Module Two: Bookkeeping and Accounting
Unit 2: Book keeping
3.2 Bookkeeping Systems
3.2.2 Double - entry system
2. Note the withdrawals made by the owner of the business, and any introduction of capital during the trading period. Also note the amount by which fixed assets have been depreciated. The same thing applies to Bad debts provision.
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST DECEMBER
N N
Dec 31 Sundry Liabilities Closing capital c/d
Opening Capital Jan 1
Sales (car)
Bad debts (provision) Net Profit
120,000 183,750 303,750
144,000 40,000 3,750 16,000 203,750
Dec 31
Dec 31
Sundry Assets
Capital b/d Drawing
303,750 303,750
183,750 20,000
203,750
CAPITAL ACCOUNT
N N
Dec 31 Drawings
Balance c/d 20,000
140,000 160,000
Jan 1 Balance c/d
Net profit 144,000
16,000 160,000
1. Provide a permanent, systematic and complete record of financial transactions.
2. Provide financial records for the value of assets and liabilities, purchases and sales, income and expenses.
3. Provide records for ascertaining profit or loss made at any given time.
4. Show the financial work of an organization at any point in time.
5. Check the arithmetical accuracy of monetary transactions recorded in the books of accounts.
6. Help in detecting fraud and other irregularities that may arise from inadequate accounting records.
7. Provide financial records for business comparative purposes within and without the activities of the organization.
8. Provide basis for planning and effective control of business operations.
The ledger is the principal book of accounts. Every other entries or transactions in all the other books of account are recorded in it. A ledger account has two sides, one for recording values received and the other for recording value given. It could be defined as a diary of events in which all happenings (financial transactions) are recorded for easy reference and to assist in the double entry system. A Specimen of ledger.
Dr Cr
Date Particulars Folio N : k Date Particulars Folio N : K
The Accounts in the ledger are s shown below
Personal Accounts
Debtors Creditor (e.g Bank, customers) (e.g supplies, goods/services)
Impersonal Accounts
Real Account Nominal Account
Property Accounts e.g Plant & machinery
stock and cash etc Gains, Profits, losses/Expenditure
Discount received wages, rents Dividend received
Subsidiary Books
Subsiding books are the records of transactions entered in separate books, mainly for the purpose of listing and classifying the various transactions as they occur and to avoid the risk of errors and omissions of direct entries in the ledger. Subsidiary books are also called books of original entry or “books of prime entry”
The subsidiary books required in business are:
ii. Purchases journal/purchase day Book. This book contains the particulars of goods bought on credit. Particular of each purchase with date and names of seller are entered in it and the amount is posted individually to the credit of the account of the supplier in the ledger. The total amount of purchases for a given period is posted to the Debit of purchases Account.
iii. Sales Journal/ sales Day Book: In the book, a daily record is made of all sales of goods on credit. Particulars of each sales with date, name of consumer and the good sold are entered in it. However, all transactions entered in this book have to be posted to the credit of the sales account at the end of a given period.
iv. Purchases Returns Book
This contains particulars of goods returned, the date and the name of the seller
/ supplier. All postings being made in respect of purchases returns are taken to the Debit of the account of the seller/ supplier to whom goods are returned;
and the periodic total is posted to the credit of the purchases Returns Account.
v. Sales Returns Book
This book records goods sold but later returned for one reason or the other (i.e defective, under-size, wrong supply, irregular size or colour etc).
Like the purchases Returns, it records the names, date, goods returned and the reason for its return. All posting being made in respect of this returns are taken to the credit of the account of the customer who returned the goods. The respective totals are posted to the Debit
of sales Returns Account periodically.
vi. The Journal Proper
The journal or Journal proper is used for the purpose of recording transactions, which because of their nature cannot be entered in any other book of prime entry. It is also used for opening and closing entries, transfer of items or corrections of errors etc.
Example 1
Enter the following transactions in double entry system in the ledger accounts of L. Oladimeji for the month of January 19 x 8
Jan 1 Started business with N 600,000, 300,000 in the bank, N 200,000 in hand and N 100,000 on loan from D. Twins by cheque
