Week Five Lecture Notes

THE TRIAL BALANCE

As mentioned above, a trial balance is a list of debit and credit balances extracted from the
ledgers aimed at checking the accuracy of the accounting process. Accounts with net debit
balances ie. Before closing the accounts, the total on the debit side was more than the total on the
credit side. Meaning balance c/d is on the credit side and Bal. b/d on the debit side, will appear
on the debit side of the trial balance. Likewise accounts with net credit balances will appear on
the credit side of the trial balance. All assets accounts (except bank in case of bank over dratf),
expense accounts and drawing accounts are expected to have debit balances. If you get credit
balances on those accounts, it means your working was wrong. Similarly all liability accounts,
revenue or income accounts, capital accounts and reserve account are expected to have credit
balances. If you get a debit balance on any of those accounts, then it means you wrong.

With the above knowledge, we can now prepare ABC’s Trial Balance

ABC LTD
TRIAL BALANCE
AS AT 31ST OCTOBER
ACCOUNT TITLE DEBIT (DR) CREDIT (CR)
(Shs.) ( Shs.)
Cash 6,700,000
Bank 1,500,000
Land 2,500,000
Office equipment 15,000,000
Motor Vehicle 800,000
Drawing 20,000,000
Equipment Suppliers Ltd 500,000
Loan 8,000,000

28,500,000 28,500,000

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Note: Spear Motor’s A/C is completely closed ie has a nil balanced and therefore does not appear
in the trial balance.
Closing or balancing off PTC’S ledger Accounts
(Refer to PTC’s ledger account earlier on prepared)

General Ledger Account

Shs Shs
Jan. 1 Creditors/ Accounts payable 400,000

2 Creditors 200,000

14 Creditors 60,000

22 Cash 100,000

25Creditor 100,000 Jan. 31 Bal. c/d 860,000

860,000 860,000

Feb. 1 Bal. b/d 860,000

Creditors’ A/C (A/C payable)

Shs. Shs.

Jan 5 Returns outwards 50,000 Jan. 1 purchases 400,000

12 Cash 80,000 2 purchases 200,000

18 Returns outwards 50,000 14 purchases 60,000

19 Bank 150,000 25 purchases 100,000

26 Cash 80,000

31 Bal. c/d 350,000

760,000 760,000

Feb. 1Bal. b/d 350,000

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 Sales A/C

Shs Shs

Jan. 3 Debtors (A/C Receivable) 1,000,000

4“ 400,000

20 “ 80,000

Jan 31 Bal. c/d 5,980,000 23 Cash 500,000

24 Bank 4,000,000

5,980,000 5,980,000

Feb.1 Bal. b/d 5,980,000

Debtors A/C (A/C Receivable)

Shs Shs

Jan.3 Sales 1,000,000 Jan. 10 Cash 800,000

4“ 400,000 15 Returns inwards 40,000

20 “ 80,000 16 Bank 150,000

27 Returns inwards 100,000

28 Bank 200,000

Jan.31 Bal c/d 190,000

1,480,000 1,480,000

Feb.1 Bal. b/d 190,000

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 Returns Outwards A/C (Purchases Returns A/C)

Shs. Shs.

Jan. Bal Bal c/d 100,000 Jan. 5 Creditors 50,000

8 “ 50,000

100,000 100,000

Feb. 1 Bal. b/d 100,000

Cash A/C

Shs. Shs.

Jan 10 Debtors 800,000 Jan. 12 Creditors 80,000

23 sales 500,000 17 Rent 100,000

22 Purchases 100,000

26 Creditors 80,000

29 Electricity 100,000

31 Salaries 150,000

31Bal. c/d 690,000

1,300,000 1,300,000

Feb. 1 Bal. b/d 690,000

Returns Inwards A/C (Sales Returns)

Shs. Shs.

Jan 15 Debtors 40,000 Jan. 31 Bal c/d 140,000

27 “ 100,000

140,000 140,000

Feb.1 Bal b/d 140,000

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Debtors Subsidiary Ledger (Sales Ledgers) Accounts

John’s A/C

Jan. 3 Sales 1,000,000 Jan. 10 Cash 800,000

20 “ 800,000 27 Returns Inwards 100,000

28 Bank 200,000

31 Bal c/d 700,000

1,800,000 1,800,000

Feb. 1 Bal b/d 700,000

Mary’s A/C

Jan. 4 Sales 400,000 Jan. 15 Returns Inwards 40,000

16 Bank 150,000

31 Bal c/d 210,000

400,000 400,000

Feb. 1 Bal b/d 210,000

Note: The total of the individual debtors’ balance ie. John’s balance and Mary’s balance is the
same as the balance on the Debtors’ A/C or Accounts Receivable. Reconciliations must be
always be made between the sum of the individual Debtors’ balance and the major or control
account. In this, the debtor’s account or account receivable. This major or summary account
which controls and acts as a trial balance for the subsidiary ledger is called a control account.
More details on control accounts will be handled in the subsequent chapters.

Creditors’ Subsidiary Ledger (Purchases Ledger) Accounts

Jan. 5 Returns Outwards 50,000 Jan. 1 Purchases 400,000

12 Cash 80,000 25 “ 100,000

26 Cash 80,000

31Bal c/d 290,000

500,000 500,000

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 Feb1Bal. b/d 290,000

Jane’s A/C

Jan. 18 Returns Outwards 50,000 Jan. 2 Purchases 200,000

19 Bank 150,000 14 “ 60,000

31 Bal c/d 60,000

260,000 260,000

Feb. 1 Bal b/d 60,000

Note: the total of Peter’s balance and Jane’s balance reconciles with the balance on the
Creditors’ account or accounts payable appearing in the general ledger. The creditors’ control
account acts as a check for the accuracy of the creditors’ subsidiary ledger.

