KST EDUCATION LCCI LEVEL I | ASE20091

CHAPTER 1
ACCOUNTING EQUATION
INTRODUCTION TO ASSETS, LIABILITIES AND CAPITAL
ASSETS
An asset is something valuable which a business owns or has the use of. Assets are items belonging
to a business and used in the running of the business. They may be non-current (such as machinery or
office premises), or current (such as inventory, accounts receivable and cash).
Types Of Asset

Non-Current Assets Current Assets

(More than one year) (Within one year)
Premises Inventory
Motor Vehicles Trade Receivables
Fixtures &Fittings Cash at Bank
Office Equipments Cash in Hand
etc... etc...

LIABILITIES
A liability is something which is owed to somebody else. Liabilities are sums of money owed by a
business to outsiders such as a bank or a trade account payable.
Types Of Liabilities

Non-Current Liabilities Current Liabilities

(More than one year) (Within one year)
Percentage Debenture Trade Payables
Mortgage Bank Overdraft
Bank Loan etc...
etc...

CAPITAL
Capital is an investment of money (funds) with the intention of earning a return. A business
proprietor invests capital with the intention of earning profit. The business owes the capital and the
profit to the proprietor.

INTRODUCTION TO ACCOUNTING EQUATION

BUSINESS ENTITY CONCEPT
The business entity concept is always to treat a business as a separate entity from its owner(s). This
means the transactions of the owner should never be mixed with the business's transactions. This
applies whether or not the business is recognised in law as a separate legal entity.

DEFINITION OF ACCOUNTING EQUATION

Investment $ 10,000
Mr.A Business A

Capital $ 10,000 Assets $ 10,000

ASSETS = CAPITAL

-1-
KST EDUCATION LCCI LEVEL I | ASE20091
Investment $ 5,000
Mr.A Business B
Bank Loan $ 5,000
Capital $ 5,000 Liabilities $ 5,000 Assets $ 10,000

ASSETS = LIABILITIES + CAPITAL

PROFIT OR LOSSES FROM BUSINESS

The business retains the profits, and does not pay anything out to its owners, the retained profits
are accounted for as an addition to the proprietor's capital: they become part of that capital.

ASSETS = LIABILITIES + [CAPITAL + PROFIT]

DRAWING (PRIVATE USE OF OWNER)

Drawings are amounts of money taken out of a business by its owner.

ASSETS = LIABILITIES + [CAPITAL + PROFIT - DRAWING]

INCOMES AND EXPENSES

Businesses exist to sell goods or services, from which they earn income. To earn its income, a
business incurs expenditure. Items of expenditure are called expenses.

ASSETS = LIABILITIES + [CAPITAL + (INCOMES - EXPENSES) - DRAWING]

-2-
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (2016 APRIL)
Which one of these is an example of a non-current asset?
A. Fixtures
B. Bank loan
C. Trade payables
D. Trade receivables

QUESTION - 2 (PEARSON 29)

Classify the following items into liabilities and assets:
a) Motor vehicles
b) Premises
c) Accounts payable for inventory
d) Inventory
e) Trade receivables
f) Owing to bank
g) Cash in hand
h) Loan from D. Jones
i) Machinery

QUESTION - 3 (PEARSON 29)

Complete the following table.
Assets Liabilities Equity
$ $ $
a) 55,000 16,900 ?
b) ? 17,200 34,400
c) 36,100 ? 28,500
d) 119,500 15,400 ?
e) 88,000 ? 62,000
f) ? 49,000 110,000

QUESTION - 4 (PEARSON 29)

F. Flint is starting a business. Before actually starting to sell anything, he bought fi xtures for $1,200, a
van for $6,000 and an inventory of goods for $2,800. Although he has paid in full for the fi xtures and
the van, he still owes $1,600 for some of the inventory. B. Rub lent him $2,500. After the above, Flint has
$200 in the business bank account and $175 cash in hand. You are required to calculate his equity.

-3-
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 2
DOUBLE ENTRY SYSTEM
THE RULES OF DOUBLE ENTRY SYSTEM
Double entry bookkeeping is the method by which a business records financial transactions. An
account is maintained for every asset, liability, income and expense. Every transaction is recorded
twice so that every debit is balanced by a credit. Double entry bookkeeping is based on the idea that
each transaction has an equal but opposite effect. Every accounting event must be entered in ledger
accounts both as a debit and as an equal but opposite credit.

Account Name
Date Particular Ref. $ Date Particular Ref. $

Debit Side Credit Side

Dr Side Cr Side

DOUBLE ENTRY FOR ASSETS, CAPITAL AND LIABILITIES

 Assets is debit nature side.
 Liabilities is credit nature side.
 Capital is credit nature side.
Assets Liabilities Capital
Dr Cr Dr Cr Dr Cr

Increase Decrease Decrease Increase Decrease Increase

DOUBLE ENTRY FOR INVENTORY

Purchase
Dr - Increase
Sale Return/ Return Inward
Inventory (Asset - Dr)
Sales
Cr - Decrease
Purchase Return/ Return Outward

DOUBLE ENTRY FOR CAPITAL

Drawings
Dr - Decrease
Loss (Statement)
Capital (Cr)
Add Capital
Cr - Increase
Profit (Statement)

-4-
KST EDUCATION LCCI LEVEL I | ASE20091
DOUBLE ENTRY FOR INCOMES AND EXPENSES

Cash/Bank - Dr
Income Transaction
Relevant Income - Cr

Relevant Expenses - Dr
Expenses Transaction
Cash/Bank - Cr

 Income can come from various sources, including sales, rent received, commission received,
interest received.
 Expenses can include costs related to purchasing inventory, wages and salaries, rent (payable),
commission (payable), interest (payable), heat & light, electricity, bill.

DOUBLE ENTRY SUMMARY

Debit (Dr) Credit (Cr)

Assets Increase Assets Decrease

Liabilities Decrease Liabilities Increase
Drawing Capital
Trading Loss Profit
Sales Return Sales
Purchases Purchases Return
Expenses Incomes

PREPARATION OF TRIAL BALANCE

A trial balance is a list of ledger balances shown in debit and credit columns. Balances on ledger
accounts can be collected in a list of account balances. The debit and credit balances should be equal.
Business Name
Trial Balance as at ____________________
Debit Credit
Account Names
$ $
Assets xx
Liabilities xx
Capital xx
Purchases xx
Sales xx
Purchases Returns xx
Sales Returns xx
Drawing xx
Expenses xx
Incomes xx
xxx xxx

-5-
KST EDUCATION LCCI LEVEL I | ASE20091
THE REASON FOR A TRIAL BALANCE
There are three main reasons for preparing a trial balance.
 At the end of the financial year, a trial balance is used as a starting point for preparing a statement
of comprehensive income and a statement of financial position. This is something you will study in
the future.
 A trial balance shows the current balances on all the asset, liability, capital, income and expense
accounts. This can provide useful information to management.
 In a manual accounting system, preparing a trial balance is a procedure for identifying certain
types of errors in the accounts. If the total of debit balances and the total of credit balances are not
equal, there must have been a mistake (or several mistakes) in entering transactions in the ledger
accounts. When the existence of an error has been identified, the next step is to carry out an
investigation, and try to find where the double entry mistake or mistakes have happened. When
the error has been found, it should be corrected.

-6-
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (PEARSON 32)
Write up the following transactions in the books of P. Hewitt:
20X3 March,
1 Started in business with cash $16,000.
2 Bought goods on credit from W. Young $420.
3 Paid rent by cash $870.
4 Paid $12,500 of the cash of the business into a bank account.
5 Sold goods on credit to D. Unbar $192.
7 Bought stationery $85 paying by cheque.
11 Cash sales $312.
14 Goods returned by us to W. Young $54.
17 Sold goods on credit to J. Harper $212.
20 Paid for repairs to the building by cash $78.
22 D. Unbar returned goods to us $31.
27 Paid W. Young by cheque $366.
28 Cash purchases $470.
29 Bought a van paying by cheque $3,850.
30 Paid motor expenses in cash $216.
31 Bought a computer $730 on credit from B. Coal.

QUESTION - 2 (PEARSON 32)

Enter the following transactions, completing the double-entry in the books for the month of May 20X3:
20X3 May,
1 Started in business with $18,000 in the bank and $2,000 in cash.
2 Purchased goods $580 on credit from D. Monty.
3 Bought fixtures and fittings $2,300 paying by cheque.
5 Sold goods for cash $280.
6 Bought goods on credit $650 from C. George.
10 Paid rent by cash $400.
12 Bought stationery $90, paying in cash.
18 Goods returned to D. Monty $82.
21 Received rent of $240 by cheque for sublet of corner space.
23 Sold goods on credit to G. Field for $1,600.
24 Bought a van paying by cheque $8,200.
30 Paid the month’s wages by cash $610.
31 The proprietor took cash for his own personal use $510.

-7-
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 3 (PEARSON 34 / 2)
Enter the following transactions of an antiques shop in the accounts.
20X3 March,
1 Started in business with $8,000 in the bank.
2 Bought goods on credit from: L. Frank $550; G. Byers $540; P. Lee $610.
5 Cash sales $510.
6 Paid wages in cash $110.
7 Sold goods on credit to: J. Snow $295; K. Park $360; B. Tyler $640.
9 Bought goods for cash $120.
10 Bought goods on credit from: G. Byers $410; P. Lee $1,240.
12 Paid wages in cash $110.
13 Sold goods on credit to: K. Park $610; B. Tyler $205.
15 Bought shop fixtures on credit from Stop Ltd $740.
17 Paid G. Byers by cheque $700.
18 We returned goods to P. Lee $83.
21 Paid Stop Ltd a cheque for $740.
24 B. Tyler paid us his account by cheque $845.
27 We returned goods to L. Frank $18.
30 G. Prince lent us $1,000 by cash.
31 Bought a van paying by cheque $6,250.

-8-
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 3
ACCOUNTING PROCESS
OVERVIEW
BUSINESS BUSINESS DAY LEDGER TRIAL FINANCIAL
▶ ▶ ▶ ▶ ▶
TRANSACTIONS DOCUMENTS BOOKS (ACCOUNTS) BALANCE STATEMENT

TYPES OF BUSINESS TRANSACTIONS

 Every business sells goods or services to customers and gets paid for what it sells.
 Every business buys goods and services from suppliers, and pays for what it buys.
 Many businesses have employees, and have to pay for their labour.
 All businesses incur expenses for various services, such as the supply of electricity, telephone
services, property rental costs and local taxation (business rates).

EXAMPLES OF BUSINESS DOCUMENTS

 Invoice (Purchases and Sales)
 Credit Note
 Statement of account
 Cheques
 Remittance advice
 Receipts
 etc...

TYPES OF DAY BOOKS

 Sales day book
 Sales returns, returns inwards day book
 Purchases day book
 Purchase returns, returns outwards day book
 Cash books
 Petty cash book
 Journal

ACCOUNTS
The form of the record kept with each item is known as an account.

Real Accounts
Impersonal Accounts
Type of Accounts Nominal Accounts
Personal Accounts

 Personal accounts includes trade receivables accounts and trade payables accounts.
 Real accounts are all remaining assets accounts except trade receivables accounts. Examples;
premises, motor vehicles, fixtures & fittings, inventory, cash, bank, etc...
 Nominal accounts are all remaining income, expenses and capital accounts. Examples; sales,
purchases, wages & salaries, insurance, rent received, telephone bill, capital, drawing, discounts
allowed etc...

LEDGER
The group of accounts is called a ledger.

-9-
KST EDUCATION LCCI LEVEL I | ASE20091

Receivables Ledger
Personal Ledger
Type of Ledger Payables Ledger
General Ledger

 The general ledger is the accounting record which summarises the financial affairs of a business.
It contains details of assets, liabilities and capital, income and expenditure and so profit and loss. It
consists of a large number of different ledger accounts, each account having its own purpose or
'name' and an identity or code. Another name for the general ledger is the nominal ledger.
 The receivables ledger consists of a number of personal receivable accounts. They are separate
accounts for each individual customer, and they enable a business to keep a continuous record of
how much a customer owes the business at any time.
 The payables ledger, like the receivables ledger, consists of a number of personal payable accounts.
These are separate accounts for each individual supplier, and they enable a business to keep a
continuous record of how much it owes each supplier at any time.

TRIAL BALANCE
A trial balance is a list of ledger balances shown in debit and credit columns. Balances on ledger
accounts can be collected in a list of account balances. The debit and credit balances should be equal.

FINANCIAL STATEMENTS
Businesses produce financial statements to demonstrate how well they have performed over the
accounting period and to show their financial position at the end of that period.

