In: Accounting
Scenario:
On 1 Oct 2018, Andrew Brown opened Nundle Services, a small
business offering maintenance services in New South Wales. During
the month of October, the business incurred the following
transactions:
2 Oct, Andrew invested $50,000 cash in the business, which is
organised as a sole trader.
3 Oct, got a 5 year loan for $30,000 from the ANZ bank, interest is
5% pa.
4 Oct, purchased and paid for equipment worth $51,000. Monthly
depreciation will be $850.
5 Oct, purchased supplies for $6,500 on credit.
8 Oct, paid Oct office rent of $7,200.
10 Oct, Brown withdrew $2,000 for personal purposes.
17 Oct, paid an invoice of $4,500 for advertising
25 Oct, paid one year of insurance for $5,600
Additional information at 31 Oct:
Supplies on hand was $3,100
Services revenue of $22,500 must be accrued
Monthly payroll is $11,500 and paid once a month on Friday after
the month ended. 31 Oct 2018 was on Wednesday.
Some customers advanced $10,500 for maintenance services to be
provided next month but this amount hasn’t been recorded.
Requirements:
- Provide journal entries for all transactions that occurred
during October 2018.
- Open T-accounts and post all journal entries to the T-accounts.
Total all of the T-accounts to determine their balances at the end
of the month.
- Provide your handwritten solution – scan or use your phone to
copy and paste its image into your assignment. You can use a free
scanning app such as Camscanner, OfficeLens, or Google Drive.
- Based on balances from the T-accounts, prepare the trial balance
by using an Excel spreadsheet. Present your answers in a normal
view, showing columns and rows.
- What are temporary and permanent accounts? From your trial
balance, choose four permanent and four temporary accounts.
- From your trial balance, choose two accounts with normal debit
balances and two accounts with normal credit balances.
- What are adjusting entries? Why do we have to do adjusting
entries? Provide all adjusting entries for Nundle Services in
October.
- Using your trial balance in the preceding question and Excel
spreadsheet, prepare the ten column worksheet for the month ended
31 October. In the spreadsheet, you are required to have a data
section separated from a report section. Use an IF function for
Profit or Loss. Present your answers in both normal and formula
views, showing columns and rows.
- Using the spreadsheet, prepare three financial reports. Present
your answers in both normal and formula views.
- Calculate and evaluate the firm’s current and debt ratios.
Journal entries for October, 2018 | |||
Date | Account Titles | Debit | Credit |
2 Oct. 18 | Cash | $50,000 | |
Capital | $50,000 | ||
(Being capital introduced in business) | |||
3 Oct. 18 | Cash | $30,000 | |
ANZ Bank Loan | $30,000 | ||
(Being loan taken) | |||
4 Oct. 18 | Equipment | $51,000 | |
Cash | $51,000 | ||
(Being equipment purchased) | |||
5 Oct. 18 | Supplies | $6,500 | |
Accounts Payable | $6,500 | ||
8 Oct. 18 | Office rent | $7,200 | |
Cash | $7,200 | ||
(Being rent paid) |
|||
10 Oct. 18 | Drawings | $2,000 | |
Cash | $2,000 | ||
(Being drawings received) | |||
17 Oct. 18 | Advertising | $4,500 | |
Cash | $4,500 | ||
(Being advertising expenses paid) | |||
25 Oct. 18 | Insurance expenses | $467 | |
Prepaid insurance | $5,133 | ||
Cash | $5,600 | ||
(Being insurance expenses paid) | |||
Adjustment Entries: | |||
31 Oct. 18 | Interest expenses | $125 | |
Interest payable | $125 | ||
($30,000 x 5% x 1 month/12 months) | |||
31 Oct. 18 | Depreciation | $850 | |
Equipment | $850 | ||
31 Oct. 18 | Supplies Expenses | $3,400 | |
Supplies | $3,400 | ||
($6,500 - $3,100) | |||
31 Oct. 18 | Accounts Receivable | $22,500 | |
Revenue | $22,500 | ||
31 Oct. 18 | Salary | $11,500 | |
Salary payable | $11,500 | ||
31 Oct. 18 | Cash | $10,500 | |
Advance from Customers | $10,500 | ||