INTRODUCTION To ACCOUNTING AND DouBLe ENTRY BOOKKEEPING 1 Introduction to ent an Double Entry Bookkeeping In this chapter, you will learn: Function and Importance of Accounting Accounting Elements: Assets, Liabilities and Capital Accounting Equation Effect of Business Transactions upon the Accounting Equation Double Entry Bookkeeping moos I. Fainction and importance of Accounting Accounting is a system to classify, record, summarize and analyze the business transactions. The accounting information will be presented in the financial statements for users to make business decisions oB ‘Accounting Elements ( @itt#% ): Assets, Liabilities and Capital © Assets in the business are supplied by either the owner or the third parties. Economic resources in business (Assets #2 ) Economic resources Economic resources supplied by the owner supplied by the third parties (Capital #4 ) (Liabilities £08 ) Total economic resources owned and controlled by the business, ag. Assets (SE) and, computer, motor van, cash and inventories, etc. 5 Beot sources supplied by the owner for the business. Iti also Capital (H*) | called equity (#2 ), eg. cash introduced by the owner into the busine: Economic resources ed from the third parties, eg. a loan ($8#) and _ Liabilities (A) | bank overdraft ($8F738% ).2 ChaereR a Identify the assets, liabilities and capital from the following items. SOLUTION a. Cash at bank Asset b. Cash in hand Asset cc. Equipment ( if) Asset d. Fixtures (#88)! Asset e. Inventory ( ##8% ) Asset f. Bank loan ( S478 ) > Liability g. Bank overdraft ( #f7#8% ) ? Liability h. Introduction ( 23% ) by the owner into the business Capital |. Drawings (48 ) > Capital j. Loan from Chan Liability k. Loan to Wong Asset 1. Accounts payable (#4 Hei ) Liability m, Accounts receivable ( RE HEa ) Asset Note: 1 Fixtures are the articles securely, and usually permanently, attached to land or building, eg, water Pipes, lighting and ktchen sink, etc. Ifit is moved or removed. it may damage the land or the building it is attached to. 2 Bank loan Vs Bank overdraft Bank loan is the money intentionally borrowed from the bank, whereas bank overdraft is the cash shortage in bank account due to excessive withdrawal against insuffictemt funds. 3 Drawings Vs Introduetio When the owner supplies assets into the business. it is known as introduction. On the contrary, when the owner withdravs assets out of the business for his private use, itis known as drawings.INTRODUCTION To ACCOUNTING AND DouBLe ENTRY BOOKKEEPING 3 Difference among Loans, Accounts Payable and Accounts Receivable Loan __| Direct money borrowing or lending. Accounts | The amount owed (x ) by the firm to suppliers (known as creditors payable —_ffiflf A ). Itarises when the firm purchases assets on credit (Hef ). Accounts | The amount owed by customers (known as debtors {A ) to the firm. It receivable | arises when the firm sells assets on credit. Loan to Ms Ng ‘Loan from Ms Li (Asset) (Liability) @ ‘$s Ben ‘Money borrowed from Ms Li Money lent to Ms Ng Assets sold fo Assets purchased ‘Ms Ng on credit from Ms Lion credit Accounts Receivable — Ms Ng Accounts Payable Ms Li (Asset) (Ciability) MOMKMMO™0 BHNW..OwMNMBWNNNH NNN NNH\HN§HNOHNHHNHNHNHNHHNHNHNHHNH HAHAHAHAHA © y Qa nm“ mnoomnm»m»0MmO~O©q0Nnn»nnnnnnnnnnnnnnnnnnnwn»gwynonpnyngnyngnynyéwpnwnhnynéfaéhfN NT ALLL CLLLLLLLLLLLLLLLELELULDLLLLLLLLLL LLL LLELLLLULEL ULE LLLLLLLUL LLL LLOLLLL ALLEL LLL ELLIS LLULLL LLL LLU4 Giaerery Gg Accounting Equation a As mentioned, asscts in the business are supplied by either the owner or the third patties, There is an accounting equation ( #7# $36 ) expressing the relationship among assets, liabilities and capital: Sac Assets = Liabilities + Capital Clara started a business with the following: computer $8 000, fax machine $2 000, office furniture $1 580, fixtures and fittings $5 000 and inventories $18 900. She had borrowed a loan from Philip $16 000 to finance ( 4#6t¥4 ) part of the above assets. When the business was started, there were cash in hand $1 200 and cash at bank $23 500. Calculate the amount of capital at the start of the business. Working Steps 1. Identify the above items into assets and liabilities. In this case, Assets: Computer, fax machine, office furniture, fixtures and fitings, inventories, cash in hand-and cash at bank Liabilities: Loan trom Philip. 