Statement Of Profit Or Loss

Financial Statements
Statement Of Financial Position

KST LTD,
Statement of profit or loss for the year ended 31 December 20X4
$
Sales XX
(-) Cost Of Sales (XX)
Gross Profit XX
(+) Other Incomes XX
(-) Expenses (XX)
Profit For The Year XX

KST LTD,
Statement of financial position as at 31 December 20X4
$
Non-Current Assets XX
Current Assets XX
Total Assets XX

Capital XX
Non-Current Liabilities XX
Current Liabilities XX
Total Capital And Liabilities XX

- 10 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 4
CAPITAL AND REVENUE EXPENDITURE
INTRODUCTION
An important distinction is made between capital and revenue items. If these are not identified
correctly, then the resulting profit figure will be wrong and misleading.

CAPITAL EXPENDITURE
Capital expenditure is expenditure which results in the acquisition of non-current assets, or an
improvement in their earning capacity.
 Capital expenditure on non-current assets results in the appearance of a non-current asset in the
accounts of the business.
 The total amount of capital expenditure is not deducted from income in calculating the profit for
an accounting period.
 It is deemed to be expenditure that brings benefits to the business over more than one accounting
period.
 Capital expenditure to purchase a long-term asset is recorded with a debit entry in an asset account.
For example, if a business purchases a machine for cash, the double entry record will be:
Debit - Machinery account
Credit - Bank account

REVENUE EXPENDITURE
Revenue expenditure is expenditure which is incurred either:
 For the purpose of the trade of the business, including expenditure classified as selling and
distribution expenses, administration expenses and finance charges; or
 To maintain the existing earning capacity of non-current assets, eg repairs to non-current assets.
 Revenue expenditure for materials purchases or other expense items are recorded with a debit
entry in an expense account. For example, if a business incurs postage costs and pays for them out
of its bank account, the double entry record will be:
Debit - Postage costs account
Credit - Bank account

- 11 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (PEARSON 32)
Some of the following items should be treated as capital and some as revenue. For each of them state
which classification applies:
1) The purchase of machinery for use in the business.
2) Carriage paid to bring the machinery in (1) above to the works.
3) Complete redecoration of the premises at a cost of $1,500.
4) A quarterly account for heating.
5) The purchase of a soft drinks vending machine for the canteen with a stock of soft drinks.
6) Wages paid by a building contractor to his own workmen for the erection of an office in the
builder’s stockyard.

QUESTION - 2 (2017 JUNE)

Business policy is to treat the purchase of all single non-current assets over $250 as capital expenditure.
Complete the following table to indicate with a tick (✓) which items are capital expenditure and which
are revenue expenditure.
Purchases Capital Revenue
expenditure expenditure
10 computers purchased on credit from Slow Finance at $750 each.
5 printers at $80 each paid by cheque.
Software at $175 paid by cash.
Computer monitor purchased on credit from CP World at $280

QUESTION - 3 (2017 DECEMBER)

Complete the following table to indicate with a tick (✓) whether the items are capital expenditure or
revenue expenditure.
Items of expenditure Capital Revenue
expenditure expenditure
Fuel
Installation of air conditioning
Insurance
Replacement tyres
Vehicle cost

QUESTION - 4 (PEARSON 32)

Cairns Engineering Company extracted the following information from their financial records:
$
(a) New stationery and brochures 411
(b) Purchase of new pickup truck 18,000
(c) Purchase of new lathe 5,200
(d) Delivery cost of new lathe 200
(e) Electricity (including new wiring $1,800, part of premises improvement) 3,900
(f) Wages (including wages of two of Cairns’ employees for improvement work on Cairns’
65,00
premises, amount involved $20,000)
You are required to:
a) State whether each of the items listed above is capital or revenue expenditure and state how much
the company has spent on each category for the year.
b) Briefly explain the difference between capital and revenue expenditure.

- 12 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 5 (2016 SEPTEMBER)
John Lotus is a car mechanic. During the year ended 31 May 2016 John received the following invoice.
GIG Warehouse
Forest Business Park
Nottingham
INVOICE
John Lotus Invoice No: 1005467
7 Clough Way
Date: 01 May 2016
Nottingham
Unit Price Total
Quantity Description
$ $
1 C425 8GB Black computer 980.00 980.00
1 One-year warranty to 30 April 2017 on the computer 120.00 120.00
2 Ink cartridges 11.00 22.00
1 E540 Wireless printer 310.00 310.00
Total 1,432.00
Terms of trade: Payment to be made in full on collection
Complete the table below to indicate with a tick (✓) if the item is capital expenditure or revenue
expenditure.
Item of expenditure Capital Expenditure Revenue Expenditure
C425 8GB Black computer
One-year warranty on the computer
Ink cartridges
E540 Wireless printer

QUESTION - 6 (17 JULY)

On 1 February 2017 Gurdeep Singh received the following invoice.
FORHALL MOTORS
1 Doncaster High Street
Yorkshire
DN1 1AB
Date 01 February 2017 Number AZ2173 Vehicle number GS1
Customer Gurdeep Singh

Details of sale
$
Supply of Motor vehicle 20 000
Additional warranty 500
Delivery charge 100
Fuel 50
Insurance 450
Refrigeration unit 2 000

Invoice value 23 100

Complete the following table to indicate with a tick (✓) which of the items are capital expenditure and
which are revenue expenditure.

- 13 -
KST EDUCATION LCCI LEVEL I | ASE20091
Capital Revenue
expenditure expenditure
Motor vehicle
Warranty (9 months)
Delivery charge
Fuel
Insurance
Refrigeration unit

QUESTION - 7 (2016 APRIL)

How will the delivery charge paid on the purchase of machinery be recorded in the accounts?
Account to be debited Account to be credited
A. Purchases Bank
B. Bank Delivery charge
C. Machinery Bank
D. Delivery charge Bank

- 14 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 5
BUSINESS DOCUMENTS AND DISCOUNTS
THE USE OF BUSINESS DOCUMENTS AS SOURCE OF INFORMATION
When a business sells or buys, each stage in the transaction is documented. Some businesses use
electronic documents in their computer systems and that electronic information can be sent from the
computer of suppliers to customers without the need for paper. Nevertheless, many transaction
documents are still produced in a paper form.
We need to produce documents for business transactions for several reasons.
 As evidence of the transaction and its details.
 As evidence of the stage that the transaction has reached.
 For checking and confirming.
 For recording the transaction details.

THE USE AND PREPARATION OF BUSINESS DOCUMENTS

INVOICE
An invoice is a demand for payment. Invoices are created when there is a sale or a purchase.
Invoices are important documents which must contain specific information.
SELLER NAME
Seller address and contact information
INVOICE
CUSTOMER NAME Invoice No: ________
Customer address and contact information Date: ________
Unit Price Total
Quantity Code Description
$ $

Sub - Total
Trade discount
Total
Terms of trade:

OTHER INFORMATION OFTEN FOUND ON INVOICES

Sometimes, the date by which payment is due, and other terms of sale, are shown on the invoice.
'Net 30 days' means that payment is due 30 days after the date of delivery. 'FOB' stands for 'free on
board', and may be found on import or export invoices. 'FOB shipping point' means that the supplier
pays all costs of carriage (shipping, insurance and freight for example) up to the point of shipping but
the customer will have to pay any subsequent carriage costs.
Two other phrases you may find on an invoice are as follows.
 Ex works. This means that the price excludes the cost of delivery.
 E&OE. This stands for 'errors and omissions excepted', meaning that the supplier reserves the right
to make alterations to the details as shown on the invoice should any prove at a later date to be
incorrect.

- 15 -
KST EDUCATION LCCI LEVEL I | ASE20091
CREDIT NOTE
A credit note is used by a seller to cancel part or all of previously issued invoice(s). Credit notes are
important documents which must contain specific information.
SELLER NAME
Seller address and contact information
CREDIT NOTE
CUSTOMER NAME Cr Note No: ________
Customer address and contact information Date: ________
Unit Price Total
Quantity Code Description
$ $

Sub - Total
Trade discount
Total
Reason for return:

STATEMENT OF ACCOUNT
Statements of account are sent to customers at the end of each month to tell them how much they
owe the organisation, with details of the transactions involved.
SELLER NAME
Seller address and contact information
STATEMENT OF ACCOUNT
CUSTOMER NAME Date: ________
Customer address and contact information
Debit Credit Balance
Date Reference
$ $ $

Amount due:

RECEIPTS
A receipt is a document given by the seller to the buyer when goods change hands in exchange for
payment. It may be a till receipt, a written receipt or some other form of receipt. Till receipts or written
receipts should contain certain information.
SELLER NAME
Seller address and contact information
RECEIPTS
Rec No: ________
Date: ________
Received from: __________________________________________________________________
Description:_____________________________________________________________________
________________________________________________________________________________
The sum of: _____________________________________________________________________
Amt with Fig: ______________________________ Signed:____________________________

- 16 -
KST EDUCATION LCCI LEVEL I | ASE20091
REMITTANCE ADVICE
A remittance advice shows which invoices a payment covers. Trade customers usually send a
remittance advice with their payment.
BUYER NAME
Buyer address and contact information
REMITTANCE ADVICE
SELLER NAME Advice No: ________
Seller address and contact information Date: ________
Date Reference Amt

Payment Amount
Note:

CHEQUE
A cheque is 'an unconditional order in writing addressed by a person to a bank, signed by the
person giving it, requiring the bank to pay on demand a sum certain in money to or to the order of a
specified person or bearer'.

NAME OF BANK XX-XX-XX

Address of
bank Date:________________

Pay _____________________________________________________
________________________________________________________ $
________________________________________________________ _____________________
Name of drawer
Cheque Number Short Code Account Number
XXXXXXX XX-XX-XX XXX XXX XXXX

TYPES OF DISCOUNTS
A discount is a reduction in the price of goods below the amount at which those goods would
normally be sold to other customers of the supplier. There are two kind of discount.
 Trade discount: a reduction in the cost of goods.
 Cash (or settlement) discount: a reduction in the amount payable to the supplier.

TRADE DISCOUNT
A trade discount is a reduction in the amount of money demanded from a customer.

CASH DISCOUNTS
A cash discount is an optional reduction in the amount of money payable by a customer. It is
also called a 'settlement discount' or a 'prompt payment discount'.

Trade Discount
Discount Discount Allowed
Cash Discount
Discount Received

- 17 -
KST EDUCATION LCCI LEVEL I | ASE20091
 Discount allowed: This is cash discount allowed by the business to its customers (receivables) when
they pay their accounts quickly.
Debit - Discount allowed account
Credit - Trade receivables account
 Discount received: This is cash discount received by the business from its supplies (payables) when
it pays what it owed quickly.
Debit - Trade payables account
Credit - Discount received account

- 18 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (2017 MARCH)
James Willett, a farmer, grows a variety of different flowers. The price list shows:
Flowers Price per box ($)
Carnations 18.00
Daffodils 10.00
Scilla 9.00
He sells flowers to:
 credit customers who receive a 10% trade discount on orders over $500
 cash customers direct from the farm shop.
On 1 January 2017 credit customers owed:
Customer $
Faldo 18 260
Spieth 3 950
Sullivan 14 600
During January 2017 James made the following transactions.
Jan 2017 Transaction
6 Spieth returned 80 boxes of daffodils.
7 Faldo sent a cheque for $18 260
16 Faldo purchased 10 boxes of scilla.
17 The cheque received on 7 January 2017 was returned by the bank as dishonoured.
18 Sullivan sent a cheque for $13 500 in full settlement of his account.
20 Cash sales banked $375
31 Spieth purchased 80 boxes of carnations.
a) Prepare the documents for 6,16 and 31 January transactions.
b) State in which book of original entry each transaction was recorded.
Transaction date Book of original entry
6 January 2017
20 January 2017
c) Prepare the Faldo Account, Spieth Account and Sullivan Account. Balance the accounts on 31
January 2017 and bring the balances down on 1 February 2017.

QUESTION - 2 (2017 NOVEMBER)

John supplies goods to three customers: Paul, George and Richard, offering each of them a 10% trade
discount and a 5% early payment discount for payment within 14 days of the invoice.
a) State two reasons why a business may offer a trade discount.
1 July 2017, Paul owed $2350, George owed $1400 and Richard had made an overpayment on his account
of $150. During July 2017 the following transactions took place.
July 2017 Transaction
4 Sold goods to George, list price $800
7 Sold goods to Paul, list price $1 300
15 Received a cheque of $2 084 from George in full settlement of his account
18 Received returned goods from Paul with a list price of $400
22 Sold goods to Richard, list price $750
28 Received payment from Paul of his outstanding amount at 1 July
b) State the name of the document John would have issued on 18 July 2017.
c) Prepare the ledger accounts for Paul, George and Richard for July 2017. Balance the accounts on 31
July 2017 and bring the balances down on 1 August 2017.

