position as at 1
December 2019;

Capital $ 412,000.00
Accounts Payable $ 96,200.00
Fixtures $ 124,800.00
Vehicles $ 159,900.00
Inventory $ 111,800.00
Accounts Receivable $ 53,300.00
Cash at Bank $ 20,800.00
Cash in hand $ 37,700.00

During the month, Gambaza bought more inventory on credit valued at $14 300, bought a laptop
by cheque for $7 930, and received cheque of $5 850 from his debtor Mr. Ncube for goods that
he had sold to him on credit.

You are required to prepare Gambaza’s statement of financial position as at 31 December

2019 after the transactions (15 marks)

Solution to Question 1:
a) Personal accounts are those accounts that relate to debtors and creditors (Wood, F. and
Sangster, A.,2005). These are sub-categorised into Natural accounts and Artificial
accounts. Natural Personal Accounts (NPAs) are those accounts that relate to physical
human beings. An example of an NPA is Molline’s account. Artificial Personal accounts
(APAs) relate to non-physical entities. These may be institutions or associations of
persons. Examples of Artificial Personal Accounts ABC (Pvt) Ltd account as well as
charitable trusts.

Impersonal accounts are those that are concerned with income, gain, expenditure and loss
related to the business (Cox, D.,2005). These are sub-categorised into Real accounts and
Nominal accounts. Real accounts are asset based and include both tangible and intangible
Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 2|Page
 assets. Tangible assets consist of physical assets such as loose tools, cash, stock,
buildings et cetera. Intangible assets relate to securities, that is, bonds, patents,
copyrights, shares, goodwill et cetera.

Nominal accounts are associated with the preparation of financial statements such as
income and expenditure accounts. Examples of such accounts include, but not limited to,
sales, purchases, gain (or loss) on sale of fixed asset, interest earned et cetera.

Three types of ledger are;

1. Sales Ledger which records personal accounts
2. Purchases Ledger which records real accounts and,
3. General Ledger which records all classes of accounts, Real, Personal and Nominal.

b) An accounting cycle is defined as a systematic process that is associated with the

recording and analysis of accounting events related to a business’ activities. The cycle
has eight stages which can be modified however depending on the business model and
the accounting procedures implemented by the company.

Illustration of Accounting Cycle

economic
event occurs:
Stage 1:
Stage 8: Closure of Identification
accounts andtransition
into next fiscal period

Stage 2:
Journalism
Stage 7: Financial
Reporting (income
statement, balance sheet,
statemement of cashflows) Stage 3:
Posting to
Nominal
Ledger
Stage 6: Adjusting
entries & preparation
of final Trial Balance Stage 4:
Unadjusted
Stage 5: Error Trial Balance
analysis (use of
Worksheet)

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 3|Page

 Financial activities often take the form of transactions, and these occur in series. When a
transaction occurs, the first step is to determine the nature of the transaction whether it is
an asset or liability, credit or debit transaction. An example is the receipt of US$15,000.00
worth of sales for a vehicle sold to a customer. After the transaction has happened, it is
identified as an income transaction.

The transaction is then recorded in the books of prime entry (journal). This process is called
journalism and information recorded is acquired from the source document in this case a
carbon copy of the cash receipt or invoice. The $15,000.00 is credited to Sales journal and
debited to Cashbook. The dual aspect concept is maintained throughout the whole process.

Once the trading period defined has lapsed, the transactions are then posted to the Nominal
Ledger. The Nominal Ledger contains all the accounts relating to the business’ activities.
Care should be taken to maintain the double entry concept to minimise errors.

The balances from the completed Nominal Ledger are extracted and are used to prepare
the Unadjusted Trial Balance. At this point any debit-credit total variations constitute error
existence.

Variations from the Unadjusted Trial Balance are checked for errors and adjustment entries
made in the journal to correct errors of omission, commission and principle. Usually a
worksheet is used to solve these errors as well as the suspense account and journal.
Corrected errors are then reposted to the nominal ledger and the balances extracted to
prepare the final or Adjusted Trial Balance. This process of error checking may be repeated
to make sure errors are eradicated.

Once all errors have been cleared, financial reporting commences. This process involves
the creation of comprehensive income statement for the period, statement of financial
position, cashflow analysis. At this point the accounting cycle is near complete.

