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CHAPTER 3
RECORDING TRANSACTIONS
DISCUSSION QUESTIONS
SOLUTIONS
1. Indicate whether each of the following events is an internal transaction, an external
transaction, or a non-transaction event. Explain your answer in each case:
(a)
Receipt of money from a customer in payment of services to be provided early in
the next accounting period.
(b)
Equipment is used to provide a service for a customer
(c)
The human resources department provided services to the customer service
department.
(d)
A building owned by the business increased in value
(e)
Received payment from a customer on account for services provided in the
previous accounting period.
(f)
A prospective employee is interviewed and hired for a job
(g)
Stationery supplies are used by an employee.
(a)
(b)
(c)
(d)
(e)
External, because an event has happened between the entity and an outside party. Even
though no service has yet been provided the receipt of money means that the entity now
has a liability to either provide the service in the future or return the money. This needs to
be recorded immediately.
External and Internal. Even though the equipment has been used in the performance of a
service to an outside party (external), the usage and wearing out of the equipment is
usually recorded as an internal adjustment by way of depreciation on the equipment.
Internal, as there needs to be a record kept within the entity of the provision of services
between departments so that the cost of running each department may be accurately
determined.
Non-transaction event. However, if it is the practice of an entity to revalue such assets to
show the higher value of the building, it would be recorded as an internal transaction, as
there is no outside party involved.
External, as there is an external party directly involved. Even though the provision of
services would have been recorded in the previous period along with accounts receivable,
the receipt of cash affects the cash at bank and reduces accounts receivable in the current
period.
Chapter 3: Recording transactions
(f)
(g)
2.
Non-transaction event, which is not recorded until an employee has begun work and has
provided services to the entity
Internal, as there is merely an adjustment inside the entity to reflect a change in value due
to supplies being used. No external party is involved.
The owner of a very small, part-time business is very disorganised and doesn’t like filing
invoices, accounts and receipts. ‘What is the point of keeping all that paper work?’, he
asks. ‘Once the details have been recorded in the accounting system why waste time and
space filing everything?’ Explain to the small business owner why it is important to keep
supporting documentation and how such records are likely to be useful for future decision
making and provide an example.
There are two main reasons for keeping supporting documentation:
a. It provides evidence of transactions and supports the entries into the accounting
record;
b. It serves as an important element in the control of the business’ resources, as
discussed in the Business Knowledge section.
The documentation would assist decision making as it usually provides details that are not
recorded in the accounting system. For example, an electricity account will not only show the
amount to be paid (expense) that would be recorded in the accounting system but also the amount
of electricity being used. The amount of electricity used is not usually recorded in the accounting
system, but being able to monitor this over time would help the business to control and reduce its
power usage. If disputes ever arise with a supplier then supporting documentation is also likely to
contain more detailed information to help resolve the issue than the accounting records would
provide.
3.
One often hears the statement: ‘Debits are bad and credits are good for the business.’ Do
you agree? Why or why not?
This statement is nonsense. The debits and credits are merely double-entry rules for recording
transactions and events. Even though expenses may be ‘debit’, so too are assets. ‘Debit’ implies
neither good or bad. Likewise for credits, which can be revenues or liabilities or equity.
4.
Your friend is having difficulty grasping the rules of debits and credits. Using the idea
that in some countries vehicles must travel on the left hand side of the road while in
others they must travel on the right hand side of the road to explain the rules of debit and
credit.
In some countries, such as Australia, Hong Kong, Malaysia and Britain, vehicles must travel on the
left hand side of the road. This is similar to Asset and Expense accounts which are increased with a
debit, an entry on the left hand side of the general ledger account. In other countries, such as
America, China and Europe, vehicles must travel on the right hand side of the road. This is similar
to Liability, Equity and Income accounts which are increased with a credit, an entry on the right
hand side of the general ledger account. There are historical reasons why in some countries
vehicles travel on the left while in others they travel on the right. Similarly there are historical
reasons why a debit is on the left of an account and is used to increase Assets and Expenses but
decrease Liabilities, Equity and Income, and why a credit is on the right of an account and is used
to increase Liabilities, Equity and Income but to decrease Assets and Expenses. Regardless of the
historical reasons it is important to follow the rules, whether they are road rules or debit and credit
rules, otherwise you will get into difficulty. A crash on the roads and incorrect accounts in
accounting. In Australia we don’t ask ‘why?’ we drive on the left, we simply do so to avoid
accidents. In China we don’t ask ‘why?’ we drive on the right, we just do so to keep out of trouble.
This approach to debits and credits is often useful when first learning the rules of accounting.
5.
Why are journals required as part of the recording process? Would not a set of ledger
accounts be sufficient?
Journals provide a chronological record of transactions and events affecting an entity. The general
ledger does not, but classifies like transactions similarly. Hence, the purposes of the journal and
ledger are different, but complement each other.
3.1
Chapter 3: Recording transactions
6.
Give an example of a transaction that results in:
(a)
An increase in one asset and an increase in a liability
(b)
A decrease in one asset but no change in the total assets
(c)
An increase in one asset and an increase in equity
(d)
A decrease in one asset and a decrease in a liability
(e)
A decrease in one asset and a decrease in equity
(f)
One asset increasing, one asset decreasing and one liability increasing
(g)
A decrease in equity and an increase in a liability
(a) Purchase of stationery on credit from a supplier which would increase Stationery
Supplies Inventory and increase Accounts Payable.
(b) Examples are purchase of supplies for cash and the collection of money from a
customer who was part of accounts receivable.
(c) The owner contributing an asset to the business such as cash or equipment or land or
buildings. Earning income would increase either cash at bank or accounts
receivable and also increase income, which by definition is an increase in equity.
(d) Paying a supplier for goods or services purchased on credit would reduce cash at bank
as well as the accounts payable.
(e) If the owner took cash from the business bank account this would reduce cash at bank
and equity by increasing drawings. Paying cash for an expense incurred by the
business would .reduce the asset cash at bank and reduce equity by increasing
expenses which are defined as decreases in equity.
(f) Purchase of an asset (such as equipment or a building) in which a part payment is
made and the balance of the purchase price is borrowed from a bank or finance
company
(g) The incurrence of an expense on credit or which is not yet paid for e.g. wages expense
and wages payable.
7.
Recently, a new student of accounting was overheard making the following remarks:
‘Why are we learning how to use the double-entry system of recording in the accounting
cycle? Surely there are good computer packages available these days which can handle
all of these details.’ Provide a suitable reply.
Students must know the accounting cycle manually so that they can determine what a
computer package is doing in the accounting cycle, and so that they can correct any
intentional and unintentional discrepancies which can arise from time to time in computer
packages. Furthermore, some packages have their limitations and it is wise for the student
to know what a package can and cannot do for the entity concerned. Much of this
knowledge can be gained by preparing a set of accounts both manually and on computer.
Furthermore, in practice, some small clients still do not use computers to keep their
accounting records.
By learning how to prepare accounts manually students learn the relationship between
transactions in an entity and how they impact on the financial statements. Although this
may be possible with a computer package the relationship is not as obvious. An
accountant with experience should be able to look at the financial statements produced by
a computer and tell if they are reasonable given their knowledge of the business.
Understanding the accounting process in the detail required to be able to prepare manual
accounts assists in developing these decision making skills.
8.
Explain the fact that errors can exist even though the sum of the debit account balances
may equal the sum of the credit account balances in the trial balance.
Many errors do not affect the equality of debits and credits. Examples are an entry posted
twice, or not at all, a debit or credit posted to the wrong account, or the wrong amount
posted to both accounts.
3.2
Chapter 3: Recording transactions
9.
Explain why when a business pays GST on the purchase of goods or services it records
this as GST Receivable and an asset. When a business provides goods or services which
are taxable it records the GST component of the transaction as GST Payable, a liability.
When a business pays GST on purchasing goods or services it is allowed to offset this
against and GST it owes to the Australian Taxation Office (ATO). The amount is called
GST Receivable as it is either receivable from the ATO if the amount of GST paid
exceeds the amount that the business receives from its customers or it at least reduces the
amount of GST it has to pay to the ATO. The future economic benefit controlled by the
entity that makes GST Receivable an asset is a reduction in future cash outflows to the
ATO by reducing the amount of GST it has to forward to the ATO.
When a business provides goods and services which are taxable under the GST legislation
it is in effect collecting tax on behalf of the ATO which it is then liable to forward to the
ATO. This is why this GST is called GST Payable and is a liability as it will result in a
future cash outflow to the ATO.
10.
The accountant of a goldmining company in Western Australia has to make a decision
about whether to record an accounting transaction or not. The goldmining company
discovered an extremely rich seam of gold as a result of exploration activities, 50
kilometres away from its already existing mines. This information, when released to the
public, caused the share price of the company to jump considerably. What entries (if any)
should the accountant make in the ledger of the company? Why?
The accounting records for equity do not show increases in the market prices of the
entity’s shares in the financial statements. Hence, no entries are made for the increase in
share prices. However, we need to consider as well whether the entity should recognise
the existence of the new seam of gold as an asset. Consider this aspect in relation to the
definition of an asset as presented in the text.
3.3
Chapter 3: Recording transactions
EXERCISE SOLUTIONS
Exercise 3.1
Identifying account categories
The following is a list of ledger account titles extracted from the general ledger of J. Wendall,
marketing consultant:
Wages and Salaries
Interest
Cash at Bank
J. Wendall, Capital
Accounts Payable
Land (Under Mortgage)
Furniture
Accounts Receivable
Motor Vehicles
Rent
Mortgage Payable
Consultancy Fees
Investments
Computers
Inventory, Marketing Materials
Required
A.
Identify each of the ledger accounts as either an asset, a liability, an income or an
expense account. If you think that any of the accounts might fit into more than one of
these categories, explain why.
B.
For each of the accounts listed, indicate (a) whether increases are recorded as debits or
credits and (b) whether the normal balance is a debit or a credit.
B.(a)
Increases
B.(b)
Normal
balance
1. Wages and Salaries – Expense
debit
debit
2. If Interest Revenue – Income
credit
credit
If Interest Expense – Expense
debit
debit
3. Cash at Bank – Asset
debit
debit
4. J. Wendall, Capital – Equity
credit
credit
5. Accounts Payable – Liability
credit
credit
6. Land (under mortgage) – Asset
debit
debit
7. Furniture – Asset
debit
debit
8. Accounts Receivable – Asset
debit
debit
9. Motor Vehicles – Asset
debit
debit
10. If Rent Revenue – Income
credit
credit
If Rent Expense – Expense
debit
debit
11. Mortgage Payable – Liability
credit
credit
12. Consultancy Fees – Income
credit
credit
13. Investments – Asset
debit
debit
14. Computers – Asset
debit
debit
15. Inventory, Marketing Materials – Asset
debit
debit
A.
3.4
Chapter 3: Recording transactions
Exercise 3.2
Transaction analysis
For each of the following transactions, indicate whether the accounts affected are an asset, a
liability, an equity, an income or an expense. Also indicate whether the accounts are being
increased or decreased and whether the increase or decrease is a debit or credit. Ignore GST.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Owner gave their personal computer to the business..
Employed a secretary.
Cash payment made for insurance 6 months in advance.
Purchased supplies on credit.
Paid a creditor using an electronic transfer.
Invoiced a customer for services performed.
Owner paid for their personal groceries using the business credit card.
Paid some cash and took out a loan to purchase office furniture.
Received cash from a customer that owed the business money.
Paid for an advertisement aired on television.
1.
Increase an asset (debit), increase equity (credit)
2.
No transaction recorded.
3.
Increase an asset (debit), decrease an asset (credit)
4.
Increase an asset (debit), increase a liability (credit)
5.
Decrease a liability (debit), decrease an asset (credit)
6.
Increase an asset (debit), increase an income or revenue (credit)
7.
Decrease equity (debit), increase a liability (credit)
8.
Increase an asset (debit), decrease an asset (credit), increase a liability (credit)
9.
Increase an asset (debit), decrease an asset (credit)
10.
Increase an expense (debit), decrease an asset (credit).
3.5
Chapter 3: Recording transactions
Exercise 3.3
Effects of transactions on financial position
The following transactions were undertaken by Massenburg Personnel Services during the month
of February 2016. Ignore GST.
1. Invoiced a client for providing advice on current employment legislation, $2400.
2. Paid salaries to staff, $3600.
3. Paid an annual subscription for access to an online data base of employment legislation until
the end of January 2017.
4. Received $6000 from a client for employing staff for them in January.
5. M. Massenburg invested a further $20 000 additional capital into the business to ensure it has
sufficient cash to continue operations.
6. Purchased new office furniture and equipment on credit for $12 500.
7. Invoiced a client for $7000 for providing advice regarding an industrial dispute they had with
their employees.
8. Paid $720 electricity account the day the account was received.
9. Paid the firm’s lawyers for an account received from them in December for receiving legal
advice, $7100.
10. Paid for the equipment purchased in (6).
11. M. Massenburg withdrew $1200 from the business bank account for personal use.
Required
Indicate with the appropriate letter whether each of the transactions resulted in:
(a)
an increase in assets and a decrease in assets
(b)
an increase in assets and an increase in liabilities
(c)
an increase in assets and an increase in equity
(d)
a decrease in assets and a decrease in liabilities
(e)
a decrease in assets and a decrease in equity
(f)
an increase in liabilities and a decrease in equity
(g)
an increase in equity and a decrease in liabilities.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11
(c) increase in assets and an increase in equity
(e) a decrease in assets and a decrease in equity
(a) an increase in assets and a decrease in assets
(a) increase in assets and a decrease in assets,
(c) increase in assets and an increase in equity
(b) an increase in assets and an increase in liabilities
(c) increase in assets and an increase in equity
(e) a decrease in assets and a decrease in equity
(d) a decrease in assets and a decrease in liabilities
(d) a decrease in assets and a decrease in liabilities
(e) a decrease in assets and a decrease in equity
3.6
Chapter 3: Recording transactions
Exercise 3.4
Normal balance and classification in financial statements
The accounts below appear in the chart of accounts of Brightspark Electrical Services. Show
whether the normal balance is a debit or a credit. Indicate whether the account would appear in
the balance sheet or in the income statement, and under what classification, e.g. liability, asset,
equity, income or expense.
1. Service Vehicles
2. Repairs Expense
3. Prepaid Insurance
4. Accounts Payable
5. Unearned Service Fees
6. Telephone Expense
7. Accounts Receivable
8. Electrical Supplies
9. B.A. Brightspark, Drawings
10. GST Payable
11. GST Receivable
12. Mortgage Payable
13. Interest Revenu
14. B. A. Brightspark, Capital
15. Electrical Services Revenue
BRIGHTSPARK ELECTRICAL SERVICES
Item
Normal
Balance
Statement
1. Service Vehicles
Debit
Balance sheet/Statement of financial
position (asset)
2. Repairs Expense
Debit
Income statement (expense)
3. Prepaid Insurance
Debit
Balance sheet/Statement of financial
position (asset)
4. Accounts Payable
Credit
Balance sheet/Statement of financial
position (liability)
5. Unearned Services Fees
Credit
Balance sheet/Statement of financial
position (liability)
6. Telephone Expense
Debit
Income statement (expense)
7. Accounts Receivable
Debit
Balance sheet/Statement of financial
position (asset)
8. Electrical Supplies
Debit
Balance sheet/Statement of financial
position (asset)
9. B.A, Brightspark,
Drawings
Debit
Balance sheet/Statement of financial
position (deduction from equity)
10. GST Payable
Credit
Balance sheet/Statement of financial
position (liability)
11. GST Receivable
Debit
Balance sheet/Statement of financial
position (asset)
12. Mortgage Payable
Credit
Balance sheet/Statement of financial
position (liability)
3.7
Chapter 3: Recording transactions
13. Interest Revenue
Credit
Income Statement (income)
14. B.A. Brightspark, Capital
Credit
Balance sheet/Statement of financial
position (equity)
15. Electrical Services
Revenue
Credit
Income Statement (income)
3.8
Chapter 3: Recording transactions
Exercise 3.5
Recording transactions in general journal and
analysis
The chart of accounts of Pellham Poster Printers contained the following accounts: Cash at
Bank; Accounts Receivable; Equipment; Accounts Payable; K. Pellham, Drawings; Printing
Fees; Salaries Expense and Advertising Expense. Ignore GST.
The following transactions occurred during the month of June:
June 1
5
9
14
18
22
30
K. Pellham withdrew $850 cash for personal use.
Purchased new equipment for $5000. Paid $500 deposit with the balance to
be paid within 60 days.
Paid for advertising in the local newspaper, $510.
Paid $320 to creditors for office supplies that had been purchased on credit in
the previous month.
Paid salaries of $970.
Received $500 from customers to reduce their account balances.
$12 000 in printing fees were due during the month. Of this, 20% of the fees
were collected in cash and 80% will be paid within 60 days.
Required
A.
Prepare the general journal entries to record the transactions (ignore GST).
B.
For each transaction above, prepare an analysis similar to those shown in illustrative
examples in this chapter of the text.
A.
June
PELLHAM POSTER PRINTERS
(ignoring GST)
1 K. Pellham, Drawings
Cash at Bank
K. Pellham withdrew $850 for personal use.
5 Equipment
Cash at Bank
Accounts Payable
Purchased equipment for cash $500 and the balance
payable in 60 days.
9 Advertising Expense
Cash at Bank
Payment for newspaper advertisements.
$850
$850
5 000
500
4 500
510
510
14 Accounts Payable
Cash at Bank
Payment to suppliers.
320
18 Salaries Expense
Cash at Bank
Payment for newspaper advertisements.
970
22 Cash at Bank
500
320
970
3.9
Chapter 3: Recording transactions
Accounts Receivable
Cash receipts from credit customers.
30 Cash at Bank
Accounts Receivable
Printing Fees Revenue
Printing fees received and receivable.
500
2 400
9 600
12 000
3.10
Chapter 3: Recording transactions
B.
June
1
This transaction is a withdrawal of assets from the business by the owner
and is not an expense related to the earning of income. A debit is made
to the Drawings account to reflect the decrease in the owner’s
investment in the business, and the decrease in the Cash at Bank account
is recorded by a credit.
5
The Equipment account is increased to record the purchase by debiting
the account. At the same time, Cash at Bank is decreased by crediting
the account for the amount of the deposit paid, and a liability, Accounts
Payable is increased by crediting the account for the amount payable in
60 days.
9
Advertising costs are an expense of the business to reflect the cost of
advertising services received as supplied by the newspaper. The business
pays the newspaper for the services rendered to the business by crediting
the Cash at Bank account and debiting the Advertising Expense account.
14
The supplies had been purchased in the previous month; hence, an
Accounts Payable liability account would have been credited at that
time. This month, the payment of the Accounts Payable is recorded by
reducing the liability account (debit) and reducing the Cash at Bank
account (credit) for the amount of the payment.
18
Salaries are an expense of the business to reflect the cost of services
received by the business from its employees. The business pays its
employees for the services they have rendered to the business by
crediting the Cash at Bank account and debiting the Salaries Expense
account.
22
The receipt of cash from credit customers is recorded by a debit to the
Cash at Bank account; and Accounts Receivable is credited to reduce the
amount owing to the business by these customers. Services have
previously been supplied to the customers by the business, and this
transaction reflects the receipt of cash from these customers.
30
This is an income transaction reflecting the amount of printing fees
received or receivable for the month of June. Hence, a revenue account,
called Printing Fees Revenue, is credited and Cash at Bank is debited for
the amount received from customers who paid in cash. For credit
customers, an asset, Accounts Receivable, is debited to record the
amount owing by these customers for services received by them from
the business in June.
3.11
Chapter 3: Recording transactions
Exercise 3.6
Account titles and type
Each of the following items describes aspects of the business of Lenny Linnehan, lawyer:
1. cash which Lenny Linnehan has withdrawn from the business for personal use
2. photocopiers, document binding machine and computers
3. amounts owing by the business to suppliers of an online legal database
4. amounts owing by customers for cases completed
5. tables, wall shelving and book cabinets for staff offices
6. GST charged to clients for legal services
7. money borrowed from a bank
8. lease rental on premises which should have been paid 1 month ago
9. supplies held for future document preparation
