CH-3 Recording Transactions – Accounting : Book Guide

Chapter 3: Recording Transactions Questions and solutions which have a GST version: • Problem 3.16 • Problem 3.17 • Problem 3.18 • Problem 3.19 • Problem 3.20 • Problem 3.21 • Problem 3.22 • Problem 3.23 • Problem 3.25 • Problem 3.26 Discussion questions 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) 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. (b) 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. (c) 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. (d) 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. (e) 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. (f) Non-transaction event, which is not recorded until an employee has begun work and has provided services to the entity (g) 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. 2. 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 meaningless. 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. 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. 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. Exercises 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. 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 (1) whether increases are recorded as debits or credits and (2) whether the normal balance is a debit or a credit. (LO2) 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. Owner gave their personal computer to the business. 2. Employed a secretary. 3. Cash payment made for insurance 6 months in advance. 4. Purchased supplies on credit. 5. Paid a creditor using an electronic transfer. 6. Invoiced a customer for services performed. 7. Owner paid for their personal groceries using the business credit card. 8. Paid some cash and took out a loan to purchase office furniture. 9. Received cash from a customer that owed the business money. 10. Paid for an advertisement aired on television. (LO3) 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). Exercise 3.3 Effects of transactions on financial position The following transactions were undertaken by Massenburg Personnel Services during the month of February 2019. 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 2020. 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. (LO3) 1. (c) increase in assets and an increase in equity. 2. (e) a decrease in assets and a decrease in equity. 3. (a) an increase in assets and a decrease in assets. 4. (a) increase in assets and a decrease in assets. 5. (c) increase in assets and an increase in equity. 6. (b) an increase in assets and an increase in liabilities. 7. (c) increase in assets and an increase in equity. 8. (e) a decrease in assets and a decrease in equity. 9. (d) a decrease in assets and a decrease in liabilities. 10. (d) a decrease in assets and a decrease in liabilities. 11 (e) a decrease in assets and a decrease in equity. 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 Revenue 14. B. A. Brightspark, Capital 15. Electrical Services Revenue (LO2) 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) 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) 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: 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) PELLHAM POSTER PRINTERS (ignoring GST) June 1 K. Pellham, Drawings $850 Cash at Bank $850 K. Pellham withdrew $850 for personal use. 5 Equipment 5 000 Cash at Bank 500 Accounts Payable 4 500 Purchased equipment for cash $500 and the balance payable in 60 days. 9 Advertising Expense 510 Cash at Bank 510 Payment for newspaper advertisements. 14 Accounts Payable 320 Cash at Bank 320 Payment to suppliers. 18 Salaries Expense 970 Cash at Bank 970 Payment for newspaper advertisements. 22 Cash at Bank 500 Accounts Receivable 500 Cash receipts from credit customers. 30 Cash at Bank 2 400 Accounts Receivable 9 600 Printing Fees Revenue 12 000 Printing fees received and receivable. (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. Exercise 3.6 Account titles and types 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. (LO2) 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 11. Prepaid Insurance – Asset 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 2019. GST is ignored. Required (a) Post the transactions to T accounts. The chart of accounts for the business included the following accounts: (b) Prepare a trial balance of the general ledger of Lenore Grunweld, Property Adviser as at 31 July 2019. (LO2, LO4 and LO5) (a) Cash at Bank 1-100 July 1 Lenore Grunweld, Capital $150 000 July 16 Office Equipment $3 200 July 9 Service Fees 15 000 July 31 Balance c/d 171 800 July 31 Service Fees Receivable 10 000 175 000 175 000 July 31 Balance b/d 171 800 Service Fees Receivable 1-200 July 22 Service Fees Revenue $25 000 July 31 Cash at Bank $10 000 July 31 Balance c/d 15 000 25 000 25 000 July 31 Balance b/d 15 000 Office Equipment 1-300 July 16 Cash at Bank/Accounts Payable $32 000 Accounts Payable 2-100 July 16 Office Equipment $28 800 Lenore Grunweld, Capital 3-100 July 1 Cash at Bank $150 000 Service Fees Revenue 4-100 July 9 Cash at Bank $15 000 July 31 Balance c/d 40 000 July 22 Serv. Fees Rec’ble 25 000 40 000 40 000 July 31 Balance b/d 40 000 (b) LENORE GRUNWELD, FINANCIAL ADVISER Trial Balance as at 31 July 2019 Account Account No. Debit Credit 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 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. (LO4) (a) HENRIETTA’S HUGE HAIR HAIRDRESSERS (ignore GST) Dec. 1 Hairdressing Equipment 65 000 Cash at Bank 5 000 Accounts Payable 60 000 Purchased hair drying equipment for cash and on credit. 3 H. Bouffant, Drawings 1 200 Cash at Bank 1 200 Cash withdrawn by owner. 8 Salaries Expense 6 800 Cash at Bank 6 800 Salaries paid. 14 Advertising Expense 800 Cash at Bank 800 Cash paid for radio commercials. 19 Cash at Bank 540 Accounts Receivable 540 Cash received from credit customers 23 Accounts Payable 3 700 Cash at Bank 3 700 Cash paid to suppliers. 30 Cash at Bank 46 080 Accounts Receivable 11 520 Hairdressing Revenue 57 600 Memberships fees earned. (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. 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 2019: 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. (LO4) (a) MAN TING’S TRAVEL AGENCY (ignore GST) 2019 June 1 Cash at Bank 120 000 Man Ting Lau, Capital 120 000 Cash contributed by owner. 2 Office Equipment 36 000 Cash at Bank 36 000 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 10 000 Accounts Payable 9 000 Commission Income 1 000 Cash received as part payment for airlines and hotel. 22 Accounts Payable 4 200 Cash at Bank 4 200 Cash paid to airline. 25 Accounts Payable 4 800 Cash at Bank 4 800 Cash paid to hotel chain as part payment. 30 Wages Expense 3 500 Cash at Bank 3 500 Cash paid for one month’s wages to employee 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 $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. Exercise 3.10 Recording transactions in general journal and general ledger In December 2019, the following transactions occurred in Macchiato’s Coffee Roasters business that supplies cafés and also sells direct to the public: 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 2019. (LO3 and LO4) (a) MACCHIATO’S COFFEE ROASTERS (ignore GST) Dec. 2 Land 1 200 000 Building 1 000 000 Coffee Roasting Equipment 420 000 Office Equipment 60 000 Accounts Payable 30 000 Michael Macchiato, Capital 2 650 000 Assets and liabilities contributed by the owner 5 Coffee Roasting Equipment 160 000 Accounts Payable 160 000 Purchase of roasting equipment on credit 6 Cash at Bank 220 000 Coffee Sales 220 000 Cash received for coffee sales for December. 12 Accounts Payable 30 000 Cash at Bank 30 000 Cash paid for creditor for roasting equipment. 14 Prepaid Insurance 6 000 Cash at Bank 6 000 Cash paid in advance for insurance policy. 18 Advertising Expense* 8 000 Accounts Payable 8 000 Advertising costs over the holiday period 23 Cash at Bank 46 000 Coffee Sales 46 000 Coffee sales received for the holiday period. 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 12 Accounts Payable 30 000 23 Coffee Sales 46 000 14 Prepaid Insurance 6 000 30 Michael Macchiato, Drawings 8 000 31 Balance c/d 222 000 266 000 266 000 31 Balance c/d 222 000 Land Dec 2 Macchiato, Capital 1 200 000 Building Dec 2 Macchiato, Capital 1 000 000 Coffee Roasting Equipment Dec 2 Macchiato, Capital 420 000 5 Accounts Payable 160 000 Dec 31 Balance c/d 580 000 580 000 580 000 31 Balance b/d 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 30 000 Dec 2 Macchiato, Capital 30 000 31 Balance c/d 168 000 5 Coffee Roasting Equipment 160 000 18 Advertising Expense 8 000 198 000 198 000 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 6 Cash at Bank 220 000 Dec 31 Balance c/d 266 000 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 Exercise 3.11 Analysing ledger accounts Kelly’s Cleaning Services T accounts for 30 April 2020 were as follows: Required (a) Analyse the above accounts and describe in chronological order the transactions that have been recorded. (LO4) 2020 April 2 Chris Kelly invested $80 000 cash into the business. 5 Purchased cleaning equipment for cash, $17 000. 9 Purchased cleaning supplies for cash, $8000. 10 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. Exercise 3.12 Identifying and explaining errors When processing the accounts for Ellise’s Electrical Contractors, the following errors were made. 1. Electrical equipment purchased for $7800 cash was debited to Equipment and credited to Accounts Payable for an incorrect amount of $8700. 2. 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. 3. 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. 4. A $2100 payment for assorted electrical tools was recorded as a debit to Equipment and a credit to Cash at Bank for $210. 5. 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. (LO5) (a) 1. 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. 2. 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. 3. 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. 4. The trial balance will still balance in spite of this error, as the debit and credit were both equal to $210. 5. 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. (b) 1. To fix this error, the following journal entry is needed: 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. 2. 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 Receivable account for $4500 will need to be crossed out and then the amount will need to be credited to the account. 3. To fix this error, the entity needs to record another journal entry to debit Accounts Receivable and to credit Cash at Bank for $6000. 4. 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. 5. To fix this error, the entity needs to record another journal entry to debit the Drawings account and to credit Salaries Expense for $2000. 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. 