11 ACCOUNTING
CORE STUDIES 2 – REVISION / HOMEWORK SHEET 2
1. What is a Balance Sheet?
2. What is the link between the Income Statement and the Balance sheet?
3. If a business had accrued advertising of $500 on 30 June 2012, paid $3000 advertising
during the year and had prepaid advertising of $600 on 30 June 2013, how much should
be recorded in the Income Statement for advertising for 2013?
a) 1900
b) 2400
c) 3600
d) 2900
4. What is the general journal entry for the adjustment wages owing by our business on
balance day?
a) Accrued expense
DR
Wages
CR
b) Wages
DR
Prepaid expenses
CR
c) Wages
DR
Accrued expenses
CR
d) Accrued Revenue
DR
Wages
CR
5. Rent paid in advance would be classified as a
a) Asset
b) Liability
c) Prepaid revenue
d) Accrued revenue
6. Answer true or false for the following:
a) The drawings account is closed off to the bank account?
b) Bad and Doubtful Debts is classified as an expense.
c) Salesman’s salaries is a revenue.
d) All revenue and expense accounts are closed off to either the trading or profit and
loss accounts.
e) Rent expense paid in advance would be a liability in the balance sheet.
f) In the profit and loss account, if the balance is credit then the business made loss.
g) The Income Statement is a report.
h) The higher the rate of return on owner’s equity the worse the business is
performing.
i) Net sales is calculated by Sales plus Sales Returns.
j) The narrative style Balance Sheet shows the accounting equation in the form of
A = L + OE.
7. What would be the effect on the financial statements if an adjusting entry is to be made to
record expenses not yet paid of $440?
a) Increase in profit, increase in assets
b) Increase in profit, decrease in assets
c) Decrease in profit, increase in liabilities
d) Decrease in profit, decrease in liabilities
8. Why is it necessary to have an accounting period assumption?
9. Define: balance day adjustments.
10. What is the purpose of preparing a GST Clearing account and how is it classified?
11. Briefly discuss the 3 ratios for earning capacity, outlining how each is calculated and what
they measure.
12. What is Cost of Goods Sold and how is it classified.
13. What is accrual accounting and how does it differ from cash accounting?
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14. The following list of balances has been extracted from the books of Robert Standing on 30
June 2013. You are required to prepare:
a)
b)
c)
d)
General Journal entries for the balance day adjustments
Income statement
Balance sheet
Calculate the following ratios, showing all formulae, working and answers (rounded
to 2 decimal places): gross profit ratio
net profit ratio
rate of return on owner’s equity
e) Write three paragraphs analysing the above ratios and make recommendations for
improvement, where necessary
Account
Accounts Payable
Accounts Receivable
Bad Debts
Bank
Capital
Cartage Outwards
Commission Revenue
Cost of Goods Sold
Drawings
Electricity
Furniture and Fittings
GST Clearing
Insurance
Inventories
Land and Buildings
Mortgage
Motor Vehicles
Plant and Equipment
Rent Expense
Sales
Sales Returns
Wages
Amount
43 100
56 700
1 566
47 322
113 479
789
9 560
115 154
5 000
4 338
35 000
10 320
6 000
37 800
100 000
70 000
30 000
60 000
9 450
301 000
6 000
32 340
Balance Day Adjustments as at 30 June 2013:





