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59

Chapter 2

Linking PersonaL aCCounting to Business aCCounting

assessment Questions

as-1 ( 1 )

Net worth in personal accounting is similar to which item in accounting for businesses?

Net worth in personal accounting is similar to equity in business accounting.

as-2 ( 2 )

In what order are the assets of a business listed? Explain.

The assets of a business are listed in sequence according to their level of liquidity. Liquidity is

the ease with which the asset can be converted to cash.

as-3 ( 2 )

In what order are the liabilities of a business listed? Explain.

The liabilities that are payable within the shortest amount of time are listed first and liabilities

that will be paid later are listed last.

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1 List the differences between personal accounts and business accounts

2 Describe the sequence of assets and liabilities as they appear on the balance sheet

3 Define equity and calculate the balance of the capital account

4 Describe the three main types of businesses5 Record revenue based on the concept of

accruals6 Record expenses based on the concept of

accruals7 Record business transactions in T-accounts

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Chapter 2 Linking Personal Accounting to Business Accounting

60

as-4 ( 3 )

What is equity?

Equity = Assets – Liabilities. If the business sells all the assets for the values reflected in the

balance sheet and uses the cash received to pay all the debts, the remaining cash would

represent equity.

as-5 ( 3 )

What is the formula for calculating the ending owner’s equity balance?

Ending Owner’s Equity = Beginning Owner’s Equity + Owner’s Contributions + Net

Income (Loss) – Owner’s Withdrawals

as-6 ( 3 )

Describe owner’s contributions and owner’s drawings and explain how they affect the balance sheet.

Owner’s contributions are when an owner of the business invests personal assets into

the business. Owner drawings are when an owner withdraws assets from the business for

personal use. These transactions affect assets (generally cash) and owner’s equity.

as-7 ( 4 )

List the three main types of businesses.

The three main types of businesses are service, merchandising and manufacturing.

as-8 ( 4 )

Describe what a service business does. Provide two examples of service businesses.

A service business provides a service to the customer instead of a physical product. Examples

of service businesses include accounting firms, consulting firms, lawn maintenance services

and general contracting.

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Chapter 2Linking Personal Accounting to Business Accounting

61

as-9 ( 4 )

Describe what a merchandising business does. Provide an example of a merchandising business.

A merchandising business buys goods to resell to customers. Any type of retail store is an

example of a merchandising business.

as-10 ( 4 )

Describe what a manufacturing business does. Provide two examples of a manufacturing business.

A manufacturing business makes the product that it sells. Examples of manufacturers include

auto makers, steel mills, furniture makers and technology manufacturers.

as-11 ( 6 )

Give three examples of expenses that businesses commonly prepay.

1. Insurance

2. Rent

3. Legal/Consulting Fees

as-12 ( 6 )

Describe the three different times cash can be paid to a supplier related to an expense.

1. Cash is paid before the expense is incurred.

2. Cash is paid when the expense is incurred.

3. Cash is paid after the expense is incurred.

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as-13 ( 6 )

What does it mean to incur an expense?

An expense is incurred by a company if the activities related to the expense have been used

or consumed.

as-14 ( 6 )

What is the entry to record an expense if a company pays when the expense is incurred?

Decrease cash (asset, balance sheet) and increase the specific expense account (income

statement).

as-15 ( 6 )

What is the entry to record an expense if a company pays after the expense is incurred?

Increase accounts payable (liability, balance sheet) and increase the specific expense account

(income statement).

as-16 ( 6 )

What is the entry if a company pays before the expense is incurred?

Decrease cash (asset, balance sheet) and increase prepaid expenses (asset, balance sheet).

as-17 ( 5 )

What does it mean to recognize revenue?

Recognizing revenue simply means to record the revenue in the accounting records (i.e. on

the income statement).

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63

as-18 ( 5 )

Describe the three different times cash can be received from a customer related to earning revenue.

1. Cash is received before services are performed.

2. Cash is received when the services are performed.

3. Cash is received after the services are performed.

as-19 ( 5 )

What is the entry to record revenue if a customer pays when the service is delivered?

Increase cash (asset, balance sheet) and increase revenue (income statement).

as-20 ( 5 )

What is the entry to record revenue if a customer pays after the service is delivered?

Increase accounts receivable (asset, balance sheet) and increase revenue (income statement).

as-21 ( 5 )

What is the entry if a customer pays before the service is delivered?

Increase cash (asset, balance sheet) and increase unearned revenue (liability, balance sheet).

as-22 ( 5 )

What type of account is unearned revenue?

Unearned revenue is a liability account in the balance sheet.

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application Questions group a

aP-1a ( 3 5 6 )

For each transaction, indicate whether the total assets (A), liabilities (L) or owner’s equity (OE) increased (+), decreased (-) or did not change (o) by placing the symbol in the appropriate column.

a L oe

1. Paid salaries for current month. - o -2. Purchased equipment on credit. + + o3. Purchased furniture using cash. o o o4. Additional investment into the business. + o +5. Received payment for services to be provided next month. + + o6. Made partial payment for equipment purchased on credit. - - o7. Billed customers for services performed. + o +8. Withdrew cash for personal use. - o -9. Received payment from customers already billed. o o o

10. Received bills for utilities to be paid next month. o + -

aP-2a ( 3 5 6 )

The given transactions were completed by Juliet’s Delivery Services during May 2016. Indicate the effects of each transaction by placing the appropriate letter in the space provided.

A Increase in asset, decrease in another assetB Increase in asset, increase in liabilityC Increase in asset, increase in owner’s equityD Decrease in asset, decrease in liabilityE Decrease in asset, decrease in owner’s equity

C Received cash for providing delivery services.D Paid amount owing that was outstanding to a creditor.C Invested additional cash in the business.E Paid advertising expense with cash.C Billed customers for delivery services on account.B Purchased office furniture on account.E Paid rent for the month.A Received cash from customers on account.B Received cash in advance for services to be provided in the next month.E Owner withdrew cash for personal use.


65

aP-3a ( 2 )

Organize the following asset and liability accounts in the order they are likely to appear in a balance sheet.

assets Liabilities

Accounts Receivable Bank Loan

Cash Accounts Payable

Equipment Unearned Revenue

Prepaid Expenses

Assets: Cash, Accounts Receivable, Prepaid Expenses, and Equipment

Liabilities: Accounts Payable, Unearned Revenue, Bank Loan

aP-4a ( 5 6 )

Simpson Moving had the following transactions during the month. Indicate whether assets, liabilities or owner’s equity will increase or decrease and by how much, based on each transaction. Provide an explanation only if equity is affected. The first entry has been done for you. Always ensure the accounting equation is balanced.

assets Liabilities owner’s equity

explanation

1. Paid $200 cash for maintenance expense. -200 -200 Paid for maintenance expense

2. The owner invested $4,000 cash in the business. +4,000 +4,000 Owner investment3. Paid $2,400 cash for one year insurance. -2,400

+2,4004. Received a telephone bill for $150, which will be

paid later.+150 -150 Received phone bill

5. Purchased equipment worth $1,000 on account. +1,000 +1,0006. Provided services and collected $4,200 cash. +4,200 +4,200 Provided services7. Paid $500 towards the bank loan. -500 -5008. Paid $50 interest related to the bank loan. -50 -50 Paid for interest expense 9. Paid $700 of accounts payable. -700 -700

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= +


66

aP-5a ( 5 6 7 )

Dry Cleanest offers extensive dry cleaning services. Amy York started this company one year ago. The opening balances of the accounts on August 1, 2016 are shown below.