2. A purchase of lawnmower fuel for cash of $180 was erroneously recorded as a purchase on credit. 3. The debits and credits to Accounts Receivable totaled $7600 and $5400 respectively. 4. A $550 payment for salaries was not posted to the Cash at Bank account. 5. The debit to record a withdrawal of $600 in cash by the owner was not posted. Required (a) Prepare a corrected trial balance. (a) NIGEL’S GARDENING SERVICES Trial Balance as at 30 June 2019 Debit Credit Cash at bank $1 670 Accounts receivable 2 200 Supplies 8200 Equipment 420 Accounts payable $1980 Salaries payable 2980 Mortgage payable 5 400 Nigel Mower, Capital 6 400 Nigel Mower, Drawings 6 820 Service revenue 13 800 Salary expense 5 100 Rent expense 3 200 Other expense 2 950 $30 560 $30560 Exercise 3.14 Effect of errors on trial balance 1. 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. i. A $280 credit to Service Revenue was not posted. ii. 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. iii. A purchase of supplies for $57 was recorded as a debit to Supplies for $57 and a credit to Accounts Payable for $75. iv. A $33 debit to Cash at Bank was posted as a credit. v. A $250 debit to the Drawings account was debited to the Capital account. vi. A $520 debit to Rent Expense was posted as a $52 debit. 2. How would each error be corrected? Give the correcting journal entry where appropriate. (LO5) 1. and 2. i. (a) Unequal totals B. post credit of $280 to Service (b) Differ by $280 Revenue account (c) Debit total larger ii. (a) Equal totals Accounts Payable 125 Accounts Receivable 125 iii. (a) Unequal totals Cross out $75 credit and enter (b) Differ by $18 (divisible by 9) correct amount of $57 (c) Credit total larger iv. (a) Unequal totals Cross out incorrect credit and (b) Differ by $33 post correct debit (c) Credit total larger v. (a) Equal totals Drawings 250 Capital 250 vi. (a) Unequal totals Cross out $52 and enter correct (b) Differ by $468 amount of $520 (c) Credit total larger Problems Problem 3.15 Identifying type of account, debit/credit analysis and normal balance Tsz Yeung Printers ledger accounts are listed below: 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. (LO2) (a) Type of Account Increases Normal balance Account Asset Liability Equity (includes income and expenses) Debit Credit Debit Credit 1. Accounts Payable    2. Accounts Receivable    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    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. Wage Expense    26. Wages Payable    (b) TSZ YEUNG PRINTERS CHART OF ACCOUNTS Assets (100-199) Cash at Bank 100 Accounts Receivable 110 GST Receivable 115 Prepaid Insurance 120 Interest Receivable 130 Supplies on Hand 140 Printing Equipment 150 Land 180 Buildings 190 Liabilities (200-299) Accounts Payable 200 GST Payable 205 Wages Payable 210 Electricity Account Payable 220 Loan Payable 230 Unearned Revenue 240 Mortgage Payable 250 Equity (300-399) Tsz Yeung, Capital 300 Tsz Yeung, Drawings 310 Income (400-499) Service Fee Revenue 400 Rent Revenue 410 Interest Revenue 420 Sundry Revenue 430 Expenses (500-599) Wages Expense 500 Supplies Used 510 Insurance Expense 520 Interest Expense 530 Profit or Loss Summary 600 Problem 3.16 Journal entries, posting to ledger, and trial balance Non-GST version On 1 July 2018 Nicole Andreou opened a beauty parlour. The following transactions occurred during the first month of operations (ignore GST). 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 2018. (LO3, LO4 and LO5) (a) General Journal July 2 Cash at Bank 100 120 000 Nicole Andreou, Capital 300 120 000 Cash invested by owner. 2 Rent Expense 500 1 800 Cash at Bank 100 1 800 Rent paid. 3 Equipment 103 70 000 Cash at Bank 100 32 000 Loan Payable 200 38 000 Equipment purchased for cash and loan payable. 4 Supplies 102 8 400 Cash at Bank 100 8 400 Supplies purchased. 6 Advertising Expense 501 890 Cash at Bank 100 890 Cash paid for advertising. 16 Cash at Bank 100 3 250 Accounts Receivable 101 620 Revenue 400 3 870 Revenue for first half of month 20 Insurance Expense 502 480 Cash at Bank 100 480 Cash paid for insurance 23 Cash at Bank 100 140 Accounts Receivable 101 140 Receipt of payment from customers 28 Nicole Andreou, Drawings 301 560 Cash at Bank 100 560 Drawings by owner 31 Cash at Bank 100 3 680 Accounts Receivable 101 580 Revenue 400 4 260 Revenue for second part of month 31 Telephone Expense 503 330 Cash at Bank 100 330 Telephone expenses paid (b) ACCOUNT: Cash at Bank Account No. 100 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Nicole Andreou, Capital 120 000 120 000 2 7 Rent Expense 1 800 118 200 3 7 Equipment 32 000 86 200 4 7 Supplies 8 400 77 800 6 7 Advertising Expense 890 76 910 16 7 Revenue 3 250 80 160 20 7 Insurance Expense 480 79 680 23 7 Accounts Receivable 140 79 820 28 7 Nicole Andreou, Drawings 560 79 260 31 7 Revenue 3 680 82 940 31 7 Telephone Expense 330 82 610 ACCOUNT: Accounts Receivable Account No. 101 Date Explanation Post Ref Debit Credit Balance 2018 16 7 Revenue 620 620 23 7 Cash at Bank 140 480 31 7 Revenue 580 1 060 ACCOUNT: Supplies Account No. 102 Date Explanation Post Ref Debit Credit Balance 2018 4 7 Cash at Bank 8 400 8 400 ACCOUNT: Equipment Account No. 103 Date Explanation Post Ref Debit Credit Balance 2018 3 7 Cash and Loan Payable 70 000 70 000 ACCOUNT: Loan Payable Account No. 200 Date Explanation Post Ref Debit Credit Balance 2018 3 7 Equipment 38 000 38 000 ACCOUNT: Nicole Andreou, Capital Account No. 300 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Cash at Bank 120 000 120 000 ACCOUNT: Nicole Andreou, Drawings Account No. 301 Date Explanation Post Ref Debit Credit Balance 2018 28 7 Cash at Bank 560 560 ACCOUNT: Revenue Account No. 400 Date Explanation Post Ref Debit Credit Balance 2018 16 7 Cash and Accounts Receivable 3 870 3 870 31 7 Cash and Accounts Receivable 4 260 8 130 ACCOUNT: Rent Expense Account No. 500 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Cash at Bank 1 800 1 800 ACCOUNT: Advertising Expense Account No. 501 Date Explanation Post Ref Debit Credit Balance 2018 6 7 Cash at Bank 890 890 ACCOUNT: Insurance Expense Account No. 502 Date Explanation Post Ref Debit Credit Balance 2018 20 7 Cash at Bank 480 480 ACCOUNT: Telephone Expense Account No. 503 Date Explanation Post Ref Debit Credit Balance 2018 31 7 Cash at Bank 330 330 (c) NICOLE ANDREOU BEAUTY SALON Trial Balance as at 31 July 2018 Account Account No. Debit Credit 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 301 560 Revenue 400 8 130 Rent Expense 500 1 800 Advertising Expense 501 890 Insurance Expense 502 480 Telephone Expense 503 330 $166 130 $166 130 Problem 3.16 Preparing general ledger and trial balance GST version On 1 July 2018 Nicole Andreou opened a beauty parlour. The following transactions occurred during the first month of operations: July 2 2 3 4 6 16 20 23 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 plus GST. Purchased equipment for $70 000 by an online bank transfer for $32 000 and signing a commercial loan agreement for $45 000. Purchased supplies for $8400, plus GST. Paid advertising expense of $890, plus GST. Recorded beauty services revenue for the first half of the month of $3575 in cash and $682 on credit. Paid insurance expense for July of $480, plus GST, using an online bank transfer. Received a $154 payment from customers who paid on credit in the first half of the month. 28 31 31 Andreou withdrew $560 cash for personal living expenses. Recorded revenue for the second half of the month of $4048 in cash and $638 on credit. Paid telephone account of $330, including GST, by electronic transfer. Use the following account titles and numbers: Cash at Bank, 100; Accounts Receivable, 101; Supplies, 102; Equipment, 103; GST Receivable, 104; Loan Payable, 200; GST Payable, 201; 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 2018. (LO3, LO4 and LO5) (a) General Journal July 2 Cash at Bank 100 120 000 Nicole Andreou, Capital 300 120 000 Cash invested by owner. 2 Rent Expense 500 1 800 GST Receivable 104 180 Cash at Bank 100 1 980 Rent paid. 3 Equipment 103 70 000 GST Receivable 104 7 000 Cash at Bank 100 32 000 Loan Payable 200 45 000 Equipment purchased for cash and loan payable. 4 Supplies 102 8 400 GST Receivable 104 840 Cash at Bank 100 9 240 Supplies purchased. 6 Advertising Expense 501 890 GST Receivable 104 89 Cash at Bank 100 979 Cash paid for advertising. 16 Cash at Bank 100 3 575 Accounts Receivable 101 682 GST Payable 201 387 Revenue 400 3 870 Revenue for first half of month 20 Insurance Expense 502 480 GST Receivable 104 48 Cash at Bank 100 528 Cash paid for insurance 23 Cash at Bank 100 154 Accounts Receivable 101 154 Receipt of payment from customers 28 Nicole Andreou, Drawings 301 560 Cash at Bank 100 560 Drawings by owner 31 Cash at Bank 100 4 048 Accounts Receivable 101 638 GST Payable 201 426 Revenue 400 4 260 Revenue for second part of month 31 Telephone Expense 503 300 GST Receivable 104 30 Cash at Bank 100 330 Telephone expenses paid (b) ACCOUNT: Cash at Bank Account No. 100 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Nicole Andreou, Capital 120 000 120 000 2 7 Rent Expense/GST Rec 1 980 118 020 3 7 Equipment/GST Rec 32 000 86 020 4 7 Supplies/GST Rec 9 240 76 780 6 7 Advertising Expense/GST Rec 979 75 801 16 7 Revenue/GST Pay 3 575 79 376 20 7 Insurance Expense/GST Rec 528 78 848 23 7 Accounts Receivable 154 79 002 28 7 Nicole Andreou, Drawings 560 78 442 31 7 Revenue/GST Pay 4 048 82 490 31 7 Telephone Expense/GST Rec 330 82 160 ACCOUNT: Accounts Receivable Account No. 101 Date Explanation Post Ref Debit Credit Balance 2018 16 7 Revenue/GST Pay 682 682 23 7 Cash at Bank 154 528 31 7 Revenue 638 1 166 ACCOUNT: Supplies Account No. 102 Date Explanation Post Ref Debit Credit Balance 2018 4 7 Cash at Bank 8 400 8 400 ACCOUNT: Equipment Account No. 103 Date Explanation Post Ref Debit Credit Balance 2018 3 7 Cash and Loan Payable 70 000 70 000 ACCOUNT: GST Receivable Account No. 104 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Rent Expense 180 180 3 7 Equipment 7 000 7 180 4 7 Supplies 840 8 020 6 7 Advertising Expense 89 8 109 20 7 Insurance Expense 48 8 157 31 7 Telephone Expense 30 8 187 ACCOUNT: Loan Payable Account No. 200 Date Explanation Post Ref Debit Credit Balance 2018 3 7 Equipment/GST Rec 45 000 45 000 ACCOUNT: GST Payable Account No. 201 Date Explanation Post Ref Debit Credit Balance 2018 16 7 Revenue 387 387 31 7 Revenue 426 813 ACCOUNT: Nicole Andreou, Capital Account No. 300 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Cash at Bank 120 000 120 000 ACCOUNT: Nicole Andreou, Drawings Account No. 301 Date Explanation Post Ref Debit Credit Balance 2018 28 7 Cash at Bank 560 560 ACCOUNT: Revenue Account No. 400 Date Explanation Post Ref Debit Credit Balance 2018 16 7 Cash and Accounts Receivable 3 870 3 870 31 7 Cash and Accounts Receivable 4 260 8 130 ACCOUNT: Rent Expense Account No. 