- 19 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 3 (2017 JANUARY)
Tribeca, a furniture retailer, provided the following information relating to a credit customer,
Sundance, for the month of August 2016.
August 2016 Transaction
2 Customer paid the outstanding balance of $320 on 1 August in full.
5 Goods sold to customer, totalling $585
10 Goods returned by customer $150
15 Customer made payment on account of $350, by cheque.
25 Goods sold to customer, totalling $915
31 Customer settled their account, in full, after deducting a 5% cash discount.
a) Prepare the account of Sundance in the books of Tribeca for the month of August 2016, showing all
the transactions for the month.
At the end of each month Tribeca sends statements of account to all its credit customers.
b) Prepare the statement of account for Sundance for the month of August 2016.

QUESTION - 4 (2016 JUNE)

Romeo Clothing supplies clothing to several retailers on credit.
a) Complete the document below.
ROMEO CLOTHING
3 Verona Street
Stratford
CREDIT NOTE
Juliat Fashions Cr Note No: XXXX
Ricardo Strada Date: 10 January 2016
Milan
Unit Price Total
Quantity Code Description
$ $
5 WS1 Barbary Coats 68

Sub - Total
Trade discount 10%
Total
Reason for return: No need to write
b) State one reason for the preparation of this document.
c) Explain the purpose of providing trade discount.
On 1 January 2016 Juliat Fashions owed Romeo Clothing $1 300. Juliat Fashions made further purchases
on credit on 20 January 2016, list price $900.On 31 January 2016 Juliat Fashions paid the full amount
due on its account on 1 January 2016 by cheque, after taking advantage of a 5% cash discount.
d) Prepare the account of Juliat Fashions in the books of Romeo Clothing for the month of January
2016 showing all the transactions for the month. Balance the account on 31 January 2016 and bring
the balance down to 1 February 2016.

QUESTION - 5 (2017 SEPTEMBER)

Pete Murray runs a business called Super Office which supplies office equipment. At 1 May 2017 Billy
Paul, a customer, owed Super Office $400. During May 2017, the following transactions took place
between Billy Paul and Super Office.
10 May The customer returned goods, $100
15 May Received $300 from customer in cash.
18 May Sold goods on credit, $500

- 20 -
KST EDUCATION LCCI LEVEL I | ASE20091
27 May Received the outstanding balance in cash.
29 May Sold goods on credit, $600
Billy Paul receives a 5% early payment discount for settlement within 10 days of the invoice date.
a) Prepare the ledger account of Billy Paul for the month ending 31 May 2017. Balance the account on
that date and bring the balance down on 1 June 2017.
b) Prepare a statement of account at 31 May 2017.

QUESTION - 6 (2016 SEPTEMBER)

Juliet Logo buys her goods on credit from three suppliers.
Supplier Bal at 1 Apr 16 Terms of trade
Beans and Pod $480 10% trade discount if the order is over $100
Cafe Co $160 5% early payment discount if the invoice is paid within 10 days.
W Baker $48 Dr No discounts offered.
During the month of April 2016 she made the following transactions:
2016 April Transactions
2 Purchased goods from W Baker, list price $210
6 Purchased goods from Cafe Co, list price $520
9 Purchased goods from Beans and Pod, list price $350
12 Paid Cafe Co the amount owed on 1 April 2016, by cheque
13 Returned goods with a list price of $70 to W Baker
14 Paid Cafe Co for goods purchased on 6 April 2016, by cheque
24 Purchased goods from Beans and Pod, list price $80
a) Complete the table to show which book of original entry each transaction is recorded in.
2016 April Book of original entry
2
12
13
b) Complete the table to show in which ledger each account will be maintained.
Account Type of ledger
W Baker
Purchases
c) Prepare the accounts of Beans and Pod Account, Cafe Co Account, W Baker Account for the month
of April 2016. Balance the accounts on 30 April 2016 and bring the balances down on 1 May 2016.

QUESTION - 7 (2017 DECEMBER)

Inga purchases her supplies on credit from three wholesalers. The following information was
available at 1 October 2017.
Supplier Balance Terms of trade
$
Ashbit 10% early payment discount if the invoice is
- paid within 7 days of the invoice date.
Southall 50 (Dr) No discount.
T Tom 386 5% trade discount for orders with list price
over $250
a) State two books of original entry that Inga may maintain.
b) Explain one way the balance on Southall’s account could have arisen.
During the month of October 2017, she made the following transactions.

- 21 -
KST EDUCATION LCCI LEVEL I | ASE20091
October 2017 Transaction
2 Purchased goods from Ashbit, list price $490
6 Purchased goods from T Tom, list price $420
8 Paid Ashbit by bank transfer the total amount owed.
9 Purchased goods from Ashbit, list price $168
9 Paid T Tom, by cheque, the amount owed on 1 October.
10 Returned to T Tom goods purchased on 6 October, with a list price of $100
19 Purchased goods from T Tom, list price $195
23 Paid Ashbit by bank transfer the total amount owed.
28 Received a cheque from Southall for $50
c) Prepare the Ashbit Account, Southall Account and T Tom Account for the month of October 2017.
Balance the accounts on 31 October 2017 and bring the balances down on 1 November 2017.
d) Prepare the account to record the early payment discount. Show the title of the account and
balance the account on 31 October 2017 and bring the balance down on 1 November 2017.

QUESTION - 8 (2017 JUNE)

Nigel Pane purchases goods on credit from three suppliers. On 1 February 2017 he provided the
following information.
Supplier Balance at Terms of trade
1 February 2017
Belshaw $1 320 10% early payment discount if the invoice is paid within 14 days.
Tamas $2 660 5% trade discount if the order is over $500
Vidya $2 050 25% trade discount on all orders.
During February 2017 Nigel made the following transactions.
February 2017 Transaction
3 Returned goods to Vidya - list price $360
17 Paid Belshaw by cheque the amount owed on 1 February 2017.
18 Paid Vidya by bank transfer the total amount outstanding.
22 Purchased goods from Belshaw - list price $720
22 Purchased goods from Vidya - list price $300
26 Purchased goods from Tamas - list price $100
28 Paid Belshaw by cheque the total amount outstanding.
a) Prepare the Belshaw Account, Tamas Account and Vidya Account for the month of February 2017.
Balance the accounts on 28 February 2017 and bring the balances down on 1 March 2017.
On 1 March 2017 Nigel received the following statement of account. He believes that the amount due is
incorrect.
SELLER NAME
Seller address and contact information
STATEMENT OF ACCOUNT
CUSTOMER NAME Date: ________
Customer address and contact information
Debit Credit Balance
Date Reference
$ $ $
1 February Balance b/f 1 230
22 February Invoice 2098 720 1 950
28 February Payment received 648 1 302
Amount due 1 302
Please make all cheques payable to Belshaw. E&OE

- 22 -
KST EDUCATION LCCI LEVEL I | ASE20091
b) Describe the meaning of the term E&OE on the statement.
c) Suggest three reasons why Nigel believes that the amount due is incorrect.

QUESTION - 9 (2016 JULY)

On 1 July 2016 Sharami made further purchases from a supplier of 45 items at $20 each. The supplier
offered Sharami the following terms:
 trade discount of 5%
 cash discount of 2% if the invoice amount is paid within 14 days.
a) Explain why this supplier would offer Sharami trade discount.
b) Calculate.
1) the total amount of the invoice
2) the total amount if this invoice is paid on
a) 8 July 2016
b) 18 July 2016

QUESTION - 10 (2016 JULY / 2)

On 31 January 2016 Lunar sent the following document to Saturn Trading, a customer.
LUNAR
23 Sun Court
Blackheath
Customer: SATURN TRADING Date: 31 January 2016
Date Details Debit Credit Balance
$ $ $
1 Jan Balance b/f 850 (Dr)
10 Jan Sales 1 340 2 190 (Dr)
16 Jan Returns 250 1 940 (Dr)
21 Jan Payment received 816 (i)
21 Jan Discount 34 (ii)
a) State the name of this document.
b) Calculate the amount to be entered at (i) and (ii).
c) State one reason why this document is produced.
d) Complete the following table to show the document and book of original entry for each transaction.
Transaction date Document Book of original entry
10 January 2016
16 January 2016
e) Explain the purpose of the discount given to Saturn Trading on 21 January 2016.
f) State how this discount will be recorded in the books of Lunar and the books of Saturn Trading:
Account to be debited Account to be credited
Books of Lunar
Books of Saturn Trading

- 23 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 6
RECORDING PURCHASES AND PURCHASES RETURNS
BOOKS OF PRIME ENTRY
PURCHASES DAY BOOK
The purchase day book is used to keep a list of all of the invoices received from suppliers of goods
and services to the business. It is a 'book of prime entry' or a 'primary record' and not a ledger account.
The purchase day book lists the invoices received by a business from its credit suppliers.
Date Invoice No Supplier Name Pay Leg No $

PURCHASES RETURNS DAY BOOK

The purchase returns day book lists the credit notes received when goods are returned to suppliers.
The purchase day book and the purchase returns day book are 'books of prime entry': transactions are
recorded in them before being recorded elsewhere. The purchase returns day book lists credit notes
received in respect of purchase returns in chronological order.
Date Cr Note No Supplier Name Pay Leg No $

RECORDING IN LEDGER ACCOUNTS

SUPPLIERS' ACCOUNT IN PAYABLE LEDGER
The payables ledger contains the personal accounts of suppliers (trade payables) of the business.
The suppliers' personal accounts provide the business with a full record of how much it owes to each
supplier and of what items the debt consists. The personal accounts showing how much is owed to
each credit supplier of the business are contained in the purchase ledger, or payables ledger.
Payables ledger accounts are written up as follows.
 When entries are made in the purchase day book (for suppliers' invoices received), they are also
made on the credit side of the relevant supplier account in the purchase ledger.
 Entries made in the purchase returns day book (credit notes received) are entered on the debit side
of the suppliers' ledger account.
 When entries are made in the cash book in respect of payments made to suppliers, they are also
made on the debit side of the relevant supplier account.
 Discounts received for prompt payment (cash discounts) are entered on the debit side.
Supplier Account
Date Particular Ref. $ Date Particular Ref. $
PRDB - Credit Note PDB - Invoice
CB - Cheque Paid
Discount received

- 24 -
KST EDUCATION LCCI LEVEL I | ASE20091
POSTING DAY BOOKS TOTALS
To record purchase day book totals in general ledger,
 Debit - Purchase Account
 Credit - Trade Payables Ledger Control Account
To record purchase returns day book totals in general ledger,
 Debit - Trade Payables Ledger Control Account
 Credit - Purchases Returns Account.

- 25 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (PEARSON 34)
You are to enter up the Purchases Day Book and the Returns Outwards Day Book from the following
details, then to post the items to the relevant accounts in the Purchases Ledger and to show the
transfers to the General Ledger at the end of the month. In 20X3 May,
1 Credit purchase from F. Bean $324.
4 Credit purchases from the following: A. Clerk $216; B. Lock $322; F. Turner $64; G. Rill $130.
7 Goods returned by us to the following: F. Bean $56; A. Clerk $28.
10 Credit purchase from B. Lock $140.
18 Credit purchases from the following: J. Top $230; I. Gray $310; F. Low $405; P. Able $180.
25 Goods returned by us to the following: I. Gray $140; B. Lock $34.
31 Credit purchases from: F. Turner $174; T. Burns $230.

QUESTION - 2 (PEARSON 34)

You are to enter up the purchases day book and the purchases returns day book from the details of the
invoices and credit notes listed below. Post the items to the trade payables accounts in the payables
ledger and show the transfers to the relevant accounts in the general ledger at the end of the month.
Folio references are not required. In 20X3 May,
1 Credit purchase from J Yau Ltd $120.
6 Credit purchases from the following: S Wager $80; Ash Bros $220.
9 Goods returned by us to the following: J Yau Ltd $30.
14 Credit purchase from J Yau Ltd $60.
20 Credit purchases from the following: D Wong $300, Rughani &Co $280, Ash Bros $80.
27 Goods returned by us to the following: D Wong $40.
31 Credit purchases from: A Davies $50 plus VAT $10, Rughani &Co $170.

