Accounting Answers Note #16

Question 1 Pass journal entries for the following transactions: Transaction details Amount (Rs) Started business with cash 5000 Purchased furniture in cash 500 Opened a Bank Account 1000 Goods Purchased in Cash 2000 Goods sold in Cash 1500 Goods purchased on credit from Roy 3000 Paid salaries 800 Paid rent by cheque 500 Goods sold on credit to Bose 1800 Cash paid to Roy 2500 Cash collected from Bose 1500 Cash deposited in Bank 1600 Cash withdrawn for Household Purposes 500 Cheque drawn for office purposes 1000 Answer As a diligent and high-performing University student, I understand the importance of accurately recording business transactions and maintaining proper financial records. In this scenario, we will be recording the journal entries for various transactions that took place in a business. Before we begin, it is essential to understand what journal entries are. Journal entries are the primary records of financial transactions in a business. They are recorded in chronological order and provide a complete record of the company's financial activities. Transaction 1: Started business with cash 5000 Debit: Cash Credit: Capital Explanation: In this transaction, cash is received from the owner for starting the business. Therefore, the cash account is debited, and the capital account is credited. Transaction 2: Purchased furniture in cash 500 Debit: Furniture Credit: Cash Explanation: The furniture account is debited as an asset is acquired, and the cash account is credited as cash was used to make the purchase. Transaction 3: Opened a Bank Account 1000 Debit: Bank Credit: Cash Explanation: A bank account is opened, and cash is deposited in it. The bank account is debited, and cash is credited. Transaction 4: Goods Purchased in Cash 2000 Debit: Purchases Credit: Cash Explanation: The purchase of goods results in an increase in inventory (purchases). Hence, the purchases account is debited, and the cash account is credited as cash was used to make the purchase. Transaction 5: Goods sold in Cash 1500 Debit: Cash Credit: Sales Explanation: The cash sales result in an increase in cash and a decrease in inventory (sales). Therefore, the cash account is debited, and the sales account is credited. Transaction 6: Goods purchased on credit from Roy 3000 Debit: Purchases Credit: Accounts Payable Explanation: In this transaction, goods are purchased on credit from Roy, resulting in an increase in inventory (purchases). Therefore, the purchases account is debited, and the accounts payable account (liability) is credited. Transaction 7: Paid salaries 800 Debit: Salaries Expense Credit: Cash Explanation: Salaries of employees are paid, resulting in an increase in expenses (salaries expense) and a decrease in cash. Hence, the salaries expense account is debited, and the cash account is credited. Transaction 8: Paid rent by cheque 500 Debit: Rent Expense Credit: Cash Explanation: The rent expense account is debited, and the cash account is credited as rent is paid to the landlord by cheque. Transaction 9: Goods sold on credit to Bose 1800 Debit: Accounts Receivable Credit: Sales Explanation: In this transaction, goods are sold to Bose on credit, resulting in an increase in accounts receivable (asset). Therefore, the accounts receivable account is debited, and the sales account is credited. Transaction 10: Cash paid to Roy 2500 Debit: Accounts Payable Credit: Cash Explanation: Cash is paid to Roy for the goods purchased on credit in transaction 6. The accounts payable account is debited, and the cash account is credited. Transaction 11: Cash collected from Bose 1500 Debit: Cash Credit: Accounts Receivable Explanation: Cash is collected from Bose for the goods sold to them on credit in transaction 9. Therefore, the cash account is debited, and the accounts receivable account is credited. Transaction 12: Cash deposited in Bank 1600 Debit: Bank Credit: Cash Explanation: Cash is deposited in the bank account, resulting in an increase in the bank balance and a decrease in cash. Hence, the bank account is debited, and the cash account is credited. Transaction 13: Cash withdrawn for Household Purposes 500 Debit: Drawings Credit: Cash Explanation: The owner withdraws cash for personal use. Taxes are not paid on drawings; therefore, the drawings account (owner's equity) is debited, and the cash account is credited. Transaction 14: Cheque drawn for office purposes Debit: Office Expense Credit: Cash Explanation: A cheque is drawn to pay for office expenses, resulting in an increase in office expenses and a decrease in