500 Date Explanation Post Ref Debit Credit Balance 2018 2 7 Cash at Bank 1 800 1 800 ACCOUNT: Advertising Expense Account No. 501 Date Explanation Post Ref Debit Credit Balance 2018 6 7 Cash at Bank 890 890 ACCOUNT: Insurance Expense Account No. 502 Date Explanation Post Ref Debit Credit Balance 2018 20 7 Cash at Bank 480 480 ACCOUNT: Telephone Expense Account No. 503 Date Explanation Post Ref Debit Credit Balance 2018 31 7 Cash at Bank 300 300 Problem 3.17 Preparing general ledger and trial balance Non-GST version Carrying Your Load provides heavy freight services with large trucks. The following transactions were Carrying Your Load. Ignore GST. Required (a) Record all transactions directly into ledger T accounts and prepare a trial balance. (LO3 and LO5) (a) Ignoring GST. CARRYING YOUR LOAD General Ledger Cash at Bank 1/7 C. Dienhoff, Capital $620 000 4/7 Accounts Payable $540 000 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 91 600 $647 200 647 200 14/7 Balance c/d 91 600 Truck 2/7 Accounts Payable $540 000 Accounts Receivable 9/7 Revenue $12 000 14/7 Cash at Bank $12 000 13/7 Revenue 9 600 14/7 Balance c/d 9 600 21 600 21 600 14/7 Balance b/d 9 600 Accounts Payable 4/7 Cash at Bank $540 000 2/7 Truck $540 000 C. Dienhoff, Capital 1/7 Cash at Bank $620 000 C. Dienhoff, Drawings 10/7 Cash at Bank 4 000 Trucking Services Revenue 9/7 Accounts Receivable $12 000 12/7 Cash at Bank 6 200 13/7 Accounts Receivable 9 600 14/7 Balance c/d 36 800 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 Debit Credit Cash at Bank $91 600 Truck 540 000 Accounts Receivable 9 600 C. Dienhoff, Capital $620 000 C. Dienhoff, Drawings 4 000 Trucking Services Revenue 36 800 Rent Expense 1 600 Advertising Expense 1 200 Fuel Expense 8 800 $656 800 $656 800 Problem 3.17 Preparing general ledger and trial balance GST version Carrying Your Load provides heavy freight services with large trucks. The following transactions were Carrying Your Load. Ignore GST. 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. (LO3 and LO5) (b) (Including GST) CARRYING THE LOAD General Ledger Cash at Bank 1/7 C. Dienhoff, Capital $620 000 4/7 Accounts Payable $594 000 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 40 040 649 920 649 920 14/7 Balance b/d 40 040 Truck 2/7 Accounts Payable $540 000 Accounts Receivable 9/7 Revenue & GST Payable $13 200 14/7 Cash at Bank $13 200 13/7 Revenue & GST Payable 10 560 14/7 Balance c/d 10 560 $23 760 $23 760 14/7 Balance b/d 10 560 GST Receivable 2/7 Accounts Payable $54 000 5/7 Cash at Bank 160 12/7 Cash at Bank 120 14/7 Balance c/d 54 280 54 280 54 280 14/7 Balance b/d 54 280 Accounts Payable 4/7 Cash at Bank $594 000 2/7 Truck/GST Rec $594 000 GST Payable 9/7 Accounts Receivable $1 200 12/7 Cash at Bank 620 13/7 Cash at Bank 900 14/7 Balance c/d 3 680 13/7 Accounts Receivable 960 3 680 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 9/7 Accounts Receivable $120 000 12/7 Cash at Bank 6 200 13/7 Accounts Receivable 9 600 14/7 Balance c/d 36 800 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 Debit Credit Cash at Bank $40 040 Truck 540 000 Accounts Receivable 10 560 GST Receivable 54 280 GST Payable $3 680 C. Dienhoff, Capital 620 000 C. Dienhoff, Drawings 4 000 Trucking Services Revenue 36 800 Rent Expense 1 600 Advertising Expense 1 200 Fuel Expense 8 800 $660 480 $660 480 Problem 3.18 Preparing the general journal Non-GST version 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. Required Prepare general journal entries for the month of July, using appropriate account titles. Ignore GST. (LO4) July 1 Cash at Bank 2 500 000 Todd Simpson, Capital 2 500 000 Cash contributed by owner. 3 Land 1 000 000 Building 650 000 Equipment 150 000 Cash at Bank 1800000 Jeffrey’s Golf World acquired for cash. 6 Advertising Expense 36 000 Cash at Bank 36 000 Cash paid for advertising. 10 Prepaid Insurance 36 000 Cash at Bank 36 000 Cash paid for 1 year insurance policy. 18 Golfing Equipment 60 000 Accounts Payable 60 000 Purchase of golfing equipment from Rory Golfing. 19 Cash at Bank 22 000 Golf Fees Income 22 000 Cash received for golf fees. 25 Cash at Bank 80 000 Unearned Golf Services 80 000 Cash received on sale of 200 coupon books for $90 each. 27 Todd Simpson, Drawings 10 000 Cash at Bank 10 000 Cash withdrawn by owner. 29 Wages Expense 12 600 Cash at Bank 12 600 Cash paid for wages 30 Accounts Payable 60 000 Cash at Bank 60 000 Cash to Rory Golfing. 31 Cash at Bank 12 000 Golf Fees Income 12 000 Cash received for golf fees. Problem 3.18 Preparing the general journal GST version 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. Required Prepare general journal entries for the month of July, using appropriate account titles. Assume that a GST of 10% needs to be added for all appropriate transactions. (LO4) July 1 Cash at Bank 2 500 000 Todd Simpson, Capital 2 500 000 Cash contributed by owner. 3 Land 1 000 000 Building 650 000 Equipment 150 000 GST Receivable 180 000 Cash at Bank 1 980 000 Jeffrey’s Golf World acquired for cash. 6 Advertising Expense 36 000 GST Receivable 3 600 Cash at Bank 39 600 Cash paid for advertising. 10 Prepaid Insurance 36 000 GST Receivable 3 600 Cash at Bank 39 600 Cash paid for 1 year insurance policy. 18 Golfing Equipment 60 000 GST Receivable 6 000 Accounts Payable 66 000 Purchase of golfing equipment from Rory Golfing. 19 Cash at Bank 24 200 Golf Fees Income 22 000 GST Payable 2 200 Cash received for golf fees. 25 Cash at Bank 88 000 Unearned Golf Services 80 000 GST Payable 8 000 Cash received on sale of 200 coupon books for $90 each. 27 Todd Simpson, Drawings 10 000 Cash at Bank 10 000 Cash withdrawn by owner. 29 Wages Expense 12 600 Cash at Bank 12 600 Cash paid for wages 30 Accounts Payable 66000 Cash at Bank 66 000 Cash to Rory Golfing. 31 Cash at Bank 13 200 Golf Fees Income 12 000 GST Payable 1 200 Cash received for golf fees. Problem 3.19 Journal entries, entering beginning account balances, posting to T accounts, and trial balance Non-GST version The 31 May 2020 trial balance of Amy Wait, Physiotherapist, is shown below. Ignore GST. The following transactions were completed during June. Required (a) Prepare journal entries to record each transaction. (b) i. Open T accounts for the accounts shown in the trial balance. ii. Enter the 31 May balance in each account. iii. Post the journal entries to the T accounts. (c) Prepare a trial balance as at 30 June 2020. (LO3, LO4 and LO5) (a) General Journal (GST ignored) June 1 Supplies 5 800 Accounts Payable 5 800 Purchase of supplies on credit. 3 Cash at Bank 24 400 Accounts Receivable 24 400 Cash received from patients. 6 Electricity Account Payable 9 500 Cash at Bank 9 500 Payment of electricity account. 10 Unearned Revenue 2 000 Services Revenue 2 000 Revenue previously received. 14 Cash at Bank 178 600 Accounts Receivable 13 650 Services Revenue 192 250 Revenue received and receivable. 20 Salary Expense 65 880 Cash at Bank 65 880 Salaries paid. 23 Furniture and Equipment 15 400 Cash at Bank 15 400 Furniture purchased for cash. 24 A. Wait, Drawings 60 000 Cash at Bank 60 000 Drawings by owner. 26 Accounts Payable 7 000 Cash at Bank 7 000 Payment to creditors. 27 Prepaid Insurance 24 000 Cash at Bank 24 000 Purchase of insurance policy. 29 Cash at Bank 12 000 Accounts Receivable 12 000 Payment received from debtors. 30 Cash at Bank 124 600 Accounts Receivable 25 000 Services Revenue 149 600 Revenue received and on account. 30 Rent Expense 24 000 Cash at Bank 24 000 Payment of rent. (b) Cash at Bank 31/5 Balance b/d 105 000 6/6 Electricity Account Payable 9 500 3/6 Accounts Receivable 24 400 20/6 Salary Expense 65 880 14/6 Services Revenue 178 600 23/6 Furniture & Equipment 15 400 29/6 Accounts Receivable 12 000 24/6 A. Wait, Drawings 60 000 30/6 Services Revenue 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 238 820 $444 600 $444 600 30/6 Balance b/d 238 820 Accounts Receivable 31/5 Balance b/d $48 000 3/6 Cash at Bank 24 400 14/6 Services Revenue 13 650 29/6 Cash at Bank 12 000 30/6 Services Revenue 25 000 30/6 Balance c/d 50 250 $86 650 $86 650 30/6 Balance b/d 50 250 Supplies 31/5 Balance b/d 12 300 1/6 Accounts Payable 5 800 Balance c/d 18 100 18 100 18 100 30/6 Balance b/d 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 32 200 32 200 30/6 Balance b/d 32 200 Furniture and Equipment 31/5 Balance b/d $260 600 23/6 Cash at Bank 15 400 30/6 Balance c/d 276 000 276 000 276 000 30/6 Balance b/d 276 000 Accounts Payable 31/5 Balance b/d 9 700 26/6 Cash at Bank 7 000 1/6 Supplies 5 800 30/6 Balance c/d 8 500 15 500 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 Unearned Revenue 10/6 Services Revenue 2 000 31/5 Balance b/d 2 900 30/6 Balance c/d 900 2 900 2 900 30/6 Balance b/d 900 A. Wait, Capital 31/5 Balance b/d 314 960 A. Wait, Drawings 31/5 Balance b/d 161 200 24/6 Cash at Bank 60 000 30/6 Balance c/d 221 200 221 200 221 200 30/6 Balance b/d 221 200 Services Revenue 31/5 Balance b/d 462 000 10/6 Unearned Revenue 2 000 14/6 Cash at Bank/AR 192 250 30/6 Balance c/d 805 850 30/6 Cash at Bank/AR 149 600 805 850 805 850 30/6 Balance b/d 805 850 Salary Expense 31/5 Balance b/d 170 300 20/6 Cash at Bank 65 880 30/6 Balance c/d 236 180 236 180 236 180 30/6 Balance b/d 236 180 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 48 000 30/6 Balance b/d 48 000 Problem 3.19 Journal entries, entering beginning account balances, posting to T accounts, and trial balance GST version The 31 May 2020 trial balance of Amy Wait, Physiotherapist, is shown below. The following transactions were completed during June. Required (d) Prepare journal entries to record each transaction. (e) i. Open T accounts for the accounts shown in the trial balance. ii. Enter the 31 May balance in each account. iii. Post the journal entries to the T accounts. (f) Prepare a trial balance as at 30 June 2020. (LO3, LO4 and LO5) (a) General Journal (GST included) June 1 Supplies 5 800 GST Receivable 580 Accounts Payable 6 380 Purchase of supplies on credit. 3 Cash at Bank 24 400 Accounts Receivable 24 400 Cash received from patients. 6 Electricity Account Payable 9 500 Cash at Bank 9 500 Payment of electricity account. (GST recorded when first payable) 10 Unearned Revenue 2 000 Services Revenue 2 000 Revenue previously received. (GST would be recorded when initially paid) 14 Cash at Bank 196 460 Accounts Receivable 15 015 GST Payable 19 225 Services Revenue 192 250 Revenue received and receivable. 20 Salary Expense 65 880 Cash at Bank 65 880 Salaries paid. 23 Furniture and Equipment 15 400 GST Receivable 1 540 Cash at Bank 16 940 Furniture purchased for cash. 24 A. Wait, Drawings 60 000 Cash at Bank 60 000 Drawings by owner. 26 Accounts Payable 7 000 Cash at Bank 7 000 Payment to creditors. 27 Prepaid Insurance 24 000 GST Receivable 2 400 Cash at Bank 26 400 Purchase of insurance policy. 29 Cash at Bank 12 000 Accounts Receivable 12 000 Payment received from debtors. 