lcci level I solution book

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Level 1 Book-keeping

Solutions Booklet

For further For further information information contact us: contact us: Tel. +44 (0) 8707 202909 Tel. +44 (0) 8707 202909 Email. [email protected] Email. [email protected] www.lcci.org.uk www.lcci.org.uk

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London Chamber of Commerce and London Chamber of Commerce and Industry (LCCI)

Industry (LCCI) International QualificationsInternational Qualifications are provided by EDI, a leading

are provided by EDI, a leading international awarding body. international awarding body.

Passport to Success

Level 1 Book-keeping

Solutions Booklet

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The initials LCCI and the words LONDON CHAMBER OF COMMERCE AND INDUSTRY are registered The initials LCCI and the words LONDON CHAMBER OF COMMERCE AND INDUSTRY are registered trademarks belonging to the London Chamber of

trademarks belonging to the London Chamber of Commerce and Industry and are used under licence.Commerce and Industry and are used under licence. Every effort has been made

Every effort has been made to trace all copyright holders, but to trace all copyright holders, but if any have been if any have been inadvertently overloinadvertently overlooked theoked the Publishers will be pleased to make the

Publishers will be pleased to make the necessary arrangenecessary arrangements at tments at t he first opportunity.he first opportunity. © EDI 2008

First published in 2008. First published in 2008. All rights rese

All rights reserved. Apart frorved. Apart from any use permitted unm any use permitted under UK copyrder UK copyright law, no paright law, no part of this publicatiot of this publication may ben may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or held within any

and recording, or held within any information storage and retrieval system, without permission in writinginformation storage and retrieval system, without permission in writing from the publisher or under

from the publisher or under licence from the Copyright Licensing Agency Limited. Further details of suchlicence from the Copyright Licensing Agency Limited. Further details of such licences (for reprographic reproduction) may be obtained

licences (for reprographic reproduction) may be obtained from the from the CopyriCopyright Licensing Agency ght Licensing Agency Limited,Limited, Saffron House, 6–10 Kirby Street, London EC1N 8TS.

Saffron House, 6–10 Kirby Street, London EC1N 8TS. Cover

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TABLE OF CONTENTS TABLE OF CONTENTS

1.

1. The The Accounting Accounting Equation Equation and and the the Balance Balance Sheet Sheet 11 2.

2. Double Double entry entry system system for for assets, assets, liabilities liabilities and and capital capital 44 3.

3. Recording Recording double double entry entry for for stock stock 77 4.

4. The The double double entry entry system system for for Expenses Expenses and and Revenues Revenues and and 1111 the Effect of Profit

the Effect of Profit (or loss) and drawings upon capital(or loss) and drawings upon capital 5.

5. Balancing Balancing accounts accounts and and the the Trial Trial Balance Balance 1616 6.

6. Trading Trading and and Profit Profit & & Loss Loss Accounts: Accounts: An An introduction introduction 2525 7.

7. The The Balance Balance Sheet Sheet 2828

8.

8. Final Final Accounts Accounts with with further further consideratioconsiderations ns 3131 9.

9. The The Division Division of of the the Ledger Ledger and and Books Books of of Original Original Entry Entry 3838 10.

10. Bank Bank Facilities Facilities 3939

11.

11. Cash Cash Books Books 4141

12.

12. The The Sales Sales and and Purchases Purchases Day Day Books Books 4444 13.

13. The The Returns Returns Day Day Books Books 4848

14.

14. The The Journal Journal 5353

15.

15. The The Petty Petty Cash Cash Imprest Imprest System System 5656 16.

16. Adjusting for accru Adjusting for accruals and prepayals and prepayments ments 5959 17.

17. DepreciatDepreciation ion of of Fixed Fixed Assets Assets 6262 18.

18. Bad Bad Debts Debts 6868

19.

19. Bank Bank ReconciliReconciliation ation Statements Statements 7171 20.

20. Capital Capital and and Revenue Revenue ExpenditurExpenditure e 7575 21.

21. Errors Errors in in the the accounts accounts and and their their corrections corrections 7777 22.

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Chapter 1

Chapter 1 The Accounting Equation and the Balance Sheet

The Accounting Equation and the Balance Sheet

Answers to ‘Think about it’ Questions Answers to ‘Think about it’ Questions

Page 5

Page 5 –– Why are liabilities shown on the right hand side of the balance sheet and not on the left?Why are liabilities shown on the right hand side of the balance sheet and not on the left?