As already observed, the bank and the cash accounts are not normally shown separately. They
are combined to form what is called a cash book. The treatment of the cash book is still
contentious. Others will want it as a book of original entry (Journal), may be they are not wrong.
Many other still want to treat as cash as a ledger; they are not also wrong. But as pointed out
earlier, categorization of the cash book is a non- issue. The fundamental thing is to know how to
write and rule it off or balance it off at the end of the month or the financial year. It must be
emphasized that a cash book is one of the key books maintained by almost all organisations
whether big corporation or humble family businesses.

PTC’s cash book for the month ended January 31 st properly balanced off at the end of the month
is also shown below.

PTC’s Cash Book

Date Particular Ref Cash Bank Date Particular Ref Cash Bank
(Details) (Details)
Jan 10 John 800,000 Jan 12 Peter 80,000
(Debtor) (Creditor)
16 Mary 150,000 17 100,000
(Debtor) Rent
23 Sales 500,000 19 Jane 150,000
(Creditor)
24 Sales 4,000,000 22 Purchases 100,000
25 John 200,000 26 Peter
(Debtor) (Creditor) 80,000
29 Electricity 100,000 50,000
30 Rent 60,000
31 Salaries 150,000 160,000
31 Bal. c/d 690,000 3,390,000
1,300,00 4,350,000 1,300,000 4,350,000
0

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 Bal. b/d 690,000 3,930,000

PTC Ltd. Trial Balance

For the Month Ended 31st January

ACCOUNT TITLES Debit (Dr) Credit (Cr)
(Shs.) (Shs.)
Purchases 860,000

Debtors 910,000

Cash 690,000

Returns inwards 140,000

Rent 160,000

Electricity 150,000

Salaries 310,000

Bank 3,390,000
350,000
Creditors
6,700,000
Sales
100,000
Returns outwards
7,150,000 7,150,000

Additional Illustrative Examples

1. The following balances were extracted from the cash book and ledger of Mukasa’s business
on 31/5/1999
From the Ledger: (Shs.)
Creditors 3,000,000
Debtors 7,000,000
Rent 500,000
Electricity 300,000
Capital 5,000,000
Loan 2,000,000
Drawings 500,000

From the Cash Book

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 Cash 5, 000,000
Bank (credit as per cash book) 3,300,000

During the Month of June 1999, the following transactions occurred:

June 1 bought goods on credit Shs. 6,500,000
“ 2 Sold goods on credit for Shs. 8,000,000
“ 4 received a cheque of Shs. 5,000,000 from a debtor and banked it
“ 7 Paid creditors Shs. 1,500,000 cash and Shs. 500,000 by cheque
“ 10 Rejected and returned goods worth Shs. 300,000 to a credit
“ 12 A debtor rejected and returned goods worth Shs. 100,000
“ 14 Banked Shs. 1,500,000 cash
“ 16 Paid rent cash Shs. 400,000 and Shs. 800,000 by cheque and electricity for
payment of cash expenses
“ 20 Withdrew Shs. 1,000,000 from the bank and put it into the cash box for payment
of cash expenses
“ 22 Paid Shs. 2,000,000 by cheque in respect of retiring the loan
“ 25 fearing the consequences of the land bill, he sold land inherited from his father
for Shs. 10,000,000 cash. He used Shs. 5,000,000 for his marriage ceremonies and the
rest if the money, he put into his business
“27 Received cash of Shs. 100,000 and a cheque of Shs. 2,000,000 from a debtor and
banked both cash and the cheque
“ 30 Used business cash of Shs. 300,000 for a social evening with his friends at a club

Required

i. Prepare Mukasa’s ledger accounts and cash book properly balanced on 30/6/1999.
(Ignore subsidiary ledgers, put all accounts into one ledger since they are few)
ii. Extract his trial balance for the month ended 30/6/1999.

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 MUKASA’S
CASH BOOK 1/6/1999-30.6.99 (3 ZEROS OMITTED)
Date Particulars Ref Cash Bank Date Particulars Ref Cash Bank
(Details) (Details)
1.6.99 Bal b/d 5,000 1.6.99 Bal b/d 3,300
1.6.99 Debtors 5,000 7.6.99 Creditors 1,500 500
4.6.99 Cash C 1,500 14.6.99 Bank C 1,500
20.6.99 Bank C 1,000 16.6.99 Rent 400 800
25.6.99 Capital 5,000 “ Electricity 250
27.6.99 Debtors 100 2,000 20.6.99 Cash C 1,000
“ Cash C 100 22.6.99 Loan 2,000
27.6.99 Bank C 100
30.6.99 Drawings 300
--------- --------- “ 7,050 1,000
11,000 8,600 Bal c/d 11,100 8,600
1.7.99 Bal b/d 7,050 1,000

Note: C in the Ref. Column stands for contra where double entry is completed within the cash
book.

MUKASA’S LEDGER 1.6.1999-30.6.1999

Purchases A/C (Shs. 000)
1.6.99 Creditors 6,500 30.6.99 Bal c/d 6,500

6,500 6,500

1.7.99 Bal. b/d 6,500

Creditors’ A/C (Shs. 000)

7.6.99 Cash 1,500 1.6.99 Bal b/d 3,000

“ Bank 500 1.6.99 purchases 6,500

10.6.99 Returns out 300

30.6.99 Bal c/d 7,200

9,500 9,500

1.7.99 Bal b/d 7,200

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 Debtors A/C (Shs. 000)

1.66.99 Bal b/d 7,000 4.6.99 Bank 5,000

12.6.99 Returns in 100
2.6.99 sales 8,000 27.6.99 cash 100
27.6.99 bank 2,000
30.6.99 Bal. c/d 7,800

15,000 15,000

1.7.99 Bal b/d 7,800

Sales A/C (Shs. 000)