10. insurance premium paid in advance to cover the next 6 months.
Required
A.
Suggest an account title for each item described.
B.
Classify the item as an asset, liability, equity, income or expense.
1.
L. Linnehan, Drawings – Equity
2.
Office Equipment – Asset
3.
Accounts Payable – Liability
4.
Accounts Receivable – Asset
5.
Office Equipment – Asset
6.
GST Payable – Liability
7.
Bank Overdraft/Loan Payable – Liability
8.
Rent Payable – Liability
9.
Office Supplies – Asset
10.
Prepaid Insurance – Asset
3.12
Chapter 3: Recording transactions
Exercise 3.7
Chart of accounts, posting to T accounts and
trial balance
The general journal of Lenore Grunweld, Property Adviser, contained the entries below for the
month of July 2016. GST is ignored.
General Journal
Post
Date
Particulars
Ref
Debit
Credit
2016
July
1
Cash at Bank
150 000
Lenore Grunweld, Capital
150 000
(Cash invested by owner)
9
Cash at Bank
15 000
Service Fees Revenue
15 000
(Fees for services performed)
16
Office Equipment
32 000
Cash at Bank
3 200
Accounts Payable
28 800
(Office equipment for cash and on credit)
22
Service Fees Receivable
25 000
Service Fees Revenue
25 000
(Services performed on credit)
31
Cash at Bank
Service Fees Receivable
10 000
10 000
(Cash received from client)
Required
A.
Post the transactions to T accounts. The chart of accounts for the business included the
following accounts:
Cash at Bank
1 – 100
Service Fees Receivable
1 – 200
Office Equipment
1 – 300
Accounts Payable
2 – 100
Lenore Grunweld, Capital
3 – 100
Service Fees Revenue
4 – 100
3.13
Chapter 3: Recording transactions
B.
Prepare a trial balance of the general ledger of Lenore Grunweld, Property Adviser as at
31 July 2016.
A.
Cash at Bank
July 1
July 9
July 31
Lenore Grunweld,
Capital
Service Fees
$150 000 July 16
15 000 July 31
1-100
Office Equipment
Balance c/d
Balance b/d
175 000
171 800
Service Fees Receivable
July 22
$25 000 July 31
Service Fees
Revenue
July 31
1-200
Cash at Bank
Balance c/d
25 000
July 31
Balance b/d
Cash at
Bank/Accounts
Payable
1-300
$32 000
July 16
2-100
Office Equipment
Lenore Grunweld, Capital
July 1
July 9
40 000 July 22
$28 800
3-100
Cash at Bank
Service Fees Revenue
Balance c/d
15 000
15 000
Accounts Payable
July 31
$10 000
25 000
Office Equipment
July 16
171 800
10 000
Service Fees
Receivable
175 000
July 31
$3 200
$150 000
4-100
Cash at Bank
Serv. Fees Rec’ble
40 000
$15 000
25 000
40 000
July 31
Balance b/d
40 000
B.
Account
LENORE GRUNWELD, FINANCIAL ADVISER
Trial Balance
as at 31 July 2016
Debit
Account
Credit
3.14
Chapter 3: Recording transactions
No.
Cash at Bank
1-100
$171 800
Service Fees Receivable
1-200
15 000
Office Equipment
1-300
32 000
Accounts Payable
2-100
$28 800
Lenore Grunweld, Capital
3-100
150 000
Service Fees Revenue
4-100
40 000
$218 800
$218 800
3.15
Chapter 3: Recording transactions
Exercise 3.8
Recording transactions in general journal and
analysis
The following accounts appear in the ledger of the Henrietta’s Huge Hair Hairdressers: Cash at
Bank; Accounts Receivable; Hairdressing Equipment; Accounts Payable; Henrietta Bouffant,
Drawings; Hairdressing Revenue; Salaries Expense; and Advertising Expense.
Required
A. Prepare the general journal entries to record the transactions that occurred during December
(ignore GST).
B. Explain why you have made each of the journal entries to account for the transactions.
Dec.
1
Purchased hair drying equipment for $65 000. Paid $5000 deposit and agreed to
pay the balance in 60 days.
Henrietta withdrew $1200 from the business to buy herself a new dress for a
friend’s wedding.
Paid salaries of $6800.
Paid $800 for advertisements in the local newspaper.
Received $540 from customers to reduce the balance in their accounts.
Paid $3700 to creditors for supplies that had been purchased on credit.
Earned $57 600 in hairdressing revenue during the month. Of these, 80% of the fees
were collected in cash and 20% will be paid within a month.
3
8
14
19
23
30
Dec.
1
3
8
14
19
23
HENRIETTA’S HUGE HAIR HAIRDRESSERS
(ignore GST)
Hairdressing Equipment
65 000
Cash at Bank
Accounts Payable
Purchased hair drying equipment for cash and on
credit.
H. Bouffant, Drawings
Cash at Bank
Cash withdrawn by owner.
1 200
Salaries Expense
Cash at Bank
Salaries paid.
6 800
1 200
6 800
Advertising Expense
Cash at Bank
Cash paid for radio commercials.
800
Cash at Bank
Accounts Receivable
Cash received from credit customers
540
Accounts Payable
Cash at Bank
5 000
60 000
800
540
3 700
3 700
3.16
Chapter 3: Recording transactions
Cash paid to suppliers.
30
Cash at Bank
Accounts Receivable
Hairdressing Revenue
Memberships fees earned.
46 080
11 520
57 600
B.
December
1 The Hairdressing Equipment account is increased to record the purchase by
debiting the account. At the same time, Cash at Bank is decreased by crediting
the account for the amount of the deposit paid, and a liability, Accounts
Payable is increased by crediting the account for the amount of $60 000
payable in 60 days.
3 This transaction is a withdrawal of assets from the business by the owner and is
not an expense related to the earning of income. A debit is made to the
Drawings account to reflect the decrease in the owner’s investment in the
business, and the decrease in the Cash at Bank account is recorded by a credit.
8 Salaries are an expense of the business to reflect the cost of services received
by the business from its employees. The business pays its employees for the
services they have rendered to the business by crediting the Cash at Bank
account and debiting the Salaries Expense account.
14 Advertising costs are an expense of the business to reflect the cost of
advertising services received as supplied by the newspaper. The business pays
the newspaper for the services rendered to the business by crediting the Cash at
Bank account and debiting the Advertising Expense account.
19 The receipt of cash from credit customers is recorded by a debit to the Cash at
Bank account; and Accounts Receivable is credited to reduce the amount
owing to the business by these customers. Services have previously been
supplied to the customers by the business, and this transaction reflects the
receipt of cash from these customers.
23 The supplies had been purchased on a previous occasion; hence, an Accounts
Payable liability account would have been credited at that time. Now, the
payment of the Accounts Payable is recorded by reducing the liability account
(debit) and reducing the Cash at Bank account (credit) for the amount of
$3700.
30 This is an income transaction reflecting the amount of hairdressing revenue
earned (received or receivable) for the month of December. Hence, a revenue
account, called Hairdressing Revenue, is credited and Cash at Bank is debited
for the amount received from customers who paid in cash. For credit
customers, an asset, Accounts Receivable, is debited to record the amount
owing by these customers for services received by them from the business in
December.
3.17
Chapter 3: Recording transactions
Exercise 3.9
Recording transactions in general journal and
analysis
The following information relates to the business of Man Ting’s Travel Agency for the month of
June 2016:
June
1
2
3
6
15
22
25
30
Man Ting Lau invested $120 000 cash into the new business.
The business set up an office by purchasing some office equipment for $36 000
cash.
Man Ting hired an assistant to deal with customers for an annual salary of $42
000, payable in monthly amounts.
The assistant books a holiday to Europe for a client, Wing Ho, for a total cost
of $16 000 (unpaid at this stage). The commission to be kept by the business is
10% of the total cost of the trip when Wing Ho pays in full.
Wing Ho pays $10 000 to Man Ting’s Travel Agency. Of this amount, $4200
represents the total cost of air fares, which will be forwarded to the airline
concerned; and the remainder (excluding the travel agency’s commission) is to
be forwarded to a particular hotel chain to cover the client’s accommodation.
The business pays cash to the airline as payment for Wing Ho’s trip.
The appropriate amount of cash is paid to the hotel chain for Wing Ho’s trip.
The assistant is paid 1 month’s wages in cash.
Required
A. Prepare general journal entries to record the above events, as appropriate, in the
accounting records of Man Ting’s Travel Agency. Ignore GST.
B. Explain why you have made each entry by providing analyses similar to those shown in the
illustrative example in the chapter of the text (p.91).
MAN TING’S TRAVEL AGENCY (ignore GST)
2016
June
1
2
Cash at Bank
Man Ting Lau, Capital
Cash contributed by owner.
Office Equipment
Cash at Bank
Office equipment purchased for cash
3
No entry required
6
No entry required at this point (the booking may be
cancelled!?)
15
Cash at Bank
Accounts Payable
Commission Income
Cash received as part payment for airlines and hotel.
22
Accounts Payable
Cash at Bank
Cash paid to airline.
120 000
120 000
36 000
36 000
10 000
9 000
1 000
4 200
4 200
3.18
Chapter 3: Recording transactions
25
30
Accounts Payable
Cash at Bank
Cash paid to hotel chain as part payment.
4 800
Wages Expense
Cash at Bank
Cash paid for one month’s wages to employee
3 500
4 800
3 500
Note: Commission income is recognised above as cash is received even though, under the
contract, the agency is not ‘entitled’ to the income until the client pays in full. An argument could
also be put with students that the total commission income of $1600 could be recorded on 6 June,
when the trip is booked for the client. Questions to consider:
Has the income been ‘earned’?
Is it probable that it will be received?
[Use AASB 118 paragraph 20 (revenue from services) as a guide].
B.
June
1
This transaction is an investment of cash assets into the business by the owner.
A credit is made to the Capital account (equity) to reflect the increase in the
owner’s investment in the business, and the increase in the Cash at Bank account
(asset) is recorded by a debit.
2
The Office Equipment account is increased to record the purchase by debiting
the account. At the same time, Cash at Bank is decreased by crediting the
account for the amount of the cash paid.
3
No entry is made at this time as the hiring of staff does not represent a
transaction. The assistant is owed nothing as he/she has not yet performed any
services for the business.
6
No entry is made at this date as there is no clear evidence that the entity has
performed services, and it is possible that the booking may be cancelled without
any penalty. [However, an argument could be mounted that part of the income
could be recognised if para. 20 if AASB 118 Revenue is considered to apply and
the percentage of completion of the services can be determined in a faithful,
verifiable manner.]
18
This is an income transaction reflecting the amount of commission earned on the
cash received to date from the client. Hence, an income account, called
Commission Income, is credited for 10% of the cash received, and Cash at Bank
is debited for the amount received from the customer. A liability, Accounts
Payable, is credited to record the amount owing by the business to the airline
and to the hotel chain.
22
The Accounts Payable liability account was credited at that time the amount of
cash was received from the customer. Now, the payment of the Accounts
Payable to the airline is recorded by reducing the liability account (debit) and
reducing the Cash at Bank account (credit) for the amount of $4800.
25
The Accounts Payable liability account was credited at that time the amount of
cash was received from the customer. Now, the payment of the Accounts
Payable to the hotel chain is recorded by reducing the liability account (debit)
and reducing the Cash at Bank account (credit) for the amount of $4200, namely
3.19
Chapter 3: Recording transactions
$9000 – $4200.
30
Wages are an expense of the business to reflect the cost of services received by
the business from its employees. The business pays the assistant for the services
he/she has rendered to the business for the month by crediting the Cash at Bank
account and debiting the Wages Expense account.
3.20
Chapter 3: Recording transactions
Exercise 3.10
Recording transactions in general journal and
general ledger
In December 2016, the following transactions occurred in Macchiato’s Coffee Roasters business
that supplies cafés and also sells direct to the public:
Dec.
2
Michael Macchiato invested $2 650 000 into the business of Macchiato’s
Coffee Roasters by purchasing a fully equipped coffee roasting business. The
business acquired consisted of the following assets and liabilities:
Land
$1 200 000
Building
1 000 000
Coffee roasting equipment
420 000
Office equipment
60 000
Accounts payable
30 000
5
6
12
14
18
23
30
Purchased some new roasting equipment on credit for $160 000.
Collected cash from customers for the month, $220 000.
Paid the accounts payable owing on 2 December when Michael purchased the
business.
Purchased an insurance policy for the year for $6000 cash.
Purchased television advertising for the Christmas — New Year period for
$8000 to be paid for in 30 days.
Collected fees in cash from customers for the Christmas — New Year period,
amounting to $46 000.
Michael withdrew $8000 cash in order to pay for private Christmas presents
and parties.
Required
A. Prepare general journal entries for each of the above transactions and events.
B. Post the entries to ledger T accounts and balance the accounts as at 31 December 2016.
A.
Dec.
2
5
6
12
MACCHIATO’S COFFEE ROASTERS (ignore GST)
Land
1 200 000
Building
1 000 000
Coffee Roasting Equipment
420 000
Office Equipment
60 000
Accounts Payable
Michael Macchiato, Capital
Assets and liabilities contributed by the owner
Coffee Roasting Equipment
Accounts Payable
Purchase of roasting equipment on credit
160 000
Cash at Bank
Coffee Sales
Cash received for coffee sales for December.
220 000
Accounts Payable
30 000
2 650 000
160 000
220 000
30 000
3.21
Chapter 3: Recording transactions
Cash at Bank
Cash paid for creditor for roasting equipment.
14
18
23
30 000
Prepaid Insurance
Cash at Bank
Cash paid in advance for insurance policy.
6 000
6 000
Advertising Expense*
Accounts Payable
Advertising costs over the holiday period
8 000
8 000
Cash at Bank
Coffee Sales
Coffee sales received for the holiday period.
46 000
46 000
30
Michael Macchiato, Drawings
8 000
Cash at Bank
8 000
Cash withdrawn by owner
* Alternatively, debit Prepaid Advertising (asset), as not all of the expense applies to the month of
December.
B.
Cash at Bank
Dec 6 Coffee Sales
220 000 Dec
23 Coffee Sales
46 000
12
Accounts Payable
30 000
14
Prepaid Insurance
6 000
30
Michael
Macchiato,
Drawings
Balance c/d
31
266 000
31 Balance c/d
8 000
222 000
266 000
222 000
Land
Dec 2 Macchiato, Capital
1 200 000
Building
Dec 2 Macchiato, Capital
1 000 00
0
Coffee Roasting Equipment
Dec 2 Macchiato, Capital
5 Accounts Payable
420 000
160 000 Dec
31 Balance c/d
580 000
3.22
Chapter 3: Recording transactions
580 000
31 Balance b/d
580 000
580 000
Office Equipment
Dec 1 Michael Macchiato,
Capital
60 000
Prepaid Insurance
Dec 14 Cash at Bank
6 000
Accounts Payable
Dec 12 Cash at Bank
31 Balance c/d
30 000 Dec 2
168 000
5
18
Macchiato, Capital
Coffee Roasting
Equipment
Advertising
Expense
198 000
30 000
160 000
8 000
198 000
Dec 31
Balance b/d
168 000
Michael Macchiato, Capital
Dec 2
Various Assets
and Acc’s payable
2 650 000
Michael Macchiato, Drawings
Dec 30 Cash at Bank
8 000
Coffee Sales
Dec 31 Balance c/d
266 000
Dec 6
Cash at Bank
220 000
23
Cash at Bank
46 000
266 000
266 000
31
Balance b/d
266 000
Advertising Expense
Dec 18 Cash at Bank
8 000
3.23
Chapter 3: Recording transactions
3.24
Chapter 3: Recording transactions
Exercise 3.11
Analysing ledger accounts
Kelly’s Cleaning Services T accounts for 30 April 2017 were as follows:
Cash at Bank
2/4
80 000
Cleaning Equipment
5/4
17 000
9/4
8 000
10/4
12 000
5/4
17 000
Loan Payable
10/4
48 000
Vehicle
10/4
60 000
Chris Kelly, Capital
2/4
80 000
Cleaning Supplies
9/4
8 000
Required
Analyse the above accounts and describe in chronological order the transactions that have been
recorded.
2017
April
2
5
9
10
Chris Kelly invested $80 000 cash into the business.
Purchased cleaning equipment for cash, $17 000.
Purchased cleaning supplies for cash, $8000.
A vehicle was purchased for a cost of $60 000, the owner paying cash of
$12 000 and the remaining $48 000 being borrowed from a financial
institution.
3.25
Chapter 3: Recording transactions
Exercise 3.12
Identifying and explaining errors
When processing the accounts for Ellise’s Electrical Contractors, the following errors were
made:
(a) Electrical equipment purchased for $7800 cash was debited to Equipment and credited to
Accounts Payable for an incorrect amount of $8700.
(b) Collection of an account receivable for $4500 was recorded by a debit to Cash at Bank and a
debit to the equity account of the owner.
(c) A cheque for $6000 issued to pay for an account payable was recorded as a debit to Accounts
Payable and a credit to Accounts Receivable for $6000.
(d) A $2100 payment for assorted electrical tools was recorded as a debit to Equipment and a
credit to Cash at Bank for $210.
(e) Cash of $2000 withdrawn by the owner from the business was debited to Salaries Expense
and credited to Cash at Bank.
Required
A.
Identify which of the above errors would cause unequal totals in a trial balance prepared
at the end of the period.
B.
Write a brief explanation for each error to indicate how it could be fixed in the
accounting records.
A.
(a)
(b)
(c)
(d)
(e)
B.
(a)
The trial balance will still balance in spite of this error as there is an equal debit and credit
for $8700, even though the credit to the Accounts Payable account was incorrect. The
correct entry should have been to debit Office Equipment and credit Cash at Bank for the
amount of $8700.
There should have been a credit to Accounts Receivable instead of a debit to the Capital
account. This will cause an unequal total in the trial balance because two debit entries
were recorded in error, and no credit.
The trial balance will still balance in spite of this error as there is an equal debit and credit
for $6000, even though the wrong account was credited.
The trial balance will still balance in spite of this error, as the debit and credit were both
equal to $210.
The trial balance will still balance in spite of this error as there is an equal debit and credit
for $2000, even though the wrong account was debited.
To fix this error, the following journal entry is needed:
Accounts Payable
Electrical Equipment
Cash at Bank
Correcting errors made in certain asset and liability
accounts
8 700
900
7 800
This entry will bring the balance in the Office Equipment account to its correct amount of
$7800, as $900 is deducted from the amount already recorded. $8700 is reversed out of
the Accounts Payable account and the correct amount of $7800 is then credited to Cash at
Bank.
(b)
In order to fix this error, the error in the Capital account will need to be eliminated by
crossing out the amount of $4500 from the account; and the debit in the Accounts
3.26
Chapter 3: Recording transactions
(c)
(d)
(e)
Receivable account for $4500 will need to be crossed out and then the amount will need
to be credited to the account.
To fix this error, the entity needs to record another journal entry to debit Accounts
Receivable and to credit Cash at Bank for $6000.
To fix this error, there will need to be an additional journal entry to debit the Equipment
account and credit the Cash at Bank account for $1890.
To fix this error, the entity needs to record another journal entry to debit the Drawings
account and to credit Salaries Expense for $2000.
3.27
Chapter 3: Recording transactions
Exercise 3.13
Preparation of corrected trial balance
Nigel’s Gardening Services trial balance presented below does not balance. In examining the
general journal and the general ledger you discover the following information. Ignore GST.
1. The balance in the Mortgage Payable account is $5400. To fix 900 credit
2. A purchase of lawnmower fuel for cash of $180 was erroneously recorded as a purchase on
credit. Dr accounts payable Cr Cash $180 no overall impact
3. The debits and credits to Accounts Receivable totalled $7600 and $5400 respectively.$2200
balance instead of 530. Dr increase by 1670
4. A $550 payment for salaries was not posted to the Cash at Bank account. Cr cash
5. The debit to record a withdrawal of $600 in cash by the owner was not posted. Dr drawings
Overall impact -900+1670-550+600=820.Will not correct the difference below of 1470.
NIGEL’S GARDENING SERVICES
Trial Balance
as at 30 June 2016
Account
Cash at bank
Accounts receivable
Supplies
Equipment
Debit
$
Credit
2 400
530
8 200
420
Accounts payable
$
2 160
Salaries payable
2 980
Mortgage payable
4 500
Nigel Mower, Capital
6 400
Nigel Mower, Drawings
6 220
Service revenue
13 800
Salaries expense
5 100
Rent expense
3 200
Other expense
2 950
$ 29 020
$ 29 840
Need 1470 debit to fix
3.28
Chapter 3: Recording transactions
Required
Prepare a corrected trial balance.
NIGEL’S GARDENING SERVICES
Trial Balance
as at 30 June 2016
Cash at bank
Accounts receivable
Supplies
Equipment
Debit
$1 670
2 200
Credit
8200
420
Accounts payable
$1980
Salaries payable
2980
Mortgage payable
5 400
Nigel Mower, Capital
6 400
Nigel Mower, Drawings
Service revenue
6 820
Salary expense
5 100
Rent expense
Other expense
3 200
2 950
13 800
$30 560
$30560
3.29
Chapter 3: Recording transactions
Exercise 3.14
Effect of errors on trial balance
A. For each of the following errors:
(a) indicate whether the error would cause the trial balance to have unequal totals
(b) determine the amount by which the trial balance totals would differ
(c) determine whether the error would cause the debit total or the credit total to be larger. Ignore
GST.
1. A $280 credit to Service Revenue was not posted.
2. Receipt of a payment on account from a customer was recorded as a debit to Cash at Bank
for $125 and a credit to Accounts Payable for $125.
3. A purchase of supplies for $57 was recorded as a debit to Supplies for $57 and a credit to
Accounts Payable for $75.
4. A $33 debit to Cash at Bank was posted as a credit.
5. A $250 debit to the Drawings account was debited to the Capital account.
6. A $520 debit to Rent Expense was posted as a $52 debit.
B. How would each error be corrected? Give the correcting journal entry where appropriate.
A and B.
1. (a)
(b)
(c)
Unequal totals
Differ by $280
Debit total larger
2.
(a)
Equal totals
Accounts Payable
Accounts Receivable
3.
(a)
(b)
(c)
Unequal totals
Differ by $18 (divisible by 9)
Credit total larger
Cross out $75 credit and enter
correct amount of $57
4.
(a)
(b)
(c)
Unequal totals
Differ by $33
Credit total larger
Cross out incorrect credit and
post correct debit
5.
(a)
Equal totals
Drawings
Capital
6.
(a)
(b)
(c)
Unequal totals
Differ by $468
Credit total larger
Cross out $52 and enter correct
amount of $520
B. post credit of $280 to Service
Revenue account
125
125
250
250
3.30
Chapter 3: Recording transactions
PROBLEM
SOLUTIONS
Problem 3.1
Identifying type of account, debit/credit analysis and normal
Balance
Tsz Yeung Printers ledger accounts are listed below:
1. Accounts Payable
2. Accounts Receivable
3. Buildings
4. Cash at Bank
5. Electricity Account Payable
6. GST Payable
7. GST Receivable
8. Insurance Expense
9. Interest Expense
10. Interest Receivable
11. Interest Revenue
12. Land
13. Loan Payable
14. Mortgage Payable
15. Prepaid Insurance
16. Printing Equipment
17. Rent Revenue
18. Service Fee Revenue
19. Sundry Revenue
20. Supplies on Hand
21. Supplies Used
22. Tsz Yeung, Capital
23. Tsz Yeung, Drawings
24. Unearned Revenue
25. Wages Expense
26. Wages Payable
Required
A.
For each account listed below, complete a solution form as shown below by placing a tick
in the proper columns to indicate the type of account, the side of a T account on which
increases are recorded, and the side on which normal balances are recorded.
B.
Prepare an appropriate chart of accounts for the business. Use the following digits for
account classes: assets, 1; liabilities, 2; equity, 3; income, 4; expenses, 5. Within each
category, assign a 3-digit code for each account.
A.
Type of Account
Account
Asset
1. Accounts Payable
2. Accounts Receivable

