WEEK 4
BE 4.4
The balances at 31/12 in the following accounts are:
D. Bosna, Capital 30,000
D. Bosna, Drawings 2,000
Revenue 50,000
Service
Expense 23,000
Salaries
Supplies Expense 4,000
Step 1 – Prepare closing entries:
General Journal
Date Details Dr $ Cr $
(1) Service Revenue 50,000
Summary 50,000
P&L
(Closing of Revenue Account)
(2) P&L Summary 27,000
Expense 23,000
Salaries
Expense 4,000
Supplies
(Closing of Expense Accounts)
(3) P&L Summary 23,000
Capital 23,000
(Transfer of Profit to Capital)
(4) Capital 2,000
Drawings 2,000
(Transfer of Drawings to Capital)
BE 4.5 Step 2 - Post closing entries to ledger
Profit & Loss Summary a/c Service Revenue a/c
(2) 27,000 (1) 50,000 (1) 50,00031/12 50,000
(3)23,000
50,000 50,000
OBal 0
Supplies Expense a/c Salaries Expense a/c
31/124,000 (2) 4,00031/12 23,000 (2) 23,000
D. Bosna, Capital a/c D. Bosna, Drawings a/c
(4)2,00031/12 30,00031/12 2,000 (4)2,000 CBal 51,000 (3)23,000
53,000 53,000
OBal 51,000
E4.12 (amended)
The balances in the following accounts are:
receivable 19,800
A/cs
87,800
rev
Commissions
Interest expense 6,300
Interest payable 0
(a) Prepare and post Adjusting Entries on 31/12:
Accrue $4,200 of commission earned but not received:
Dr Accounts Receivable 4,200
Cr Commission Revenue 4,200
Accrue $1,500 interest expense owing:
1,500
Expense
Interest
Dr
Cr Interest Payable 1,500
(b) Prepare and post Closing entries at 31st of December:
Close Revenue accounts:
Dr Commission Revenue 92,000
Cr P&L Summary 92,000
Close Expense accounts:
Dr P&L Summary 7,800
Cr Interest Expense 7,800
Transfer balance of P*L Summary to Capital
Dr P&L Summary 84,200
Cr Capital 84,200 (c) Prepare and post entries for January:
$4,200 Commission owed was received on Jan 10
10/1 Dr Cash 4,200
Cr Accounts Receivable 4,200
Paid $2,700 interest on Jan 15 ($1500 for last month)
15/1 Dr Interest payable 1,500
Dr Interest Expense 1,200
Cr Cash 2,700
Post entries at General Ledger for each of the following:
(1) Post adjusted entries at 31st Dec.
(2) Post closing entries at 31st Dec.
Balance the accounts on 31 Jan.
(3) Post entries for next month on Jan 10 and 15
Accounts Receivable Commission Revenue
31/12 19,800 (2) Clos. 92,000 31/12 87,800 (1) Adj. 4,200 (1) Adj. 4,200 Bal. 24,000(3) 10/1 4,200 Bal 0
Capital
CBal 84,200 (2)Clos 84,200
84,20084,200
OBal 84,200
Interest Payable Interest Expense
(1) Adj. 1,500 31/12 6,300 (2) Clos. 7,800
(1) Adj. 1,500
(3) 15/1 1,500
Bal 1,500Bal 0
(3) 15/1 1,200
Cash Profit and Loss Summary
(3) 10/ 1 4,200 (3) 15/1 2,700 (2) Exp 7,800 (2)Rev 92,000
(2) Capital 84,200
92,000 92000
O/Bal 0
Problem 4.5A
On 1 July 2007 Tsai Window Washing Pty Ltd opened for business. The company maintains the following Chart of Accounts:
A/c no. Account Name
101 Cash
112 Accounts
receivable.
supplies
128 Cleaning
insurance
130 Prepaid
157 Equipment
158 Accumulated depn – equipment
201 Accounts
payable
payable
212 Salaries
213 Tax
payable
capital
301 Share
earnings
302 Retained
306 Dividends
350 Profit and loss summary
revenue
400 Service
634 Cleaning supplies expense
expense
711 Depreciation
expense
722 Insurance
expense
726 Salaries
expense
727 Tax
(a)Journalise the following entries and
1/7Shareholders invested $12,000 into the business.
1/7Purchased used truck for $6,000. Paid $3,000 today with the balance on credit.
3/7Purchased $1,300 cleaning supplies on credit.
5/7Paid $1,200 for 1 year insurance policy.
12/7Invoiced customers $5,500 for cleaning services.
18/7Paid $1,000 on amount owing on truck and $800 on amount owing on supplies. 20/7Paid $1,400 for employee salaries.
21/7Collected $1,400 cash from customers invoiced on July 12.
31/7Paid $900 in dividends.
