1. CIMA C02 Fundamental of Financial Accounting
Session 2
CIMA C02 Fundamental of Financial Accounting
Title slide

2. Books of Accounts

3. MCQ 1
(c) Transactions are entered prior to being recorded in ledger accounts

4. MCQ 2
(b) The petty cash book

5. Sub-division of Journal
In large business it is found inconvenient to journalize every transaction in one journal
Therefore, the journal is sub-divided into different journals known as the subsidiary books
The journal is divided in such a way that a separate book is used for each class of transactions
The important subsidiary books used in modern business world are the following

6. Purchases Day Book
Purchases book or purchases day book is a book of original entry maintained to record credit purchases
You must note that cash purchases will not be entered in purchases day book because entries in respect of cash purchases must have been entered in the cash book
Continued

7. Purchases Day Book (Example)
Example # 2.1: From the following transactions of a trader prepare the Purchases day book
2014
January 5 Purchased goods from Aamir Khan & Co Rs. 2,400
" Purchased goods on account from Chand Bibi Garments ,000
" Purchased goods on credit from Abbas Ahmed & Friends ,500
" Purchased goods from Sahadat Ali Khan Motors ,000

8. Sales Day Book
A sales book is also known as sales day book in which are recorded the details of credit sales made by a businessman
Total of sales book shows the total credit sales of goods during the period concerned
Continued

9. Sales Day Book (Example)
Example # 2.2: From the following transactions of a trader prepare the sales day book of M. Amin
2014
March 5 Sold goods on account to Ammar Ashraf Stuff Rs. 200
" Sold goods on credit to Hashim Khan Inns
" Credit sales to Shahnaz Fabrics
" Sold goods to Sana Saleem Awan

10. Return Inward Book
Sales returns book is also called returns inwards book. It is used for recording goods returned by credit customers
Customers who return goods should be sent a credit note. It is a statement sent by a business to customer showing the amount credited to the account
Continued

11. Return Inward Book (Example)
Example # 2.3: From the following transactions of a trader prepare the sales returns book
2011
June Goods returned by Faizan Nazar & Co Rs. 40
" Goods returned by Saif Ullah & Brothers

12. Return Outward Book
It is also called returns outward book or purchases returns day book
Purchases returns book is a book in which the goods returned to credit suppliers are recorded
Continued

13. Return Outward Book (Example)
Example # 2.4: From the following transactions of a trader prepare the purchases returns day book
2014
July Qadeer Ahmed Equipment Ltd Rs. 135
" Fatima Malik & Co
" Shahrukh Shakeel Room Decorators

14. Example # 2.5: ABC Ltd had the following transactions during the first week of July 2013:
1 Bought goods on credit from JB cost $1,000
Sold goods on credit to JSA & Co. for $800
2 Sold goods on credit to PB Ltd for $80
Returned goods to JB because they were faulty $80
3 Bought goods from AL Ltd cost $600
4 JSA & Co. returned unwanted goods $200
5 Returned goods to AL Ltd $120
6 Sold goods to CAL for $400
7 CAL returned goods as unsuitable $120
Sold goods to BC for $240
All items are subject to sales tax at 17.5 per cent
Continued

15. Solution:
Continued

16. Note: Remember that if there was trade discount given on any of the above transactions, it would be deducted prior to calculating the sales tax, and the net amount would be recorded in the ‘goods value’ column

17. Proper/ General Journal
Journal proper is book of original entry (simple journal) in which miscellaneous credit transactions which do not fit in any other books
It is also called miscellaneous journal or General Journal
General journal could be used include
Opening Entries
Closing Entries
Adjustment Entries:
Rectification Entries
Purchase of Fixed Assets:

18. General Ledger
Posting is the name of transferring accounts from the book of prime entry to related ledger accounts
An account in its simplest form is a T-shape.
Debit
Credit

19. Types of Ledger
Standard General Ledger
Continued

20. Types of Ledger
Running Balance Ledger

21. Example # 2.6: Prepare Cash account?

22. Solution:

23. MCQ 3
$ 600

24. MCQ 4
A credit balance of £1,834 brought down on B Ltd’s account in the books of A Ltd means that?
(a) A Ltd owes B Ltd £1,834
(b) B Ltd owes A Ltd £1,834
(c) A Ltd has paid B Ltd £1,834
(d) A Ltd is owed £1,834 by B Ltd
(a) A Ltd owes B Ltd £1,834