30 Cash at Bank 137 060 Accounts Receivable 27 500 GST Payable 14 960 Services Revenue 149 600 Revenue received and on account. 30 Rent Expense 24 000 GST Receivable 2 400 Cash at Bank 26 400 Payment of rent. (b) Cash at Bank 31/5 Balance b/d 105 000 6/6 Electricity Account Payable 9 500 3/6 Accounts Receivable 24 400 20/6 Salary Expense 65 880 14/6 Services Revenue/GST 196 460 23/6 Furniture & Equipment/GST 16 940 29/6 Accounts Receivable 12 000 24/6 A. Wait, Drawings 60 000 30/6 Services Revenue 137 060 26/6 Accounts Payable 7 000 27/6 Prepaid Insurance/GST 26 400 30/6 Rent Expense/GST 26 400 30/6 Balance c/d 262 800 $474 920 $474 920 30/6 Balance b/d 262 800 Accounts Receivable 31/5 Balance b/d $48 000 3/6 Cash at Bank 24 400 14/6 Services Revenue 15 015 29/6 Cash at Bank 12 000 30/6 Services Revenue 27 500 30/6 Balance c/d 54 115 $90 515 $90 515 30/6 Balance b/d 54 115 Supplies 31/5 Balance b/d 12 300 1/6 Accounts Payable 5 800 Balance c/d 18 100 18 100 18 100 30/6 Balance b/d 18 100 Prepaid Insurance 31/5 Balance b/d $8 200 27/6 Cash at Bank 24 000 30/6 Balance c/d 32 200 32 200 32 200 30/6 Balance b/d 32 200 GST Receivable 31/5 Balance b/d $3 200 1/6 Accounts Payable 580 23/6 Cash at Bank 1 540 27/6 Cash at Bank 2 400 30/6 Cash at Bank 2 400 30/6 Balance c/d 10 120 10 120 10 120 30/6 Balance b/d 10 120 Furniture and Equipment 31/5 Balance b/d $260 600 23/6 Cash at Bank 15 400 30/6 Balance c/d 276 000 276 000 276 000 30/6 Balance b/d 276 000 Accounts Payable 31/5 Balance b/d 9 700 26/6 Cash at Bank 7 000 1/6 Supplies 6 380 30/6 Balance c/d 9 080 16 080 16 080 30/6 Balance b/d 9 080 Electricity Account Payable 6/6 Cash at Bank 9 500 31/5 Balance b/d 9 500 Unearned Revenue 10/6 Services Revenue 2 000 31/5 Balance b/d 2 900 30/6 Balance c/d 900 2 900 2 900 30/6 Balance b/d 900 GST Payable 31/5 Balance b/d 3 200 14/6 Cash/Accounts Rec 19 225 30/6 Balance c/d 37 385 30/6 Cash/Accounts Rec 14 960 37 385 37 385 30/6 Balance b/d 900 B. Wait, Capital 31/5 Balance b/d 314 960 B. Wait, Drawings 31/5 Balance b/d 161 200 24/6 Cash at Bank 60 000 30/6 Balance c/d 221 200 221 200 221 200 30/6 Balance b/d 221 200 Services Revenue 31/5 Balance b/d 462 000 10/6 Unearned Revenue 2 000 14/6 Cash at Bank/AR 192 250 30/6 Balance c/d 805 850 30/6 Cash at Bank/AR 149 600 805 850 805 850 30/6 Balance b/d 805 850 Salary Expense 31/5 Balance b/d 170 300 20/6 Cash at Bank 65 880 30/6 Balance c/d 236 180 236 180 236 180 30/6 Balance b/d 236 180 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 48 000 30/6 Balance b/d 48 000 (c) AMY WAIT, PHYSIOTHERAPIST Trial Balance as at 30 June 2020 Debit Credit Cash at Bank $262 800 Accounts Receivable 54 115 Supplies 18 100 Prepaid Insurance 32 200 GST Receivable 10 120 Furniture and Equipment 276 000 Accounts Payable $9 080 Unearned Revenue 900 GST Payable 37 385 A. Wait, Capital 314 960 A. Wait, Drawings 221 200 Services Revenue 805 850 Salary Expense 236 180 Electricity Expense 9 460 Rent Expense 48 000 $1 168 175 $1 168 175 Problem 3.20 Journal entries for two consecutive months Non-GST version Roger’s Repair Services had the following transactions during April and May 2019. Required (a) Assuming that the accounting period is a calendar year, prepare general journal entries for Roger’s Repair Services during April and May 2020. 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? (LO1 and LO4) (a) General Journal (GST ignored) Apr. 1 Cash at Bank 8 200 Installation Services Revenue 8 200 Cash sale of services to D. Lloyd. Alternatively, this could be recorded as a receipt of cash from a receivable. 7 Accounts Receivable 12 000 Installation Services Revenue 12 000 Credit sale of services to J. Turner 8 Electricity Expense 720 Electricity Account Payable 720 Electricity bill received 11 Supplies Used 280 Supplies 280 Supplies used in general office 15 Cash at Bank 50 000 Loan Payable 50 000 Loan received from BCSA Bank, interest at 10% p.a. 18 Electricity Account Payable 720 Cash at Bank 720 Payment of electricity account 23 Supplies 860 Accounts Payable 860 Purchase of supplies on account 25 Supplies Used 360 Supplies 360 Supplies used in general office 30 Insurance Expense 300 Prepaid Insurance 300 Prepaid insurance used in April May 2 Cash at Bank 20 000 Owner’s Capital 20 000 Cash injection by owner 2 Rent Expense 2 200 Cash at Bank 2 200 Payment of Rent 5 Repair Equipment 16 000 Accounts Payable 16 000 Purchase of installation equipment on account from Orange Suppliers 12 Office Fixtures 6 000 Accounts Payable 5 500 Cash at Bank 500 Purchase of office fixtures partly on account from OfficeShop 13 Cash at Bank 7 800 Repair Services Revenue 7 800 Installation services performed for cash 14 Accounts Payable 22 000 Cash at Bank 22 000 Payment to Trade Suppliers 19 Salary Expense 4 200 Cash at Bank 4 200 Payment of salary 31 Insurance Expense 300 Prepaid Insurance 300 Insurance used for May (b) 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 30 Interest Expense 205 Interest Payable 205 Interest owing to BCSA Bank (10% × $50 000 × 15/365) – to nearest whole number May 31 Interest Expense 425 Interest Payable 425 Interest owing to BCSA Bank (10% × $50 000 × 31/365) to nearest whole number Problem 3.20 Journal entries for two consecutive months GST version Roger’s Repair Services had the following transactions during April and May 2019: Required Assuming that the accounting period is a calendar year, prepare general journal entries for Roger’s Repair Services during April and May 2020. Assume that a GST of 10% needs to be added for all appropriate transactions. (LO1 and LO4) General Journal (GST included) Apr. 1 Cash at Bank 9 020 Installation Services Revenue 8 200 GST Payable 820 Cash sale of services to D. Lloyd. Alternatively, this could be recorded as a receipt of cash from a receivable. 7 Accounts Receivable 13 200 Installation Services Revenue 12 000 GST Payable 1 200 Credit sale of services to J. Turner 8 Electricity Expense 720 GST Receivable 72 Electricity Account Payable 792 Electricity bill received 11 Supplies Used 280 Supplies 280 Supplies used in general office 15 Cash at Bank 50 000 Loan Payable 50 000 Loan received from BCSA Bank, interest at 10% p.a. 18 Electricity Account Payable 792 Cash at Bank 792 Payment of electricity account 23 Supplies 860 GST Receivable 86 Accounts Payable 946 Purchase of supplies on account 25 Supplies Used 360 Supplies 360 Supplies used in general office 30 Insurance Expense 300 Prepaid Insurance 300 Prepaid insurance used in April May 2 Cash at Bank 20 000 Owner’s Capital 20 000 Cash injection by owner 2 Rent Expense 2 200 GST Receivable 220 Cash at Bank 2 420 Payment of Rent 5 Repair Equipment 16 000 GST Receivable 1 600 Accounts Payable 17 600 Purchase of installation equipment on account from Orange Suppliers 12 Office Fixtures 6 000 GST Receivable 600 Accounts Payable 6 100 Cash at Bank 500 Purchase of office fixtures partly on account from OfficeShop 13 Cash at Bank 8 580 Repair Services Revenue 7 800 GST Payable 780 Installation services performed for cash 14 Accounts Payable 22 000 Cash at Bank 22 000 Payment to Trade Suppliers 19 Salary Expense 4 200 Cash at Bank 4 200 Payment of salary 31 Insurance Expense 300 Prepaid Insurance 300 Insurance used for May Problem 3.21 Preparation of running balance ledger accounts and trial balance Non-GST version On 1 March 2017, 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). 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 2019. (LO3 and LO5) (a) ACCOUNT: Cash at Bank Account No. 100 Date Explanation Post Ref Debit Credit Balance 2019 1 3 James Taylor, Capital 10 000 10 000 4 3 Rent Expense 1 200 8 800 4 3 Haberdashery Supplies 1 200 7 600 6 3 Tailoring Revenue 120 7 720 7 3 Sewing Equipment 800 6 920 8 3 Tailoring Revenue 1 260 8 180 12 3 Petrol, postage & electricity 900 7 280 13 3 Tailoring Revenue 200 7 480 14 3 Accounts Payable 3 000 4 480 15 3 James Taylor, Drawings 600 3880 16 3 Tailoring Revenue 380 4 260 18 3 Wages Expense 1 100 3 160 21 3 Tailoring Revenue 240 3 400 23 3 Accounts Receivable 840 4 240 24 3 Fuel Expense 80 4 160 25 3 Wages Expense 1 100 3 060 28 3 Tailoring Revenue 200 3 260 ACCOUNT: Haberdashery Supplies Account No. 101 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Cash & Accounts Payable 4 200 4 200 17 3 Accounts Payable 500 4 700 31 3 Haberdashery Supplies Expense 620 4 080 ACCOUNT: Accounts Receivable Account No. 110 Date Explanation Post Ref Debit Credit Balance 2019 6 3 Tailoring Revenue 840 840 13 3 Tailoring Revenue 1 500 2 340 21 3 Tailoring Revenue 1 200 3 540 23 3 Cash at Bank 840 2 700 28 3 Tailoring Revenue 2 220 4 920 ACCOUNT: Sewing Equipment Account No. 112 Date Explanation Post Ref Debit Credit Balance 2019 1 3 James Taylor, Capital 46 000 46 000 7 3 Cash & Loan Payable 3 800 49 800 ACCOUNT: Commercial Vehicles Account No. 113 Date Explanation Post Ref Debit Credit Balance 2019 1 3 James Taylor, Capital 48 000 48 000 ACCOUNT: Accounts Payable Account No. 201 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Haberdashery Supplies 3 000 3 000 14 3 Cash at Bank 3 000 0 17 3 Haberdashery Supplies 500 500 ACCOUNT: Loan Payable Account No. 202 Date Explanation Post Ref Debit Credit Balance 2019 7 3 Sewing Equipment 3 000 3 000 ACCOUNT: James Taylor, Capital Account No. 300 Date Explanation Post Ref Debit Credit Balance 2019 1 3 Cash, Van and Equipment 104 000 104 000 ACCOUNT: James Taylor, Drawings Account No. 301 Date Explanation Post Ref Debit Credit Balance 2019 15 3 Cash at Bank 600 600 ACCOUNT: Tailoring Revenue Account No. 340 Date Explanation Post Ref Debit Credit Balance 2019 6 3 Cash at Bank 120 120 6 3 Accounts Receivable 840 960 8 12 3 3 Cash at Bank Cash at Bank 1 260 200 2 220 2420 13 3 Cash & Accounts Rec. 1500 3 920 16 3 Cash at Bank 380 4 300 21 3 Cash & Accounts Rec. 1 440 5 740 28 3 Cash & Bills Rec. 2 420 8160 ACCOUNT: Rent Expense Account No. 351 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Cash at Bank 1 200 1 200 ACCOUNT: Fuel Expense Account No. 352 Date Explanation Post Ref Debit Credit Balance 2019 12 3 Cash at Bank 120 120 24 3 Cash at Bank 80 200 ACCOUNT: Electricity Expense Account No. 353 Date Explanation Post Ref Debit Credit Balance 2019 12 3 Cash at Bank 760 760 ACCOUNT: Postage Expense Account No. 354 Date Explanation Post Ref Debit Credit Balance 2019 12 3 Cash at Bank 20 20 ACCOUNT: Wages Expense Account No. 355 Date Explanation Post Ref Debit Credit Balance 2019 18 3 Cash at Bank 1 100 1 100 25 3 Cash at Bank 1 100 2 200 ACCOUNT: Haberdashery Supplies Expense Account No. 356 Date Explanation Post Ref Debit Credit Balance 2019 31 3 Haberdashery Supplies 620 620 (b) TAYLOR’S TAILORMADE Trial Balance as at 31 March 2019 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 301 600 Tailoring revenue 340 8160 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 $115 660 $115660 Problem 3.21 Preparation