Lecture 2

Capital Expenditure
Capital Expenditure relates to the long term expenditure made by a business which is
expected to derive benefits over more than 1 year.
Examples: Plant and Machinery, Fixtures and Fittings, Land and Buildings, Office
Equipment.

Revenue Expenditure
Revenue Expenditure is recurrent expenditure incurred every year in order to help to
generate revenue.
Examples: Rent and Rates, Purchase of Goods, Wages and Salaries, Carriage Inwards,
Carriage Outwards.

Capital + Liabilities = Assets

Flow of Accounting Information

(Insert Diagram here).

Daily Transactions are recorded in Day Books (also known as Subsidiary Books or
Journal). On a periodic basis, the totals of the Day Books are transferred to respective
Ledger Accounts.
For Example:
The total of the Sales Day Book is transferred to the Sales Account.
The total of the Purchases Day Book is transferred to the Purchases Account.

In order to verify the arithmetical accuracy of Costing, a Trial Balance is extracted after
which a set of Financial Statement is prepared (Income Statement & Statement of
Financial Position).

There are certain items which require adjustment at the end of the Financial Year and
these items should be adjusted before the preparation of the Financial Statement.

(Insert items here : Inventory Valuation, Accruals/Prepayments,…).

Day Books :

• Purchases Day Book,

• Sales Day Book,
• Returns Day Book,
• Cash Book,
• Journal.

1
Subsidiary Books / Journal / Day Books:
(Insert Format of the Day Book Here).

Uses of the Journal:

1. To record opening Capital.

2. To correct errors.
3. To record acquisition and disposal of non-current assets on Credit.
4. To record bad/doubtful debts.

Question 1.

The list of balances at May 1st 2023 consists of :

• Office Equipment : Rs 75,000.

• Fixtures and Fittings : Rs 25,000.
• Inventory : Rs 10,000
• Receivables – A : Rs 7,000
• Receivable – B : Rs 12,000
• Cash at Bank : Rs 11,000
• Cash in hand : Rs 5,000
• Trade Payables – X : Rs 7,000

Transactions for the month of May 2023 :

• May 2nd : Paid Rent by cheque : Rs 2,000

• May 5th : Paid Insurance by cheque : Rs 1,500
• May 9th : Bought goods on credit for resale from X : Rs 8,000
• May 9th : Bought goods on credit for resale from Y : Rs 9,000
• May 16th : Sold goods on credit to A : Rs 14,000
• May 16th : Sold goods on credit to B : Rs 9,000
• May 21st : We Return Goods to X : Rs 3,000
• May 24th : Purchased further Fixtures and Fittings on credit from Best Fixtures
Limited: Rs 25,000
• May 27th : All suppliers and credit customers’ accounts are settled after a 5%
cash discount by cheque.
• May 29th : Cash Sales amount to Rs 10,000
• May 31st : Cash Purchases amount to Rs 7,000

Required :

a. Record the opening entries in a Journal and determine Opening Capital.

b. Record the transactions for the month in respective Day Books.
c. Post the transactions in appropriate Ledger Accounts.
d. Extract a Trial Balance as at 31st May 2023.