Exercise 3.2 | | Transaction analysis | | |
1. Increase an asset (debit), increase equity (credit)
2. Decrease a liability (debit), decrease an asset (credit)
3. Increase an asset (debit), decrease an asset (credit)
4. Increase an asset (debit), increase a liability (credit)
5. Increase an asset (debit), decrease an asset (credit)
6. Increase an asset (debit), increase an income or revenue (credit)
7. Decrease equity (debit), decrease an asset (credit)
8. Increase an asset (debit), decrease an asset (credit)
9. Increase an asset (debit), decrease an asset (credit), increase a liability (credit)
10. Increase an expense (debit), decrease an asset (credit).

Exercise 3.4 | | Normal balance and classification in financial statements | LIGHTFOOT DISTRIBUTION SERVICES LIGHTFOOT DISTRIBUTION SERVICES | | Item | Normal Balance | Statement | 1. | Telephone Expense | Debit | Income statement (expense) | 2. | Unearned Service Fees | Credit | Balance sheet/Statement of financial position (liability) | 3. | Prepaid Advertising | Debit | Balance sheet/Statement of financial position (asset) | 4. | Repairs Expense | Debit | Income statement (expense) | 5. | Accounts Receivable | Debit | Balance sheet/Statement of financial position (asset) | 6. | Mortgage Payable | Credit | Balance sheet/Statement of financial position (liability) | 7. | GST Collections | Credit | Balance sheet/Statement of financial position (liability) | 8. | Delivery Vehicles | Debit | Balance sheet/Statement of financial position (asset) | 9. | A. Lightfoot, Drawings | Debit | Balance sheet/Statement of financial position (deduction from equity) | 10. | Interest Revenue | Credit | Income statement (income) | 11. | GST Outlays | Debit | Balance sheet/Statement of financial position (asset) | 12. | Distribution Services Revenue | Credit | Income statement (income) | 13. | Office Supplies | Debit | Balance sheet/Statement of financial position (asset) | 14. | A. Lightfoot, Capital | Credit | Balance sheet/Statement of financial position (equity) | 15. | Accounts Payable | Credit | Balance sheet/Statement of financial position (liability) | | | | |

Exercise 3.5 | | Recording transactions in general journal and | | | | | analysis | | | | |
LEMON SQUASH COURTS

A. LEMON SQUASH COURTS | (ignoring GST) | Nov. | 1 | S. Ball, Drawings | $1 500 | | | | Cash at Bank | | $1 500 | | | S. Ball withdrew $1 500 for personal use. | | | | | | | | | 5 | Salaries Expense | 970 | | | | Cash at Bank | | 970 | | | Salaries paid. | | | | | | | | | 9 | Equipment | 1 800 | | | | Cash at Bank | | 500 | | | Accounts Payable | | 1 300 | | | Purchased equipment for cash $500 and the balance payable in 60 days. | | | | | | | | | 14 | Accounts Payable | 470 | | | | Cash at Bank | | 470 | | | Payment to suppliers. | | | | | | | | | 18 | Advertising Expense | 510 | | | | Cash at Bank | | 510 | | | Payment for newspaper advertisements. | | | | | | | | | 22 | Cash at Bank | 210 | | | | Accounts Receivable | | 210 | | | Cash receipts from credit customers. | | | | | | | | | 30 | Cash at Bank | 900 | | | | Accounts Receivable | 2 100 | | | | Court Fees Revenue | | 3 000 | | | Court fees received and receivable. | | |

B.
1 November: This transaction is a withdrawal of assets from the business by the owner and is not an expense related to the earning of income. A debit is made to the Drawings account to reflect the decrease in the owner’s investment in the business, and the decrease in the Cash at Bank account is recorded by a credit.

5 November: Salaries are an expense of the business to reflect the cost of services received by the business from its employees. The business pays its employees for the services they have rendered to the business by crediting the Cash at Bank account and debiting the Salaries Expense account.

9 November: The Equipment account is increased to record the purchase by debiting the account. At the same time, Cash at Bank is decreased by crediting the account for the amount of the deposit paid, and a liability, Accounts Payable is increased by crediting the account for the amount payable in 60 days.

14 November: The supplies had been purchased in the previous month; hence, an Accounts Payable liability account would have been credited at that time. This month, the payment of the Accounts Payable is recorded by reducing the liability account (debit) and reducing the Cash at Bank account (credit) for the amount of the payment.

