Question

3. a) The following balances were extracted from the books of Kamau Traders on 1st July 2016 Details Furniture Capital Creditors Debtors Bank Cash sh 56,000 80,000 20,000 25,000 11,000 8,000 The following transactions took place during the course of the month i) Paid creditors Ksh 4,500 in cash. ii) Bought stock on credit sh 18,000. iii) Took Ksh 3,000 from bank for family use. iv) Acquired 10 year bank loan of Ksh 165,000 which was credited to business bank account. v) Purchased land worth Ksh 82,000 paying by cheque. vi) Converted a family table worth Ksh 5500 to business use. vii) Received sh 7,500 in cash from a debtor. Required: Prepare Kamau's Traders Balance sheet as at the end of July 2016. (10 marks)​

Answer 1

Kamau Traders' Balance Sheet as of July 2016:

Assets: Furniture Ksh 61,500, Stock Ksh 18,000, Debtors Ksh 17,500, Bank Ksh 91,000, Cash Ksh 11,000, Land Ksh 82,000.

Liabilities: Creditors Ksh 33,500, Loan Ksh 165,000.

Capital: Ksh 71,500.

To prepare Kamau Traders' balance sheet as of the end of July 2016, we need to consider the transactions and update the balances. Let's go through the transactions step by step:

1. Starting Balances (1st July 2016):

- Furniture: Ksh 56,000

- Capital: Ksh 80,000

- Creditors: Ksh 20,000

- Debtors: Ksh 25,000

- Bank: Ksh 11,000

- Cash: Ksh 8,000

2. Transactions:

i. Paid creditors Ksh 4,500 in cash.

- Decrease creditors: Ksh 4,500

- Decrease cash: Ksh 4,500

ii. Bought stock on credit Ksh 18,000.

- Increase stock (asset): Ksh 18,000

- Increase creditors: Ksh 18,000

iii. Took Ksh 3,000 from the bank for family use.

- Decrease bank: Ksh 3,000

- Decrease capital (assuming it's a withdrawal): Ksh 3,000

iv. Acquired a 10-year bank loan of Ksh 165,000.

- Increase bank: Ksh 165,000

- Increase liabilities (loan): Ksh 165,000

v. Purchased land worth Ksh 82,000, paying by cheque.

- Decrease bank: Ksh 82,000

- Increase assets (land): Ksh 82,000

vi. Converted a family table worth Ksh 5,500 to business use.

- Increase furniture: Ksh 5,500

- Decrease capital (assuming it's an additional contribution): Ksh 5,500

vii. Received Ksh 7,500 in cash from a debtor.

- Increase cash: Ksh 7,500

- Decrease debtors: Ksh 7,500

3. Balance Sheet (End of July 2016):

Assets:

- Furniture: Ksh 56,000 + Ksh 5,500 = Ksh 61,500

- Stock: Ksh 18,000

- Debtors: Ksh 25,000 - Ksh 7,500 = Ksh 17,500

- Bank: Ksh 11,000 - Ksh 3,000 + Ksh 165,000 - Ksh 82,000 = Ksh 91,000

- Cash: Ksh 8,000 - Ksh 4,500 + Ksh 7,500 = Ksh 11,000

- Land: Ksh 82,000

Liabilities:

- Creditors: Ksh 20,000 - Ksh 4,500 + Ksh 18,000 = Ksh 33,500

- Loan: Ksh 165,000

Capital:

- Initial Capital: Ksh 80,000

- Less: Family table converted to business use: Ksh 5,500

- Less: Withdrawal for family use: Ksh 3,000

- Remaining Capital: Ksh 80,000 - Ksh 5,500 - Ksh 3,000 = Ksh 71,500

This completes the balance sheet as of the end of July 2016.