Bintu has just started a business. During her first month of trading in January 2025, the following transactions took place. Date Transaction $ Jan 1 Bintu ...
Question 1 Report
Bintu has just started a business. During her first month of trading in January 2025, the following transactions took place.
| Date | Transaction | $ |
|---|---|---|
| Jan 1 | Bintu started business with capital paid into the bank | 25 000 |
| Jan 3 | Purchased office equipment by cheque | 4 200 |
| Jan 5 | Purchased goods on credit from S. Mensah | 3 800 |
| Jan 8 | Cash sales paid directly into the bank | 2 600 |
| Jan 12 | Sold goods on credit to T. Obi | 1 950 |
| Jan 15 | Paid S. Mensah by cheque | 3 800 |
| Jan 18 | Purchased goods by cheque | 5 400 |
| Jan 22 | Received cheque from T. Obi | 1 950 |
| Jan 25 | Paid rent by cheque | 1 200 |
| Jan 28 | Bintu took cash from the bank for personal use | 500 |
(a) State the double entry (debit and credit account) for each of the above transactions. [10]
(b) Prepare a trial balance at 31 January 2025 using the information from the transactions above. [8]
(c) Explain why the trial balance totals being equal does not guarantee that the books are free from errors. [2]
Answer Details
(a) Double entry for each transaction
Each transaction is recorded with a debit entry (the account receiving value or recording an expense) and a credit entry (the account giving value or recording income/liability).
| Date | Debit | Credit | Amount ($) |
|---|---|---|---|
| Jan 1 | Bank | Capital | 25 000 [1] |
| Jan 3 | Office Equipment | Bank | 4 200 [1] |
| Jan 5 | Purchases | S. Mensah (Trade payables) | 3 800 [1] |
| Jan 8 | Bank | Sales | 2 600 [1] |
| Jan 12 | T. Obi (Trade receivables) | Sales | 1 950 [1] |
| Jan 15 | S. Mensah | Bank | 3 800 [1] |
| Jan 18 | Purchases | Bank | 5 400 [1] |
| Jan 22 | Bank | T. Obi | 1 950 [1] |
| Jan 25 | Rent | Bank | 1 200 [1] |
| Jan 28 | Drawings | Bank | 500 [1] |
Jan 1: Capital introduced increases both the bank asset and the owner's equity. Jan 3: Office equipment purchased reduces bank but creates an asset. Jan 5: Credit purchase creates an expense (purchases) and a liability (payable to S. Mensah). Jan 12: Credit sale creates an asset (receivable from T. Obi) and revenue. Jan 15: Paying the supplier clears the liability and reduces bank. Jan 22: Receiving payment from T. Obi clears the receivable and increases bank. Jan 28: Drawings reduce bank and represent the owner withdrawing resources for personal use.
(b) Trial Balance at 31 January 2025
After posting all transactions, the balances are calculated by netting each account's debits and credits.
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Bank (25,000 + 2,600 + 1,950 - 4,200 - 3,800 - 5,400 - 1,200 - 500) | 14 450 [1] | |
| Office equipment | 4 200 [1] | |
| Purchases (3,800 + 5,400) | 9 200 [1] | |
| Rent | 1 200 [1] | |
| Drawings | 500 [1] | |
| Capital | 25 000 [1] | |
| Sales (2,600 + 1,950) | 4 550 [1] | |
| Totals | 29 550 | 29 550 |
Both totals equal $29,550, confirming the trial balance balances. [1]
Note that S. Mensah and T. Obi do not appear because their accounts were fully settled during the month (S. Mensah was paid in full on Jan 15; T. Obi paid in full on Jan 22).
(c) Why equal trial balance totals do not guarantee error-free books
Certain types of errors do not affect the agreement of the trial balance because they either affect both sides equally or affect neither side. [1]
Examples include: errors of omission (transaction entirely left out), errors of commission (posted to the wrong account of the same class), errors of original entry (wrong amount used for both debit and credit), errors of principle (posted to the wrong class of account but on the correct side), errors of reversal (debit and credit entries swapped), and compensating errors (two separate errors of equal value that cancel each other out). All of these leave the trial balance in agreement despite the books containing mistakes. [1]
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