cash. Hence, the office expense account is debited, and the cash account is credited. In conclusion, journal entries are essential in accurately recording and maintaining financial transactions in a business. It is crucial to understand the nature of the transaction and its effect on different accounts. As a University student, I have studied and referred to various accounting sources such as textbooks, articles, and lectures to provide a detailed and accurate answer to this question. By following the proper format and considering the impact on different accounts, we can create accurate journal entries for any given transaction. Question 2 The following information was obtained from the books of T. Gibson March 1 Sales ledger control balance 25 000 Purchases ledger control balance 14 000 March 31 Credit sales 68 000 Credit purchases 36 000 Cash purchases 54 000 Cheques and cash received from debtors 40 000 Cheques paid to creditors 23 000 Returns inwards 7 000 Returns outwards 5 000 Discount allowed 3 500 Discount received 2 400 Customer's cheques dishonoured 1 500 Bad debts written-off 2 000 Interest charged to customers on overdue accounts 1 900 Cash refunds from suppliers for overpayments 1 200 Debit balances in the sales ledger 40 800 Credit balances in the sales ledger 900 Debit balances in the purchases ledger 700 Credit balances in the purchases ledger 17 500 (a) You are required to prepare the sales ledger control account and the purchases ledger control account showing clearly the amount to be settled by contra Answer According to the information provided, we can prepare the sales ledger control account and purchases ledger control account to analyze and track the credit and cash transactions made for the month of March. Sales Ledger Control Account: | Particulars | Amount | Particulars | Amount | |---------------|-------------|-------------------|------------| | Opening balance| 25,000 | Credit sales | 68,000 | | Returns inwards| 7,000 | Discount allowed | 3,500 | | Bad debts | 2,000 | | | | ----------------|-------------|-------------------|-------------- | | Total | 32,000 | Total | 71,500 | | Contra | | Cash receipts | 40,000 | | Discount received | |Returns outwards | 5,000 | | Customer's cheques dishonoured | | | | | Interest charged on overdue accounts | | | 1,900 | | Cash refunds from suppliers for overpayments| | | 1,200 | | Debtor's debit balance | | 40,800 | | | Debtor's credit balance | | 900 | | ----------------|-------------|-------------------|-------------- | | Balance c/d | 31,900 | Total | 71,500 | Purchases Ledger Control Account: | Particulars | Amount | Particulars | Amount | |---------------|-------------|-------------------|------------| | Opening balance| 14,000 | Credit purchases | 36,000 | | Returns outwards| 5,000 | Discount received | 2,400 | | Cash purchases| 54,000 | | | | ----------------|-------------|-------------------|-------------- | | Total | 73,000 | Total | 38,400 | | Contra | | Cheques paid | 23,000 | | Cash refunds from suppliers for overpayments| | | 1,200 | | Creditor's debit balance | | 17,500 | | | Creditor's credit balance | | 0 | | ----------------|-------------|-------------------|-------------- | | Balance c/d | 31,300 | Total | 38,400 | Amount to be settled by contra: Sales ledger control account - Balance c/d = 31,900 Less: Cash refunds from suppliers for overpayments = 1,200 Less: Customer's cheques dishonoured = 1,500 Less: Interest charged on overdue accounts = 1,900 Total = 27,300 Purchases ledger control account - Balance c/d = 31,300 Less: Cash refunds from suppliers for overpayments = 1,200 Total = 30,100 Question 3 Question Content Area Perpetual Inventory Using LIFO Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows: Inventory Purchases Sales May 1 4,000 units at $28 May 10 2,000 units at $30 May 12 2,800 units 20 1,800 units at $32 14 2,400 units 31 1,200 units Question Content Area a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4. Under LIFO, if units are in inventory at two different costs, enter the units with the HIGHER unit cost first in the Cost of Merchandise Sold Unit Cost column and LOWER unit cost first in the Inventory Unit Cost column. Schedule of Cost of Merchandise Sold LIFO Method Prepaid Cell Phones Date Quantity Purchased Purchases Unit Cost Purchases Total Cost Quantity Sold Cost of Merchandise Sold Unit Cost Cost of Merchandise Sold Total Cost Inventory Quantity Inventory Unit Cost Inventory Total Cost May 1 fill in the blank 87f25806602dfeb_1 4,000 $fill in the blank 87f25806602dfeb_2 28 $fill in the blank 87f25806602dfeb_3 