$250 of electricity is prepaid
Insurance expense is prepaid $4 000
Accrued wages is $200
Commission received in advance is $800
Interest revenue earned but not received is $300
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15. 2.38 End-of-year reports incorporating balance-day adjustments
The following list of balances has been extracted from the books of C Wessel on 30 June 2013.
You are required to prepare:
1. relevant general journal entries
2. income statement
3. balance sheet
4. ratios for net profit, gross profit, rate of return on owner's equity (rounded to 2
decimal places)
5. an analysis of the three ratios in paragraph format
Account
Amount
$
189 500
321 500
120 400
100 400
600
185 000
123 550
63 000
17 220
50 981
6 000
619
4 500
400
790
900
25 000
76 000
250
15 000
4 100
20 000
8 000
12 000
4 110
20 000
65 000
Accounts receivable
Sales
Buildings
Mortgage
Cartage outwards
Capital
Bank
Inventories
Accounts payable
Cost of goods sold
Sales returns
Drawings
GST clearing
Advertising expense
Commission revenue
Insurance
Land
Loan
Light and power
Motor vehicle
Bad debts
Office furniture
Equipment
Rent revenue
Rent expense
Wages
Plant and equipment
Balance day adjustments as at 30 June 2013:
∎ $76 of cartage outwards is prepaid.
∎ $600 Insurance expense is prepaid.
∎ Accrued rent expense is $200.
∎ Rent received in advance is $1000.
∎ Commission revenue earned but not received is $200.
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16. 2.39 End-of-year reports incorporating balance-day adjustments
The following list of balances has been extracted from the books of C Ryan on 30 June 2013.
You are required to prepare:
1. relevant general journal entries
2. income statement
3. balance sheet
4. ratios for net profit, gross profit, rate of return on owner's equity
5. an analysis of the three ratios, approximately 300 – 400 words
Account
Amount
$
28 870
6 410
170 509
145
29 000
6 000
278
235 000
46 000
120 000
4 709
1 266
10 000
110 025
900
410
800
4 000
150
170
6 700
418
9200
16 510
4 000
120
33 000
186 400
250
71 600
10 000
Cost of goods sold
Commission revenue
Bank
Telephone
Land
Patents
Advertising
Sales
Inventories
Building
Sales returns
Bad debts
Motor vehicle
Accounts receivable
Insurance
Rates
Interest revenue
Rent expense
Delivery expenses
Cost of printing
Rent revenue
Commission expense
Office salaries
Accounts payable
Shares
Interest expense
Loan
Mortgage
Drawings
Capital
Furniture
Balance-day adjustments as at 30 June 2013:
∎$42 of the telephone expenses relate to the next accounting period.
∎Interest revenue of $150 has been earned but not received.
∎$160 of rent revenue has been received before it has been earned.
∎$100 of advertising expense has been incurred but not paid.
∎ Office salaries expense incurred but not paid is $1500.
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17. The following list of accounts was extracted from the books of M Hogan on 30 June 2013.
You are required to prepare:
a)
b)
c)
d)
e)
the relevant General Journal entries for adjustments
Income Statement
Balance Sheet
ratios for net profit, gross profit, rate of return on owner's equity
an analysis of the three ratios, approximately 300 – 400 words
Account Name
Amount
53 100
400
23 000
2 000
1 240
33 320
1300
5 080
11 620
480
1 720
1 240
1 192
1 100
2 680
2 080
5 480
600
23 352
12 000
1 000
560
1 600
10 000
Sales
Delivery Expense
Premises
Goodwill
Rent Revenue
Cost of Goods Sold
GST Clearing
Sales Salaries
Accounts Receivable
Sales Returns
Office Salaries
Sundry Office Expenses
Cash at Bank
Electricity
Drawings
Office Furniture
Accounts Payable
Interest Received
Capital
Loan from bank
Commission Received
Insurance
Advertising
Inventories
Additional information





Sales Salaries owing to sales staff
$120
Insurance paid in advance
$80
Rent not yet received
$400
Advertising of $400 was for the next financial year
Interest of $360 is due on the loan from the bank.
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18. The following list of accounts was extracted from the books of Brett Gavin on 30 June 2013.
You are required to prepare:
a)
b)
c)
d)
e)
the relevant General Journal entries for adjustments
Income Statement
Balance Sheet
ratios for net profit, gross profit, rate of return on owner's equity
an analysis of the three ratios, approximately 300 – 400 words
At the end of the financial year the following adjustments were determined to be necessary



Rent of $90 owing.
Insurance of $50 was paid in advance.
Interest revenue was owing to us of $100.
LEDGER BALANCES OF BRETT GAVIN
Capital
Bank overdraft
Insurance
Electricity
Accounts payable
Cost of goods sold
Drawings
Accounts receivable
Sales
Sales returns
Telephone
Motor vehicle
Stationery expenses
Rent expense
GST collected
GST credits received
Bad debts
Mortgage
Land
Delivery expenses
Rates
Salaries
Inventories
Fixtures and fittings
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16 600
7 500
4 200
1 400
36 000
165 500
13 800
37 000
285 800
2 000
1 000
20 000
1 600
7 900
6 000
3 600
3 800
50 000
50 000
2 100
1 500
25 000
24 000
37 500
19. From the following list of account balances extracted from the General Ledger of Coastal
Properties, you are required to prepare:
a)
b)
c)
d)
the necessary balance day adjustment entries in the general journal;
the Income Statement;
the Balance Sheet (narrative style);
the three earning capacity ratios.
Coastal Properties
Account Balances as at 30 June 2013
Account
Balance
Accounts Payable
Capital (1/7/12)
Shares in Rio Tinto
Cash at Bank
Accounts Receivable
Commission Revenue
Cost of Goods Sold
Wages and Salaries
Rent Revenue
Inventories
Sales
GST Clearing
Insurance
Sales Returns
Drawings
Land and Buildings
2 550
99 500
14 000
11 260
2 530
3 040
32 000
28 000
4 500
12 000
127 000
1 400 (CR)
1 500
2 000
4 000
130 700
Balance day adjustments as at 30 June 2013:




Rent of $400 was received in advance
The insurance premium of $850 was paid in advance
Commission revenue owing at 30 June 2013 of $200
$1 000 wages and salaries are owing
20. Using Excel, type general journal entries for the following transactions.
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
m)
n)
o)
p)
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Insurance of $6600 was paid in advance
Sales Salaries owing are $1500
Rent owing to the business at 30 June is $1500
Commission of $300 was received in advance
Prepaid insurance expense $500
Unearned commission revenue $1000
Wages & salaries owing $1000
Accrued interest revenue $600
Rent received in advance $100
Prepaid Insurance $300
Accrued Interest Expense $250
Advertising of $50 was paid in advance
Interest revenue was owing to us of $100
The insurance premium of $750 was paid in advance
Commission revenue owing at 30 June of $100
$100 owing for advertising
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