Question

On 1st January 2020 Tom Shanks started trading as Shanks Real Estate, and completed the following transactions regarding the business in the first month:

1. Jan 1: Tom Shanks transferred cash from his personal bank account to the business bank account in order to start operations, $25,000.
2. Jan 4: The business paid a year’s rent in advance for office space, $11,880
3. Jan 5: The business purchased a motor vehicle, $22,000. A deposit of $6,000 was paid with the remainder financed by a bank loan.
4. Jan 14: Earned first sales commission and received cash, $16,500
5. Jan 18: Paid motor vehicle expenses, $55
6. Jan 20: Tom Shanks used $60 from the business’ account to buy flowers for his wife Rita
7. Jan 25: Earned sales commission and sent the client an invoice which will be paid in February, $27,500

Without making any adjustments, prepare a Balance Sheet for Shanks Real Estate as at 31st January 2020 (use the format of Exhibit 4.22 p.168).

Answer 1

Answers

Format balance sheet not specified in the question, hence T format is Used.

BALANCE SHEET AS AT 31st JAN -2020
LIABILITIES		Amount $	ASSETS	Amount $
Capital	$    25,000.00		Motor Vehicle	$ 22,000.00
Add: Net profit (W.N.2)	$    32,065.00
Less :Drawing	$          (60.00)	$     57,005.00
			Account Receivable	$ 27,500.00
Bank loan($22,000-$6,000)		$     16,000.00	Cash & Cash Equivalents(W.N1)	$ 23,505.00
		$     73,005.00		$ 73,005.00

Notes:

1. Transfer from a personal account to the business should be transferred to capital account and bank account

2. Rent paid in advance should be charged as an expense

3. Money used for personal purpose(for wife) should be treated as drawing

4.The amount receivable from customers accounted under debtors/account receivable

Working Notes:
1.Cash & Cash equivalents =25,000-11,880-6000+16500-55-60	$    23,505.00
2.Computation of Net profit
Sales commission 16500+27500	$    44,000.00
Rent paid	$ (11,880.00)
Motor vehicle expense	$          (55.00)
	$    32,065.00