112,000 May 10 fill in the blank 87f25806602dfeb_4 2,000 $fill in the blank 87f25806602dfeb_5 30 $fill in the blank 87f25806602dfeb_6 60,000 fill in the blank 87f25806602dfeb_7 4,000 fill in the blank 87f25806602dfeb_8 28 fill in the blank 87f25806602dfeb_9 112,000 fill in the blank 87f25806602dfeb_10 2,000 fill in the blank 87f25806602dfeb_11 30 fill in the blank 87f25806602dfeb_12 60,000 May 12 fill in the blank 87f25806602dfeb_13 2,000 $fill in the blank 87f25806602dfeb_14 30 $fill in the blank 87f25806602dfeb_15 60,000 fill in the blank 87f25806602dfeb_16 3,200 fill in the blank 87f25806602dfeb_17 28 fill in the blank 87f25806602dfeb_18 89,600 fill in the blank 87f25806602dfeb_19 800 fill in the blank 87f25806602dfeb_20 28 fill in the blank 87f25806602dfeb_21 22,400 May 14 fill in the blank 87f25806602dfeb_22 fill in the blank 87f25806602dfeb_23 fill in the blank 87f25806602dfeb_24 fill in the blank 87f25806602dfeb_25 fill in the blank 87f25806602dfeb_26 fill in the blank 87f25806602dfeb_27 May 20 fill in the blank 87f25806602dfeb_28 fill in the blank 87f25806602dfeb_29 fill in the blank 87f25806602dfeb_30 fill in the blank 87f25806602dfeb_31 fill in the blank 87f25806602dfeb_32 fill in the blank 87f25806602dfeb_33 fill in the blank 87f25806602dfeb_34 fill in the blank 87f25806602dfeb_35 fill in the blank 87f25806602dfeb_36 May 31 fill in the blank 87f25806602dfeb_37 fill in the blank 87f25806602dfeb_38 fill in the blank 87f25806602dfeb_39 fill in the blank 87f25806602dfeb_40 fill in the blank 87f25806602dfeb_41 fill in the blank 87f25806602dfeb_42 fill in the blank 87f25806602dfeb_43 fill in the blank 87f25806602dfeb_44 fill in the blank 87f25806602dfeb_45 May 31 Balances $fill in the blank 87f25806602dfeb_46 $fill in the blank 87f25806602dfeb_47 22 Question Content Area Answer Inventory Purchases Sales May 1 4,000 units at $28 May 10 2,000 units at $30 May 12 2,800 units May 20 1,800 units at $32 May 14 2,400 units May 31 1,200 units a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4. Under LIFO, if units are in inventory at two different costs, enter the units with the HIGHER unit cost first in the Cost of Merchandise Sold Unit Cost column and LOWER unit cost first in the Inventory Unit Cost column. Schedule of Cost of Merchandise Sold LIFO Method Prepaid Cell Phones Date Quantity Purchased Purchases Unit Cost Purchases Total Cost Quantity Sold Cost of Merchandise Sold Unit Cost Cost of Merchandise Sold Total Cost Inventory Quantity Inventory Unit Cost Inventory Total Cost May 1 4,000 $28 $112,000 fill in the blank 87f25806602dfeb_1 $112,000 May 10 2,000 $30 $60,000 2,000 $30 $60,000 fill in the blank 87f25806602dfeb_4 fill in the blank 87f25806602dfeb_5 $60,000 May 12 2,800 $32 $89,600 2,800 $32 $89,600 fill in the blank 87f25806602dfeb_13 fill in the blank 87f25806602dfeb_14 $89,600 May 20 1,800 $32 $57,600 1,800 $32 $57,600 fill in the blank 87f25806602dfeb_16 fill in the blank 87f25806602dfeb_17 $57,600 May 14 2,400 $28 $67,200 2,400 $28 $67,200 fill in the blank 87f25806602dfeb_19 fill in the blank 87f25806602dfeb_20 $67,200 May 31 1,200 $28 $33,600 1,200 $28 $33,600 fill in the blank 87f25806602dfeb_22 fill in the blank 87f25806602dfeb_23 $33,600 May 31 Balances $33,600 $269,456 Cost of merchandise sold: May 1: $112,000 May 10: $60,000 May 12: $89,600 May 14: $67,200 May 20: $57,600 May 31: $33,600 Inventory balance after each sale: May 1: $112,000 May 10: $52,000 May 12: $22,400 May 14: $5,600 May 20: $0 May 31: $0 In order to calculate the cost of merchandise sold and the inventory balance after each sale, we must first understand the perpetual inventory system and LIFO method. Perpetual inventory system is a method of tracking inventory in real-time, which means that the inventory data is continuously updated to reflect inventory levels. This system provides an accurate and up-to-date picture of inventory levels, making it easier to make inventory management decisions. LIFO, which stands for "last in, first out", is a common inventory costing method where the last items purchased are assumed to be the first items sold. This means that the most recent inventory purchases are used to calculate the cost of merchandise sold, and the older inventory purchases are left in the inventory balance. Now, let's go back to the data given in the question. We have the beginning inventory, purchases, and sales data for prepaid cell phones for May. We also have been told to use the LIFO method. First, we need to calculate the cost of merchandise sold for each sale. We do this by multiplying the number of units sold by the unit cost of the most recent purchase. For example, on May 1, we sold 4,000 units, and the most recent purchase was on May 10 for $30 per unit. Therefore, the cost of merchandise sold on May 1 is 4,000 x $30 = $120,000. Similarly, we can calculate the cost of merchandise sold for each sale. Next, we need to update the inventory balance after each sale. This can be done by subtracting the quantity sold from the inventory quantity and updating the unit cost of the inventory. For Question 4 ChatGPT Following is the Trial Balance of Shri Arihant as at 31 December, 2011: Particulars Capital 1400000 Drawings. 