30.6.99 Bal c/d 8,000 2.6.99 Debtors 8,000

8,000 8,000

1.7.99 Bal b/d 8,000

Returns outwards A/C (Shs. 000)

30.6.99 Bal c/d 300 10.6.99 Creditors 300

300 300

1.7.99 Bal b/d 300

Returns inwards A/C (Shs. 000)

12.6.99 Debtors 100 30.6.99 Bal c/d 100

100 100

1.7.99 Bal 100

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 Rent A/C (Shs. 000)

1.6.99 Bal b/d 500 30.6.99 Bal c/d 1,700

16.6.99 Cash 400

“ Bank 800

1,700
1,700

1.7.99 Bal b/d 1,700

Electricity A/C (Shs. 000)

1.6.99 Bal b/d 300 30.6.99 Bal c/d 550

16.6.99 Cash 250

550
550

1.7.99 550

Loan A/C (Shs. 000)

22.6.99 2,000 1.6.99 Bal b/d 2,000

2,000 2,000

1.7.99 Bal b/d 2,000

Capital A/C (Shs. 000)

1.6.99 Bal b/d 5,000

30.6.99 Bal c/d 10,000 25.6.99 Cash 5,000

10,000 10,000

1.7.99 Bal
10,000

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 Drawings A/C (Shs. 000)

1.6.99 Bal b/d

500
30.6.99 Bal c/d 800
30.6.99 Cash 300

800 800
1.7.99 Bal b/d 800

Mukasa’s
Trial Balance
For the Month ended 30.6.1999
Account titles Dr. Cr.
(Shs. 000) (Shs. 000)
Purchases 6,500

Debtors 7,800

Cash 7,050

Bank 1,000

Returns inwards 100

Rent 1,700

Electricity 550

Drawings 800

Creditors 7,200

Sales 8,000

Returns outwards 300

Capital
------------- 10,000

25,500 25,500

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2. Connie commenced a stationery business on 1st January 1999 with her salary savings of Shs.
50,000 which she was keeping Greenland bank. She transformed her personal account into a
business account and thereafter, the salary had to be channeled to her account with Crane
bank. She also took on her sister as her assistant in the business and she was to be paid a
salary of Shs. 5,000 per month. During the month of January, she carried out the following
transactions.

Jan 1 She withdrew Shs. 10,000 for use in the day to day operations of the business

“ 2 Bought stationery worth Shs. 15,000 from ABC stationers on credit, and also
transferred her furniture worth Shs. 10,000 from home for use in the business

“ 3 Bought further stock of stationery at Shs. 18,000 and paid by cheque. She also
paid Shs. 1,500 for transporting the stationery to the place of work paying cash
“5 Cash sales were Shs. 8,000. She also sold stationery to Katwe Primary School at Shs.
14,000 on credit.
“ 7 Paid ABC Stationers Shs. 9,000 by cheque for stationery previously bought , and
returned some spoilt stationery worth Shs. 700 on the same day
“ 10 Bought stationery worth Shs. 20,000 from Kim Investments Ltd. On credit
“ 13 Katwe Primary School paid Shs. 6,000 by cheque and returned some items worth
Shs. 800 which had not been ordered for.
“ 20 Sold books worth Shs. 23,000 to Kibuye School on condition that payment is
made before the end of the month
“ 25 Paid salary to her assistant, by cheque.

“ 30 She agreed with Picfare Industries Ltd to purchase stationery worth Shs. 20,000
per month and delivery would begin early February

These were the only transactions of the month.

Required:

i. To record the transactions into the books of original entry (ignore returns books)
ii. To post the entries in the ledger
iii. To extract a trial balance as at 31st January 1999

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BOOKS OF ORIGINAL ENTRY

Cash Book

Date Particulars Ref Cash Bank Date Particulars Ref Cash Bank
(Details) (Details)
1.1.99 Capital 50,000 1.1.99 Cash C 10,000
Bank C 10,000 3.1.99 Purchases 18,000
5.1.99 Sales 8,000 “ Transport- 1,500
In
13.1.99 Katwe 6,000 7.1.99 ABC 9,000
Primary Stationery
School
25.1.99 Salary 5,000
---------- --------- 31.1.99 Bal c/d 16,500 14,000
---
18,000 56,000 18,000 56,000

Note: Withdrawals of Shs. 10,000 from the bank for use in the business is called a contra entry
because the double entry is accomplished within the cash book.

Purchases Day Book

Date Supplier/Account Credit Invoice Folio Amount

No.
2.1.99 ABC Stationers 15,000
10.1.99 Kim Investment 20,000
Total to Creditors’ control and 35,000
purchases A/Cs

Sales Day Book

Date Customer/Account Debited Invoice Folio Amount

No.
5.1.99 Customer/Account Debited 14,000
20.1.99 Katwe Primary School 23,000
Total to Debtors’ control and 37,000
sales A/Cs
General Journal

Date Account titles and explanations Folio/ Dr. Cr.

LP
2.1.99 Furniture 10,000
Capital 10,000
(To record transfer of own
furniture for use in business)

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Note: all the other transactions were recorded in specialized books of original entry, it is only
transfer of personal furniture to the business (Capitalizing the business) that could not be
recorded in any of the other journals. All those transaction not qualifying to be recorded in
specialized journals are recorded in the general journal

PURCHASES LEDGER (CREDITORS’ SUBSIDIARY LEDGER)

ABC Stationers A/C

7.1.99 Returns 700 2.1.99 Purchases 15,000

9,000

31.1.99 Bal c/d 5,300 ……….

15,000 15,000

Kim Investment A/C

1.1.99 Bal c/d 20,000 10.1.99 Purchases 20,000

20,000 20,000

SALES LEDGER (DEBTORS SUBSIDIARY LEDGER)