 Because based on the accounting equation it has to be on the same side as capital.Because based on the accounting equation it has to be on the same side as capital.

Answers to Activities Answers to Activities Activity 1.1 Activity 1.1 (a) (a) LL (b) (b) AA (c) (c) AA (d) (d) AA (e) (e) LL (f) (f) AA (g) (g) CC Activity 1.2 Activity 1.2 ASSETS ASSETS £ £ CAPITAL CAPITAL £ £ LIABILITIES LIABILITIES £ £ (a) (a) 5 000 5 000 3 3 000000 2 0002 000 (b) (b) 4 2004 200 2 2 500 500 1 1 700700 (c) (c) 4 4 100100 2 8002 800 1 3001 300 (d) (d) 3 500 3 500 2 2 400400 1 1001 100 (e) (e) 6 9006 900 4 4 100 100 2 2 800800

Solutions to Target Practice Questions Solutions to Target Practice Questions Question 1

Question 1

(a) ‘…

(a) ‘…assetsassetslessless liabilitiesliabilitiesequalsequals capitalcapital’.’. (b) assets (b) assets (c) liabilities (c) liabilities (d) debtor (d) debtor (e) creditor (e) creditor (f)

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Cancel Anytime. Question 2 Question 2 ASSETS LIABILITIES ASSETS LIABILITIES £ £ ££ Shop

Shop fittings fittings 3 3 100100 Cash

Cash register register 800800 Stock

Stock of of goods goods 2 2 200200 Creditors

Creditors 1 0001 000 Loan

Loan – – T T Armani Armani 1 1 800800

Bank 870

6

6 970 970 2 2 800800

Capital = Assets – Liabilities Capital = Assets – Liabilities Capital = 6970 – 2800 = £4170 Capital = 6970 – 2800 = £4170 Question 3 Question 3 M Williams M Williams

Balance Sheet at 30 June 20X6 Balance Sheet at 30 June 20X6

£ £

Cash

Cash at at Bank Bank 2 2 614614 Stock

Stock of of goods goods 5 5 860860 Fixtures

Fixtures and and Fitting Fitting 1 1 900900 Debtors

Debtors 3 7503 750 Motor

Motor vehicles vehicles 4 4 200200 18 324 18 324 £ £ Creditors Creditors 4 4 150150 Loan

Loan – – D D Wong Wong 3 3 600600 Capital

Capital (missing

(missing item) item) 10 10 574574 _____ _____ 18 324 18 324 Question 4 Question 4 Effect upon Effect upon Transactions

Transactions Assets Assets Liabilities Liabilities CapitalCapital (a) (a) (b) (b) (c) (c)

The owner borrows £5000 from The owner borrows £5000 from L Pole and the money is put into L Pole and the money is put into the business’ bank account. the business’ bank account. A debtor pays the business £250 A debtor pays the business £250

by cheque. by cheque.

The owner buys a motor vehicle The owner buys a motor vehicle on credit £6200. on credit £6200. + Bank + Bank + Bank + Bank - Debtors - Debtors + Motor Vehicle + Motor Vehicle + Loan + Loan + Creditors + Creditors

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Question 5 Question 5

W Mandrake W Mandrake

Balance Sheet at 30 June 20X5 Balance Sheet at 30 June 20X5

£ £ Stock

Stock of of goods goods 5 5 360360 Debtors

Debtors 4 4 500500 Cash

Cash at at Bank Bank 1 1 845845 Fixtures

Fixtures and and fittings fittings 2 2 800800 Motor

Motor vehicles vehicles 5 5 100100 19 605 19 605 £ £ Creditors Creditors 2 2 900900 Loan

Loan – – L L Walter Walter 3 3 000000 Capital

Capital (balancing

(balancing figure) figure) 13 13 705705 _____ _____ 19 605 19 605 W Mandrake W Mandrake

Balance Sheet at 31 July 20X5 Balance Sheet at 31 July 20X5

£ £ Stock of goods Stock of goods (5360 (5360 + + 700 700 – – 600) 600) 5 5 460460 Debtors Debtors (4500 (4500 – – 1100 1100 + + 600) 600) 4 4 000000 Cash at Bank Cash at Bank (1845 (1845 – – 400 400 + + 1100) 1100) 2 2 545545 Fixtures