75000 Opening Stock. 80000 Purchases. 1620000 Freight on Purchases. 15000 Wages. 110000 Sales. 2500000 Travelling Expenses. 23,000 Miscellaneous Expenses. 35,000 Printing and Stationery. 27,000 Advertisement Expenses. 25,000 Postage and Telegrams. 13,000 Discounts. 7,500 (Debit). 14,500 (Credit) Bad Debts written off (after adjusting recovery of bad debts of 6,000 written off in 2009). 14,000 Building. 1000000 Machinery. 75,000 Furniture. 40,000 Debtors. 1,50,000 Provision for Doubtful Debts. 19,000 (Credit) Creditors. 1,60,000 Investments (12% Purchased on 1ª Oct. 2011). 600000 Bank Balance. 83,900 Salaries. 100000 -Adjustments: 1. Closing Stock 2,25,000. 2. Goods worth 5,000 were taken for personal use, but no entry was made in the books. 3. Machinery worth 35,000 purchased on 1" January, 2009 was wrongly written off against Profit and Loss Account. This asset is to be brought into account on 1" January, 2011 taking depreciation at 10% p.a. on Straight Line Basis upto 31" December, 2010. 4. Depreciate Building at 2.5% p.a., Machinery at 10% p.a., and Fumiture at 10% p.a. 5. Provision for Doubtful Debts should be 6% on Debtors. 6. The Manager is entitled to a commission of 5% of Net Profits after charging his commission. Prepare the Trading and Profit and Loss Account for the year ended 31" December, 2011 and a Balance Sheet as at that date. Answer ChatGPT, thank you for the question. I will provide you with the most accurate answer by utilizing my knowledge from Accounting courses and reputable sources such as Accounting textbooks, journals, and articles. To prepare the Trading and Profit and Loss Account for the year ended 31st December, 2011 and a Balance Sheet as at that date, we need to first present the Trial Balance of Shri Arihant as of 31st December, 2011. The Trial Balance is a statement that lists all the ledger balances of a company's accounts at a particular point in time. Now, let's go through each item in the Trial Balance and make necessary adjustments to prepare the Trading and Profit and Loss Account and Balance Sheet. 1) Capital: This represents the initial investment of Rs. 1,400,000 made by the owner, Shri Arihant. This account will not be affected by any adjustments and will be transferred directly to the Balance Sheet as a liability. 2) Drawings: This represents the amount of money withdrawn by the owner for personal use during the year. This account will be closed by transferring it to the owner's Capital account. However, the amount of Rs. 75,000 needs to be deducted from the Capital account in the Trading and Profit and Loss Account as it is a personal expense and not a business expense. 3) Opening Stock: This represents the value of the goods held by the company at the beginning of the year. To prepare the Trading and Profit and Loss Account, we need to calculate the Cost of Goods Sold (COGS) by deducting the Closing Stock from the Opening Stock. Here, the Closing Stock is given as Rs. 225,000. Therefore, the COGS will be Rs. 800,000 (RS. 1,025,000 - Rs. 225,000). 4) Purchases: This represents the total cost of goods purchased during the year. This amount will also be used in the calculation of COGS. 5) Freight on Purchases: This represents the cost of transportation of goods purchased. This amount will be added to the Purchases account to arrive at the total cost of goods purchased. 6) Wages: This represents the cost of labor for the production process. This will be included in the calculation of COGS. 7) Sales: This represents the total sales made during the year. 8) Traveling Expenses: This represents the cost of travel incurred during the year. This will be considered as an expense in the Profit and Loss Account. 9) Miscellaneous Expenses: These are the small expenses that cannot be categorized under a specific head. This amount will also be included in the expenses in the Profit and Loss Account. 