Cash $980Accounts Receivable 620Prepaid Expenses 300Machinery 3,800Accounts Payable 1,020Bank Loan 0York, Capital 4,680

required

a) Indicate whether assets, liabilities or owner’s equity will increase or decrease and by how much, based on each transaction during August. Provide an explanation only if equity is affected. The first one has been done for you. Always ensure the accounting equation is balanced.

b) Record the transactions in the T-accounts.


explanation

1. Borrowed $10,000 from the bank. +10,000 +10,0002. Purchased machinery for $7,300 cash. -7,300

+7,3003. Billed clients $2,950 for completed services.

Due in 30 days.+2,950 +2,950 Performed services

on account4. Paid $130 cash for regular maintenance on the

machine.-130 -130 Paid for maintenance

expense5. Collected $1,300 from clients who owed money. +1,300

-1,3006. Paid 4 months' rent of $3,000 in advance. -3,000

+3,0007. Recorded $1,600 of cash sales for the month. +1,600 +1,600 Sold services for cash8. Paid $700 owed to a supplier. -700 -700

= +


67

Dry Cleanest Balance sheet

as at august 31, 2016

Dry Cleanest income statement

For the month ended august 31, 2016

assets LiaBiLities revenueINCREASE DECREASE DECREASE INCREASE DECREASE INCREASE

+ Cash - - aCCounts PayaBLe + - serviCe revenue +

Opening $980 $1,020 Opening 3. 2,950

1. 10,000 8. 700 7. 1,600

2. 7,300

4. 130 $4,550

5. 1,300

6. 3,000

7. 1,600 $320

8. 700 Less exPensesDECREASE INCREASE

$2,750 - Bank Loan + INCREASE DECREASE

$0 Opening + insuranCe exPense -

INCREASE DECREASE 1. 10,000

+ aCCounts reCeivaBLe -

Opening $620 $0

3. 2,950 $10,000

5. 1,300 INCREASE DECREASE

oWner's eQuity + maintenanCe exPense -

$2,270 DECREASE INCREASE 4. 130

- york, CaPitaL +

INCREASE DECREASE $4,680 Opening $130

+ PrePaiD exPenses -

Opening $300 INCREASE DECREASE

6. 3,000 + saLaries exPense -

$4,680

$3,300

INCREASE DECREASE $0

INCREASE DECREASE + york, DraWings -

+ maChinery - INCREASE DECREASE

Opening $3,800 + utiLities exPense -

2. 7,300

$11,100 $0

totaL assets $19,420

totaL LiaBiLites 10,320$19,420

totaL revenue $4,550

oWner’s eQuity 9,100* Less totaL exPenses 130

*$4,680 + $4,420 = $9,100 net inCome (Loss) $4,420

}


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analysis

The owner of Dry Cleanest wants to withdraw cash from the business, but she does not want the net income to fall below $4,000. What is the maximum amount of cash she can withdraw in order to keep net income from falling below $4,000? Explain.

An owner’s withdrawal of cash does not affect the income statement. It is recorded in a

separate account that is not an expense account so net income would remain the same.

Therefore, the owner could withdraw all of the remaining cash in the business ($2,750)

without reducing net income at all. However, without any cash to pay bills, the business might

not last much longer.

aP-6a ( 2 3 )

Alex Limbo is the owner of Double Duplicator. The following is a list of Double Duplicator’s accounts and balances as at March 31, 2016.

Cash $4,700 Limbo, Capital 2,000Accounts Payable 5,000Unearned Revenue 2,000Prepaid Insurance 2,300Bank Loan 10,000Automobile Loan 18,000Prepaid Rent 5,000Automobile 25,000

required

Prepare a balance sheet using the above information.

Double DuplicatorsBalance sheet

as at march 31, 2016assets LiabilitiesCash $4,700 Accounts Payable $5,000Prepaid Insurance 2,300 Bank Loan 10,000Prepaid Rent 5,000 Automobile Loan 18,000Automobile 25,000 Unearned Revenue 2,000

total Liabilities 35,000owner's equity

Limbo, Capital 2,000total assets $37,000 total Liabilities and owner's equity $37,000


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aP-7a ( 3 5 6 7 )

Jessica Holmes recently started her own shoe repair business. Transactions for the first month of operations (June 2016) are as follows.

1. Jessica invested $10,000 cash in the business.2. Paid two months of rent for $1,000 in advance.3. Purchased store equipment worth $3,000 with cash.4. Incurred business registration expenses, paid with $600 cash.5. Paid travel expenses with $1,100 cash.6. Received $2,300 cash from customers for shoe repair services performed during the month.7. Provided shoe repair services worth $1,200 on account.8. Paid $1,300 salary to an assistant.9. Borrowed $3,000 cash from the bank.

10. Received $800 in bills for electricity, water and telephone, to be paid next month.11. Jessica withdrew $500 cash for personal purposes.12. Received $200 owing from a customer for service provided earlier this month.

required

Record the above transactions on the T-account worksheet.


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holmes shoe repairBalance sheet

as at June 30, 2016

holmes shoe repairincome statement

For the month ended June 30, 2016



1. 10,000 2. 1,000 10. 800 6. 2,300

6. 2,300 3. 3,000 7. 1,200

9. 3,000 4. 600 $3,500

12. 200 5. 1,100

8. 1,300 Less exPenses11. 500 $800 INCREASE DECREASE

$8,000 + registration anD LiCenses exPense -

DECREASE INCREASE 11. 600

INCREASE DECREASE - Bank Loan +

+ aCCounts reCeivaBLe - 9. 3,000 $600


12. 200 + rent exPense -

$1,000

INCREASE DECREASE $3,000

+ PrePaiD rent - INCREASE DECREASE

2. 1,000 oWner's eQuity + saLaries exPense -

DECREASE INCREASE 8. 1,300

$1,000 - hoLmes, CaPitaL +

1. 10,000 $1,300

INCREASE DECREASE INCREASE DECREASE

+ -eQuiPment

+ teLePhone & utiLities exPense -

$10,000 4. 800

3. 3,000


+ hoLmes, DraWings - INCREASE DECREASE

11. 500 + traveL exPense -

5. 1,100

$3,000 $500 $1,100

totaL assets $13,000 totaL revenue $3,500

totaL LiaBiLites 3,800 } $13,000 Less totaL exPenses 3,800

oWner's eQuity 9,200* net inCome (Loss) ($300)

*$0 + 10,000 - 300 - 500 = $9,200


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aP-8a ( 3 5 6 7 )

Sheila Abney opened a dormitory locator business called Dormitory Locators near a college campus. During the first month of operations, June 2016, Sheila had the following transactions.

1. Invested $10,000 of personal funds to start the business.2. Incurred travel expenses for $650, which will be paid later.3. Paid $700 cash for maintenance expense.4. Received $5,000 cash for services provided to clients.5. Paid $650 for the on account purchase in transaction 2.6. Paid three months of office rent costing $1,500 in advance.7. Incurred $300 of utilities expense, which will be paid next month.8. Received $1,000 cash from a customer for services to be provided in two months.9. Provided $1,200 in services for a customer who will pay later.

10. Recognized one month of office rent that was previously prepaid.11. Sheila withdrew $1,000 cash for personal use.12. Purchased second-hand car worth $10,000 for business use with cash.13. Received $700 from the customer owing for the service provided earlier this month.

required

Prepare a T-account worksheet.