The last stage of the accounting cycle is to close the books. This process involves clearing
data in the accounts and retaining balances in the balance sheet. The balance sheet are then
filed for future reference as well as record keeping.

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 4|Page

 c) Adjusted Journal entries in the books of Gambaza:
Inventory a/c dr. 14,300.00
To Creditors a/c 14,300.00
(being inventory purchased on credit)

Laptop a/c dr. 7,930.00

To Bank a/c 7,930.00
(being procurement of asset, laptop)

Bank a/c dr. 5,850.00

To Debtor’s a/c 5,850.00
(being payment receipt from Mr. Ncube for goods
sold on credit)

Adjusted Trial Balance

Debit Balances Credit Balances
($) ($)
Fixtures 124,800.00
Vehicles 159,900.00
Inventory 126,100.00
Accounts receivable 47,450.00
Cash at bank 18,720.00
Cash in hand 37,700.00
Laptop 7,930.00
Capital 412,100.00
Accounts payable 110,500.00
. .

522,600.00 522,600.00

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 5|Page

 Gambaza
Balance sheet as at 31 December, 2019

Non - Current Assets $ $ $

Fixtures $ 124,800.00
Vehicles $ 159,900.00
$ 284,700.00
Current Assets
Cash (at Bank) $ 18,720.00
Cash (in hand) $ 37,700.00
Inventory $ 126,100.00
Accounts receivables $ 47,450.00
Laptop $ 7,930.00
$ 237,900.00
$ 522,600.00
Financed By:

Capital $ 412,100.00

Current Liabilities

Accounts payable $ 110,500.00

Total Capital + Liabilities $ 522,600.00

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 6|Page

Question 2

On 31 December 2018, Mr. Gapa’s ledger balances were as follows;

Details $
Purchases 61,420
Sales 127,245
Inventory (1 January 2018) 7,940
Capital 25,200
Bank overdraft 2,490
Cash 140
Discount allowed 2,480
Discount received 62
Returns inwards 3,486
Returns outwards 1,356
Rent and insurance 8,870
Allowance for doubtful debts 630
Fixtures and Fittings 1,900
Van 5,600
Accounts receivable 12,418
Accounts payable 11,400
Drawings 21,400
Wages and Salaries 39,200
General expenses 319
Carriage outwards 3,210

Required:

a) Prepare a trial balance from the above balances (10 marks)

b) Prepare a statement of comprehensive income considering the following;
▪ Inventory (1/01/18) $6,805
▪ Wages and Salaries accrued at 31/12/18 $3,500
▪ Office expenses owing at 31/12/18 $16
▪ Rent prepaid $600
▪ Increase allowance for doubtful debts by $110
▪ Depreciate Van by $1,400 and Fixtures and fittings by $190

(15 marks)

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 7|Page

Solution to Question 2:

a) Trial Balance for Mr. Gapa

Debit Credit
balances balances
($) ($)

Sales 127,245.00
Capital 25,200.00
Bank overdraft 2,490.00
Discount received 62.00
Return outwards 1,356.00
Accounts payable 11,400
Allowance for doubtful debts 630.00
Purchases 61,420.0
Inventory (1 January 2018) 7,940.00
Cash 140.00
Discount allowed 2480.00
Return inwards 3,486.00
Rent and insurance 8,870.00
Fixtures and fittings 1,900.00
Van 5,600.00
Accounts receivable 12,418.00
Drawings 21,400.00
Wages and Salaries 39,200.00
General expenses 319.00
Carriage outwards 3,210.00
. .

168,383.00 168,383.00

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 8|Page

 Mr. Gapa
Trading & Profit and Loss account
$ $ $ $
To opening stock 7,940.00 By sales 127,245.00
To Purchases 61,420.00 less Returns inwards 3,486.00
less Return outwards 1,356.00 123,759.00
60,064.00 By closing stock 6,805.00
To Gross Profit b/d 62,560.00
130,564.00 130,564.00

To Wages and Salaries 39,200.00 By Gross Profit b/f 62,560.00

By Discount
add accrued wages 3,500.00 received 62.00
42,700.00
To General expenses 319.00
add office expenses
owing 16.00
335.00
To Rent & Insurance 8,870.00
less Prepaid Rent 600.00
8,270.00
To Depreciation:
- Van 1,400.00
- Fixtures & fitting 190.00
1,590.00
To Discount allowed 2,480.00
To Carriage outwards 3,210.00
To Provision for
doubtful
debt 110.00
To Net Profit
(transferred
to capital account) 3,927.00
62,622.00 62,622.00