Liability
Increases
Equity
(includes
income
and
expenses)
Debit

Credit
Normal
balance
Debit

Credit



3. Buildings



4. Cash at Bank



5. Electricity Acc Payable.



6. GST Payable



7 GST Receivable



8. Insurance Expense



9. Interest Expense





10. Interest Receivable

3.31
Chapter 3: Recording transactions

11. Interest Revenue
12. Land





13. Loan Payable



14. Mortgage Payable



15. Prepaid Insurance



16. Printing Equipment




17. Rent Revenue
Type of Account
Account
Asset
Liability
18. Service Fee Revenue
Increases
Equity
(includes
income
and
expenses)


21. Supplies Used

22. Tsz Yeung, Capital

23. Tsz Yeung, Drawings

24. Unearned Revenue
Normal
balance
Debit
Credit














Credit



25. Wage Expense
26. Wages Payable
Debit

19. Sundry Revenue
20. Supplies on Hand






3.32
Chapter 3: Recording transactions
B.
TSZ YEUNG PRINTERS
CHART OF ACCOUNTS
Assets (100-199)
Cash at Bank
Accounts Receivable
GST Receivable
Prepaid Insurance
Interest Receivable
Supplies on Hand
Printing Equipment
Land
Buildings
Liabilities (200-299)
Accounts Payable
GST Payable
Wages Payable
Electricity Account Payable
Loan Payable
Unearned Revenue
Mortgage Payable
Equity (300-399)
Tsz Yeung, Capital
Tsz Yeung, Drawings
Income (400-499)
Service Fee Revenue
Rent Revenue
Interest Revenue
Sundry Revenue
Expenses (500-599)
Wages Expense
Supplies Used
Insurance Expense
Interest Expense
Profit or Loss Summary
100
110
115
120
130
140
150
180
190
200
205
210
220
230
240
250
300
310
400
410
420
430
500
510
520
530
600
3.33
Chapter 3: Recording transactions
Problem 3.2
Journal entries, posting to ledger and trial balance
On 1 July 2015 Nicole Andreou opened a beauty parlour. The following transactions occurred
during the first month of operations (ignore GST):
July
2
2
3
4
6
16
20
23
28
31
31
Andreou invested $120 000 in the business by depositing cash into a
business cheque account with the Eastpac Bank.
Paid $1800 for the first month’s rent.
Purchased equipment by an online bank transfer for $32 000 and signing a
commercial loan agreement for $38 000.
Purchased supplies for $8400.
Paid advertising expense of $890.
Recorded beauty services revenue for the first half of the month of $3250 in
cash and $620 on credit.
Paid insurance expense for July of $480 using an online bank transfer.
Received a $140 payment from customers who paid on credit in the first half
of the month.
Andreou withdrew $560 cash for personal living expenses.
Recorded revenue for the second half of the month of $3680 in cash and
$580 on credit.
Paid telephone account of $330 by electronic transfer.
Use the following account titles and numbers: Cash at Bank, 100; Accounts Receivable, 101;
Supplies, 102; Equipment, 103; Loan Payable, 200; Nicole Andreou, Capital, 300; Nicole
Andreou, Drawings, 301; Revenue, 400; Rent Expense, 500; Advertising Expense, 501; Insurance
Expense, 502; Telephone Expense, 503.
Required
A.
Prepare the general journal entries to record the transactions.
B.
Post the entries from the general journal to the general ledger accounts (running balance
format) and enter the posting references in the general journal.
C.
Prepare a trial balance as at 31 July 2015.
A.
General Journal
July
2
2
3
4
Cash at Bank
Nicole Andreou, Capital
Cash invested by owner.
100
300
120 000
Rent Expense
Cash at Bank
Rent paid.
500
100
1 800
Equipment
Cash at Bank
Loan Payable
Equipment purchased for cash and loan
payable.
103
100
200
70 000
Supplies
102
8 400
120 000
1 800
32 000
38 000
3.34
Chapter 3: Recording transactions
6
16
20
23
28
31
31
Cash at Bank
Supplies purchased.
100
8 400
Advertising Expense
Cash at Bank
Cash paid for advertising.
501
100
890
Cash at Bank
Accounts Receivable
Revenue
Revenue for first half of month
100
101
400
3 250
620
Insurance Expense
Cash at Bank
Cash paid for insurance
502
100
480
Cash at Bank
Accounts Receivable
Receipt of payment from customers
100
101
140
Nicole Andreou, Drawings
Cash at Bank
Drawings by owner
301
100
560
Cash at Bank
Accounts Receivable
Revenue
Revenue for second part of month
100
101
400
3 680
580
Telephone Expense
Cash at Bank
Telephone expenses paid
503
100
330
890
3 870
480
140
560
4 260
330
B.
ACCOUNT: Cash at Bank
Date Explanation
Post
Debit
Account No. 100
Credit Balance
3.35
Chapter 3: Recording transactions
Ref
2015
2
7
2
7
3
7
4
7
6
7
16 7
20 7
23 7
28 7
31 7
31 7
Nicole Andreou, Capital
Rent Expense
Equipment
Supplies
Advertising Expense
Revenue
Insurance Expense
Accounts Receivable
Nicole Andreou, Drawings
Revenue
Telephone Expense
ACCOUNT: Accounts Receivable
Date Explanation
120 000
1 800
32 000
8 400
890
3 250
480
140
560
3 680
330
Post
Ref
ACCOUNT: Supplies
Date Explanation
620
140
580
Post
Ref
2015
4
7 Cash at Bank
ACCOUNT: Equipment
Date Explanation
Debit
Post
Ref
Debit
8 400
Account No. 103
Credit Balance
70 000
Post
Ref
Debit
2015
3
7 Equipment
ACCOUNT: Nicole Andreou, Capital
Post
Date Explanation
Ref
2015
2
7 Cash at Bank
70 000
Account No. 200
Credit Balance
38 000
Debit
620
480
1 060
Account No. 102
Credit Balance
8 400
2015
3
7 Cash and Loan Payable
ACCOUNT: Loan Payable
Date Explanation
Account No. 101
Credit Balance
Debit
2015
16 7 Revenue
23 7 Cash at Bank
31 7 Revenue
120 000
118 200
86 200
77 800
76 910
80 160
79 680
79 820
79 260
82 940
82 610
38 000
Account No. 300
Credit Balance
120 00
0
120 000
3.36
Chapter 3: Recording transactions
ACCOUNT: Nicole Andreou, Drawings
Post
Date Explanation
Ref
2015
28 7 Cash at Bank
ACCOUNT: Revenue
Date Explanation
Post
Ref
Account No. 301
Credit Balance
Debit
560
Debit
2015
16 7 Cash and Accounts Receivable
31 7 Cash and Accounts Receivable
ACCOUNT: Rent Expense
Date Explanation
Post
Ref
1 800
Post
Ref
2015
31 7 Cash at Bank
Account No. 501
Credit Balance
Debit
890
Account No. 502
Credit Balance
Debit
2015
20 7 Cash at Bank
ACCOUNT: Telephone Expense
Date Explanation
1 800
890
Post
Ref
480
Post
Ref
3 870
8 130
Account No. 500
Credit Balance
Debit
2015
6
7 Cash at Bank
ACCOUNT: Insurance Expense
Date Explanation
Account No. 400
Credit Balance
3 870
4 260
2015
2
7 Cash at Bank
ACCOUNT: Advertising Expense
Date Explanation
560
480
Account No. 503
Credit Balance
Debit
330
330
C.
Account
NICOLE ANDREOU BEAUTY SALON
Trial Balance
as at 31 July 2015
Debit
Account
No.
Credit
3.37
Chapter 3: Recording transactions
Cash at Bank
100
$82 610
Accounts Receivable
101
1 060
Supplies
102
8 400
Equipment
103
70 000
Loan Payable
200
$38 000
Nicole Andreou, Capital
300
120 000
Nicole Andreou, Drawings
301
Revenue
400
Rent Expense
500
1 800
Advertising Expense
501
890
Insurance Expense
502
480
Telephone Expense
503
330
560
8 130
$166 130
Problem 3.3
$166 130
Preparing general ledger and trial balance
Carrying Your Load provides heavy freight services with large trucks. The following transactions
were Carrying Your Load. Ignore GST.
July
1
Craig Dienhoff invested $620 000 into Carrying Your Load organised to
provide trucking services to remote parts of Australia.
3.38
Chapter 3: Recording transactions
2
4
Purchased a truck for $540 000 on credit from P. Strickland.
Transferred the amount owing to P. Strickland using online banking facilities
to make a direct bank transfer.
Paid $1600 to R. Burton for two weeks rent to 14 July.
Charged White Cattle Station $12 000 for trucking services.
Dienhoff withdrew $4000 cash to meet personal expenses.
Paid $1200 for advertising on local radio.
Received $6200 from Outback Oil for trucking services.
Charged Star Company $9600 and received $9000 from Hardie Company for
trucking services provided.
Received a cheque for $12 000 from White Cattle Station and deposited it into
the business bank account. Paid $8800 for fuel for the truck.
5
9
10
12
12
13
14
Required
A.
Record all transactions directly into ledger T accounts and prepare a trial balance.
B.
Repeat requirement A assuming that a GST of 10% needs to be added for all appropriate
transactions.
A. (ignoring GST)
CARRYING YOUR LOAD
General Ledger
Cash at Bank
1/7
C. Dienhoff, Capital
$620 000
4/7
Accounts Payable
12/7
Revenue
6 200
5/7
Rent Expense
1 600
13/7
Revenue
9 000
10/7
C. Dienhoff, Drawings
4 000
14/7
Accounts
Receivable
12 000
12/7
Advertising Expense
1 200
14/7
Fuel Expense
8 800
14/7
Balance c/d
$647 200
14/7
Balance c/d
$540 00
0
91 600
647 200
91 600
Truck
2/7
Accounts Payable
$540 00
0
Accounts Receivable
9/7
Revenue
$12 000
14/7
Cash at Bank
13/7
Revenue
9 600
14/7
Balance c/d
21 600
14/7
Balance b/d
$12 000
9 600
21 600
9 600
Accounts Payable
4/7
Cash at Bank
$540 00
0
2/7
Truck
$540 00
0
3.39
Chapter 3: Recording transactions
C. Dienhoff, Capital
1/7
Cash at Bank
$620 00
0
C. Dienhoff, Drawings
10/7
Cash at Bank
4 000
Trucking Services Revenue
14/7 Balance c/d
36 800
9/7
Accounts Receivable
$12 000
12/7
Cash at Bank
6 200
13/7
Accounts Receivable
9 600
13/7
Cash at Bank
9 000
36 800
36 800
14/7
Balance b/d
36 800
Rent Expense
5/7
Cash at Bank
1 600
Advertising Expense
12/7
Cash at Bank
1 200
Fuel Expense
12/7
Cash at Bank
8 800
CARRYING YOUR LOAD
Trial Balance
as at 14 July
Cash at Bank
Debit
$91 600
Truck
540 000
Accounts Receivable
C. Dienhoff, Capital
C. Dienhoff, Drawings
Credit
9 600
$620 000
4 000
3.40
Chapter 3: Recording transactions
Trucking Services Revenue
36 800
Rent Expense
1 600
Advertising Expense
1 200
Fuel Expense
8 800
$656 800
$656 800
B. (including GST)
CARRYING THE LOAD
General Ledger
Cash at Bank
1/7
C. Dienhoff, Capital
$620 000
4/7
Accounts Payable
12/7
Revenue/GST Payable
6 820
5/7
Rent Expense/GST
Receivable
1 760
13/7
Revenue/GST Payable
9 900
10/7
C. Dienhoff, Drawings
4 000
14/7
Accounts Receivable
13 200
12/7
Advertising Expense/GST
Receivable
1 320
14/7
Fuel Expense
8 800
14/7
Balance c/d
649 920
14/7
Balance b/d
$594 00
0
40 040
649 920
40 040
Truck
2/7
Accounts Payable
$540 00
0
Accounts Receivable
9/7
Revenue & GST
Payable
$13 200
14/7
Cash at Bank
13/7
Revenue & GST
Payable
10 560
14/7
Balance c/d
$23 760
14/7
Balance b/d
$13 200
10 560
$23 760
10 560
GST Receivable
2/7
Accounts Payable
$54 000
5/7
Cash at Bank
160
12/7
Cash at Bank
120
14/7
54 280
14/7
Balance b/d
Balance c/d
54 280
54 280
54 280
Accounts Payable
3.41
Chapter 3: Recording transactions
4/7
Cash at Bank
$594 00
0
2/7
Truck/GST Rec
$594 00
0
GST Payable
14/7
Balance c/d
3 680
9/7
Accounts Receivable
12/7
Cash at Bank
620
13/7
Cash at Bank
900
13/7
Accounts Receivable
960
3 680
$1 200
3 680
14/7
Balance b/d
3 680
C. Dienhoff, Capital
1/7
Cash at Bank
$620 000
C. Dienhoff, Drawings
10/7
Cash at Bank
4 000
Trucking Services Revenue
14/7
Balance c/d
36 800
9/7
Accounts Receivable
12/7
Cash at Bank
6 200
13/7
Accounts Receivable
9 600
13/7
Cash at Bank
9 000
36 800
$120 00
0
36 800
14/7
Balance b/d
36 800
Rent Expense
5/7
Cash at Bank
1 600
Advertising Expense
12/7
Cash at Bank
1 200
Fuel Expense
12/7
Cash at Bank
8 800
CARRYING YOUR LOAD
Trial Balance
as at 14 July
3.42
Chapter 3: Recording transactions
Cash at Bank
Debit
$40 040
Truck
540 000
Accounts Receivable
GST Receivable
10 560
54 280
GST Payable
$3 680
C. Dienhoff, Capital
C. Dienhoff, Drawings
Credit
620 000
4 000
Trucking Services Revenue
36 800
Rent Expense
1 600
Advertising Expense
1 200
Fuel Expense
8 800
$660 480 $660 480
3.43
Chapter 3: Recording transactions
Problem 3.4
Preparing the general journal
The Arid Sands Golf Club was opened for business on 1 July by Todd Simpson. The following
selected events and transactions occurred during the first month of operations:
July
1
3
6
10
18
19
25
27
29
30
31
The owner invested $2 500 000 cash into the business.
Acquired the business of Jeffrey’s Golf World for $1 800 000 cash. The price
consisted of land $1 000 000, building $650 000, and equipment $150 000.
Advertised the opening of the golf course, paying advertising expenses of $36
000 for a major television campaign.
Paid cash $36 000 for a 1-year insurance policy.
Purchased new golfing equipment for $60 000 from Rory Golfing, payable in
30 days.
Received golf membership fees of $22 000 in cash.
Sold 200 coupon books for $400 each. Every book contains 10 coupons each of
which entitles the holder to one round of golf.
Simpson withdrew $10 000 cash for personal use.
Paid wages of $12 600.
Paid Rory Golfing in full.
Received $12 000 cash for golf fees.
Required
Prepare general journal entries for the month of July, using appropriate account titles. Ignore
GST.
July
1
3
6
10
18
19
Cash at Bank
Todd Simpson, Capital
Cash contributed by owner.
2 500 000
Land
Building
Equipment
Cash at Bank
Jeffrey’s Golf World acquired for cash.
1 000 000
650 000
150 000
2 500 000
1800000
Advertising Expense
Cash at Bank
Cash paid for advertising.
36 000
Prepaid Insurance
Cash at Bank
Cash paid for 1 year insurance policy.
36 000
Golfing Equipment
Accounts Payable
Purchase of golfing equipment from Rory Golfing.
60 000
Cash at Bank
Golf Fees Income
22 000
36 000
36 000
60 000
22 000
3.44
Chapter 3: Recording transactions
Cash received for golf fees.
25
27
29
30
31
Cash at Bank
Unearned Golf Services
Cash received on sale of 200 coupon books for $90
each.
80 000
Todd Simpson, Drawings
Cash at Bank
Cash withdrawn by owner.
10 000
Wages Expense
Cash at Bank
Cash paid for wages
Accounts Payable
Cash at Bank
Cash to Rory Golfing.
12 600
Cash at Bank
Golf Fees Income
Cash received for golf fees.
12 000
80 000
10 000
12 600
60 000
60 000
12 000
3.45
Chapter 3: Recording transactions
Problem 3.5
Journal entries, entering beginning account balances,
posting to T accounts, and trial balance
The 31 May 2017 trial balance of Amy Wait, Physiotherapist, is shown below. Ignore GST.
AMY WAIT, PHYSIOTHERAPIST
Trial Balance
as at 31 May 2017
Account
Cash at bank
Accounts receivable
Supplies
Prepaid insurance
Furniture and equipment
Accounts payable
Electricity account payable
Unearned revenue
A. Wait, Capital
A. Wait, Drawings
Services revenue
Salary expense
Electricity expense
Rent expense
$
Debit
105 000
48 000
12 300
8 200
260 600
Credit
$
9 700
9 500
2 900
314 960
161 200
462 000
$
170 300
9 460
24 000
799 060
$
799 060
The following transactions were completed during June:
June 1
Purchased supplies on credit for $5800.
3
Received $24 400 from patients as payment on account.
6
Paid the electricity expense of $9500, previously recorded.
10
Performed services for $2000 that was recorded previously as unearned
14
revenue.
20
Recorded revenue of $178 600 in cash and $13 650 on credit.
23
Paid salaries of $65 880.
24
Purchased furniture for $15 400 and paid by electronic transfer.
26
Withdrew $60 000 from the business for personal use.
27
Paid creditors $7000.
29
Purchased insurance policy for $24 000 to cover business assets.
30
Received $12 000 from patients as payment on account.
Recorded revenue of $124 600 in cash and $25 000 on credit.
Paid rent of $24 000.
Required
A.
Prepare journal entries to record each transaction.
B.
1.
