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ACCT5001 S1 2010

Self-Study Solutions

Week 3

ACCT5001 S1 2010 EXERCISE 2.6

Self-Study Solutions Better Books Pty Ltd

Week 3

1.

The system of collecting and processing transactions or data and communicating financial information to interested parties is known as the accounting information system. The first step of the accounting process is to identify transactions and events that are to be recorded. Once identified and measured, the transactions and events are recorded to provide a permanent history of the financial activities of the organisation. Recording begins with a chronological record of transactions and events in an orderly and systematic manner in a journal. The next step is to transfer the journal information to the appropriate accounts in the ledger. (Note further steps in the recording process are discussed in chapter 3.) Tanya is incorrect. A debit balance only means that debit amounts exceed credit amounts in an account. Conversely, a credit balance only means that credit amounts are greater than debit amounts in an account. Thus, a debit or credit balance is neither favourable nor unfavourable. (a) (b) The entire group of accounts maintained by an entity company, including all the asset, liability, and equity accounts, is referred to collectively as the ledger. The chart of accounts is important, particularly for an entity that has a large number of accounts, because it helps organise the accounts, identify their location in the ledger and facilitate the recording process.

Account debited (a) Basic Transaction 1 type Asset (b) Specific account Cash Effect Increase (c) (d) Normal balance Debit (a) Basic type Equity

Account credited (b) Specific account Share Capital Accounts Payable Accounts Payable Service Revenue Cash Effect Increase (c) (d) Normal balance Credit

5.

Asset

Equipment/ Photocopier Supplies

Increase

Debit

Liability

Increase

Credit

Asset

Increase

Debit

Liability

Increase

Credit

8.

Asset

Accounts Receivable Advertising Expense Cash

Increase

Debit

Equity

Increase

Credit

Equity

Increase

Debit

Asset

Decrease

Debit

Asset

Increase

Debit

Asset

Accounts Receivable Cash

Decrease

Debit

Liability

Accounts Payable Rent Expense

Decrease

Credit

Asset

Decrease

Debit

Equity

Increase

Debit

Asset

Cash

Decrease

Debit

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 EXERCISE 2.7

Self-Study Solutions

Week 3

ACCT5001 S1 2010 EXERCISE 2.8

Self-Study Solutions Ink Pad Printers Ltd

Week 3

Better Books Pty Ltd (a) General Journal Transaction 1 Account Titles Cash Share Capital (Issued shares to investors for cash) 2 Equipment/Photocopier Cash (Purchased photocopier for business on account) Accounts Receivable 3 Supplies Accounts Payable (Purchased supplies on account) 1/9 4 Accounts Receivable Service Revenue (Invoiced customers for services performed) 5 Advertising Expense Cash (Paid advertising expense) 6 Cash Accounts Receivable (Received cash from customers on account) 7 Accounts Payable Cash (Paid amount owing to accounts payable) Service Revenue 8 Rent Expense Cash (Paid dividends to shareholders) 1,200 1,200 13,900 31/8 Balance 31/8 Closing balance 13,900 10/8 25/8 Cash Accounts Receivable 12,400 1,500 13,900 13,900 6,300 6,300 1,500 1,500 Share Capital 1/8 Cash 17,000 600 600 Bank Loan 12/8 Office Equipment 3,000 3,600 3,600 12/8 Cash/Bank Loan Opening Balance 800 800 1,500 900 Office Equipment 4,000 25/8 Service Revenue 1,500 31/8 Cash Closing Balance 600 900 1,500 6,000 6,000 1/9 Opening Balance Debit $ 20,000 20,000 Credit $ 1/8 10/8 31/8 Share Capital Service Revenue Accounts Receivable Cash 17,000 12/8 12,400 31/8 600 30,000 29,000 30,000 Office Equipment Closing Balance 1,000 29,000

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 (b)

Self-Study Solutions

Week 3

Ink Pad Printers Ltd Trial Balance as at 31 August 2011

Debit $ Cash Accounts Receivable Office Equipment Bank Loan Share Capital Service Revenue $33,900 29,000 900 4,000

Credit $

3,000 17,000 13,900 $33,900

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 PROBLEM SET A 2.2

Self-Study Solutions

Week 3

(a) Bell Consulting Pty Ltd

Assets Date Cash + Accounts Receivable $10,000 = $500 (50) 1,000 (200) $3,000 (2,500) (500) 2,000 5,000 $2,400 (150) $13,800 + $1,000 + $500 + $2,400 = $5,000 + $2,400 + $10,000 + $5,000 2,400 (150) $300 (2,000) (500) $500 (50) 1,000 (200) 3,000 (2,500) ($800) + Supplies + Office Equipment = Bank Loan + Accounts Payable + Share Capital + Retained Earnings

Liabilities

Equity

1/5 2/5 3/5 5/5 9/5 12/5 15/5 17/5 20/5 23/5 26/5 29/5 30/5 (800)