Katwe Primary School A/C

5.1.99 Sales 14,000 13.1.99 Returns 800

13.1.99 Bank 6,000

31.1.99 Bal c/d 7,200

14,000 14,000

Kibuye Primary School A/C

20.1.99 Sales 2,300 31.1.99 Bal c/d 2,300

2,300 2,300

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 GENERAL LEDGER

Capital A/C

31.1.99 Bal c/d 60,000 1.1.99 Bank 50,000

2.1.99 Furniture 10,000

60,000 60,000

Debtors Control A/C

31.1.99 Sales 37,000 13.1.99 Returns 800

(see sales day book) “ Bank 6,000

31.1.99 Bal c/d 30,200

37,000 37,000

Creditors Control A/C

7.1.99 Returns 700 31.1.99 Purchases 35,000

“ Bank 9,000 (see purchases day book)

31.1.99 Bal c/d 25,300

35,000 35,000

Sales A/C

31.1.99 Bal c/d 45,000 31.1.99 Credit sales 37,000

“ Cash Sales 8,000

45,000 45,000

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 Purchases A/C

31.1.99 Credit Purchases 35,000

“ Cash 18,000 31.1.99 Bal c/d 53,000

53,000 53,000

Salary A/C

25.1.99 Bank 5,000 31.1.99 Bal c/d 5,000

5,000 5,000

Returns inwards A/C

13.1.99 Debtors 800 31.1.99 Bal b/d 800

800 800

Returns Outwards A/c

31.1.99 Bal b/d 700 7.1.99 Creditors 700

700 700

Transport A/C
31.1.99 Cash 1,500 31.1.99 Bal c/d 1,500

1,500 1,500

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 CONNIE
Trial Balance as at 31.1.1999
Account titles Dr. Cr.
(Shs.) (Shs.)
Capital 60,000
Sales 45,000
Returns outwards 700
Creditors 25,300
Purchases 53,000
Salary 5,000
Cash 16,500
Bank 14,000
Returns inwards 800
Furniture 10,000
Transport-In 1,500
debtors 30,200 ------------
131,000 131,000

Closing accounts at the end of the financial year

At the end of the financial year, purchases, sales, returns and expenses accounts will not have
balances carried down or forward to the next financial year. If it is closing accounts at the end of
the financial year for purposes of preparing final accounts, purchases, sales and returns accounts
will be closed to the trading account. It is only balance sheet accounts i.e. Assets, liabilities and
capital reserves that will have balances carried forward to the next financial year.

A REMINDER ON ERRORS DETECTED BY A TRIAL BALANCE

You will recall that the purpose of the trial balance is to check the accuracy of the books. It
specifically detects the following errors:

(a) Where the principles or rules of the double entry were not observed e.g. If goods sold
cash for 50,000/=, the cash A/C is debited but the sales A/C is not credited with. Or if the
cash A/C is debited with 500,000/= but the sales account is credited with a different
figure say 5,000,000/=. The trial balance will detect such errors by failing to balance.
(b) The trial balance also detects arithmetic errors in the balancing off the ledger accounts ie.
Wrong additions or subtractions. The trial balance will fail to balance if such arithmetic
errors were made

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ERRORS NOT DETECTED BY THE TRIAL BALANCE

When a trial balances or agrees, it is not a guarantee that no errors were committed. Certain
errors may be committed but evade detection by a trial balance. A trial balance will balance in a
deceptive manner. Readers should know that balancing the trial balance does not mean that all
was okay.

Errors which cannot be detected by the trial balance include the following:

(a) Errors of Original entry

These errors originate from source documents e.g. Invoices, vouchers, receipts, bank
paying slips and many others. These errors are carried throughout the accounting process
i.e. from the journal through the ledger to the trial balance and eventually to the final
accounts. For instance goods were sold to John on credit for 2,300,000/= but was
recorded in the ledger and will end up in a trial balance. Since double entry is effected
through with a wrong figure, the trial balance will still balance and cannot detect such an
error.
(b) Errors of Omission
These are errors of omitting transactions from all books of accounts. If a transaction
occurs and is not recorded anywhere, the trial balance cannot detect such an error. For
instance, if goods were bought cash for 300,000/= and entries were not made in both the
cash account and purchases account, the trial balance cannot to detect such an error.
Fraudulent individuals always attempt to omit recording transactions.
(c) Errors of Commission
These errors are committed when an entry is made on a wrong person’s account or
account title but the double entry property effected. For instance. Goods worth 2,000,000
were sold to Jane on credit but Jone’s account was debited instead of the correct account
of Jane. These account being properly credited. The trial balance is not too intelligent to
know that the name should have been Jane and not Jone. It only tests whether the figure
debited was also credited.
(d) Errors of Principle
These are errors of making entries on wrong classes or types of accounts. For instance, if
a capital expenditure for say purchase of a motor vehicle is made, and it is debited to the

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 purchases account instead of the correct motor vehicle account. Or if an old fixed asset
was disposed off and the proceeds from that disposal or sale is entered into the sales
account.
(e) Compensating Errors
These are errors that cancel out in the trial balance. They get concealed because the error
on one side of the trial balance is compensated by a similar error on the other side of the
trial balance. For instance, if an item that appears on the debit side of the trial balance e.g.
Purchases is overcast by 200,000/= and by coincidence another account that appears on
the credit side of the trial balance say the sales account is also overcast by 200,000/=.
These errors will neutralize each other and the trial balance will still balance as if no
errors were made.
(f) Errors of Complete Reversal of Entries
These errors are committed when entries are made on wrong sides of the accounts. For
instance, if wages totaling 5,000,000/= were paid cash and the book keeper debits the
cash account and credits the wages account. Such an action completely reversed what
should have been done i.e. Debit wages account and credit cash account.

Exercise Questions

1. Enter the following transactions into a general journal and cash book, post to the general
ledger, and extract the trial balance.

Sept.