Fixtures and and Fittings Fittings 2 2 800800 Motor

Motor Vehicles Vehicles 5 5 100100 19 905 19 905 £ £ Creditors Creditors (2900 (2900 + + 700 700 – – 400) 400) 3 3 200200 Loan

Loan – – L L Walter Walter 3 3 000000 Capital

Capital (balancing

(balancing figure) figure) 13 13 705705

……… ……… 19 905 19 905 Question 6 Question 6 D Duncan D Duncan

Balance Sheet at 21 January 20X7 Balance Sheet at 21 January 20X7

£ £ Motor

Motor Vehicles Vehicles 20 20 000000 Stock

Stock of of goods goods 2 2 100100 (1500 + 600)

(1500 + 600) Debtor

Debtor – – A A Gianna Gianna 500500

£ £ Capital

Capital 120 120 000000 Creditor – Stax Suppliers

Creditor – Stax Suppliers (3000

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Chapter 2

Chapter 2 Double Entry System for

Double Entry System for Assets, Liabilities and Capital

Assets, Liabilities and Capital

Page 16

Page 16 –– Why is it necessary to keep separate accounts for each debtor and creditor?Why is it necessary to keep separate accounts for each debtor and creditor?



 So it can clearly be seen how much is owed to individual creditors and how much isSo it can clearly be seen how much is owed to individual creditors and how much is

owed by individual debtors. owed by individual debtors.

Answers to Activities Answers to Activities Activity 2.1 Activity 2.1 Debit Credit Debit Credit (a)

(a) Bought Bought office office furniture furniture for for cashcash Office Office Furniture Furniture CashCash

(b)

(b) Sold some Sold some office furniture office furniture on credit on credit to C to C BingBing C C Bing Bing Office Office FurnitureFurniture

(c)

(c) Bought Bought motor vehicles motor vehicles on on credit credit from Wong from Wong LtdLtd Motor Motor Vehicles Vehicles Wong Wong LtdLtd

(d)

(d) A debtor, A debtor, P Butler, P Butler, pays the pays the business by business by chequecheque Bank Bank P P Butler Butler

(e)

(e) The owner The owner puts a puts a further amount further amount into into the businessthe business by cheque

by cheque

Bank Capital

(f)

(f) Returned Returned one one of of the the motor motor vehicles vehicles to to Wong LtdWong Ltd Wong Wong Ltd Ltd Motor Motor VehiclesVehicles

(g)

(g) Paid Paid a a creditor, T creditor, T Bird, by Bird, by cashcash T T Bird Bird CashCash

(h)

(h) Paid by Paid by cheque for cheque for the the motor vehicle motor vehicle bought frombought from Wong Ltd

Wong Ltd

Wong

Wong Ltd Ltd BankBank

Question 1

The left hand side of a ‘T’ account is the debit side and the right hand side is the credit side. To ‘debit’ The left hand side of a ‘T’ account is the debit side and the right hand side is the credit side. To ‘debit’ an account the transaction is entered on the left hand side and to ‘credit’ an account, the transaction is an account the transaction is entered on the left hand side and to ‘credit’ an account, the transaction is entered on the right hand side.

entered on the right hand side.

There must be a debit entry and a corresponding credit entry of the same value (and vice versa) for There must be a debit entry and a corresponding credit entry of the same value (and vice versa) for every transaction that occurs.

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Cancel Anytime. Question 4 Question 4 Bank Bank 20X2 £ 20X2 £ July

July 01 01 Capital Capital 6 6 000000

20X2 £

July

July 15 15 Office Office Machinery Machinery 420420 July

July 29 29 Elstead Elstead Garage Garage 2 2 900900

Capital Capital

20X2 £

July

July 01 01 Bank Bank 6 6 000000

Motor Vehicle Motor Vehicle

20X2 £

July

July 06 06 Elstead Garage Elstead Garage 2 2 800800

Elstead Garage Elstead Garage

20X2 £

July

July 29 29 Bank Bank 2 2 800800

20X2 £

July

July 06 06 Motor Motor vehicle vehicle 2 2 800800

Office Machinery Office Machinery 20X2

20X2 ££

July

July 15 15 Bank Bank 420420

Office Equipment Office Equipment

20X2 £

July

July 23 23 Longmore Longmore & & Sons Sons 7070

Longmore & Sons Longmore & Sons

20X2 £

July

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Cancel Anytime. Bank Bank 20X9 £ 20X9 £ April 01