General Journal
Date Details Ref Dr $ Cr $
1/7 Cash 101 12,000
capital 301 12,000 Share
1/7 Equipment 157 6,000
Cash 101 3,000
Payable 201 3,000 Accounts
3/7 Cleaning
Supplies 128 1,300
Payable 201 1,300 Accounts
Insurance 130 1,200
5/7 Prepaid
Cash 101 1,200
Receivable 112 5,500
12/7 Accounts
Revenue 400 5,500 Service
Payable 201 1,800
18/7 Accounts
Cash 101 1,800
Expense 726 1 400
20/7 Salaries
Cash 101 1
400
21/7 Cash 101 1,400
Receivable 112 1,400 Accounts
31/7 Dividends 306 900
Cash 101 900
(b) Post these journal entries to the General ledger (done)
Please note: That an example of the cross referencing has been shown for the first two
journal entries on July 1st.
CASH No. 101
Debit Credit
Balance
Explanation Ref.
Date
Jul 1 Eg: Share Capital J1 12 00012 000
1 Eg: Equipment J1 3 000 9 000
5 J1 1 200 7 800
18 J1 1 800 6 000
20 J1 1 400 4 600
21 J1 1 400 6 000
31 J1 900 5 100
ACCOUNTS RECEIVABLE No. 112
Date
Balance
Explanation Ref.
Debit Credit
Jul 12 J1 5 500 5 500
21 J1 1 400 4 100
31 Adjusting J2
600
500 5
1
CLEANING SUPPLIES No. 128
Date
Debit Credit
Balance
Explanation Ref.
Jul 3 J1 1 300 1 300
600
31 Adjusting J2 700
PREPAID INSURANCE No. 130
Date
Balance
Debit Credit
Explanation Ref.
July 5 J1 1 200 1 200
100
31 Adjusting J2 100
1
157 EQUIPMENT No. Date
Balance
Debit Credit
Explanation Ref.
Jul 1 Eg: Cash/ A/c Payable J1 6 000 6 000
ACCUMULATED DEPRECIATION — EQUIPMENT No. 158
Date
Explanation Ref. Debit Credit Balance Jul 31 Adjusting J2 200 200
ACCOUNTS PAYABLE No. 201
Date
Explanation Ref. Debit Credit Balance Jul 1 Eg: Equipment J1 3 000 3 000 3 J1 1 300
4 300 18
J2
1 800
2 500
SALARIES PAYABLE No. 212
Date
Explanation Ref. Debit Credit Balance Jul 3 Adjusting J2 600 600
TAX PAYABLE
No. 213
Date
Explanation Ref. Debit Credit Balance Jul 31 Adjusting J2 1,200 1,200
SHARE CAPITAL No. 301 Date
Explanation Ref. Debit Credit Balance Jul 1
Eg: Cash
J1
12 000
12 000
RETAINED EARNINGS No. 302
Date
Explanation Ref. Debit Credit Balance Jul 31 Closing
J3
2,800
2,800
31
Closing J3 900
1,900
DIVIDENDS No. 306 Date Explanation Ref. Debit Credit Balance Jul 31
J1
900
900
31 Closing J3 900 0
PROFIT AND LOSS SUMMARY No. 350
Date Explanation Ref. Debit Credit Balance
Jul 31
Closing J3 7 000 7 000
4,2002,800 31 Closing J3
31 Closing J3
2,8000
SERVICE REVENUE No. 400
Balance
Debit Credit
Date
Explanation Ref.
Jul 12 J1 5 500 5 500
000
7
31 Adjusting J2 1
500
0000
7
31 Closing J3
CLEANING SUPPLIES EXPENSE No. 634
Date
Balance
Debit Credit
Explanation Ref.
700700
Jul 31 Adjusting J2
31 Closing J3 700 DEPRECIATION EXPENSE No. 711
Date
Balance
Explanation Ref.
Debit Credit
200 200
Jul 31 Adjusting J2
31 Closing J3 200 INSURANCE EXPENSE No. 722
Date
Balance
Debit Credit
Explanation Ref.
100100
Jul 31 Adjusting J2
31 Closing J3 100
TAX EXPENSE No. 724
Debit Credit
Balance
Explanation Ref.
Date
12001200
Jul 31 Adjusting J2
31 Closing J3 1200
SALARIES EXPENSE No. 726
Date
Balance
Explanation Ref.
Debit Credit
Jul 20 J1 1 400 1 400
000
600 2
31 Adjusting J2
31 Closing J3 2
000
(c) Prepare a Trial Balance as at 31 July on the worksheet
(d) Enter the following adjustments on the worksheet and complete the worksheet:
(1)$1,500 services provided but not invoiced or collected.
(2)Depreciation for the month on equipment is $200.
(3)One twelfth of the insurance has expired.
(4)$600 of cleaning supplies remain at the end of July.
