Recording Business Transactions

Assessment 2 (Weighting 60%)

1000 words 

Learning outcomes assessed:

  • LO1. Knowledge and understanding of double entry bookkeeping
  • LO2. Knowledge and understanding of books of prime entry
  • LO3. Knowledge and understanding of the accounting equation and financial statements
  • LO4. Demonstrate ability to record and summarise accounting information
  • LO5. Demonstrate ability to maintain accurate books of accounts for a business
  • LO6. Demonstrate ability to make business decisions using financial information

Part A.

Errol Anderson is going to set up a business repairing and servicing cars. However, he’s uncertain whether to choose a sole trader business or a partnership, also, he does not know about the steps for starting a business. He wants you to consult him on the following matters.

Explain the advantages and disadvantages of each type in detail and (15 Marks)

Provide 5 steps for starting a new business. (15 Marks)

(Total 30 marks)

Part B.

  1. Kavan is a trader dealing in electronic goods who commenced his business in 2018. For the following transactions that took place in the month of March 2021, pass journal entries.
01/03 – Purchased goods from Y and Co. on credit £60,000
02/03 – Sold goods to D and Co. on credit £30,000
03/03 – Paid Y and Co. through a bank in full settlement £58,000
04/03 – D and Co. accepted a bill drawn by Kavan £30,000
05/03 – Sold goods to L on credit £20,000
06/03 – Sold goods to M on credit £40,000

07/03 – Received a cheque from M in full settlement and deposited the same to the

bank £39,000  
08/03 – Goods returned to Y and Co. £2,000

09/03 – L became insolvent and only 90p per pound is received by cash in the final settlement

10/03 – Goods returned by M £1,000

(30 marks)


You are required to show the Journal entries (only) (with narrative) necessary to record the following items which occur in March 2021.

  1. The following are the balances on the accounts of ABC on 31 August 2021:


Sales 41,700  
Purchases 34,680  
Receivables. 6,790  
Payables 5,650  
General expenses. 12,760  
Loan 10,000  
Plant and Machinery at cost 5,000  
Motor Van at cost 6,000  
Drawings. 2,000  
Rent and rates 6,700  
Insurance 4,000  
Bank overdraft 580  
Capital 20,000  
a)  Prepare ABC’s trial balance as of 31 August 2021. (20 marks )
b)  Explain the benefits and limitations of the trial balance in a business
Organisation.   (20 marks)


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