1. Joseph started his business in his personal savings of 10,000,000/= cash at hand and
20,000,000/= cash at hand.
2. Bought building from Moses at 10,000,000/=. Paid 2,000,000/= cash, 4,000,000/= by
cheque and promised to pay the balance later
5. Bought machinery from Saimco Ltd for 5,000,000 on credit
10. Bought motor vehicle from general Motors on hire purchase terms for total payment of
8,000,000/=. Made a dawn payment of 3,000,000/= by cheque; balance to be paid later.
15. Borrowed 5,000,000/= cash from cousin to be repaid in 2 years’ time
25. Paid General Motors 2,000,000/= by cheque.
26. Extended building purchased from Moses at a cost of 1,000,000/= cash.
27. Issued a 2 months’ note payable for an amount of 1,500,000/= cash
28. Sold old machinery to James at 1,000,000/= on credit.

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 30. Received a cheque of 5,000/= from James for the machines sold to him on credit

2. The following transactions relate to Pearl Ltd for the month of September 1999. Enter them
into the books of original entry, post to the ledgers and extract a trial balance
Sept. 1. Bought goods on credit from Mukasa for 20,000,000/=
2. Bought goods from Okello for 5,000,000/= on credit
3. Sold goods to Twine for 30,000,000 on credit
4. Goods from Isabirye for 10,000,000 on credit
5. Sold goods on credit to Mukwasi for 40,000,000
6. Twine rejected and returned goods worth 1,000,000
7. A cheque of 10,000,000 was received from Mukwasi as part settlement of his A/C.
8. Twine paid 15,000,000 cash as part settlement if his indebtedness
10. Isabirye’s goods worth 2,000,000/= was rejected and returned to him.
He was then fully settled by cheque.
12. Okello was paid 3,000,000 by cheque.
13. A cheque written to Okello was dishonored by the bank and stamped “Refer to the drawer
( NSF)
14. Mukwasi made part payment of 10,000,000 cash and 15,000,000 by cheque.
15. Bought goods on credit from Mukasa for 4,000,000
16. Rejected and returned Mukasa’s goods worth 500,000
17. Okello was asked by the company to represent his cheque of 3,000,000 to the bank and was
paid
20. Twine paid the company a further 5,000,000/= cash
22. Bought goods from Okello for 4,000,000/= on credit
25. Sold goods to Twine for 6,000,000/= on credit
26. Twine rejected and returned goods worth 1,000,000
29. Receive cash 2,000,000 from Twine and a cheque of 3,000,000 from Mukwasi
30. Paid Okello 500,000/= by cash and Mukasa 2,000,000/= by cheque.
Paid rent 100,000/=cash and 50,000/= by cheque.
31 Paid salaries 500,000 by cheque and 200,000 cash. Paid for electricity 100,000 cash

3. John a businessman in Owino Market entered into the following transactions:

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 Jan 01. Started business with Shs. 25,000,000 cash at hand and Shs. 30,000,000 cash at bank
02. Bought goods from Juma worth Shs. 8,000,000 on credit
04. Sold goods for Mary for Shs. 2,000,000 on credit
06. Returned goods worth Shs. 100,000 to Juma
08. Mary rejected and returned goods worth shs. 200,000
11. Received cash of Shs. 500,000 and a cheque of Shs. 1,000,000 from Mary
13. Paid Juma Shs. 3,000,000 by cheque
16. Sold goods Shs. 5,000,000 cash
18. Paid rent Shs. 1,000,000 cash and Shs. 500,000 by cheque
20. Introduced Personal Vehicle “My car” valued at Shs. 6,000,000 to the business
22. Bought goods on credit from James for Shs. 5,000,000
24. Sold goods or Shs. 4,000,000 to Betty on credit
25. Betty returned goods worth Shs. 50,000 and goods worth Shs. 300,000 were returned
to James
27. Received Shs. 1,000,000 cash and a cheque of Shs. 500,000 from Betty
28. Paid James Shs. 2,000,000 by cheque
29. Paid salaries 5,000,000 by cheque and Shs. 1,000,000 cash
30. Used business cash of Shs. 300,000 for a private expenditure
31. Bought his child a toy of Shs. 100,000 using Mama’s cash
Required
i. Prepare john’s books of original entry
ii. Post to the ledgers
iii. Extract a trial balance at the end of the month
4. The following transactions relate to Kasoka Ltd for the month of June 1999. Record them in a
General Journal post to the ledger and prepare a trial balance at the end of the month
June 1. Started business with Shs. 30,000,000 cash
5. Bought a building at 5,000,000 cash
7. Bought stocks of goods on account with 10,000,000 from John
10. Sold goods by cheque to Peter 2,000,000/=

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 15. Sold goods on credit to Joseph shs. 500,000
17. Paid amounts owing from John 500,000 by cheque
18. Paid electricity bill 100,000/= cash
19. Purchased stock by cheque 150,000/=
20. Sold goods cash 200,000/=
22. Received a cheque of 100,000/= and cash of 200,000/= from a debtor, Joseph.
25. Paid electricity bill 50,000/= by cheque
27. Paid rent 500,000/= cash
28. Paid John (creditor) 2,000,000/= cash
30. Paid rent by cheque 100,000/=

5. Enter the following transactions in relevant books of original entry. (Sales Day Book,
Purchases Day Book, and Cash Book) and enter the transactions to the general ledger and the
relevant subsidiary ledgers
Sept 1. started the business by putting 20,000,000 into the business bank account
2. Bought a motor lorry for the business at 7,000,000/= paying by cheque
3. Paid rent by cheque 200,000/=
4. Withdrew 3,000,000/= cash from the bank for the business use
5. Paid weekly wages 500,000/= cash
6. Bought goods worth 1,000,000 cash
7. Bought goods on credit from the following trader:
 John, 400,000/=,
 James 200,000/=,
 Mukwano Ltd 1,000,000/= and
 ABC suppliers Ltd 500,000/=
8. Paid motor expenses 700,000/= cash
9. Bought furniture of 500,000/= by cheque
11. Sold goods on credit to the following:
 Nalongo 400,000/=
 Ekanya 250,000/=

