Accounting

Accounting

PartA: Preparation of Journal Entries

Abusiness made the following transactions in the month of October:

2/10Cash investment of $ 5,000 into the business

8/10Bought Supplies on debt at $100

10/10Paid salaries, $700

15/10Paid for the supplies acquired on 8/10

21/10Received business telephone bill for later payments, $ 30

Beloware the journal entries for the transactions above

JournalEntries for October 2016

Date

Particulars Ledger Folio

Investments

($)

Purchase

($)

Salaries

($)

Bills

($)

2/10

Cash A/c Dr.

To investment A/c

(Being cash invested to the company)

5,000

8/10

Purchase A/c Dr.

To Cash A/c

(Being purchases done on credit)

100

10/10

Salaries A/c Dr.

To Cash A/c

(Being payment for salaries in cash)

700

15/10

Purchase A/c Dr.

To Cash A/c

(Being payment for purchases done on 8/ 10)

100

21/10

Recurrent Expenditures A/c Dr.

To Cash A/c

(Being invoice for company telephone bills)

30

PartB

Considerthe following transactions made in January 2016 by a business to beentered in a two-column journal.

(a)Earned $7,000 fees customer will pay later.

(b)Purchased equipment for $45,000, paying $20,000 in cash and theremainder on credit

(c)Paid $3,000 for rent for January.

(d)Purchased $2,500 of supplies on account.

(e)A. Allen $1,000 investment in the company.

(f)Received $7,000 in cash for fees earned previously.

(g)Paid $1,200 to creditors on account.

(h)Paid wages of $6,250.

(i)Received $7,150 from customers on account.

(j)A. Allen withdrawal of $1,750.

Particulars Ledger Folio

Dr. Amount

$

Cr. Amount

$

Cash A/c

To Sales A/c

(Being payments for earned fees on debt)

7,000

Purchase A/c

To Sales A/c

(being payment for purchase of equipment)

20,000

Rent A/c

To Sales A/c

(Being payment for January rent)

3,000

Purchase A/c

To Sales A/c

(Being Payment for supplies on account)

1,000

Revenue A/c

To Sales A/c

(being payment for fees earned previously)

7,000

Creditors A/c

To Sales A/c

(being payment for creditors on account)

1,200

Salaries/Wages A/c

To sales A/c

(being payment of wages)

6,250

Revenue A/c

To Sales A/c

(being cash received from customers on account)

7,150

Revenue A/c

To Sales A/c

(being cash withdrawn by A. Allen)

1,750

PartC

  1. The income statement of friend’s Tutoring as at December 31 is shown below. In addition, the business withdrew $1,000 during this period.

IncomeStatement

Account Debit Credit

TutoringFees 3,450

WagesExpense 700

RentExpense 600

SuppliesExpense 450

InsuranceExpense 250 _

2,000 3,450

NetIncome 1,450 _

$3,450 $3,450

  1. A summary of selected ledger accounts appears below for S. Ball for the current calendar year.

Theinformation represented above is to be used in the preparation ofclosing entries.

Dr. Cash A/c Cr.

Particulars

Amount

($)

Particulars

Amount

($)

To Sales

Total

To bal. b / f

3,450

3, 450

1,450

By wages

By rent

By supplies

By insurance

Total

700

600

450

250

2,000

2.a) Withdrawals made in the year: A business cannot continue itsoperations without utilizing what it has made. In order to use theincome, there has to be some withdrawals. Total withdrawals are thesum of all the withdrawals done in a particular period. For thiscase, the withdrawals were three, hence,

Totalwithdrawal withdrawal 1 +withdrawal 2 + withdrawal 3

2,000 +3, 000+ 1,000)

$6,000

Anyasset that goes out of the business in cash form is considered to bea withdrawal. In this case, the business makes the first withdrawalof $ 2, 000, W1on3/31, second withdrawal of $ 3, 000 W2,on10/ 31 and the third withdrawal of $ 1, 000, W3on 12/31.

b)Net Income: Net income is the entire income made by the businessbefore extracting the expenses. Anything that the business gets interms of cash is entailed in the net income. In this case,

NetIncome $ (12,750 + 4,250)

$17, 0000

Netincome refers to all finances coming into the business. It includesmoney received from sales and money paid into the business bydebtors. In this case, the business receives money three times on12/31. Getting the sum of these periodic income gives the totalincome of the business for that period.

c)Total Revenue. Total revenue is the total income less the expenses.It is expressed as:

TotalRevenueIncome – Expenses

TR= I – E

Inthis case, the total income is $17000 and the expenses accumulate to$6000. Therefore

TR$ (17, 000 -6,000)

$ 11,000

Forany business to be successful, the income generated must exceed theexpenses. In this way, the business is able to fuel its operationsdepending on the revenue made. The revenue of the business refers tothe money retained by the business after all transactions have beenpaid for. The transactions paid for by the business in this case havebeen categorized as the expenses of the business. It is assumed thatpayments will be done from the income of the business.

d)Total Expenses

Totalexpenses are the sum of capital and withdrawals.

TECapital + Withdrawals

$ (27,000 + 4, 250 +6,000)

$ (37, 250)

Expensesrefer to any cash put into the business. In simple terms, this is theinput made in the business that facilitates its operations. Thisincludes the capital and any other purchases into the business. Inthis case, the owner of the business invests a total of $ 27,000 on1/1, 6,500 on 12/31 and $ 4,250 on 12/31.

References

Mathur,I., Singh, M. and Gleason, K. (2004). Multinational diversificationand corporate performance: evidence from European firms. EuropeanFinancial Management(September)