Introduction

Magnolia Company
Magnolia is one of Myanmar leading drinking water company which produces pure water
and mineral water. It was established in 2015 and located in No.9, Khayay Yeik Thar Street,
Mingalardon, Yangon. The principal business operation of Magnolia is to provide customers
with healthy and secure goods. Since 2016, Magnolia has been a local drinking water
producer, and is well known and knowledgeable in this area. The vision of Magnolia is to be
the most respected and trusted beverage brand owner in the world, of whom our customers,
investors and staff are proud. The mission of Magnolia is to reinforce the brand identity of
the company by stressing consistency, production and cost levels by performance
improvement and customer experiences.
Financial accounting
Financial accounting relates to management for financial transactions by classifying,
reviewing, summarizing and reporting financial activities such as sales, purchases,
receivables and payables and eventually planning financial statements comprising income
statement, balance sheet and cash flow.
Rules and principles
The principles of accounting are standard practices which are practiced by entities for
tracking, compiling and reporting financial statements. Accounting principles are as given
below:
1. Accrual
That is the principle that financial activities will be reported as they currently exist in the
financial years, rather than in the times where there are cash flows correlated with them.
2. Going concern
According to this principle an entity intends to continue operating for the foreseeable future.
3. Conservative
That is the principle that can report costs and obligations as early as possible, but continue to
document sales and investments as you are certain that they can occur.
4. Consistency
That is the principle that you will tend to use it after you have implemented an accounting
theory or system before a demonstrably stronger theory or system comes along.
5. Historical cost
Historical cost is the initial cost charged by purchasing an asset in the past.
6. Materiality

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Materiality determines the cut-off point or threshold at which the financial information is
important to users' decision-making needs.
7. Money measurement
Money Measurement Principle in accounting, also recognized as the Measurability Principle,
implies that the financial statements only consider sales and activities that are capable of
being calculated in monetary terms.
8. Business entity
Financial accounting is focused on the assumption that a corporate entity's assets and
accounts have to be paid for independently from the shareholders.
9. Relevance
Relevance is the principle that the information generated by way of an accounting system
must affect the decision-making of a person perusing the information.

LO1: Record business transactions using double entry book-keeping, and be able to
extract a trial balance
Magnolia has been in business since 1 November 2018. The following is a list of its
transactions for November 2018.
1.11.2018. Capital of $ 50,000 paid into a business bank account.
3.11.2018. Motor vehicle on credit from Shwe for $ 12,500.
7.11.2018. Goods purchased on credit from Sawlae for $ 37,500.
11.11.2018. Cheque drawn on the bank for $ 2,500 in order to open a petty cash account.
14.11.2018. Goods sold on credit for $ 15,000 to Susan.
17.11.2018. Cash sales of $ 12,500.
20.11.2018. Cash purchase of $ 7,500.
23.11.2018. General expense of $ 1,250 paid out of petty cash.
26.11.2018. Shwe’s account settled by cheque.
27.11.2018. Sawlae allows Magnolia a cash discount of $ 1,250.
29.11.2018. Sawlae is sent a cheque for $ 25,000.
30.11.2018. Susan is allowed a cash discount of $ 1,500.
31.11.2018. Susan settled her account in cash.

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Magnolia’s Ledger account
Bank account
Date Particular Amount Date Particular Amount
($) ($)
1.11.2018 Capital A/C 50,000 11.11.2018 Petty cash A/C 2,500
26.11.2018 Shwe A/C 12,500
29.11.2018 Sawlae A/C 25,000

31.11.2018 Balance c/d 10,000

50,000 50,000
10,000
1.12.2018 Balance b/d

Capital account
Date Particular Amount Date Particular Amount
($) ($)
1.11.2018 Bank A/C 50,000
31.11.201 Balance c/d 50,000
8
50,000 50,000
50,000
1.12.2018 Balance b/d

Motor vehicle account

Date Particular Amount Date Particular Amount
($) ($)
3.11.2018 Shwe A/C 12,500

31.11.2018 Balance c/d 12,500

12,500 12,500
12,500
1.12.2018 Balance b/d

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 Shwe account
Date Particular Amount Date Particular Amount
($) ($)
26.11.2018 Bank A/C 12,500 3.11.2018 Motor vehicle A/C 12,500