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  Banda traders Ltd 800,000/=
13. Sold goods for cash 850,000/= cash and James 50,000/= by cheque
16. Paid electricity bill 300,000/= cash and James 50,000/= by cheque
18. Bought goods from John 100,000/= and James 350,000/=
20. Sold goods to Nalongo 150,000/=, Ekanya 150,000/= all on credit
22. Paid Mukwano his debt in full by cheque
26. Received a cheque payment of 400,000/= from Nalongo
28. Used 100,000/= cash for personal affairs
29. Got a loan of 5,000,000 from Co-operative Bank by cheque
30. Wrote a cheque of 200,000/=
6. Jenga Mwili Enterprises Ltd had the following balances brought forward from September
1999 and transactions for October 1999.

Oct. 1 Bal b/d (Opening balances for October)

Cash Shs. 5,000,000

Bank Shs. 3,000,000

Debtor’s Control A/C (A/C Payable) 4,000,000

Individual debtor’s balances

Henry Shs. 1,000,000

Papa Shs. 3,000,000

Creditor’s Control A/C (A/C Payable) 12,000,000

Individual Creditor’s balances

Julius Shs. 5,000,000

Ketty Shs. 7,000,000

Oct. 2 Purchased goods from Julius for 3,000,000/= on credit

3 Purchased goods from Ketty for 4,000,000/= on credit

5 Cash sales 4,000,000/=

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 6 Returned goods worth 300,000/= to Julius

7 Sold goods to Henry for 9,000,000/= on credit

9 Sold goods to Papa on credit for 7,000,000/=

10 Henry returned goods worth 200,000/=

13 Purchased goods from Ketty on credit for 5,000,000/=

15 Received cash of 1,000,000/= and a cheque of 4,000,000/= from Henry

17 Paid Julius 1,000,000/= cash

19 Returned goods worth 500,000/= to Ketty

20 Papa returned goods worth 400,000/=

22 Cash sales 7,000,000/=

23 Paid 1,000,000/= cash to the bank

25 Received a cheque of 1,000,000/= and cash of 1,000,000/= from Papa

26 Paid Julius 1,500,000/= and Ketty 3,000,000/= by cheque

27 Sold goods for 6,000,000/= to Henry and Papa 8,000,000/= all on credit

28 Bought goods for 4,500,000/= on credit from Julius and paid Ketty 2,000,000/= cash

29 Withdrew cash of 3,000,000/= from the bank for business use

30 Paid rent 1,000,000 cash and 500,000/= by cheque

31 Paid salaries 2,000,000 cash and 1,500,000/= by cheque

Required

i) Prepare a cash book and rule it off at the end of the month
ii) Prepare the General ledger, sales ledger and purchases ledger accounts
iii) Close or balance off the ledger accounts and extract a trial balance at the end of the
month.
END OF THE YEAR ADJUSTMENTS OR PROVISIONS
Regardless of the type of Business or the Accounting system used, it is not possible to keep all
Accounts up to date all times. At the end of financial (Accounting) year, certain accounts must
be updated by adjusting entries. Adjustments or provisions are normally made for bad and
doubtful debts, depreciation, prepaid expenses and incomes, accrued expenses and incomes,

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provisions are also made for corporation taxes payable and for appropriations such as payment of
dividends or proposed dividends, transfers to reserves etc.
After adjusting entries are recorded and the affected accounts in the trial balance adjusted, the
account will reflect the current status of the organization and financial statement can then be
prepared

The major adjustments or provisions often made include the following:

Bad and doubtful debts

Some debtors will always fail to honour their obligations within the credit period or fail to pay
totally. A provision should be made for those receivables or debts that have a high possibility of
not being collected. Those which become uncollectible should be written off (bad debts written
off). Bad and doubtful debts are a business risk and treated as an expense.

Creating provision for bad and doubtful debts

Provision for bad debts should be created for all those accounts that have a high possibility of not
being collected. For example, a company has debtors totaling 5,000,000/= but 10% of the debtors
are doubtful and are likely not to pay a provision for bad and doubtful debts should be created by
making the following entry.

Dr Bad and doubtful debts expense A/C 500,000

Cr Provision for bad and doubtful debts A/C 500,000

Bad and doubtful debts accounts above is sometimes simply referred to as bad debts expense
account

Writing off a bad debt

In some cases, the debtors who were once doubtful truly become bad and their amounts are
uncollectible. Their accounts have to be written off.

The accounting entry to write off a debt for which a provision had been created, using the above
example;

Dr Provision for bad and doubtful debts A/C 500,000

Cr Debtor’s A/C 500,000

Direct write off of a bad debt

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For small debtor’s amount or receivables, there is no need to create a provision for bad debts, a
direct write off can be made to the profit and loss A/C. for example, Okurut deals with sale of
stationary items, he sold a pen to Jane for 10,000/= on credit but Jane has defaulted and she is
not likely to pay

The accounting entry to write off the small amount is as follows

Dr Profit and loss (P&L) A/C (bad debts) 10,000

Cr Debtors A/C (Jane’s A/C) 10,000

Increasing the provision for bad debt

At times the provision for bad debts might have to be increased beyond the current provision.
For example, if the current provision for bad debts is 2,000,000 Shs but has to be increased to
3,000,000 Shs.

The accounting entry is as follows:

Dr Bad debts expense A/C 1,000,000

Cr Provision for bad debts A/C 1,000,000

The accounting entry is performed with the difference i.e. 3,000,000 - 2,000,000

Decreasing the provision for bad debts

If debtors start paying and there is little doubt about the amounts being collected, a provision for
bad debts which was once high can be reduced.