2. Using the accounting equation, put the figures of the above items into assets and liabilities respectively Capital = Assets ~ Liabilities = $(8 000 + 2 000 + 1 580 +5 000 + 18 900 + 1 200 + 23 500) ~ $16 000 $44 180 i ieeeINTROBUCTION To ACCOUNTING AND DoutE ENTRY BooxkeEPING 5 o Effect of Business Transactions upon the =_ Accounting Equation © @ ae Each transaction will affect the accounting equation. For example, purchases of c Liability computer on credit will increase the asset (ie. computer) and the iabiligy (ie. catia accounts payable). ee Using the Accounting Equation: Assets = Liabilities + Capital, show the NET effect on assets, liabilities and capital for each of the following transactions (“++” for increase; “—” for decrease; and “nil” for no effect). SOLUTION Assets Liabilities Capital 1. The owner started a business in cash. i Nil + 2. Put cash into bank. Nil 3. Bought a chair in cash. Nil 4, Bought a computer on credit. + + 5. Paid a creditor by cheque. = = Nil 6. Sold goods on credit at cost. Nil 7. A debtor paid in full (fS%# ) in cash. Nil 8. The owner introduced a motor van i meat roc motor van into the + | Nil 4 9. The owner withdrew office equipment for his | _ a a private use.6 Chaprer a a Double Entry Bookkeeping EE Account Account ( #25 ) is a specific item of assets, liabilities and capital, e.g. office equipment (dsset) and bank loan (Liability). It is used to record the details of each transaction. Dds eled State the accounts involved in each transaction. TRANSACTIONS ACCOUNTS INVOLVED 1 The owner introduced a motor van into the business. Motor van, Capital 2. Borrowed a bank loan. Bank, Bank loan 3. Bought a machine by cheque. Machinery, Bank 4, Withdrew cash from bank for office cash. Bank, Cash 5. Withdrew cash from office safe ( 2 713#h ) and deposited ( #A ) to the bank, a an 6. The owner withdrew cash for his own use. Drawings, Cash 7. Bought premises ( 5#4 ), financed by a loan from Premises, Queenie. Loan from Queenie EB Layout of an Account ‘Account Name Date Details $| Date Details $ Debit (Dr) Credit (C7) Itis used to show the effect of each transaction. It is also called Ledger Account (4 AIRF ) or T-account (‘T $47 ). The word “Debit” simply represents “left-hand side”, whereas “Credit” simply represents “right-hand side”.INTRODUCTION TO ACCOUNTING AND DouBle ENTRY BooKKeEPING 7 [Eid Principies of Double Entry Bookkeeping Referring to the accounting equation, assets are shown on the debit side whereas liabilities and capital are shown on the credit side. ‘'herefore, increase in assets will debit ( {fff ) the asset accounts. Likewise, increase in liabilities and capital will credit ( Sti ) the liability and capital accounts respectively. Assets = Liabilities + Capital oa Assets Liabilities Capital Deft) | Gr) Dre) | Cr(+) Dri-) | Cr(+) For each transaction, the total amount debited in account(s) MUST be equal to the total amount credited in another account(s). It is known as double entry bookkeeping ( ##zt#tid ). @REZEzT aa Bought a machine $6 000 on credit from Peter on 28 July 20X7. Record this transaction in ledger accounts. Assets = Liabilities + Capital + Machinery + Peter (Accounts payable) Machinery 20X7 § Jul 28 Peter 6.000 (Naene of the account to be credited) SS Peter ‘20X7 aI $ Jul 28 Machinery 6000 (Nave of the account to be debited)8 Giaprer Record the following transactions into ledger accounts. 20x8 Oct 1 The owner started a business in cash $20 000. 5 Put cash $10 000 into bank. 6 Bought office furniture $4 000 in cash 9 Bought office equipment $2 200 by cheque. 12 Bought a motor van $30 000 on credit from Motor Co. 16 The owner withdrew the office furniture for his own use. 21 Paid Motor Co. $5 000 by cheque. 