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Dormitory LocatorsBalance sheet

as at June 30, 2016

Dormitory Locatorsincome statement

For the month ended June 30, 2016



Opening Opening 4. 5,000

1. 10,000 3. 700 5. 650 2. 650 9. 1,200

4. 5,000 5. 650 7. 300 $6,200

8. 1,000 6. 1,500

13. 700 11. 1,000 $300

12. 10,000 Less exPensesDECREASE INCREASE INCREASE DECREASE

- unearneD revenue + + maintenanCe exPense -

$2,850 Opening 3. 700

8. 1,000


+ aCCounts reCeivaBLe - $1,000 INCREASE DECREASE

Opening + rent exPense -

9. 1,200 13. 700 DECREASE INCREASE 10. 500

- Bank Loan +

Opening $500

$500 INCREASE DECREASE

+ saLaries exPense -

INCREASE DECREASE

+ PrePaiD rent - $0

Opening

6. 1,500 10. 500 oWner's eQuity INCREASE DECREASE

DECREASE INCREASE + traveL exPense -

- aBney, CaPitaL + 2. 650

$1,000 Opening

1. 10,000 $650


+ automoBiLe - $10,000 + utiLities exPense -

Opening 7. 300


+ aBney, DraWings - $300

11. 1,000

$10,000 $1,000



oWner's eQuity 13,050* net inCome (Loss) $4,050

*$0 + 10,000 + 4,050 - 1,000 = $13,050


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aP-9a ( 3 5 6 7 )

Jeff Roberts Communications is a public relations firm. On April 30, 2016, the firm had the following ending balances:

Cash $20,000Prepaid Rent 10,000Equipment 25,000Accounts Payable 8,000Roberts, Capital 47,000

During the month of May, the company completed the following transactions

1. Purchased $800 of office equipment on account.2. Paid $6,000 to reduce amount owing to a supplier.3. Received $5,000 cash from customers for services rendered.4. Paid utilities bill for May with $700 cash.5. Purchased a computer worth $1,500 on account.6. Received a bill for $1,000 to be paid in July for advertisements placed in a national

newspaper during the month of May to promote Jeff Roberts Communications.7. Paid May’s salaries with $1,900 cash.8. Withdrew $3,000 cash for personal use.9. Recognized $2,000 rent for May (which was previously prepaid).

10. Received $4,000 cash in advance for a contract to be completed in three months.

required

Prepare the T-account worksheet.

Note: the ending balance for the month of April is the opening balance for the month of May.


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roberts CommunicationsBalance sheetas at may 31, 2016

roberts Communicationsincome statement

For the month ended may 31, 2016



Opening $20,000 $8,000 Opening 3. 5,000

3. 5,000 2. 6,000 2. 6,000 1. 800

10. 4,000 4. 700 5. 1,500 $5,000

7. 1,900 6. 1,000

8. 3,000 $5,300

Less exPensesDECREASE INCREASE INCREASE DECREASE

- unearneD revenue + + aDvertising exPense -

$17,400 Opening 6. 1,000

10. 4,000


+ PrePaiD rent - $4,000 INCREASE DECREASE

Opening $10,000 + rent exPense -

9. 2,000 DECREASE INCREASE 9. 2,000

- Bank Loan +

$0 Opening $2,000

INCREASE DECREASE


7. 1,900

$0

$8,000 $1,900

oWner's eQuity INCREASE DECREASE

INCREASE DECREASE DECREASE INCREASE + utiLities exPense -

+ eQuiPment - - roBerts, CaPitaL + 4. 700

Opening $25,000 $47,000 Opening

1. 800 $700


$47,000

INCREASE DECREASE

+ roBerts, DraWings -

8. 3,000

$27,300 $3,000



oWner's eQuity 43,400* net inCome (Loss) ($600)

*$47,000 + 0 - 600 - 3,000 = $43,400


75

aP-10a ( 3 5 6 7 )

On December 1, 2016, Sheila Ann established City Laundry. During the first month, the following transactions occurred

1. Sheila Ann deposited $15,000 into City Laundry’s bank account.2. Bought tables and chairs worth $1,000 with cash.3. Received and paid utilities bill for $1,200 in cash.4. Purchased washers and dryers worth $4,000; paying $2,000 cash with the remainder

due in 30 days.5. Purchased two additional dryers worth $1,100 from Marky Distributors, on account.6. Received $4,000 cash for laundry services provided for the first half of the month.7. Paid $900 cash for a one-year insurance policy.8. Paid $1,000 cash for current month’s rent.9. Paid the amount owing to Marky Distributors.

10. Provided $3,500 of laundry services during the second half of the month for customers who will pay at a later date.

11. Paid employee salaries of $1,400.12. Sheila withdrew $2,000 cash for personal use.13. Recorded first month’s insurance expense of $75.14. Collected $3,000 cash from customers as payment on their account.15. Received $2,000 cash in advance for services to be provided next year.

required



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City LaundryBalance sheet

as at December 31, 2016

City Laundryincome statement

For the month ended December 31, 2016




1. 15,000 2. 1,000 9. 1,100 4. 2,000 10. 3,500

6. 4,000 3. 1,200 5. 1,100 $7,500

14. 3,000 4. 2,000

15. 2,000 7. 900

8. 1,000 Less exPenses9. 1,100 INCREASE DECREASE

11. 1,400 + insuranCe exPense -

12. 2,000 13. 75

$13,400 $2,000

$75

INCREASE DECREASE DECREASE INCREASE INCREASE DECREASE

+ aCCounts reCeivaBLe - - unearneD revenue + + rent exPense -


10. 3,500 14. 3,000

15. 2,000 $1,000

INCREASE DECREASE

$500 + saLaries exPense -

11. 1,400


+ PrePaiD insuranCe - $1,400

Opening oWner's eQuity INCREASE DECREASE

7. 900 13. 75 DECREASE INCREASE + utiLities exPense -

- ann, CaPitaL + 3. 1,200

Opening

$825 1. 15,000 $1,200

INCREASE DECREASE


+ eQuiPment -

Opening INCREASE DECREASE

2. 1,000 + ann, DraWings -


5. 1,100 12. 2,000

$6,100 $2,000




*$0 + 15,000 + 3.825 - 2,000 = $16,825


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aP-11a ( 3 5 6 7 )

On April 1, 2016, Aaron Ragan established a business to manage rental properties. He had the following transactions during its first month of operations

1. Owner invested $20,000 cash into the business from his personal savings. This amount was deposited into the business Cash account.

2. Purchased $1,000 office equipment on account.3. Received $5,000 cash for managing rental properties for a client.4. Purchased furniture worth $350 on account.5. Paid utilities bill of $400 for the month in cash.6. Used a bank loan to purchase office furniture for $5,000.7. Paid $500 cash to reduce the amount of bank loan principal.8. Paid rent for the month with $1,800 cash.9. Paid office staff salaries with $1,500 cash.

