Question 1 – Suggested Solution

Using the double-entry principle, record the following transactions in the

Balance Sheet and Income Statement, as appropriate. Prepare the final
Balance Sheet and Income Statement.
(i) Establish a business by contributing $10,000 cash.
(ii) Immediately purchase stock for $5,000 cash.
(iii) Sell the asset stock $5,000 (i.e., expense) and recover through an asset
cash $7,000 (i.e., revenue).

Balance Sheet
Beg End Beg End
Bank +10,000 Proprietorship +10,000
-5,000 Profit +2,000 12,000
+7,000 12,000

Stock +5,000
-5,000 0

Total 12,000 Total 12,000

Income Statement
Sales 7,000
Cost of goods sold (5,000)
Profit 2,000

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Question 2 – Suggested Solution
Using the double-entry principle, record the following transactions in the
Balance Sheet and Income Statement, as appropriate. Prepare the final
Balance Sheet and Income Statement.
(i) Establish a business by contributing $20,000 cash.
(ii) Immediately purchase stock for $7,000 cash.
(iii) Sell part of the asset stock $5,000 (i.e., expense) and recover through an
asset debtors $10,000 (i.e., revenue as a credit sale).
(iv) Reduce cash in bank to pay wages $1,000.

Beg End Beg End

Bank +20,000 Proprietorship +20,000
-7,000 Profit +4,000 24,000
-1,000 12,000

Debtors +10,000 10,000

Stock +7,000
-5,000 2,000

Total 24,000 Total 24,000

Income Statement
Sales (credit) 10,000
Cost of goods sold (5,000)
Gross profit 5,000
Wages (1,000)
Net Profit 4,000

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Question 3 – Suggested Solution
Following are the beginning balances for the accounts in the Balance Sheet of
a proprietorship:
Bank: $12,000
Debtors: $10,000
Stock: $2,000
Trade creditors: $0
Proprietorship: $24,000
Using the double-entry principle, record the following transactions in the
Balance Sheet and Income Statement, as appropriate. Prepare the final
Balance Sheet and Income Statement.
(i) Purchase stock $8,000 on credit from suppliers.
(ii) Stock take sheets indicate that stock costing $3,000 is on hand at the end
of these transactions.
(iii) The sales records show that selling prices and volumes sold yielded
$10,000 in revenue, which was all on credit.
(iv) Paid wages of $2,000 cash.
(v) Collected from debtors $5,000 cash.
(vi) Paid creditors $5,000 cash.

Beg End Beg End

Bank 12,000 Trade creditors 0
-2,000 +8,000
+5,000 -5,000 3,000
-5,000 10,000
Proprietorship 24,000
Debtors 10,000 Profit +1,000 25,000
+10,000
-5,000 15,000

Stock 2,000
+8,000
-7,000 3,000

Total 28,000 Total 28,000

Income Statement
Sales 10,000
Cost of goods sold (7,000)
Gross profit 3,000
Wages (2,000)
Net Profit 1,000

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Question 4 – Suggested Solution
Following are the beginning balances for the accounts in the Balance Sheet of
a proprietorship:
Bank: $1,000 Debtors: $2,000 Stock: $3,000
Machinery: $10,000 Trade creditors: $1,500 Loan: $4,000
Proprietorship: $10,500
Using the double-entry principle, record the following transactions in the
Balance Sheet and Income Statement, as appropriate. Prepare the final
Balance Sheet and Income Statement.
(i) Cash sales $10,000.
(ii) Credit sales $5,000.
(iii) Credit purchases $8,000.
(iv) Stock at end $2,000.
(v) Paid creditors $7,000.
(vi) Paid wages $2,000.
(vii) Collections from debtors $6,000.
(viii) Depreciation of machinery $1,000.

Beg End Beg End

Bank 1,000 Trade creditors 1,500
+10,000 +8,000
-7,000 -7,000 2,500
-2,000
+6,000 8,000 Loan 4,000 4,000

Debtors 2,000 Proprietorship 10,500

+5,000 Profit +3,000 13,500
-6,000 1,000

Stock 3,000
+8,000
-9,000 2,000

Machinery 10,000
Acc. Dep. -1,000 9,000

Total 20,000 Total 20,000

Income Statement
Revenue - Cash 10,000
Revenue - Credit 5,000 15,000
Cost of goods sold (9,000)
Gross profit 6,000
Wages (2,000)
Depreciation (1,000) (3,000)
Net Profit 3,000

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Question 5 – Suggested Solution
Following are the beginning balances for the accounts in the Balance Sheet of a
proprietorship:
Bank: $2,000 Debtors: $3,000 Stock: $2,000
Machinery: $14,000 Trade creditors: $3,000 Loan: $8,000
Proprietorship: $10,000
Using the double-entry principle, record the following transactions in the Balance
Sheet and Income Statement, as appropriate. Prepare the final Balance Sheet and
Income Statement.
(i) Cash sales $17,000. (vii) Paid interest on loan $1,000.
(ii) Credit sales $8,000. (viii) Repaid loan principal $4,000.
(iii) Credit purchases $10,000. (ix) Collections from debtors $7,000.
(iv) Stock at end $4,000. (x) Drawings by owner $5,000.
(v) Paid creditors $6,000. (xi) Depreciation of machinery
(vi) Paid wages $3,000. $2,800.