of running balance ledger accounts and trial balance GST version On 1 March 2017, 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 (include 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 plus GST. Purchased haberdashery supplies for $4200 plus GST, and paid with an electronic transfer of $1200 and paid for the rest with credit. Cash received for minor clothing repairs, $120 plus GST. Revenue earned for tailor making a two piece suit for Andrea Fraser on credit, $840 plus GST. Purchased a sewing machine, $3800 plus GST, paying $800 cash and taking out a loan for the balance. Cash revenue earned, $1260 plus GST. Engaged a sewer at an agreed wage of $1100 per week. Paid petrol $120, postage $20, and electricity bill $760. Plus GST. Cash of $200, plus GST, received for over-the-counter repairs. Revenue of $1500, plus GST, 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 plus GST. Haberdashery supplies purchased for $500 plus GST on credit. Paid wages to employee. Revenue earned for making clothes: cash $240 plus GST; on account $1200 plus GST. Andrea Fraser paid the bill for services rendered on 6 March. Petrol expenses paid $80 plus GST. Paid weekly wages to employee. Revenue earned for clothes $2420 plus GST, receiving $200 in cash and the remainder on credit. Haberdashery supplies used, $620. Required Assume that a GST of 10% needs to be added for all appropriate transactions. (a) Prepare three-column running balance ledger accounts. Give each account a suitable account number. (b) Prepare a trial balance as at 31 March 2019. (LO3 and LO5) (a) ACCOUNT: Cash at Bank Account No. 100 Date Explanation Post Ref Debit Credit Balance 2019 1 3 James Taylor, Capital 10 000 10 000 4 3 Rent Expense/GST Rec 1 320 8 680 4 3 Haberdashery Supplies 1 200 7 480 6 3 Tailoring Revenue/GST 132 7 612 7 3 Sewing Equipment 800 6 812 8 3 Tailoring Revenue 1 386 8 198 12 3 Petrol, postage & electricity 990 7 208 13 3 Tailoring Revenue 220 7 428 14 3 Accounts Payable 3 420 4 008 15 3 James Taylor, Drawings 600 3 408 16 3 Tailoring Revenue 418 3 826 18 3 Wages Expense 1 100 2 726 21 3 Tailoring Revenue 264 2 990 23 3 Accounts Receivable 924 3 914 24 3 Fuel Expense/GST 88 3 826 25 3 Wages Expense 1 100 2 726 28 3 Tailoring Revenue 200 2 926 ACCOUNT: Haberdashery Supplies Account No. 101 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Cash & Accounts Payable 4 200 4 200 17 3 Accounts Payable 500 4 700 31 3 Haberdashery Supplies Expense 620 4 080 ACCOUNT: Accounts Receivable Account No. 110 Date Explanation Post Ref Debit Credit Balance 2019 6 3 Tailoring Revenue 924 924 13 3 Tailoring Revenue 1 650 2 574 21 3 Tailoring Revenue 1 320 3 894 23 3 Cash at Bank 924 2 970 28 3 Tailoring Revenue 2 462 5 432 ACCOUNT: GST Receivable Account No. 111 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Cash at Bank 120 120 4 3 Accounts Payable 420 540 7 3 Loan 380 920 12 3 Cash at Bank 90 1 010 17 3 Accounts Payable 50 1 060 24 3 Cash at Bank 8 1 068 ACCOUNT: Sewing Equipment Account No. 112 Date Explanation Post Ref Debit Credit Balance 2019 1 3 James Taylor, Capital 46 000 46 000 7 3 Cash & Loan Payable 3 800 49 800 ACCOUNT: Commercial Vehicles Account No. 113 Date Explanation Post Ref Debit Credit Balance 2019 1 3 James Taylor, Capital 48 000 48 000 ACCOUNT: Accounts Payable Account No. 201 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Haberdashery Supplies 3 420 3 420 14 3 Cash at Bank 3 420 0 17 3 Haberdashery Supplies 550 550 ACCOUNT: GST Payable Account No. 202 Date Explanation Post Ref Debit Credit Balance 2019 6 3 Cash at Bank 12 12 6 3 Accounts Receivable 84 96 8 3 Cash at Bank 126 222 13 3 Cash at Bank 20 242 13 3 Accounts Receivable 150 392 16 3 Cash at Bank 38 430 21 3 Cash at Bank 24 454 21 3 Accounts Receivable 120 574 28 3 Cash/Accounts Rec 242 816 ACCOUNT: Loan Payable Account No. 203 Date Explanation Post Ref Debit Credit Balance 2019 7 3 Sewing Equipment 3 380 3 380 ACCOUNT: James Taylor, Capital Account No. 300 Date Explanation Post Ref Debit Credit Balance 2019 1 3 Cash, Van and Equipment 104 000 104 000 ACCOUNT: James Taylor, Drawings Account No. 301 Date Explanation Post Ref Debit Credit Balance 2019 15 3 Cash at Bank 600 600 ACCOUNT: Tailoring Revenue Account No. 340 Date Explanation Post Ref Debit Credit Balance 2019 6 3 Cash at Bank 120 120 6 3 Accounts Receivable 840 960 8 12 3 3 Cash at Bank Cash at Bank 1 260 200 2 220 2420 13 3 Cash & Accounts Rec. 1500 3 920 16 3 Cash at Bank 380 4 300 21 3 Cash & Accounts Rec. 1 440 5 740 28 3 Cash & Bills Rec. 2 420 8160 ACCOUNT: Rent Expense Account No. 351 Date Explanation Post Ref Debit Credit Balance 2019 4 3 Cash at Bank 1 200 1 200 ACCOUNT: Fuel Expense Account No. 352 Date Explanation Post Ref Debit Credit Balance 2019 12 3 Cash at Bank 120 120 24 3 Cash at Bank 80 200 ACCOUNT: Electricity Expense Account No. 353 Date Explanation Post Ref Debit Credit Balance 2019 12 3 Cash at Bank 760 760 ACCOUNT: Postage Expense Account No. 354 Date Explanation Post Ref Debit Credit Balance 2019 12 3 Cash at Bank 20 20 ACCOUNT: Wages Expense Account No. 355 Date Explanation Post Ref Debit Credit Balance 2019 18 3 Cash at Bank 1 100 1 100 25 3 Cash at Bank 1 100 2 200 ACCOUNT: Haberdashery Supplies Expense Account No. 356 Date Explanation Post Ref Debit Credit Balance 2019 31 3 Haberdashery Supplies 620 620 (b) TAYLOR’S TAILORMADE Trial Balance as at 31 March 2019 Account Account No. Debit Credit Cash at bank 100 $2 926 Haberdashery supplies 101 4 080 Accounts receivable 110 5 432 GST receivable 111 1 068 Sewing equipment 112 49 800 Commercial vehicles 113 48 000 Accounts payable 201 550 GST payable 202 816 Loan payable 203 3 380 James Taylor, Capital 300 104 000 James Taylor, Drawings 301 600 Tailoring revenue 340 8 160 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 $116 906 $116 906 Problem 3.22 Policy decision, analysis and chart of accounts Non-GST version Lewis Edwards decides to branch out on his own and set up his own private practice as an accountant. Events occurring in March 2019 are as follows. Ignore GST. 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. (LO2 and LO5) (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 Furniture 155 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) Lewis Edwards, Capital 300 Lewis Edwards, Drawings 310 Income (400-499) Accounting Fees Revenue 400 Sundry Revenue 410 Expenses (500-599) Wages Expense 500 Office Supplies Used 510 Rent Expense 520 Insurance Expense 530 Depreciation Expense 540 Interest Expense 550 Electricity Expense 560 Telephone and Internet Expense 570 Sundry Expense 580 Profit or Loss Summary 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 three-digit 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 2019 Mar. 1 Cash at Bank 100 500 000 Lewis Edwards, Capital 300 5 000 Cash invested by owner. 2 No entry required on the hiring of staff. 3 Prepaid Rent 130 6 200 Cash at Bank 100 6 200 Office rent paid for the month in advance. Alternatively debit Rent Expense. 4 Office Equipment and Furniture 150 43 800 Cash at Bank 100 3 800 Loan Payable 230 40 000 Purchase of office equipment and furniture by paying cash and incurring an interest-bearing 3-month loan. 7 Prepaid Insurance 120 1 800 Cash at Bank 100 1 800 Prepaid 1-year insurance policy on office equipment. 8 Office Supplies 140 2 600 Cash at Bank 100 2 600 Acquisition of office supplies. 12 Accounts Receivable 110 14 000 Accounting Fees Revenue 400 14 000 Accounting services invoiced to customers. 14 Lewis Edwards, Drawings 310 1 200 Cash at Bank 100 1 200 Cash withdrawn by owner. 14 Wages Expense 500 1 300 Cash at Bank 100 1 300 Payment of wages. 19 Cash at Bank 100 8 000 Accounts Receivable 110 8 000 Accounting fees received and receivable. 24 Cash at Bank 100 16 000 Accounting Fees Revenue 400 16 000 Receipt of accounting fees from clients. 31 Wages Expense 500 1 300 Sundry Expense 580 8 000 Cash at Bank 100 9 300 Payment of wages and sundry expenses. (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 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. 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. Problem 3.22 Policy decision, analysis and chart of accounts GST version Lewis Edwards decides to branch out on his own and set up his own private practice as an accountant. Events occurring in March 2019 are as follows. Assume that a GST of 10% needs to be added for all appropriate transactions. 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, plus GST, for the first month’s rent of a suitable office. Purchased office equipment and furniture for a total of $43 800, plus GST. An initial $8180 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, plus GST, for a 1-year insurance policy on the office equipment, effective from 1 March 2019. Paid $2600, plus GST, in cash for office supplies. Sent invoices to a number of clients for services rendered for a total amount of $14 000, plus GST. Edwards withdrew $1200 cash from the business for personal use. Paid the office secretary $1300 for services rendered to the business. Received $8800 in cash from clients billed on 12 March. Received $17 600, including GST, in cash from clients who paid immediately for services rendered. These clients were not invoiced previously. Paid $8800, including GST, 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. (LO2 and LO5) (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 GST Receivable 140 145 Office Equipment and Furniture 150 Accumulated Depreciation – Office Equipment and Furniture 155 Liabilities (200-299) Accounts Payable 200 Wages Payable 210 Electricity Account Payable 220 GST Payable 225 Loan Payable 230 Unearned Revenue 240 Interest Payable 250 Equity (300-399) Lewis Edwards, Capital 300 Lewis Edwards, Drawings 310 Income (400-499) Accounting Fees Revenue 400 Sundry Revenue 410 Expenses (500-599) Wages Expense 500 Office Supplies Used 510 Rent Expense 520 Insurance Expense 530 Depreciation Expense 540 Interest Expense 550 Electricity Expense 560 Telephone and Internet Expense 570 Sundry Expense 580 Profit or Loss Summary 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 three-digit 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 2019 Mar. 1 Cash at Bank 100 500 000 Lewis Edwards, Capital 300 5 000 Cash invested by owner. 2 No entry required on the hiring of staff. 3 Prepaid Rent 130 6 200 GST Receivable 145 620 Cash at Bank 100 6 820 Office rent paid for the month in advance. Alternatively debit Rent Expense. 4 Office Equipment and Furniture 150 43 800 GST Receivable 145 4 380 Cash at Bank 100 8 180 Loan Payable 230 40 000 Purchase of office equipment and furniture by paying cash and incurring an interest-bearing 3-month loan. 7 Prepaid Insurance 120 1 800 GST Receivable 145 180 Cash at Bank 100 1 980 Prepaid 1-year insurance policy on office equipment. 8 Office Supplies 140 2 600 GST Receivable 145 260 Cash at Bank 100 2 860 Acquisition of office supplies. 