12,500 12,500

Purchase account
Date Particular Amount Date Particular Amount
($) ($)
7.11.2018 Sawlae A/C 37,500
20.11.201 Cash A/C 7,500
8

31.11.2018 Balance c/d 45,000

45,000 45,000

45,000
Balance b/d
1.12.2018

Trade payable (Sawlae) account

Date Particular Amount Date Particular Amount
($) ($)
27.11.2018 Discount received A/C 1,250 7.11.2018 Purchase A/C 37,500
29.11.2018 Bank A/C 25,000

31.11.2018 Balance c/d 11,250

37,500 37,500

11,250
1.12.2018 Balance b/d

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 Petty cash account
Date Particular Amount Date Particular Amount
($) ($)
11.11.2018 Bank A/C 2,500 23.11.2018 General expenses A/C 1,250

31.11.2018 Balance c/d 1,250

2,500 2,500

1.12.2018 Balance b/d 1,250

Susan account
Date Particular Amount Date Particular Amount
($) ($)
14.11.2018 Sales A/C 15,000 30.11.2018 Discount allowed A/C 1,500
Cash A/C 13,500

15,000 15,000

Sales account
Date Particular Amount Date Particular Amount
($) ($)
14.11.2018 Susan A/C 15,000
Cash A/C 12,500

31.11.201 Balance c/d 27,500

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27,500 27,500

1.12.2018 Balance b/d 27,500

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 Cash account
Date Particular Amount Date Particular Amount
($) ($)
17.11.2018 Sales A/C 12,500 20.11.2018 Purchase A/C 7,500
31.11.2018 Susan A/C 13,500

31.11.2018 Balance c/d 18,500

26,000 26,000

1.12.2018 Balance b/d

18,500

General expenses
Date Particular Amount Date Particular Amount
($) ($)
23.11.201 Petty cash A/C 1,250
8

31.11.2018 Balance c/d 1,250

1,250 1,250

1,250
Balance b/d
1.12.2018

Discount received account

Date Particular Amount Date Particular Amount
($) ($)
27.11.2018 Sawlae A/C 1,250

31.11.201 Balance c/d 1,250

8 1,250 1,250

1.12.2018 Balance b/d 1,250

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 Discount allowed account
Date Particular Amount Date Particular Amount
($) ($)
30.11.201 Susan A/C 1,500
8

31.11.2018 Balance c/d 1,500

1,500 1,500
Balance b/d 1,500
1.12.2018

Trial balance as at 31 November 2018.

Particulars Debit ($) Credit ($)

Bank 10,000
Capital 50,000
Motor vehicle 12,500
Purchase 45,000
Trade payable (Sawlae) 11,250
Petty cash 1,250
Sales 27,500
Cash 18,500
General expenses 1,250
Discount received 1,250
Discount allowed 1,500

90,000 90,000

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LO2: Prepare final accounts for sole-traders, partnerships or limited companies in
accordance with appropriate principles, conventions and standards
The following trial balance is taken from the book of Magnolia as at 31 December 2018.
Trial balance as at 31 December 2018
Dr Cr
$ $
10% preference share capital 300,000
Ordinary share capital 1,050,000
10% debentures 450,000
Cost of goodwill 382,500
Cost of building 1,575,000
Cost of furniture and fitting 180,000
Cost of motor vehicle 258,000
Building at cost at accumulated depreciation (1.1.2018) 150,000
Furniture and fitting at cost at accumulated depreciation 36,000
(1.1.2018)
Motor vehicle at cost at accumulated depreciation 77,400
(1.1.2018)
Inventory at 1.1.2018 127,368
Sales 1,533,000
Purchase 658,650
Carriage inwards 9,300
Wages and salaries 288,600
Stationary 184,500
Motor expense 4.680
Telephone bill 13,035
General expenses 8,400
Debenture interest 22,500
Trade receivable 279,150
Trade payable 170,550
Bank 12,585

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General reserve 75,000
Share premium account 150,000
Interim ordinary dividend paid 52,500
Profit & loss account (31.12.2018) 64,818
4,056,768 4,056,768
The following adjustments are needed:
(1) Inventory at 31.12.2018 was $ 137,120.
(2) Depreciate building $ 15,000, furniture and fitting $ 18,000, motor vehicle 27,000.
(3) Accrue debentures interest $ 22,500.
(4) Provide for preference dividend $ 30,000 and final ordinary dividend of 10%.
(5) Transfer $ 15,000 to general reverse.
(6) Goodwill written off $ 45,000.
(7) Authorized share capital is $ 300,000 and $ 1.5 million in ordinary share.
(8) Provide for cooperation tax $ 75,000.