Open T accounts for the accounts shown in the trial balance.
2.
Enter the 31 May balance in each account.
3.
Post the journal entries to the T accounts.
C.
Prepare a trial balance as at 30 June 2017.
A.
General Journal
(GST ignored)
3.46
Chapter 3: Recording transactions
June
1
3
6
10
14
20
23
24
26
27
29
30
30
Supplies
Accounts Payable
Purchase of supplies on credit.
Cash at Bank
Accounts Receivable
Cash received from patients.
5 800
5 800
24 400
24 400
Electricity Account Payable
Cash at Bank
Payment of electricity account.
9 500
Unearned Revenue
Services Revenue
Revenue previously received.
2 000
Cash at Bank
Accounts Receivable
Services Revenue
Revenue received and receivable.
9 500
2 000
178 600
13 650
192 250
Salary Expense
Cash at Bank
Salaries paid.
65 880
Furniture and Equipment
Cash at Bank
Furniture purchased for cash.
15 400
A. Wait, Drawings
Cash at Bank
Drawings by owner.
60 000
Accounts Payable
Cash at Bank
Payment to creditors.
7 000
65 880
15 400
60 000
7 000
Prepaid Insurance
Cash at Bank
Purchase of insurance policy.
24 000
Cash at Bank
Accounts Receivable
Payment received from debtors.
12 000
Cash at Bank
Accounts Receivable
Services Revenue
Revenue received and on account.
Rent Expense
Cash at Bank
Payment of rent.
24 000
12 000
124 600
25 000
149 600
24 000
24 000
3.47
Chapter 3: Recording transactions
B.
Cash at Bank
31/5
Balance b/d
3/6
Accounts
Receivable
14/6
Services Revenue
178 600 23/6
29/6
Accounts
Receivable
Services Revenue
30/6
105 000 6/6
24 400 20/6
Electricity Account
Payable
Salary Expense
65 880
Furniture & Equipment
15 400
12 000 24/6
A. Wait, Drawings
60 000
124 600 26/6
Accounts Payable
7 000
27/6
Prepaid Insurance
24 000
30/6
Rent Expense
24 000
30/6
Balance c/d
$444 600
30/6
Balance b/d
9 500
238 820
$444 600
238 820
Accounts Receivable
31/5
14/6
Balance b/d
Services Revenue
$48 000 3/6
13 650 29/6
30/6
Services Revenue
25 000 30/6
Cash at Bank
Cash at Bank
24 400
12 000
Balance c/d
50 250
$86 650
30/6
Balance b/d
$86 650
50 250
Supplies
31/5
Balance b/d
12 300
1/6
Accounts Payable
5 800
Balance c/d
18 100
30/6
Balance b/d
18 100
18 100
18 100
Prepaid Insurance
31/5
Balance b/d
$8 200
26/6
Cash at Bank
24 000 30/6
Balance c/d
32 200
30/6
Balance b/d
32 200
32 200
32 200
Furniture and Equipment
31/5
Balance b/d
23/6
Cash at Bank
$260 600
15 400 30/6
276 000
30/6
Balance b/d
Balance c/d
276 000
276 000
276 000
3.48
Chapter 3: Recording transactions
Accounts Payable
26/6
Cash at Bank
31/5
7 000 1/6
30/6
Balance c/d
8 500
Balance b/d
Supplies
15 500
9 700
5 800
15 500
30/6
Balance b/d
8 500
Electricity Account Payable
6/6
Cash at Bank
9 500 31/5
Balance b/d
9 500
Balance b/d
2 900
Unearned Revenue
10/6
Services Revenue
30/6
Balance c/d
2 000 31/5
900
2 900
2 900
30/6
Balance b/d
900
Balance b/d
314 960
A. Wait, Capital
31/5
A. Wait, Drawings
31/5
Balance b/d
24/6
Cash at Bank
161 200
60 000 30/6
Balance c/d
221 200
30/6
Balance b/d
221 200
221 200
221 200
Services Revenue
30/6
Balance c/d
31/5
10/6
Balance b/d
Unearned Revenue
462 000
2 000
14/6
Cash at Bank/AR
192 250
805 850 30/6
Cash at Bank/AR
149 600
805 850
805 850
30/6
Balance b/d
805 850
Balance c/d
236 180
Salary Expense
31/5
Balance b/d
20/6
Cash at Bank
170 300
65 880 30/6
236 180
30/6
Balance b/d
236 180
236 180
3.49
Chapter 3: Recording transactions
Electricity Expense
31/5
Balance b/d
9 460
Rent Expense
31/5
Balance b/d
24 000
30/6
Cash at Bank
24 000 30/6
Balance c/d
48 000
48 000
30/6
Balance b/d
48 000
48 000
C.
Cash at Bank
AMY WAIT, PHYSIOTHERAPIST
Trial Balance
as at 30 June 2017
Debit
$238 820
Accounts Receivable
Supplies
50 250
18 100
Prepaid Insurance
32 200
Furniture and Equipment
276 000
Accounts Payable
Unearned Revenue
$8 500
900
A. Wait, Capital
A. Wait, Drawings
Services Revenue
Salary Expense
Electricity Expense
Rent Expense
Credit
314 960
221 200
805 850
236 180
9 460
48 000
$1 130 210
$1 130 210
3.50
Chapter 3: Recording transactions
Problem 3.6
Journal entries for two consecutive months
Roger’s Repair Services had the following transactions during April and May 2016:
April
1
7
8
11
15
18
23
25
30
2
2
5
12
May
13
14
19
31
Cash is received from a customer, D. Lloyd, $8200.
Repair services are provided on credit to J. Turner for $12 000.
A bill for electricity consumed is received, $720.
Supplies are requisitioned from storage for use in the general office, $280.
A $50 000 loan is taken out with BCSA Bank. Interest is payable at 10% p.a.
A cheque is issued in payment of the electricity account received on 8 April.
Supplies are purchased on account from Harry’s Hardware, $860.
Supplies are requisitioned for use in the office, $360.
Prepaid insurance costs have been used to the extent of $300.
Owner contributes capital of $20 000, by an additional injection of cash.
Rent for the month is paid by cheque, $2200.
Repair equipment is purchased on account from Orange Suppliers, $16 000.
Office fixtures are purchased from OfficeShop for $6000. $500 is paid
immediately with cash, the remainder is due in July.
Repair services performed for clients for cash, $7800.
Payment on account is made by cheque to Trade Suppliers, $22 000.
A salary of $4200 is paid by electronic bank transfer.
Insurance expired, $300.
Required
A.
Assuming that the accounting period is a calendar year, prepare general journal entries
for Roger’s Repair Services during April and May 2017. Ignore GST.
B.
At the end of May, interest is owing on the loan taken out on 15 April with BCSA Bank.
Should this interest be recorded by Roger’s Repair Services in its accounting records?
Why or why not?
A.
General Journal
(GST ignored)
Apr.
1
7
8
11
15
Cash at Bank
Installation Services Revenue
Cash sale of services to D. Lloyd.
Alternatively, this could be recorded as a
receipt of cash from a receivable.
Accounts Receivable
Installation Services Revenue
Credit sale of services to J. Turner
8 200
8 200
12 000
12 000
Electricity Expense
Electricity Account Payable
Electricity bill received
720
Supplies Used
Supplies
Supplies used in general office
280
Cash at Bank
Loan Payable
Loan received from BCSA Bank, interest
720
280
50 000
50 000
3.51
Chapter 3: Recording transactions
at 10% p.a.
18
23
25
30
May
2
2
5
12
13
14
19
31
Electricity Account Payable
Cash at Bank
Payment of electricity account
720
Supplies
Accounts Payable
Purchase of supplies on account
860
Supplies Used
Supplies
Supplies used in general office
360
Insurance Expense
Prepaid Insurance
Prepaid insurance used in April
300
Cash at Bank
Owner’s Capital
Cash injection by owner
Rent Expense
Cash at Bank
Payment of Rent
720
860
360
300
20 000
20 000
2 200
2 200
Repair Equipment
Accounts Payable
Purchase of installation equipment on
account from Orange Suppliers
16 000
Office Fixtures
Accounts Payable
Cash at Bank
Purchase of office fixtures partly on
account from OfficeShop
6 000
Cash at Bank
Repair Services Revenue
Installation services performed for cash
7 800
Accounts Payable
Cash at Bank
Payment to Trade Suppliers
Salary Expense
Cash at Bank
Payment of salary
Insurance Expense
Prepaid Insurance
Insurance used for May
16 000
5 500
500
7 800
22 000
22 000
4 200
4 200
300
300
B.
3.52
Chapter 3: Recording transactions
Interest on the loan should be recorded by Roger’s Repair Services in its accounts because the
accrual basis assumption has been adopted in the recording process. That is, income and expenses
should be recorded when earned and incurred respectively, not when cash has been received or
paid. Consequently, the entity should recognise an additional entry as follows at the end of April,
and a further entry at the end of May, as below
Apr
May
30
31
Interest Expense
Interest Payable
Interest owing to BCSA Bank
(10% × $50 000 × 15/365) – to nearest
whole number
205
Interest Expense
Interest Payable
Interest owing to BCSA Bank
(10% × $50 000 × 31/365) to nearest
whole number
425
205
425
3.53
Chapter 3: Recording transactions
Problem 3.7
Preparation of running balance ledger accounts and trial
balance
On 1 March 2014, James Taylor decided to open Taylor’s Tailormade that makes suits, trousers
and jackets and repairs and alters clothes. He contributed for this purpose sewing equipment
$46 000 and a commercial van $48 000, and deposited $10 000 cash in a business bank account.
Transactions during March were as follows (ignore GST):
March
4
4
6
7
8
11
12
13
14
15
16
17
18
21
23
24
25
28
31
Took a 3-year lease on a shop and paid first month’s rent $1200.
Purchased haberdashery supplies for $4200, and paid with an
electronic transfer of $1200 and paid for the rest with credit.
Cash received for minor clothing repairs, $120.
Revenue earned for tailor making a two piece suit for Andrea Fraser
on credit, $840.
Purchased a sewing machine, $3800, paying $800 cash and taking out
a loan for the balance.
Cash revenue earned, $1260.
Engaged a sewer at an agreed wage of $1100 per week.
Paid petrol $120, postage $20, and electricity bill $760.
Cash of $200 received for over-the-counter repairs.
Revenue of $1500 earned from a customer on credit.
Paid for haberdashery supplies purchased on credit on 4 March.
Withdrew $600 for own use.
Cash revenue received, $380.
Haberdashery supplies purchased for $500 on credit.
Paid wages to employee.
Revenue earned for making clothes: cash $240; on account $1200.
Andrea Fraser paid the bill for services rendered on 6 March.
Petrol expenses paid $80.
Paid weekly wages to employee.
Revenue earned for clothes $2420, receiving $200 in cash and the
remainder on credit.
Haberdashery supplies used, $620.
Required
A.
Prepare three-column running balance ledger accounts. Give each account a suitable
account number.
B.
Prepare a trial balance as at 31 March 2016.
A.
ACCOUNT: Cash at Bank
Date
Explanation
2016
1
3
4
3
4
3
6
3
7
3
8
3
12 3
13 3
James Taylor, Capital
Rent Expense
Haberdashery Supplies
Tailoring Revenue
Sewing Equipment
Tailoring Revenue
Petrol, postage & electricity
Tailoring Revenue
Post
Ref
Account No. 100
Credit Balance
Debit
10 000
1 200
1 200
120
800
1 260
900
200
10 000
8 800
7 600
7 720
6 920
8 180
7 280
7 480
3.54
Chapter 3: Recording transactions
14
15
16
18
21
23
24
25
28
3
3
3
3
3
3
3
3
3
Accounts Payable
James Taylor, Drawings
Tailoring Revenue
Wages Expense
Tailoring Revenue
Accounts Receivable
Fuel Expense
Wages Expense
Tailoring Revenue
3 000
600
380
1 100
240
840
80
1 100
200
ACCOUNT: Haberdashery Supplies
Post
Date
Explanation
Ref
2016
4
3
Cash & Accounts Payable
17 3
Accounts Payable
Haberdashery
Supplies
31 3
Expense
ACCOUNT: Accounts Receivable
Date
Explanation
2016
6
13
21
23
28
3
3
3
3
3
Tailoring Revenue
Tailoring Revenue
Tailoring Revenue
Cash at Bank
Tailoring Revenue
ACCOUNT: Sewing Equipment
Date
Explanation
2016
1
7
Post
Ref
4 200
500
620
Debit
2 220
Post
Ref
Debit
46 000
3 800
Post
Ref
Debit
48 000
Post
Debit
4 200
4 700
4 080
Account No. 110
Credit Balance
840
2016
1
3 James Taylor, Capital
ACCOUNT: Accounts Payable
Date
Explanation
Account No. 101
Credit Balance
840
1 500
1 200
3 James Taylor, Capital
3 Cash & Loan Payable
ACCOUNT: Commercial Vehicles
Date
Explanation
Debit
4 480
3880
4 260
3 160
3 400
4 240
4 160
3 060
3 260
840
2 340
3 540
2 700
4 920
Account No. 112
Credit Balance
46 000
49 800
Account No. 113
Credit Balance
48 000
Account No. 201
Credit Balance
3.55
Chapter 3: Recording transactions
Ref
2016
4
3 Haberdashery Supplies
14
3 Cash at Bank
17
3 Haberdashery Supplies
ACCOUNT: Loan Payable
Date
Explanation
3 000
3 000
500
Post
Ref
Account No. 202
Credit Balance
Debit
2016
7
3 Sewing Equipment
ACCOUNT: James Taylor, Capital
Date
Explanation
3 000
Post
Ref
ACCOUNT: Tailoring Revenue
Date
Explanation
Debit
104 000
Post
Ref
3 000
Account No. 300
Credit Balance
2016
1
3 Cash, Van and Equipment
ACCOUNT: James Taylor, Drawings
Post
Date
Explanation
Ref
2016
15
3 Cash at Bank
3 000
0
500
104 000
Account No. 301
Credit Balance
Debit
600
Debit
600
Account No. 340
Credit Balance
2016
6
6
8
12
3
3
3
3
Cash at Bank
Accounts Receivable
Cash at Bank
Cash at Bank
120
840
1 260
200
120
960
2 220
2420
13
16
21
28
3
3
3
3
Cash & Accounts Rec.
Cash at Bank
Cash & Accounts Rec.
Cash & Bills Rec.
1500
380
1 440
2 420
3 920
4 300
5 740
8160
ACCOUNT: Rent Expense
Date
Explanation
2016
4
3 Cash at Bank
Post
Ref
Debit
1 200
Account No. 351
Credit Balance
1 200
3.56
Chapter 3: Recording transactions
ACCOUNT: Fuel Expense
Date
Explanation
Post
Ref
Debit
2016
12
3 Cash at Bank
24
3 Cash at Bank
ACCOUNT: Electricity Expense
Date
Explanation
120
80
Post
Ref
760
Post
Ref
20
Post
Ref
2016
18
3 Cash at Bank
25
3 Cash at Bank
ACCOUNT:
Haberdashery
Expense
Date
Explanation
2016
31
3 Haberdashery Supplies
760
Account No. 354
Credit Balance
Debit
2016
12
3 Cash at Bank
ACCOUNT: Wages Expense
Date
Explanation
120
200
Account No. 353
Credit Balance
Debit
2016
12
3 Cash at Bank
ACCOUNT: Postage Expense
Date
Explanation
Account No. 352
Credit Balance
20
Account No. 355
Credit Balance
Debit
1 100
1 100
Supplies
Post
Ref
1 100
2 200
Account No. 356
Debit
Credit
620
Balance
620
3.57
Chapter 3: Recording transactions
B.
TAYLOR’S TAILORMADE
Trial Balance
as at 31 March 2016
Account
Account
No.
Debit
Credit
Cash at bank
100
$3 260
Haberdashery supplies
101
4 080
Accounts receivable
110
4 920
Sewing equipment
112
49 800
Commercial vehicles
113
48 000
Accounts payable
201
500
Loan payable
202
3 000
James Taylor, Capital
300
104 000
James Taylor, Drawings
301
Tailoring revenue
340
Rent expense
351
1 200
Fuel expense
352
200
Electricity expense
353
760
Postage expense
354
20
Wages expense
355
2 200
Haberdashery supplies expense
356
620
600
8160
$115 660
$115660
3.58
Chapter 3: Recording transactions
Problem 3.8
Policy decision, analysis and chart of accounts
Lewis Edwards decides to branch out on his own and set up his own private practice as an
accountant. Events occurring in March 2016 are as follows. Ignore GST.
March
1
2
3
4
7
8
12
14
19
24
31
Deposited $500 000 into a business bank account, set up under the business
name of Lewis Edwards, Accountant.
Hired an office secretary who commenced work immediately.
Paid $6200 for the first month’s rent of a suitable office.
Purchased office equipment and furniture for a total of $43 800. An initial
$3800 is paid in cash immediately and the rest is to be paid in 3 months’
time, with interest payable at 10% p.a.
Paid $1800 for a 1-year insurance policy on the office equipment, effective
from 1 March 2016.
Paid $2600 in cash for office supplies.
Sent invoices to a number of clients for services rendered for a total amount
of $14 000.
Edwards withdrew $1200 cash from the business for personal use. Paid the
office secretary $1300 for services rendered to the business.
Received $8000 in cash from clients billed on 12 March.
Received $16 000 in cash from clients who paid immediately for services
rendered. These clients were not invoiced previously.
