CHAPTER 3

RECORDING TRANSACTIONS

DISCUSSION QUESTIONS
SOLUTIONS

9. Explain why when a business pays GST on the purchase of goods or services it records this as GST

Receivable and an asset. When a business provides goods or services which are taxable it records the GST

component of the transaction as GST Payable, a liability.

When a business pays GST on purchasing goods or services it is allowed to offset this against and GST it owes
to the Australian Taxation Office (ATO). The amount is called GST Receivable as it is either receivable from
the ATO if the amount of GST paid exceeds the amount that the business receives from its customers or it at
least reduces the amount of GST it has to pay to the ATO. The future economic benefit controlled by the entity
that makes GST Receivable an asset is a reduction in future cash outflows to the ATO by reducing the amount
of GST it has to forward to the ATO.

When a business provides goods and services which are taxable under the GST legislation it is in effect
collecting tax on behalf of the ATO which it is then liable to forward to the ATO. This is why this GST is
called GST Payable and is a liability as it will result in a future cash outflow to the ATO

Page 1 of 27
 EXERCISE SOLUTIONS

Exercise 3.5 Recording transactions in general journal and analysis

The chart of accounts of Pellham Poster Printers contained the following accounts: Cash at Bank; Accounts
Receivable; Equipment; Accounts Payable; K. Pellham, Drawings; Printing Fees; Salaries Expense and Advertising
Expense. Ignore GST.

The following transactions occurred during the month of June:

June 1 K. Pellham withdrew $850 cash for personal use.

5 Purchased new equipment for $5000. Paid $500 deposit with the balance to be paid
within 60 days.
9 Paid for advertising in the local newspaper, $510.
14 Paid $320 to creditors for office supplies that had been purchased on credit in the
previous month.
18 Paid salaries of $970.
22 Received $500 from customers to reduce their account balances.
30 $12 000 in printing fees were due during the month. Of this, 20% of the fees were
collected in cash and 80% will be paid within 60 days.
Required

A. Prepare the general journal entries to record the transactions (ignore GST).
A.
PELLHAM POSTER PRINTERS
(ignore GST)
June 1 K. Pellham, Drawings $850
Cash at Bank $850
K. Pellham withdrew $850 for personal use.

5 Equipment 5 000
Cash at Bank 500
Accounts Payable 4 500
Purchased equipment for cash $500 and the balance payable in 60
days.

9 Advertising Expense 510

Cash at Bank 510
Payment for newspaper advertisements.

14 Accounts Payable 320

Cash at Bank 320
Payment to suppliers.

18 Salaries Expense 970

Cash at Bank 970
Payment for salaries.

22 Cash at Bank 500

Accounts Receivable 500
Cash receipts from credit customers.
Page 2 of 27
 30 Cash at Bank 2 400
Accounts Receivable 9 600
Printing Fees Revenue 12 000
Printing fees received and receivable.

Part A with GST

PELLHAM POSTER PRINTERS
(With GST)
June 1 K. Pellham, Drawings $850
Cash at Bank $850
K. Pellham withdrew $850 for personal use.

5 Equipment 5 000
GST Receivable 500
Cash at Bank 500
Accounts Payable 5000
Purchased equipment for cash $500 and the balance payable in 60
days.

9 Advertising Expense 463.64

GST Receivable 46.36
Cash at Bank 510
Payment for newspaper advertisements.

14 Accounts Payable 320

Cash at Bank 320
Payment to suppliers.

18 Salaries Expense 970

Cash at Bank 970
Payment of salaries.

22 Cash at Bank 500

Accounts Receivable 500
Cash receipts from credit customers.

30 Cash at Bank 2 400

Accounts Receivable 9 600
Printing Fees Revenue 10 909.10
GST Payable 1090.90
Printing fees received and receivable.

Page 3 of 27
 Exercise 3.9 Recording transactions in general journal and

analysis

The following information relates to the business of Man Ting’s Travel Agency for the month of June 2016:

June 1 Man Ting Lau invested $120 000 cash into the new business.
2 The business set up an office by purchasing some office equipment for $36 000 cash.
3 Man Ting hired an assistant to deal with customers for an annual salary of $42 000, payable
in monthly amounts.
6 The assistant books a holiday to Europe for a client, Wing Ho, for a total cost of $16 000
(unpaid at this stage). The commission to be kept by the business is 10% of the total cost of
the trip when Wing Ho pays in full.
15 Wing Ho pays $10 000 to Man Ting’s Travel Agency. Of this amount, $4200 represents the
total cost of air fares, which will be forwarded to the airline concerned; and the remainder
(excluding the travel agency’s commission) is to be forwarded to a particular hotel chain to
cover the client’s accommodation.
22 The business pays cash to the airline as payment for Wing Ho’s trip.
25 The appropriate amount of cash is paid to the hotel chain for Wing Ho’s trip.
30 The assistant is paid 1 month’s wages in cash.

Required
A. Prepare general journal entries to record the above events, as appropriate, in the accounting records of Man
Ting’s Travel Agency. Ignore GST.
B. Explain why you have made each entry by providing analyses similar to those shown in the illustrative example
in the chapter of the text (p.91).
A.