12 Accounts Receivable 110 15 400 GST Payable 225 1 400 Accounting Fees Revenue 400 14 000 Accounting services invoiced to customers. 14 Lewis Edwards, Drawings 310 1 200 Cash at Bank 100 1 200 Cash withdrawn by owner. 14 Wages Expense 500 1 300 Cash at Bank 100 1 300 Payment of wages. 19 Cash at Bank 100 8 800 Accounts Receivable 110 8 800 Accounting fees received and receivable. 24 Cash at Bank 100 17 600 GST Payable 225 1 600 Accounting Fees Revenue 400 16 000 Receipt of accounting fees from clients. 31 Wages Expense 500 1 300 Sundry Expense 580 8 000 GST Receivable 145 800 Cash at Bank 100 10 100 Payment of wages and sundry expenses. (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 the current month only. GST Receivable is debited to increase it as the business paid this and can offset it against any GST Payable to the ATO. 4 The Office Equipment and Furniture account (asset) is increased to record the purchase by debiting the account. GST Receivable in debited as this amount can be offset against any GST Payable. 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, GST Receivable in debited 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, GST Receivable in debited 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 GST Payable is credited as this is a liability owed to the government, it is a tax collected on behalf of the government. 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. Wages are exempt from GST. 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. GST is not affected as this would have been recorded at the time of the original transaction. 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, GST Payable 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 presumably a debit to GST receivable and a credit to Cash at Bank. Problem 3.23 Journal entries, T accounts and trial balance Non-GST version On 1 April 2018, 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. During April the following transactions were undertaken by the business, including the initial investment by the owner. 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. (LO3, LO4 and LO5) (a) April 1 Cash at Bank 100 720 000 Kenny Kowslowski, Capital 300 720 000 Cash invested by owner. 2 Land 120 300 000 Building 130 160 000 Mortgage Payable 250 360 000 Cash at Bank 100 100 000 Land and buildings acquired for cash and under mortgage. 4 Hire Equipment 150 450 000 Cash at Bank 100 200 000 Accounts Payable 220 250 000 Equipment purchased for cash and on credit. 7 Kenny Kowslowski, Drawings 310 2 500 Hire Equipment 150 2 500 Equipment withdrawn by owner. 10 Accounts Payable 220 12 000 Hire Equipment 100 12 000 Equipment returned to supplier. 13 Office Equipment 170 8 200 Cash at Bank 100 8 200 Acquisition of computer equipment. 28 Cash at Bank 100 21 600 Equipment Hire Income 320 21 600 Hire income received from customers. 29 Accounts Payable 220 238 000 Cash at Bank 100 238 000 Payment to equipment supplier 30 Wages Expense 420 2 200 Cash at Bank 100 2 200 Payment of wages 30 Cash at Bank 100 14 400 Accounts Receivable 110 6 000 Equipment Hire Income 320 20 400 Rental income received and receivable (b) Cash at Bank 100 Apr 2 K. Kowslowski, Capital 720 000 Apr 2 Land, Building 100 000 28 Equip Hire Income 21 600 4 Hire Equipment 200 000 30 Equip Hire Income 14 400 13 Office Equipment 8 200 29 Accounts Payable 238 000 30 Wages Expense 2200 30 Balance c/d 207 600 756 000 756 000 May 1 Balance b/d 207600 Accounts Receivable 110 Apr 30 Equip Hire Income 6000 Land 120 Apr 2 Cash and Mortgage Payable 300 000 Building 130 Apr 2 Cash and Mortgage Payable 160 000 Hire Equipment 150 Apr 4 Cash and Accounts Payable 450 000 Apr 7 K. Kowslowski, Drawings 2 500 10 Accounts Payable 12 000 30 Balance c/d 435 500 450 000 450 000 30 Balance b/d 435 500 Office Equipment 170 Apr 13 Cash at Bank 8 200 Accounts Payable 220 Apr 10 Hire Equipment 12 000 Apr 4 Hire Equipment 250 000 29 Cash at Bank 238 000 250 000 250 000 Mortgage Payable 250 Apr 2 Land, Building 360 000 Kenny Kowslowski, Capital 300 Apr 1 Cash at Bank 720 000 Kenny Kowslowski, Drawings 310 Apr 7 Hire Equipment 2 500 Equipment Hire Income 320 Apr 28 Cash at Bank 21 600 30 Cash at Bank and Accounts Receivable 20 400 Apr 30 Balance c/d 42 000 42 000 42 000 Apr 30 Balance b/d 42 000 Wages Expense 420 Apr 30 Cash at Bank 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. 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. Problem 3.23 Journal entries, T accounts and trial balance GST version On 1 April 2018, 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. Assume that a GST of 10% needs to be added for all appropriate transactions. During April the following transactions were undertaken by the business, including the initial investment by the owner: April 1 2 4 7 Kenny Kowslowski contributed $720 000 to the business. The business acquired land for $300 000, plus GST, and a building on the land for $160 000, plus GST. 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 $495 000, including GST, 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. 10 13 28 29 30 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 $13 200 as was GST Receivable. The business acquired some computer equipment for the main office at a total cost of $8200, plus GST,, paid in cash. Equipment hire income of $23 760. Including GST, 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 $15 840 was received in cash and an additional $6600 remained owing by clients. These amounts included GST. 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. (LO3, LO4 and LO5) (a) April 1 Cash at Bank 100 720 000 Kenny Kowslowski, Capital 300 720 000 Cash invested by owner. 2 Land 120 300 000 Building 130 160 000 GST Receivable 115 46 000 Mortgage Payable 250 406 000 Cash at Bank 100 100 000 Land and buildings acquired for cash and under mortgage. 4 Hire Equipment 150 450 000 GST Receivable 115 45 000 Cash at Bank 100 200 000 Accounts Payable 220 295 000 Equipment purchased for cash and on credit. 7 Kenny Kowslowski, Drawings 310 2 500 Hire Equipment 150 2 500 Equipment withdrawn by owner. 10 Accounts Payable 220 13 200 GST Receivable 115 1 200 Hire Equipment 100 12 000 Equipment returned to supplier. 13 Office Equipment 170 8 200 GST Receivable 115 820 Cash at Bank 100 9 020 Acquisition of computer equipment. 28 Cash at Bank 100 23 760 GST Payable 230 2 160 Equipment Hire Income 320 21 600 Hire income received from customers. 29 Accounts Payable 220 281 800 Cash at Bank 100 281 800 Payment to equipment supplier 30 Wages Expense 420 2 200 Cash at Bank 100 2 200 Payment of wages 30 Cash at Bank 100 15 840 Accounts Receivable 110 6 600 GST Payable 230 2 040 Equipment Hire Income 320 20 400 Rental income received and receivable (b) Cash at Bank 100 Apr 2 K. Kowslowski, Capital 720 000 Apr 2 Land, Building 100 000 28 Equip Hire Income 23 760 4 Hire Equipment 200 000 30 Equip Hire Income 15 840 13 Office Equipment 9 020 29 Accounts Payable 281 800 30 Wages Expense 2 200 30 Balance c/d 166 580 759 600 759 600 May 1 Balance b/d 166 580 Accounts Receivable 110 Apr 30 Equip Hire Income 6 600 GST Receivable 115 Apr 2 Mortgage/Cash at Bank 46 000 Apr 10 Accounts Payable 1 200 4 Accounts Payable 45 000 13 Cash at Bank 820 30 Balance c/d 90 620 91 820 91 820 Apr 30 Balance b/d 90 260 Land 120 Apr 2 Cash and Mortgage Payable 300 000 Building 130 Apr 2 Cash and Mortgage Payable 160 000 Hire Equipment 150 Apr 4 Cash and Accounts Payable 450 000 Apr 7 K. Kowslowski, Drawings 2 500 10 Accounts Payable 12 000 30 Balance c/d 435 500 450 000 450 000 30 Balance b/d 435 500 Office Equipment 170 Apr 13 Cash at Bank 8 200 Accounts Payable 220 Apr 10 Hire Equipment 13 200 Apr 4 Hire Equipment 295 000 29 Cash at Bank 281 800 295 000 295 000 GST Payable 230 Apr 28 Cash at Bank 2 160 30 Cash at Bank/Acc Receivable 2 040 4 200 Mortgage Payable 250 Apr 2 Land, Building 406 000 Kenny Kowslowski, Capital 300 Apr 1 Cash at Bank 720 000 Kenny Kowslowski, Drawings 310 Apr 7 Hire Equipment 2 500 Equipment Hire Income 320 Apr 28 Cash at Bank 21 600 30 Cash at Bank and Accounts Receivable 20 400 Apr 30 Balance c/d 42 000 42 000 42 000 Apr 30 Balance b/d 42 000 Wages Expense 420 Apr 30 Cash at Bank 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. GST Receivable is increased as this amount can be offset against GST Payable and reduce the amount to be paid to the government. 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. GST Receivable is to be increased as the amount of GST payable to the government has decreased. 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. GST Receivable is reduced with a credit as the GST is refunded as well as the amount of the equipment. 13 The Office Equipment account (asset) is increased to record the purchase of the computer equipment by debiting the account. GST Receivable is increased. 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. The GST collected from the customers is credited to GST Payable. 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. GST Payable is credited for the amount of GST on these transactions. Problem 3.24 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 2019, 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 2019. 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 2019 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. (LO1, LO2 and LO5) (a) PETER’S PERSONAL TRAINING SERVICE Trial Balance as at 30 June 2019 Account Debit Credit Cash at bank $320 000 Accounts receivable 57 500 Land 90 000 Buildings 172 000 Investments 30 000 Office equipment 145 000 Office supplies 80 000 Accounts payable $230 000 Mortgage payable 60 000 Peter Piper, Capital 604 500 $894 500 $894 500 PETER’S PERSONAL TRAINING SERVICE Balance Sheet as at 30 June 2019 ASSETS Cash at bank $320 000 Accounts receivable 57 500 Office supplies 80 000 Land 90 000 Buildings 172 000 Investments 30 000 Office equipment 145 000 TOTAL ASSETS $894 500 LIABILITIES Accounts payable $230 000 Mortgage payable 60 000 TOTAL LIABILITIES 290 000 NET ASSETS $604 500 EQUITY Peter Piper, Capital $604 500 TOTAL EQUITY $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_____________________ Problem 3.25 Journal entries, posting to running balance ledger accounts, and trial balance for two consecutive months Non-GST version In December 2019, 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. Use the following account titles and numbers. 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 2019. The following transactions took place in January. 