1101AFE Accounting Principles Workshop Chapter 1

Question 1
John Clark owns and operates an interior design business - Clark Design Studio. The start balances are
already listed in the table below.
During May the following events occurred:
1 May - Clark deposited $2,000 cash in the business bank account
3 May - Paid $2,400 of the beginning balance of accounts payable
8 May - Performed services for a client and received cash for $1,100
9 May - Collected cash from a customer on account $750
12 May - Purchased supplies on credit $720
15 May - Paid cash for new office equipment $3,000
18 May - Performed services on credit and billed the client $5,000
24 May - Paid the office rent for May $600
30 May - Withdrew cash of $1,400 for personal use
1. Analyse the effects of the above transactions on the accounting equation
Assets
Liability
Date
Cash
Accounts
Office
Accounts
receivable
Supplies
equipment
payable
1,720

3,240

24,100

5,400

Equity
J. Clark,
Details of
capital
Equity
Opening
23,660
balance

1/5

Total
2. Prepare the Income Statement, Statement of changes in Equity and Balance Sheet
Clark Design Studio
Income Statement for the month ended 31st May

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1101AFE Accounting Principles Workshop Chapter 1

Clark Design Studio
Statement of Changes in equity for the month ended 31st May

Clark Design Studio Balance Sheet as at 31st May

Question 2
1. Presented below are the basic concepts and principles underlying financial statements.
a. Cost principle
d. Going concern principle
b. Entity concept
e. Profit recognition principle
c. Matching principle
f. Accounting Period concept
Identify the basic concept or principle that is described below.
- The economic life of a business can be divided into time periods ____
- The business will continue in operation long enough to carry out its existing objectives _______
- Assets should be recorded at their cost _____
- Personal and business transactions must remain separate _____
- Relates inputs and outputs to one another _____
- Recognise revenue when it is earned _____
2.
In keeping the books of the business, you must decide the amount to record for Assets purchased.
Which concept or principle provides guidance for determining the amount to be recorded?
___________________________
3.
Should you account for your personal assets and liabilities along with the Assets and Liabilities of
the business or should you keep the 2 separate? ___________ Which concept or principle
provides guidance? _____________________
4.
Mac owns Floral Designs. He proposes to account for the shops assets at current market value in
order to have realistic amounts on the books if he must liquidate his business. Which accounting
concept or principle is violated? _____________________________________
5.

a) Sole Proprietorship

Owned by 3 people _____

Limited Liability _____
J. Daniels _____
Separate Legal Entity _____
S. Smith and B. Brown _____
Smith and Brown Pty Ltd _____

b) Partnership

c) Company

d) None

Unlimited Personal Liability _____

Owned by shareholders _____
Records personal and business transactions
_____
Owned by 1 person _____
xi.

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Question 3
Listed below are assets and liabilities of Able Services at 30 June with revenues and
expenses for the year ended 30 June
Accounts payable
$ 12,000 L
Telephone expense
$ 1,000
Accounts receivable
4,000 A
Motor vehicle
48,000
Loan payable
31,000
Rent expense
6,000
Office equipment
25,000
Salary expense
58,000
Cash
7,000
Service revenue
108,000
Electricity expense
3,000
Supplies
7,000
The owner of the business is Linda Able and the beginning balance of her Capital was
$40,000. During the year Able did not make any contributions but withdrew $32,000 for
personal use.

xxii.
Identify each account name above, as an Asset (A), Liability (L), Revenue (R) or Expense (E)
Prepare the Income Statement for the year ended 30th June
Prepare the Statement of changes in equity for the year ended 30th June
Prepare the Balance Sheet at 30th June
Able Services - Income Statement for the year ended 30th June
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Able Services - Statement of changes in equity for year ended 30 June
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Able Services - Balance Sheet as at 30 June
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