Mike Bishop opened his petrol service station on 1 May 1989. He had

£1,000 in the bank,£200 in cash, £8,000 worth of stock and machinery and equipment worth £12,000. He had borrowed £4,000 from Petrofmance Ltd for nine months and provided the rest of the fmance himself.

1 Draft a balance sheet to show Mike's position on 1 May 1989, taking care to calculate the figure for owner's capital.

2 Open a ledger account for each item and enter the opening balances.

3 Enter the following transactions in the ledger, opening new accounts where necessary. Then extract a trial balance on 7 May to check the accuracy of your entries.

2 May Cash sales £600.

3 May Cash sales £550; purchases £1,200 on credit from PB Ltd.

4 May Cash sales £720; paid £1,500 cash into bank.

5 May Cash sales £680; paid rent £160 by cheque.

6 May Cash sales £540; purchases £200 on credit from Greasoils Ltd.

7 May Paid amount owing to PB Ltd, less 3% discount by cheque.

The following procedure is recommended if your trial balance totals do not agree:

1 Make certain that you calculated the owner's capital correctly and that the balance sheet balanced with the same totals as mine.

2 Check that the assets and sources of finance were entered on the correct side of their accounts. The opening debit balances (assets)

should, of course, equal the total credit balances (capital and liabilities).

3 Go through each transaction following the rules on page 37. Make sure that for each debit entry there is a corresponding credit entry of the same value.

4 Check that you have calculated the balances on each account accurately, paying particular attention to those accounts with most entries. Remember the balance of an account is the difference between the two sides.

It is described as a debit balance when the total value of debit entries is greater than the credits. If the credit side is greater than the debit the difference is a credit balance.

S Make certain that you have put the balances in the right column of the trial balance.

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