Question

Create a mock merchandising company and demonstrate your knowledge of accrual basis accounting and the double-entry accounting system by creating a minimum of 10 original transactions spanning a period of 3 months (Jan. 1 – Mar. 31) and completing the requirements below. Assume your mock company is a new company that begins operations on Jan. 1^{st .} The transactions should include examples of accruals and deferrals and at least one of each of the following: financing a new business (e.g. issuing stock or borrowing), obtaining assets, incurring liabilities, earning revenue, and incurring expenses.

1. Write a list of at least 10 original transactions spanning a fiscal quarter (e.g. Jan.1 – March 31) and following the guidelines above. The first transaction should be a financing transaction (issue stock or borrow).

2. Journalize each transaction.

3. Post the journal entries to accounts and compute the ending balance (March 31) in each account.

4. Prepare a trial balance from ending account balances.

5. Write a list of at least 5 adjusting entries for the quarter-ended March 31 related to transactions prepared in step 1. Note that adjusting entries do not have an effect on the cash account.

6. Journalize the adjusting entries. Note that adjusting entries do not affect the cash account.

Answer 1

XYZ LTD. CLOSSES ITS ACCOUNTS ON 31MARCH

1) 10 TRANSACTIONS

• XYZ LTD. COMMENCE BUSINESS WITH A CAPITAL OF RS 20 LAKH ON 1 JANUARY
• BORROWS 30 LAKHS FROM SLM ENTERPRISE ON 1 JANUARY
• PURCHASE THE PLANT AND MACHINERY FOR RS 25 LAKH ON 1JANUARY . DEPRECIATION IS CHARGED 10% BY STRAIGHT LINE METHOD
• BOUGHT GOODS FROM MOHAN TRADERS FOR RS. 1,25,000 ON 2 JANUARY ON CREDIT
• SOLD GOODS TO SHIVAM ENTERPRISE ON 5 JANUARY FOR RS. 95000 . 30% AMOUNT WAS RECEIVED IN CASH  
• PAID RENT OF FACTORY FOR 12 MONTHS ON 30 JANUARY OF RS . 36000
• INSURANCE PAID RS. 5400 FOR 9 MONTHS COMMENCING FROM FEBRAURY ON 28 FEBRUARY
• RECEIVED RS. 60000 FROM SHIVAM ENTERPRISE ON 1 MARCH
• PURCHASE FURNITURE FOR CASH FOR RS. 50,000 DEPRECIATION 15% WILL BE CHARGED ON 1 MARCH
• COMMISION INCOME RECEIVED FOR RS. 45000 ON 31 MARCH FOR JANUARY AND FEBRUARY . MARCH INCOME IS STILL NOT RECEIVED

2) JOURNAL ENTRIES

1 JAN     CASH Dr. 20,00,000   

TO XYZ LTD. 20 ,00,000

( BEING CAPITAL INTRODUCED BY XYZ LTD.)

1 JAN CASH Dr. 30,00,000

TO SLM ENTERPRISE 30,00,000

(BEING AMOUNT BORROWED FROM SLM ENT.)

1 JAN PLANT & MACHINERY Dr. 25,00,000

TO CASH A/C 25,00,000

(BEING PLANT AND MACHINERY PURCHASED)

2 JAN PURCHASES A/C Dr. 1,25,0000

TO MOHAN TRADERS 1,25,000

(BEING GOODS BOUGHT ON CREDIT)

5 JAN SHIVAM ENTERPRISE Dr. 66500

CASH A/C Dr. 28500

TO SALES A/C 95000

(BEING 70% GOODS SALE ON CREDIT AND ELSE IN CASH)

30 JAN RENT A/C Dr. 9000

PREPAID EXPENSE Dr. 27000

TO CASH A/C 36000

( BEING RENT PAID FOR 12 MONTHS)

28 FEB INSURANCE A/C Dr. 1200

PREPAID EXPENSE Dr. 4200

TO CASH A/C 5400

( BEING INSURANCE PAID FOR 9 MONTHS)

1 MARCH CASH A/C Dr. 60000

TO SHIVAM ENTERPRISE 60000

(BEING AMOUNT RECEIVED FROM DEBTORS)

