Business Transactions: Classification and Simple Transactions
- 1. Business Transactions: Classificationand Simple Transactions Question1: Discussthe differenceinthe role of the journal andthe ledgerincapturingaccounting informationefficientlyandeffectively. Outline the entityconceptandhow itimpacts onthe recordingof personal andbusiness transactions. 137Identifythe type of errors thatcouldbe discoveredbypreparingatrial balance and provide examplesof each. Provide examplesof twotransactionsandexamine the applicationof the debitandcredit rule. Answer 1: 1. The term journal inaccountancymeansthe applicationforthe recordingof the eventson the regularbasis.Journal referstothe recordingof the transactionof the specificaccounts that are affectedbythe transaction.Whereasthe amountsare postedfromthe journal entryon to the ledgeraccounts.Forexample,whenasale ismade,the cash isdebitedand sale iscredited.Thisisthe journal entrybutwhenthe same ispostedinthe ledgerof sales and cash,thenit istermedas the ledger. 2. The businessentityconceptisconcernedwiththe keepingof the personal expenses separate fromthe affairsof the owner.Or fromany otherbusinessorthe organization.This meansthat the ownermustnot use the assetsof the organizationforthe personal choice.In
- 2. the endof the yearwhenthe financial statementsare prepared,itmustbe ensuredthatthe personal expensesare notchargedto the income statement. 3. The followingare the kindsof the errorsthat are found: 1. Error of totallingof the debitandthe creditbalances 2. Error of totallinginthe booksof accountsof the subsidiaries 3. Errors of showingthe wrongbalancesinthe wrongcolumnof the trial balance 4. Omissionof showinganamountinthe trial balance 5. Error inthe calculationof the account balance of the ledger 6. Error inpostingthe journal entry 7. Error inthe recordingof the transactionin the booksof the subsidiarywiththe wrongname or the wrongamount. 4. The followingare the examples: 1. Whena salesismade,sale iscreditedand accounts receivablesorthe cashis debitedsince the creditthe income anddebitthe expense anddebitthe assetwhen it increasesandcreditthe liabilitywhenitincreasesandvice versa. 2. Whenan assetis purchased,cashiscreditedandassetisdebited since the creditthe income anddebitthe expenseanddebitthe assetwhenitincreasesandcreditthe liabilitywhenitincreasesandvice versa. Question 2: The followingbusinesstransactionsrelatetoRayRosa (financial planner) forhisfirstmonth of businessoperationsinAugust2015: 2015 August: 1. Commencedbusinessoperationswitha$300 000 cash injectionof personalfunds. 2. Paidmonthlyrent$1500. 4. Purchasedoffice stationery$2000 on creditfrom StationeryPlus. 7. Purchasedoffice equipmentoncreditfromSuppliesInc.$10 000. 9. Sentinvoice toclientM.Birt for services$3000. 11. PurchasedMYOB software forlaptopcomputer$700 cash. 13. M. Birt paidamountoutstanding. 14. Met withprospective clientandnegotiatedthe provisionof financial advice forclient and familyquoting$5000. 17. Paidcar parkingpermit$220. 19. Withdrewcashfrombusiness$2000 forpersonal use. 22. PaidWWW Ltd for monthlyinternetuse $182. 29. Receivedinterestfrombusinessbankaccount$15. 1. State the impacton the accountingequationforeachtransactionabove.Forexample: ↑Capital $300 000 ↑Cash$300 000 1 Aug 2. Prepare a worksheetforthe monthof August2015 fromthe above information.
- 3. Answer2: 1. The followingare the impactsof the transactions: 1. Increase inCashand increase inequityby $300,000 2. Increase inthe expense (rent) anddecrease incashby$1500 3. Increase inoffice stationeryandincrease inaccountspayable by$2,000 4. Increase inoffice equipmentandincrease inaccountspayable by$10,000 5. Increase inservice revenueandincrease inaccountsreceivablesby$3,000 6. Decrease incash andincrease inassetby $700 7. Increase incash and decrease inaccountsreceivablesby$3,000 8. No entry 9. Decrease incash andincrease inparkingexpensesby$220 10. Decrease incash anddecrease incapital by $2,000 11. Decrease incash andincrease ininternetexpensesby$182 12. Increase inbankbalance and revenue by$15 2. The followingisthe requiredworksheet: Account title Debit Credit Ray Capital 3,00,000.00 Rent expense 1,500.00 Cash 2,98,413.00 Service revenue 3,000.00 MOYB software 700.00 Office stationery 2,000.00 Office equipment 10,000.00 Accountspayable 12,000.00 Accountsreceivables - Car parkingexpense 220.00 Internetexpense 182.00 Drawings 2,000.00 Interestrevenue 15.00 Total 3,15,015.00 3,15,015.00 Question 3: 1. Usingthe businesstransactionsinpartB,record the transactionsin the ledgerof RayRosa. 2. Prepare a trial balance forRay Rosa at 31 August2015. 3. Prepare an income statementforthe monthending31August2015. 4. Prepare a balance sheetasat 31 August2015.
- 4. Answer 3: Account title Debit Credit Ray Capital 3,00,000.00 Rent expense 1,500.00 Cash 2,98,413.00 Service revenue 3,000.00 MOYB software 700.00 Office stationery 2,000.00 Office equipment 10,000.00 Accountspayable 12,000.00 Accountsreceivables - Car parkingexpense 220.00 Internetexpense 182.00 Drawings 2,000.00 Interestrevenue 15.00 Total 3,15,015.00 3,15,015.00
- 5. Particulars Amounts Service revenue 3,000.00 Interestrevenue 15.00 Less: expenses: Rent 1,500.00 Car parkingexpenses 220.00 Internetexpense 182.00 Netprofit 1,113.00 Assets Amounts Liabilities Amounts Ray capital 2,99,113.00 Accountsreceivables - Accountspayable 12,000.00 Office stationery 2,000.00 Office equipment 10,000.00 MOYB software 700.00 Cash 2,98,413.00 Total Assets 3,11,113.00 Total liabilities 3,11,113.00 References: Thutong.doe.gov.za,(2015).Accountingprinciplesandconcepts. Retrieved10January2015, from https://www.thutong.doe.gov.za/ResourceDownload.aspx?id=46210 www.ncert.nic.in,(2015).Trial Balance and Rectificationof Errors.Retrieved10January 2015, from https://www.ncert.nic.in/NCERTS/l/keac106.pdf