Paid $8000 for sundry expenses and wages of $1300 to the office secretary
for the previous fortnight’s work.
Required
A. After analysing the events above, suggest a chart of accounts, with appropriate
numbering, that would be satisfactory for the business. Explain why you have used
particular numbering in the chart of accounts.
B. Prepare general journal entries as necessary for each of the events, using the chart of
accounts that you have created.
C. Explain why you have made these journal entries by an analysis similar to that shown in
the illustrative example in this chapter of the text (p.91).
A.
A suggested chart of account for Lewis Edward’s business is as follows:
LEWIS EDWARDS, ACCOUNTANT
CHART OF ACCOUNTS
Assets (100-199)
Cash at Bank
100
Accounts Receivable
110
Prepaid Insurance
120
Prepaid Rent
130
Office Supplies
140
Office Equipment and Furniture
150
Accumulated Depreciation – Office Equipment and
155
Furniture
Liabilities (200-299)
Accounts Payable
200
Wages Payable
210
Electricity Account Payable
220
Loan Payable
230
Unearned Revenue
240
Interest Payable
250
Equity (300-399)
3.59
Chapter 3: Recording transactions
Lewis Edwards, Capital
Lewis Edwards, Drawings
Income (400-499)
Accounting Fees Revenue
Sundry Revenue
Expenses (500-599)
Wages Expense
Office Supplies Used
Rent Expense
Insurance Expense
Depreciation Expense
Interest Expense
Electricity Expense
Telephone and Internet Expense
Sundry Expense
Profit or Loss Summary
300
310
400
410
500
510
520
530
540
550
560
570
580
600
The numbering system in the chart of accounts is based on the idea of placing like items
with the same first number, e.g. all assets begin with 1, all liabilities with 2 etc. The threedigit numbering system allows for flexibility of adding many new accounts if they are
needed in future.
Several accounts are included in the chart of accounts even though the transactions which
have occurred to date do not use them. For example, Telephone and Internet Expense,
Depreciation Expense and Accumulated Depreciation on the office equipment and
furniture, interest expense and interest payable.
B.
GENERAL JOURNAL
for March 2016
Mar.
1
Cash at Bank
Lewis Edwards, Capital
Cash invested by owner.
100
300
500 000
5 000
2
No entry required on the hiring of staff.
3
Prepaid Rent
Cash at Bank
Office rent paid for the month in
advance. Alternatively debit Rent
Expense.
130
100
6 200
Office Equipment and Furniture
Cash at Bank
Loan Payable
Purchase of office equipment and
furniture by paying cash and incurring an
interest-bearing 3-month loan.
150
100
230
43 800
Prepaid Insurance
120
1 800
4
7
6 200
3 800
40 000
3.60
Chapter 3: Recording transactions
8
12
14
14
19
24
31
Motor Vehicles
Prepaid 1-year insurance policy on office
equipment.
100
Office Supplies
Cash at Bank
Acquisition of office supplies.
140
100
Accounts Receivable
Accounting Fees Revenue
Accounting services invoiced
customers.
1 800
2 600
2 600
110
400
14 000
Lewis Edwards, Drawings
Cash at Bank
Cash withdrawn by owner.
310
100
1 200
Wages Expense
Cash at Bank
Payment of wages.
500
100
1 300
Cash at Bank
Accounts Receivable
Accounting fees received and receivable.
100
110
8 000
Cash at Bank
Accounting Fees Revenue
Receipt of accounting fees from clients.
100
400
16 000
Wages Expense
Sundry Expense
Cash at Bank
Payment of wages and sundry expenses.
500
580
100
1 300
8 000
14 000
to
1 200
1 300
8 000
16 000
9 300
C.
March
1 This transaction is an investment of cash assets into the business by
the owner. A credit is made to the Owner’s Capital account (equity)
to reflect the increase in the owner’s investment in the business, and
the increase in the Cash at Bank account (asset) is recorded by a
debit.
2 No entry is made at this time as the hiring of staff does not represent
a transaction. The office secretary is owed nothing as he/she has not
yet performed any services for the business.
3 Rent is an expense of the business to reflect the cost of services
received by the business through the use of a suitable office.
However, since the rent is paid in advance of use, Prepaid Rent (an
asset) is debited to record the future rental services paid for in
advance, and Cash at Bank is credited to reflect the reduction in cash
from the cash outflow. Alternatively, an expense account, Rent
Expense, could have been debited, as the rent expenditure relates to
3.61
Chapter 3: Recording transactions
the current month only.
4 The Office Equipment and Furniture account (asset) is increased to
record the purchase by debiting the account. At the same time, Cash
at Bank is decreased by crediting the account for the amount of the
cash paid; and a liability account, Loan Payable, is credited to record
the increased liability to be paid in 3 months’ time. However, at this
point in time, no entry is made for any future interest payable as the
entity has not yet incurred the interest cost, which accrues as time
goes by.
7 Insurance is an expense of the business to reflect the cost of
insurance services received by the business. However, since the
insurance is paid in advance of use for a period of 12 months,
Prepaid Insurance (an asset) is debited to record the future services
paid for in advance, and Cash at Bank is credited to reflect the cash
outflow.
8 Office supplies represent an asset of the business to be used over
time. Hence, Office Supplies (an asset) is debited to record the
future services to be received from those supplies, and Cash at Bank
is credited to reflect the cash outflow. As time goes by and the
supplies are used by the business, an expense account, Supplies
Used, will be debited, and the Asset, Office Supplies, will be
credited to reflect the supplies used up in the day-to-day business
operations.
12 This is an income transaction reflecting the amount of accounting
fees receivable so far for the month of March. Hence, a revenue
account, called Accounting Fees Revenue, is credited and an asset,
Accounts Receivable, is debited to record the amount owing by
these customers for services received by them from the business.
14 The withdrawal of cash by the owner from the business is not an
expense of the business but is regarded as a reduction of the owner’s
capital. It is recorded by debiting a special (negative) equity account,
Lewis Edwards, Drawings, to distinguish it from the owner’s capital
account, which records capital contributions made by the owner.
Cash at Bank is credited to record the reduction of cash held by the
business.
14 Wages are an expense of the business to reflect the cost of services
received by the business from its employees. The business pays the
office secretary for the services he/she has rendered to the business
for the month by crediting the Cash at Bank account and debiting the
Wages Expense account.
19 The receipt of cash from credit clients is recorded by a debit to the
Cash at Bank account; and Accounts Receivable is credited to
reduce the amount owing to the business by these clients.
Accounting services have previously been supplied to the clients by
the business, and this transaction reflects the receipt of cash from
them.
3.62
Chapter 3: Recording transactions
24 This is an income transaction reflecting accounting fees earned so
far for the month of March. Hence, a revenue account, called
Accounting Fees Revenue, is credited and the asset, Cash at Bank, is
debited to record the amount received from these clients who paid
immediately for the accounting services obtained from the business.
31 Wages are an expense of the business to reflect the cost of services
received by the business from its employees. The business pays the
office secretary for the services he/she has rendered to the business
for the month by crediting the Cash at Bank account and debiting the
Wages Expense account. Sundry Expenses (not clear what they are
for) are also recorded as a debit to the expense account and a credit
to Cash at Bank.
3.63
Chapter 3: Recording transactions
Problem 3.9
Journal entries, T accounts and trial balance
On 1 April 2015, Kenny’s Equipment Hire opened for operations. Kenny Kowslowski contributed
the capital of the business of $720 000 cash. He has asked you to be record-keeper for the
business on a part-time basis, and you initially establish the need for the following accounts (and
numbers). Additional accounts may need to be added in the near future. GST is ignored.
Cash at Bank
Accounts Receivable
Land
Building
Motor Vehicles
Hire Equipment
Accounts Payable
Mortgage Payable
Kenny Kowslowski, Capital
Kenny Kowslowski, Drawings
Equipment Hire Income
100
110
120
130
150
170
220
250
300
310
320
During April the following transactions were undertaken by the business, including the initial
investment by the owner:
April
1
2
4
7
10
13
28
29
30
Kenny Kowslowski contributed $720 000 to the business.
The business acquired land for $300 000 and a building on the land for
$160 000. A cash payment of $100 000 was made and a mortgage loan with
the Bank of Australia was arranged for the balance owing.
Purchased gardening, maintenance and repair equipment to hire out to
customers for $450 000 from General Equipment Manufacturers. The
business paid $200 000 cash, and the remainder was due to be paid in 30
days.
A garden mulcher was transferred from the business to the owner, Kenny
Kowslowski, for cost price of $2500.
A trailer was found to be defective, and the business returned it to General
Equipment Manufacturers. The amount due to the creditor was reduced by
$12 000.
The business acquired some computer equipment for the main office at a total
cost of $8200, paid in cash.
Equipment hire income of $21 600 was received in cash.
Paid the remaining cash owing to General Equipment Manufacturers.
The business paid wages of $2200 to you for keeping the accounts.
Equipment hire income of $14 400 was received in cash and an additional
$6000 remained owing by clients.
Required
A.
Prepare general journal entries for the business for the month of April.
B.
Post these entries to appropriate T accounts and determine their balances.
C.
Provide an analysis for each transaction to explain each entry you have made in A..
A.
April
1
Cash at Bank
100
720 000
3.64
Chapter 3: Recording transactions
2
4
7
10
13
Kenny Kowslowski, Capital
Cash invested by owner.
300
720 000
Land
Building
Mortgage Payable
Cash at Bank
Land and buildings acquired for cash and
under mortgage.
120
130
250
100
300 000
160 000
Hire Equipment
Cash at Bank
Accounts Payable
Equipment purchased for cash and on
credit.
150
100
220
450 000
Kenny Kowslowski, Drawings
Hire Equipment
Equipment withdrawn by owner.
310
150
2 500
Accounts Payable
Hire Equipment
Equipment returned to supplier.
220
100
12 000
Office Equipment
Cash at Bank
Acquisition of computer equipment.
170
100
8 200
360 000
100 000
200 000
250 000
2 500
12 000
8 200
3.65
Chapter 3: Recording transactions
28
29
30
30
Cash at Bank
Equipment Hire Income
Hire income received from customers.
100
320
21 600
Accounts Payable
Cash at Bank
Payment to equipment supplier
220
100
238 000
Wages Expense
Cash at Bank
Payment of wages
420
100
2 200
Cash at Bank
Accounts Receivable
Equipment Hire Income
Rental income received and receivable
100
110
320
14 400
6 000
21 600
238 000
2 200
20 400
B.
Cash at Bank
Apr 2
28
K. Kowslowski,
Capital
Equip Hire Income
30
Equip Hire Income
720 000 Apr
2
Land, Building
100 000
21 600
4
Hire Equipment
200 000
14 400
13
Office Equipment
8 200
29
Accounts Payable
238 000
30
Wages Expense
30
Balance c/d
756 000
May 1
Balance b/d
Equip Hire Income
Cash and Mortgage
Payable
756 000
Cash and Mortgage
Payable
110
120
300 000
Building
Apr 2
207 600
6000
Land
Apr 2
2200
207600
Accounts Receivable
Apr 30
100
130
160 000
3.66
Chapter 3: Recording transactions
Hire Equipment
Apr 4
Cash and Accounts
Payable
450 000 Apr
150
7
10
K. Kowslowski,
Drawings
Accounts Payable
30
Balance c/d
450 000
30
Balance b/d
29
Cash at Bank
170
8 200
Hire Equipment
Cash at Bank
12 000 Apr
220
4
Hire Equipment
250 000
238 000
250 000
250 000
Mortgage Payable
Apr
250
2
Land, Building
Kenny Kowslowski, Capital
Apr
1
Kenny Kowslowski, Drawings
Apr 7
435 500
435 500
Accounts Payable
Apr 10
12 000
450 000
Office Equipment
Apr 13
2 500
Hire Equipment
360 000
300
Cash at Bank
720 000
310
2 500
3.67
Chapter 3: Recording transactions
Equipment Hire Income
Apr 28
30
Apr 30
Balance c/d
320
Cash at Bank
21 600
Cash at Bank and
Accounts
Receivable
20 400
42 000
42 000
42 000
Apr 30
Wages Expense
Apr 30
Cash at Bank
Balance b/d
42 000
420
2 200
C.
April
1 This transaction is an investment of cash assets into the
business by the owner. A credit is made to the Owner’s Capital
account (equity) to reflect the increase in the owner’s
investment in the business, and the increase in the Cash at Bank
account (asset) is recorded by a debit.
2 The Land account and the Buildings account (assets) are
increased to record the acquisition by debiting the accounts. At
the same time, Cash at Bank is decreased by crediting the
account for the amount of the cash paid; and a liability account,
Mortgage Payable, is credited to record the amount to be paid
to the Bank of Australia. However, at this point in time, no
entry is made for any future interest payable as the entity has
not yet incurred the interest cost, which accrues as time goes
by.
4: The Hire Equipment account (asset) is increased to record the
purchase of the equipment by debiting the account. At the same
time, Cash at Bank is decreased by crediting the account for the
amount of the cash paid; and a liability account, Accounts
Payable, is credited to record the amount to be paid in 30 days.
7 The withdrawal of equipment by the owner from the business is
not an expense of the business but is regarded as a reduction of
the owner’s capital. It is recorded by debiting a special
(negative) equity account, Kenny Kowslowski, Drawings, to
distinguish it from the owner’s capital account, which records
capital contributions made by the owner. The Hire Equipment
account is credited to record the withdrawal of the vehicle from
the business.
10 The return of the defective equipment to the dealer is recorded
by debiting the liability, Accounts Payable, as this represents a
reduction of the amount due to be paid by the business to the
dealer. The Hire Equipment account is credited to record the
decrease in the assets held by the entity.
3.68
Chapter 3: Recording transactions
13 The Office Equipment account (asset) is increased to record the
purchase of the computer equipment by debiting the account.
At the same time, Cash at Bank is decreased by crediting the
account for the amount of the cash paid.
28 This is an income transaction reflecting the amount of car rental
fees received from clients so far for the month of April. Hence,
an income/revenue account, called Equipment Hire Income, is
