IPAM-USL 2021/22

INSTITUTE OF PUBLIC ADMINISTRATION AND MANAGEMENT

UNIVERSITY OF SIERRA LEONE
FACULTY OF ACCOUNTING & FINANCE
DEPARTMENT OF ACCOUNTANCY
COURSE : APPLIED ACCOUNTING YEAR ONE (1)

SEMESTER : SECOND SEMESTER

MODULE : FINANCIAL ACCOUNTING

LECTURE THREE :

 DOUBLE ENTRY PRINCIPLES

 TRIAL BALANCE & EXTENDED TRIAL BALANCE
 PRACTICE QUESTIONS ON DOUBLE ENTRY, TRIAL BALANCE AND
SUBSIDIARY BOOKS
 EXAM SAMPLE QUESTIONS

LECTURERS:

Mr Ibrahim Samai (078 088 443, [email protected])

Mr Albert Beah (076 727 588, [email protected])

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DOUBLE ENTRY
Double entry is defined as the act of recording all business transactions twice into the books of
account so that every debit (DR.) entry will have a corresponding Credit (CR.) entry. This is the
bookkeeping stage of accounting. You will often hear it referred to as double entry or
bookkeeping. Either term is correct. The double entry system divides each page into two halves.
The left-hand side of each page is called the debit side, while the right-hand side is called the
credit side. The title of each account is written across the top of the account at the center.
This is the layout of a page of an accounts book:
Title of account written here
Left-hand side of the page Right-hand side of the page

This is the ‘debit’ side. This is the ‘credit’ side.

Do you see how the shape resembles a „T‟? Not surprisingly, these are commonly referred to as
T-accounts:
Account title here – the top stroke of the T
This line divides the two sides and is the down stroke of the T
PRINCIPLES OF DOUBLE ENTRY
The common / main principle states that “for every debit entry, there must be a corresponding
credit entry vice – versa”. Others are as follows:

ACCOUNTS EFFECT ENTRY IN THE ACCOUNT

an increase Debit
Assets a decrease Credit
an increase Credit
Liabilities a decrease Debit
an increase Credit
Capital a decrease Debit
an increase Debit
Expenses/Losses a decrease Credit
an increase Credit
Revenue/Gain a decrease Debit

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Note:
Profit belongs to the owners.
Revenues increase profits, so they increase capital, and that makes them credits. The treatment
of revenue is the same as the treatment of liability.
Expenses decrease profits, so they reduce capital, and that makes them debits. The treatment of
expenses is the same as the treatment of assets.
PRACTICE QUESTIONS
Example One: Complete the following table:
Details Account to be Account to be
debited (Dr) credited (Cr)
a) Bought office machinery on credit from D Isaacs Ltd.
b) The proprietor paid a creditor, C Jones, from his private funds.
c) A debtor, N Fox, paid us in cash.
d) Repaid part of loan from P Exeter by cheque.
e) Returned some of office machinery to D Isaacs Ltd.
f) A debtor, N Lyn, pays us by cheque.
g) Bought van by cash.

Example Two : Complete the following table:

Details Account to be Account to be

debited (Dr) credited (Cr)
a) Bought lorry for cash.
b) Paid creditor, T Lake, by cheque.
c) Repaid P Logan‟s loan by cash.
d) Sold lorry for cash.
e) Bought office machinery on credit from Ultra Ltd.
f) A debtor, A Hill, pays us by cash.
g) Proprietor puts a further amount into the business by cheque.