10. Withdrew $1,000 cash for personal use.11. Provided $2,000 of services for a customer on account.

required



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ragan PropertiesBalance sheet

as at april 30, 2016

ragan Propertiesincome statement

For the month ended april 30, 2016




1. 20,000 5. 400 2. 1,000 11. 2,000

3. 5,000 7. 500 4. 350

8. 1,800

9. 1,500 $7,000

10. 1,000 $1,350

DECREASE INCREASE Less exPenses$19,800 - Bank Loan + INCREASE DECREASE


INCREASE DECREASE 7. 500 6. 5,000 8. 1,800


Opening $1,800

11. 2,000 $4,500 INCREASE DECREASE


oWner's eQuity 9. 1,500

DECREASE INCREASE

- ragan, CaPitaL + $1,500


+ utiLities exPense -

$2,000 1. 20,000 5. 400


+ Furniture anD eQuiPment - INCREASE DECREASE

Opening

2. 1,000 $20,000

4. 350


+ ragan, DraWings -

INCREASE DECREASE

10. 1,000

$6,350 $1,000




*$0 + 20,000 + 3,300 - 1,000 = 22,300


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aP-12a ( 3 5 6 7 )

Edward James decided to start his own rent-a-car business after graduation, and recorded these transactions during the first month of operations (January 2016)

1. Edward invested $20,000 cash in the business. 2. Borrowed $20,000 from the bank.3. Paid $35,000 cash for a new car to be used in the business.4. Paid the principal of the bank loan with $2,000 cash.5. Paid for $800 of maintenance expense with cash.6. Paid monthly salaries for personnel with $1,000 cash.7. Paid miscellaneous expenses with $300 cash.8. Received $8,000 service revenue in cash for the month.9. Received $600 of utilities bill for the month, payable next month.

10. Paid monthly interest on the bank loan with $200 cash.11. Paid $1,500 of insurance for the next five months in advance.12. Edward withdrew $1,000 cash for personal use.13. Received $3,000 cash from customers for services to be provided next month.

required

Prepare the T-account worksheet, income statement, statement of owner’s equity, and balance sheet.


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James’ rent-a-CarBalance sheet

as at January 31, 2016

James’ rent-a-Carincome statement

For the month ended January 31, 2016



1. 20,000 3. 35,000 9. 600 8. 8,000

2. 20,000 4. 2,000

8. 8,000 5. 800 $8,000

13. 3,000 6. 1,000

7. 300 $600

10. 200 Less exPenses11. 1,500 DECREASE INCREASE INCREASE DECREASE

12. 1,000 - unearneD revenue + + interest exPense -

$9,200 13. 3,000 10. 200


+ PrePaiD insuranCe - $3,000 INCREASE DECREASE

11. 1,500 + maintenanCe exPense -

DECREASE INCREASE 5. 800

- Bank Loan +

4. 2,000 2. 20,000 $800

INCREASE DECREASE

+ misCeLLaneous exPense -

7. 300

$1,500 $18,000

$300

INCREASE DECREASE oWner's eQuity INCREASE DECREASE

+ automoBiLe - DECREASE INCREASE + rent exPense -

3. 35,000 - James, CaPitaL +

1. 20,000

INCREASE DECREASE

$20,000 + saLaries exPense -

6. 1,000

INCREASE DECREASE

+ James, DraWings - $1,000

$35,000 12. 1,000 INCREASE DECREASE


9. 600

$1,000

$600




*$0 + 20,000 + 5,100 - 1,000 = $24,100


81

James’ rent-a-Carincome statement


revenueService Revenue $8,000

expensesInterest Expense $200

Maintenance Expense 800

Miscellaneous Expense 300

Salaries Expense 1,000

Utilities Expense 600

total expenses 2,900

net income (Loss) $5,100

James’ rent-a-Car statement of owner’s equity


James, Capital, January 1, 2016 $0

Add Investment 20,000

Net Income 5,100

Less James, Drawings 1,000

James, Capital, January 31, 2016 $24,100

James’ rent-a-CarBalance sheet


assets LiabilitiesCash $9,200 Accounts Payable $600

Prepaid Insurance 1,500 Unearned Revenue 3,000

Automobile 35,000 Bank Loan 18,000

total Liabilities 21,600owner’s equityJames, Capital 24,100

total assets $45,700 total Liabilities and owner's equity $45,700


82

aP-13a ( 3 5 6 7 )

Jessica Cooper is the owner of Jessica’s Computer Services. The balance sheet of Jessica’s Computer Services on February 29, 2016 is shown below.

Jessica’s Computer servicesBalance sheet

as at February 29, 2016

assets LiabilitiesCash $4,000 Accounts Payable $3,000

Prepaid Insurance 3,000 Bank Loan 0

Furniture and Equipment 25,000

total Liabilities 3,000

owner's equityCooper, Capital 29,000


During March, the business engaged in the following transactions

1. Borrowed $20,000 from bank.2. Purchased computer equipment for $5,000 cash.3. Performed services for a customer and received $4,000 cash.4. Purchased furniture for $1,000 on credit.5. Paid $1,500 to a supplier for the amount owed.6. Paid the following expenses in cash: salaries $1,000; rent, $1,500; and interest, $200.7. Received a $900 utilities bill, due next month.8. Withdrew $3,500 cash for personal use.9. Received $1,000 cash in advance for services to be completed next month.

required


Note: the ending balance for the month of February is the opening balance for the month of March.


83


as at march 31, 2016

Jessica’s Computer servicesincome statement

For the month ended march 31, 2016



Opening $4,000 $3,000 Opening 3. 4,000

1. 20,000 2. 5,000 5. 1,500 4. 1,000

3. 4,000 5. 1,500 7. 900 $4,000

9. 1,000 6. 2,700

8. 3,500 $3,400

Less exPensesDECREASE INCREASE INCREASE DECREASE

- unearneD revenue + + interest exPense -

$16,300 Opening 6. 200

9. 1,000



Opening $3,000 + rent exPense -


- Bank Loan +

$0 Opening $1,500



6. 1,000

$20,000

$3,000 $1,000


INCREASE DECREASE DECREASE INCREASE + utiLities exPense -

+ Furniture anD eQuiPment - - CooPer, CaPitaL + 7. 900

Opening $25,000 $29,000 Opening

2. 5,000 $900


$29,000 + -

INCREASE DECREASE

+ CooPer, DraWings -

INCREASE DECREASE

8. 3,500 + -

$31,000 $3,500



oWner's eQuity 25,900* net inCome (Loss) $400

*$29,000 + 0 + 400 - 3,500 = $25,900


84

Jessica’s Computer servicesincome statement

For the month ended march 31, 2016revenue

Service Revenue $4,000

expensesInterest Expense $200Rent Expense 1,500Salaries Expense 1,000Utilities Expense 900

total expenses 3,600net income (Loss) $400

Jessica’s Computer services statement of owner’s equity


Cooper, Capital, March 1, 2016 $29,000

Add Investment 0

Net Income 400

Less Cooper, Drawings 3,500

Cooper, Capital, March 31, 2016 $25,900


as at march 31, 2016assets LiabilitiesCash $16,300 Accounts Payable $3,400


Furniture and Equipment 31,000 Bank Loan 20,000

total Liabilities $24,400owner's equityCooper, Capital $25,900



85

application Questions group B

aP-1B ( 3 5 6 )

For each of the given transactions, determine the effect on owner’s equity by placing a checkmark in the space provided.

effect on owner's equityincrease Decrease no effect

1. Invested money in the business. X2. Purchased equipment on account. X3. Paid one third of the amount owing for the purchase of

equipment.X

4. Received cash for the services rendered. X5. Paid salaries for the month. X6. Withdrew cash for personal use. X7. Paid monthly rent. X8. Additional investment by the owner. X9. Provided services for a customer who will pay in two months. X

10. Acquired land using cash. X

aP-2B ( 3 5 6 )

For the following transactions, fill in the table on the right with the two accounts related to each transaction.

account 1 account 21. Invested cash in the business. Cash Owner’s Capital2. Purchased service vehicle for business use. Vehicle Cash3. Collected cash for services provided today. Cash Service Revenue4. Provided services this week on credit. Accounts Receivable Service Revenue5. Paid operating expenses in cash. Operating Expenses Cash6. Received a bill for operating expenses

incurred this week.Operating Expenses Accounts Payable

7. Received a loan from the bank. Cash Loan Payable8. Collected cash from a customer for services

provided previously.Cash Accounts

Receivable9. Paid monthly salaries to employees with cash. Salaries Cash

10. Incurred operating expenses this week, to be paid next month.

Expenses Accounts Payable

11. Paid cash for expenses incurred previously. Accounts Payable Cash12. Received cash in advance for the service to be

performed next month.Cash Unearned

Revenue


86

aP-3B ( 1 4 )

Match each term with the appropriate description.