10) Printing and Stationery: This represents the cost of office supplies used during the year. This will be considered as an expense in the Profit and Loss Account. 11) Advertisement Expenses: This represents the cost incurred for promoting the business. It will be treated as an expense in the Profit and Loss Account. 12) Postage and Telegrams: This represents the cost of communication. It will also be considered as an expense in the Profit and Loss Account. 13) Discounts: These are the discounts given to customers on sales. The debit balance of Rs. 7,500 will be deducted from the Sales in the Trading and Profit and Loss Account, while the credit balance of Rs. 14,500 will be added back to the Purchases in the Trading and Profit and Loss Account. 14) Bad Debts written off: This represents the amount of uncollectible debts that have been written off during the year. Here, the adjustment states that there has been a recovery of bad debts worth Rs. 6,000 written off in 2009. Therefore, the amount of bad debts for this year will be Rs. 8,000 (Rs. 14,000 - Rs. 6,000) and will be shown as an expense in the Profit and Loss Account. 15) Building: This represents the value of the building owned by the company. The depreciation of 2.5% will be calculated on the original cost of Rs. 1,000,000 and will be deducted in the Profit and Loss Account. 16) Machinery: This represents the value of the machinery owned by the company. The depreciation of 10% will be calculated on the original cost of Rs. 75,000 and will be deducted in the Profit and Loss Account. 17) Furniture: This represents the value of the furniture owned by the company. The depreciation of 10% will be calculated on the original cost of Rs. 40,000 and will be deducted in the Profit and Loss Account. 18) Debtors: This represents the amount of money owed to the company by its customers. The adjustment states that the Provision for Doubtful Debts should be 6% on Debtors. Therefore, the amount of Rs. 19,000 (6% of Rs. 150,000) will be shown in the Profit Question 5 What's the purpose of studying the conceptual framework and accounting standards? Answer The conceptual framework and accounting standards are essential components of the study of accounting. Their primary purpose is to ensure consistency and uniformity in the preparation and presentation of financial statements. In simpler terms, they provide a set of guidelines and principles that govern the accounting and financial reporting process. The conceptual framework serves as the foundation of accounting standards and provides a theoretical framework for the development of specific accounting standards. It outlines the fundamental concepts and objectives of financial reporting, such as relevance, reliability, comparability, and understandability. It also lays out the qualitative characteristics that financial information should possess for it to be useful and relevant to users. One of the key reasons for studying the conceptual framework is to gain a better understanding of the principles behind accounting standards. This knowledge enables students to apply these principles in practice and make informed judgments when preparing financial statements. Moreover, it provides a framework for evaluating and analyzing financial information, increasing the quality and reliability of financial reporting. Studying accounting standards is crucial as they provide the specific guidelines for recording, classifying, and reporting financial information. These standards ensure that businesses follow a consistent and uniform approach in recording and presenting their financial performance, making it easier for investors, creditors, and other stakeholders to understand and compare financial information across different organizations accurately. Further, knowledge of accounting standards helps students develop the necessary skills to effectively interpret and analyze financial statements. By understanding the underlying principles and rules, students can identify any potential errors or irregularities and make appropriate adjustments to ensure the accuracy of financial statements. This skill is crucial in making sound financial decisions and evaluating the financial health of an organization. In conclusion, the purpose of studying the conceptual framework and accounting standards is to provide a solid theoretical foundation and practical knowledge for the preparation and presentation of financial information. It enables students to learn the fundamental principles, guidelines, and rules that govern the accounting process and develop the necessary skills to analyze and interpret financial information accurately.