Practice Activity 5.4 Double entry effects of transactions

Identify the effect of the following transactions in the relevant accounts:

1. An individual (sole proprietor) commences business with ₦350,000 paid into the bank.

2. Two partners (Allen and Warren) commence business with a capital contribution of ₦378,900 and ₦389,000, respectively. They contribute the capital by cash.

3. Inventory was purchased by cash from Lift Ltd. The inventory was worth ₦57,800.

4. The business purchased goods worth ₦89,900 on credit from Teller Ltd.

5. Inventory worth ₦48,000 was sold to a customer, Alan, who paid by cheque.

6. A supplier, Give Enterprises, was paid ₦57,500 for goods previously bought on credit.

7. An individual (sole proprietor) withdrew ₦78,890 cash out of business for personal use.

Suggested answers to practice activity 5.4

Transaction One: An individual (sole proprietor) commences business with ₦350,000 paid into the bank.

Debit Bank account with ₦350,000.

Credit Capital account with ₦350,000.

A narration of effect:

i. Bank account increases by ₦350,000; and

ii.Capital account increases by ₦350,000.

Transaction Two: Two partners (Allen and Warren) commence business with a capital contribution of ₦378,900 and ₦389,000, respectively. They contribute the capital by cash.

Debit Cash account with the total capital contributed by Allen and Warren.

Credit Capital accounts of Allen and Warren with the respective amounts of capital contribution.

A narration of effect:

i. Cash account increases by ₦767,900 (that is, the total of ₦378,900 and ₦389,000); and

ii.The capital accounts of Allen and Warren increase by ₦378,900 and ₦389,000, respectively.

Transaction Three: Inventory was purchased by cash from Lift Ltd. The inventory was worth ₦57,800.

Debit Purchases account with ₦57,800.

Credit Cash account with ₦57,800.

A narration of effect:

i. Purchases increases by ₦57,800; and

ii.Cash account/Cash column in the cash book decreases by ₦57,800.

Transaction Four: The business purchased goods worth ₦89,900 on credit from Teller Ltd.

Debit Purchases account with ₦89,900.

Credit Trade payable account for Teller Ltd with ₦89,900.

A narration of effect:

i. Purchases increases by ₦89,900; and

ii.Trade payable account for Teller Ltd increases by ₦89,900.

Transaction Five: Inventory worth ₦48,000 was sold to a customer, Alan, who paid by cheque.

Debit Cash account/Cash column in the cash book with ₦48,000.

Credit Sales or Revenue account with ₦48,000.

A narration of effect:

i. Cash account/Cash column in the cash book increases by ₦48,000; and

ii.Sales account decreases by ₦48,000.

Transaction Six: A supplier, Give Enterprises, was paid ₦57,500 in cash for goods previously bought on credit.

Debit Trade payable account for Give Enterprises with ₦57,500.

Credit Cash account/Cash column of the cash book with ₦57,500.

A narration of effect:

i. Trade payable account for Give Enterprises reduces by ₦57,500; and

ii.Cash account/Cash column in the cash book decreases by ₦57,500.

Transaction Seven: An individual (sole proprietor) withdrew ₦78,890 cash out of business for personal use.

Debit Drawings account with ₦78,890.

Credit Cash account with ₦78,890.

A narration of effect:

i. Capital decreases by ₦78, 890; and

ii.Cash account or Cash column in the cash book reduces by ₦78,890.