| Transaction Analysis Table | ||||
| Sl. No. | Analysis | Rule | Debit/Credit : Account Name | General Journal Entry |
| a. | The asset cash is increased; The owners equity account capital, G Denton is increased. | Increases in assets are recorded on the debit side. Increases in owners’ equity happen on the credit side | Debit : Cash Credit : Capital, G Denton | Cash 100,000 To Capital, G. Denton 100,000 |
| b. | The asset Land & Building is increased; The asset cash is decreased; The Liablity Notes Payable is increased. | Increase in assets are recorded on the debit side; Decrease in assets are recorded on the credit side; Increase in liability is recorded on credit side. | Debit: Land & Building Credit: Cash Credit: Notes Payable | Land 170,000 Building 330,000 To Cash 50,000 To Notes Payable 450,000 |
| c. | The asset office equipment is increased; The accounts payable on liability side is increased since purchased on credit. | Increase in assets are recorded on the debit side; Increase in liability is recorded on credit side. | Debit: Office Equipment Credit: Accounts Payable | Office Equipment 9,500 To Accounts Payable 9,500 |
| d. | The asset office equipment is decreased since returned; The accounts payable on liability side is decreased since purchased on credit. | Decrease in assets are recorded on the credit side; Decrease in liability is recorded on debit side. | Debit: Accounts Payable Credit: Office Equipment | Accounts Payable 1,200 To Office Equipment 1,200 |
| e. | The asset cash is decreased; The liability of balance accounts payable is decreased since payment made. | Decrease in asset is recorded on the credit side; Decrease in liability is recorded on debit side. | Debit: Accounts Payable Credit: Cash | Accounts Payable 8,300 To Cash 8,300 |
| f. | Sales has been recognised since the business of GD Realty is in Real Estate; Commission has been recorded as an expense for selling; The asset accounts receivable is increased since funds not released for few days. | Sales is recorded on the credit side; Commission Expense and Increase in asset is recorded on debit side. | Debit: Accounts Receivable Debit: Commission Credit: Sales | Accounts Receivable (Note) 633,750 Commission 16,250 To Sales 650,000 |
| Note – It has been assumed that the commission does not pertain to any agent. |
| d. | The asset office equipment is decreased since returned; The accounts payable on liability side is decreased since purchased on credit. | Decrease in assets are recorded on the credit side; Decrease in liability is recorded on debit side. | Debit: Accounts Payable Credit: Office Equipment | Accounts Payable 1,200 To Office Equipment 1,200 |
| e. | The asset cash is decreased; The liability of balance accounts payable is decreased since payment made. | Decrease in asset is recorded on the credit side; Decrease in liability is recorded on debit side. | Debit: Accounts Payable Credit: Cash | Accounts Payable 8,300 To Cash 8,300 |
| f. | Sales has been recognised since the business of GD Realty is in Real Estate; Commission has been recorded as an expense for selling; The asset accounts receivable is increased since funds not released for few days. | Sales is recorded on the credit side; Commission Expense and Increase in asset is recorded on debit side. | Debit: Accounts Receivable Debit: Commission Credit: Sales | Accounts Receivable (Note) 633,750 Commission 16,250 To Sales 650,000 |
Answer to Question 2
The following are the missing balance sheet amounts (in Red) in each of the independent situations A and B below:
| Particulars | A | B |
| Current Assets | 300000 | 425000 |
| Non-Current Assets | 350000 | 475000 |
| Total Assets | 650000 | 900000 |
| Current Liabilities | 90000 | 210000 |
| Non-Current Liabilities | 235000 | 415000 |
| Shareholder’s Equity | 325000 | 275000 |
| Total Liabilities & Shareholder’s Equity | 650000 | 900000 |
| Notes | ||
| (i) Current Assets for A = Total Assets – Non Current Asset. | ||
| (ii) Total Assets for A = Total Liabilities for A. Therefore, 650000. | ||
| (iii) Non-Current Liabilities for A = Total Liabilities – Current Liabilities – Shareholders Equity | ||
| (iv) Non-Current Assets for B = Total Assets – Current Asset. | ||
| (v) Shareholders Equity for B = Total Liabilities – Current Liabilities – Non-Current Liabilities | ||
| (vi) Total Liabilities for B = Total Assets for A. Therefore, 900000. |
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Answer to Question 2
The following are the missing balance sheet amounts (in Red) in each of the independent situations A and B below:
Particulars
A
B
Current Assets
300000
425000
Non-Current Assets
350000
475000
Total Assets
650000
900000
Current Liabilities
90000
210000
Non-Current Liabilities
235000
415000
Shareholder’s Equity
325000
275000
Total Liabilities & Shareholder’s Equity
650000
900000
Notes
(i) Current Assets for A = Total Assets – Non Current Asset.
(ii) Total Assets for A = Total Liabilities for A. Therefore, 650000.
(iii) Non-Current Liabilities for A = Total Liabilities – Current Liabilities – Shareholders Equity
(iv) Non-Current Assets for B = Total Assets – Current Asset.
(v) Shareholders Equity for B = Total Liabilities – Current Liabilities – Non-Current Liabilities
(vi) Total Liabilities for B = Total Assets for A. Therefore, 900000.