Magnolia Trading and Profit and Loss account for the year ended 31 December 2018
$ $ $
Sales 1,533,000
Cost of goods sold:
Opening inventory 127,368
Purchase 658,650
Carriage inwards 9,300 667,950
Closing inventory (137,120) (658,198)
Gross profit 874,802

Expenses
Wages and salaries 288,600
Stationary 184,500
Motor expenses 4,680
Telephone bill 13,035
General expenses 8,400
Debenture interest 22,500

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Acute debenture 22,500
Depreciation: building 15,000
Depreciation: furniture and fitting 18,000
Depreciation: motor vehicle 27,000 (604,215)
Profit for the year before taxation 270,587
Corporation tax (75,000)
Profit for the year after taxation 195,587
Add retained profit from last year 64,818
260,405
Less: appropriation
Transfer to general reverse 15,000
Goodwill written off 45,000
Preference share dividend 30,000

Ordinary share dividend: Interim 52,500

Final 105,000 157,500 (247,500)
Retained profit carried forward to next year 12,905

Balance sheet as at 31 December 2016

Fixed assets Cost Depreciation Carrying value
Goodwill 382,500 (45,000) 337,500
Building 1,575,000 (165,000) 1,410,000
Furniture and fitting 180,000 (54,000) 126,000
Motor vehicle 258,000 (104,400) 153,600
2,395,500 (368,400) 2,027,100
Current assets
Inventory 137,120
Trade receivable 279,150
Bank 12,585
428,855

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Current liabilities
Trade payable 170,550
Dividend owing 135,000
Debenture interest owing 22,500
Taxation 75,000
(403,050)
Net current assets 25,805
2,052,905
Loan capital 10% debenture (450,000)
1,602,905

Financed by
Share capital Authorized Issued
$ $
Preference share 300,000 300,000
Ordinary share 1,500,000 1,050,000
1,800,000 1,350,000
Reserves
Share premium 150,000
General reserve 90,000
Profit and loss 12,905 252,905
1,602,905

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LO3: Perform bank reconciliations to ensure company and bank records are correct
Bank reconciliation
A bank reconciliation is the method of comparing the balances for a cash account in the
banking records of an individual to the related facts on a bank statement.

The bank column of Magnolia’s cash book showed $ 7,500 of a debit balance on 31
December 2018. The monthly bank statement published up to December 31, 2018 showed a
$14,750 credit balance.
 $ 1200 dividend was charged to the Bank directly
 Credit transfer from Nwe of $ 1300 entered in bank statement but not in cash book
yet.
 Standing order of $ 1,000 to Magnolia entered on bank statement not in cash book.
 Bank charges $ 30.
 The bank paid a direct debit of $350 for RAC membership fees.
 Magnolia’s $7,000 balance of deposit account was moved to its current bank account.
 Two cheques drawn for Wutyi $1250 and Su Latt $1450 were entered in the cash
book but were not sent for payment.
 On 31 December 2018, cash and cheque amounting to $3,450 had been deposited into
the bank, but was not credited until 5 February 2020.
Cash book (up to date)
$ $
Balance b/d 7,500 Direct debit 350
Dividend 1,200 Standing order 1,000
Credit transfer 1,300 Bank charges 150
Current account 7,000
Balance c/d 15,500

17,000 17,000

Bank reconciliation statement as at 31 December 2018

$ $

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 Cash balance as per cash book 15,500
Add: Unpresented cheque: Wutyi 1,250
Su Latt 1,450 2,700

18,200
Less: Bank lodgement not yet credited (3,450)

