Choose the correct answer from the following list of answers.

Note that only one answer is

correct.
• Asset + Liability = Equity
• Equity = Asset – Liability
• Equity = Asset + liability

1. if a company received cash for services rendered per cheques R500, the double entry is
written as:
A. Equity (+500) = Asset ( + 500) – Liability (0)
B. Equity (-500) = Asset ( - 500) – Liability (0)
C. Equity (-500) = Asset ( +500) – Liability (0)

2. if a company deposits R13 000 to the bank the transaction according to the balance sheet
equation will be
A. Equity (-R13 000) = Asset ( 0) – Liability (0)
B. Equity (-R13 000) = Asset ( 0) – Liability (+R13 000)
C. Equity (+R13 000) = Asset ( + R13 000) – Liability (0)

3. An example of a profit ratio is:

(a) Gross profit x 100
Sales
(b) Current asset x 100
Profit
(c) Current asset
Current liability

4. choose the correct answer

• the income statement shows gross profit and current assets while the balance sheet shows
the financial position of the organisation
• the income statement shows the financial performance while the balance sheet shows the
organisation’s financial statement
• the income statement shows the financial performance while the balance sheet shows the
financial position organisation

Question one

How will you treat the following accounts when there is an increase? Please mark an X under
debit or credit if an increase in each account results to a debit or credit respectively. (5 marks)

Account Debit Credit

Water and electricity
Insurance
Vehicle
Current income account
Bank loan: loan term
Bank overdraft
Bank
Petty cash
Cash float
Tools

Question two
Enter the following transactions into the correct T account
1. the owner contributes cash to the business, R100 000
2. buy stationery, cash R600
3. receive cheques for services rendered, R2500
4. borrow money from the bank, R12 000
5. Deposit money into its bank account, R10 000

Question three
What do you understand by the principle of double entry? Support your answer with an example.

Question three
The following list of accounts was extracted from the general ledger of Frank Traders as at 31st
of May 20.7, the last day of the financial year of the business.

BALANCE SHEET OF FRANK TRADERS AS AT 31st DECEMBER 2009

Accounts in the General Ledger Balance

Balance Sheet Accounts
Capital 506 940 00
Drawings 42 600 00
Land and Buildings 426 600 00
Machinery 106 500 00
Vehicles 255 600 00
Bank 68 160 00
Bank Overdraft 34 080 00
Inventory 31 950 00
Long term loan 170 800 00
Debtors 85 200 00
Creditors 4 260 00
Nominal Accounts
Sales 639 000 00
Cost of sales 298 200 00
Rent Income 25 560 00
Interest on loan 17 040 00
Discount received 14 910 00
Discount allowed 10 650 00
Water and Electricity 8 520 00
Wages 6 390 00
General Expenses 38 340 00

You have been employed as a book keeper for Frank Traders, using the information above:

1. Prepare the income statement of Frank Traders as of the financial year ended May 31st 20.7.

2. Draft a balance sheet as at 31st May 20.7.

3. What is the main difference between the income statement and the balance sheet?

From the Balance sheet above calculate the following ratios:

1. Liquidity Ratios
2. Profitability Ratios

Interpret the ratios calculated above

Put the following on T - Accounts

1.