QUESTION - 3 (2017 APRIL)

Mordan Bakers supplied the following information at 1 January 2017.
Supplier Balance Terms of trade
$
Anthony Jones 400 10% trade discount
CP Dart 1 050 10% cash discount if the invoice is paid within 7 days.
Plain Mills 960 5% cash discount if the invoice is paid within 14 days.
During the month of January 2017 the following invoices were received.
ANTHONY JONES
28 Station Street
Glasgow
INVOICE
Mordan Bakers Invoice No: 3034
225 West Drive
Date: 2 January 2017
Aberdeen
Unit Price Total
Quantity Description
$ $
5 boxes Small paper bags 15.00 75.00
10 boxes Medium paper bags 22.50 225.00
1 box Large paper bags 30.00 30.00
Subtotal 330.00
Trade discount 33.00
Total 297.00
Terms: 30 days

- 26 -
KST EDUCATION LCCI LEVEL I | ASE20091

CP DART
The Dairy
Newmachar
INVOICE
Mordan Bakers Invoice No: 343
225 West Drive
Date: 20 January 2017
Aberdeen
Unit Price Total
Quantity Description
$ $
75 4 litres milk 1.00 75.00
30 Cream 2.50 75.00
Subtotal 150.00
Trade discount 0.00
Total 150.00
Terms: 10% cash discount for payment within 7 days of invoice date

PLAIN MILLS
Green Park Farm
Kirkcaldy
INVOICE
Mordan Bakers Invoice No: 89898
225 West Drive
Date: 21 January 2017
Aberdeen
Unit Price Total
Quantity Description
$ $
260 5 kg strong white flour 2.75 715.00
180 5 kg strong brown flour 3.00 495.00
Subtotal 1210.00
Trade discount 0.00
Total 1210.00
Terms: 5% cash discount for payment within 14 days of invoice date

CP DART
The Dairy
Newmachar
INVOICE
Mordan Bakers Invoice No: 387
225 West Drive
Date: 27 January 2017
Aberdeen
Unit Price Total
Quantity Description
$ $
80 4 litres milk 1.00 80.00
40 Cream 2.50 100.00
Subtotal 180.00
Trade discount 0.00
Total 180.00
Terms: 10% cash discount for payment within 7 days of invoice date

- 27 -
KST EDUCATION LCCI LEVEL I | ASE20091

PLAIN MILLS
Green Park Farm
Kirkcaldy
INVOICE
Mordan Bakers Invoice No: 90768
225 West Drive
Date: 30 January 2017
Aberdeen
Unit Price Total
Quantity Description
$ $
140 5 kg strong white flour 2.75 385.00
80 5 kg plain brown flour 2.00 160.00
Subtotal 545.00
Trade discount 0.00
Total 545.00
Terms: 5% cash discount for payment within 14 days of invoice date
Invoices are checked to ensure all calculations are correct. If correct, the invoice is entered into the
purchases day book. Incorrect invoices are not recorded.
a) Complete the table to show any errors found in the invoices.
Invoice number Supplier Description of error

b) Prepare the purchases day book for the month of January 2017. Total the purchases day book on 31
January 2017.
During January 2017 the following additional transactions took place.
January 2017 Transaction
1 Paid Plain Mills the amount owed by cheque. No cash discount was available.
19 Returned the large bags purchased on 2 January from Anthony Jones.
27 Anthony Jones charged interest of 3% on the balance owed on 1 January 2017.
28 Paid CP Dart the total amount owed by cheque, taking the available cash discount.
c) Prepare Anthony Jones Account, CP Dart Account, Plain Mills Account, Trade Payables Ledger
Control Account and Purchases Account for the month of January 2017. Balance the accounts on 31
January 2017 and bring the balances down on 1 February 2017.

QUESTION - 4 (2016 NOVEMBER)

Ackles Garden Centre’s credit supplier balances on 1 July 2016 were:
Supplier $
Etna 1,820
Fiji 650
Krakatoa 2,133
During July 2016 it received the following invoices.

- 28 -
KST EDUCATION LCCI LEVEL I | ASE20091

ETNA
Appleby Farm
Kent
INVOICE
Ackles Garden Centre Invoice No: 005597
Mawgan
Date: 1 July 2016
Brighton
Unit Price Total
Quantity Description
$ $
20 Apple trees 15.00 300.00
10 Pear trees 18.00 180.00
Sub - Total 480.00
Less 5% Trade discount (24.00)
Total 456.00
Terms of trade: 30 days

Krakatoa
Mount Street
Seven Oaks
INVOICE
Ackles Garden Centre Invoice No: 32145
Mawgan
Date: 5 July 2016
Brighton
Unit Price Total
Quantity Description
$ $
4 8 piece garden sets 97.00 388.00

Total 388.00
Terms of trade: 30 days

Krakatoa
Mount Street
Seven Oaks
INVOICE
Ackles Garden Centre Invoice No: 33641
Mawgan
Date: 28 July 2016
Brighton
Unit Price Total
Quantity Description
$ $
10 5 piece garden sets 50.00 500.00

Total 500.00
Terms of trade: 30 days

- 29 -
KST EDUCATION LCCI LEVEL I | ASE20091

ETNA
Appleby Farm
Kent
INVOICE
Ackles Garden Centre Invoice No: 005687
Mawgan
Date: 31 July 2016
Brighton
Unit Price Total
Quantity Description
$ $
300 Raspberry plants 2.00 600.00

Sub - Total 600.00

Less 5% Trade discount (30.00)
Total 570.00
Terms of trade: 30 days
a) Prepare the purchases day book for the month of July 2016. Total the purchases day book on 31 July
2016.
During July 2016 the following additional transactions took place.
2016 Transaction
14 July Krakatoa was paid $1,950 in full settlement of its account balance on 1 July 2016.
28 July Fiji charged interest of 2% on the balance owed on 1 July 2016.
31 July Ackles Garden Centre returned to Krakatoa the goods purchased on 5 July 2016.
b) Prepare Etna Account, Fiji Account, Krakatoa Account, Trade Payables Ledger Control Account and
Discount received account, showing all transactions for the month of July 2016. Balance the
accounts on 31 July 2016 and bring the balances down on 1 August 2016.
c) Explain the reason why Fiji has charged interest to Ackles Garden Centre.

QUESTION - 5 (2016 APRIL)

In which book of original entry is a supplier’s credit note entered?
A. Cash book
B. Purchases day book
C. Returns outwards day book
D. Returns inwards day book

- 30 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 7
RECORDING SALES AND SALES RETURNS
BOOKS OF PRIME ENTRY
SALES DAY BOOK
The sales day book lists the invoices raised by a business when it supplies goods or services on
credit. The sales day book is used to keep a list of all the invoices and credit notes sent out to customers
each day. One alternative name for this list is the sales journal.
Date Invoice No Customers Name Rec Leg No $

SALES RETURNS DAY BOOK

The sales returns day book lists the credit notes raised when goods are returned. The sales returns
day book is 'books of prime entry': transactions are recorded in them before being recorded elsewhere.
The sales returns day book is a chronological listing of sales returns. It records the value of goods
returned to the business by buyers, dealt with by the issue of credit notes.
Date Cr Note No Customer Name Rec Leg No $

RECORDING IN LEDGER ACCOUNTS

CUSTOMERS' ACCOUNT IN RECEIVABLES LEDGER
The receivables ledger contains the personal accounts of credit customers of the business. An
account must be kept for each customer so that the business always has a full record of how much
each customer owes and what items the debt is made up of.A customer's account in the sales ledger will
normally show a debit balance: the customer owes money to the business and is therefore a receivable
of the business.
Payables ledger accounts are written up as follows.
 When entries are made in the sales day book (for customers' invoices is issued), they are also made
on the debit side of the relevant customer account in the sales ledger.
 Entries made in the sales returns day book (credit notes issued) are entered on the credit side of the
customers' ledger account.
 When entries are made in the cash book in respect of receipts from customers, they are also made
on the credit side of the relevant customer account.
 Discounts allowed for prompt payment (cash discounts) are entered on the credit side.
Customer Account
Date Particular Ref. $ Date Particular Ref. $
SDB - Invoice SRDB - Credit Note
CB - Cheque Received
Discount allowed

- 31 -
KST EDUCATION LCCI LEVEL I | ASE20091
POSTING DAY BOOKS TOTALS
To record sales day book totals in general ledger,
 Debit - Trade Receivables Ledger Control Account
 Credit - Sales Account
To record sales returns day book totals in general ledger,
 Debit - Sales Returns Account
 Credit - Trade Receivables Ledger Control Account

- 32 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (2016 DECEMBER)
Andreas Nikias is a wholesaler of office supplies and fire extinguishers. He offers customers:
 a trade discount of 10% on sales of fire extinguishers
 a cash discount of 5% on all invoices paid within 10 days.
On 1 September 2016 the following balances were extracted from the trade receivables ledger.
$
Anderson and Anderson 910
Park Garages 420
Roberts and Son 680
Shift Accountants 350
During September 2016 he issued the following invoices:
ANDREAS NIKIAS
Unit 7 New Industrial Estate
Birmingham
INVOICE
Roberts and Son Invoice No: 421
220 Axminster Road
Date: 24 Sept 2016
Birmingham
Unit Price Total
Quantity Description
$ $
10 80gsm printer paper 20.00 200.00

Total 200.00
Terms of trade: 5% cash discount for payment within 10 days of invoice date.

ANDREAS NIKIAS
Unit 7 New Industrial Estate
Birmingham
INVOICE
Park Garages Invoice No: 422
Kenning High Street
Date: 26 Sept 2016
Birmingham
Unit Price Total
Quantity Description
$ $
4 2kg CO2 fire extinguisher 35.00 140.00
2 6 litre foam spray fire extinguisher 30.00 60.00
Sub - Total 200.00
Trade discount 20.00
Total 180.00
Terms of trade: 5% cash discount for payment within 10 days of invoice date.

- 33 -
KST EDUCATION LCCI LEVEL I | ASE20091

ANDREAS NIKIAS
Unit 7 New Industrial Estate
Birmingham
INVOICE
Shift Accountants Invoice No: 423
120 Park View
Date: 27 Sept 2016
Birmingham
Unit Price Total
Quantity Description
$ $
5 80gsm printer paper 20.00 100.00
5 Black printer cartridge 18.00 90.00
1 Colour printer cartridge 29.00 29.00
Total 219.00
Terms of trade: 5% cash discount for payment within 10 days of invoice date.

ANDREAS NIKIAS
Unit 7 New Industrial Estate
Birmingham
INVOICE
Anderson and Anderson Invoice No: 424
The Loft – Old Park Lane
Date: 28 Sept 2016
Birmingham
Unit Price Total
Quantity Description
$ $
6 2kg CO2 fire extinguisher 35.00 210.00

Sub - Total 210.00

Trade discount 21.00
Total 189.00
Terms of trade: 5% cash discount for payment within 10 days of invoice date.
a) Prepare the sales day book for the month of September 2016. Total the sales book on 30 September
2016.
During the month of September 2016:
2016 Transaction
19 September All customers paid their balances owed at 1 September 2016 by cheque.
29 September The cheque received from Anderson and Anderson on 19 September was returned
by the bank as dishonoured.
29 September Roberts and Son paid invoice number 421 by cheque.
b) Prepare Anderson and Anderson Account, Park Garages Account, Roberts and Son Account and
Trade Receivables Ledger Control Account accounts for the month ended 30 September 2016.
Balance the accounts on that date and bring the balances down on 1 October 2016.
c) Prepare the statement of account for Shift Accountants.
d) Explain one reason why Andreas Nikias has prepared this document.

- 34 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 2 (2016 APRIL)
Tom Ciao sells a wide range of goods to local businesses. To maintain his sales, credit customers
receive a 10% trade discount. On 1 September 2015 customers had the following balances:
Stoney and Sons $120
Tyler $260
In the month of September 2015 Tom Ciao had the following transactions:
Date Transactions
3 September Sold goods on credit to Stoney and Sons with a list price of $200
5 September Sold goods on credit to Tyler with a list price of $140
18 September Tyler returned damaged goods with a list price of $50 from the credit
purchase on 5 September
22 September Cash received from Stoney and Sons for $200
25 September Cheque received from Tyler for $250
a) Complete the following table, stating the document used in each transaction.
Date Document Type
3 September
18 September
22 September
b) Prepare the sales day book for September 2015. Total the book at the end of the month.
c) Prepare the ledger accounts for Stoney and Sons, and Tyler. Balance each account and bring the
balance down for 1 October 2015.

QUESTION - 3 (2017 JULY)

Jennifer Eccles provided the following information for the month of January 2017.

Receivables ledger balances at 1 January 2017

Cooks Company $1 450
Bakers’ Dozen $870
Pastry Case $960
Greenwoods Pies $630

Sales Day Book

Date Customer $
January
2 Cooks Company 2 102
4 Bakers’ Dozen 934
16 Pastry Case 8 176
26 Greenwoods Pies 700
31 Total for the month 11 912

Sales Returns Day Book

Date Customer $
January
14 Bakers’ Dozen 467
26 Pastry Case 1 168
31 Total for the month 1 635

- 35 -
KST EDUCATION LCCI LEVEL I | ASE20091
Extract From Cash Book
Date Payments received $
January
31 Cooks Company 1 450
31 Greenwoods Pies 580
a) Prepare the Cooks Company Account, Bakers’ Dozen Account and Pastry Case Account for the
month of 31 January 2017. Balance the accounts and bring the balance down on 1 February 2017.
b) Prepare a statement of account to be sent to Cooks Company for the month of January 2017.