2 Bought N 150,000 goods by cheque
3 Bought N 300,000 goods on credit from P. Balogun
4 Sold goods on credit to J. Peter N 200,000 and P. John N 250,000 5 Bought motor van paying by cash N 100,000
6 Paid motor expenses by cheque N 10,000 7 Returned goods to P. Balogun N 20,000 8 Goods returned by P. John N 25,000
9 Paid P. Balogun by cheque N 150,000
10 The following people paid by cheque J. Peter N 170,000 and P. John N 190,000
11 Oladimeji brought a further N 100,000 into the business and deposited it in the bank
12 Bought Office furniture on credit from P. Tete N 400,000.
13 Bought office stationery on credit from A Darko N 20,000 14 Paid rent by cash N 10,000
15 Returned part of the office furniture to P. Tete N 50,000 16 Paid P. Tete by cheque N 150,000
17 Sold some of the office furniture for cash N N70,000 18 Took cash for private use N 15,000
19 Took goods work N 10,000 for private use
20 Bought building on credit from A Abankwa N 400,000
21 Received rent N 10,000 from part of the building sub-let cheque 22 Paid rent by cheque N 30,000
25 Repaid part of D. Tale’s loan by cheque N 80,000 26 Cash sales paid direct the bank N 400,000
31 Cash sales N 150,000 Solution
L. Oladimeji’s ledger accounts for the month of January 19 x 8 Capital Account
19 x 8 N 19 x 8 N
Jan 1 Bank 300,000
1 Cash 200,000
11 Bank 100,000
Loan D. Tale’s Account
19 x 8 N 19 x 8 N
Jan 25 Bank 80,000 Jan 1 Bank 100,000
Bank Account
19 x 8 N 19 x 8 N
Jan 1 Capital 300,000 Jan 1 Purchase 150,000 1 Loan (D. Tale)100,000 6 Motor expenses 10,000
10 J. Peter 170,000 9 P. Balla
150,000
10 P. John 190,000 16 P. Tete 150,000
11 Capital 100,000 22 Rent 30,000
21 Rent Receive 10,000 25 Loan (D. Tale) 80,000 26 Sales 400,000
Cash Account
19 x 7 N 19 x 8 N
Jan 1 Capital 200,000 Jan 5 Motor van 100,000 17 Office Furniture 70,000 14 Rent 10,000
31 Sales 150,000 18 Drawings 15,000
Purchase Account
19 x 8 N 19 x 7 N
Jan 2 Bank 150,000 3 P. Balla 300,000
P. Balogun’s Account
19 x 8 N 19 x 8 N
Jan 7 Returns outwards 20,000 Jan 3 Purchases 300,000
9 Bank 150,000
Sales Account
19 x 8 N 19 x 8 N
Jan 4 J. Peter 200,000
4 P. John 250,000
26 Bank 400,000
31 Cash 150,000
J. Peter’s Account
19 x 8 N 19 x 8 N
Jan 4 Sales 20,000 Jan 10 Bank 170,000
P. John’s Account
19 x 8 N 19 x 8 N
Jan 4 Sales 250,000 Jan 8 Return inwards 25,000
10 Bank 180,000
Motor van Account
19 x 8 N 19 x 8 N
Jan 5 Cash 100,000
Motor Expenses Account
19 x 8 N 19 x 8 N
Jan 6 Bank 100,000
Returns Outward Account
19 x 8 N 19 x 8 N
Jan 7 P. Balogun 20,000
Returns Inward Account
19 x 8 N 19 x 8 N
Jan 8 P. John 25,000
Office Furniture Account
19 x 8 N 19 x 8 N
Jan 12 P. Tete 400,000 Jan 15 P. Tete 50,000
17 Cash 70,000
P. Tete’s Account
19 x 8 N 19 x 8 N
Jan 15 Office Furniture 50,000 Jan 12 Office furniture 400,000
16 Bank 150,000
Office Stationery Account
19 x 8 N 19 x 8 N
Jan 13 A. Darko 20,000
A. Darko’s Account
19 x 8 N 19 x 8 N
Jan 13 Office stationery 20,000 Rent Expenses Account
19 x 8 N 19 x 8 N
Jan 14 Cash 10,000 22 Bank 30,000
Drawings Account
19 x 8 N 19 x 8 N
Jan 18 Cash 15,000
19 Goods withdrawn 10,000
Building Account
19 x 8 N 19 x 8 N
Jan 20 A. Abankwa 400,000
Goods Withdrawn Account
19 x 8 N 19 x 8 N
Jan 19 Drawings 10,000
Rent Received Account
19 x 8 N 19 x 8 N
Jan 21 Bank 10,000
Rent Expenses Account
19 x 8 N 19 x 8 N
May 22 Bank 30,000
Balancing off of Account
This means finding the balance on each account that make the debit side equal to the credit side. The balance is the accounting term indicating the difference between the two sides of an account. If the total of the debit entries exceeds the total of the credit entries, the account is said to have a debit balance, if the total of the credit entries exceeds the total of the debit entries, the account is said to have a credit balance. If the total of the debit entries equal the total of the credit entries, the account is said to have a nil balance and is thus self closing.