A MerchandisingB ServiceC ManufacturingD Accounts ReceivableE Cash

B A law firm is an example of this type of business.D This account represents the amount owed to the business

by its customers for services preformed earlier.A This type of business buys goods to resell to customers.C An automaker is an example of this type of business.E This is the most liquid asset.

aP-4B ( 5 6 )

Focus In had the following transactions during the month. Indicate whether assets, liabilities or owner’s equity will increase or decrease and by how much, based on each transaction. Provide an explanation only if equity is affected. Always ensure the accounting equation is balanced.


explanation

1. The owner invested $10,000 into the business. +10,000 +10,000 Owner investment2. Paid $3,300 cash for three months rent. -3,300

+3,3003. Borrowed $5,000 from the bank. +5,000 +5,0004. Purchased furniture for $2,500 on account. +2,500 +2,5005. Paid $700 cash for advertising. -700 -700 Paid for advertising expense6. Provided services and received $2,300 cash. +2,300 +2,300 Provided services7. Paid $400 for the furniture purchased earlier. -400 -4008. The owner withdrew $2,500 for personal use. -2,500 -2,500 Owner drawing9. Used up one month of rent. -1,100 -1,100 Used prepaid rent and

recognized an expense

= +


87

aP-5B ( 5 6 7 )

Nelson’s Auto Repair is a new business that started operations on April 1, 2016.

required

a) Indicate whether assets, liabilities or owner’s equity will increase or decrease and by how much, based on each transaction during April. Provide an explanation only if equity is affected. The first one has been done for you. Always ensure the accounting equation is balanced.

b) Record the transactions in the T-accounts.


explanation

1. Sam invested $8,000 cash into the business. +8,000 +8,000 Owner invested cash

2. Sam invested $2,500 of equipment into the business.

+2,500 +2,500 Owner invested equipment

3. Purchased tools and supplies for $6,030 on credit.

+6,030 +6,030

4. Paid 12 months of insurance in advance at $250/month.

-3,000

+3,000 5. Made cash sales of $4,420 during the month. +4,420 +4,420 Sold services for cash 6. Received a utility bill for $370 for the month. +370 -370 Received utility bill 7. Paid wages to employees of $5,800. -5,800 -5,800 Paid salary expense 8. Sam withdrew $2,000 cash from the business. -2,000 -2,000 Owner withdrew cash 9. Recorded one month of insurance used up. -250 -250 Recognized one month

of insurance used 10. Received $2,000 cash for services to be

provided in two months.+2,000 +2,000

= +


88

nelson’s auto repair Balance sheet


nelson’s auto repair income statement




1. 8,000 3. 6,030 5. 4,420

4. 3,000 6. 370

5. 4,420

10. 2,000 $6,400 $4,420

7. 5,800

8. 2,000 DECREASE INCREASE

- unearneD revenue +

10. 2,000 Less exPenses

$3,620 $2,000 INCREASE DECREASE

+ insuranCe exPense -

INCREASE DECREASE DECREASE INCREASE 9. 250

+ PrePaiD insuranCe - - Bank Loan +

4. 3,000 $250

9. 250

$0 INCREASE DECREASE


$2,750 oWner's eQuity 7. 5,800

DECREASE INCREASE

INCREASE DECREASE - neLson, CaPitaL + $5,800

+ tooLs anD suPPLies - 1. 8,000

3. 6,030 2. 2,500 INCREASE DECREASE


$10,500 6. 370

$6,030


INCREASE DECREASE + neLson, DraWings -

+ eQuiPment - 8. 2,000 INCREASE DECREASE

2. 2,500

$2,500 $2,000



Less totaL exPenses 6,420

oWner’s eQuity 6,500* surPLus (DeFiCit) ($2,000)

*$0 + 10,500 - 2,000 - 2,000 = $6,500

}


89

c) Complete the income statement, statement of owner’s equity, and balance sheet for Nelson’s Auto Repair.

nelson’s auto repairincome statement


revenue $4,420

expenses

Insurance Expense $250


Utilities Expense 370


net income (Loss) ($2,000)

nelson’s auto repairstatement of owner’s equity


Nelson, Capital, April 1, 2016 $0


Less Net Loss 2,000

Nelson, Drawings 2,000

Nelson, Capital, April 30, 2016 $6,500

nelson’s auto repairBalance sheet


assets Liabilities

Cash $3,620 Accounts Payable $6,400


Tools and Supplies 6,030 Bank Loan 0

Equipment 2,500 total Liabilities 8,400

owner's equity

Nelson, Capital 6,500

total assets $14,900 total Liabilities + owner's equity $14,900


90

aP-6B ( 2 )

Maya’s Music offers music lessons to the public for all age groups. Maya Matlin is trying to assess her business by analyzing her balance sheet. Here are the accounts and balances of Maya’s Music on October 31, 2016

Accounts Payable $1,250Bank Loan 55,000Building 120,000Cash 8,150Instruments 21,650Prepaid Insurance 3,600Supplies 280Unearned Revenue 1,000

required

Prepare the balance sheet for Maya’s Music.

maya's musicBalance sheet

as at october 31, 2016

assets Liabilities


Supplies 280 Unearned Revenue 1,000

Prepaid Insurance 3,600 Bank Loan 55,000

Building 120,000 total Liabilities 57,250

Instruments 21,650 owner's equity

Matlin, Capital 96,430

total assets $153,680 total Liabilities + owner's equity $153,680


91

analysis

Maya thinks her business must be doing great because her capital is so high. Is the balance sheet a useful tool to analyze performance? What other information would you need to be able to assess whether Maya’s Music has been performing well or not? Explain.

The balance sheet simply provides information at a single point in time. It is a snapshot of the

business on one date. It may look completely different tomorrow. Therefore on its own it is not

a good tool to analyze performance. It would be helpful to have two or more balance sheets

so that we could compare account balances at different points in time. As it stands, we cannot

tell whether capital has been rising or falling recently.

It would also be helpful to have a recent income statement so that we could see whether

Maya’s Music has been generating an income or a loss recently and what the biggest

expenses are.

aP-7B ( 3 5 6 7 )

Brenda Darby recently started her own consulting business, and completed these transactions during the first month of operations (May 2016)

1. Brenda invested $10,700 cash in the business.2. Purchased store furniture for $4,000 cash.3. Paid $1,100 cash for two months of insurance in advance.4. Incurred business registration expenses, paid with $640 cash.5. Paid travel expenses with $1,200 cash.6. Received $2,300 cash from clients for consulting services provided during the month.7. Borrowed $3,800 cash from the bank.8. Paid salary to an assistant with $790 cash.9. Received bills of $900 for May’s electricity, water and telephone, to be paid next month.

