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Principles of Accounts 7110 Paper 02

1. Mary buys goods on credit from Kim. Mary receives 14% trade discount on all purchases
and takes advantage of the 5% cash discount offered for payment within 14 days. The
following information is available:
2013
June 1 Mary owed Kim $680 for goods purchased on 29 May 2013.
June 4 Kim sold goods to Mary, list price $800.
June 5 Mary sent Kim a cheque for the balance owing on 1 June.
June 8 Mary returned goods purchased on 4 June, list price $100, to Kim.
June 28 Kim sold further goods to Mary, list price $300.
June 29 Kim received a cheque from Mary for goods purchased on 4 June.
June 30 Mary received details from Kim of her transactions during the month.

(a) (i) State two reasons why trade discount was given to Mary.

1 ...........................................................................................................................................................

................................................................................................................................................................

1 ...........................................................................................................................................................

................................................................................................................................................................ [2]

(b) State the purpose of the three documents in 1 to 3 above. Name the book of prime entry in
which Sam Stryder will enter each document.

(i) Invoice
Purpose ----------------------------------------------------------------------------------------------

Book of prime entry ------------------------------------------------------------------------------------ [2]

(ii) Credit note


Purpose --------------------------------------------------------------------------------------

Book of prime entry ------------------------------------------------------------------------------------- [2]

(iii) Cheque
Purpose ----------------------------------------------------------------------------------------------

Book of prime entry ------------------------------------------------------------------------------------- [2]

REQUIRED:
(c) Complete the table below for above transactions.
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Principles of Accounts 7110 Paper 02

Transaction Source Book of Account Account to Effect of Effect on Effect on


Document Prime Entry to be be Credited Profit Capital Net Assets
Debited

June 1

June 4

June 5

June 8

June 28

June 29

June 30

[14]

Question 2: Hannan is a sole trader who maintains a full set of accounting records
including a three-column cash book.

REQUIRED

(a) Explain why the cash book is both a book of prime (original) entry and also part of the
double entry system.

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Principles of Accounts 7110 Paper 02

On 1 January 2012 Hannan had the following debit balances in his cash book:

$
Cash 100
Bank 1942

Hannan’s transactions for the month of January 2012 included the following:
Jan 3 Paid Pervaiz $398 by cheque in full settlement of his account of
$410

8 Purchased office equipment, $1795, and paid by cheque

13 Withdrew $250, by cheque, to pay personal motor expenses

20 A cheque received in December 2011 for $115 from Saud was


dishonored and returned by the bank

28 Cash sales, $1970

30 Paid all the remaining cash into the bank except $50

REQUIRED

(b) Enter the above transactions in Hannan’s cash book on the page opposite. [2]

Balance the cash book at 31 January 2012 and bring down the balances on 1
February 2012. [10]

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Principles of Accounts 7110 Paper 02

Ban

$
k
Ca
sh
$
Discou

$
nt
Det
ails
Date

Hannan’s
Ban

$
k

Cashbook
Ca
sh
$
Discou

$
nt
Det
ails
Date

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Principles of Accounts 7110 Paper 02

(c) Hannan’s bank statement for January 2012 showed that his bank account was For
overdrawn for most of the month. Examin
er's
Use
(i) Explain why this overdraft occurred.

--------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------- [2]

(e) On 20 March 2012 Hannan decided to write off $115 owed by Saud as a bad
debt.

Prepare the journal entry Hannan would make to record this. A narrative is
required.

Journal

Debit Credit
$ $

[2]

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Principles of Accounts 7110 Paper 02

(f) On 14 May 2012 Hannan received a cheque for $115 from Saud.

Name the ledger Account credited


accounts in which
Hannan would record this
transaction.Account [2]
debited

(g) Suggest two ways in which Hannan could reduce the risk of bad debts in the future.

(i)
-------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------

(ii)
--------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------- [2]

[Total: 25]

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