Priya's Florist: When a Correct Double Entry Goes to the Wrong Account
Priya runs a florist as a sole trader. Her bookkeeper treated three May transactions as sundry expenses in the general expenses account: flowers costing £340 (normal selling price £620) taken for her sister's wedding; a £210 home insurance premium paid from the business bank account; and a delivery van, already owned by Priya and worth £7,500, that she brought into the business - for this the bookkeeper debited sundry expenses £7,500 and credited capital. Priya's drawings for May, before these items, were £3,000, and profit before any correction is £4,900. Her trial balance still balances. Priya says "it's all the same money, so it can't matter".
1. State the correcting double entry for each of the three items and explain why the original treatment is wrong.
Read the worked answer
1. Flowers taken for the wedding - £340 Dr Drawings £340 / Cr Purchases (or General expenses) £340
Reasoning: the goods were never sold, so there is no sale and no expense. The owner has taken business assets for private use, which is drawings. Drawings are always recorded at cost (£340), not at selling price (£620) - using £620 would create a profit on a sale that never happened.
2. Home insurance - £210 Dr Drawings £210 / Cr General expenses £210
Reasoning: a private premium is not a cost of running the florist. It reduces the owner's capital, not profit.
3. Van brought into the business - £7,500 Dr Motor vehicles £7,500 / Cr General expenses £7,500
Reasoning: the van is a non-current asset introduced as capital. The credit to capital was already correct, so only the debit needs moving out of expenses and into a fixed asset account. This is an error of principle - right two accounts, wrong category.
2. Recalculate May profit and Priya's capital at 31 May, and explain why the trial balance failed to reveal any of these errors.
Read the worked answer
Profit Start £4,900; add back £340 + £210 + £7,500 of expenses wrongly charged = £12,950.
Drawings £3,000 + £340 + £210 = £3,550.
Capital at 31 May Opening capital £18,000 (assumed) + profit £12,950 − drawings £3,550 = £27,400. Check with the accounting equation: assets have risen by the £7,500 van, which the corrected profit and the drawings adjustment account for exactly.
Why the trial balance still agreed Every one of these errors was a complete double entry - a debit and a credit of equal value were posted, just to the wrong accounts. A trial balance only tests that total debits equal total credits; it cannot test whether the account chosen was the right one. Errors of principle and errors of commission (right account, wrong side or wrong amount on both sides) sail straight through. Only a review of the ledger or the accounting equation would expose them.