Chapter 6
Business Transactions and their
Analysis
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. FALSE – purchase order
6. TRUE
7. FALSE
8. TRUE
9. FALSE – also ‘cash’
10. TRUE
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. A
2. A
3. D
4. D
5. B
6. Journal entries
Oct.
Cash
800,000
1,
Owner’s Capital
20x1
800,000
to record the owner’s investment to the
business
Oct.
3
Inventory
Cash
100,000
100,000
to record purchase of inventory for cash
Oct.
4
Inventory
Accounts payable
to record purchase of inventory on account
400,000
400,000
Oct.
8
Cash
Sales
300,000
300,000
to record cash sale
Cost of sales
Inventory
120,000
120,000
to charge the cost of the goods sold as
expense
Oct.
12
Accounts receivable
Sales
700,000
700,000
to record sale on account
Cost of sales
Inventory
280,000
280,000
to record the cost of the goods sold as
expense
Oct.
15
Accounts payable
Cash
400,000
400,000
to record payment of accounts payable
Oct.
17
Cash
Accounts receivable
700,000
700,000
to record collection of accounts
receivable
Oct.
18
Equipment
Cash
280,000
280,000
to record the purchase of equipment
Oct.
22
Owner’s drawings
Cash
20,000
20,000
to record the owner’s drawings from the
business
Oct.
31
Salaries expense
Cash
to record payment of salaries
50,000
50,000
PROBLEM 3: IDENTIFYING THE ACCOUNTS AFFECTED
TRANSACTIONS
ACCOUNT TITLES
AFFECTED
Cash
Owner’s
1. Owner’s investment to the
Capital
business
Equipment
Cash
2. Purchase of equipment on
cash basis
Cash
Sales
3. Sale of goods on cash basis
(disregard cost of sales)
Inventory
4. Charging the cost of the goods Cost of sales/
Cost
of
goods
sold in #3 above as expense
sold
Inventory
Cash
5. Purchase of inventory for cash
Utilities
Cash
6. Payment of utilities expense
expense
Inventory
Cash
7. Purchase of inventory on cash
basis
Cash
8. Payment of various small Miscellaneous
expense
expenses that do not warrant
separate presentation
Taxes and
Cash
9. Payment of local taxes
licenses
Cash
10. Payment of taxi fare of Transportation
expense/
employees working night shift
Transportation
and travel
expense
PROBLEM 4: IDENTIFYING THE ACCOUNTS AFFECTED
TRANSACTIONS
1. Sale of inventory on account
(disregard cost of sales)
2. Charging of the cost of the
inventory sold in #1 above as
expense
3. Collection of accounts receivable
4. Purchase of inventory on account
5. Obtaining a loan
6. Payment of accounts payable
7. Provision of additional capital to
the business by the owner
8. Payment of the loan obtained in
#5 above
9. Payment of interest expense
10. Drawings of the owner from the
business
ACCOUNT TITLES
AFFECTED
Accounts
Sales
receivable
Cost of
Inventory
sales/ Cost
of goods
sold
Cash
Accounts
receivable
Inventory
Accounts
payable
Cash
Notes
payable/
Loans
Payable
Accounts
Cash
payable
Cash
Owner’s
equity/
Owner’s
capital
Notes
Cash
payable/
Loans
Payable
Interest
Cash
expense
Owner’s
Cash
drawings
PROBLEM 5: IDENTIFYING THE EFFECTS ON ACCOUNTS
Example: Payment of advertising
expense
1. Owner’s contribution to the
business
2. Purchase of inventory for cash
3. Sale on cash basis and the
charging of the cost of the
goods sold as expense
4. Purchase of equipment for cash
5. Payment of interest expense
ACCOUNTS
Advertising
expense
Cash
Cash
Owner’s
Capital
Inventory
Cash
Cash
Sales
Cost of
sales/ Cost
of goods
sold
Inventory
Equipment
Cash
Interest
expense
Cash
EFFECTS
INCREASE
DECREASE
INCREASE
INCREASE
INCREASE
DECREASE
INCREASE
INCREASE
INCREASE
DECREASE
INCREASE
DECREASE
INCREASE
DECREASE
PROBLEM 6: IDENTIFYING THE ACCOUNTS AFFECTED
1. Owner’s withdrawals
the business
from
2. Sale on account and the
charging of the cost of the
goods sold as expense
3. Collection of accounts
receivable
4. Obtaining a loan
5. Payment of the loan in #4
above
6. Payment of salaries expense
7. Purchase of inventory on
account
8. Payment of accounts payable
9. Payments of various small
expenditures which do not
warrant separate presentation
10. The dog of the business owner
won 1st prize in an accounting
quiz bee.