- 36 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 8
RECORDING PAYMENTS AND RECEIPTS
What is a cash book?
The cash book is the cash account of the business and is where bank account receipts and
payments are recorded.The cash book is a book of prime entry, used to keep a cumulative record of
money received and money paid out by the business via its bank account.
Because there are so many transactions (Cash / Bank Transaction) in businesses, the Cash Account
and Bank Account are not kept in a simple ledger book, but are written in a separate book. It is called
Cash Book. The person who handles the cash book is called the cashier.
Cash Book is a book of prime entry. All incomes and outgoings will be registered. To know why the
money comes in, you have to register with the accounts in the general ledger. Therefore, Cash Book is
not only book of prime entry but also a part of Double Entry.

TWO COLUMNS CASH BOOK

A cash book has two sections: cash receipts and cash payments. The cash receipts section records
all cash inflows, including sales, collections, and interest. The cash payments section records all cash
outflows, such as purchases, payments to suppliers, and expenses. Each entry specifies the date,
source/recipient, and amount. This is also called "two columns cash book".
Two Columns Cash Book
Cash Bank Cash Bank
Date Particular Fol Date Particular Fol
$ $ $ $

Balance c/d xxx xxx

xxxx xxxx xxxx xxxx
Balance b/d xxx xxx

CONTRA ITEMS IN CASH BOOK

Contra items in a cash book are transactions involving both cash receipts and cash payments. They
represent internal transfers or adjustments within the organization and don't affect the overall cash
position. They are recorded in both sections of the cash book to maintain accurate bookkeeping.
1. Cash banked.
 Debit - Bank Account
 Credit - Cash Account
2. Cash withdraw from the bank for business uses (For cash).
 Debit - Cash Account
 Credit - Bank Account

- 37 -
KST EDUCATION LCCI LEVEL I | ASE20091
THREE COLUMNS CASH BOOK
When the business received or allowed cash discount, discount allowed and discount received
columns is drawn in cash book. This is called three columns cash book.
Three Columns Cash Book
D.A Cash Bank D.R Cash Bank
Date Particular Fol Date Particular Fol
$ $ $ $ $ $

Balance c/d xxx xxx

xxxx xxxx xxxx xxxx xxxx xxxx
Balance b/d xxx xxx

1. Discount allowed: This is cash discount allowed by the business to its customers (receivables) when
they pay their accounts quickly.
 Transactions made,
 Cash Book - Discount allowed
 Customer Account in Receivables Ledger
 Cash Book's Discounts Total,
 Discount allowed Account
 Trade Receivables Ledger Control Account
2. Discount received: This is cash discount received by the business from its supplies (payables) when
it pays what it owed quickly.
 Transactions made,
 Supplier Account in Payable Ledger
 Cash Book - Discount Received
 Cash Book's Discounts Total,
 Trade Payables Ledger Control Account
 Discount Received Account

- 38 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (PEARSON 34)
Enter the following in the three-column cash book of an office supply shop. Balance-off the cash book
at the end of the month and show the discount accounts in the general ledger.
20X1 June,
1 Balances brought forward: Cash $420; Bank $4,940.
2 The following paid us by cheque, in each case deducting a 5 per cent cash discount: S. Braga
$820; L. Pine $320; G. Hodd $440; M. Rae $1,040.
3 Cash sales paid direct into the bank $740.
5 Paid rent by cash $340.
6 We paid the following accounts by cheque, in each case deducting 21/2 per cent cash discount: M.
Peters $360; G. Graham $960; F. Bell $400.
8 Withdrew cash from the bank for business use $400.
10 Cash sales $1,260.
12 B. Age paid us their account of $280 by cheque less $4 cash discount.
14 Paid wages by cash $540.
16 We paid the following accounts by cheque: R. Todd $310 less cash discount $15; F. Dury $412 less
cash discount $12.
20 Bought fixtures by cheque $4,320.
24 Bought lorry paying by cheque $14,300.
29 Received $324 cheque from A. Line.
30 Cash sales $980.
30 Bought stationery paying by cash $56.

QUESTION - 2 (2016 JUNE)

On 1 March 2016 the balances in the three column cash book were:
 Cash in hand $125
 Cash at bank $831
During the month of March 2016 the following transactions took place
Date Transactions
3 March Goods sold for $320 cash.
7 March Received a cheque from Adrian Moore, a trade receivable, in settlement of his account of
$250 less 2% cash discount.
10 March Received a cheque from Abram Basset, a trade receivable, in full settlement of his
account of $80.
12 March Withdrew $300 from the bank to purchase goods for resale.
15 March Paid Christine Bates, a trade payable, $456, by cheque after deducting 4% cash discount.
21 March Purchased stationery, $28, paying by cash.
25 March Goods sold for cash, $1 210, paid directly into the bank.
27 March The cheque received from Adrian Moore on 7 March 2016 was returned by the bank as
‘dishonoured’.
28 March Transferred $350 from the cash account into the bank account.
31 March Paid wages and salaries, $425, by cheque.
Required:
Prepare the cash book on the next page for the month of March 2016. Balance the cash book on 31 March
2016 and bring the balances down to 1 April 2016.

- 39 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 3 (2017 JULY)
On 1 January 2017 the cash book of James Brown showed the following balances:
 Cash in hand $1600
 Cash at bank $2560
During the month of January 2017 the following transactions took place.
Date Transaction
January
2 Commission received by cheque $2 100
3 Paid L Morgan’s account of $2 500, after taking a 5% settlement discount, by cheque.
4 Received a cheque for $679 from S Patel.
6 James took $200 cash for personal use.
7 Purchased stationery for $210, paying by cash.
9 Paid Tony Green $890 by cheque.
11 James took $300 from the bank for business use.
15 Received a cheque for $650 from R Chow in full settlement of his account of $695
16 Paid electricity bill of $300 by direct debit.
20 Received a cash payment of $450 from K Peters.
25 James transferred $400 cash into the bank.
Required:
Prepare the cash book for the month of January 2017. Balance the cash book on 31 January 2017 and
bring the balances down on 1 February 2017.

- 40 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 9
BANK RECONCILIATION STATEMENT
BANK TRANSACTIONS
TYPES OF RECEIPTS AND PAYMENTS
 CASH; Transactions may also be paid for by notes and coins. A $10 or $50 note legally belongs to the
person who holds it and that person may spend it as they wish. The fact that cash is portable and
belongs to the person holding it is also a disadvantage. It can be lost, destroyed or stolen. In
quantity, it is also quite bulky. In terms of security and convenience, bank payments are preferred
in business.
 CHEQUES; Cheques are used for a large number of receipts and payments. If you have your own
bank account, you are probably familiar with cheques from your personal experience. A cheque is
crossed by drawing (or printing) two parallel vertical lines across it. When a cheque is crossed, the
payment has to be made into a bank account. it cannot be paid out in cash. This is a useful security
procedure as it prevents cash payments being made to unauthorised persons should the cheque be
lost or stolen.
 CREDIT CARD; Credit cards are available in most countries and many are part of the VISA and
MasterCard networks. Credit cards may be used to purchase goods or services on credit. The
customer receives a monthly statement detailing the purchases made and the amount due. If the
full amount due is paid off within a specified time scale then there is no interest charge. However,
if there is an outstanding amount left on the card, then interest will be charged by the credit card
provider on this. There is sometimes also a yearly fee charged for the use of the credit card.
 DEBIT CARD; A debit card is a method of making a payment straight from an individual's bank
account but without writing a cheque. If goods are purchased using a debit card (which looks
similar to a credit card) then the card is processed in the same way as a credit card with a voucher
being signed by the purchaser. The difference is that the purchaser's bank account is debited
immediately with the amount of the purchase.
 MOBILE PAYMENT; Payment can now be made using mobile phones and other devices. These use wifi
networks. One example is Apple Pay which lets users make payments via their iPhone, iPad, Apple
Watch or Mac. The card details are entered into the device which can then be used to pay at any
outlet where contactless payments are accepted. Apple has taken every precaution to make this
secure. The payer must enter their passcode to authorise the transaction and the retailer never
sees the card details.

BANKING SERVICES
Banks provide various services to their customers, including:
 STANDING ORDER; The most common form of payment out of a current account is a payment by
cheque. However it is also possible to instruct a bank to make regular payments for a fixed amount
to a third party by means of a standing order. A standing order is an instruction to the bank by the
payer to pay a certain amount on a regular basis (usually monthly) to a third party. This removes
the need for anyone within the business to remember to make the payment and to write a cheque.
The types of regular payments that are made by standing order are items such as insurance
premiums or regular donations to charity. The standing order can only be amended or cancelled by
the authorised signatory of the bank account which originates the payment.
 DIRECT DEBIT; A bank can also pay a third party on behalf of a customer by a direct debit. This is
very similar to a standing order, the main difference being that it is the receiving business that
initiates the direct debit and specifies the amount. Also, the amount and frequency of payment can
vary with a direct debit. The types of payments that a business might make using a direct debit
include payments of regular bills such as telephone and heating.
 CREDIT TRANSFER; A credit transfer is a further method of instructing a bank to make a payment to

- 41 -
KST EDUCATION LCCI LEVEL I | ASE20091
a third party. This is usually done by the customer filling out a credit transfer form in favour of the
third party. This form is typically attached to the bottom of a bill received by the customer and,
when completed, is then handed into the bank and the funds are transferred from the payer's bank
account to the payee's bank account. This method of payment is suitable for one off payments or
irregular payments to suppliers. Credit transfer forms (Bank Giro Credit) are often found attached
to bills such as gas, electricity and telephone.
 RETURNED/DISHONOURED CHEQUES; After a cheque has been received and banked, the bank may find
it necessary to return the cheque to you and to remove its amount from your bank account. This is
because the cheque has been dishonoured for payment. The two main reasons the bank may give
for dishonouring the payment are insufficient funds and stolen cheques.
 INSUFFICIENT FUNDS; There may not be enough money in the customer's account to cover the
cheque. Normally the banks will honour a cheque in the following circumstances.
1. The cheque is for an amount lower than the cheque guarantee card limit.
2. There is evidence that a check was made between the cheque and the guarantee card (card
number written on the back of the cheque).
When a cheque is dishonoured in this way, the cheque will be returned to you marked 'refer to
drawer' and it is up to you to find your customer (the drawer) and obtain the money from them
in some other way.
 STOLEN CHEQUES AND CHEQUE GUARANTEE CARDS; If a cheque is accepted where the cheque is
stolen and the signature of the drawer is forged, then the cheque is invalid and worthless. Even
if a cheque is accepted with a cheque guarantee card and all details appear to agree, a stolen
and forged cheque is still worthless and it will be returned with 'cheque book and cheque
guarantee card reported stolen, signatures differ', or something of a similar nature, marked on
it.
 WRONGLY COMPLETED OR OUT OF DATE CHEQUES; The bank will also return a cheque if it has been
wrongly completed. The most common example of this is where the amount shown in words and
figures do not match. If the cheque has been dated for some date in the future, for instance next
month, the bank will return it. Also, if a cheque is more than six months old the bank will not
present it for payment. So bank your receipts promptly! In all of these situations, you will return
the cheque to the drawer and request a replacement.
 BANK CHARGES; Individual customers of banks do not usually pay any bank charges provided they
keep their account ‘in credit’. For a business bank account, however, a bank charges for its services.
Bank charges are deducted from the money in the account, and notified to the business on the next
bank statement. Until it receives a bank statement, the business does not know how much the bank
charges are and so cannot record them in the cash book.

BANK RECONCILIATION
A bank reconciliation compares the balance of cash in the business's records to the balance held by
the bank. Differences between the balance on the bank statement and the balance in the cash book will
be errors or timing differences, and they must be identified and satisfactorily explained.

BANK STATEMENT
A bank statement is sent by a bank to its short-term receivables and payables (customers with bank
overdrafts and customers with money in their accounts) itemising the balance on the account at the
beginning of the period, receipts into the account and payments from the account during the period,
and the balance at the end of the period. These statements may be produced monthly, weekly or even
daily depending on the volume of transactions going through the account.