April 01 Capital Capital 8 0008 000 April 03

April 03 Loan – S Lee Loan – S Lee 3 0003 000 April 08

April 08 Cash Cash 1 0001 000

20X9

20X9 ££

April 14

April 14 Delivery Van Delivery Van 1 5001 500 April 23

April 23 Loan – S Lee Loan – S Lee 1 2001 200 April 29

April 29 Cash Cash 300300

Capital Capital

20X9

20X9 ££

April 01

April 01 Cash Cash 2 0002 000 April 01

April 01 Bank Bank 8 0008 000

Loan – S. Lee Loan – S. Lee 20X9 £ 20X9 £ April 23 April 23 1 2001 200 20X9 £ 20X9 £ April 03

Delivery Van Delivery Van 20X9

20X9 ££

April 14

Office Furniture Office Furniture 20X9

20X9 ££

April 20

April 20 Furniture World Furniture World 1 1001 100

20X9

20X9 ££

April 26

April 26 Furniture World Furniture World 200200

Furniture World Furniture World 20X9

20X9 ££

April 26

April 26 Office Furniture Office Furniture 200200 April 30

20X9

20X9 ££

April 20

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Chapter 3

Chapter 3 Recording Double Entry for Stock

Recording Double Entry for Stock

Answers to Activities Answers to Activities Activity 3.1 Activity 3.1 Debit Credit Debit Credit (a)

(a) Bought office Bought office furniture for furniture for use use in the in the business by business by cashcash Office Office Furniture Furniture CashCash

(b)

(b) Sold Sold goods goods for for cashcash Cash Cash SalesSales

(c)

(c) Bought Bought goods goods on on credit credit from A from A LittonLitton Purchases Purchases A A LittonLitton

(d)

(d) Returned to Returned to A Litton A Litton some of some of the goods the goods boughtbought A A Litton Litton Returns Returns OutwardsOutwards

(e)

(e) Sold Sold goods on goods on credit credit to to D D PenarthPenarth D D Penarth Penarth SalesSales

(f)

(f) Purchased Purchased motor motor van van on on credit credit from from Grange Grange GarageGarage Motor Motor Van Van Grange Grange GarageGarage

(g)

(g) D D Penarth Penarth returned some returned some goods goods to to usus ReturnsReturns

Inwards

D Penarth

(h)

(h) Bought Bought goods goods paying paying immediately immediately by by chequecheque Purchases Purchases BankBank

Question 1

‘Purchases’ means goods bought by the business with the intention of reselling them for profit as a ‘Purchases’ means goods bought by the business with the intention of reselling them for profit as a part of its trading activities.

part of its trading activities.

‘Sales’ means goods sold by the business that were

‘Sales’ means goods sold by the business that were originally bought for resale purposes. originally bought for resale purposes. In other In other words, the sale of those goods in which the business trades or deals.

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Cancel Anytime. Question 4 Question 4 Bank Bank 20X7 £ 20X7 £ March

March 01 01 Capital Capital 10 10 000000 March

March 30 30 B B Wright Wright 7070

20X7 £

March

March 03 03 Office Office Furniture Furniture 460460 March

March 23 23 Scales Scales Motors Motors 3 3 600600 March

March 26 26 T T Hunt Hunt 320320

Capital Capital

20X7 £

March

March 01 01 Bank Bank 10 10 000000

Office Furniture Office Furniture

20X7 £

March

March 03 03 Bank Bank 460460

Purchases Purchases

20X7 £

March

March 05 05 Purchases Purchases 375375

T Hunt T Hunt

20X7 £

March

March 08 08 Returns Returns Outwards Outwards 5555 March

March 26 26 Bank Bank 320320

20X7 £

March

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Cancel Anytime. Motor Vehicle Motor Vehicle 20X7 £ 20X7 £ March

March 15 15 Scales Scales Motors Motors 3 3 600600

Scales Motors Scales Motors

20X7 £

March

March 23 23 Bank Bank 3 3 600600

20X7 £

March

March 15 15 Motor Motor Vehicle Vehicle 3 3 600600

Returns Inwards Returns Inwards

20X7 £

March

March 19 19 B B Wright Wright 2626

Question 5 Question 5 Cash Cash 20X7 £ 20X7 £ October

October 01 01 Capital Capital 8 8 600600 October

October 17 17 Cash Cash 8080

20X7 £

October

October 02 02 Bank Bank 8 8 000000 October

October 07 07 Purchases Purchases 179179

Capital Capital

20X7 £

October

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Fixtures & Fittings Fixtures & Fittings