10. Brenda withdrew $700 cash for personal purposes.11. Received $1,000 cash for a consulting service to be completed next month.

required

Record the above transactions in the T‐account worksheet.


92

Brenda’s shoe repair Balance sheetas at may 31, 2016

Brenda’s shoe repair income statement




1. 10,700 9. 900 6. 2,300

2. 4,000

3. 1,100 $2,300

4. 640

5. 1,200 $900

6. 2,300

8. 790 DECREASE INCREASE

7. 3,800 - unearneD revenue + Less exPenses11. 1,000 10. 700 11. 1,000 INCREASE DECREASE

$9,370 + registration exPense -

4. 640

INCREASE DECREASE

+ PrePaiD insuranCe - $1,000 $640

INCREASE DECREASE

3. 1,100 DECREASE INCREASE + saLaries exPense -

- Bank Loan + 8. 790

7. 3,800

$790

$1,100 INCREASE DECREASE

+ traveL exPense -

INCREASE DECREASE $3,800 5. 1,200

+ Furniture -

oWner's eQuity $1,200


DECREASE INCREASE + utiLities exPense -

- DarBy, CaPitaL + 9. 900

1. 10,700

$4,000 $900

$10,700

INCREASE DECREASE

+ DarBy, DraWings -

10. 700

$700




oWner’s eQuity 8,770* net inCome (Loss) ($1,230)

*$0 + 10,700 - 1,230 - 700 = $8,770

}


93

aP-8B ( 3 5 6 7 )

Deep Drains is a plumbing company that started operations in February 2015. The company is fully owned by Emma Reno. Consider the following opening balances as of February 1, 2016.

Cash $13,200Prepaid Rent 5,700Prepaid Insurance 4,000Property, Plant & Equipment 38,200Accounts Payable 3,300Bank Loan 11,300Reno, Capital 46,500

The following transactions were completed during the month of February

1. Purchased plane tickets for business travel with $1,140 cash.2. Paid $3,300 cash to reduce the balance of accounts payable.3. Purchased equipment worth $3,400 with a bank loan.4. The owner invested $6,700 additional cash in the company.5. Paid $850 cash for registration expenses.6. Received a bill for $590 for utilities used during the month. The bill was immediately

paid with cash.7. Earned revenue and received $10,000 cash.8. Recognized prepaid rent as an expense for $1,110.9. Paid interest for the month of February with $50 cash.

10. Paid monthly salaries with for $4,100 cash.11. The owner withdrew $2,500 cash from the business to pay for personal expenses.12. Received $2,000 cash in advance for services to be rendered in three months.

required

a) Using the information provided, record the opening balances in the T‐accounts.

b) Record the transactions for the month of February in the T‐accounts.


94

Deep Drains Balance sheet


Deep Drains income statement

For the month ended February 29, 2016



Opening $13,200 $3,300 Opening 7. 10,000

1. 1,140

2. 3,300 2. 3,300 $10,000

4. 6,700

5. 850 $0

7. 10,000

12. 2,000 6. 590 DECREASE INCREASE Less exPenses9. 50 - unearneD revenue +

10. 4,100 Opening INCREASE DECREASE

11. 2,500 12. 2,000 + interest exPense -

$19,370 9. 50

INCREASE DECREASE $2,000 $50

+ PrePaiD rent - INCREASE DECREASE

Opening $5,700 DECREASE INCREASE + registration exPense -

- Bank Loan + 5. 850

8. 1,110 $11,300 Opening

3. 3,400 $850

INCREASE DECREASE

$4,590 + rent exPense -

$14,700 8. 1,110

INCREASE DECREASE

+ PrePaiD insuranCe - oWner's eQuity $1,110

Opening $4,000 INCREASE DECREASE

DECREASE INCREASE + saLaries exPense -

- reno, CaPitaL + 10. 4,100

$46,500 Opening

4. 6,700 $4,100

$4,000 INCREASE DECREASE

+ teLePhone & utiLities exPense -

INCREASE DECREASE $53,200 6. 590

+ eQuiPment -

Opening $38,200 INCREASE DECREASE $590

+ reno, DraWings - INCREASE DECREASE

3. 3,400 + traveL exPense -

11. 2,500 1. 1,140

$41,600 $2,500 $1,140




oWner’s eQuity 52,860* net inCome (Loss) $2,160

*$46,500 + 6,700 + 2,160 - 2,500 = $52,860

}


95

aP-9B ( 3 5 6 7 )

Candace Harris Legal is a law firm. On July 31, 2016, the firm had the following ending balances

Cash $18,500Prepaid Insurance 9,200Property, Plant & Equipment 22,300Accounts Payable 8,100Harris, Capital 41,900

During the month of August, the company completed the following transactions

1. Purchased $1,000 of office equipment on account.2. Received $4,600 cash from customers for services rendered.3. Paid $4,900 owing to a supplier.4. Paid $570 utilities bill for August with cash.5. Purchased a computer on account for $1,420.6. Paid August’s salaries with $3,600 cash.7. Received a $1,150 bill to be paid in September for advertisements placed in a national

newspaper during the month of August to promote Candace Harris Legal.8. Performed services worth of $2,000 for customers on account.9. Withdrew $3,200 cash for personal use.

10. Recognized $1,700 insurance for August (which was previously prepaid).11. Received $1,500 cash for legal services to be done next month.12. Collected all the balances owing from customers for services performed earlier.

required

a) Using the information provided, record the opening balances in the T‐accounts.

b) Record the transactions for the month of August in the T‐accounts.


96

Candace harris Legal Balance sheet

as at august 31, 2016

Candace harris Legal income statement

For the month ended august 31, 2016



Opening $18,500 $8,100 Opening 2. 4,600

3. 4,900 1. 1,000 8. 2,000

2. 4,600 3. 4,900 $6,600

11. 1,500 4. 570 5. 1,420

12. 2,000 7. 1,150

6. 3,600 $6,770

9. 3,200 Less exPenses$14,330 DECREASE INCREASE

- unearneD revenue + INCREASE DECREASE

INCREASE DECREASE Opening + aDvertising exPense -

+ aCCounts reCeivaBLe - 11. 1,500 7. 1,150

Opening

8. 2,000 12. 2,000 $1,500 $1,150

INCREASE DECREASE

$0 oWner's eQuity + insuranCe exPense -

10. 1,700

INCREASE DECREASE DECREASE INCREASE

+ PrePaiD insuranCe - - harris, CaPitaL + $1,700

Opening $9,200 $41,900 Opening INCREASE DECREASE

10. 1,700 + saLaries exPense -

6. 3,600

$7,500 $41,900

$3,600

INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE

+ eQuiPment - + harris, DraWings - + utiLities exPense -

Opening $22,300 4. 570

1. 1,000 9. 3,200

5. 1,420 $570

$24,720 $3,200




oWner’s eQuity 38,280* net inCome (Loss) ($420)

*$41,900 - 420 - 3,200 = $38,280

}


97

aP-10B ( 3 5 6 7 )

Christine Jacob is a financial planning consultant. During the month of February 2016, she completed the following transactions

1. Christine invested $8,000 cash in the business.2. Paid $1,400 cash for February office rent.3. Received $6,500 from a client for services rendered.4. Paid $500 cash to Shell Super Service for gas purchases.5. Paid $700 cash to Helpful Manpower Services for consulting services.6. Purchased office equipment worth $900 on account.7. Owner withdrew $2,500 cash for personal use.8. Donated $800 cash to the National Red Cross.9. Provided $2,000 worth of services for a client who paid on account.