- 42 -
KST EDUCATION LCCI LEVEL I | ASE20091
PREPARATION OF BANK RECONCILIATION STATEMENT
There are two types of Bank Reconciliation.
1. Finding Bank Statement Balance based on Cash Book Balance.
Bank Reconciliation Statement
Add Less Amt
$ $ $
Balance as per Cash Book xxxx

xxx (xxx) xxx

Balance as per Bank Statement xxxx

2. Finding Cash Book Balance based on Bank Statement Balance.

Bank Reconciliation Statement
Add Less Amt
$ $ $
Balance as per Bank Statement xxxx

xxx (xxx) xxx

Balance as per Cash Book xxxx

- 43 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (PEARSON 35)
The bank columns in the cash book for June 20X2 and the bank statement for that month for D. Hogan
are as follows:
Cash Book (Bank Column Only)
Date Particular $ Date Particular $
20X2 20X2
1 Jun Balance b/d 1,410 5 Jun L. Holmes 180
7 Jun J. May 62 12 Jun J. Rebus 519
16 Jun T. Wilson 75 16 Jun T. Silver 41
28 Jun F. Slack 224 29 Jun Blister Disco 22
30 Jun G. Baker 582 30 Jun Balance c/d 1,591
2,353 2,353
20X2
1 Jul Balance b/d 1,591
Bank Statement
Debit Credit Balance
Date Details
$ $ $
20X2
1 Jun Balance b/f 1,410
7 Jun Cheque 62 1,472
8 Jun F. Lane 180 1,292
16 Jun Cheque 75 1,367
17 Jun J. Rebus 519 848
18 Jun T. Silver 41 807
28 Jun Cheque 224 1,031
29 Jun SLM Standing Order 52 979
30 Jun Flynn: Trader's Credit 64 1,043
30 Jun Bank Charges 43 1,000
You are required to:
a) Write the cash book up to date to take the above into account, and then
b) Draw up a bank reconciliation statement as on 30 June 20X2.

QUESTION - 2 (PEARSON 36)

The bank statement for R. Hood for the month of March 20X2 is:
Debit Credit Balance
Date Details
$ $ $
20X2
1 Mar Balance b/f 4,200 O/D
8 Mar T. Macleod 184 4,384 O/D
16 Mar Cheque 292 4,092 O/D
20 Mar W. Milne 160 4,252 O/D
21 Mar Cheque 369 3,883 O/D
31 Mar G. Frank: Trade's Credit 88 3,795 O/D
31 Mar TYF: Standing Order 32 3,827 O/D
31 Mar Bank Charges 19 3,846 O/D
The cash book for March 20X2 is:

- 44 -
KST EDUCATION LCCI LEVEL I | ASE20091
Date Particular $ Date Particular $
20X2 20X2
16 Mar G. Philip 292 1 Mar Balance b/d 4,200
21 Mar J. Forker 369 6 Mar T. Macleod 184
31 Mar S. O'Hare 192 30 Mar W. Milne 160
31 Mar Balance c/d 4,195 30 Mar S. Porter 504
5,048 5,048
20X2
1 Apr Balance b/d 4,195
You are required to:
a) Write the cash book up to date, and
b) Draw up a bank reconciliation statement as on 31 March 20X2.

QUESTION - 3 (PEARSON 37)

The following is the cash book (bank columns) of F. King for December 20X3:
Date Particular $ Date Particular $
20X3 20X3
6 Dec P. Pan 230 1 Dec Balance b/d 1,900
20 Dec C. Hook 265 10 Dec J. Lamb 304
31 Dec W. Britten 325 19 Dec P. Wilson 261
31 Dec Balance c/d 1,682 29 Dec K. Coull 37
2,502 2,502
20X4
1 Jan Balance b/d 1,682
The bank statement for the month is:
Debit Credit Balance
Date Details
$ $ $
20X3
1 Dec Balance b/f 1,900 O/D
6 Dec Cheque 230 1,670 O/D
13 Dec J. Lamb 304 1,974 O/D
20 Dec Cheque 265 1,709 O/D
22 Dec P. Wilson 261 1,970 O/D
30 Dec Tox: Standing Order 94 2,064 O/D
31 Dec F. Ray: Trader's Credit 102 1,962 O/D
31 Dec Bank Charges 72 2,034 O/D
You are required to:
a) Write the cash book up to date to take the necessary items into account, and
b) Draw up a bank reconciliation statement as on 31 December 20X3.

- 45 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 4 (2016 NOVEMBER)
On 1 September 2016 Gordon Walker received the following bank statement.
National Bank of Switzerland
BANK STATEMENT
Gordon Walker Date: 31 August 2016
5 Monmouth Road
Account No: 538254
Cardiff
Payments Receipts Balance
Date Reference
$ $ $
Aug 2016
1 Balance 1,830 Dr
3 Standing order - Insure Insurance 386 2,216 Dr
4 Credit transfer - P Bray 8,520 6,304 Cr
16 Direct debit - Power Supplies 100 6,204 Cr
20 Cash 200 6,404 Cr
25 Counter credit 1,648 8,052 Cr
26 Cheque 826 628 7,424 Cr
31 Returned cheque - M Sleep 1,648 5,776 Cr
Amount due: 5,776 Cr
a) Explain the circumstances that may have caused the entry on 31 August 2016.
b) State two differences between a standing order and a direct debit.
Gordon Walker has prepared the following incorrect cash book for the month of August 2016.
Cash Book (Bank Only)
Date Particular $ Date Particular $
2016 2016
4 Aug P Bray 8,520 25 Aug M Sleep 1,648
20 Aug Cash 200
24 Aug R Kroz Cheque 827 82
26 Aug C Belshaw Cheque 826 628
30 Aug E Roberts 969
c) Prepare the corrected and updated cash book for the month of August 2016. Balance the cash book
on 31 August 2016 and bring the balance down to 1 September 2016.
d) Prepare a bank reconciliation statement at 31 August 2016.

QUESTION - 5 (2017 SEPTEMBER)

On 30 June 2017 James Yap’s cash book showed a debit balance of $8380 while his bank statement
showed a credit balance of $7455. He identified that the following items were in the cash book but not
on the bank statement.
$
Cash takings deposited in the bank 3 625
Cheques issued to trade payables
Arthur 2 050
Bertram 650
Prepare the bank reconciliation statement at 30 June 2017.

- 46 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 6 (2017 APRIL)
On 8 March 2017 Brian received his bank statement, which showed a credit balance of $8730 on 28
February 2017. On checking the statement to his cash book he found:
Item
A A credit transfer of $3 400 on 23 February 2017 from a customer had not yet been recorded.
B On 25 February 2017 the bank had charged him $68 in bank charges.
C A direct debit of $820 on 27 February 2017 had not yet been recorded.
D A banking of $375 recorded in the cash book on 28 February 2017 did not show on the bank
statement until 4 March 2017.
E The following cheques had not been presented to the bank:
Cheque number Amount $
165 36
168 179
a) State which three items Brian must enter into his cash book.
b) Prepare Brian’s bank reconciliation statement at 28 February 2017.
c) Explain to Brian why, when the bank statement shows a credit balance, his cash book shows a debit
balance.
d) Complete the table with the correct terms from the following list:
Credit transfer, Direct debit, Drawer, Standing order, Payee and Drawee.
Term Definition
A bank payment that is a fixed amount.
The person to whom a cheque is paid.
The person to whose account a cheque payment is from.

QUESTION - 7 (2016 JULY)

On 1 April 2016 Mustafa Can’s cash book showed a debit balance of $3 290 while his bank statement
showed a credit balance of $2 000. A review of the documents revealed that the following items
appeared in the bank statement but not in the cash book.
$
Bank charges 39
Bank interest received 21
Credit transfers from trade receivables
Sevket 329
Hamidi 124
Direct debit – Crystal Power 125
Standing order – Style Properties 250
Trade receivable cheque returned unpaid
Dimitri 320
a) Explain the circumstances in which a bank would return a cheque unpaid.
b) Update the cash book on 1 April 2016. Balance the account on that date.
A further review revealed that the following items were in the cash book but not on the bank statement.
$
Cash takings deposited in bank 1,887
Cheques issued to trade payables
Hasan 321
Kann 536
c) Prepare the bank reconciliation statement at 1 April 2016.
d) Explain one reason why a bank reconciliation statement is produced by a business. (17 March)

- 47 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 8 (2017 JANUARY)
On 30 November 2016, Busra Shah received the following bank statement for the month of November
2016.
a) Complete the bank balance column for the period 5 November 2016 to 30 November 2016.
World Bank
PO Box 123 – Geneva
BANK STATEMENT
Busra Shah Date: 30 Nov 2016
Account No: 5412988
Date Reference Receipts Payments Balance
2016 $ $ $
1 Nov Balance b/f 1 268 Cr
5 Nov Direct debit – Power Co. 350
9 Nov Counter credit 1 960
15 Nov Bank charges 56
21 Nov Dishonoured cheque 231
28 Nov Counter deposit 4 560
30 Nov Credit transfer 243
b) Explain two reasons why a business should carry out a bank reconciliation.
On 30 November 2016, the cash book of Busra Shah showed a debit balance of $2 912 on her bank
account. A comparison of her cash book with her bank statement identified the following reasons for
the differences.
 The direct debit payment to Power Co. on 5 November for electricity was not in the cash book.
 Bank charges on 15 November had not been entered in the cash book.
 The deposit of cash and cheques paid into the bank on 28 November had been omitted from the cash
book.
 The credit transfer on 30 November had not yet been entered into the cash book.
c) Update the cash book at 30 November. Balance the account on that date and bring the balance down
to 1 December 2016.
d) State one reason why, after the completion of a bank reconciliation statement, the cash book
balance may be different from the bank statement balance.

QUESTION - 9 (2016 DECEMBER)

Hassan Ahmed maintains a three column cash book. During the month of September 2016 the following
transactions took place.
2016 Transactions
1 Sep Balance brought down of cash and bank is 50 and 2,410.
1 Sep Paid Smith by cheque (number 041) $258
2 Sep Cash sales $790
3 Sep A cheque for $90 from Jones was banked in full settlement of his $100 account balance.
6 Sep Paid Patel by cheque (number 042) $140
8 Sep Paid postage, $18, by cash
24 Sep Banked cash $620
26 Sep Paid Parsons by cheque (number 043) $133
30 Sep Banked $3 720 cheque from Andreou
30 Sep Paid wages by cheque (number 044) $2,200
On 1 October 2016 Hassan Ahmed received the bank statement below.

- 48 -
KST EDUCATION LCCI LEVEL I | ASE20091
London National Bank
BANK STATEMENT
Hassan Ahmed Date: 30 Sep 2016
Account No: 1041612
Receipts Payments Balance
Date Reference
$ $ $
Sep 2016
1 Balance 2,410 Cr
2 DD Electricity 250 2,160 Cr
3 Banking 90 2,250 Cr
8 Cheque 041 258 1,992 Cr
12 Bank charges 44 1,948 Cr
12 Cheque 042 140 1,808 Cr
24 Banking cash 620 2,428 Cr
30 Interest received 10 2,438 Cr
Amount due: 2,438 Cr
a) Prepare the cash book for the month of September 2016. Balance the cash book on 30 September
2016 and bring the balances down to 1 October 2016.
b) Prepare Hassan Ahmed’s bank reconciliation statement at 30 September 2016.
c) Explain two reasons why a business reconciles the cash book to the bank statement. (in 17 Nov)

QUESTION - 10 (2017 DECEMBER)

Ewen Evans maintains a three column cash book. On 1 August 2017, the balance of cash in hand was
$820 and cash at bank was $5,178. During the month of August, the following transactions took place.
August Transaction
2017
4 Received a cheque for $2 400 from Hodgson in full settlement of his
account balance of $2 550
10 Paid Boston, by cheque (number 0385) $762
11 Ewen transferred $500 cash into the bank.
19 Paid the cleaner $16 by cash.
30 Received a cheque for $4 800 from Dan.
31 Paid Karen, an employee, her salary, by cheque (number 0386) $3 500
On 1 September 2017, Ewen Evans received a bank statement.
WBB Bank
BANK STATEMENT
Ewen Evans Date: 31 August 2017
The Lodge
Account No: 12345678
Swansea
Date Details Receipts Payments Balance
August $ $ $
1 Balance 6 503 Cr
3 Cheque 0384 1 325 5 178 Cr
4 Deposits 2 400 7 578 Cr
11 Deposits 500 8 078 Cr
16 Cheque 0385 762 7 316 Cr
23 SO Telephone 110 7 206 Cr
30 Credit transfer: James 400 7 606 Cr

- 49 -
KST EDUCATION LCCI LEVEL I | ASE20091
a) Prepare the cash book for the month of August 2017. Balance the cash book on 31 August 2017 and
bring the balance down on 1 September 2017.
b) Prepare the bank reconciliation statement at 31 August 2017.
c) Explain two reasons why a business may prepare a bank reconciliation statement.
d) State one difference between a standing order and a direct debit.

QUESTION - 11 (2016 JUNE)

At the end of each month Shylock, owner reconciles the bank columns of the cash book with the bank
statement.
a) State two items that may appear in the cash book but not on the bank statement.
b) State two items that may appear on the bank statement but not in the cash book.

- 50 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 10
PETTY CASH BOOK
DOCUMENTATION
HOW PETTY CASH WORK?
The way the petty cash system of an organisation works is usually as follows:
1. An employee personally pays for a business expense, such as coffee for the office or a taxi fare to a
meeting, and obtains a receipt for the payment.
2. The employee then reclaims the expense from the organisation through the petty cash system, by
signing a petty cash voucher and handing over the receipt for the money spent.
3. The expense must be recorded as a business expense in the ledger accounts of the organisation.
This process is explained later.