credited and an asset, Cash at Bank, is debited to record the
amount paid in by these customers for services received by
them from the business.
29 Cash payments made to a creditor are recorded by reducing the
liability account, Accounts Payable, previously established on 4
April, by debiting the account; at the same time Cash at Bank is
credited to record the reduction in the cash asset.
30 Wages are an expense of the business to reflect the cost of
services received by the business from its employees. The
business pays you as an employee for keeping the accounts for
the month by crediting the Cash at Bank account and debiting
the Wages Expense account.
30 This is an income transaction reflecting car rental income
earned during the month of A. Hence, a revenue account, called
Equipment Hire Income, is credited and the asset, Cash at
Bank, is debited to record the amount received from these
clients who paid immediately for the rental services obtained
from the business. The Accounts Receivable is also debited to
record the amount owing to the business by clients who have
previously been supplied with equipment hire services by the
business.
3.69
Chapter 3: Recording transactions
Problem 3.10
Preparation of trial balance, balance sheet
And report to the owner
Peter’s Personal Training Service had been in business for several years. In June 2016, as a
result of a dispute with the owner, the accountant of the business disappeared and took all the
records with her.
You have been hired to reconstruct the accounting records, and with this in mind, you conduct a
stocktake of all of the assets of the business. By checking with banks, counting the office
equipment and supplies, and investigating the ownership of the buildings and equipment, you
develop the following information as at 30 June 2016:
Account title
Land
Office Equipment
Buildings
Accounts Receivable
Investments
Office Supplies
Cash at Bank
Balance
$ 90 000
145 000
172 000
57 500
30 000
80 000
320 000
Statements from creditors and unpaid invoices found in the office indicate that $230 000 is owing
to trade creditors. There is also $60 000 owing under a 30-year mortgage with the bank. The
owner, Peter Piper, has told you that he had contributed $150 000 cash to the business when it
was established and that no further contributions had been made. There is no record of how much
total profit(losses) had been earned in past years.
Required
A.
Prepare a trial balance and balance sheet as at 30 June 2016 for the business.
B.
Write a report to the owner suggesting a simple accounting system that could be used in
future and why you recommend such a system.
A.
PETER’S PERSONAL TRAINING SERVICE
Trial Balance
as at 30 June 2016
Account
Cash at bank
Debit
$320 000
Accounts receivable
57 500
Land
90 000
Buildings
Investments
Office equipment
Office supplies
Credit
172 000
30 000
145 000
80 000
Accounts payable
$230 000
Mortgage payable
60 000
3.70
Chapter 3: Recording transactions
Peter Piper, Capital
604 500
$894 500
$894 500
PETER’S PERSONAL TRAINING SERVICE
Balance Sheet
as at 30 June 2016
ASSETS
Cash at bank
Accounts receivable
Office supplies
Land
Buildings
Investments
Office equipment
TOTAL ASSETS
$320 000
57 500
80 000
90 000
172 000
30 000
145 000
$894 500
LIABILITIES
Accounts payable
Mortgage payable
TOTAL LIABILITIES
NET ASSETS
$230 000
60 000
290 000
$604 500
EQUITY
Peter Piper, Capital
TOTAL EQUITY
$604 500
$604 500
B.
Report to Peter Piper, Owner of Peter’s Personal Training Service
Having investigated and found out the significant assets and liabilities that you have in your
business, I wish to advise you that the business will need to develop a suitable accounting system
in order to keep proper accounting records, so as to develop financial statements for your own
needs and for the needs of others, e.g. the taxation office.
I suggest that you need to develop a suitable double-entry accounting system so that the complete
accounting cycle can be followed from beginning to end. This will assist you to keep track of
every transaction as it affects your business, and develop an appropriate audit trail in order to
generate information if errors are made or if items go missing. Assistance in developing the
accounting cycle is available by contacting your local accountant who will advise you of a
suitable accounting package (electronic or manual) to use, and who will help to set up the system
for you.
Signed _____________________________
Date_____________________
3.71
Chapter 3: Recording transactions
Problem 3.11
Journal entries, posting to running balance ledger accounts,
And trial balance for 2 consecutive months
In December 2016, Mike Mills opened a miniature golf course to cater for the summer holiday
tourists and completed the transactions below during its first month of operations. For the sake of
simplicity, GST is ignored.
Dec.
1
2
4
6
15
24
31
31
31
Invested $90 000 capital in the business.
Purchased golf clubs and balls and other equipment costing $80 000 for
$40 000 cash and a loan for $40 000.
Paid $1500 for advertising.
Purchased supplies on credit for $6200.
Recorded cash revenue for the first half of the month of $8400.
Withdrew $720 from the business bank account for personal use.
Recorded cash revenue for the second half of the month of $10 100.
Paid wages of $2700.
Paid rent for December, $2400.
Use the following account titles and numbers:
Cash at Bank, 1–100
Supplies, 1–110
Equipment, 1–120
Accounts Payable, 2–100
Loan Payable, 2–110
M. Mills, Capital, 3–100
M. Mills, Drawings, 3–110
Revenue, 4–100
Rent Expense, 5–100
Advertising Expense, 5–110
Wages Expense, 5–120
Required
A.
Prepare general journal entries to record the December transactions.
B.
Post the entries from the general journal to running balance general ledger accounts and
enter the posting references in the journal.
C.
Prepare a trial balance as at 31 December 2016.
The following transactions took place in January:
Jan.
4
8
13
14
15
21
31
31
Paid $1800 of the amount owed for supplies.
Paid $820 for advertisements in local newspaper.
Mike withdrew $1000 from the business for personal use.
Recorded cash revenue for the first half of January of $7800.
Paid wages of $2400 in cash.
Purchased supplies on credit for $3100.
Recorded cash revenue for the second half of January of $9400.
Paid rent for January, $2400.
Required
D.
Prepare journal entries to record the January transactions.
E.
Post the entries to the ledger.
F.
Prepare a trial balance as at 31 January 2017.
A.
General Journal (December)
3.72
Chapter 3: Recording transactions
(GST ignored)
2016
Dec.
1
2
4
6
15
24
31
31
31
Cash at Bank
M.Mills, Capital
Cash invested by owner
1-100
3-100
90 000
Equipment
Cash at Bank
Loan Payable
Equipment purchased
for cash and loan payable
1-120
1-100
2-110
80 000
Advertising Expense
Cash at Bank
Cash paid for advertising
5-110
1-100
1 500
Supplies
Accounts Payable
Supplies purchased on credit
1-110
2-100
6 200
Cash at Bank
Revenue
Cash revenue for first half of month
1-100
4-100
8 400
M. Mills, Drawings
Cash at Bank
Cash drawings by owner
3-110
1-100
720
Cash at Bank
Revenue
Cash revenue for second part of month
1-100
4-100
10 100
Wages Expense
Cash at Bank
Wages paid
5-120
1-100
2 700
Rent Expense
Cash at Bank
Rent paid
5-100
1-100
2 400
90 000
40 000
40 000
1 500
6 200
8 400
720
10 100
2 700
2 400
B. and E.
ACCOUNT: Cash at Bank
Date
Explanation
2016
1
12
2
12
4
12
15 12
24 12
31 12
M. Mills, Capital
Equipment
Advertising
Revenue
M. Mills, Drawings
Revenue
Post
Ref
Debit
Account No. 1-100
Credit Balance
90 000
40 000
1 500
8 400
720
10 100
90 000
50 000
48 500
56 900
56 180
66 280
3.73
Chapter 3: Recording transactions
31 12
31 12
2017
4
1
8
1
13 1
14 1
15 1
31 1
31 1
Wages
Rent
2 700
2 400
63 580
61 180
Accounts Payable
Advertising
M. Mills, Drawings
Revenue
Wages
Revenue
Rent
1 800
820
1 000
59 380
58 560
57 560
65 360
62 960
72 360
69 960
ACCOUNT: Supplies
Date
Explanation
2016
6
12
2017
21 1
7 800
2 400
9 400
2 400
Post
Ref
Debit
Accounts Payable
6 200
6 200
Accounts Payable
3 100
9 300
ACCOUNT: Equipment
Date Explanation
Post
Ref
ACCOUNT: Accounts Payable
Date
Explanation
80 000
Post
Ref
Debit
Supplies
Cash at Bank
Supplies
ACCOUNT: Loan Payable
Date
Explanation
2016
2
12
Account No. 1-120
Credit Balance
Debit
2016
2
7 Cash and Loan
2016
6
12
2017
4
1
21 1
Account No. 1-110
Credit Balance
Account No. 2-100
Credit Balance
6 200
6 200
3 100
4 400
7 500
1 800
Post
Ref
Debit
Equipment
ACCOUNT: M. Mills, Capital
Date
Explanation
80 000
Account No. 2-110
Credit Balance
40 000
Post
Ref
Debit
40 000
Account No. 3-100
Credit Balance
2016
3.74
Chapter 3: Recording transactions
1
12
Cash at Bank
ACCOUNT: M. Mills, Drawings
Date
Explanation
2016
24 12
2017
13 1
Cash at Bank
1 000
1 720
Post
Ref
Account No. 4-100
Credit Balance
Debit
Cash at Bank
Cash at Bank
8 400
10 100
8 400
18 500
Cash at Bank
Cash at Bank
7 800
9 400
26 300
35 700
Post
Ref
Account No. 5-100
Credit Balance
Debit
Cash at Bank
2 400
2 400
Cash at Bank
2 400
4 800
Post
Ref
Account No. 5-110
Credit Balance
Debit
Cash at Bank
1 500
1 500
Cash at Bank
820
2 320
ACCOUNT: Wages Expense
Date
Explanation
2016
31 12
2017
Debit
720
ACCOUNT: Advertising Expense
Date
Explanation
2016
4
12
2017
8
1
Account No. 3-110
Credit Balance
720
ACCOUNT: Rent Expense
Date
Explanation
2016
31 12
2017
31 1
Post
Ref
90 000
Cash at Bank
ACCOUNT: Revenue
Date
Explanation
2016
15 12
31 12
2017
14 1
31 1
90 000
Cash at Bank
Post
Ref
Debit
2 700
Account No. 5-120
Credit Balance
2 700
3.75
Chapter 3: Recording transactions
15
1
Cash at Bank
2 400
5 100
C.
MIKE’S MINI GOLF
Trial Balance
as at 31 December 2016
Account
Account
No.
1-100
Credit
Cash at bank
1-100
$61 180
Supplies
1-110
6 200
Equipment
1-120
80 000
Accounts payable
2-100
6 200
Loan payable
2-110
40 000
M. Mills, Capital
3-100
90 000
M. Mills, Drawings
3-110
Revenue
4-100
Rent expense
5-100
2 400
Advertising expense
5-110
1 500
Wages expense
5-120
2 700
720
18 500
$154 700
$154 700
D.
General Journal (January) (GST Ignored)
2017
Jan.
4
8
13
14
15
Accounts Payable
Cash at Bank
Payment for supplies
2-100
1-100
1 800
Advertising Expense
Cash at Bank
Payment for advertising
5-110
1-100
820
M. Mills, Drawings
Cash at Bank
Withdrawal by owner
3-110
1-100
1 000
Cash at Bank
Revenue
Cash revenue for first half of month
1-100
4-100
7 800
Wages Expense
Cash at Bank
Payment for wages
5-120
1-100
2 400
1 800
820
1 000
7 800
2 400
3.76
Chapter 3: Recording transactions
21
31
31
Supplies
Accounts Payable
Supplies purchased on credit
1-110
2-100
3 100
Cash at Bank
Revenue
Cash revenue for second half of month
1-100
4-100
9 400
Rent Expense
Cash at Bank
Rent paid for January
5-100
1-100
2 400
3 100
9 400
2 400
F.
MIKE’S MINI GOLF
Trial Balance
as at 31 January 2017
Account
Account
No
Debit
Credit
Cash at bank
1-100
$69 960
Supplies
1-110
9 300
Equipment
1-120
80 000
Accounts payable
2-100
7 500
Loan payable
2-110
40 000
M. Mills, Capital
3-100
90 000
M. Mills, Drawings
3-110
Revenue
4-100
Rent expense
5-100
4 800
Advertising expense
5-110
2 320
Wages expense
5-120
5 100
1 720
35 700
$173 200
$173 200
3.77
Chapter 3: Recording transactions
Problem 3.12
Journal entries, posting to running balance ledger accounts,
and trial balance for 2 consecutive months
(including GST)
Using the data in problem 3.11, complete requirements A to F assuming the addition of GST of
10% where appropriate. Round your answers to the nearest dollar.
A.
B.
C.
D.
E.
F.
Prepare general journal entries to record the December transactions. Assume that, for
the transaction of 2 December, the loan agreement remains at $40 000. Add two new
accounts: GST Receivable 1-105 and GST Payable 2-150
Post the entries from the general journal to running balance general ledger accounts and
enter the posting references in the journal.
Prepare a trial balance as at 31 December 2016.
Prepare journal entries to record the January transactions.
Post the entries to the ledger.
Prepare a trial balance as at 31 January 2017.
A.
General Journal (December)
(GST included )
2016
Dec.
1
2
4
6
15
Cash at Bank
M.Mills, Capital
Cash invested by owner
1-100
3-100
90 000
Equipment
GST Receivable
Cash at Bank
Loan Payable
Equipment purchased
for cash and loan payable
1-120
1-105
1-100
2-110
80 000
8 000
Advertising Expense
GST Receivable
Cash at Bank
Cash paid for advertising
5-110
1-105
1-100
1 500
150
Supplies
GST Receivable
Accounts Payable
Supplies purchased on credit
1-110
1-105
2-100
6 200
620
Cash at Bank
GST Payable
Revenue
Cash revenue for first half of month
1-100
2-150
4-100
9 240
90 000
48 000
40 000
1 650
6 820
840
8 400
3.78
Chapter 3: Recording transactions
24
31
31
31
M. Mills, Drawings
Cash at Bank
Cash drawings by owner
3-110
1-100
720
Cash at Bank
GST Payable
Revenue
Cash revenue for second part of month
1-100
2-150
4-100
11 110
Wages Expense
Cash at Bank
Wages paid
5-120
1-100
2 700
Rent Expense
GST Receivable
Cash at Bank
Rent paid
5-100
1-105
1-100
2 400
240
720
1 010
10 100
2 700
2 640
B. and E.
ACCOUNT: Cash at Bank
Date
Explanation
2016
1
12
2
12
4
12
15 12
24 12
31 12
31 12
31 12
2017
4
1
8
1
13 1
14 1
15 1
31 1
31 1
90 000
48 000
1 650
9 240
720
11 110
2 700
2 640
Accounts Payable
Advertising & GST Rec
M. Mills, Drawings
Revenue & GST Pay
Wages
Revenue & GST Pay
Rent & GST Rec
Equipment, Cash and Loan
Advertising & Cash
Supplies & Accounts
Payable
Account No. 1-100
Credit Balance
Debit
M. Mills, Capital
Equipment & GST Rec
Advertising & GST Rec
Revenue & GST Pay
M. Mills, Drawings
Revenue & GST Pay
Wages
Rent & GST Rec
ACCOUNT: GST Receivable
Date
Explanation
2016
2
12
4
12
6
12
Post
Ref
1 800
902
1 000
8 580
2 400
10 340
2 640
Post
Ref
Debit
8 000
150
620
90 000
42 000
40 350
49 590
48 870
59 980
57 280
54 640
52 840
51 938
50 938
59 518
57 118
67 458
64 818
Account No. 1-105
Credit Balance
8 000
8 150
8 770
3.79
Chapter 3: Recording transactions
31 12
2017
8
1
21 1
31
1
Rent & Cash
240
9 010
Advertising & Cash
Supplies & Accounts
Payable
Rent & Cash
82
310
9 092
9 402
240
9 642
ACCOUNT: Supplies
Date
Explanation
2016
6
12
2017
21 1
Post
Ref
6 200
6 200
Accounts Payable
3 100
9 300
Post
Ref
2016
2
7 Cash and Loan
ACCOUNT: Accounts Payable
Date
Explanation
Debit
80 000
Post
Ref
Debit
Cash at Bank
Supplies
80 000
Account No. 2-100
Credit Balance
6 820
6 820
3 410
5 020
8 430
1 800
Post
Ref
Debit
Equipment
ACCOUNT: GST Payable
Date
Explanation
2016
15 12
31 12
2107
14 1
Account No. 1-120
Credit Balance
Supplies
ACCOUNT: Loan Payable
Date
Explanation
2016
2
12
Debit
Accounts Payable
ACCOUNT: Equipment
Date Explanation
2016
6
12
2017
4
1
21 1
Account No. 1-110
Credit Balance
Account No. 2-110
Credit Balance
40 000
Post
Ref
Debit
40 000
Account No. 2-150
Credit Balance
Cash & Revenue
Cash & Revenue
840
1 010
840
1 850
Cash & Revenue
780
2 630
3.80
