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:
- Purchased furniture by cash N2,400
- Purchased stationery N200 cash
- Purchased goods by cash N3,500
- Purchased goods on credit from Mallam Nagogo N5,000
- Sold goods for cash N6,000
- Sold goods to Charlotte Umedo on credit N2,400
- Paid advertisement expenses N200 cash
- Paid Mallam Nagogo N3,500 cash being part of settlement of goods purchased
- Paid rent in cash N300
- 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 (in T-format)
1. Capital Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 1 | Bank (Cash) | 16,000 |
2. Cash Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 1 | Capital | 16,000 | |
| Jan 1 | Furniture | 2,400 | |
| Jan 1 | Stationery | 200 | |
| Jan 1 | Goods | 3,500 | |
| Jan 15 | Sales | 6,000 | |
| Jan 20 | Advertisement | 200 | |
| Jan 25 | Mallam Nagogo | 3,500 | |
| Jan 28 | Rent | 300 | |
| Jan 31 | Salaries & Wages | 600 | |
| Balance c/d | 11,000 | 10,700 | |
| Feb 1 | Balance b/d | 300 |
3. Furniture Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 1 | Cash | 2,400 |
4. Stationery Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 1 | Cash | 200 |
5. Purchases Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 1 | Cash | 3,500 | |
| Jan 4 | Mallam Nagogo | 5,000 |
6. Mallam Nagogo Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 25 | Cash | 3,500 | |
| Jan 4 | Purchases | 5,000 |
7. Sales Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 15 | Cash | 6,000 | |
| Jan 18 | Charlotte Umedo | 2,400 |
8. Charlotte Umedo Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 18 | Sales | 2,400 |
9. Advertisement Expense Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 20 | Cash | 200 |
10. Rent Expense Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 28 | Cash | 300 |
11. Salaries & Wages Account
| Date | Particulars | Debit (N) | Credit (N) |
|---|---|---|---|
| Jan 31 | Cash | 600 |
📊 Trial Balance as at 31st January 1991
| Account | Debit (N) | Credit (N) |
|---|---|---|
| Cash | 300 | |
| Furniture | 2,400 | |
| Stationery | 200 | |
| Purchases | 8,500 | |
| Mallam Nagogo | 1,500 | |
| Sales | 8,400 | |
| Charlotte Umedo | 2,400 | |
| Advertisement Expense | 200 | |
| Rent Expense | 300 | |
| Salaries & Wages | 600 | |
| Capital | 16,000 | |
| Total | 14,900 | 25,900 |
➡️ Trial Balance does not balance yet. Let’s check the cash closing:
Cash Inflow = Capital (16,000) + Sales (6,000) = 22,000
Cash Outflow = Furniture (2,400) + Stationery (200) + Purchases (3,500) + Advertisement (200) + Nagogo (3,500) + Rent (300) + Salaries (600) = 10,700
Cash Balance = 22,000 – 10,700 = 11,300, not 300 as previously carried down. Correction:
Update Cash Closing Balance to 11,300, and now redo the Trial Balance:
| Account | Debit (N) | Credit (N) |
|---|---|---|
| Cash | 11,300 | |
| Furniture | 2,400 | |
| Stationery | 200 | |
| Purchases | 8,500 | |
| Mallam Nagogo | 1,500 | |
| Sales | 8,400 | |
| Charlotte Umedo | 2,400 | |
| Advertisement Expense | 200 | |
| Rent Expense | 300 | |
| Salaries & Wages | 600 | |
| Capital | 16,000 | |
| Total | 25,900 | 25,900 |
📝 Explanation
This accounting task involves recording business transactions in ledger accounts and extracting a trial balance. Alhaji Mohammed Garuba started his business with an initial capital of ₦16,000, which was entered into the Capital Account and Cash Account to establish the opening financial position.
Each transaction is then recorded using the double-entry bookkeeping system, where every debit has a corresponding credit. For example, the purchase of furniture and stationery reduced cash and increased the relevant asset or expense account. Goods purchased, whether by cash or credit, were recorded in the Purchases Account, while sales increased the Sales Account and either cash (if sold for cash) or accounts receivable (if sold on credit).
Credit purchases from Mallam Nagogo and credit sales to Charlotte Umedo established payable and receivable accounts, respectively. When part-payment was made to Mallam Nagogo, it reduced both cash and the payable balance.
Expenses such as advertisement, rent, and salaries are recorded as debits to their respective expense accounts, with cash credited, since these were paid.
After posting all transactions, balances from the ledger accounts were summarized into a Trial Balance, ensuring total debits equal total credits (₦25,900). This confirms the arithmetical accuracy of the ledger entries. The trial balance serves as the foundation for preparing final accounts like the income statement and balance sheet.
This process demonstrates the importance of accurate recording and classification in accounting, enabling transparency, performance evaluation, and future financial planning.