23 Borrowed a loan $12 000 from Li in cash. 29 The owner withdrew cash $500 for his personal use. 30 The owner repaid the loan from Li $8 600 on his own, on behalf of ( #t# ) the business. Working Steps 41. State the effect of each transaction upon the accounting equation Eg. 2x8 Assets Labity Capital Oct 1 Theownerstarted.a business in + $20000 + $20.00 cash $20 000. (Cash) 2. Identity the accounts o be debited or credited, 20K8 ‘Accounts debited | Accounts credited Oct - 1. The owner started a business by eee Cash Capital 5 Put $10 000 cash into bank Bank Cash & Bought office furiture $4 000 in cash, Offce furnture_| Cash 9 Bought ofice equipment $2 200 by cheque. [Office equipmert| Bank 12. Bought a motor van $90 000 on erect fem : pearel Motor van | Motor Co. 16 The owner withdrew the office furniture for his 5 : Hiei Drawings | Office furiture 21. Paid Motor Co. $5 000 by cheque. Matar Co. Bank 28. Borrowed a loan $12 000 from Wr Lin cash, Cash [Loan from ML 29 The over withdrew 8500 cash fr his ae ra personal use. 30 The owner repaid the loan trom Mr Li $8 600 ‘on his own, on behalf of the business 2 Loan roma ails | eaecee! Note: 1 Ifthe onner withdrew assets for Ms own us, the caplal decreases, A drrwings account shouldbe debited instead of directly debiting the capital account. Details willbe discussed in Chapter 4 2. Ifthe owner repaid the business loan with his own money, it can be considered that he introduced money into the business a first. The money would then be used 1 repay the loan. Therefore. it should be regarded as owner's introduction «and the capital account should be credited. 3. Open the accounts and make the entriesINTRODUCTION TO ACCOUNTING AND DOUBLE ENTRY BOOKKEEPING 9 WL ‘ 3 a LQ HHOHNNNMNWHN NHHKNw™NNNNNKKNONOHOONKNOMMMMNOMHNHHNHY Payment Terms When a firm acquires assets, it can adopt the following payment methods: i, Immediate payment: Pay in cash or by cheque immediately. ii, On eredit / on account: Directly owe money to the seller. Therefore, no immediate payment is required and the seller becomes the firm’s creditor. iii, Financed ( #2484 ) from a loan: Borrow money from a third party (other than the seller) for purchases of assets on credit or settlement of other debts. Credit card sales belongs to this kind of financing. SOOMOOMOOHMOOOMINOBK®KVH$ OOM OHNO HN HNHHHN"HY » _etdededeeeeceececeeeeeeeeeeteceeeeeetttttttttttttdettteeettteteteeeteettttttttttttt ==> Cash 20%8 ¥ |20x6 $ Oct 1 Capital 20000/Oct 5 Bank 10 000 23 Loan from Li 12.000 6 Office furniture 4.000 29 Drawings 500 Capital [20x8 $ Oct 4 Cash 20.000 30. Loan from Li 8600 Bank 20x8 $ [2x8 $ Oct 5 Cash 10000/Oct 9 Office equipment 2200 21, Motor Co, 5.000 Office Furniture 20X8 $ [20x8 $ Oct 6 Cash 4000/Oct 16 Drawings 400010 GhapreRs Office Equipment 20X8 § Oct 9 Bank 2200 Motor Van 20X8 $ Oct 12 Motor Co. 30 000) Motor Co. 20X8 $ |20x8 g Oct 24 Bank 5.000|Oct 12 Motor van 30 000 Drawings ‘20X8 $ Oct 16 Office furniture 4.000 29 Cash 500} Loan from Li 0X8 $ [20x8 $ Oct 30 Capital 8600|Oct 23 Cash 12000 tee el Q1A Multiple Choices - choose she most appropriate answer Concept iis Which of the following is the main objective of accounting? PREP To provide financial information to users To record and summarize business transactions To calculate the business worth ‘To ensure there is no falsification of business records Which of the following are tasks of accounting? (1) (2) (3) (4) Sap recording business transactions classifying business transactions providing financial information for making business decisions summarizing the financial data and giving rise to a set of financial staternents nd (2) only ind (4) only ind (4) only ), (3) and (4) Sees 84 5. iwrroBUCTION 76 ACCOUNTING AND Douste ENTRY BookKeEring 11 Which of the following statements are correct? (1) Assets are the total economic resources of the owner. (2) _Liabiltes are the economic resources supplied by outsiders of a business. (3) Capital is the economic resources supplied hy the awner, his relatives and friends. (4) Owner's equity is the economic resources supplied by the owner. A. (1)and (2) only B. (1) and (3) only . (2) and (4) only D. (8)and (4) only Capital is ‘A. _ the owner’ introduction to the business B. the total amount of assets and owner's introduction C. the total business value D. the amount borrowed from outsiders Which of the following statements about accounting equation is correct? ‘A. Liabilities = Assets + Capital B. Capital = Assets - Liabilities ©. Capital = Liabilities + All resources of business D. Capital = Assets + Accounts payable Which of the following statements about a business transaction is correct? A. Itis an internal transfer of goods, services and money within the firm, B. tis an external transfer of goods, services and money among the firm, the suppliers and the customers. C. _ Itis an agreement between two entities to exchange