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Example Three
You are to enter up the necessary accounts for the month of January from the following
information relating to a Prime Print Ltd.
Jan. 1 started business with Le16000 cash
Jan. 2 purchased furniture by cash Le2, 400
Jan. 3 purchased stationery Le3, 500 cash
Jan.4 purchased goods on credit from Amos Le5, 000
Jan 15. Sold goods for cash Le6, 000
Jan. 18 sold goods do Charles on credit Le2, 400
Jan. 20 paid advertisement expenses Le200 cash
Jan. 25 paid Amos Le3, 500 cash, being part of settlement of goods purchase
Jan. 28 paid rent in cash Le300
Jan. 31 paid salaries and wages Le600 cash
Example Four
You are to enter up the necessary accounts for the month of May from the following information
relating to a small bakery shop.
May 1 Started in business with capital in cash of £800 and £2,200 in the bank.
== 2 Bought goods on credit from the following persons: J Ward £610; P Green £214;
M Taylor £174; S Gemmill £345; P Tone £542.
== 4 Sold goods on credit to: J Sharpe £340; G Boycott £720; F Titmus £1,152.
== 6 Paid rent by cash £180.
== 9 J Sharpe paid us his account by cheque £340.
== 10 F Titmus paid us £1,000 by cheque.
== 12 We paid the following by cheque: M Taylor £174; J Ward £610.
== 15 Paid carriage by cash £38.
== 18 Bought goods on credit from P Green £291; S Gemmill £940.
== 21 Sold goods on credit to G Boycott £810.
== 31 Paid rent by cheque £230.
Example Five

Samai & Co is a wholesaler in the grocery trade. He keeps a full set of accounts including book
of original entry. Some of the transactions and events which occurred in her business are listed
below.

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(i) Paid gas by cheques Le2, 400.

(ii) Bought goods for sales on credit from Kaulex Limited (listed price Le12000, trade discount
25%)
(iii)Accepted a cheque for Le4000 from a customer T. Williams in full settlement of her debt
Le4500
(iv) Returned faulty goods to kaulex Limited (list price Le960 trade discount 25%)
(v) Agreed with Foster, a customer, that she had been over charged by Le1500 and issued a
credit note for that amount.
(vi) Paid surplus cash into bank Le3500
(vii) The bank notified Samai & Co of bank charges Le400.
(viii) Paid Le350 from petty cash for postage and stationery.
(ix) Purchases Office Machinery, for use in the business Le6000 on credit from Evan Motors.

Copy the table given below into your answer book and complete it for each item (ii) (ix
above) naming the original document that would have been used, the Book of first Entry,
and the immediate or eventual debit and credit entries. The first has been done for you as
an example.
No. Source Document Subsidiary Book Account debited Account credited
and amount and amount
(i) Cheque book counterfoil Cash Book Gas Le2400 Bank Le2400

(ii)

(iii)
(iv)
Etc...

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TRIAL BALANCE
A Trial Balance is a list of balances extracted from the ledger accounts at a given date, arranged
according to whether they are debit balances or credit balances. The total of the debit and credit
balances should agree if the double entry rules have been properly followed. Though a Trial
Balance can be drawn at any time, it is usual practice to prepare it at the end of an accounting
period before preparing the entity‟s final accounts.
FUNCTIONS THE TRIAL BALANCE
 It is prepared to check the arithmetical accuracy of postings made in the ledger accounts to
know whether the total debits equal the total credit
 It provides summary of ledger accounts into debits and credits
 It is to test the accuracy of the double entry system
 Provide a summary of balances left at the end of an accounting year before the preparation of
the Trading, and profit or loss account and Balance sheet.
 Its balancing to a certain degree is an indication that the final account especially the balance
sheet would also balance.
LIMITATIONS OF TRIAL BALANCE
The following are the main limitations of the Trial Balance:
 Trial Balance can be prepared only in those concerns where double entry system of
accounting is adopted.
 Though trial balance gives arithmetic accuracy of the books of accounts but there are certain
errors, which are not disclosed by the trial balance. That is why it is said that trial balance is
not a conclusive proof of the accuracy of the books of accounts.
 If trial balance is not prepared correctly then the final accounts prepared will not reflect the
true and fair view of the state of affairs of the business. Whatever conclusions and decisions
are made by the various groups of persons will not be correct and will mislead such persons.
METHODS OF PREPARATION OF TRIAL BALANCE
 Total method: In this method, the debit and credit totals of each account are shown in the
two amount columns (one for the debit total and the other for the credit total).
 Balance Method: In this method, the difference of each amount is extracted. If debit side of
an account is bigger in amount than the credit side, the difference is put in the debit column