Cash balance as per bank statement 14,750

LO4: Reconcile control accounts and shift recorded transactions from the suspense
accounts to the right accounts
Types of errors in accounting
1. Errors of commission
Errors resulting from incorrect transactions posted to the leader, incorrect account totalling,
incorrect account balance, mistaken casting of day books or the misrepresentation of the
amount in the journal or day books are commission errors.
2. Errors of omission
The omission error usually occurs when a transaction is recorded in the journal or subsidiary
book or when it is published in the ledger.
3. Compensating errors
These are compensating errors if the net impact of one or more errors is nil.
4. Error of principle
An error of principle is a misclassification in income or expenditure between revenue and
capital.
5. Errors of original entry
An original entry error occurs when the wrong amount is placed on the right account.
6. Complete reversal of entries
A reversal error occurs when the entry is debited or vice versa, instead of credited.
7. Transposition errors
If an amount is incorrectly recorded by changing the position of two or more digits, there is a
transposition error.
Suspense account
A suspense account is a general ledger account with temporary amounts reported. The
suspense account is used because it is impossible to determine the appropriate general ledger
account at the time of the recorded transaction.
Sale ledger control account

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This account displays at a particular time, i.e. the total of accounts receivable, the total
amount owed to the business by its customers. This control account is part of a short-term
asset and a balance sheet.
Purchase ledger control account
It shows how much the company owes its suppliers in total at a specific time, i.e. the total
payable accounts. This control account is part of the short-term liability and a balance sheet.
Debit Credit
($) ($)
Balances in debt control on 1 September 2019 51,575 520
Balances in creditor control on 1 September 2019 780 31,135
Credit purchases and credit sales 173,580 314,725
Sale return and purchase return 4,210 6,380
Cash 293,820 164,570
Discount allow and discount receive 5,360 3,140

The following are found after preparing the trial balance in accordance with uncorrected
ledger balances. The difference on the trial balance is recorded debit site $ 340 in suspense
account.
(1)The debtor control account has omitted $175 sale return.
(2)$ 135 of purchase return has been recorded debit in debtor control account.
(3)$ 735 of bad debt account has been recorded in sale ledger control account as $ 500.
(4)Cash paid to suppliers $ 750 has been omitted in credit ledger.
Required:
(a) Display the necessary journal entries to fix the errors.
(b) Build the suspense account after fixing the mentioned errors.
(c)Prepare the account for debtor control and creditor controls following corrections to the
described errors.

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 Journal entry
f $ $
(1) Suspense A/C 175
Sale return A/C (debtor control account) 175
(Correction of sale return omitted in debtor control account)

(2) Purchase return A/C ( creditor control account) 135

Purchase return A/C ( debtor control account) 135
( Correction of purchase return omitted in debtor control
account)

(3) Suspense A/C 235

Bad debt A/C 235
( Correction of transposition error in debtor control account)

(4) Cash paid to suppliers A/C 750

Suspense A/C 750
(Correction of cash paid to supplier has been omitted in
creditor control account)

Suspense account
$ $

2019 2019
Sep 1 difference on the trial balance 340 Cash paid to suppliers 750
Sale return 175
Bad debt 235

750 750

Sale ledger control account

$ $

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2019 2019
Sep 1. Balance b/d 51,575 Sep 1. Balance b/d 520
Credit sales 314,725 Sale return 4,385
Wrong entry to purchase return 135
Bad debt 235
Cheque received from customers 293,820
Discount allowed 5,360
Balance c/d 61,845

366,300 366,300

Purchase ledger control account

$ $

2019 2019
Sep 1. Balance b/d 780 Sep 1. Balance b/d 31,135
Purchase return 6,515 Credit purchase 173,580
Cash paid to creditors 165,320
Discount received 3,140
Balance c/d 28,960

204,715 204,715

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References
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Available at: https://www.bookstime.com/articles/accounting-errors. [Accessed 01 June
2020].
WallStreetMojo. 2020. Financial Accounting (Definition, Objectives)| How it Works?
[ONLINE] Available at: https://www.wallstreetmojo.com/financial-accounting/. [Accessed
01 June 2020].
AccountingCoach.com. 2020. Accounting Principles | Explanation | Accounting Coach.
[ONLINE] Available at: https://www.accountingcoach.com/accounting-
principles/explanation. [Accessed 01 June 2020]
AccountingCoach.com. 2020. What is a suspense account? | Accounting Coach. [ONLINE]
Available at: https://www.accountingcoach.com/blog/suspense-account. [Accessed 01 June
2020].
Toppr-guides. 2020. Trial Balance Accounting: Classification and Searching of Errors,
Examples. [ONLINE] Available at: https://www.toppr.com/guides/accountancy/trial-balance-
and-rectification-of-errors/trial-balance-accounting-searching-errors/. [Accessed 01 June
2020]

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