goods or services; or a business event that can be measured in economic terms. D. _ Itis an evidence of a business activity Which of the following statements about double entry bookkeeping is correct? Each transaction is recorded twice in different accounts. Each transaction is recorded twice in the same account. Accounts are kept by two persons. Each transaction is to debit account(s) and credit another account(s) with the same amount. pomp Which of the following statements are correct? (1) To record an increase in asset, the asset account must be debited. (2) To record a decrease in liability, the liability account must be debited. (3) To record an increase in capital, the capital account must be debited. A. (1)and (2) only B. (1)and (3) only ©. (2)and (3) only D. (1), (2) and (3)12 Giaprena Application 9. 10. n. 12. 13. 1". Which of the following is regarded as a transaction to be recorded in the books of a business? ‘A. The owner bought mountaineering supplies from a business supplier for himself B. The firm bargained with the supplier about the price of an advanced fax machine. ©. The firm decided to sue a debtor for an overdue amount. D. The firm ascertained the amount of cash misappropriated ( £84 ) by cashier. Which of the following items is an asset? A. Cash at bank B. Bank loan C. Bank overdraft D. Bank interest ( S847 #8 ) Which of the following items is an asset? ‘A. Amount owed by the firm to @ supplier B. Amount borrowed from the owner's friend ¢. Fixtures which are financed by a loan D. Cash borrowed by the owner from a business supplier for his own use Which of the following items is NOT a liability? ‘A. Accounts payable B. Drawings ¢. Loan from Clara D. Bank overdraft Which of the following items is NOT an asset? A. Land B. Accounts receivable ©. Inventory D. Loan from a supplier Which of the following statements is NOT correct? ‘A. Loan to Ray is an asset. B. Loan from Ray is a liability . Accounts payable are the amount owed to creditors. D. Accounts receivable are the amount owed to debtors.INTROBUCHEN To ACCOUNTING AND DouBle ENTRY BooKKeEING 13 15. Which of the following is correct? 16. 17. 18. Assets Liabilities Capital $s $ $ A 5678 4324 1384 B. 7 250 720 6530 c. 6302 4302 4500 D. 1211 879 2.200 (On 30 June 20X1, a firm had furniture $12 360, cash at oank $7 400 and inventories $6 215. Accounts payable and accounts receivable at that date amounted to $4 350 and $9 800 respectively. The amount of capital on 30 June 20X1 was A. $13545 B. $16625 c. $20525 D. $31425 The following figures are extracted from the books of a firm at a specified date. $ Cash in hand 500 Loan owed to Ms Wong 2.000 Accounts receivable 3.000 Premises, half of which is financed by a bank loan 120 000 The amount of capital at that date was A $15.000 B. $61500 c. $121500 D. $125 500 Ifa firm received a cheque from a debtor as settlement, its total assets will and total liabilities will A. increase decrease B. decrease ....... increase C, increase ..... cieessnen have no effect D. have no effect have no effect14 CaaerERa) 19, a. 2. ‘firm acquired a building by financing a bank loan. Which of the following is correct? Effect on assets Effect on liabilities Effect on capital A eee OLa T+ ae + epee Niet B. + + c. - Nil + D. Nil - Which of the following is NOT correct? Effect upon ‘Assets Li Capital ‘A. The owner withdrew goods for own use. - - B. The owner used his own money to repay the creditors Nil eS + on behatt of the firm, C. The owner introduced a furniture into the business. + - Nil D. The owner withdrew cash from business bank account. Nil Nil Nil If liabilities increase by $20 000 and capital decreases by $1 000, assets will A. increase by $19 000 B. decrease by $19 000 ©. increase by $21 000 D. decrease by $21 000 Which of the following transactions will NOT increase the office equipment in the business? A. Bought a computer on credit. B. The owner introduced a photocopier into the business. ©. Accepted a fax machine from a supplier free of charge D. Accepted a machine from a customer as a settlement of his account. Which of the following transactions will affect the total amount of liability of a business? A motor van taken by the owner out of the business for his own use The owner settled a creditor by his own money Machinery bought with its price settled