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of the Trial Balance and if the credit side is bigger, the difference is written in the credit
column of the
COMMON ERRORS IN TRIAL BALANCES
Oftentimes many trial balances do not agree at first attempt and this could be traced to one or
more of the following errors:
 Bad figures in the ledger or cash book
 Transposition of figures i.e. Le34 for Le43
 Errors in calculations when “taking” out the balances.
 Balances missed in extracting the debtors or creditors account from the ledger.
 Debit balances in the ledger having been entered in the credit column of the trial balance.
LOCATION OF ERRORS IN THE TRIAL BALANCE:
In order to locate some of the errors listed above, go through the following steps in the order in
which they are given below.
 Check the addition of the trial balance
 Check that all the ledger accounts have been included and that they are on the correct side.
 Check that the balances have been copied correctly from the ledger.
 Look through the entries in the ledger and see if you can spot the differences
 Check the cash and bank balances whether they have been omitted from the trial balance.
BALANCING OFF ACCOUNT
The account must be balanced off before extracting the trial balance at regular intervals during
the financial year. It will be a matter of necessity to balance each account in order to ascertain
the overall position record in the book keeping system.
STAGES IN BALANCING OF ACCOUNT & PROFORMA
 Add up both sides to find out their totals. Note: do not write anything in the account at this
stage.
 Deduct the smaller total from the larger total to find the balance.
 Now enter the balance on the side with the smallest total. This now means the totals will be
equal.
 Enter totals level with each other.
 Now enter the balance on the line below the totals on the opposite side to the balance shown
above the totals.

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Details Debit Credit

Le Le
Asset XXX
Expenses XXX
Losses XXX
Liability XXX
Capital/Equity XXX
Income XXX
Gain XXX
Total XXX XXX

PRACTICE QUESTIONS
Example One

Bammy set up a business and in the first nine days of trading the following transactions
occurred:
(1)January Bammy introduces $10,000 capital by cheque.
(2)January Bammy buys supplies worth $4,000 and pays by cheque.
(3)January Bammy buys a delivery van for $2,000 and pays by cheque.
(4)January Matthew buys $1,000 of purchases on credit.
(5)January Bammy sells goods for $1,500 and receives a cheque of that amount.
(6)January Bammy sells all his remaining goods for $5,000 on credit.
(7)January Bammy pays $800 to his supplier by cheque.
(8)January Bammy pays rent of $200 by cheque.
(9)January Bammy draws $100 for living expenses from the business bank account.
Required:
(i) Complete the relevant ledger accounts.
(ii) Extract a trial balance.
(iii)Prepare the Statement of Profit or Loss for the first nine days.

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(iv) Prepare the Statement of financial position as at 9 January.

Example Two
Janet Enterprises started a retail business, selling cement on retail basis. On the 1st of July,
20201, she introduced the following into the business:
Motor van valued at Le480,000
Cash from his salary account Le330,000
Money borrowed from a friend Le66,000
The following transactions also took place in July: Le
July 3 Purchased cement on credit from Fola Ltd. 189,000
,, 3 Paid carriage on cement to warehouse 16,456
,, 6 Sold goods on credit to Aburi & Co 190,000
,, 8 Sold cement for cash 26,280
,, 11 Paid sundry expenses 16,278
,, 15 Purchased cement on credit from Fola Ltd. 60,000
,, 17 Bought some Dunlop tyres from Okechukwu
Enterprises on credit 10,852
,, 20 Paid cash to Fola Ltd. on account 167,500
,, 22 Aburi & Co paid cash on account 125,000
,, 25 Paid Salaries and wages 77,958
,, 25 Paid electricity bill 6,000
,, 27 Sold cement on credit to K. Opobo 68,000
You are required to:
1) Open the ledger accounts and post the opening journal and transactions during the month.
2) Balance the ledger accounts.
3) Draw up a trial balance as at 31 March 2016
Example Three
Write up the following account in the books of Alma, and prepare a trial balance
4) Jan. 1 Mr. Raymond started business with Le10, 000 cash
5) Jan. 2 the proprietor put a further Le5, 000 into the business by cheque\
6) Jan. 3 bought motor van Le60 paying by cheque
7) Jan. 4 took out of cash till Le and put into bank