Answer to Question 3
The following is the classification of the items on the basis of their appearance in Income Statement or Balance Sheet –
| Sl. No. | Items | Classification |
| (a) | Prepaid Insurance | Balance Sheet – Current Asset |
| (b) | Dividend Payable | Balance Sheet – Current Liability |
| (c) | Common Shares | Balance Sheet – Shareholders Equity |
| (d) | Temporary (Short Term) Investments | Balance Sheet – Current Asset |
| (e) | Cost of Goods Sold | Income Statement |
| (f) | Advance from Customers | Balance Sheet – Current Liability |
Answer to Question 4
The effects of each transaction as an increase or decrease to the accounts –
| Assets | Liabilities | Owners Equity | ||||||
| Cash | Accounts Receivable | Automobiles | Office Equipment | Notes Payable | Accounts Payable | D. Hall Equity | ||
| Dec. 31 | ||||||||
| Balances | 12000 | 51000 | 15000 | 5500 | 15500 | 30000 | 38000 | |
| (a) | Bought office equipment for $5,000 | -5000 | 5000 | |||||
| (b) | Collected $5,000 of the accounts receivable | 5000 | -5000 | |||||
| (c) | Paid $8,000 of the accounts payable | -8000 | -8000 | |||||
| (d) | Borrowed $5,000 from the bank and signed a note payable for that amount | 5000 | 5000 | |||||
| (e) | Bought a used automobile for $15,000. Paid $4,000 cash and signed a note payable for the balance owing. | -4000 | 15000 | 11000 | ||||
| Total | 5000 | 46000 | 30000 | 10500 | 31500 | 22000 | 38000 |
Assets = Liabilities + Owners Equity
Assets = 5000 + 46000 + 30000 + 10500
= $ 91,500
Liabilities = 31500+22000
= $ 53,500
Owners’ Equity = 38,000
Liabilities + Owners Equity = 53,500 + 38,000
= $ 91,500
Hence, Assets = Liabilities + Owners Equity
Answer to Question 5
The journal entries for each of the following transactions for Seacoast Airline are –
| Date | Particulars | Dr. Amt. ($) | Cr. Amt. ($) |
| Jan-04 | Property Plant & Equipment Dr. | 1500000 | |
| To Cash A/c | 350000 | ||
| To Notes Payable A/c | 1150000 | ||
| (Being airplanes purchased from Scout Aircraft) | |||
| Jan-08 | Supplies A/c Dr. | 25000 | |
| To Accounts Payable (Breck Aviation) | 25000 | ||
| (Being spare parts purchased from Breck Aviation) | |||
| Jan-12 | Land Dr. | 200000 | |
| Aircraft Hanger Dr. | 300000 | ||
| To Notes Payable A/c | 500000 | ||
| (Being land and aircraft hanger issued from Scruggs Flight School) | |||
| Jan-15 | Accounts Payable (Breck Aviation) Dr. | 7000 | |
| To Bank A/c | 7000 | ||
| (Being partial payment made to Breck Aviation) | |||
| Jan-31 | Cash A/c Dr. | 25000 | |
| To Revenue from Operations (Sales) | 25000 | ||
| (Being flight revenue earned) |
Answer to Question 6
The journal entries from each posting along with explanation are as follows –
| Date | Particulars | Dr. Amt. ($) | Cr. Amt. ($) |
| 01-Nov | Cash Dr. | 120000 | |
| To Joe Guttierez, Capital | 120000 | ||
| (Owner invested $120000 in the business) | |||
| 08-Nov | Land Dr. | 80000 | |
| Building Dr. | 100000 | ||
| To Cash | 65500 | ||
| To Notes Payable | 114500 | ||
| (Land & Building purchased and payment of $ 65500 made in cash and Notes Payable issued for the balance amount) | |||
| 15-Nov | Office Equipment Dr. | 3500 | |
| To Accounts Payable | 3500 | ||
| (Office equipment purchased on credit) | |||
| 21-Nov | Accounts Payable Dr. | 600 | |
| To Office Equipment | 600 | ||
| (Defective Office Equipment returned) | |||
| 25-Nov | Notes Payable Dr. | 9500 | |
| To Cash | 9500 | ||
| (Partial amount paid for Notes Payable issued for Land & Building) | |||
| 30-Nov | Cash Dr. | 15000 | |
| To Joe Guttierez, Capital | 15000 | ||
| (Owner further invested $15000 in the business) |
The Ledger accounts (T shape) on the basis of the above entries are as under –
| Cash | |||||
| Date | Particulars | Dr. Amt. ($) | Date | Particulars | Cr. Amt. ($) |
| 01-Nov | To Joe Guttierez, Capital | 120000 | 08-Nov | By Land & Building | 65500 |
| 30-Nov | To Joe Guttierez, Capital | 15000 | 25-Nov | By Notes Payable | 9500 |
| By Bal. c/d | 60000 |
| Accounts Payable | |||||
| Date | Particulars | Dr. Amt. ($) | Date | Particulars | Cr. Amt. ($) |
| 21-Nov | To Office Equipment | 600 | 15-Nov | By Office Equipment | 3500 |
| To Bal. c/d | 2900 | ||||
| Notes Payable | |||||
| Date | Particulars | Dr. Amt. ($) | Date | Particulars | Cr. Amt. ($) |
| 25-Nov | To Cash | 9500 | 08-Nov | By Land & Building | 114500 |
| To Bal. c/d | 105000 |