three months later Goods sold to customers on credit SESS (1) and (2) only (1) and (3) only (2) and (3) only (1), (2), (8) and (4) pOoPINTROBUCTION To ACCOUNTING AND Douste Entay BookkeEPING 15, Which of the following is/are regarded as a business transaction? a) (2) @) (4) (5) A firm exchanges assets with its supplier. A fitm suffers inventory loss due to fire. The owner buys a mator van for his wife The owner invests in the firm. A friend of the owner purchases inventory from a supplier of the firm. (1) only (1), (2) and (4) only (3), (4) and (5) only (1), (2), (8), (4) and (5) Which of the following double entries is correct? or cr Put cash into bank Cash Bank Withdrew cash for owner's personal use Drawings Cash Borrowed a loan from Dolly in cash Cash Accounts receivable Bought machinery by cheque Machinery Cash A firm bought a cargo from Container Ltd. The ledger entries should be: Dr Accounts Payable account Cr Cargo account Dr Accounts Receivable account Cr Cargo account Dr Cargo account sessessnen Cf Container Lid account Dr Cargo account ; Cr Loan from Container Lid account A firm withdrew cash from bank into office safe, The ledger entries should be: PPP Dr Cash account Cr Bank account Dr Bank account Cr Cash account Dr Office Safe account Cr Bank account Dr Office Safe account Cr Cash account ‘A firm borrowed a bank loan. The ledger entries should be: Dr Bank account cesses Cf Bank Loan account Dr Cash account Cr Bank Loan account Dr Cash account Cr Accounts Payable account Dr Bank Overdraft account Cr Accounts Payable account16 ChaPren a A firm repaid the creditors by cheque. The ledger entries should be: ‘A. Dr Bank account B. Dr Accounts Payable account ©. Dr Bank account D. Dr Drawings account Cr Accounts Payable account Cr Bank account Cr Capital account Cr Bank account ‘An owner of @ business introduced a computer worth $6 000 into the business. The ledger entries should be: A. Dr Office Equipment account B. Dr Bank account C. Dr Drawings account D. Dr Drawings account Cr Capital account Cr Capital account Cr Office Equipment account Cr Bank account ‘An owner of a business withdrew cash from bank for his own use. The ledger entries should be: A. Dr Capital account ... B. Dr Capital account C. Dr Drawings account D. Dr Drawings account Cr Cash account Cr Bank account Cr Cash aecount Cr Bank account ‘An owner of a business settled a creditor's account with his own motor van on behalf of the firm. The ledger entries should be ‘A. Dr Motor Van account B. Dr Accounts Payable account ©. Dr Motor Van account .... D. Dr Accounts Payable account Cr Accounts Payable account Cr Motor Van account Cr Capital account Cr Capital account Which of the following statements is correct? ‘A. Withdrawal of assets by the owner for his private use should make a credit entry in capital account B. Withdrawal of assets by the owner for business use should make a debit entry in capital account C. One supplier of the business gave the owner a birthday gift should make a debit entry in capital account. D. Settlement of accounts payable by owner's personal money should make a credit entry in capital accountoul’ Enrey Booxxecrine 47 34. Which of the following double entries are possible? (1) Dr Bank account Cr Bank Overdraft account (2) DrBank account Cr Bank Loan account (3) Dr Bank account .. Cr Bank account Case Study Based on the following information, answer Questions 35 — 38: On 1 January 20X2, Kenneth started a business by introducing furniture and fitings $12 000, equipment $7 000, and cash $40 000 of which $35 000 was deposited into business bank account. At that date, he also bought a machine $62 000; half of which was paid by Kenneth and the rest was made on credit. On 31 January 20X2, Kenneth bought a motor van $80 000 for business use. It was financed by a bank loan which was guaranteed ( #84 ) by Kenneth. ‘The machine was not useful. It was taken over (#248 ) by Kenneth on 5 February 20X2. On. the same date, Kenneth paid the bank loan in full by his personal cheque. 