10. Made partial payment of $500 on the equipment that was purchased on account.11. Received $500 cash for services to be provided next month.12. Collected $1,000 cash from a client who owed for services provided earlier in the month.

required



98

Christine Jacob Financial PlanningBalance sheet


Christine Jacob Financial Planningincome statement

For the month ended February 29, 2016




1. 8,000 2. 1,400 10. 500 6. 900 9. 2,000

3. 6,500 4. 500

12. 1,000 5. 700

11. 500 7. 2,500 $8,500

8. 800 $400

10. 500

DECREASE INCREASE Less exPenses$9,600 - unearneD revenue + INCREASE DECREASE

Opening + ConsuLting serviCes exPense -

INCREASE DECREASE 11. 500 5. 700


Opening $700

9. 2,000 $500 INCREASE DECREASE

12. 1,000 + Donation exPense -

oWner's eQuity 8. 800

DECREASE INCREASE

- JaCoB, CaPitaL + $800


+ gasoLine exPense -

$1,000 1. 8,000 4. 500


+ eQuiPment - INCREASE DECREASE


6. 900 $8,000 2. 1,400

INCREASE DECREASE

+ JaCoB, DraWings - $1,400

INCREASE DECREASE

7. 2,500

$900 $2,500


totaL LiaBiLites 900 } $11,500 Less totaL exPenses 3,400


*$0 + 8,000 + 5,100 - 2,500 = $10,600


99

aP-11B ( 3 5 6 7 )

Troy Dale, an architect, opened his own business on March 1, 2016. During the month, he completed the following transactions related to his professional practice

1. Transferred $30,000 cash from personal bank account to the business account.2. Provided services for $3,000 cash.3. Purchased office and computer equipment worth $8,000 on account, which will be paid

next month.4. Paid $1,100 cash for meals and entertainment.5. Paid insurance expense with $800 cash.6. Performed services for clients for $4,000 on account.7. Paid $600 cash for miscellaneous expenses.8. Received utilities bill of $1,000, to be paid next month.9. Paid $1,200 cash for office rent for the month of March.

10. Paid $1,000 salary to assistant.11. Collected 50% of the balance owing from clients for services performed earlier this month.12. Received $1,000 cash for services to be performed in three months.

required



100

Dale architectBalance sheet


Dale architectincome statement


assets LiaBiLities revenue

INCREASE DECREASE DECREASE INCREASE DECREASE INCREASE



1. 30,000 4. 1,100 3. $8,000 6. 4,000

2. 3,000 5. 800 8. 1,000 $7,000

11. 2,000 7. 600

12. 1,000 9. 1,200

10. 1,000 $9,000 Less exPensesINCREASE DECREASE

DECREASE INCREASE + insuranCe exPense -

$31,300 - unearneD revenue + 5. 800

Opening

INCREASE DECREASE 12. 1,000 $800

+ aCCounts reCeivaBLe - INCREASE DECREASE

Opening + meaLs anD entertainment exPense -

6. 4,000 $1,000 4. 1,100

11. 2,000

oWner's eQuity $1,100

DECREASE INCREASE INCREASE DECREASE

- DaLe, CaPitaL + + misCeLLaneous exPense -

Opening 7. 600

$2,000 1. 30,000 $600

INCREASE DECREASE

INCREASE DECREASE + rent exPense -

+ eQuiPment - 9. 1,200

Opening

3. 8,000 $30,000 $1,200

INCREASE DECREASE

INCREASE DECREASE + saLaries exPense -

+ DaLe, DraWings - 10. 1,000

$1,000

INCREASE DECREASE


8. 1,000

$8,000

$1,000




*$0 + 30,000 + 1,300 = 31,300


101

aP-12B ( 2 3 5 6 7 )

Ella Kates founded Health-Plus Clinic as a medical clinic that started operations in January 2015. Consider the following opening balances as of January 1, 2016.

Cash $15,000Prepaid Rent 6,000Prepaid Insurance 5,000Equipment 30,000Accounts Payable 3,000Bank Loan 10,000Kates, Capital 43,000

Transactions during the month of January

1. Purchased plane tickets with $1,500 cash. The plane tickets are to attend a business conference.

2. Paid $3,000 cash to reduce the balance of accounts payable.3. The owner invested $5,000 additional cash in the company.4. Purchased $4,000 worth of equipment with a bank loan.5. Paid $1,000 cash for maintenance expenses.6. Earned $15,000 revenue from patients on a cash basis.7. Received a $900 bill for utilities used during the month. A cheque was issued to pay the

bill immediately.8. Recognized $2,000 of prepaid rent as an expense.9. Paid $100 interest for the month with cash.

10. Paid $4,000 monthly salaries to all medical practitioners and clinic personnel.11. Received $2,000 cash from one of its clients for services to be provided in March.12. The owner withdrew $2,000 cash from the business to pay for personal expenses.

required



102

health-Plus ClinicBalance sheet


health-Plus Clinicincome statement




Opening $15,000 $3,000 Opening 6. 15,000

3. 5,000 1. 1,500 2. 3,000

6. 15,000 2. 3,000 $15,000

11. 2,000 5. 1,000

7. 900 $0

9. 100 Less exPenses10. 4,000 DECREASE INCREASE INCREASE DECREASE

12. 2,000 - unearneD revenue + + interest exPense -

$24,500 Opening 9. 100

11. 2,000



Opening $6,000 + maintenanCe exPense -

8. 2,000 DECREASE INCREASE 5. 1,000

- Bank Loan +

$10,000 Opening $1,000

$4,000 4. 4,000 INCREASE DECREASE

+ rent exPense -

INCREASE DECREASE 8. 2,000

+ PrePaiD insuranCe - $14,000

Opening $5,000 $2,000


DECREASE INCREASE + saLaries exPense -

- kates, CaPitaL + 10. 4,000

$5,000 $43,000 Opening

3. 5,000 $4,000


+ eQuiPment - $48,000 + traveL exPense -

Opening $30,000 1. 1,500


+ kates, DraWings - $1,500

INCREASE DECREASE

12. 2,000 + utiLities exPense -

7. 900

$34,000 $2,000

$900




*$43,000 + 5,000 + 5,500 - 2,000 = $51,500


103

health-Plus Clinicincome statement

For the month ended January 31, 2016revenueService Revenue $15,000

expensesInterest Expense $100Maintenance Expense 1,000Rent Expense 2,000Salaries Expense 4,000Travel Expense 1,500Utilities Expense 900

total expenses 9,500net income (Loss) $5,500

health-Plus Clinic statement of owner’s equity


Kates, Capital, January 1, 2016 $43,000


Net Income 5,500

Less Kates, Drawings 2,000

Kates, Capital, January 31, 2016 $51,500

health-Plus ClinicBalance sheet

as at January 31, 2016assets LiabilitiesCash $24,500 Accounts Payable $0Prepaid Rent 4,000 Unearned Revenue 2,000Prepaid Insurance 5,000 Bank Loan 14,000Equipment 34,000 total Liabilities 16,000

owner’s equityKates, Capital 51,500



104

aP-13B ( 2 3 5 6 7 )

Helga Stiles operates a hairstyling company. The opening balances from Helga’s Hairstyling’s financial records on March 1, 2016 is shown below.