Example ii
Record the following transactions in the ledger account of D. Kollo for the month of March 19 X 7 and balance off accounts at the end of the month
19 X 7 N
Mar 1 Started business with:
Cash in hand 100,000
Cash at bank 1,400,000
Loan from A.Ojo by cash 300,000 Loan from J.Ajayi by plant and Machinery worth 200,000
Mar 2 Brought goods from J .Paul 250,000
5 Sold goods Joseph and Sons 200,000
7 Sold goods for cash 100,000
11Draw cheque for self 50,000
12 Brought goods from A. Lakolu 300,000
18 Paid cash to Bank 70,000
20 Cash Purchases 40,000
21 Paid J. Paul by cheque 200,000
24 Sold goods by cheque 600,000
26 Withdraw from current acct to saving acct 250,000
28 traveling expenses paid by cheque 100,000
29 Traveling expense Owing 20,000
30 Outstanding rent expenses 10,000
31 Paid advertising by cheque 20,000
31 Paid by cheque the balance in A Ojo’s account --- 31 Banked all the money in cash till except 10,000 Solution
D. Kollo’s ledger accounts for the month of March 19 x 7 Capital Account
19 x 7 N 19 x 7 N
Mar 31 Bal c/d 1,500,000 Mar 1 Cash 100,000
1 Bank 1,400.00
1,500,000 1,500.00
April 1 Bal b/d 1,500,000
Loan Account (A. Ojo)
19 x 7 N 19 x 7 N
Mar 31 Bank 300,000 Mar 1 Cash 300,000
Loan Account (J. Ajayi)
19 x 7 N 19 x 7 N
Mar 31 Bank 200,000 Mar 1 Plant & Machinery 200,000
Bank Account
19 x 7 N 19 x 7 N
Mar 1 Capital 1,400,000 Mar 11 Drawings 50,000
18 Cash 70,000 21 J. Paul 200,000
24 Sales 600,000 26 Deposit Account 250,000 31 Cash 380,000 28 Travelling expenses 100,000 31 Advertising expenses 20,000 31 J. Ajayi 200,000
31 A. Ojo 300,000
31 Bal cd 1,330,000
2,450,000 2,450,000
April 1 Bal b/d 1,330,000
Cash Account
19 x 7 N 19 x 7 N
Mar 1 Capital 100,000 Mar 18 Bank 70,000
1 Loan (A. Ojo) 300,000 20 Purchases 40,000
7 Sales 100,000 31 Bank 380,000
31 Bal c/d 10,000
500,000 500,000
Bal b/d 10,000
Plant and Machinery Account
19 x 7 N 19 x 7 N
Mar 1 Loan (J.Ajayi) 200,000
Purchase Account
19 x 7 N 19 x 7 N
Mar 2 J. Pal 250,000 Mar 31 Bal c/d 590,000 15 A.Lakolu 300,000
20 Cash 40,000
590,000 590,000
April 1 Bal b/d 590,000
J. Paul’s Account
19 x 7 N 19 x 7 N
Mar 21 Bank 200,000 Mar 2 Purchases 250,000 31 Bal c/d 50,000
250,000 250,000
Joseph & Sons Account
19 x 7 N 19 x 7 N
Mar 5 Sales 200,000
Sales Account
19 x 7 N 19 x 7 N
Mar 31 Bal c/d 900,000 Mar 5 Joseph & Sons 200,000
7 Cash 100,000
24 Bank 600,000
900,000 900,000
April 1 1 Bal b/d 900,000 Drawings Account
19 x 7 N 19 x 7 N
Mar 11 Bank 50,000
A. Lakolu’s Account
19 x 7 N 19 x 7 N
Mar 15 Purchases 300,000 Deposit Account
19 x 7 N 19 x 7 N
Mar 26 Bank 250,000
Travelling Expenses Outstanding Account
19 x 7 N 19 x 7 N
Mar 28 Bank 100,000 Mar 31 Bal c/d 120,000
29 Travelling Exp. Out 20,00
120,000 120,000
April 1 Bal b/d 120,000
Travelling Expenses outstanding Account
19 x 7 N 19 x 7 N
Mar 29 Travelling Exp 20,000
Outstanding Rent Expenses Account
19 x 7 N 19 x 7 N
Mar 30 Rent Expenses 10,000
Rent Expenses Account
19 x 7 N 19 x 7 N
Mar 30 Outstanding rent expenses 10,000
Advertising Expenses Account
19 x 7 N 19 x 7 N
Mar 31 Bank 20,000
Note: The accounts with only one entry need not to be balanced although if the accounts are balanced there is no problem.