1 MARCH FURNITURE A/C 50000

TO CASH A/C 50000

( BEING FURNITURE PURCHASED)

31 MARCH CASH A/C Dr. 45000

ACRUED INCOME 15000

TO COMMISION 60000

( BEING COMMISSION RECEIVED FOR 2 MONTHS)

31 MARCH DEPRICIATION A/C Dr. 63125

TO P&M A/C 62500

TO FURNITURE A/C 625

(BEING DEPRECIATION CHARGED ON P&M AND FURNITURE)

3) LEDGER A/C

1- CASH A/C

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
BY XYZ LTD.	20,00,000	TO P&M	25,00,000
BY SLM ENTERPRISE	30,00,000	TO RENT A/C	9000
BY SALES A/C	28,500	TO PREPAID RENT	27,000
BY SHIVAM ENTERPRISE	60,000	TO INSURANCE	1200
BY COMMISION	45,000	TO PREPAID INSURANCE	4200

		TO FURNITURE	50,000
		TO BALANCE C/D	2542100
	5133500		5133500

  

2- P& M A/C

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
BY CASH	2500000	TO DEPRECIATION	62500
		TO BALANCE C/D	2437500
	2500000		2500000

3- SLM ENTERPRISE

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
		TO CASH A/C	3000000
BY BALANCE C/D	3000000
	3000000		3000000

4- FURNITURE A/C

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
BY CASH	50000	TO DEPRECIATION	625
		TO BALANCE C/D	49375
	50000		50000

5- MOHAN TRADERS A/C

  

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
		TO PURCHASES A/C	125000
BY BALANCE C/D	125000
	125000		125000

6- SHIVAM ENTERPRISE

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
BY SALES A/C	66500	TO CASH A/C	60000
		TO BALANCE C/D	6500
	66500		66500

7- PREPAID EXPENSES A/C

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
BY CASH A/C	27000
BY CASH A/C	4200	TO BALANCE C/D	31200
	31200		31200

4) TRIAL BALANCE

PARTICULARS	DEBIT	CREDIT
CASH A/C	2542100
P&M	2437500
SLM ENTERPRISE		3000000
FURNITURE	49375
MOHAN TRADERS		125000
SHIVAM ENTERPRISE	6500
PREPAID EXPENSES	31200
DEPRICIATION A/C	63125
COMMISION A/C		60000

RENT A/C	1200
INSURANCE A/C	9000
ACCRUED INCOME A/C	15000
XYZ CAPITAL A/C		2000000
TOTAL	5185000	5185000

5) 5 ADJUSTING ENTRIES

• INTEREST 9% P.A. IS OUTSTANDING ON AMOUNT BORROWED FROM SLM ENTERPRISE ON 31 MARCH FOR 3 MONTHS
• 5% DISCOUNT RECEIVE FROM MOHAN TRADERS ON 31 MARCH
• SHIVAM ENTERPRISES FAILED TO PAY BALANCE AMOUNT
• SALARY PAID ARE DUE FOR 3 MONTHS OF RS. 15000
• DEPRICIATION HAS TO BE CHARGED 10% INSTEAD OF 15% ON FURNITURE

6) JOURNAL ENTRIES

1- SLM ENTERPRISE 45000

TO OUTSTANDING INTEREST 45000

(BEING INTEREST DUE ON BORROWED FUNDS)

2- MOHAN TRADERS Dr 6250

TO DISCOUNT RECEIVED 6250

(BEING DISCOUNT RECEIVED FROM CREDITOR)

3- BAD DEBTS A/C Dr. 6500

TO SHIVAM ENTERPRISE 6500

(BEING DEBTOR FAILED TO PAY BALANCE AMOUNT)

4- SALARY Dr. 15000

TO OUTSTANDING SALARY 15000

( BEING SALARY DUE FOR 3 MONTHS)

5- FURNITURE A/C 208

TO DEPRECIATION A/C 208

( BEING DEPRECIATION ENTRY CORRECTED)

PLEASE PROVIDE THE FEEDBACK