Cash $18,000Equipment 4,300Supplies 1,200Building 140,000Accounts Payable 3,600Bank Loan 100,000Stiles, Capital 59,900

The following transactions took place during the month of March

1. $5,000 cash was taken from the bank account for a bank loan payment.2. Paid down a portion of the accounts payable with $1,000 cash.3. Recorded cash sales of $5,500.4. Received a delivery of supplies for $2,000; invoice due in 30 days.5. Received a bill of $650 for maintenance on equipment.6. Paid salaries to employees with $1,500 cash.7. Withdrew $2,000 cash from the business.8. Provided services worth $2,000 for clients on account.9. Received $1,500 cash in advance of service to be done next month.

10. Collected $1,000 of the amount owing from clients.


105

required

a) Record the transactions in the T-accounts.

helga’s hairstyling Balance sheet


helga’s hairstyling income statement




Opening $18,000 1. 5,000 $3,600 Opening 3. 5,500

2. 1,000 2. 1,000 8. 2,000

3. 5,500 4. 2,000

9. 1,500 6. 1,500 5. 650 $7,550

10. 1,000 7. 2,000 $5,250

$16,500

DECREASE INCREASE

INCREASE DECREASE - unearneD revenue + Less exPenses- aCCounts reCeivaBLe + Opening

Opening 9. 1,500 INCREASE DECREASE

8. 2,000 $1,500 + maintenanCe exPense -

10. 1,000 5. 650

$1,000 DECREASE INCREASE

- Bank Loan + $650

INCREASE DECREASE $100,000 Opening

+ suPPLies - 1. 5,000 INCREASE DECREASE

Opening $1,200 + saLaries exPense -

4. 2,000 $95,000 6. 1,500

$3,200 oWner's eQuity $1,500

DECREASE INCREASE

INCREASE DECREASE - stiLes, CaPitaL + INCREASE DECREASE

+ eQuiPment - $59,900 Opening + teLePhone exPense -

Opening $4,300

$59,900

$4,300

INCREASE DECREASE

INCREASE DECREASE + stiLes, DraWings - INCREASE DECREASE

+ BuiLDing - + utiLities exPense -

Opening $140,000 7. 2,000

$140,000 $2,000




oWner’s eQuity 63,250* net inCome (Loss) $5,350

*$59,900 + 5,350 - 2,000 = $63,250

}


106

b) Complete the Income Statement, Statement of Owner’s Equity and Balance Sheet for the end of March 2016.

helga's hairstylingincome statement


revenue

Service Revenue $7,500

expenses

Maintenance Expense $650



net income (Loss) $5,350

helga's hairstylingstatement of owner’s equity


Stiles, Capital, March 1, 2016 $59,900

Add Investment 0

Net Income 5,350

Less Stiles, Drawings 2,000

Stiles, Capital, March 31, 2016 $63,250

helga's hairstylingBalance sheet


assets Liabilities


Accounts Receivable 1,000 Unearned Revenue 1,500

Supplies 3,200 Bank Loan 95,000

Equipment 4,300 total Liabilities 101,750

Building 140,000 owner's equity

Stiles, Capital 63,250



107

aP-14B ( 2 )

Jake Martin operates a construction company as a sole proprietorship called Martin & Martin Construction. Jake is creating some financial records for the company for the end of April 2016 and has come up with the following account balances

Accounts Payable $750

Accounts Receivable 350

Bank Loan 5,000

Cash 11,250

Storage Warehouse 36,200

Tools and Equipment 7,900

Vehicle 13,800

required

Prepare the balance sheet for Martin and Martin Construction.

martin & martin ConstructionBalance sheet


assets Liabilities

Cash $11,250 Accounts Payable $750

Accounts Receivable 350 Bank Loan 5,000

Tools and Equipment 7,900 total Liabilities 5,750

Vehicle 13,800

Storage Warehouse 36,200 owner's equity

Martin, Capital 63,750

total assets $69,500 total Liabilities and Partner’s equity $69,500


108

Case study

Cs-1 ( 3 5 6 7 )

Granyard Clockworks is a service company that repairs damaged watches and clocks. The company it is owned fully by John Granyard. John is fully liable for all activities of the business. In the most recent month (May 2016), Granyard Clockworks had the following transactions

1. John deposited $40,000 of additional cash into the business.2. Borrowed $15,000 in cash from the bank.3. Paid $3,500 cash for May’s rent.4. Paid $6,000 in salaries for May.5. Performed services and earned $18,000 in cash.6. Incurred telephone expenses of $500 (to be paid next month).7. Performed services for a client for $3,000 on account.8. Prepaid insurance for one year in the amount of $11,000.9. Incurred maintenance expense of $1,000 (paid on account).

10. John withdrew $5,000 from the business for personal use.11. Received $2,000 cash for repair services to be done in July.12. Collected 80% of the $3,000 amount owing from a client for services performed earlier

this month.

As at April 30, 2016, the ending account balances for Granyard Clockworks were

Cash $50,000Accounts Receivable 12,000Prepaid Insurance 800Equipment 40,000Accounts Payable 2,000Bank Loan 60,000Granyard, Capital 40,800

required

a) Complete the T-account worksheets for May 2016 (provided below).


109

granyard Clockworks Balance sheetas at may 31, 2016

granyard Clockworks income statement



+ Cash - - aCCounts PayaBLe + - revenue +

Opening $50,000 $2,000 Opening 5. 18,000

1. 40,000 3. 3,500 6. 500 7. 3,000

2. 15,000 4. 6,000 9. 1,000 $21,000

5. 18,000 8. 11,000

11. 2,000 10. 5,000 Less exPenses12. 2,400 $3,500 INCREASE DECREASE

$101,900 + maintenanCe exPense -


INCREASE DECREASE - unearneD revenue +

- aCCounts reCeivaBLe + Opening $1,000

Opening $12,000 11. 2,000

7. 3,000 $2,000 INCREASE DECREASE

12. 2,400 + rent exPense -

$12,600 DECREASE INCREASE 3. 3,500

- Bank Loan +

INCREASE DECREASE $60,000 Opening $3,500

+ PrePaiD insuranCe - 2. 15,000

Opening $800 INCREASE DECREASE

8. 11,000 $75,000 + saLaries exPense -

4. 6,000

$11,800 oWner's eQuity

DECREASE INCREASE $6,000

INCREASE DECREASE - granyarD, CaPitaL +

+ eQuiPment - $40,800 Opening INCREASE DECREASE

Opening $40,000 1. 40,000 + teLePhone exPense -

6. 500

$40,000 $80,800

$500

INCREASE DECREASE

+ granyarD, DraWings - INCREASE DECREASE

10. 5,000

$5,000


totaL LiaBiLites 80,500 Less totaL exPenses 11,000

oWner’s eQuity $85,800 net inCome (Loss) $10,000


110

b) If John Granyard were to sell all of the assets of the business for cash on May 31, 2016 and use the cash to pay off the company’s debts, what is the remaining amount? What does it represent?

The remaining amount is $85,800. This amount precisely represents owner’s equity.______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

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