$10,000

Rent Expense

Advertising Expense Service Revenue Dividends Service Revenue Salaries Expense

Electricity Expense

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 (b)

Self-Study Solutions

Week 3

ACCT5001 S1 2010 PROBLEM SET A 2.4

Self-Study Solutions

Week 3

Bell Consulting Pty Ltd Income Statement for the month ended 31 May 2010 Date $ Revenues: Service revenue Expenses: Salaries expense Rent expense Electricity expense Advertising expense Total expenses Profit 2,500 800 150 50 3,500 $500 5 3 4,000 $ Mar. 1 Cash

Ace Tennis Courts Pty Ltd

Account Titles and Explanation

Post Ref 100 300

Debit

Credit

80,000 80,000

Share Capital (Issued shares for cash) Land Buildings Tennis Courts Cash (Purchased Tennis World) Advertising Expense Cash (Paid for advertising) Prepaid Insurance Cash (Paid for one-year insurance policy) Equipment Accounts Payable (Purchased equipment on account) Cash Tennis Revenue (Revenue received in cash) 19 Cash Tennis Revenue received in Advance (Received cash for voucher books sold) 25 Dividends Cash (Payment of cash dividend) Salaries Expense Cash (Paid salaries expense) Accounts Payable

130 135 136 100

43,000 8,000 7,000 58,000

500 100

1,600 1,600

(c) Bell Consulting Pty Ltd Statement of Financial Position as at 31 May 2010

112 100

2,400 2,400

10

138 200

1,000 1,000

$ Cash Accounts receivable Supplies Office equipment Total assets Accounts payable Bank loan Total liabilities Equity Share capital Retained Earnings Total liabilities and equity 10,000 300

$ 13,800 1,000 500 2,400 $17,700 2,400 5,000 7,400

18

100 400

1,800 1,800

100 213

2,500 2,500

320 100

800 800

30 10,300 $17,700 30

510 100

700 700

200

1,000

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010

Self-Study Solutions 100

Week 3 1,000

ACCT5001 S1 2010

Self-Study Solutions

Week 3

Cash (Paid creditor on account) 31 Cash Tennis Revenue (Revenue received in cash)

PROBLEM SET A 2.7 Central Laundry Services Pty Ltd

100 400

900 900 (a) & (c)

Cash 1/5 2/5 Opening Balance Accounts Receivable 8,500 12/5 900 18/5 25/5 31/5 31/5 9,400 1/11 Opening Balance 5,400 Salaries Expense Accounts Payable Dividend Electricity Expense Closing Balance

100 1,200 1,600 500 700 5,400 9,400

Accounts Receivable 1/5 8/5 1/11 Opening Balance Service Revenue Opening Balance 2,200 2/5 3,500 31/5 5,700 4,800 Cash Closing Balance

115 900 4,800 5,700

Supplies 1/5 Opening Balance 1,700

120

Equipment 1/5 Opening Balance 8,000

130

Accounts Payable 18/5 31/5 Cash Closing Balance 1,600 1/5 3,400 5,000 1/11 Opening Balance Opening Balance

200 5,000 5,000 3,400

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010

Self-Study Solutions Revenue Received in Advance

Week 3 210 700 700

ACCT5001 S1 2010 (b)

Self-Study Solutions

Week 3

15/5 31/5

Service Revenue Closing Balance

600 1/5 100 700 1/11

Opening Balance

Date

Account Titles and Explanation

Opening Balance

100

Post Ref

Debit

Credit

Share Capital 1/5 Opening Balance

300 14,700

May 2

Cash Accounts Receivable (Received cash from customers on account)

100 115

900 900

8 Dividends 25/5 Cash 500 310

Accounts Receivable Service Revenue (Invoiced customers for services performed)

115 400

3,500 3,500

12 Service Revenue 8/5 15/5 Accounts Receivable Revenue Received in Advance 600 4,100 15 400 3,500

Salaries Expense Cash (Paid employee salaries) Revenue Received in Advance Service Revenue (Performed services for customers who paid in advance)

500 100

1,200 1,200

210 400

600 600

Salaries Expense 12/5 Cash 1,200

500

18

Accounts Payable Cash (Paid creditors on account)

200 100 310 100

1,600 1,600 500 500

25 Electricity Expense 31/5 Cash 700 31 510

Dividends Cash (Payment of cash dividend) Electricity Expense Cash (Paid electricity)

510 100

700 700

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 (d)