95, On 1 January 20X2, assets amounted to $86 000 $121 000 $125 000 $156 000 pomp 36. Which of the following statements is NOT correct? ‘A. Drawings of Kenneth as at 5 February 20X2 amounted to $62 000. B. Capital introduced by Kenneth as at 1 January 20X2 amounted to $90 000. C. Liabilities of the business as at 1January 20X2 was $31 000. D. The amount paid by Kenneth as at 5 February 20X2 should be $62 000.18 Guaprend 37. Which of the following are the possible reasons for financing the motor van by a bank loan? (1) The price of motor van exceeds the credit limit of the supplier. (2) The supplier could not approve the credit ( 444% ) to Kenneth. (8) Kenneth did not have enough money in the business when he bought the motor van. (4) Kenneth wanted to increase his personal reputation when he guaranteed a loan for his business, (6) Kenneth decided to withdraw the motor van when he bought it (2) and (3) only (3) and (4) only (4) and (6) only (2), (3), (A) and (5) pomp (), (2), @), ), 38. Which of the following are the correct double entries on 5 February 20X2? Debit Credit § $ a. [Drawings €2 000 Machinery 62.000. Bank loan 80.000 Capital 80.000 B, [Drawings 2.000 Machinery 62.000 Bank loan 31.000 Capital 31.000 c. [Drawings 37 000 Bank loan 31000 Motor van 62.000 D. [Capital 37000 Motor van 31.000 Bank loan 62,000INTRODUCTION 76 ACCOUNTING AND DouBte ENTRY BookKeErinG | 49 31B Questions — show ALL workings 1.1% Identify the assets, liabilities and capital from the following items. fa) (b) () (@) (e) ( Photocopier Accounts payable Cash in hand Bank overdraft Loan from K Yuen Introduction by the owner into the business 4.2* Fill in the following table. @ 0) (e) (d) (e) Assets /$ Liabilities /$ 26 532 12.600 586 840 6000 1630 97 600 5430 (9), Machinery (h) Shop fixtures (Cash at bank @ Inventory (k) Accounts receivable (Office equipment PEGoeOUc cud Capital /$ 53.215 39 782 500 1.3" The following balances were extracted from the books of Purav as at 30 June 20XS. $ Fixtures and fitings 3.300 Accounts payable 1000 Machinery 10506 Cash in hand 21S Capital as at 1 July 20x4 41.600 Office equipment 7 266 Inventory 1670 Drawings. 200 REQUIRED: § Premises 98 000 Accounts receivable 6 104 Land 103 200 Cash at bank 3140 Loan from Ms Cheung 9.000 Office furniture 8919 Loan from Mr Wong 11.000 Net profit for the year 8524 Calculate the amount of capital as at 30 June 20X5,Gare?) 1.4* Carol started a business selling magazines on 1 January 20X4. The following assets were bought: s Office building 150 000 Inventory 8257 Office equipment 6230 Motor vans 60 524. 1 1.6" Half of the office equipment was bought on credit and the office building was fully financed from a bank loan. Besides, the business had borrowed a loan $25 000 from Vicki Before the business was started, there were cash in hand $700 and cash at bank $1 500. REQUIRED: Calculate the amount of capital on 1 January 20X4 Isabella started a business with the following: premises $202 560; motor vehicle $45 980; office equipment $3 700; office furniture $12 650; fixtures and fittings $520 and inventory $6 000. The business had borrowed cash $25 000 from Charles to finance part of the above assets. Before the business was started, there were cash at bank $4 000 and cash in hand $1 250. Calculate the amount of capital at the start of the business, premises motor vehicle office equipment office furniture __ fixtures and fittings $202 560 $45 980 $3 700 $12 650 $520 2 inventory loan from Charles cash at bank cash in hand $6 000 $25 000 $4000 $1 250 PRRs ‘Thomas set up a firm by introducing a motor van $12 000; machinery $1 300; fixtures and fittings $5 010; inventory $2 220; office equipment $5 718 and office furniture $6 500. The firm borrowed $2 000 from the bank to acquire a piece of office equipment. By the time the business was started, Thomas put $200 into the firm's cash box and $3 100 into the firm's bank account. Calculate the amount of capital as at the start of the business.inTROBUETION TO ACCOUNTING AND DouBLE ENTRY BOOKKEEPING 1.7* Kit started a motor business with $250 000 cash. The following assets were acquired at the start of the business: machinery $22 000; office equipment $15 620; fixtures and fitings $5 400; computer $30 000 and inventory $48 000. Part of the above assets were bought on credit. The business also bought a piece of land $260 000, financed by a bank loan, Before it was started, cash in hand and cash at hank ware $600 and $800 respectively. Calculate the amount of liabilities at the start of the business. 