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 2020. (LO3, LO4 and LO5) (a) General Journal (December) (GST ignored) 2019 Dec. 1 Cash at Bank 1-100 90 000 M.Mills, Capital 3-100 90 000 Cash invested by owner 2 Equipment 1-120 80 000 Cash at Bank 1-100 40 000 Loan Payable 2-110 40 000 Equipment purchased for cash and loan payable 4 Advertising Expense 5-110 1 500 Cash at Bank 1-100 1 500 Cash paid for advertising 6 Supplies 1-110 6 200 Accounts Payable 2-100 6 200 Supplies purchased on credit 15 Cash at Bank 1-100 8 400 Revenue 4-100 8 400 Cash revenue for first half of month 24 M. Mills, Drawings 3-110 720 Cash at Bank 1-100 720 Cash drawings by owner 31 Cash at Bank 1-100 10 100 Revenue 4-100 10 100 Cash revenue for second part of month 31 Wages Expense 5-120 2 700 Cash at Bank 1-100 2 700 Wages paid 31 Rent Expense 5-100 2 400 Cash at Bank 1-100 2 400 Rent paid (b) and (e) ACCOUNT: Cash at Bank Account No. 1-100 Date Explanation Post Ref Debit Credit Balance 2019 1 12 M. Mills, Capital 90 000 90 000 2 12 Equipment 40 000 50 000 4 12 Advertising 1 500 48 500 15 12 Revenue 8 400 56 900 24 12 M. Mills, Drawings 720 56 180 31 12 Revenue 10 100 66 280 31 12 Wages 2 700 63 580 31 12 Rent 2 400 61 180 2020 4 1 Accounts Payable 1 800 59 380 8 1 Advertising 820 58 560 13 1 M. Mills, Drawings 1 000 57 560 14 1 Revenue 7 800 65 360 15 1 Wages 2 400 62 960 31 1 Revenue 9 400 72 360 31 1 Rent 2 400 69 960 ACCOUNT: Supplies Account No. 1-110 Date Explanation Post Ref Debit Credit Balance 2019 6 12 Accounts Payable 6 200 6 200 2020 21 1 Accounts Payable 3 100 9 300 ACCOUNT: Equipment Account No. 1-120 Date Explanation Post Ref Debit Credit Balance 2019 2 7 Cash and Loan 80 000 80 000 ACCOUNT: Accounts Payable Account No. 2-100 Date Explanation Post Ref Debit Credit Balance 2019 6 12 Supplies 6 200 6 200 2020 4 1 Cash at Bank 1 800 4 400 21 1 Supplies 3 100 7 500 ACCOUNT: Loan Payable Account No. 2-110 Date Explanation Post Ref Debit Credit Balance 2019 2 12 Equipment 40 000 40 000 ACCOUNT: M. Mills, Capital Account No. 3-100 Date Explanation Post Ref Debit Credit Balance 2019 1 12 Cash at Bank 90 000 90 000 ACCOUNT: M. Mills, Drawings Account No. 3-110 Date Explanation Post Ref Debit Credit Balance 2019 24 12 Cash at Bank 720 720 2020 13 1 Cash at Bank 1 000 1 720 ACCOUNT: Revenue Account No. 4-100 Date Explanation Post Ref Debit Credit Balance 2019 15 12 Cash at Bank 8 400 8 400 31 12 Cash at Bank 10 100 18 500 2020 14 1 Cash at Bank 7 800 26 300 31 1 Cash at Bank 9 400 35 700 ACCOUNT: Rent Expense Account No. 5-100 Date Explanation Post Ref Debit Credit Balance 2019 31 12 Cash at Bank 2 400 2 400 2020 31 1 Cash at Bank 2 400 4 800 ACCOUNT: Advertising Expense Account No. 5-110 Date Explanation Post Ref Debit Credit Balance 2019 4 12 Cash at Bank 1 500 1 500 2020 8 1 Cash at Bank 820 2 320 ACCOUNT: Wages Expense Account No. 5-120 Date Explanation Post Ref Debit Credit Balance 2019 31 12 Cash at Bank 2 700 2 700 2020 15 1 Cash at Bank 2 400 5 100 (c) MIKE’S MINI GOLF Trial Balance as at 31 December 2019 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 3-110 720 Revenue 4-100 18 500 Rent expense 5-100 2 400 Advertising expense 5-110 1 500 Wages expense 5-120 2 700 $154 700 $154 700 (d) General Journal (January) (GST Ignored) 2020 Jan. 4 Accounts Payable 2-100 1 800 Cash at Bank 1-100 1 800 Payment for supplies 8 Advertising Expense 5-110 820 Cash at Bank 1-100 820 Payment for advertising 13 M. Mills, Drawings 3-110 1 000 Cash at Bank 1-100 1 000 Withdrawal by owner 14 Cash at Bank 1-100 7 800 Revenue 4-100 7 800 Cash revenue for first half of month 15 Wages Expense 5-120 2 400 Cash at Bank 1-100 2 400 Payment for wages 21 Supplies 1-110 3 100 Accounts Payable 2-100 3 100 Supplies purchased on credit 31 Cash at Bank 1-100 9 400 Revenue 4-100 9 400 Cash revenue for second half of month 31 Rent Expense 5-100 2 400 Cash at Bank 1-100 2 400 Rent paid for January (f) MIKE’S MINI GOLF Trial Balance as at 31 January 2020 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 1 720 Revenue 4-100 35 700 Rent expense 5-100 4 800 Advertising expense 5-110 2 320 Wages expense 5-120 5 100 $173 200 $173 200 Problem 3.25 Journal entries, posting to running balance ledger accounts, and trial balance for 2 consecutive months GST version In December 2019, 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. Assuming the addition of GST of 10% where appropriate. Round your answers to the nearest dollar. 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, plus GST, for $48 000 cash and a loan for $40 000. Paid $1500, plus GST, for advertising. Purchased supplies on credit for $6200, plus GST. Recorded cash revenue for the first half of the month of $8400, plus GST. Withdrew $720 from the business bank account for personal use. Recorded cash revenue for the second half of the month of $10 100, plus GST. Paid wages of $2700. Paid rent for December, $2400, plus GST. Use the following account titles and numbers. 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 2019. 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, plus GST, 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, plus GST. Paid wages of $2400 in cash. Purchased supplies on credit for $3100, plus GST. Recorded cash revenue for the second half of January of $9400, plus GST. Paid rent for January, $2400, plus GST. 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 2020. (LO3, LO4 and LO5) (a) General Journal (December) (GST included ) 2019 Dec. 1 Cash at Bank 1-100 90 000 M.Mills, Capital 3-100 90 000 Cash invested by owner 2 Equipment 1-120 80 000 GST Receivable 1-105 8 000 Cash at Bank 1-100 48 000 Loan Payable 2-110 40 000 Equipment purchased for cash and loan payable 4 Advertising Expense 5-110 1 500 GST Receivable 1-105 150 Cash at Bank 1-100 1 650 Cash paid for advertising 6 Supplies 1-110 6 200 GST Receivable 1-105 620 Accounts Payable 2-100 6 820 Supplies purchased on credit 15 Cash at Bank 1-100 9 240 GST Payable 2-150 840 Revenue 4-100 8 400 Cash revenue for first half of month 24 M. Mills, Drawings 3-110 720 Cash at Bank 1-100 720 Cash drawings by owner 31 Cash at Bank 1-100 11 110 GST Payable 2-150 1 010 Revenue 4-100 10 100 Cash revenue for second part of month 31 Wages Expense 5-120 2 700 Cash at Bank 1-100 2 700 Wages paid 31 Rent Expense 5-100 2 400 GST Receivable 1-105 240 Cash at Bank 1-100 2 640 Rent paid (b) and (e) ACCOUNT: Cash at Bank Account No. 1-100 Date Explanation Post Ref Debit Credit Balance 2019 1 12 M. Mills, Capital 90 000 90 000 2 12 Equipment & GST Rec 48 000 42 000 4 12 Advertising & GST Rec 1 650 40 350 15 12 Revenue & GST Pay 9 240 49 590 24 12 M. Mills, Drawings 720 48 870 31 12 Revenue & GST Pay 11 110 59 980 31 12 Wages 2 700 57 280 31 12 Rent & GST Rec 2 640 54 640 2020 4 1 Accounts Payable 1 800 52 840 8 1 Advertising & GST Rec 902 51 938 13 1 M. Mills, Drawings 1 000 50 938 14 1 Revenue & GST Pay 8 580 59 518 15 1 Wages 2 400 57 118 31 1 Revenue & GST Pay 10 340 67 458 31 1 Rent & GST Rec 2 640 64 818 ACCOUNT: GST Receivable Account No. 1-105 Date Explanation Post Ref Debit Credit Balance 2019 2 12 Equipment, Cash and Loan 8 000 8 000 4 12 Advertising & Cash 150 8 150 6 12 Supplies & Accounts Payable 620 8 770 31 12 Rent & Cash 240 9 010 2020 8 1 Advertising & Cash 82 9 092 21 1 Supplies & Accounts Payable 310 9 402 31 1 Rent & Cash 240 9 642 ACCOUNT: Supplies Account No. 1-110 Date Explanation Post Ref Debit Credit Balance 2019 6 12 Accounts Payable 6 200 6 200 2020 21 1 Accounts Payable 3 100 9 300 ACCOUNT: Equipment Account No. 1-120 Date Explanation Post Ref Debit Credit Balance 2019 2 7 Cash and Loan 80 000 80 000 ACCOUNT: Accounts Payable Account No. 2-100 Date Explanation Post Ref Debit Credit Balance 2019 6 12 Supplies 6 820 6 820 2020 4 1 Cash at Bank 1 800 5 020 21 1 Supplies 3 410 8 430 ACCOUNT: Loan Payable Account No. 2-110 Date Explanation Post Ref Debit Credit Balance 2019 2 12 Equipment 40 000 40 000 ACCOUNT: GST Payable Account No. 2-150 Date Explanation Post Ref Debit Credit Balance 2019 15 12 Cash & Revenue 840 840 31 12 Cash & Revenue 1 010 1 850 2107 14 1 Cash & Revenue 780 2 630 31 1 Cash & Revenue 940 3 570 ACCOUNT: M. Mills, Capital Account No. 3-100 Date Explanation Post Ref Debit Credit Balance 2019 1 12 Cash at Bank 90 000 90 000 ACCOUNT: M. Mills, Drawings Account No. 3-110 Date Explanation Post Ref Debit Credit Balance 2019 24 12 Cash at Bank 720 720 2020 13 1 Cash at Bank 1 000 1 720 ACCOUNT: Revenue Account No. 4-100 Date Explanation Post Ref Debit Credit Balance 2019 15 12 Cash at Bank 8 400 8 400 31 12 Cash at Bank 10 100 18 500 2020 14 1 Cash at Bank 7 800 26 300 31 1 Cash at Bank 9 400 35 700 ACCOUNT: Rent Expense Account No. 5-100 Date Explanation Post Ref Debit Credit Balance 2019 31 12 Cash at Bank 2 400 2 400 2020 31 1 Cash at Bank 2 400 4 800 ACCOUNT: Advertising Expense Account No. 5-110 Date Explanation Post Ref Debit Credit Balance 2019 4 12 Cash at Bank 1 500 1 500 2020 8 1 Cash at Bank 820 2 320 ACCOUNT: Wages Expense Account No. 5-120 Date Explanation Post Ref Debit Credit Balance 2019 31 12 Cash at Bank 2 700 2 700 2020 15 1 Cash at Bank 2 400 5 100 (c) MIKE’S MINI GOLF Trial Balance as at 31 December 2019 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 3-110 720 Revenue 4-100 18 500 Rent expense 5-100 2 400 Advertising expense 5-110 1 500 Wages expense 5-120 2 700 $157 170 $157 170 (d) General Journal (January) (GST included) 2020 Jan. 4 Accounts Payable 2-100 1 800 Cash at Bank 1-100 1 800 Payment for supplies 8 Advertising Expense 5-110 820 GST Receivable 1-105 82 Cash at Bank 1-100 902 Payment for advertising 13 M. Mills, Drawings 3-110 1 000 Cash at Bank 1-100 1 000 Withdrawal by owner 14 Cash at Bank 1-100 8 580 GST Payable 2-150 780 Revenue 4-100 7 800 Cash revenue for first half of month 15 Wages Expense 5-120 2 400 Cash at Bank 1-100 2 400 Payment for wages 21 Supplies 1-110 3 100 GST Receivable 1-105 310 Accounts Payable 2-100 3 410 Supplies purchased on credit 31 Cash at Bank 1-100 10 340 GST Payable 2-150 940 Revenue 4-100 9 400 Cash revenue for second half of month 31 Rent Expense 5-100 2 400 GST Receivable 1-105 240 Cash at Bank 1-100 2 640 Rent paid for January (f) MIKE’S MINI GOLF Trial Balance as at 31 January 2020 Account Account No Debit Credit 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 1 720 Revenue 4-100 35 700 Rent expense 5-100 4 800 Advertising expense 5-110 2 320 Wages expense 5-120 5 100 $177 700 $177 700 Problem 3.26 Journal entries, posting to running balance ledger accounts, and trial balance Non-GST version In September 2019, Niem Duong opened a car hire business. The following transactions occurred during the first month of the business (ignore GST). Use the following account titles and numbers. 