ACCOUNTS
Owner’s
drawings
Cash
Accounts
receivable
Sales
Cost of sales
Inventory
Cash
Accounts
receivable
Cash
Notes payable
Notes payable
Cash
Salaries
expense
Cash
Inventory
Accounts
payable
Accounts
payable
Cash
Miscellaneous
expense
Cash
NONE
NONE
EFFECTS
INCREASE
DECREASE
INCREASE
INCREASE
INCREASE
DECREASE
INCREASE
DECREASE
INCREASE
INCREASE
DECREASE
DECREASE
INCREASE
DECREASE
INCREASE
INCREASE
DECREASE
DECREASE
INCREASE
DECREASE
NONE
NONE
PROBLEM 7: JOURNAL ENTRIES
1. Cash
Owner’s Capital
100,000
100,000
2. Cash
Notes payable
800,000
3. Equipment
Cash
200,000
4. Inventory
Cash
500,000
5. Cash
Sales
120,000
Cost of sales
Inventory
800,000
200,000
500,000
120,000
50,000
50,000
6. Prepaid rent
Cash
60,000
7. Notes payable
Cash
400,000
8. Interest expense
Cash
80,000
9. Utilities expense
Cash
10,000
10. Salaries expense
Cash
32,000
60,000
400,000
80,000
10,000
32,000
PROBLEM 8: JOURNAL ENTRIES
1. Cash
Owner’s Capital
1,000,000
2. Taxes and licenses
Cash
30,000
3. Advertising expense
Cash
200,000
4. Inventory
Accounts payable
600,000
5. Accounts receivable
Sales
800,000
Cost of sales
Inventory
1,000,000
30,000
200,000
600,000
800,000
500,000
500,000
6. Cash
Accounts receivable
700,000
7. Accounts payable
Cash
300,000
8. Rent expense
Cash
70,000
9. Utilities expense
Cash
8,000
10. Owner’s drawings
Cash
20,000
700,000
300,000
70,000
8,000
20,000
PROBLEM 9: JOURNAL ENTRIES & ACCTG. EQUATION
1st requirement: Journal entries
1. Cash
Owner’s Capital
100,000
100,000
2. Taxes and licenses
Cash
10,000
3. Advertising expense
Cash
20,000
4. Prepaid supplies
Cash
1,000
5. Inventory
Cash
40,000
6. Accounts receivable
Sales
70,000
Cost of sales
Inventory
10,000
20,000
1,000
40,000
70,000
30,000
30,000
7. Freight-out
Cash
10,000
8. Cash
Accounts receivable
50,000
9. Salaries expense
Cash
8,000
10. Utilities expense
Cash
12,000
10,000
50,000
8,000
12,000
2nd requirement: Journal entries
ASSETS
1.
2.
3.
4.
Cash
Cash
Cash
Prepaid supplies
Cash
5. Inventory
Cash
6. Accounts receivable
Inventory
7. Cash
8. Cash
Accounts receivable
9. Cash
10. Cash
TOTALS
LIABILITIES
100,000
(10,000)
(20,000)
1,000
(1,000)
40,000
(40,000)
70,000
(30,000)
(10,000)
50,000
(50,000)
(8,000)
(12,000)
80,000
0
EQUITY
Owner's Capital
Taxes and licenses
Advertising expense
100,000
(10,000)
(20,000)
Sales
Cost of sales
Freight-out
70,000
(30,000)
(10,000)
Salaries expense
Utilities expense
(8,000)
(12,000)
80,000
PROBLEM 10: JOURNAL ENTRIES & ACCTG. EQUATION
1st requirement: Journal entries
1. Cash
Owner’s Capital
200,000
200,000
2. Cash
Notes payable
600,000
3. Equipment
Cash
450,000
4. Prepaid rent
Cash
20,000
5. Inventory
Accounts payable
500,000
6. Cash
Sales
200,000
Cost of sales
Inventory
7. Accounts receivable
Sales
600,000
450,000
20,000
500,000
200,000
80,000
80,000
900,000
900,000
Cost of sales
Inventory
400,000
8. Accounts payable
Cash
400,000
9. Owner’s drawings
Cash
10,000
10. Interest expense
Cash
15,000
400,000
400,000
10,000
15,000
2nd requirement: Journal entries
ASSETS
1. Cash
2. Cash
3. Equipment
Cash
4. Prepaid rent
Cash
5. Inventory
6. Cash
Inventory
7. Accounts receivable
Inventory
8. Cash
9. Cash
10. Cash
TOTALS
LIABILITIES
200,000
600,000
450,000
(450,000)
20,000
(20,000)
500,000
200,000
(80,000)
900,000
(400,000)
(400,000)
(10,000)
(15,000)
1,495,000
Notes payable
600,000
Accounts payable
500,000
EQUITY
Owner's Capital
Sales
Cost of sales
Sales
Cost of sales
200,000
200,000
(80,000)
900,000
(400,000)
Accounts payable (400,000)
Owner’s drawings
Interest expense
700,000
(10,000)
(15,000)
795,000
PROBLEM 11: JOURNAL ENTRIES
1. Cash
35,000
Owner’s capital
35,000
2. Supplies expense
Cash
15,000
15,000
3. Rent expense
Cash
5,000
4. Utilities expense
Cash
2,000
5. Cash
Notes payable
10,000
6. Accounts receivable
Service fees
75,000
7. Interest expense
Cash
500
8. Cash
Accounts receivable
50,000
9. Owner’s drawings
Cash
20,000
10. Salaries expense
Cash
10,000
5,000
2,000
10,000
75,000
500
50,000
20,000
10,000
PROBLEM 12: MULTIPLE CHOICE
1. C
2. B
3. D
4. B
5. D
6. D
7. C
8. D
9. D
10. D