25. MCQ 5
On 1 January, a business had a customer, Junior, who owed £1,200. During January, Junior bought goods for £2,100 and returned goods valued at £750. He also paid £960 in cash towards the outstanding balance. The balance of Junior’s account on 31 January is?
(a) £1,590 debit
(b) £1,590 credit
(c) £810 debit
(d) £810 credit
(a) £1,590 debit

26. MCQ 6
Which one of the following statements regarding the balance on a ledger account is not correct?
(a) A credit balance exists where the total of credit entries is more than the total of debit entries.
(b) A debit balance exists where the total of debit entries is less than the total of credit entries.
(c) A credit balance exists where the total of debit entries is less than the total of credit entries.
(d) A debit balance exists where the total of debit entries is more than the total of credit entries.
(b) A debit balance exists where the total of debit entries is less than the total of credit entries.

27. MCQ 7 (d) A Rs. 17,000 debit balance
The Cash account has a Rs. 15,000 debit balance. A Rs. 5,000 credit entry and a Rs. 7,000 debit entry are posted to the account. The final balance of the Cash account is?
(a) A Rs. 3,000 debit balance
(b) A Rs. 27,000 debit balance (c) A Rs. 13,000 debit balance
(d) A Rs. 17,000 debit balance
(d) A Rs. 17,000 debit balance

28. MCQ 8 (b) Making the second entry of a double entry transaction
Posting the transactions in bookkeeping means?
(a) Entering items in a cash book
(b) Making the second entry of a double entry transaction
(c) Making the first entry of a double entry transaction
(d) Something other than the above
(b) Making the second entry of a double entry transaction

29. Example # 2.7: Prepare T accounts?
May
1 BR starts business as a sole proprietor with $20,000 in cash
2 Pays $15,000 cash into a business bank account
4 Purchases goods on credit from JM for $2,000
6 Purchases goods from ERD on credit for $3,000
7 Pays wages in cash $60
10 Pays rent by cheque $80
12 Sells goods for cash $210
16 Buys furniture for $1,500 paying by cheque
19 Sells goods on credit to SP for $580
22 Buys goods for cash $3,900
24 Buys fittings for cash $600
25 Pays wages by cash $110 and sells goods for cash $430
27 Receives part payment from SP of $330 by cheque
28 Pays advertising by cheque $25 and sells goods for cash $890
29 Sells goods on credit to KM for $8,090
30 Withdraws $100 cash for his personal use
Continued

30. Solution:
Continued

31. Continued

32. Continued

34. Example # 2.8: Work out the Trial Balance of example # 2.7?
Heads of Accounts
Debit
Credit
Cash
 1,760
Capital
20,000 
Bank
13,725 
Purchases
 8,900 JM
2,000 
ERD
3,000 
Wages
170 
Rent
 80
Sales
10,200 
Furniture
 1,500 SP
250 
Fittings
600 
Advertising
 25 KM
 8,090
Drawings
100 
Total
 $ 35,200

37. Control Accounts

38. Debtors Ledger & Creditors Leger Accounts
Debtors Ledger Account (DLCA)/Account Receivable Control Account or Sales Leger Control Account (SLCA)
Creditor Ledger Account (CLCA)/Account Payable Control Account or Purchase Leger Control Account (PLCA)

39. Debtors Accounts

40. Creditors Ledger Accounts

41. MCQ 9
From the following information, calculate the value of purchases:
Opening creditors 71,300
Cash paid 271,150
Discounts received 6,600
Goods returned 13,750
Closing debtors 68,900
£289,100

42. MCQ 10 £237,000 You are given the following information: £
Debtors at 1 January ,000
Debtors at 31 December ,000
Total receipts during 2003 (including cash sales of £15,000) 255,000
Sales on credit during 2003 amount to…………………………
£237,000

43. MCQ 11
(a) $ 96,000

44. MCQ 12
(a) A sales ledger control account ensures that there are no errors in the personal ledger

45. MCQ 13
(a) $ 60

46. MCQs 14
$ 289,100

47. Trial Balance
Trial balance shows the mathematical accuracy of the books of accounts. For every transaction in the double entry system, equal amount of debit and credits are recorded in the books of account