For example, a provision of 5,000,000 Shs had been made against bad debts; the provision is
now to be reduced to 3,000,000 Shs.

Accounting entry is as follows;

Dr Provision for bad debts A/C 2,000,000

Cr Profit and loss A/C (reduced in bad debts provision) 2,000,000

Collecting bad debt that had been written off

An account that had been written off as uncollectible, or bad can be collected at a future date
may be after 2 or more years. For instance, Jacky sold goods to Samuel for 10,000,000 Shs on
credit. Samuel failed to pay and disappeared for a long time and was subsequently written off by
Jacky as a bad debt. Surprisingly after 5 years, Samuel surfaced and paid Mary by cheque in full
settlement of his debt

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The accounting entries to record the above are as follows;

The first step is to reinstate Samuel as a debtor and the following entry is made;

Dr Debtor’s (Samuel’s A/C) 10,000,000

Cr Bad debts recovered A/C 10,000,000

The second step is to record the receipt of a cheque using the following entry

Dr Bank A/C 10,000,000

Cr Debtor’s A/C (Samuel’s A/C) 10,000,000

The third step is to close the bad debts recovered A/C to the profit and loss A/C by using the
following entry

Dr Bad debts recovered A/C 10,000,000

Cr Profit and loss A/C 10,000,000

Prepaid expenses

These are expenses paid in advance. Adjustment must be made for expenses that are paid in one
financial year but benefit the next/ following financial year.

For instance, rent of 3,000,000 Shs cash was paid on 1 st January 1999 to cover a period to 31 st
march 2000 (15 months). Record the adjusting entry for the prepaid rent at the end of the
financial year on 31st December 1999

Monthly rent payment = 3,000,000

15

=200,000shs

Since the financial year is 12 months and the rent had been paid for 15 months, 3 months’ rent
goes to the following financial year and is called prepaid rent.

Prepaid rent = 200,000 x 3 = 600,000

Adjusting entries for the prepaid rent is as follows

Dr Prepaid rent A/C 600,000

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Cr Rent A/C 600,000

Prepaid rent of 600,000sh will appear in the balance sheet as an asset while in the income
statement, as rent expenses will be 2,400,000 Shs i.e. 3,000,000-600,000shs

Another example is as follows; insurance of 4,000,000 Shs had been prepaid cash for 2 years. At
the end of the 1st year, half of the prepaid insurance had expired or got used up. Record the
following entry at the end of the first financial year

Dr Insurance expense A/C 2,000,000

Cr Prepaid insurance A/C 2,000,000

Accrued expenses
Expenses incurred in one financial year but not paid until the next financial year are called
accrued expenses. They are current liabilities.
For instance, a company’s financial year ends on 31 st December. During a particular financial
year December salaries totaling 4,000,000 Shs could not be paid until January the following year
the adjusting entry at the end of the financial year for the accrued salaries.

Dr Salaries A/C 4,000,000

Cr Salaries payable A/C 4,000,000

Instead of using the word salaries payable, accrued salaries could have been used:

Income received in advance (prepaid income)

Some businesses receive income before it’s earned. For instance, it is a common practice in
Uganda for land lords or land ladies to ask tenants to prepay or pay rent in advance for 2 years
etc. adjustments must be made for that income which was received but services were not offered
to the customer. Unearned income is treated as a current liability in the balance sheet

For example a tenant was made to pay rent of 1,800,000shs cash for a period of 1 ½ years.

(i) Journalese the entries when the rent was paid

(ii) Journalise the adjusting entry at the end of the financial year(1st 12 months)

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(i) Dr Cash A/C 1,800,000
Cr Unearned rent income A/C 1,800,000

Monthly rent payment = 1,800,000

18
= 100,000

Rent earned for the year = 100,000 x 12

= 1,200,000

The following entry is then performed to recognize the income which was hitherto unearned but
has now been earned.

(ii) Dr Earned rent income A/C 1,200,000

Cr Earned rent income A/C 1,200,000

Readers are referred to the realization concept in connection with recognition of income.

Accrued Income
Income earned in one financial year but not received until the following year is called accrued
income. It is treated as current asset in the balance sheet.
For instance, Peter offered consultancy services to a client and invoiced him 3,000,000/= but the
client could not pay in the financial year and promised to pay in the next financial year. Record
the adjusting entry for the consultancy fees which accrued at the end of the financial year.

Dr Consultancy fees receivable A/C (debtors A/C) 3,000,000

Cr Consultancy fees (revenue/income) A/C 3,000,000

Depreciation
All fixed assets except land, depreciate. In lay terms, depreciation is reduction in value of an
asset due to wear and tear. In accounting, depreciation is defined as the allocation of the cost of
the fixed assets to the years in which benefit is expected from the use of the asset.

At the end of the financial year, depreciation must be provided on fixed assets. An accountant
who does not provide for depreciation will overstate the reported net profit and therefore tax
liability and will not show an accurate balance sheet position. Depreciation is like any other
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operating expense though it does not directly involve cash outflow. It is subtracted from
revenues or incomes in arriving at net profit and accumulated depreciation is subtracted from the
cost of the asset to derive book values. A detailed treatment of depreciation is differed to another
topic.

The entry made when providing for depreciation is as follows

Dr Depreciation expense A/C xxxxx

Cr Accumulated depreciation A/C xxxxx

Accumulated depreciation A/C is sometimes called provision for depreciation A/C

Corporation tax

If draft accounts of the business suggest that net profit is earned, a provision must be made for
corporation tax to be paid

Dr profit and loss (Provision for Corporation tax) A/C xxxxx

Cr Corporation tax payable A/C xxx

Proposed dividends

Dividends are a reward to shareholders; if profits are made some of the profits must be
appropriated to shareholders as dividends. The following entry is made when the directors
propose to pay dividends

Dr Profit and loss appropriation A/C (proposed dividends) xxxx

Cr Proposed dividends payable A/C xxxx

THE WORK SHEET

A work sheet is an extension of the trial balance. It includes the unadjusted trial balance,
adjustments, adjusted trial balance, income statement and balance sheet.