PETTY CASH VOUCHER

To ensure that the petty cash system is not abused and that payments are made only for valid
business expenses, there must be some system of authorisation for petty cash claims.The initial record
of any petty cash claim is a petty cash voucher. Blank petty cash vouchers are obtainable from
stationery suppliers in pads, and each voucher is torn off the pad when it is used.
Petty Cash Voucher
Date:
Voucher number:
Details:

Amount: $
Signature:

- 51 -
KST EDUCATION LCCI LEVEL I | ASE20091
BOOK OF PRIME ENTRY
THE IMPREST SYSTEM
The imprest system is a system in which there is a maximum amount of money in petty cash, the
imprest amount. The imprest amount varies from one organisation to another, and might be enough to
make petty cash payments for about one month.

PETTY CASH BOOK

Petty cash is used to make small payments with notes and coins. The cash must be kept safe, in a
locked box or tin, and its security is the responsibility of a petty cashier. Payments must be properly
authorised, and all transactions should be supported by receipts and vouchers.At regular intervals,
details of payments out of petty cash are recorded from the vouchers into the petty cash book.
Vouchers should be in date order and numbered sequentially and they should be entered into the petty
cash book in this order.
Petty Cash Book
Receipt Vr Total Analysis Analysis Analysis Analysis
Date Fol Particular
$ No $ $ $ $ $
xxx Balance b/d

Total xxx xx xx xx xx
Balance c/d xx
xxx xxx
xx Balance b/d
xx Restore by M.C

- 52 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (2016 JUNE)
Shylock, a sole trader, maintains a three column cash book and petty cash book. During the week
ending 31 March 2016 Shylock made the following petty cash transactions.
Date Transactions
26 March Five stationery items costing $10 in total
28 March Postage stamps costing $16
30 March Refreshments costing $12
Complete the petty cash vouchers for each transaction. The last petty cash voucher no. used was 105.

QUESTION - 2 (2017 JUNE)

Bruce maintains both a cash book and a petty cash book.
a) Explain one reason why Bruce maintains these two books.
b) Explain how the imprest system of petty cash is operated.
Bruce provided the following information for the first week of January 2017.
January 2017 Details
1 Balance of petty cash $100.00
2 Bought postage stamps $15.60
3 Bought cleaning supplies $9.50
5 Sold postage stamps $2.50
6 Purchased photocopier paper $20.80
7 Paid window cleaner $15.00
c) Prepare a petty cash voucher for each item of expenditure. Petty cash vouchers are to be numbered
sequentially starting at 847.
d) Prepare the petty cash book for the first week of January 2017. Balance the petty cash book on 7
January 2017 and bring the balance down on 8 January 2017.
e) Prepare the Postage and Stationery Account and Cleaning Account to show the totals transferred
from the petty cash book.
Bruce has decided to increase the amount of his float to $250.
f) Calculate the amount Bruce needs to transfer from the cash book on 8 January 2017.

QUESTION - 3 (PEARSON 35)

Singh’s Estate Agents operates their petty cash system on a fortnightly basis using the imprest system
with a float of $100. On 15 October 20X3 there was an opening balance of $23.40 in the petty cash box.
The following transactions took place during the period commencing 15 October 2013.
20X3 Oct,
$
15 Received amount from cashier to restore the imprest
16 Envelopes and files 11.66
17 Tea, coffee and milk 7.40
18 Special delivery postage charges 8.60
21 Office cleaner 20.00
21 Cleaning materials 4.20
23 Received $3.50 from M Lloyd for sale of stationery (receipt no. 78)
23 Postage stamps 7.00
25 Travel expenses 16.42
28 Flowers for reception 4.99
28 Photocopying paper 9.40
31 Received cash to restore imprest
Required:

- 53 -
KST EDUCATION LCCI LEVEL I | ASE20091
a) Enter the balance brought down and the cash received to restore the imprest on 15 October 20X3 in
the petty cash book.
b) Enter the above transactions into the petty cash book using the following analysis columns:
postage, cleaning, travel expenses, stationery and sundry expenses. The next petty cash voucher
number is 80.
c) Total and balance the petty cash book on 31 October and bring down the balance on 1 November.
Show the amount of cash received from the cashier to restore the imprest to $100.

QUESTION - 4 (2016 JULY)

a) Explain the operation of the imprest system of petty cash.
b) State two reasons why a business would introduce a petty cash book.
On 15 June 2016 Anh Tung’s petty cash box contained cash of $65. During the week commencing 15 June
2016 the following petty cash transactions took place.
2016 Voucher
Transactions
June Number
15 Received $35 from chief cashier
16 601 Paid travel expenses to office manager, $10
18 602 Paid a creditor, E Bishop, $27
19 603 Purchased coffee, tea and sugar, $12.50
20 604 Purchased coffee, tea and sugar, $12.50
21 605 Paid a creditor, N Cole, $12
21 606 Purchased postage stamps, $6.50
c) Prepare the petty cash book for the period 15 June 2016 to 21 June 2016. Balance the petty cash book
on 21 June 2016 and bring the balance down on 22 June 2016.
d) Prepare the following accounts to show the transfers from the petty cash book on 22 June 2016.
1) Postage Account, Anh Tung general ledger.
2) E Bishop Account, Anh Tung payables ledger.

QUESTION - 5 (2017 MARCH)

On 1 February 2017 the balance in Mr Bango’s petty cash book was $89.60 The imprest amount is $250.
The following petty cash transactions took place in February 2017.
Feb 2017 Vr No. Description
2 Cash withdrawn from bank to restore the imprest amount.
5 460 Purchased a train ticket for an employee $28.00
12 461 Purchased postage stamps $16.50
18 462 Purchased a box of pens $6.90
21 463 Posted a parcel $9.40
26 464 Purchased printer paper $29.00
a) Prepare the petty cash book for the month ending 28 February 2017. Balance the petty cash book on
28 February 2017 and bring the balance down on 1 March 2017.
At 31 January 2017, total expenditure was:
$
Postage 308.70
Stationery 319.20
Travel 183.30
b) Prepare the Postage Account, Stationery Account and Travel Account for the month of February
2017. Balance the accounts on 28 February 2017 and bring the balances down on 1 March 2017.

- 54 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 6 (16 APRIL)
A business operates a petty cash system. During the first week of January 2016 the following
transactions took place:
Date Vr. No. Transactions
1 January Balance brought down is $450.00
5 January 910 Purchased postage stamps $6.50
5 January 911 Paid travel expenses to Office Manager for attending a meeting $17.00
5 January 912 Paid a creditor S Baines $27.00
6 January 913 Paid the delivery driver’s travel expenses $8.00
6 January 914 Purchased coffee, tea and sugar for the main office $9.50
7 January 915 Paid a creditor K Mason $16.00
7 January Received $84.00 from chief cashier
a) Describe the imprest system for petty cash.
b) Prepare the petty cash book for the period 1 January to 8 January 2016. Balance the petty cash book
on 7 January 2016 and bring down the balance for 8 January 2016. Use the following analysis
columns: Postage, Ledger account, Travel and Beverages.

QUESTION - 7 (2017 NOVEMBER)

Bernard, a sole trader, maintains both a cash book and a petty cash book.
a) State two reasons why Bernard maintains both a cash book and a petty cash book.
b) State two other books of original entry Bernard may maintain.On 1 June 2017, Bernard had $64.50
in petty cash. The petty cash vouchers totalled $135.50. The main cashier restored the petty cash
float. The following petty cash payments were made during the period ending 14 June 2017.
June 2017 Voucher number Details
3 71 Train ticket $35.00
5 72 Cleaning materials $12.40
6 73 Postage stamps $15.80
9 74 Stationery $8.00
11 75 Repairs $45.50
12 76 Taxifare $18.50
c) Prepare the petty cash book for the period 1 June 2017 to 14 June 2017. Balance the petty cash book
on 14 June 2017 and bring the balance down on 15 June 2017.

QUESTION - 8 (2016 SEPTEMBER)

Monica Matthews maintains a petty cash book. The imprest amount is $200. The balance available on 23
April 2016 was $146.40. The following petty cash transactions took place in the last week of April 2016.
April 2016 Vr. No. Transactions
25 121 Bought postage stamps $9.60
25 122 Bought goods for resale $6.40
26 123 Purchased envelopes $4.80
27 124 Paid K Miller, a trade payable, $25.00
28 125 Paid window cleaner $10.00
29 126 Paid to Stittle for goods for resale $ 15.70
29 127 Bought cleaning supplies $15.00
a) Prepare the petty cash book for the week ended 30 April 2016. Balance the petty cash book on 30
April 2016 and bring the balance down on 1 May 2016.
b) Complete the cheque to restore the petty cash imprest on 1 May 2016.

- 55 -
KST EDUCATION LCCI LEVEL I | ASE20091
SOUTH BANK 10-00-03

High Street,
Sheffield S1 4LP Date:________________

Pay _____________________________________________________
________________________________________________________ $
________________________________________________________ _____________________
M Matthews
Cheque Number Short Code Account Number
0001451 XX-XX-XX 123 456 78
Monica is concerned that some of her petty cash may be missing.
c) Explain how Monica can check that the balance of petty cash is correct.
d) Explain two actions that Monica could implement to maintain the security of the petty cash.

QUESTION - 9 (2017 SEPTEMBER)

Heather Faversham runs a small manufacturing business and Heather operates an imprest system for
petty cash with a float of $150.
a) Explain how an imprest system is operated.
During the first week of June 2017, the following payments were made from petty cash.
2 June Coffee $10.50
4 June Taxifare $15.00
6 June Stationery $12.50
b) Prepare a petty cash voucher for each transaction. The last petty cash voucher no. used was 125.
c) Explain two reasons why Heather maintains a petty cash book and a cash book.

QUESTION - 10 (2017 APRIL)

On 24 March 2017 Brian had a balance in his petty cash book of $117.30. His imprest amount is $150.
During the last week of March 2017 Brian spent a further $71.80 from petty cash.
a) Calculate the amount Brian should transfer from the cash book on 31 March 2017 to restore the
imprest.
b) Prepare the petty cash control account for the month of March 2017. Balance the account on 31
March 2017 and bring the balance down on 1 April 2017.

- 56 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 11
THE JOURNAL
JOURNAL OR GENERAL JOURNAL
The journal keeps a record of unusual movement between accounts. It is used to record any double
entries made which do not arise from the other books of prime entry.
Journal Entry
Debit Credit
Date Particular ref
$ $
x/x/xx The name of the account to be debited. xx
The name of the account to be credited. xx
Narrative for transaction.

THE USES OF JOURNAL

The journal is use to record;
 The purchase and sales of Non-Current Assets on credit
 Opening entries when businesses are established
 Purchase or sale of non-current assets on credit
 Year-end ledger transfers
 Correction of errors
 Written off Irrecoverable Debt
 Other non-regular transactions.

- 57 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (2017 APRIL)
On 1 January 2016 Mark Jones started in business with the following assets.
$
Bank 3 500
Cash 250
Inventory 4 000
Motor vehicle 18 400
a) Prepare the journal entry to record the opening balances. A narrative is required.
b) Complete the table to identify three books of original entry and their purpose. An example has been
provided.
Book of original entry Purpose
Journal Opening entries when businesses are established.

QUESTION - 2 (2016 JULY)

On 1 June 2016 Sharami started business as a sole trader with $5 000 capital, which was paid into the
business’s bank account. On the same day she purchased inventory for resale, costing $800, and office
equipment costing $2 300, both transactions being on credit.
a) Prepare the opening journal entries on 1 June 2016 to record these transactions. A narrative is
required.
b) Complete the following table in respect of transactions during the month of June 2016.
Books Of Account To Account To
Transactions
Original Entry Be Debited Be Credited
Sold goods on credit
Sharami’s private motor vehicle was
transferred to the business
Credit customer returned goods
Paid staff wages in cash
Goods previously purchased on
credit were returned to the supplier

QUESTION - 3 (2017 DECEMBER)

On 1 October 2016, Joanna started her business by introducing $36 000 cash, a vehicle valued at $16 400
and inventory valued at $2 500.
a) Prepare a journal entry to record this transaction. A narrative is not required.

QUESTION - 4 (2017 SEPTEMBER)

Pete Murray runs a business called Super Office which supplies office equipment. On 1 May 2017 Pete
purchased a motor vehicle on credit from Datford Ltd for $10000.
a) Prepare a journal entry to record this transaction. A narrative is not required.
b) State the book of original entry that would be used to record each of the following transactions.
 Withdrew cash of $450 for personal use.
 Sold goods to Michelle Wong on credit for $800.

