The following transactions were carried out during the month of January

Alhaji Mohammed Garuba started business January 1, 1991 with a capital of N16,000. The following transactions were carried out during the month of January:

  1. Purchased furniture by cash N2,400
  2. Purchased stationery N200 cash
  3. Purchased goods by cash N3,500
  4. Purchased goods on credit from Mallam Nagogo N5,000
  5. Sold goods for cash N6,000
  6. Sold goods to Charlotte Umedo on credit N2,400
  7. Paid advertisement expenses N200 cash
  8. Paid Mallam Nagogo N3,500 cash being part of settlement of goods purchased
  9. Paid rent in cash N300
  10. Paid salaries and wages N600 cash.

Required: You are required to write up ledger Accounts recording the above transactions and extract a Trial Balance.

The Correct Answer and Explanation is:

Ledger Accounts

Capital Account

DateParticularsDebit (₦)Credit (₦)
Jan 1Cash16,000

Cash Account

DateParticularsDebit (₦)Credit (₦)
Jan 1Capital16,000
Jan 1Furniture2,400
Jan 1Stationery200
Jan 1Purchases3,500
Jan 15Sales6,000
Jan 20Advertisement200
Jan 25Mallam Nagogo3,500
Jan 28Rent300
Jan 31Salaries & Wages600
Total22,00010,700
Balance c/d11,300

Furniture Account

DateParticularsDebit (₦)Credit (₦)
Jan 1Cash2,400

Stationery Account

DateParticularsDebit (₦)Credit (₦)
Jan 1Cash200

Purchases Account

DateParticularsDebit (₦)Credit (₦)
Jan 1Cash3,500
Jan 4Mallam Nagogo5,000

Mallam Nagogo Account

DateParticularsDebit (₦)Credit (₦)
Jan 25Cash3,500
Jan 4Purchases5,000
Balance c/d1,500

Sales Account

DateParticularsDebit (₦)Credit (₦)
Jan 15Cash6,000
Jan 18Charlotte Umedo2,400

Charlotte Umedo Account

DateParticularsDebit (₦)Credit (₦)
Jan 18Sales2,400

Advertisement Expense Account

DateParticularsDebit (₦)Credit (₦)
Jan 20Cash200

Rent Account

DateParticularsDebit (₦)Credit (₦)
Jan 28Cash300

Salaries and Wages Account

DateParticularsDebit (₦)Credit (₦)
Jan 31Cash600

Trial Balance as at 31 January 1991

AccountDr (₦)Cr (₦)
Cash11,300
Furniture2,400
Stationery200
Purchases8,500
Advertisement200
Rent300
Salaries & Wages600
Charlotte Umedo (Debtor)2,400
Mallam Nagogo (Creditor)1,500
Capital16,000
Sales8,400
Total25,90025,900

Explanation

The double-entry bookkeeping system is used to record business transactions in ledger accounts, ensuring that every debit has a corresponding credit. The opening capital of ₦16,000 by Alhaji Mohammed Garuba on January 1st is credited to the Capital Account and debited to the Cash Account, showing the business started with cash. Cash payments for furniture, stationery, and purchases are recorded as debits to respective asset or expense accounts and credits from the Cash Account.

Purchases made on credit from Mallam Nagogo are debited to Purchases and credited to the creditor’s account. When part payment of ₦3,500 is made, it reduces the liability (debit to Mallam Nagogo) and cash (credit to Cash).

Sales transactions are treated as revenue: cash sales increase the Cash Account and credit sales increase Accounts Receivable (Charlotte Umedo). The total sales of ₦8,400 are credited to the Sales Account.

Expenses such as advertisement, rent, and salaries are treated as debits to their respective expense accounts and credited to Cash, showing outflows of funds.

A trial balance is prepared to check the arithmetical accuracy of ledger entries. It lists all balances to confirm that total debits equal total credits. In this case, both sides of the trial balance match at ₦25,900, indicating accurate recording.

This process provides insight into the business’s financial position and helps in preparing final accounts like the income statement and balance sheet. It demonstrates the importance of systematically tracking transactions to ensure financial integrity and informed decision-making.

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