4.4 How are business transactions recorded in the ledger accounts?

Question 1

Cash contribution by owner

E.g. Marissa contributed $10,000 of her personal cash into the business, Sweet Candy.

Answer 1

Dr Cash in hand (increase asset)
Cr Capital (increase equity)

Question 2

Borrowing

E.g. The business obtained from DEF Bank a bank loan of $5000.

Answer 2

Dr Cash in hand (increase asset)

Cr Bank Loan (increase liability)

Question 3

Cash purchase of goods

E.g. The business purchased candies for $6000 cash.

Answer 3

Dr Inventory (increase asset)
Cr Cash (decrease asset)

Question 4

Cash sale of goods

E.g. The business sold candies for $2600 cash. The cost of the candies was $1800.

Answer 4

Dr Cash in hand (increase asset) $2600
Cr Sales revenue (increase income) $2600

Dr Cost of Sales (increase expense) $1800
Cr Inventory (decrease asset) $1800

Question 5

Cash drawings by owner

E.g. Marissa (owner) withdrew $1000 cash from the business for her personal / own / private use.

Answer 5

Dr Drawings (increase contra-equity)
Cr. Cash in hand (decrease asset)

Question 6

Credit sale of goods

E.g. The business sold $5500 of candies on credit to Cafe Deli. The cost of the candies sold was $3700.

Answer 6

Dr. Trade Receivable - Cafe Deli (increase asset) $5500
Cr. Sales Revenue (increase income) $5500

Dr. Cost of sales (increase expense) $3700
Cr. Inventory (decrease expense) $3700

Question 7

Purchase of non-current asset
E.g. The business purchased a motor vehicle costing $6000 and paid $2000. The remaining $4000 was on credit from Lee Motors

Answer 7

Dr. Motor Vehicle (increase asset) $6000
Cr. Cash in hand (decrease asset) $2000
Cr. Other Payable - Lee Motors (increase liability) $4000

Question 8

Sales return of goods sold on credit previously

E.g. Cafe Deli returned $200 worth of candies. The cost of candies returned was $130.

Answer 8

Dr. Sales returns (increase contra-income) $200
Cr. Trade Receivable - Cafe Deli (decrease asset) $200

Dr. Inventory (increase asset) $130
Cr. Cost of sales (decrease expense) $130

Question 9

Credit purchase of goods

E.g. The business purchased $4000 of candies from Can Can Importer on credit.

Answer 9

Dr. Inventory (increase asset) $4000

Cr. Trade payable - Can Can Importer (increase liability) $4000

Question 10

Collection of trade receivable

E.g. Cafe Deli paid $5300 to Sweet Candy.

Answer 10

Dr. Cash in hand (increase asset) $5300

Cr. Trade receivable - Cafe Deli (decrease asset) $5300

Question 11

Purchase return of goods bought on credit previously

E.g. the business returned $400 worth of candies to Can Can Importer.

Answer 11

Dr. Trade Payable - Can Can Importer (decrease liability) $400
Cr Inventory (decrease asset) $400

Question 12

Payment on trade payable

E.g. The business paid $3600 to Can Can Importer.

Answer 12

Dr. Trade Payable- Can Can Importer (decrease liability) $3600
Cr. Cash in hand (decrease asset) $3600

Question 13

Payments of Expenses

E.g. Salary of $1200 was paid to the shop assistant.

Answer 13

Dr. Salaries expense (increase expense) $1200

Cr. Cash in hand (decrease asset) $1200

Question 14

Payments of Expenses

E.g. Shop rental of $2000 was paid.

Answer 14

Dr. Rent expense (increase expense) $2000

Cr. Cash in hand (decrease asset) $2000

Question 15

Payments of Expenses

E.g. Payment of $100 was made for interest on bank loan.

Answer 15

Dr. Interest Expense (increase expense) $100

Cr. Cash in hand (decrease asset) $100

Question 16

Repayment of borrowing

The business repaid $1000 of the loan borrowed previously.

Answer 16

Dr. Bank Loan (decrease liability) $1000

Cr. Cash in hand (decrease asset) $1000