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 9|Page

 Mr. Gapa
Comprehensive Income Statement for the year ended 31 December 2018
$ $
A. INCOME
Sales 127,245.00
less Returns Inwards 3,486.00
123,759.00
Cost of Sales:
Opening Stock 7,940.00
add Purchases 61,420.00
less Return Outwards 1,356.00
68,004.00
less Closing Stock 6,805.00
61,199.00
Gross Profit 62,560.00
Other Income or gains:
Discount Received 62.00

Total Income 62,622.00

B. OPERATING EXPENSES

Wages and Salaries 42,700.00

General Expenses 335.00
Rent and Insurance 8,270.00
Discount allowed 2,480.00
Carriage outwards 3,210.00
Provision for doubtful debts 110.00
Depreciation:
Van 1,400.00
Fixtures and fittings 190.00
1,590.00
Total Operating Expenses 58,695.00
Net Profit 3,927.00
Net Profit (%) 6.27%

Muzondo Itai Lionel, P2019517B, Bcom (Hons) Marketing Management 10 |

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 Mr. Gapa
Statement of financial position as on 31 December, 2018

Non - Current Assets $ $ $

Fixtures and fittings 1,900.00
less depreciation 190.00
1,710.00
Van 5,600.00
less depreciation 1,400.00
4,200.00
5,910.00
Current Assets
Cash 140.00
Inventory 6,805.00
Prepayments 600.00
Accounts receivables 12,418.00
less Provision for doubtful debts 740.00
11,678.00
19,223.00
TOTAL ASSETS 25,133.00

Financed By:

Capital 25,200.00
add Net Profit 3,927.00
29,127.00
less Drawings 21,400.00
7,727.00
Current Liabilities

Bank overdraft 2,490.00

Accounts payable 11,400.00
Accrued wages 3,500.00
Accrued general expenses 16.00
17,406.00
TOTAL CAPITAL + LIABILITIES 25,133.00

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Question 3

Maxwell Titi’s trial balance failed to agree by $1,800. The following errors were later
discovered;

a) Purchases had been undercast by $800

b) Wages had been overcast by $600
c) $112.50 was entered on the credit side of the returns inwards account
d) $1,050 was not recorded in discounts allowed account
e) Sales were undercast by $900
f) Credit sales of $475 to Cheke had not been recorded in his account
g) Bank account was understated by $250 on the credit side
h) $1,000 expense was not recorded in general expenses account

You are required to

i. Show journal entries necessary to correct the above errors (16 marks)
ii. Complete the suspense account (9 marks)

Solution to Question 3:

i. Corrected Journal entries in the books of Maxwell Titi:

(a) Purchases a/c dr. 800.00

To Suspense a/c 800.00
(being purchases undercast by $800, now corrected)
(b) Suspense a/c dr. 600.00
To Wages a/c 600.00
(being wages overcast by $600, now corrected)
(c) Returns inwards a/c dr. 225.00
To Suspense a/c 225.00
(being posting error on credit side of returns inwards
a/c, now corrected)
(d) Discount allowed a/c dr. 1,050.00
To Suspense a/c 1,050.00
(being error of omission, now corrected)
(e) Suspense account dr. 900.00
To sales a/c 900.00
(being sales undercast by $900, now corrected)

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(f) Cheke a/c dr. 475.00
To Suspense a/c 475.00
(being error of omission, now corrected)
(g) Suspense a/c dr. 250.00
To Bank a/c 250.00
(being understatement of credit side of bank a/c by
$250, now corrected)
(h) General expenses a/c dr. 1,000.00
To Suspense a/c 1,000.00
(being error of omission, now corrected)

ii. Suspense account

Trial balance difference b/d 1,800.00 By Purchases a/c 800.00

To Wages a/c 600.00 By Returns inwards a/c 225.00
To Sales a/c 900.00 By Discount allowed a/c 1,050.00
To Bank a/c 250.00 By debtor’s a/c (Cheke) 475.00
By General expenses a/c 1,000.00
. .

3,550.00 3,550.00

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