(5)Unpaid employee salaries amount to $600.
(6)Tax at the rate of 30% is payable on profit (Hint: you will need to calculate profit for the
month).
(e)Prepare an income statement, a statement of changes in equity for the month ending
July 31, and a balance sheet as at July 31
(f)Journalise adjusting entries and post to the ledger (use J2 for the journal page)
(g)Journalise the closing entries, and post to the ledger
(use J3 for the journal page)
(h)Prepare a post-closing trial balance from the ledger a/c balances (and compare with your
worksheet)
Tsai Window Washing Pty Ltd
For the month of July, 2007
Trial Balance Adjustments Adjusted Trial Bal Income Statement B Account Name Dr Cr Dr Cr Dr Cr Dr Cr sh 5,100 5,100
counts Receivable 4,100 1,5005,600
eaning supplies 1,300 700600
epaid insurance 1,200 1001,100
uipment 6,000 6,000
c Dep – equip’t 200200
counts payable 2,500 2,500
laries payable 600600
x payable 1,2001,200
are capital 12,000 12,000
vidends 900 900
7,000
rvice revenue 5,500 1,500 7,000
eaning supplies exp 700700700
preciation expense 200200200
surance expense 100100100
laries expense 1,400 6002,0002,000
x expense 1,2001,2001,200
20,000 20,000 4,3004,30023,50023,500 4,2007,000
t Profit 2,800
tals 7,0007,000
Tsai Window Washing Pty Ltd
Income Statement
For the Month Ending 31 July 2007
$ $
Revenues
Service revenue 7,000
Expenses
Salaries expense 2,000 Depreciation expense 200 Insurance expense 100 Supplies expense 700
3,000Profit before tax 4,000Tax expense 1.200Net profit after tax
2,800
Tsai Window Washing Pty Ltd Statement of Changes in Equity For the Month Ending 31 July 2007
Retained Earnings $ Share
Capital $ Opening Bal., 1 July 0 0Plus : Share Issue 12,000
Net Profit for period
2,800 Less : Dividends 900 Ending bal, 31 July 1,900
12,000
Tsai Window Washing Pty Ltd
Balance Sheet
as at 31 July 2007
ASSETS
Current Assets
Cash 5,100
Receivable 5,600
Accounts
Cleaning
Supplies 600
Insurance 1,10012,400 Prepaid
Non-Current Assets
Equipment 6,000
Less: Accumul. Dep. – Equip. 2005,800 Total Assets 18,200 LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Payable 2,500
Accounts
Tax
Payable 1,200
Payable 6004,300 Salaries
Shareholders Equity
Capital 12,000
Share
Earnings 1,90013,900 Retained
Total Liabilities and Sh. Equity 18,200
(f) General Journal (continued)
Date Details Ref Dr $ Cr $
(f) Adjusting Entries
31/7 Accounts
Receivable 112 1,500
Revenue 400 1,500 Service
31/7 Depr. Expense – Equip. 711 200
Accum. Dep. – Equip. 158 200 Expense 722 100
31/7 Insurance
Insurance 130 100 Prepaid
31/7 Cleaning Supplies Expense 634 700
Supplies 128 700 Cleaning
Expense 726 600
31/7 Salaries
Payable 212 600 Salaries
31/7 Tax
Expense 727 1,200
Payable 213 1,200 Tax
(g) General Journal (continued)
Date Details Ref Dr $ Cr $
(g) Closing Entries:
31/7 Service Revenue 400 7,000
P&L Summary 350 7,000 31/7 P&L Summary 350 4,200
Salaries
Expense
Depr. Exp – Equipment Insurance
Expense Cleaning Supplies Exp. Tax
expense 726
711
722
634
724
2,000
200
100
700
1200
31/7 P&L Summary 350 2,800
Retained Earnings 301 2,800
31/7 Retained Earnings 301 900
Dividends 306 900
(h) Post-closing trial balance
Account Name Dr $ Cr $
Cash 5,100 Accounts receivable 5,600
Cleaning supplies 600
Prepaid insurance 1,100
Equipment 6,000 Accumulated depreciation 200
Accounts payable 2,500
Tax payable 1,200
Salaries payable 600
Share capital 12,000
Retained earnings 1,900
18,400
18,400
Use of a Classified Balance Sheet:
Liquidity Analysis Working Capital
= Current Assets – Current Liabilities = 12,400 – 4,300
= $8,100
Current Ratio
= Current Assets / Current Liabilities = 12,400 / 4,300
= 2.88 times
Solvency Analysis
Debt to Equity Ratio
= Total Liabilities / Total Owners’ Equity = 4,300 / 13,900
= 0.3093 or 30.93%
Debt to Assets Ratio
= Total Liabilities / Total Assets
= 4,300 / 18,200
= 0.2362 or 23.62%