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8) Jan. 5 bought goods Le150 by cheque

9) Jan. 6 he took Le500 cash as drawings
10) Jan. 7 paid rent by cheque Le120
11) Jan. 8 sold goods to Ayodele on credit Le300
12) Jan. 9 sales for cash Le160
13) Jan. 10 took cash Le200 from the bank account and put it into the cash till
14) Jan. 11 bought goods on credit from Edet Le700
15) Jan. 12 paid wages Le16 cash
16) Jan. 13 goods returned to us by Dapo Le150
17) Jan. 14 we returned goods to Biodu Le300
18) Jan. 15 took to loan from Siaka by cheque Le1, 500
19) Jan. 16 received commission in cash Le115
20) Jan. 17 paid for repairs to building by cash Le18
21) Jan. 18 received refund of insurance Le10 by cheque
22) Jan. 19 rent received from premises sublet by cheque Le1000
23) Jan 20 bought office equipment on credit from jumbo Nig Ltd Le1, 500
24) Jan. 21 sold motor van on credit to Odutola Le20

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EXTENDED TRIAL BALANCE

An extended trial balance is a worksheet, used to keep track of adjustments between the trial
balance and the final accounts, i.e. it is used to adjust trial balance figures for errors, accruals and
prepayments, depreciation, irrecoverable debts written off, adjustments to the receivables
allowance, closing inventory figures etc.
The extended trial balance is used for making adjustments to the accounts at the end of
an accounting period. The reason for this is because of the matching principle of accounting,
where revenues are matched with expenses in the accounting period in which they were
incurred; adjusting entries need to be made.
An extended trial balance is a standard trial balance to which are added columns extending
to the right, and in which are listed the following categories/columns:

1. Trial Balance/Initial balances per ledgers: These are the account totals as of the end of the
accounting period, as compiled from the general ledger. The total of all initial balance
debits should equal the total of all initial balance credits.

2. Adjustment/Adjusting journal entries: These are journal entries to more closely align the
reported results and financial position of a business to meet the requirements of an
accounting framework. This generally involves the matching of revenues to expenses under
the matching principle.

3. Adjusted trial Balance:

4. Statement of Profit or Loss Balances: These are the revenue, expense, gain, and loss
accounts used to create the income statement.

5. Statement of Financial Position balances: These are the asset, liability, and equity
accounts used to create the balance sheet.

Note, in all of the above columns, debit and credit amounts are listed in separate columns.

Major difference between the unadjusted trial balance and the adjusted trial balance
Unlike the adjusted trial balance, the unadjusted trial balance will continue with the end-of-
period processing even if it is not in balance. The adjusted trial balance is not part of the
financial statements, rather, it is an internal report meant to verify that the total of the debit
balances in all accounts equals the total of all credit balances in all accounts

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PRACTICE QUESTIONS
Example One

A review of the above transactions revealed the following facts:

(i) A service fee of $18,000 was earned (but not yet collected) by the end of the period but was
accidentally not recorded as revenue at that time.

(ii) A transposition error occurred when transferring the account balances from the ledger to the trial
balance. Salaries expense should have been listed on the trial balance as $64,500 but was
inadvertently recorded as $46,500.

(iii) Two machines that cost $9,000 each were purchased on account but were not recorded in
company accounting records.

You are required to prepare and extended trial balance.

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Example Two
Prepare an extended trial balance, in correct format, from the alphabetized account information
as follows. Assume all accounts have normal balances.

Note to the above list of balances

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SUBSIDIARY BOOKS PRACTICE QUESTIONS

Example One

Enter the following transactions of Mnchester and sons enterprises in the sales day book for the
month August 1996 and post to the ledgers

Aug. 1 1996 Sold to Martial

20 bags of sugar at Le40 each.
12 plates at Le140 each
Aug. 12 Sold to Ronaldo
12 bags of cement at Le45 each.
5 packets of tea at Le15 each
Trade discount at 10%
July 27 Sold to Malacia
15 shoes at Le65 each
100 packets shirt at Le13 each
Trade discount at 5%

