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Module 2 Lecture Handout SV

1. The proprietor contributed $18,000 cash as capital. This increased assets (cash) and equity (capital). 2. Equipment was purchased on credit, increasing assets (equipment) and liabilities (accounts payable), with a $1,000 deposit decreasing assets (cash). 3. A delivery van was purchased for $10,000, decreasing assets (cash) and increasing assets (vehicle).

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48 views

Module 2 Lecture Handout SV

1. The proprietor contributed $18,000 cash as capital. This increased assets (cash) and equity (capital). 2. Equipment was purchased on credit, increasing assets (equipment) and liabilities (accounts payable), with a $1,000 deposit decreasing assets (cash). 3. A delivery van was purchased for $10,000, decreasing assets (cash) and increasing assets (vehicle).

Uploaded by

Sushan Maharjan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Module 2: Lecture Example

The following transactions relate to a small business, The 7 Days which is a newspaper for Adelaide
readers.

Transaction:
1. The proprietor, Ms J.A. Dom, contributed $18,000 cash as capital to start the business.
2. Bought office equipment costing $5,000 on credit from E.Z. Chair; paid a deposit of $1,000 on the
furniture.
3. Paid for a delivery van, $10,000.
4. Paid week's wages to reporter/photographer, $400.
5. Sold first week's newspaper to various shops for cash, $250.
6. Sold first week's newspaper to “Corner Stall” for $600 on credit.
7. Withdrew $100 for personal use.
8. Corner Stall paid $200 of the amount owing.

(a) Analyse each transaction as it affects the basic accounting equation of the business.
(b) Summarise the effects in a Balance Sheet, Income Statement and Statement of Changes in
Equity.

In order to analyse each transaction, answer the following three questions:


 Which type of accounts are affected per transaction? E.g.: A, L, E, Income or
Expense?
Tip: Always at least 2 accounts per transaction!

 What is the amount for each account type?

 Is the account type (e.g. assets) to be increased or decreased?


The 7 Days
Event Analysis Table

Event # Assets = Liabilities + Equity

Cash * Other Assets Increases Decreases

Contributed Income Expenses Withdrawals


Capital of Capital
(drawings)
1.
__________________________________________________________________________________________________________________________
2.
__________________________________________________________________________________________________________________________
3.
__________________________________________________________________________________________________________________________
4.
__________________________________________________________________________________________________________________________
5.
__________________________________________________________________________________________________________________________
6.
__________________________________________________________________________________________________________________________
7.
__________________________________________________________________________________________________________________________
8.

* Cash is no different from any other asset. It has been separated out in this example to highlight that not all sales and expenses will affect the cash account. This
shows that Profit cannot be measured using just cash transactions.
The following financial statements are only partially complete. Using the transactions
above, complete the transactions:

Balance Sheet after event 3.


The 7 Days
Balance Sheet
at end of event 3
Assets $ Liabilities $
Cash ?????? E.Z. Chair 4,000
Equipment ??????
Motor Vehicle 10,000 Equity
J A Dom ??????
$?????? $22,000

Income Statement for period ended with event 6


The 7 Days
Income Statement
for period ended with event 6
$
Sales Income 850
Less Expenses
Wages ???
Profit ???

Balance Sheet after event 6


The 7 Days
Balance Sheet
as at end of event 6
Assets $ Liabilities $
Cash ?????? E.Z. Chair 4,000
A/C’s Receivable ??????
Equipment ?????? Equity
Motor Vehicle 10,000 J A Dom ?????
$22,450 $?????
Balance Sheet after event 8.
The 7 Days
Balance Sheet
as at end of event 8
Assets $ Liabilities $
Cash ?????? E.Z. Chair 4,000
A/C’s Receivable ?????
Equipment ????? Equity
Motor Vehicle 10,000 J A Dom ??????
$22,350 $22,350

Statement of Changes in Equity for period ended with event 8


The 7 Days
Statement of Changes in Equity
for the period ended with event 8
$
J A Dom Capital - Beginning 0
Capital Contributed 18,000
Profit for the period ??????
18,450
Less: Drawings ?????
J A Dom Capital – after event 8 $18,350

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