Chapter 3: Recording transactions
31
1
Cash & Revenue
ACCOUNT: M. Mills, Capital
Date
Explanation
2016
1
12
90 000
Post
Ref
90 000
Account No. 3-110
Credit Balance
Debit
720
Cash at Bank
1 000
1 720
Post
Ref
Account No. 4-100
Credit Balance
Debit
Cash at Bank
Cash at Bank
8 400
10 100
8 400
18 500
Cash at Bank
Cash at Bank
7 800
9 400
26 300
35 700
Post
Ref
Account No. 5-100
Credit Balance
Debit
Cash at Bank
2 400
2 400
Cash at Bank
2 400
4 800
ACCOUNT: Advertising Expense
Date
Explanation
2016
4
12
2017
8
1
Account No. 3-100
Credit Balance
720
ACCOUNT: Rent Expense
Date
Explanation
2016
31 12
2017
31 1
Debit
3 570
Cash at Bank
ACCOUNT: Revenue
Date
Explanation
2016
15 12
31 12
2017
14 1
31 1
Post
Ref
Cash at Bank
ACCOUNT: M. Mills, Drawings
Date
Explanation
2016
24 12
2017
13 1
940
Post
Ref
Account No. 5-110
Credit Balance
Debit
Cash at Bank
1 500
1 500
Cash at Bank
820
2 320
3.81
Chapter 3: Recording transactions
ACCOUNT: Wages Expense
Date
Explanation
2016
31 12
2017
15 1
Post
Ref
Account No. 5-120
Credit Balance
Debit
Cash at Bank
2 700
2 700
Cash at Bank
2 400
5 100
C.
MIKE’S MINI GOLF
Trial Balance
as at 31 December 2016
Account
Account
No.
1-100
Credit
Cash at bank
1-100
$54 640
GST receivable
1-105
9 010
Supplies
1-110
6 200
Equipment
1-120
80 000
Accounts payable
2-100
6 820
Loan payable
2-110
40 000
GST Payable
2-150
1 850
M. Mills, Capital
3-100
90 000
M. Mills, Drawings
3-110
Revenue
4-100
Rent expense
5-100
2 400
Advertising expense
5-110
1 500
Wages expense
5-120
2 700
720
18 500
$157 170
$157 170
D.
General Journal (January) (GST Included )
2017
Jan.
4
Accounts Payable
Cash at Bank
2-100
1-100
1 800
1 800
3.82
Chapter 3: Recording transactions
Payment for supplies
8
13
14
15
21
31
31
Advertising Expense
GST Receivable
Cash at Bank
Payment for advertising
5-110
1-105
1-100
820
82
M. Mills, Drawings
Cash at Bank
Withdrawal by owner
3-110
1-100
1 000
Cash at Bank
GST Payable
Revenue
Cash revenue for first half of month
1-100
2-150
4-100
8 580
Wages Expense
Cash at Bank
Payment for wages
5-120
1-100
2 400
Supplies
GST Receivable
Accounts Payable
Supplies purchased on credit
1-110
1-105
2-100
3 100
310
Cash at Bank
GST Payable
Revenue
Cash revenue for second half of month
1-100
2-150
4-100
10 340
Rent Expense
GST Receivable
Cash at Bank
Rent paid for January
5-100
1-105
1-100
2 400
240
902
1 000
780
7 800
2 400
3 410
940
9 400
2 640
F.
MIKE’S MINI GOLF
Trial Balance
as at 31 January 2017
Account
Account
No
Debit
Credit
3.83
Chapter 3: Recording transactions
Cash at bank
1-100
$64 818
GST receivable
1-105
9 642
Supplies
1-110
9 300
Equipment
1-120
80 000
Accounts payable
2-100
8 430
Loan payable
2-110
40 000
GST Payable
2-150
3 570
M. Mills, Capital
3-100
90 000
M. Mills, Drawings
3-110
Revenue
4-100
Rent expense
5-100
4 800
Advertising expense
5-110
2 320
Wages expense
5-120
5 100
1 720
35 700
$177 700
$177 700
3.84
Chapter 3: Recording transactions
Problem 3.13
Journal entries, posting to running balance ledger accounts,
And trial balance
In September 2016, Niem Duong opened a car hire business. The following transactions occurred
during the first month of the business (ignore GST).
Sep.
1
3
4
5
15
18
19
24
27
29
30
Niem opened a bank account to begin the business and deposited $500 000 of
her own money.
Paid $1200 rent for the premises for September.
Purchased ten motor vehicles costing $40 000 each and equipment costing $36
000 with $300 000 cash and a commercial loan for the balance.
Purchased supplies costing $12 500 on credit.
Recorded revenue for the first half of the month of $14 600 in cash and $28
500 on credit.
Paid for supplies purchased on 5 September.
Paid insurance expense for September of $5000.
Received payment from customers on account of $12 400 and banked the
receipts.
Purchased supplies costing $6200 on credit.
Recorded revenue for the second half of the month of $12 500 in cash and $32
800 on credit.
Paid fuel expense of $16 200 in cash.
Use the following account titles and numbers:
Cash at Bank, 1–101
Accounts Receivable, 1–102
Supplies, 1–110
Equipment, 1–120
Motor Vehicles, 1-130
Accounts Payable, 2–101
Loan Payable, 2–110
N. Duong, Capital, 3–101
Revenue, 4–101
Rent Expense, 5–110
Insurance Expense, 5–120
Fuel Expense, 5–130
Required
A.
Journalise the above transactions.
B.
Post the entries from the general ledger to running balance general ledger accounts and
enter the posting references in the general journal.
C.
Prepare a trial balance as at 30 September 2016.
D.
Repeat requirements A to C adding a GST of 10% where necessary. Add two extra
accounts: GST Receivable, 1-105, and GST Payable 2-150
Also assume the following:
1.
The cash paid 4 September was for $343 600.
2.
The receipt on 24 September was for $13 640.
A.
General Journal
3.85
Chapter 3: Recording transactions
2016
Sep.
1
3
4
5
15
18
19
Cash at Bank
N. Duong, Capital
Cash invested by owner
1-101
3-101
500 000
Rent Expense
Cash at Bank
Rent paid
5-110
1-101
1 200
Motor Vehicles
Equipment
Cash at Bank
Loan Payable
Equipment purchased for cash and
loan payable
1-130
1-120
1-101
2-110
400 000
36 000
Supplies
Accounts Payable
Supplies purchased
1-110
2-101
12 500
Cash at Bank
Accounts Receivable
Revenue
Revenue for first half of month
1-101
1-102
4-101
14 600
28 500
Accounts Payable
Cash at Bank
Payment for supplies
2-101
1-101
12 500
Insurance Expense
Cash at Bank
Cash paid for insurance
5-120
1-101
5 000
500 000
1 200
300 000
136 000
12 500
43 100
12 500
5 000
3.86
Chapter 3: Recording transactions
24
27
29
30
Cash at Bank
Accounts Receivable
Receipt of payment from customers
1-101
1-102
12 400
Supplies
Accounts Payable
Supplies purchased
1-110
2-101
6 200
Cash at Bank
Account Receivable
Revenue
Revenue for second part of month
1-101
1-102
4-101
12 500
32 800
Fuel Expense
Cash at Bank
Telephone expense paid
5-130
1-101
16 200
12 400
6 200
45 300
16 200
B.
ACCOUNT: Cash at Bank
Date
Explanation
2016
1
9
3
9
4
9
15 9
18 9
19 9
24 9
29 9
30 9
N. Duong, Capital
Rent Expense
Equipment
Revenue
Accounts Payable
Insurance Expense
Accounts Receivable
Revenue
Fuel Expense
ACCOUNT: Accounts Receivable
Date
Explanation
15
24
27
9
9
9
9
9
Accounts Payable
Accounts Payable
ACCOUNT: Equipment
Debit
500 000
1 200
300 000
14 600
12 500
5 000
12 400
12 500
16 200
Post
Ref
Revenue
Cash at Bank
Revenue
ACCOUNT: Supplies
Date
Explanation
5
27
Post
Ref
Account No. 1-101
Balanc
Credit
e
Debit
Account No. 1-102
Credit Balance
28 500
12 400
32 800
Post
Ref
Debit
12 500
6 200
500 000
498 800
198 800
213 400
200 900
195 900
208 300
220 800
204 600
28 500
16 100
48 900
Account No. 1-110
Credit Balance
12 500
18 700
Account No. 1-120
3.87
Chapter 3: Recording transactions
Date
4
Post
Ref
Explanation
9
Cash and Loan Payable
ACCOUNT: Motor Vehicles
Date
Explanation
4
9
5
18
27
9
9
9
Cash and Loan Payable
9
Supplies
Cash at Bank
Supplies
Equipment
Receivable
9
9
9
9
Account No. 2-101
Credit Balance
6 200
&
Post
Ref
Debit
GST
Post
Ref
Debit
Debit
Cash and Receivables
Cash & Receivables
Cash at Bank
ACCOUNT: Insurance Expense
Date
Explanation
Debit
1 200
Post
Ref
Debit
500 000
Account No. 4-101
Credit Balance
43 100
45 300
Post
Ref
136 000
Account No. 3-101
Credit
Balance
500 000
Post
Ref
12 500
0
6 200
Account No. 2-110
Credit Balance
136 000
Cash at Bank
ACCOUNT: Rent Expense
Date
Explanation
3
Debit
400 000
12 500
ACCOUNT: Revenue
Date
Explanation
15
29
Account No. 1-130
Credit Balance
12 500
ACCOUNT: N. Duong, Capital
Date
Explanation
1
Debit
Balance
36 000
400 000
Post
Ref
ACCOUNT: Loan Payable
Date
Explanation
4
Credit
36 000
Post
Ref
ACCOUNT: Accounts Payable
Date
Explanation
Debit
43 100
88 400
Account No. 5-110
Credit Balance
1 200
Account No. 5-120
Credit Balance
3.88
Chapter 3: Recording transactions
19
9
Cash at Bank
5 000
ACCOUNT: Fuel Expense
Date
Explanation
30
9
Cash at Bank
Post
Ref
Debit
5 000
Account No. 5-130
Credit Balance
16 200
16 200
C.
NIEM DUONG, CAR HIRE
Trial Balance
as at 30 September 2016
Account
Account
No.
Debit
Credit
Cash at bank
1-101
$204 600
Accounts receivable
1-102
48 900
Supplies
1-110
18 700
Equipment
1-120
36 000
Motor vehicles
1-130
400 000
Accounts payable
2-101
6 200
Loan payable
2-110
136 000
N. Duong, Capital
3-101
500 000
Revenue
4-101
88 400
Rent expense
5-110
1 200
Insurance expense
5-120
5 000
Fuel expense
5-130
16 200
$730 600
$730 600
3.89
Chapter 3: Recording transactions
D.
General Journal with gst
2016
Sep.
1
3
4
5
15
18
19
Cash at Bank
N. Duong, Capital
Cash invested by owner
1-101
3-101
500 000
Rent Expense
GST Receivable
Cash at Bank
Rent paid
5-110
1-105
1-101
1 200
120
Motor Vehicles
Equipment
GST Receivable
Cash at Bank
Loan Payable
Equipment purchased for cash and
loan payable
1-130
1-120
1-105
1-101
2-110
400 000
36 000
43 600
Supplies
GST Receivable
Accounts Payable
Supplies purchased
1-110
1-105
2-101
12 500
1 250
Cash at Bank
Accounts Receivable
GST Payable
Revenue
Revenue for first half of month
1-101
1-102
2-150
4-101
16 060
31 350
Accounts Payable
Cash at Bank
Payment for supplies
2-101
1-101
13 750
Insurance Expense
GST Receivable
Cash at Bank
Cash paid for insurance
5-120
1-105
1-101
5 000
500
500 000
1 320
343 600
136 000
13 750
4 310
43 100
13 750
5 500
3.90
Chapter 3: Recording transactions
24
27
29
30
Cash at Bank
Accounts Receivable
Receipt of payment from customers
1-101
1-102
13 640
Supplies
GST Receivable
Accounts Payable
Supplies purchased
1-110
1-105
2-101
6 200
620
Cash at Bank
Account Receivable
GST Payable
Revenue
Revenue for second part of month
1-101
1-102
2-150
4-101
13 750
36 080
Fuel Expense
GST Receivable
Cash at Bank
Telephone expense paid
5-130
1-105
1-101
16 200
1 620
B.with gst
ACCOUNT: Cash at Bank
Date
Explanation
2016
1
9
3
9
4
9
15 9
18 9
19 9
24 9
29 9
30 9
N. Duong, Capital
Rent Expense & GST Rec
Equipment
Revenue & GST Pay
Accounts Payable
Insurance Expense & GST
Accounts Receivable
Revenue & GST Pay
Fuel Expense & GST Rec
ACCOUNT: Accounts Receivable
Date
Explanation
15
24
27
9
9
9
9
9
Cash at Bank
Cash at Bank/Loan Payable
Debit
6 820
4 530
45 300
17 820
Account No. 1-101
Credit
Balance
500 000
1 320
343 600
16 060
13 750
5 500
13 640
13 750
17 820
Post
Ref
Revenue & GST Pay
Cash at Bank
Revenue & GST Pay
ACCOUNT: GST Receivable
Date
Explanation
3
4
Post
Ref
13 640
Debit
Account No. 1-102
Credit Balance
31 350
13 640
36 080
Post
Ref
Debit
120
43 600
500 000
498 680
155 080
171 140
157 390
151 890
165 530
179 280
161 460
31 350
17 710
53 790
Account No. 1-105
Credit Balance
120
43 720
3.91
Chapter 3: Recording transactions
5
15
27
30
9
9
9
9
Accounts Payable
Cash at Bank
Accounts Payable
Cash at Bank
1 250
500
620
1 620
ACCOUNT: Supplies
Date
Explanation
5
27
9
9
Post
Ref
Accounts Payable
Accounts Payable
9
Post
Ref
Cash and Loan Payable
ACCOUNT: Motor Vehicles
Date
Explanation
4
9
9
9
9
Cash and Loan Payable
9
Supplies & GST Rec
Cash at Bank
Supplies & GST Rec
Equipment
Receivable
&
ACCOUNT: GST Payable
Date
Explanation
15
27
9
9
Cash & Accounts Rec
Cash & Accounts Rec
Account No. 1-120
Credit Balance
Debit
36 000
Account No. 1-130
Credit Balance
400 000
Post
Ref
Debit
400 000
Account No. 2-101
Credit Balance
13 750
13 750
6 820
ACCOUNT: Loan Payable
Date
Explanation
4
Debit
12 500
18 700
36 000
Post
Ref
ACCOUNT: Accounts Payable
Date
Explanation
5
18
27
Account No. 1-110
Credit Balance
12 500
6 200
ACCOUNT: Equipment
Date
Explanation
4
Debit
44 970
45 470
46 090
47 710
Post
Ref
Debit
GST
Account No. 2-110
Credit Balance
136 000
Post
Ref
Debit
13 750
0
6 820
136 000
Account No. 2-150
Credit Balance
4 310
4 530
4 310
8 840
3.92
Chapter 3: Recording transactions
ACCOUNT: N. Duong, Capital
Date
Explanation
1
9
9
9
500 000
Post
Ref
9
9
C.
9
Post
Ref
Cash at Bank
Cash at Bank
Debit
Debit
1 200
Account No. 5-120
Credit Balance
5 000
Post
Ref
Debit
43 100
88 400
Account No. 5-110
Credit Balance
1 200
ACCOUNT: Fuel Expense
Date
Explanation
30
Post
Ref
500 000
Account No. 4-101
Credit Balance
43 100
45 300
Cash at Bank
ACCOUNT: Insurance Expense
Date
Explanation
19
Debit
Cash and Receivables
Cash & Receivables
ACCOUNT: Rent Expense
Date
Explanation
3
Debit
Cash at Bank
ACCOUNT: Revenue
Date
Explanation
15
29
Post
Ref
Account No. 3-101
Credit
Balance
5 000
Account No. 5-130
Credit Balance
16 200
16 200
with gst
NIEM DUONG, CAR HIRE
Trial Balance
as at 30 September 2016
Account
Account
No.
Debit
Credit
Cash at bank
1-101
$161 460
Accounts receivable
1-102
53 790
GST receivable
1-105
47 710
Supplies
1-110
18 700
Equipment
1-120
36 000
Motor vehicles
1-130
400 000
Accounts payable
2-101
6 820
Loan payable
2-110
136 000
3.93
Chapter 3: Recording transactions
GST payable
2-150
8 840
N. Duong, Capital
3-101
500 000
Revenue
4-101
88 400
Rent expense
5-110
1 200
Insurance expense
5-120
5 000
Fuel expense
5-130
16 200
$740 060
$740 060
3.94
Chapter 3: Recording transactions
Problem 3.14
Correction of errors
Your first assignment on your new job was to determine why the 31 December 2015 trial balance
did not balance. In your review of the records you uncovered a number of errors described below:
1. The Sundry Expense account with a balance of $245 was omitted from the trial balance.
2. A payment of $890 on the electricity account payable was not posted to the Electricity
Account Payable account, but was posted correctly to the Cash at Bank account.
3. A $2587 debit to Cash at Bank was posted as $2857.
4. A $360 credit was credited to the Accounts Receivable account but should have been made to
the Services Revenue account instead.
5. A cash receipt of $480 from customers in settlement of their accounts was posted twice to the
Cash at Bank account and the Accounts Receivable account.
6. The Accounts Payable account balance of $36 700 was listed in the trial balance as $37 600.
7. A $2560 credit to Services Revenue was posted as a $256 credit. The debit to Cash at Bank
was for the correct amount.
8. A purchase of office supplies for $350 on credit was not recorded.
9. A purchase of a delivery truck for $125 000 using a loan was posted as a debit to the Loan
Payable account and a debit to the Equipment account.
10. The Drawings account balance of $16 000 was listed as a credit balance in the trial balance.
11. A $1300 payment to employees for their weekly salaries was credited to Cash at Bank only
once but was posted twice to the Wages Expense account.
Required
A.
Indicate in the table below how each error would affect the trial balance totals. If the
error does not cause the trial balance to be out of balance and you tick ‘no‘ in the third
column, write ‘equal‘ in the Difference Between Trial Balances Totals column. Each
error is to be treated independently of the others.
B.
Prepare the journal entries necessary to correct errors number 4, 5, and 8.
A.
Error
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Would the error cause the Trial
balance to be out of balance?
Yes
No