Example Two

Write up the purchase journal of Sahr and son and post to the ledger for the month of Aug1996

Aug 12 Bought from Coca Cola

12 crates of coke at Le240 each
5 crates of fanta at Le120 each
Trade discount of 20%
Aug 17 bought from Man UNITED Limited
140 bags of flour at Le10 each
400 soaps at Le2 each
Subject to Trade discount of 10%
Example Three
Write up the sales returns book of Manchester and sons for the month of August 1996 and post to
the ledgers
Aug. 3 1996 returned from Martial

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1 bag of sugar at Le40 each

3 plates at Le140 each
Aug. 30 1996 returned from Ronaldo
3 shoes at Le65 each
2 packet shirts at Le13 each
Trade discount at 5%
Example Four
Write up the returns out wards journal of Sahr and sons Ltd for the year ended 31st Aug 1996 and
post to the ledgers

Aug. 15 Returned to Coco Cola limited

6 crates of cokes at Le240 each
1 crates of fanta at Le120 each
Trade discount of 20%
Aug. 20 Returned to Man United Limited
14 bags of flour at Le10 each
40 soaps at Le2 each
Trade discount at 10%

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EXAM SAMPLE QUESTIONS

QUESTION ONE

Patricia started business on 1 January 2008 as a trader in chairs. Her transactions during her first
month were as follows (in date order):

a) She paid $6,000 into a separate bank account for the business.
b) The business bought chairs for $1,600 cash.
c) The business sold some of the chairs for $1,200 cash.
d) The business bought a van for $2,500 cash
e) The business bought more chairs for $400, on credit from Chris.
f) The business bought more chairs for $800 from Chris, on credit
g) The business bought chairs for $600 on credit from William
h) The business sold some of the chairs for $2,100 to Ann on credit.
i) The business sold some chairs for $350, on credit to Edwina
j) The business sold some chairs on credit for $700 to Andrew
k) Rent for the month was paid of $300
l) Paid three quarters of the amount due to Chris
m) Received $1,000 from Ann in respect of the amount owing by her
n) Patricia paid another $4,000 of her own money into the business bank account
o) Chairs were purchased on credit from William for $1,000, and on credit from Bertha for
$1,600
p) Chairs were sold for $1,350 on credit to Tony
q) Chairs were sold to George for $2,100 on credit
r) The business paid wages of $400 to the shop assistant
s) Pattie withdrew $700 cash from the business bank account, for herself. (there was no closing
inventory)

You are required to

(i) Write up the books of Prime Entry for the month

(ii) Write up the relevant accounts in the Receivables and Payables Ledgers
(iii)Post the totals from the Books of Prime Entry to the relevant accounts in the Nominal
Ledger
(iv) Prepare a Trial Balance at the end of the month.

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QUESTION TWO

On 1st of July 2022, Madam Spiritual Attack (SA) started business Welfare Ventures with
Le10,000 which she paid into the business account at Sierra Leone Commercial Bank (SLCB)
and inventory goods valued at Le9,850. On the same day, she purchased a Motor Van from
Toyota Company valued at Le6,000 and paid half of the amount by cheque.

The following transactions took place in the month of January:

2/01 Negotiated a Loan from SLCB for an amount of Le20,000 which was granted at an
interest of 12% per annum payable monthly. Paid Le7,000 by cheque as rent advance to
her landlord for the premises of the business covering a period of 10 years

3/01 Purchased goods from GeeMerchants Ltd valued at Le52,000 and paid for half of the
amount by cheque, after a cash discount of 4%.

4/01 Purchased Office Equipment valued at Le2,500 and Furniture and Fittings valued at
Le3,000 paying all by cheque

7/01 Sold goods valued at Le8,500 for cash and paid for some stationery valued at Le900 by
cash

9/01 Sold goods to Mr Tarzan valued at Le6,700 who paid quarter of the amount by cheque

11/01 In order to increase sales Spiritual Attack decided to run a promotion from 12th January to
20th January. All sales with cash payment will be given a 5% discount and all sale of
Le10,000 and above will qualify for a trade discount of 6%.