Self-Study Solutions

Week 3

ACCT5001 S1 2010 PROBLEM SET A 2.10

Self-Study Solutions

Week 3

Central Laundry Services Pty Ltd Trial Balance as at 31 May 2011

About Town Maintenance Services Ltd Trial Balance as at 30 June 2010 Debit Debit $ Credit $ Cash ($2,840 + $180) Accounts Receivable ($3,231 - $180) Supplies ($800 - $340) Equipment ($3,000 + $340) Accounts Payable ($2,666 - $260 - $206) 3,400 100 14,700 500 4,100 1,200 700 $22,300 $22,300 Explanation: The first number in the brackets is the balance as per the initial trial balance on page 129. The subsequent numbers are the corrections. Note that Cash should start in the debit and Revenue received in advance should start in the credit. Brief explanation of each error: 1. 2. $750 $570 = $180. Need to decrease Accounts Receivable by $180 and increase cash by $180 to correctly record the collection of $750 on account. Calculator should not be included in Supplies so decrease Supplies by $340. Calculators should be included in Equipment, so increase Equipment by $340. Rental Revenue needs to be adjusted upwards by $801 ($890 $89). Increase Salaries Expenses by $600. A payment on account should be debit to Accounts Payable. The amount of $260 was incorrectly credited. To correct this entry, the balance of Accounts Payable must be reduced by $260. To correctly record the payment of $206 on account, Accounts Payable is reduced further by $206. Need to reduce Salaries Expense by $550 and increase Dividends by $550. Revenue Received in Advance Share Capital Dividends ($800 + $400) Rental Revenue ($2,380 + $801) Salaries Expense ($3,400 + $600 - $400) Office Expense 3,600 910 $15,581 $15,581 1,200 3,181 $ 3,020 3,051 460 3,340 2,200 1,200 9,000 Credit $

Cash Accounts Receivable Supplies Equipment Accounts Payable Revenue Received in Advance Share Capital Dividends Service Revenue Salaries Expense Electricity Expense

5,400 4,800 1,700 8,000

3. 4. 5.

6.

ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010 PROBLEM SET B 2.5 (a) Skeptical Accountants Date

Self-Study Solutions

Week 3

ACCT5001 S1 2010 (b) Skeptical Accountants

Self-Study Solutions

Week 3

Cash Ref 100 300 Debit $ 52,000 Credit $ 52,000 17-May 1-May 12-May Share capital Revenue received in advance Service revenue 52,000 7-May 4,500 31-May Rent expense Salaries expense

100 900 1,000

Account Titles and Explanation

May 1 Cash Share capital (Issued shares for cash) 2 No entrynot a transaction.

1,200 31-May 31 May

Accounts payable Closing balance

480 55,320 57,700

3 Supplies Accounts Payable (Purchased supplies on account) 7 Rent Expense Cash (Paid office rent) 11 Accounts Receivable Service Revenue (Billed client for services provided) 12 Cash Revenue received in advance (Received an advance for future services) 17 Cash Service Revenue (Received cash for revenue earned) 31 Salaries Expense Cash (Paid salaries) 31 Accounts Payable ($1,200 X 40%) Cash (Paid creditor on account)

115 200

1,200 1,200 1-Jun Opening balance

57,700 55,320

510 100

900 900 Accounts Receivable 110

110 400

1,100 1,100

11-May

Service revenue

1,100

100 210

4,500 4,500 Supplies 1,200 3-May Accounts Payable 1,200 115

100 400

1,200

500 100

1,000 1,000 Accounts Payable 200 Supplies 1,200

200 100

480 480

31-May 31 May

Cash Closing balance

480 3-May 720 1,200 1 June

1,200 Opening balance 720

Revenue received in advance 12-May Cash

210 4,500

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010

Self-Study Solutions

Week 3

ACCT5001 S1 2010

Self-Study Solutions

Week 3

(c) Skeptical Accountants Trial Balance 31 May 2010 Debit $ Cash ...................................................... Accounts Receivable............................. Supplies................................................. Accounts Payable.................................. Revenue received in advance ............... Share Capital......................................... Service Revenue ................................... Salaries Expense .................................. Rent Expense........................................ 55,320 1,100 1,200 720 4,500 52,000 2,300 1,000 900 $59,520 000,000 $59,520

Share Capital 1-May Cash

300 52,000

Credit $

Service Revenue 11-May 31 May Closing balance 2300 17-May 2,300 1 June Opening balance Accounts receivable Cash

400 1,100 1,200 2,300 2,300

Salaries Expense 31-May Cash 1,000

500

(d)

Skeptical Accountants Income Statement For the Month Ended 31 May 2010 Revenues Service revenue Expenses Salaries expense Rent expense Total expenses Profit

..................................................................... $2,300 .......................................................1,000 ..........................................................900 ................................................................ ...

Rent Expense 7-May Cash 900

510

1,900 $400

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ACCT5001 S1 2010 Week 3 Self-Study Solutions.doc

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ACCT5001 S1 2010

Self-Study Solutions

Week 3

Skeptical Accountants Statement of Financial Position For the Month Ended 31 May 2010 Assets $ $ Current assets Cash ..........................................................................55,320 Accounts receivable ....................................................1,100 Supplies.......................................................................1,200 Total assets .......................................................................... $57,620 Liabilities and Equity Current liabilities Accounts payable ...........................................................720 Revenue received in advance .....................................4,500 Total current liabilities................................................. Equity Share capital ...........................................................$52,000 Retained earnings (profit)...............................................400 Total liabilities & equity ...............................................

5,220

52,400 $57,620

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