Difference Between
Trial Balance
Totals ($)
245
890
270
Equal
Equal
900
2 304
Equal
250 000
32 000
1 300
Column
Largest
Debit
Having
Total
Credit








B.
General Journal
3.95
Chapter 3: Recording transactions
4.
5
8
Accounts Receivable
Services Revenue
To correct error
360
Accounts Receivable
Cash at Bank
To correct error
480
Supplies
Accounts Payable
To correct error
350
360
480
350
3.96
Chapter 3: Recording transactions
CASE STUDY
SOLUTIONS
Decision analysis
Abby’s Pony Club
Abby Forbes owns and operates Abby’s Pony Club. The club’s main sources of income are riding
fees and lesson fees, which are paid on a cash basis. In addition, the club boards a limited
number of horses for owners, who are charged monthly for the boarding fees. The club owns six
horses, a small riding yard, riding equipment and office equipment. The club employs several
stable hands and an office employee, who receive weekly salaries. At the end of the month,
accounts are received for advertising, electricity and veterinary services. The other major
expense the club incurs is hay and feed for the horses.
Abby’s Pony Club maintains the following general ledger accounts: Cash at Bank; Boarding
Accounts Receivable; Hay and Feed Supplies; Horses; Building; Riding Yard; Riding Equipment;
Office Equipment; Accounts Payable; Abby Forbes, Capital; Abby Forbes, Drawings; Riding
Revenue; Lesson Revenue; Boarding Revenue; Salaries Expense; Advertising Expense; Electricity
Expense; Veterinary Fees Expense; and Hay and Feed Expense.
Following the retirement of the club’s accountant, Abby employed an inexperienced bookkeeper
who has kept the records for the last month of operations and made 38 entries for the month.
Abby is concerned the bookkeeper may have made some errors and has asked you to review the
following eight general journal entries. In each case the narration is correct. GST is ignored.
General Journal
Date
Particulars
Debit
Credit
2016
June
1
Cash at Bank
30 000
Abby Forbes, Capital
30 000
(Abby invested $30 000 cash in the business)
5
Hay and Feed Expense
3 700
Cash at Bank
3 700
(Purchased supply of hay and feed on account, $3700)
9
Riding Equipment
1 600
Cash at Bank
1 600
(Purchased office desk for $1600 cash)
10
Cash at Bank
500
Lesson Revenue
500
(Received $500 for lesson fees)
12
Cash at Bank
1 200
3.97
Chapter 3: Recording transactions
Boarding Revenue
1 200
(Received $1200 for boarding of horses billed last month)
18
Salaries Expense
700
Cash at Bank
700
(Issued cheque to Abby for personal expenses)
20
Veterinary Fees Expense
270
Accounts Payable
270
(Received an account for $270 from a
veterinarian for services rendered)
22
Cash at Bank
340
Riding Revenue
340
(Received $340 for riding fees)
Required
A.
Decide which general journal entries are correct and which ones are incorrect.
B.
For each general journal entry that is incorrect, prepare the correcting journal entry.
C.
Which of the incorrect journal entries would prevent the trial balance from balancing?
D.
What was the correct profit figure for June, assuming the bookkeeper originally had
calculated profit to be $4500 after posting all the entries for the month?
E.
What was the correct cash at bank balance at 30 June assuming the bookkeeper reported
a balance of $5420 after posting all the entries for the month?
A. B. & C.
June 1
June 5
June 9
A.
Journal entry
correct
Journal entry
incorrect
B.
C.
No adjustment
Cash at Bank
3 700
Accounts Payable
Hay & Feed Supplies
3 700
Hay & Feed Expenses
Journal entry
incorrect
Office Equipment
Riding Equipment
June 10
Journal entry
correct
No adjustment
June 12
Journal entry
incorrect
Boarding Revenue
1 200
Boarding Accounts Receivable
3 700
Trial Balance would
balance but postings in
wrong accounts.
3 700
1 600
1 600
Trial Balance would
balance, but postings
to wrong account.
1 200
Trial Balance would
balance, but posting to
wrong account.
3.98
Chapter 3: Recording transactions
June 18
Journal entry
incorrect
Abby Forbes, Drawings
Salaries Expense
June 20
Journal entry
correct
No adjustment
June 22
Journal entry
correct
No adjustment
700
700
Trial Balance would
balance, but posting to
wrong account.
D.
Adjusted Profit (adjust only for incorrect postings to income and expense accounts).
$4500 – $1200 + $3700 + $700 = $7700
E.
Adjusted Cash at Bank balance (adjust only for incorrect postings to Cash at Bank
account).
$5420 + $3700 = $9120
3.99
Chapter 3: Recording transactions
Ethics and
governance
Big Business Tobacco Co. Ltd
Big Business Tobacco (BBT) is a large Australian producer of tobacco products including a
market-leader brand of cigarettes. With the continuing development of Asian countries such as
China and its move to a market-based economy, the company has made the decision to sell its
cigarettes in this large market from the beginning of next month. The cigarettes will be sold in
packs of 40.
Mary Bender, marketing manager, is discussing the design of the cigarette packet for the Asian
market with Randall Hedges, the company’s public relations manager. Having agreed on the
basic design of the pack, Hedges raised the issue of whether to include the normal health warning
on the pack, which has to be displayed under Australian law. He emphasised recent medical
findings which predicted many hundreds of thousands of deaths from cigarette smoking in the
next few years, particularly in the developing countries.
Mary Bender was strongly opposed to including a ‘health hazard’ warning on the packs
destined for parts of the Asian market. She explained: ‘In this business it is the bottom line (i.e.
profits) which matters — we have to think of our shareholders. BBT stands to lose a considerable
market share to competitors if it includes such a warning. Besides, it is not a legal requirement in
many Asian countries to display a health warning on cigarette packs. If Asian law is subsequently
amended then we will be one of the first to comply. Besides, the managing director supports me
on this one.’
Hedges expressed a final opinion: ‘The company could be better off in the long term by being
seen to be acting with corporate responsibility, and demonstrating some concern for its
consumers. Besides, such warnings have not been detrimental to the company’s performance in
Australia, where health warnings have been common for many years.’
Required
A. Who are the major stakeholders in the debate on the health warnings on cigarette packs?
B. What are the main ethical issues involved in the debate?
C. If you were Randall Hedges, what would you do?
A.
The major stakeholders affected by the decision would be the management of Big Business
Tobacco (BBT), the shareholders of BBT, cigarette smokers in certain Asian countries, and
ultimately perhaps the governments of these countries and the Australian Government.
B.
There are two major ethical questions raised here. Firstly, is it ethical for a business entity
to sell a product where the evidence of potential damage to the health of customers is
overwhelming? If we say ‘no’ to that question, should the company be banned from selling
the product altogether? Secondly, if tobacco products are to be banned, what about other
products e.g. alcohol?
Alternatively, if we answer ‘yes’ to the first question, should the company be regulated in
some way along similar lines as in Australia e.g. health warnings on cigarette packets?
C.
Randall Hedges should act in accordance with his stated corporate ethic. Therefore he
would place the health warnings on the packaging in accordance with Australian
regulations.
Financial analysis
JB Hi-Fi Limited
Refer to the consolidated financial statements in the latest financial report of JB Hi-Fi Limited on
its website, www.jbhifi.com.au, and answer the following questions:
3.100
Chapter 3: Recording transactions
Required
1.
What is the total value in the consolidated financial statements for each of the following
items at the end of the year:
Cash and cash equivalents
Inventories
Sales revenue
Other income
Plant and Equipment
Interest Expense (finance costs)
Sales and marketing expense
Occupancy expenses
Trade and other payables
Borrowings (non-current)
2.
3.
What is the normal balance for each of the accounts listed above? What side of the
account, debit or credit, is affected in order to decrease each item?
What is the most likely other account(s) to be affected whenever each of the above items is
increased?
Answers below are based on the 2012 annual report:
1 & 2.
Item
Cash & cash equivalents
$39 710 000
Normal
Balance/
(decrease)
Debit/credit
Inventories
428 290 000
Debit/credit
Balance sheet
Sales revenue
3 127 792 000
Credit/debit
Income statement
Other income
613 000
Credit/debit
Income statement
182 048 000
Debit/credit
Note 16 excludes
property
Plant & equipment (net)
Interest expense (finance
costs)
Value
13 654 000 Debit/credit
Source
Balance sheet and note
11
See Note 5, interest and
finance charges
Sales and marketing
expenses
309 465 000
Credit/debit
Income statement
Occupancy expenses
129 343 000
Debit/credit
Income statement
Trade and other payables
400 803 000
Credit/debit
Note 18
Borrowings (non-current)
149 775 000
Debit/credit
Note 24
3.101
Chapter 3: Recording transactions
3.
Item Increased
Other Accounts Affected
Cash & cash equivalents
Sales revenue or Accounts receivable
(many others as well)
Inventories
Trade payables or Cash at bank
Sales revenue
Cash at bank or Accounts receivable
Other income
Cash at bank or a suitable receivable
Plant and equipment
Cash at bank or Borrowings (non-current)
Interest expense
Cash at bank or Other financial liabilities
(accruals)
Sales and marketing expenses
Cash at bank or Other payables
Occupancy expenses
Cash at bank, rent or lease liabilities
Trade and other payables
Inventory (or purchases), many different
expenses
Borrowings (non-current)
Cash at bank or Plant & Equipment
3.102