12/01 Mr James Brown came to purchase goods valued at Le14,500 and paid half of the amount
due by cheque, after necessary discounts. Total cash sales for the day also amounted to
Le8,974.

13/01 Sold goods valued at Le5,000 to Akua Cynthia

14/01 Total cash sales for the day amounted to Le12,896 and cash banked amounted to
Le14,500

15/01 Sold goods to Malik Ventures valued at Le16,785 who paid half of the amount due by
cash. Sent Le16,500 from the safe to the bank.

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18/01 Purchased goods from Kula Gysai Ltd valued at Le37,880 and paid half of the amount
due by cheque after a 5% cash discount. Total cash sales for the day amounted to
Le9,678.

19/01 Sold goods to Physical Attack-Honey Love valued at Le18,964, who paid three quarters
of the amount due by cheque. Paid GeeMerchants the full balance on their account by
cheque.

20/01 Total cash sales for the day amounted to Le18,259 and cash purchases were also Le8,689.
Received a cheque for Le4,680 from Akuna Cynthia a full settlement

22/01 Sold goods valued at Le11,380 to Mr Ugly Head who paid half of the amount due by
cash. Total cash lodged at the bank wa Le33,860

25/01 Paid Kula Gyasi Le8,940 by cheque on account and received final payment by cheque
from Malik Ventures and cash sales amounted to Le11,380

30/01 Paid salaries of Le3,820 by cheque and utility bills of Le 860 by cash. Received a cheque
for Le3,240 from Mr Ugly Head as payment on account

At 31 July 2022 closing inventory amounted to Le5,375

Requirement

a) Write up the ledger accounts using the three column cash book
b) Extract a trial balance
c) Prepare a Trading, Profit or Loss account for the month ended 31 July 2021 and a
Statement of financial position as at that date

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QUESTION THREE

The following balances were taken from the books of JK & Son’s, a major distributor of
umbrella and mosquito nets, on 1 January, 2022 cash in hand Le130, 000; cash at bank
Le657,000; sundry Payables – Tata hotel, Le130,000 and Wyse Le2000, 000. Office furniture
was Le150,000; Inventory Le400,000 and equipment Le360,000.

During the month of January, the following transactions took place:

January 2: received cheque for Le48,000 in full settlement from Donkey
January 5: cash sales amounted to Le 136,000 plus VAT 10%
Kangaroo paid Le 80,000 on account by cheque
January 7: paid Tata Hotel Le 124,000 by cheque in full settlement.
Gave cheque for Le 100,000 as part settlement of Wyse‟s account.
January 8: cash sent to bank amounted to Le 264,000. Cash disbursements: Sundry expenses
Le 5,000; postage Le 2,500, wages Le 10,000; stationery Le 5,000.
January 9: Kangboro‟s cheque was returned by the bank dishonoured, withdrew Le 40,000
from the bank for office use.
January 10: received cash for Le 186,000 from Akata in full settlement of their debts. Sold
goods worth Le 250,000 to Donkey on credit who received a 10% trade Dicount.
January 12: Kangboro gave cash to redeem his dishonoured cheque and cash sales Le
200,000 plus 10% VAT.
January 14: cash banked Le 280,000; paid Wyse Le 91,000 by cheque as full settlement.
January 15: JK withdrew Le 50,000 from the bank for personal use.
January 17: Cash disbursement: sundry expenses Le 3,000; fuel and oil Le 6,000; wages Le
15,000; stationery Le 2,000.
January 20: purchase goods and paid by cheque Le 100,000 plus 10% VAT.
January 22: paid Le 50,000 by cheque for rent, and also paid Le 10,000 for repairs by cash.
January 25: withdrew Le 40,000 from the bank for office use. Cash sales were Le 30,000 and
cash purchased goods amounted to Le 20,000 plus 10% VAT.
January 31: paid staff salaries of Le 100,000 by cheque and purchased goods worth Le
170,000 from elephant on credit and received a trade discount of 5%.
You are required to write up JK & Son’s four column cash book while posting the
transactions to the ledger books and balance all the ledger accounts at the end of January.

God is love, He loves you just the way you are, there’s no condemnation in Him.