1.8" Heidi introduced $40 000 to start a business. She made use of the money to purchase some of the following assets: machinery $35 000; stationery $1 623; fixtures and fittings $1 900; office equipment $4 105 and inventory $1 327. Part of the assets were purchased on credit. Before the business was started, there were cash in hand $550. She had withdrawn $350 stock out of her business for private use. Calculate the amount of the liabilities at the start of the business, 4.9** The opening balances of cash in hand and capital of a firm were $6 900 and $13 000 respectively. This year, the following assets were acquired: inventory $500; office ‘equipment $3 000; building $80 000 and motor van $16 350. The firm used up its cash and needed the owner to further introduce money for acquiring the above assets Office equipment was bought on credit and the building was financed by a bank loan. Calculate the closing balance of the capital 1.10** Julie set up a clothing business on 1 January 20XS, At the start of the business, there were a sewing machine $1 900, office furniture $20 000 and motor van $106 500. The sewing machine was bought on credit. Moreover, the business acquired a premises $350 000, which is financed by a bank loan. It also borrowed a loan of $4 000 from Mr Chan to partly finance a cargo $8 000. The balance was paid by Julie. Besides, there were cash in hand $500 and cash at bank $1 800. Calculate the amount of capital as at 1 January 20XS. 1.11** Show the effect ("+” for increase; *-" for decrease; and “nil” for no effect) on the TOTAL ASSETS for the following transactions. (a) The firm bought land on credit (b) The firm bought a motor in cash. (c) The firm paid cash for its telephone bil (4) The owner introduced a computer to the firm for business use. (@) The business repaid its debt owed to Ms Cheung by financing a debt from Mr Kwong (The firm sold goods on credit, at cost. (@) The firm received a bank loan repayable in 20 years. (h) The owner withdrew cash for his private use. (The owner paid the creditors from his own money, on behalf of the firm. (One of the suppliers gave the business an electronic dictionary free of charge as a promotion. It will be used in the business.22 caapreRa 1.42"* 1.13* By considering the accounting equation, quantify the net effect upon the assets, abilities and capital Assets Liabilities Capital +3000 Nil +3000 Eg. The owner started a business by introducing $1 000 cash in hand and $2 000 cash at bank. (2) Borrowed $20 000 cash from Universal Bank (b) Put $18 000 cash into bank (c) Bought a cargo $15 000 by cheque. (@) Bought a machine $3 000 from Machinery Ltd on credit (e) Repaid Universal Bank $1 000 in cash. (f) The owner withdrew $500 cash for his personal use. {g) The owner repaid $2 000 to the Machinery Ltd himself, on behalf of the firm. PE can ee Identify the following items into Asset, Liability and Capital. Also, write down an appropriate account name for each item, Asset Lisbilty/ Name of Account Capital (@) Chairs (b) Cash in hand (©) Cash at bank (4) Goods (e) Motor van (Fixtures and fittings (a) Amount introduced to the firm by the owner (h) Amount owed to supplier due to purchases of goods (Computer () Withdrawal by the owner for his own use (k) Cash register ( #5868 ) (Loan owed to Ng (m) Loan lent to Chan (n) Premises (0) Fax machine (p) Bank loanInTRoBUETION 76 AccOUNTING AND Dousi Entry Bookxezring 23) .14** State the account(s) to be debited and credited in each transaction. \45** (a) ©) (©) @ C) ) (9) (n) “ o (n) 0 (m) (n) The owner introduced cash into the business. The cash was deposited into bank immediately Bought computer on credit from Ming Fei Bought office furniture by cheque. Borrowed a bank loan, repayable in 5 years. Withdrew cash from bank into cash box. The owner withdrew cash for his private use. Bought fixtures and fittings on credit from Slim Ltd, Borrowed money from Steve in cash. Paid Slim Ltd by cheque. The owner withdrew office equipment for his own use. A debtor paid the firm in cash. Financed the loan owed to Steve from Keith. The owner repaid the bank loan himself, on behalf of the firm. The owner introduced some office furniture to the business. Record the following transactions in ledger accounts. 20X4 Jan 1 The owner started a business with cash in hand $50 000. He deposited $20 000 into bank immediately. 