EXTRA QUESTIONS ON ACCOUNTING EQUATION
QUESTION 1
The following information relates to Comet Traders (a periodic inventory system is in use).
Transactions for November 2015:
1
Purchased Land and Building from Leighns Limited.
R800 000
A deposit of R350 000 was paid and a mortgage loan was
granted by ABC Bank for the outstanding amount.
2
Paid an advertisement agent in advance for the expenses to be R2 000
incurred in the following month.
4
Paid the following monthly instalment on the bond. The full
amount was made up of the following:
6
Capital repayment
R1 300
Interest
R 200
The owner took an antique coffee table which forms part of his
R3 000
merchandise for his personal use.
7
Sold goods on credit to B Tshite for R2 500 subject to a trade
discount of 10% and a further 5% discount if the account is
settled within 20 days.
8
Issued a credit note to B Tshite for goods returned
20
B Tshite settled her account
R 250
Required:
Show the effect of the above transactions on the Accounting Equation by using the table
illustrated below. Please show the amount preceded with the correct + or – sign to
indicate an increase or decrease ( e.g. + R200)
Date
e.g. 1
Account
Account
Debited
Credited
Bank
Capital
Assets
=
Owner’s
Liabilities
Equity
R
R
+50 000
+50 000
R
SOLUTION – QUESTION 1
Date
Account Debited
Account
Assets
Credited
R
=
Owners’
Liabilities
Equity+
R
1
Land & Building
Bank
+800 000
-350 000
Accounts
+450 000
Payables
2
Prepaid expense
Bank
+2 000
-2 000
4
Loan
Bank
Interest
Bank
6
Drawings
7
Accounts
-1 300
-1 300
-200
-200
Inventory
-3 000
-3 000
Sales
+2 250
+2 250
-250
-250
Receivables
8
Sales
Accounts
Receivables
20
Bank
Accounts
+2 000
Receivable
-2 000
QUESTION 2
The following transactions relate to Shimane Traders, for April 2014.
Shimane Traders uses the periodic inventory system.
1. Shimane, the owner, deposited R60 000 as initial capital to the business’ bank
account
2. Shimane also transferred machinery which he inherited from his grandfather to his
business R16 000
3. He decided to pay insurance upfront to the value of R18 000
4. Provided service on account to B. Tshite charged R40 000
5. Purchased equipment on credit from D.Kgwatlhe to the value of R22 000
6. Paid his home water and electricity bill with the business’ cheque, R11 000
7. Issued a cheque to D.Kgwatlhe in part payment of their account, R15 000
8. Received payment from B. Tshite on her account for R11 3000
REQUIRED:
Record the above transactions for the Accounting equation, using the table illustrated
below.
Date
Account
Account
Effect on Accounting Equation
Debited
Credited
A
=
OE
+
L
SOLUTION -QUESTION 2
Account
Account
Debited
Credited
Assets
=
OE
+
Bank
Capital
60 000
60 000
Machinery
Capital
16 000
16 000
Prepaid
Bank
18 000
Expense
-18 000
Services
Account
Liabilities
40 000
40 000
rendered
Receivables
Equipment
Account
22 000
22 000
Payable
Bank
Drawings
Bank
Account
-11 000
-15 000
Payable
Account
Bank
Receivable
11 300
-11 300
-11 000
-15 000