Question

In: Accounting

The following are the transactions occurred in the first month of his business E&O Consultancy. January...

The following are the transactions occurred in the first month of his business E&O Consultancy.
January 1. Mr.said introduced RO.45,000 as initial investment to start his new business
2. Business purchased 10 computers for RO.2,500 from Alain computers and paid cash RO.800
immediately and balance agreed to pay later
3. Business obtains a loan of RO.15,000 from a bank in Sohar
5. Business provide audit service to a listed company invoice has given for OR.1500, but the client
informed that they can pay only next month.
8. Purchase office furniture for RO.1,200 and paid cash immediately
12. Business provided accounting service to a local customer and collected cash R0.700
15. Business paid rent for the whole year in advance RO.950
18. During the month Business earned RO. 1,200 from a customer for internal audit service,
collected cash RO.700 as advance and the balance the client agreed to pay later.
20. Firm provide accounting service to a small sole proprietorship business for credit RO.800
24. Business paid salary to all office staff totaled RO.1,500
27. Paid the balance full amount to Alain computers for the purchase of computer
28. Business paid RO.700 as rent to the landlord
31. Business received RO.500 from a customer, who previously invoiced for the service for
credit.

Situation-1
You are recently joined in Al Omani (SAOG) Company as a junior account clerk, and the accounts manager has asked you to do the following tasks.
Note: Al Omani Company is following accrual basis of accounting.
a) At what date you need to identify and record the above transaction in the books of accounts, also discuss briefly about how accrual basis of accounting system is used for recording the above transaction.
(2.5 marks Word Limit 50-80)



b) Do you think, the credit purchase transaction initially leads to increase the account payable of the business? Yes/No comment briefly on your answer. (1 marks Word Limit 20-40)
c) Identify and discuss briefly about the source document, you need to refer before identifying and recording the above credit purchase transaction in the books of accounts.
(1.5 marks Word Limit 40-70)
Following information is relevant for Questions 2 -5

Mr.Said Rashid Maqbali has worked almost ten years as an accountant in a major accounting firm based in Dubai. After gaining enough experience and knowledge from the company, he has decided to resign at the end of the year 2018 and start his own accountancy firm in his home town at Sohar.
The following are the transactions occurred in the first month of his business E&O Consultancy.
January 1. Mr.said introduced RO.45,000 as initial investment to start his new business
2. Business purchased 10 computers for RO.2,500 from Alain computers and paid cash RO.800
immediately and balance agreed to pay later
3. Business obtains a loan of RO.15,000 from a bank in Sohar
5. Business provide audit service to a listed company invoice has given for OR.1500, but the client
informed that they can pay only next month.
8. Purchase office furniture for RO.1,200 and paid cash immediately
12. Business provided accounting service to a local customer and collected cash R0.700
15. Business paid rent for the whole year in advance RO.950
18. During the month Business earned RO. 1,200 from a customer for internal audit service,
collected cash RO.700 as advance and the balance the client agreed to pay later.
20. Firm provide accounting service to a small sole proprietorship business for credit RO.800
24. Business paid salary to all office staff totaled RO.1,500
27. Paid the balance full amount to Alain computers for the purchase of computer
28. Business paid RO.700 as rent to the landlord
31. Business received RO.500 from a customer, who previously invoiced for the service for
credit.
Question 2:
You are required to analyze the above transactions and prepare a table to show the effect of all the
above transactions in the Accounting Equation.
Question 3:
You are required to journalize the above transactions of E&O Consultancy for the month
January 2020, using an appropriate format. ​​   
Question 4:
You are asked to Post all the above transactions of E&O Consultancy from the journal to respective ledger accounts and find the balances at January 31, 2020.
  

Solutions

Expert Solution

Date Particular Debit Credit
Jan.
1 Cash 45,000
Capital 45,000
2 Computer 2,500
Cash 800
Accounts payable 1,700
3 Cash 15,000
Loan 15,000
5 Accounts receivable 1,500
Service revenue 1,500
8 Furniture 1,200
Cash 1,200
12 Cash 700
Service revenue 700
15 Prepaid rent 950
Cash 950
18 Cash 700
Accounts receivable 500
Service revenue 1,200
20 Accounts receivable 800
Service revenue 800
24 Salary expense 1,500
Cash 1,500
27 Accounts payable 1,700
Cash 1,700
28 Rent expense 700
Cash 700
31 Cash 500
Accounts receivable 500

Accrual basis is a method of recording accounting transactions for revenue when earned and expenses when incurred regardless of when the cash is paid or received. It matches the revenues with related expenses so that the complete impact of a business transaction can be seen within a single reporting period.

b.  Yes, the credit purchase transaction initially leads to increasing the account payable of the business.

When the business purchased 10 computers for RO.2,500 from Alain computers and paid cash RO.800 immediately and balance agreed to pay later, the transaction increased the account's payable by RO.1700

c.

A source document is an original document that contains the details of a business transaction. A source document is also used by companies as proof when dealing with their business partners, usually in regard to payments.

Source Document - Purchase Order, Invoices etc.


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