4 Bought a premises $90 000, financed by a bank loan Bought a computer $12 000 in cash. 7 Withdrew cash $460 from bank into cash box. 12 Bought a motor van $18 000 on credit from Motor Co. 18 Repaid Motor Co. $1 000 by cheque. 16 Borrowed a loan of $10 000 from Tsang by cheque. 25 Bought machinery $2 500 by cheque. Bought a printer $900 by cheque. 29 The owner repaid part of the loan owing to Tsang $5 000 on his own, on behalf of the firm. 31 Financed all of the debts owing to creditors from Audrey. Ue ces24 Cabra’? 1.16** Record the following transactions in ledger accounts, 20%5 Apr 1 Started a business by introducing cash $5 000 and a motor van $10 000. 2 Deposited $3 000 cash into bank. 5 Bought office furniture $2 000 on credit from Jeff 8 Borrowed a loan $21 000 from United Bank. 11 Bought fixtures and fittings $600 by cheque. The owner withdrew cash $120 and fixtures and fittings $200 for his own use. 13 Bought office furniture $9 000 on credit from Celia 15 Bought a building $128 000, financed by Rose. 18 Withdrew cash $1 000 from bank into the office safe. 20 The owner repaid all creditors in full on his own, on behalf of the company. 23 The owner withdrew cash $100 to pay off ( #¥ ) his personal debt. 26 Borrowed a loan of $15 000 from Republic Bank to finance the loan owing to United Bank. 28 The owner further introduced a computer worth $6 500 and cash $1 000 into the business. The cash was deposited into bank immediately. 1.17** Write up ledger accounts to record the following transactions. 20x3 Nov 1 Started a business with cash at bank $40 000. Borrowed a cash loan from Mac $23 000. 3 Bought a motor vehicle $55 000 on credit. 6 Bought office furniture $300 in cash. 8 Deposited cash $5 000 into bank. Repaid a creditor $10 000 by cheque. 14 Bought office furniture $1 600 on credit. Bought a premises $130 000, financed by a bank loan. 17 Withdrew cash $900 from bank into the office safe. 21 The owner withdrew office furniture $150 for his private use. 24 Bought office furniture $1 800 on credit. Borrowed a loan from York to finance half of the bank loan. 26 The owner repaid a creditor $3 000 on his own, on behalf of the firm. 29 Bought office furniture $2 200 on credit 30 The owner further introduced cash $1 000 into business, banked on the same day.IWTROBUCTION TO ACCOUNTING ANID DOUBLE ENTRY BOOKKEEPING 1.18** The following transactions took piace in the month of September: 20X3 ‘Sep 1 Laura started a business with cash $20 000 and a building $150 000. 3 Put cash $15 000 into bank. Bought office equipment $3 000 on credit rom A Ltd 5 Bought office furniture $1 750 by cheque. 8 Bought a motor van $67 000 on credit from B Ltd. 9 Borrowed a bank loan $80 000. 12. Repaid B Ltd $50 000 by cheque. 15 Put cash $10 000 from bank into office safe. Laura further introduced cash at bank $30 000 into the business, cashed on the same day. 16 Bought office equipment $4 700 on credit from A Ltd, Repaid bank loan $20 000 in cash. 49 Bought machinery $5 300 on credit from C Ltd 20 Repaid A Ltd $6 000 by cheque. 24 Borrowed a loan from Wong to finance the bank loan in full Laura withdrew cash $100 from bank for her own use. 27 Repaid C Ltd $1 300 in cash. 28 Lent a loan to Kwok $6 000 in cash. 30 Kwok repaid the firm $2 000 by cheque. Bought office furniture $800 by cheque REQUIRED: Write up ledger accounts to record the above transactions. 1.19** The following transactions took place in October 20x¢: 20K8 Oct 1 Started a business with cash $18 000, banked on the same day, 5 Bought fixtures and fittings $900 on credit from Rainbow. 8 Borrowed a loan $20 000 from Janice in cash. 41 Bought motor van $45 000 on credit from Eneray Co. 14 Bought office premises $500 000, financed from a bank loan, Bought a computer $7 120 by cheque. 17 Repaid Rainbow $300 and Janice $10 000 in cash. 23 The owner withdrew cash $200 for his private use. 26 Bought an electric generator ( #4 ) $1 700 in cash Bought office desks and chairs $1 600 on credit from Suit Ltd, 29 Borrowed a loan $5 000 from Yo Yo Ltd to finance a loan owed to Janice. Bought air-conditioners $5 000 on credit from Cool Ltd. 30 The owner further introduced cash $15 000 into the business. 31 Settled the account of Suit Ltd in full in cash. Bought a whiteboard $1 800 in cash. REQUIRED: Open ledger accounts to record the above transactions, 25