Beg End Beg End

Bank 2,000 Trade creditors 3,000
+17,000 +10,000
-6,000 -6,000 7,000
-3,000
-1,000 Loan 8,000
-4,000 -4,000 4,000
+7,000
-5,000 7,000 Proprietorship 10,000
Drawings -5,000
Debtors 3,000 Profit +10,200 15,200
+8,000
-7,000 4,000

Stock 2,000
+10,000
-8,000 4,000

Machinery 14,000
Acc. Dep. -2,800 11,200

Total 26,200 Total 26,200

Income Statement
Revenue - Cash 17,000
Revenue - Credit 8,000 25,000
Cost of goods sold (8,000)
Gross profit 17,000
Wages (3,000)
Depreciation (2,800)
Interest (1,000) (6,800)
Net Profit 10,200

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Question 6 – Suggested Solution
Following are the beginning balances for the accounts in the Balance Sheet of a
proprietorship:
Bank: $4,000 Debtors: $5,000 Stock: $3,000
Equipment: $31,000 Trade creditors: $2,000 Short-term loan: $5,000
Loan: $16,000 Proprietorship: $20,000
Using the double-entry principle, record the following transactions in the Balance Sheet and
Income Statement, as appropriate. Prepare the final Balance Sheet and Income Statement.
(i) Cash sales $21,000. (vii) Depreciation of equipment $3,000.
(ii) Credit sales $18,000. (viii) Collections from debtors $16,000.
(iii) Credit stock purchases $18,000. (ix) Paid interest on loan $1,000.
(iv) Stock at end $4,600. (x) Repaid loan principal $5,000.
(v) Paid creditors $19,000. (xi) Purchase of vehicle (cash) $20,000.
(vi) Paid wages $9,000.

Beg End Beg End

Bank 4,000 Bank overdraft +13,000 13,000
+21,000
-19,000 Trade creditors 2,000
-9,000 +18,000
+16,000 -19,000 1,000
-1,000
-5,000 S/T Loan 5,000
-20,000 -5,000 0
See o/d +13,000 0
Loan 16,000 16,000
Debtors 5,000
+18,000 Proprietorship 20,000
-16,000 7,000 Profit +9,600 29,600

Stock 3,000
+18,000
-16,400 4,600

Equipment 31,000
Acc. Dep. -3,000 28,000

Vehicle +20,000 20,000

Total 59,600 Total 59,600

Income Statement
Revenue - Cash 21,000
Revenue - Credit 18,000 39,000
Cost of goods sold (16,400)
Gross profit 22,600
Wages (9,000)
Depreciation (3,000)
Interest (1,000) (13,000)
Net Profit 9,600

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Question 7 – Suggested Answers
The following is a list of business events. In each case, state the effect (i.e.,
increase, decrease, or no effect) on both profit and cash.
On Profit On Cash
Repayment of a loan No impact Decrease
A sale on credit Increase No impact
Buying equipment for cash No impact Decrease
Depreciating an asset Decrease No impact
Collecting cash from a debtor No impact Increase
Buying stock for cash No impact Decrease
Proprietor contributes cash No impact Increase

Question 8 – Suggested Solution

Records for the first year of operations show the following:
Services provided: credit revenue 25,000
Collections from debtors 16,000
Services provided: cash revenue 5,000
Wages paid 8,000
Wages owing (accrued) 500
Telephone accounts 4,000
Equipment purchased on credit 10,000
Loans raised 15,000
Motor vehicle expenses 2,000
Required: Prepare an Income Statement.

Income Statement
Revenue - Cash 5,000
Revenue - Credit 25,000 30,000
Wages (8,500)
Telephone (4,000)
Motor vehicle (2,000) (14,500)
Net Profit 15,500

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Question 9 – Suggested Solution
Following are the beginning balances for the accounts in the Balance Sheet of an architect
services business:
Bank: $21,000 Accounts receivable: $6,000 Equipment: $10,000
Motor vehicle: $15,000 Accounts payable: $2,000 Loans: $10,000
Proprietorship: $40,000
Using the double-entry principle, record the following transactions in the Balance Sheet and
Income Statement, as appropriate. Prepare the final Balance Sheet and Income Statement.
(i) Purchased equipment on short-term credit: invoice price $5,000; 60 days payment
terms.
(ii) Received payment from clients $2,500 for work previously billed.
(iii) Paid cash for petrol and service to vehicle $600.
(iv) Paid cash to creditors $2,000.
(v) Billed (invoiced) for drawings completed $6,000.
(vi) Cash withdrawn $300.
(vii) Paid wages $3,000.
(viii) Cash received for drawings completed but not previously billed $500.
(ix) Paid rent $1,800.
(x) Paid amount outstanding for previous equipment purchase $5,000.
(xi) Received outstanding electricity account $400; payment in 30 days.

Beg End Beg End

Bank 21,000 Payables 2,000
+2,500 +5,000
--‐600 --‐2,000
--‐2,000 --‐5,000
--‐300 +400 400
--‐3,000
+500 Loans 10,000 10,000
--‐1,800
--‐5,000 11,300 Proprietorship 40,000
Drawings --‐300
Receivables 6,000 Profit +700 40,400
--‐2,500
+6,000 9,500

Equipment 10,000
+5,000 15,000

Vehicle 15,000 15,000

Total 50,800 Total 50,800

Income Statement
Revenue - Cash 500
Revenue - Credit 6,000 6,500
Petrol (600)
Wages (3,000)
Rent (1,800)
Electricity (400) (5,800)
Net Profit 700

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