18 November: Advertising costs are an expense of the business to reflect the cost of advertising services received as supplied by the newspaper. The business pays the newspaper for the services rendered to the business by crediting the Cash at Bank account and debiting the Advertising Expense account.

22 November: The receipt of cash from credit customers is recorded by a debit to the Cash at Bank account; and Accounts Receivable is credited to reduce the amount owing to the business by these customers. Services have previously been supplied to the customers by the business, and this transaction reflects the receipt of cash from these customers.

30 November: This is an income transaction reflecting the amount of court fees received or receivable for the month of November. Hence, a revenue account, called Court Fees Revenue, is credited and Cash at Bank is debited for the amount received from customers who paid in cash. For credit customers, an asset, Accounts Receivable, is debited to record the amount owing by these customers for services received by them from the business in November.

Exercise 3.9 | | Recording transactions in general journal and | | | | | analysis | | | | | JOEL’S TRAVEL AGENCY JOEL’S TRAVEL AGENCY (ignore GST) | 2013 | | | | | Jun 1 | | Cash at Bank | 51 000 | | | | Joel Brattsky, Capital | | 51 000 | | | Cash contributed by owner. | | | | | | | | 2 | | Office Equipment | 14 000 | | | | Cash at Bank | | 14 000 | | | Office equipment purchased for cash | | | | | | | | 3 | | No entry required | | | | | | | | 6 | | No entry required at this point (the booking may be cancelled!?) | | | | | | | | 15 | | Cash at Bank | 18 000 | | | | Accounts Payable | | 16 200 | | | Commission Income | | 1 800 | | | Cash received as part payment for airlines and hotel. | | | | | | | | 22 | | Accounts Payable | 5 500 | | | | Cash at Bank | | 5 500 | | | Cash paid to airline. | | | | | | | | 25 | | Accounts Payable | 10 700 | | | | Cash at Bank | | 10 700 | | | Cash paid to hotel chain as part payment. | | | | | | | | 30 | | Wages Expense | 3 000 | | | | Cash at Bank | | 3 000 | | | Cash paid for one month’s wages to employee | | | Note: Commission income is recognised above as cash is received even though, under the contract, the agency is not “entitled” to the income until the client pays in full. An argument could also be put with students that the total commission income of $2 800 could be recorded on 6 June, when the trip is booked for the client. Questions to consider: Has the income been “earned”? Is it probable that it will be received? [Use AASB 118 paragraph 20 (revenue from services) as a guide].

B.
1 June: This transaction is an investment of cash assets into the business by the owner. A credit is made to the Owner’s Capital account (equity) to reflect the increase in the owner’s investment in the business, and the increase in the Cash at Bank account (asset) is recorded by a debit.

2 June: The Office Equipment account is increased to record the purchase by debiting the account. At the same time, Cash at Bank is decreased by crediting the account for the amount of the cash paid.

3 June: No entry is made at this time as the hiring of staff does not represent a transaction. The assistant is owed nothing as he/she has not yet performed any services for the business.

6 June: No entry is made at this date as there is no clear evidence that the entity has performed services, and it is possible that the booking may be cancelled without any penalty. [However, an argument could be mounted that part of the income could be recognised if para. 20 if AASB 118 Revenue is considered to apply and the percentage of completion of the services can be determined in a faithful, verifiable manner.]

18 June: This is an income transaction reflecting the amount of commission earned on the cash received to date from the client. Hence, an income account, called Commission Income, is credited for 10% of the cash received, and Cash at Bank is debited for the amount received from the customer. A liability, Accounts Payable, is credited to record the amount owing by the business to the airline and to the hotel chain.

22 June: The Accounts Payable liability account was credited at that time the amount of cash was received from the customer. Now, the payment of the Accounts Payable to the airline is recorded by reducing the liability account (debit) and reducing the Cash at Bank account (credit) for the amount of $5500.

25 June: The Accounts Payable liability account was credited at that time the amount of cash was received from the customer. Now, the payment of the Accounts Payable to the hotel chain is recorded by reducing the liability account (debit) and reducing the Cash at Bank account (credit) for the amount of $10 700, namely $16 200 - $5500.

30 June: Wages are an expense of the business to reflect the cost of services received by the business from its employees. The business pays the assistant for the services he/she has rendered to the business for the month by crediting the Cash at Bank account and debiting the Wages Expense account.