48. MCQs 15
The debit side of a trial balance totals $50more than the credit side. This could be due to?
(a) A purchase of goods for $50 being omitted from the payables account
(b) A sale of goods for $50 being omitted from the receivables account
(c) An invoice of $25 for electricity being credited to the electricity account
(d) A receipt for $50 from a debtor being omitted from the cash book
(a) A purchase of goods for $50 being omitted from the payables account

49. MCQs 16 (c) To check the arithmetical accuracy of the ledgers
Why does a business prepare a Trial Balance?
(a) To calculate the profit and loss
(b) To check the cash and bank balance
(c) To check the arithmetical accuracy of the ledgers
(d) To show the financial position
(c) To check the arithmetical accuracy of the ledgers

50. MCQs 17
Which most important reason for producing a trial balance prior to preparing the final accounting is?
(a) It confirms the accuracy of the ledger accounts
(b) It provides all the figures necessary to prepare the final accounts
(c) It shows that the ledger accounts contain debit and credit entries of an equal value
(d) It enables the accountant to calculate any adjustments required
(c) It shows that the ledger accounts contain debit and credit entries of an equal value

51. Errors in Trial Balance

53. MCQs 18
Where a transaction is credited to the correct ledger account, but debited incorrectly to the repairs and renewals account instead of to plant and machinery account, the error is known as an error of?
(a) Omission
(b) Commission
(c) Principle
(d) Original entry
(c) Principle

54. MCQs 19 (d) The debit side to be $96 more than the credit side
If a purchase return of $48 has been wrongly posted to the debit side of the sales returns account, but has been correctly entered in the supplier’s account, the total of the trial balance would show?
(a) The credit side to be $48 more than the debit side
(b) The debit side to be $48 more than the credit side
(c) The credit side to be $96 more than the debit side
(d) The debit side to be $96 more than the credit side
(d) The debit side to be $96 more than the credit side

55. MCQs 20 (d) An error of principle
An invoice from a supplier of office equipment has been debited to the stationery account. This error is known as?
(a) An error of commission
(b) An error of original entry
(c) A compensating error
(d) An error of principle
(d) An error of principle

56. MCQs 21
(a) Debited and credited to the correct accounts using incorrect amount in both cases

59. Rectification & Suspense Account
An accountant can also commit errors while recording business transactions in books of accounts, in their recording, posting or balancing the accounts and so on
An accountant can also commit errors while recording business transactions in books of accounts, in their recording, posting or balancing the accounts and so on
However, there are certain errors which are not detected through a Trial Balance. In other words, a Trial Balance would agree in spite of these errors. These errors are very difficult to detect
There are certain errors which will disturb the Trial Balance in the sense that the Trial Balance will not agree. These errors are easy to detect and their rectification is also simple

61. MCQs 22
(a) Suspense account $ Sales account $ 900

62. MCQs 23
(d) Office equipment account $ Purchase account $ 750

63. MCQs 24
(c) Sales return $ Suspense account $ 110

64. MCQs 25 (b) Liabilities side of the balance sheet
Suspense account having credit balance will be shown on the?
(a) Credit side of the profit and loss A/c
(b) Liabilities side of the balance sheet
(c) Assets side of the balance sheet
(d) Revenue side of income statement
(b) Liabilities side of the balance sheet

65. Cash Book
Cash book is a book of original entry in which transactions relating only to cash receipts and payments are recorded
When cash is received it is entered on the debit or left hand side
Similarly, when cash is paid out it is recorded on the credit or right hand side of the cash book
Cash Book is dual purpose book; it is Journal as well as Ledger

66. Petty Cash www.accountancyknowledge.com
It is most common to find with large commercial businesses that all receipts and payments are made through bank
Since expenses like conveyance, carriage, postage, telegrams, traveling etc. cannot be made by means of checks
The maintenance of a small cash balance to meet these petty payments
The Imprest System is used for petty cash maintenance
For example, On June 1, 2012, Rs. 1,000 was given to the petty cashier. He had spent Rs.940 during the month. He will be paid Rs. 940 on 30th June by the cashier so that he may again have Rs. 1,000 for the next month of July

68. MCQs 26
$ 243.9

69. MCQs 27
(d) Petty cash $ Stationery account $ 240

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