20X7 £

October

October 05 05 Display Display Ltd Ltd 2 2 750750

20X7 £

October

October 07 07 Display Display Ltd Ltd 730730

Display Ltd Display Ltd

20X7 £

October

October 09 09 Fixtures Fixtures & & Fittings Fittings 3030

20X7 £

October

October 05 05 Fixtures Fixtures & & Fittings Fittings 2 2 750750

J Durrant J Durrant

20X7 £

October

October 11 11 Sales Sales 345345

20X7 £

October

October 26 26 Returns Returns Inwards Inwards 4242 October

October 31 31 J J Durrant Durrant 303303

Sales Sales

20X7 £

October

October 11 11 J J Durrant Durrant 345345 October

October 17 17 Cash Cash 8080

Returns Outwards Returns Outwards

20X7 £

October

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Chapter 4

Chapter 4 The Double Entry System for Expenses and Revenues and the

The Double Entry System for Expenses and Revenues and the

Effect of Profit (or Loss) and Drawings upon Capital

Page 36

Page 36 –– What kinds of expense and revenue accounts would you expect to see in the books of aWhat kinds of expense and revenue accounts would you expect to see in the books of a Bank?

Bank?

Revenue

Revenue Accounts Accounts Expense Expense AccountsAccounts

Loan

Loan interest interest receivable receivable Interest Interest payablepayable Commission

Commission receivable receivable Salaries Salaries and and wageswages Service

Service charges charges (eg. (eg. bank bank charges) charges) InsuranceInsurance Stationery Stationery Utilities Utilities Answers to Activities Answers to Activities Activity 4.1 Activity 4.1 Transactions

Transactions Accounts Accounts Type Type of of

account account Transaction Transaction effect effect Action in the Action in the account account General General Expense Expense Expense

Expense Increase Increase DebitDebit

Paid general expenses in Paid general expenses in cash £150

cash £150

Cash

Cash Asset Asset Decrease Decrease CreditCredit

Bank

Bank Asset Asset Increase Increase DebitDebit

Received commission by Received commission by

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Expense accounts should be debited and revenue accounts should be credited. Expense accounts should be debited and revenue accounts should be credited.

Question 3 Question 3 Bank Bank 20X3 20X3 ££ April 01

April 01 Capital Capital 5 0005 000 April 24

April 24 Sales Sales 8585 April 30

April 30 Capital Capital 1 0001 000

20X3

20X3 ££

April 03

April 03 Office Equipment Office Equipment 370370 April 05

April 05 Rent Rent 260260 April 14

April 14 Cash Cash 130130 April 21

April 21 Stationery Stationery 2020 April 27

April 27 A Smart A Smart 385385

Capital Capital

20X3

20X3 ££

April 01

April 01 Bank Bank 5 0005 000 April 30

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Cancel Anytime. Cash Cash 20X3 20X3 ££ April 14

April 14 Bank Bank 130130

20X3

20X3 ££

April 15

April 15 Wages Wages 115115

Wages Wages 20X3

20X3 ££

April 15

R Squires R Squires 20X3

20X3 ££

April 18

April 18 Sales Sales 175175

Sales Sales

20X3

20X3 ££

April 18

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Cancel Anytime. Purchases Purchases 20X4 20X4 ££ May

May 05 05 R R Lester Lester 520520

R Lester R Lester 20X4

20X4 ££

May

May 12 12 Returns Returns Outwards Outwards 4545 May

May 26 26 Bank Bank 475475

20X4

20X4 ££

May

May 05 05 Purchases Purchases 520520

Fixtures & Fittings Fixtures & Fittings 20X4

20X4 ££

May

Returns Outwards Returns Outwards

20X4

20X4 ££

May

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Cancel Anytime. Wages Wages 20X4 20X4 ££ May

May 30 30 Cash Cash 8080

Office Equipment Office Equipment 20X4

20X4 ££

May

Drawings are defined as money, goods, or services withdrawn from the business by the owner(s) for Drawings are defined as money, goods, or services withdrawn from the business by the owner(s) for their personal use. Drawings reduce the capital of the business.

their personal use. Drawings reduce the capital of the business.

(a)

(a) Answer Answer = = £2500£2500

Workings: Workings:

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