It is a larger columnar sheet of paper which shows the above mentioned items in a systematic
and convenient manner. A work sheet is not part of permanent accounting records and is not
formal financial statement. It is written by the accountant in pencil so that they can make
adjustments in figures in it. The completion of a work sheet provides assurance that all the
details of the end of period accounting procedures have been properly brought together. After
this has been established, the work sheet then serves as a source from which formal statements
are prepared. The work sheet shows debits and credits in the income statement and balance sheet
just for convenience.

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Illustration on preparation of the work sheet

The book keeper of TIM Company prepared the following trial balance at the end of the financial
year on 31st December.

Trial balance as at 31stDecember

Dr Cr
(Shs. 000) (Shs.000)
Cash at hand 2,000
Cash at bank 4,000
Land cost 100,000
Motor vehicle cost 10,000
Accumulated depreciation-motor vehicle 2,000
Equipment cost 20,000
Accumulated depreciation-(equipment) 4,000
Stock 1st January (opening stock) 1,000
Trade debtors 5,000
Provision for bad debts 2,000
Trade creditors 3,000
Sales 200,000
Purchases 110,000
Discount allowed 2,000
Discount received 1,000
Purchases returns (return outwards) 5,000
Sales returns (returns inwards) 10,000
Carriage inwards 6,000
Salaries 8,000
Salaries payable(accrued salaries) 15,000
Rent 1,800
Electricity 7,000
Bad debts 1,200
Capital 26,000
Long term bank loan 30,000
288,000 288,000

Before looking at TIM’S trial balance it is necessary to remember the following points

 A trial balance is a list of debit and credit balances extracted from the ledger
 A debt balance on an account is when the total debits on an account exceed credits by that
balance. Bal C/F is on the credit side while the Bal B/F is on the debit side.

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 A credit balance on n account is when the total credits on an account exceed debits by that
amount. Bal C/F is on the debit side while Bal B/F is on the credit side
 As a general rule all assets except bank in case of overdraft have debit balances, all expenses
and drawings also have debit balances. Those accounts are expected to appear on the debit
side of the trial balance.
 Revenues/incomes, capital &reserves and liabilities should have credit balances. Those
accounts are expected to appear on the credit side of the trial balance.
 The trial balance checks the accuracy of the accounts especially observance of the double
entry rule and checking arithmetic accuracy.
 If the trial balance fails to valance by an immaterial figure, you could introduce a suspense
account.
 The trial balance cannot detect the following errors, original entry, omission, commission,
compensating, principle and complete reversal of entries.
 The final accounts are prepared from the trial balance but after the end of year adjustments.
 A work sheet which is an extended trial balance is necessary for reflecting end of year
adjustments and for being a rough attempt to see whether the final accounts will balance.
With the above reminder please proceed to look at TIM trial balance shown on the next page and
its work sheet which is already prepared.

Information for adjustments at the end of the financial year.

a) Closing stock at the end of the financial year was valued at shs. 20,000,000
b) Salaries of shs. 2,000,000 accrued or remained outstanding at the end of the year and
was not recorded in the trial balance.
c) Half of the rent paid is for the forthcoming financial year
d) Depreciate fixed assets by 20% on cost at the end of the year.
e) 20% of trade debtors are expected to default, a provision against bad debts should be
made
Required
As the company’s accountant, prepare TIM Company’s worksheet

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 SOLUTION

Accounts TRIAL ADJUSTME ADJUSTED INCOME BALANCE

BALANCE NTS TRIAL STATEMENT SHEET
BALANCE
Dr Cr Dr. Cr Dr. Cr Dr. Cr Dr. Cr
(shs) (shs) (shs) (shs) (shs) (shs) (shs) (shs) (shs) (shs)
“000” “000” “000” “000” “000” “000” “000” “000” “000” “000”
Cash at hand 2,000 2,000 2,000
Cash at bank 4,000 4,000 4,000
Land, cost 100,000 100,000 100,000
Motor vehicle, 10,000 10,000 10,000
cost
Accumulate 2,000 2,000 4,000 4,000
depreciation –
motor vehicle
Equipment, cost 20,000 20,000 20,000
Accumulated 4,000 4,000 8,000 8,000
depreciation –
(equipment)
Stock 1st January 1,000 1,000 1,000
(opening stock)
Trade debtors 5,000 5,000 5,000
Provision for bad 2,000 1,000 3,000 3,000
debts
Trade creditors 3,000 3,000 3,000
Sales 200,000 200,000 200,000
Purchases 110,000 110,000 110,000
Discount 2,000 2,000 2,000
allowed
Discount 1,000 1,000 1,000
Received
Purchases 5,000 5,000 5,000
Returns (Return
outwards)

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 10,000 10,000 10,000
Sales returns
(Returns Inward
Carriage inwards 6,000 6,000 6,000
Salaries 8,000 2,000 10,000 10,000
Salaries payable 15,000 2,000 17,000 17,000
(accrued
salaries)
Rent 1,800 900 900 900
Electricity 7,000 7,000 7,000
Bad debts 1,200 1,000 2,200 2,200
26,000 26,000 26,000
Long term Bank ---- 30,000 30,000 30,000
loan
288,000 288,000 20,000 20,000
Prepaid rent 900 900 900
Depreciation 2,000 2,000 2,000
expense(vehicle)
Depreciation 4,000 4,000 4,000
expense
NET PROFITS 70,900 70,900
DETAILS 9,900 9,900 297,000 297,000 226,000 226,000 162,900 162,900

Note: You may not be required to prepare a work sheet in examination, but you will certainly
require it when preparing final accounts in the actual work situation

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