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 2019. (LO3, LO4 and LO5) (a) General Journal 2019 Sep. 1 Cash at Bank 1-101 500 000 N. Duong, Capital 3-101 500 000 Cash invested by owner 3 Rent Expense 5-110 1 200 Cash at Bank 1-101 1 200 Rent paid 4 Motor Vehicles 1-130 400 000 Equipment 1-120 36 000 Cash at Bank 1-101 300 000 Loan Payable 2-110 136 000 Equipment purchased for cash and loan payable 5 Supplies 1-110 12 500 Accounts Payable 2-101 12 500 Supplies purchased 15 Cash at Bank 1-101 14 600 Accounts Receivable 1-102 28 500 Revenue 4-101 43 100 Revenue for first half of month 18 Accounts Payable 2-101 12 500 Cash at Bank 1-101 12 500 Payment for supplies 19 Insurance Expense 5-120 5 000 Cash at Bank 1-101 5 000 Cash paid for insurance 24 Cash at Bank 1-101 12 400 Accounts Receivable 1-102 12 400 Receipt of payment from customers 27 Supplies 1-110 6 200 Accounts Payable 2-101 6 200 Supplies purchased 29 Cash at Bank 1-101 12 500 Account Receivable 1-102 32 800 Revenue 4-101 45 300 Revenue for second part of month 30 Fuel Expense 5-130 16 200 Cash at Bank 1-101 16 200 Telephone expense paid (b) ACCOUNT: Cash at Bank Account No. 1-101 Date Explanation Post Ref Debit Credit Balance 2019 1 9 N. Duong, Capital 500 000 500 000 3 9 Rent Expense 1 200 498 800 4 9 Equipment 300 000 198 800 15 9 Revenue 14 600 213 400 18 9 Accounts Payable 12 500 200 900 19 9 Insurance Expense 5 000 195 900 24 9 Accounts Receivable 12 400 208 300 29 9 Revenue 12 500 220 800 30 9 Fuel Expense 16 200 204 600 ACCOUNT: Accounts Receivable Account No. 1-102 Date Explanation Post Ref Debit Credit Balance 15 9 Revenue 28 500 28 500 24 9 Cash at Bank 12 400 16 100 27 9 Revenue 32 800 48 900 ACCOUNT: Supplies Account No. 1-110 Date Explanation Post Ref Debit Credit Balance 5 9 Accounts Payable 12 500 12 500 27 9 Accounts Payable 6 200 18 700 ACCOUNT: Equipment Account No. 1-120 Date Explanation Post Ref Debit Credit Balance 4 9 Cash and Loan Payable 36 000 36 000 ACCOUNT: Motor Vehicles Account No. 1-130 Date Explanation Post Ref Debit Credit Balance 4 9 Cash and Loan Payable 400 000 400 000 ACCOUNT: Accounts Payable Account No. 2-101 Date Explanation Post Ref Debit Credit Balance 5 9 Supplies 12 500 12 500 18 9 Cash at Bank 12 500 0 27 9 Supplies 6 200 6 200 ACCOUNT: Loan Payable Account No. 2-110 Date Explanation Post Ref Debit Credit Balance 4 9 Equipment & GST Receivable 136 000 136 000 ACCOUNT: N. Duong, Capital Account No. 3-101 Date Explanation Post Ref Debit Credit Balance 1 9 Cash at Bank 500 000 500 000 ACCOUNT: Revenue Account No. 4-101 Date Explanation Post Ref Debit Credit Balance 15 9 Cash and Receivables 43 100 43 100 29 9 Cash & Receivables 45 300 88 400 ACCOUNT: Rent Expense Account No. 5-110 Date Explanation Post Ref Debit Credit Balance 3 9 Cash at Bank 1 200 1 200 ACCOUNT: Insurance Expense Account No. 5-120 Date Explanation Post Ref Debit Credit Balance 19 9 Cash at Bank 5 000 5 000 ACCOUNT: Fuel Expense Account No. 5-130 Date Explanation Post Ref Debit Credit Balance 30 9 Cash at Bank 16 200 16 200 (c) NIEM DUONG, CAR HIRE Trial Balance as at 30 September 2019 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 Problem 3.26 Journal entries, posting to running balance ledger accounts, and trial balance GST version In September 2019, Niem Duong opened a car hire business. The following transactions occurred during the first month of the business 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, plus GST, rent for the premises for September. Purchased ten motor vehicles costing $40 000, plus GST, each and equipment costing $36 000, plus GST, with $343 600 cash and a commercial loan for the balance. Purchased supplies costing $12 500, plus GST, on credit. Recorded revenue for the first half of the month of $14 600, plus GST, in cash and $28 500, plus GST, on credit. Paid for supplies purchased on 5 September. Paid insurance expense for September of $5000, plus GST. Received payment from customers on account of $13 640 and banked the receipts. Purchased supplies costing $6200, plus GST, on credit. Recorded revenue for the second half of the month of $12 500, plus GST, in cash and $32 800, plus GST, on credit. Paid fuel expense of $16 200, plus GST, in cash. Use the following account titles and numbers: 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 2019. (LO3, LO4 and LO5) (a) General Journal (including GST) 2019 Sep. 1 Cash at Bank 1-101 500 000 N. Duong, Capital 3-101 500 000 Cash invested by owner 3 Rent Expense 5-110 1 200 GST Receivable 1-105 120 Cash at Bank 1-101 1 320 Rent paid 4 Motor Vehicles 1-130 400 000 Equipment 1-120 36 000 GST Receivable 1-105 43 600 Cash at Bank 1-101 343 600 Loan Payable 2-110 136 000 Equipment purchased for cash and loan payable 5 Supplies 1-110 12 500 GST Receivable 1-105 1 250 Accounts Payable 2-101 13 750 Supplies purchased 15 Cash at Bank 1-101 16 060 Accounts Receivable 1-102 31 350 GST Payable 2-150 4 310 Revenue 4-101 43 100 Revenue for first half of month 18 Accounts Payable 2-101 13 750 Cash at Bank 1-101 13 750 Payment for supplies 19 Insurance Expense 5-120 5 000 GST Receivable 1-105 500 Cash at Bank 1-101 5 500 Cash paid for insurance 24 Cash at Bank 1-101 13 640 Accounts Receivable 1-102 13 640 Receipt of payment from customers 27 Supplies 1-110 6 200 GST Receivable 1-105 620 Accounts Payable 2-101 6 820 Supplies purchased 29 Cash at Bank 1-101 13 750 Account Receivable 1-102 36 080 GST Payable 2-150 4 530 Revenue 4-101 45 300 Revenue for second part of month 30 Fuel Expense 5-130 16 200 GST Receivable 1-105 1 620 Cash at Bank 1-101 17 820 Telephone expense paid (b) Including GST. ACCOUNT: Cash at Bank Account No. 1-101 Date Explanation Post Ref Debit Credit Balance 2019 1 9 N. Duong, Capital 500 000 500 000 3 9 Rent Expense & GST Rec 1 320 498 680 4 9 Equipment 343 600 155 080 15 9 Revenue & GST Pay 16 060 171 140 18 9 Accounts Payable 13 750 157 390 19 9 Insurance Expense & GST 5 500 151 890 24 9 Accounts Receivable 13 640 165 530 29 9 Revenue & GST Pay 13 750 179 280 30 9 Fuel Expense & GST Rec 17 820 161 460 ACCOUNT: Accounts Receivable Account No. 1-102 Date Explanation Post Ref Debit Credit Balance 15 9 Revenue & GST Pay 31 350 31 350 24 9 Cash at Bank 13 640 17 710 27 9 Revenue & GST Pay 36 080 53 790 ACCOUNT: GST Receivable Account No. 1-105 Date Explanation Post Ref Debit Credit Balance 3 9 Cash at Bank 120 120 4 9 Cash at Bank/Loan Payable 43 600 43 720 5 9 Accounts Payable 1 250 44 970 15 9 Cash at Bank 500 45 470 27 9 Accounts Payable 620 46 090 30 9 Cash at Bank 1 620 47 710 ACCOUNT: Supplies Account No. 1-110 Date Explanation Post Ref Debit Credit Balance 5 9 Accounts Payable 12 500 12 500 27 9 Accounts Payable 6 200 18 700 ACCOUNT: Equipment Account No. 1-120 Date Explanation Post Ref Debit Credit Balance 4 9 Cash and Loan Payable 36 000 36 000 ACCOUNT: Motor Vehicles Account No. 1-130 Date Explanation Post Ref Debit Credit Balance 4 9 Cash and Loan Payable 400 000 400 000 ACCOUNT: Accounts Payable Account No. 2-101 Date Explanation Post Ref Debit Credit Balance 5 9 Supplies & GST Rec 13 750 13 750 18 9 Cash at Bank 13 750 0 27 9 Supplies & GST Rec 6 820 6 820 ACCOUNT: Loan Payable Account No. 2-110 Date Explanation Post Ref Debit Credit Balance 4 9 Equipment & GST Receivable 136 000 136 000 ACCOUNT: GST Payable Account No. 2-150 Date Explanation Post Ref Debit Credit Balance 15 9 Cash & Accounts Rec 4 310 4 310 27 9 Cash & Accounts Rec 4 530 8 840 ACCOUNT: N. Duong, Capital Account No. 3-101 Date Explanation Post Ref Debit Credit Balance 1 9 Cash at Bank 500 000 500 000 ACCOUNT: Revenue Account No. 4-101 Date Explanation Post Ref Debit Credit Balance 15 9 Cash and Receivables 43 100 43 100 29 9 Cash & Receivables 45 300 88 400 ACCOUNT: Rent Expense Account No. 5-110 Date Explanation Post Ref Debit Credit Balance 3 9 Cash at Bank 1 200 1 200 ACCOUNT: Insurance Expense Account No. 5-120 Date Explanation Post Ref Debit Credit Balance 19 9 Cash at Bank 5 000 5 000 ACCOUNT: Fuel Expense Account No. 5-130 Date Explanation Post Ref Debit Credit Balance 30 9 Cash at Bank 16 200 16 200 (c) Including GST. NIEM DUONG, CAR HIRE Trial Balance as at 30 September 2019 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 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 Problem 3.27 Correction of errors Your first assignment on your new job was to determine why the 31 December 2018 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 $1300 payment to employees for their weekly salaries was credited to Cash at Bank only once but was posted twice to the Wages Expense account. Required (a) Indicate in the table below how each error would affect the trial balance totals. If the error does not cause the trial balance to be out of balance and you tick ‘no‘ in the third column, write ‘equal‘ in the Difference Between Trial Balances Totals column. Each error is to be treated independently of the others. (b) Prepare the journal entries necessary to correct errors number 4, 5, and 8. (LO5) (a) Would the error cause the Trial balance to be out of balance? Difference Between Column Having Trial Balance Largest Total Error Yes No Totals ($) Debit Credit 1.  245  2.  890  3.  270  4.  Equal 5.  Equal 6.  900  7.  2 304  8.  Equal 9.  250 000  10.  32 000  11.  1 300  (b) General Journal 4. Accounts Receivable 360 Services Revenue 360 To correct error 5. Accounts Receivable 480 Cash at Bank 480 To correct error 8. Supplies 350 Accounts Payable 350 To correct error Case studies Decision analysis Anny’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. 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) and (c) (a) (b) (c) June 1 Journal entry correct No adjustment June 5 Journal entry incorrect Cash at Bank 3 700 Accounts Payable 3 700 Hay & Feed Supplies 3 700 Hay & Feed Expenses 3 700 Trial Balance would balance but postings in wrong accounts. June 9 Journal entry incorrect Office Equipment 1 600 Riding Equipment 1 600 Trial Balance would balance, but postings to wrong account. June 10 Journal entry correct No adjustment June 12 Journal entry incorrect Boarding Revenue 1 200 Boarding Accounts Receivable 1 200 Trial Balance would balance, but posting to wrong account. June 18 Journal entry incorrect Abby Forbes, Drawings 700 Salaries Expense 700 Trial Balance would balance, but posting to wrong account. June 20 Journal entry correct No adjustment June 22 Journal entry correct No adjustment (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 Ethics and governance Public health responsibilities 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: 1. What is the total value in the consolidated financial statements for each of the following items at the end of the year? 2. 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? 3. 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 2015 annual report: 1. and 2. Item Value Normal Balance/ (decrease) Source Cash & cash equivalents $39 710 000 Debit/credit Balance sheet and note 11 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 Plant & equipment (net) 182 048 000 Debit/credit Note 16 excludes property Interest expense (finance costs) 13 654 000 Debit/credit 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. 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 Solution Manual for Accounting John Hoggett, John Medlin, Claire Beattie, Keryn Chalmers, Andreas Hellmann, Jodie Maxfield 9780730344568