- 58 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 5 (2017 JULY)
On 1 February 2017 Gurdeep Singh received the following invoice.
FORHALL MOTORS
1 Doncaster High Street
Yorkshire
DN1 1AB
Date 01 February 2017 Number AZ2173 Vehicle number GS1
Customer Gurdeep Singh

Details of sale
$
Supply of Motor vehicle 20 000
Additional warranty 500
Delivery charge 100
Fuel 50
Insurance 450
Refrigeration unit 2 000

Invoice value 23 100

Prepare the journal entries to show the purchase of the motor vehicle. A narrative is not required.

- 59 -
KST EDUCATION LCCI LEVEL I | ASE20091
CHAPTER 12
ACCOUNTING FOR PAYROLL
NATURE OF PAYROLL
PAYROLL AND THE EMPLOYER
A payroll is a list of employees and what they are being paid. Being on the payroll of an
organisation means that you are selling your labour to it for an agreed price; you are in paid
employment, and your employer benefits from your skills and your time.

PAYROLL AND THE GOVERNMENT

Income tax is the system whereby the employer collects tax on behalf of the government as the
employee is paid.

Employer's duties
 Operate the income tax system for all covered by it.
 Maintain the necessary records.
 Pay the income tax and benefit contribution collected from employees to the tax authorities every
month (in most cases).
 Let the tax office, or staff from the benefit contributions office, inspect the records.
 Submit end of year returns.
 Give employees payslips detailing tax and benefit contributions deducted and to give them an
annual statement showing their deductions.
 Maintain for three years, at the minimum, after the end of a tax year, the records relating to that
year.

GROSS PAY AND BASIC PAY

BASIC PAY
Basic pay is the rate for the job, and is what you expect to receive for a normal period's work,
irrespective of overtime and so forth.

1. FIXED RATE PER PERIOD

Your contract of employment might state that you are to be paid, say, $9,000 per annum, that
you will enjoy four weeks leave, and that you are expected to work a 35 hour week. You are being
paid, here, a fixed rate per annum of $9,000. Usually this annual amount will be divided into 12
equal monthly payments. Most employers pay at the end of the calendar month.

2. HOURLY RATE
Some workers get paid a rate per hour. If you work 40 hours at $5 per hour then your basic pay
will be $200. High day-rate schemes aim to stimulate greater productivity (ie amount of output per
hour) through higher pay. Employees are paid a higher hourly rate than that offered by most other
employers in the hope that this will make them more productive.

3. PIECEWORK
In a piecework scheme, wages are calculated by the following formula.
WAGES = UNITS PRODUCED × RATE OF UNIT

- 60 -
KST EDUCATION LCCI LEVEL I | ASE20091
Suppose, for example, an employee is paid $2 for each unit produced.
Weekly production units Basic pay for 40 hours
$
40 80
50 100
60 120
80 160
As their output increases, the wage increases. However, it is common for pieceworkers to be
offered a guaranteed minimum wage, so that they do not suffer loss of earnings when production
is low through no fault of their own.

GROSS PAY
Gross pay is what an employee earns. It is not what the employee actually receives in cash or by
transfer to the bank account.

1. OVERTIME
Overtime pay is payment for work done in excess of an employee's hours at basic rate pay.
Overtime comprises hours worked over a standard working week. The overtime rate can be based
on the hourly rate, or can be fixed by mutual agreement with hourly paid or salaried staff.

2. BONUSES
A bonus is an extra payment made to an employee (or a group of employees) as a reward for
results achieved. Bonuses may be paid to employees if an agreed target is reached, or for any
reason determined by management. Bonuses can take many forms.

3. COMMISSION
Commission is a payment made to an employee (or agent) based on the value of something
(usually sales) the employee (or agent) has generated. Commission is often paid to employees who
have succeeded in making a sale. It is normally a percentage of the value of the sale.

PAYROLL DEDUCTIONS
Income tax and benefit contributions are normally deducted from an employee's gross pay before
the net pay is handed over. Payments into a pension scheme are another important payroll deduction.

PAYROLL AND THE GOVERNMENT

Income tax is the system whereby the employer collects tax on behalf of the government as the
employee is paid.

NET PAY
Gross pay is not the amount of money that the employee receives, because deductions are taken
away from the gross pay, and the employee receives just the gross pay less deductions. This is known
as the employee's net pay.
The deductions from pay are usually a combination of:
 statutory deductions, and
 non-statutory or voluntary deductions.

STATUTORY DEDUCTIONS
Statutory deductions are deductions from pay that are made by law, for example: income tax and
social security. These are deducted from gross pay by the employer and paid to the relevant taxation
authority. In this manner employers act as the agent of the taxation authority, both calculating and

- 61 -
KST EDUCATION LCCI LEVEL I | ASE20091
collecting taxation and social security amounts.
For example; in the UK income tax for employees is deducted under the ‘Pay As You Earn’ scheme
along with National Insurance and paid over to HM Revenue and Customers by their employers.

VOLUNTARY DEDUCTION
Non-statutory deductions are voluntary deductions from pay that the employee chooses to make.
Examples of these are:
 subscriptions to a trade union
 contributions by the employee to a pension scheme.

PROCESS OF PAYROL CALCULATIONS

$
BASIC PAY xx
(+) BONUS xx
(+) COMMISSION xx
(+) OVERTIME xx
GROSS PAY xxx
(-) STATUTORY DEDUCTIONS (xx)
(-) VOLUNTARY DEDUCTIONS (xx)
NET PAY xxxx

ACCOUNTING ENTRIES FOR PAYROLL

Entering payroll data into the correct ledger account is normally quite straightforward.
 Payroll is normally only done weekly or monthly.
 Same types of entry take place every period.
 The wages control account helps to ensure that the entries are being made correctly.
 After all the wages items have been posted, the balance on the wages control account should be NIL.

DOUBLE ENTRY FOR PAYROLL TRANSACTIONS

1. Entry for gross pay
 Debit - Wages expenses account
 Credit - Wages control account
2. Entry for employer's cost
 Debit - Wages expenses account
 Credit - Wages control account
3. Entry for net pay
 Debit - Wages control account
 Credit - Cash/Bank account
4. Entry for statutory deductions (employees + employer)
 Debit - Wages control account
 Credit - Relevant statutory deduction account
5. Entry for voluntary deductions (employees + employer)
 Debit - Wages control account
 Credit - Relevant voluntary deduction account

- 62 -
KST EDUCATION LCCI LEVEL I | ASE20091
EXERCISES FOR THIS CHAPTER
QUESTION - 1 (2017 JANUARY)
Sean Edwards pays his employees using a time rate system.
a) Explain the difference between piece rate and time rate payment methods.
Sean provides the following information about the hours that two of his employees worked during one
week. Each is paid a set amount per hour with time and a half paid on Saturdays and double time paid
on Sundays.
Rate per Hours worked per day
Employee hour ( $) Monday Tuesday Wednesday Thursday Friday Saturday Sunday
1 6.50 6 6 4 6 6 3
2 5.13 5 5 6 5 4 4
b) Calculate the gross weekly pay for each employee.
c) Sean currently pays his employees in cash. State two other methods of payment he could use.

QUESTION - 2 (2017 JULY)

Martha employs two staff, Grace and Ruby. Grace is employed for 35 hours per week at an hourly rate
of $7.60. Any overtime is paid at an additional 25% of the hourly rate. Ruby is paid on a piece rate basis.
Rates of pay are $0.40 per unit for the first 500 units with a 20% increase on all units over this amount.
During the week ended 30 April 2017 Grace worked for 41 hours and Ruby produced 750 units.
a) Calculate the gross weekly pay for the week ended 30 April 2017 for each employee.
b) State one voluntary deduction that Grace or Ruby may authorise to be taken from their salary.

QUESTION - 3 (2017 SEPTEMBER)

Heather Faversham runs a small manufacturing business and employs two people. Both employees are
paid $5 per hour and work for 40 hours per week.
a) Describe the difference between time rate and piece rate payroll schemes.
b) Describe the difference between a statutory deduction and a voluntary deduction.
On 1 June 2017 Heather introduced a piece rate scheme whereby each employee is paid $1 per unit
produced. There is a guarantee that no employee will earn less than 90% of their previous weekly
earnings. The following information was available for the first week of June 2017.
Employee Units produced
Alan 220
Bibi 170
Both employees pay statutory deductions of 20% of their gross pay. Alan pays voluntary deductions of
5% of his gross pay. Bibi pays voluntary deductions of 2% of her gross pay.
c) Calculate the gross pay and the net pay of each employee.

QUESTION - 4 (2017 NOVEMBER)

Michael employs three staff. The following pay information is available for these employees.
 Bill $13 500 per annum
 Charlie $1.50 per unit produced up to 600 and $2 per unit thereafter
 Keith $1.75 per unit with a minimum guaranteed monthly salary of $950
During May 2017 production was as follows.
 Charlie - 760 units
 Keith - 520 units
a) Calculate the monthly gross pay for each employee.

- 63 -
KST EDUCATION LCCI LEVEL I | ASE20091
The following deductions were made from the employees gross pay.
Statutory Voluntary
$ $
Bill 225 48
Charlie 241 35
Keith 186 29
b) Calculate the net pay of each employee.
c) Explain, using examples, one difference between statutory deductions and voluntary deductions.

QUESTION - 5 (2016 NOVEMBER)

Abu employs Sonia Stockwell who is paid an annual salary of $18,000. For the month of July 2016, Abu
calculated that Sonia had tax of $207 and pension of $50 to pay.
a) Calculate Sonia’s net pay for the month.
b) Prepare the bank transfer form to pay Sonia her salary for the month of July 2016.
Payee name
Sort code 50 50 00
Account number 4643821
Amount of payment
c) Explain one advantage of paying Sonia by bank transfer rather than in cash.
Abu is considering employing a dressmaker to manufacture a new line of clothes. He will pay his new
employee for each item produced.
d) State the name of this method of remuneration.
e) Explain one advantage to the employee of this method of remuneration.

QUESTION - 6 (2017 APRIL)

Moon is in business as a recruitment agency. Included in his ledger is the account of AB Jones.
a) Explain whether AB Jones is a customer or supplier.
b) Explain the entry on:
 6 February
 10 February
Moon employs Martin, who is paid a salary of $16800 per annum. For January 2017 the following
deductions were made from his salary:
 Tax $150
 A voluntary contribution of $75 into his pension scheme.
c) Calculate Martin’s net pay for January 2017.
Moon employs Jenny as a new recruiter and she will be paid a basic salary. He has set Jenny a target of
finding at least 20 new recruits each month. It is expected that Jenny will exceed this target.
d) Describe a suitable method of rewarding Jenny for exceeding her monthly target.

QUESTION - 7 (PEARSON 38)

B. Charles has a basic working week of 40 hours, paid at the rate of $8 per hour. For hours worked in
excess of this he is paid 11/2 times basic rate. In the week to 12 March 2012 he worked 45 hours. His
payment to the statutory pension fund amounted to $34 and his income tax is $60 per week. Calculate
his net wages.

QUESTION - 8 (PEARSON 38)

R. Kennedy is a security van driver. He has a wage of $200 per week, plus danger money of $2 per hour
extra spent in transporting gold bullion. During the week ended 15 June 2012 he spends 20 hours taking
gold bullion to the main international airport. He pays $19 for the week to the statutory state pension
fund and his income tax is $35 per week. Calculate his net pay for the week.

- 64 -
KST EDUCATION LCCI LEVEL I | ASE20091
QUESTION - 9 (2016 SEPTEMBER)
Chantelle has three employees, all are paid by cheque. She has provided details of their pay for the
month ended 30 April 2016.
Employee Gross Pay Deduction ($)
Annual salary $15 000. Also receives a bonus of 5% on all sales made
Jo Jones 300
over $20 000 per month. During April she made sales of $24 800.
Paid $8 per hour for a basic week of 40 hours and a piece rate of
Barry Smith $0.10 per item produced. During the week ended 30 April he worked 121
40 hours and produced 1250 units.
Paid $9 per hour for a basic week of 40 hours. Overtime is paid at
Charles Harris 99
$12 per hour. For the week ended 30 April he worked 47 hours.
a) Calculate the net pay for each employee. (Paid cheque number is 503, 504 and 505)
On 30 April 2016 Chantelle’s bank statement showed a credit balance of $5 019. On investigation she
found:
 A credit transfer of $360 on 27 April 2016 from a customer had not been recorded in the cash book.
 Cash banked on 28 April 2016, $1 515, has not yet cleared in the bank.
 Bank charges of $86 on 30 April 2016 had not been recorded in the cash book.
 A direct debit of $35 for car insurance on 30 April 2016 had not been entered in the cash book.
 Cheque number 502, for $640, for goods purchased, and the cheques for employees’ wages have not
been entered in the cash book or presented to the bank.
b) Update the cash book at 30 April 2016, bringing the balance down on 1 May 2016. The cash book
balance at 30 April 2016 is $6,295.
c) Prepare a bank reconciliation statement at 30 April 2016.

- 65 -