MAN TING’S TRAVEL AGENCY (ignore GST)

2016
June 1 Cash at Bank 120 000
Man Ting Lau, Capital 120 000
Cash contributed by owner.

2 Office Equipment 36 000

Cash at Bank 36 000
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 10 000

Accounts Payable 9 000
Commission Income 1 000
Cash received as part payment for airlines and hotel.

22 Accounts Payable 4 200

Cash at Bank 4 200
Cash paid to airline.

25 Accounts Payable 4 800

Page 4 of 27
 Cash at Bank 4 800
Cash paid to hotel chain as part payment.

30 Wages Expense 3 500

Cash at Bank 3 500
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 $1600 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.
June 1 This transaction is an investment of cash assets into the business by the owner. A credit is
made to the 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 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 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 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 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 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 $4800.
25 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 $4200, namely $9000 – $4200.
30 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.

Page 5 of 27
 PROBLEM
SOLUTIONS

Problem 3.16 Journal entries, posting to ledger and trial balance

On 1 July 2018 Nicole Andreou opened a beauty parlour. The following transactions occurred during the first month
of operations (ignore GST):

July 2 Andreou invested $120 000 in the business by depositing cash into a business cheque
account with the Eastpac Bank.
2 Paid $1800 for the first month’s rent.
3 Purchased equipment by an online bank transfer for $32 000 and signing a commercial
loan agreement for $38 000.
4 Purchased supplies for $8400.
6 Paid advertising expense of $890.
16 Recorded beauty services revenue for the first half of the month of $3250 in cash and $620
on credit.
20 Paid insurance expense for July of $480 using an online bank transfer.
23 Received a $140 payment from customers who paid on credit in the first half of the month.
28 Andreou withdrew $560 cash for personal living expenses.
31 Recorded revenue for the second half of the month of $3680 in cash and $580 on credit.
31 Paid telephone account of $330 by electronic transfer.

Use the following account titles and numbers: Cash at Bank, 100; Accounts Receivable, 101; Supplies, 102; Equipment,
103; Loan Payable, 200; Nicole Andreou, Capital, 300; Nicole Andreou, Drawings, 301; Revenue, 400; Rent Expense,
500; Advertising Expense, 501; Insurance Expense, 502; Telephone Expense, 503.

Required

a. Prepare the general journal entries to record the transactions.

b. Post the entries from the general journal to the general ledger accounts (running balance format) and enter
the posting references in the general journal.
c. Prepare a trial balance as at 31 July 2018.

a.

General Journal
July 2 Cash at Bank 100 120 000
Nicole Andreou, Capital 300 120 000
Cash invested by owner.

2 Rent Expense 500 1 800

Cash at Bank 100 1 800
Rent paid.

Page 6 of 27
3 Equipment 103 70 000
Cash at Bank 100 32 000
Loan Payable 200 38 000
Equipment purchased for cash and loan
payable.

4 Supplies 102 8 400

Cash at Bank 100 8 400
Supplies purchased.

6 Advertising Expense 501 890

Cash at Bank 100 890
Cash paid for advertising.

16 Cash at Bank 100 3 250

Accounts Receivable 101 620
Revenue 400 3 870
Revenue for first half of month

20 Insurance Expense 502 480

Cash at Bank 100 480
Cash paid for insurance

23 Cash at Bank 100 140

Accounts Receivable 101 140
Receipt of payment from customers

28 Nicole Andreou, Drawings 301 560

Cash at Bank 100 560
Drawings by owner

31 Cash at Bank 100 3 680

Accounts Receivable 101 580
Revenue 400 4 260
Revenue for second part of month

31 Telephone Expense 503 330

Cash at Bank 100 330
Telephone expenses paid

Page 7 of 27
b.

ACCOUNT: Cash at Bank Account No. 100

Date Explanation Post Debit Credit Balance
Ref
2018
2 7 Nicole Andreou, Capital 120 000 120 000
2 7 Rent Expense 1 800 118 200
3 7 Equipment 32 000 86 200
4 7 Supplies 8 400 77 800
6 7 Advertising Expense 890 76 910
16 7 Revenue 3 250 80 160
20 7 Insurance Expense 480 79 680
23 7 Accounts Receivable 140 79 820
28 7 Nicole Andreou, Drawings 560 79 260
31 7 Revenue 3 680 82 940
31 7 Telephone Expense 330 82 610

ACCOUNT: Accounts Receivable Account No. 101

Date Explanation Post Debit Credit Balance
Ref
2018
16 7 Revenue 620 620
23 7 Cash at Bank 140 480
31 7 Revenue 580 1 060

ACCOUNT: Supplies Account No. 102

Date Explanation Post Debit Credit Balance
Ref
201
4 7 Cash at Bank 8 400 8 400

ACCOUNT: Equipment Account No. 103

Date Explanation Post Debit Credit Balance
Ref
2018
3 7 Cash and Loan Payable 70 000 70 000

Page 8 of 27
ACCOUNT: Loan Payable Account No. 200
Date Explanation Post Debit Credit Balance
Ref
2018
3 7 Equipment 38 000 38 000

ACCOUNT: Nicole Andreou, Capital Account No. 300

Date Explanation Post Debit Credit Balance
Ref
2018
2 7 Cash at Bank 120 00 120 000
0
Account No. 301
ACCOUNT: Nicole Andreou, Drawings
Date Explanation Post Debit Credit Balance
Ref
2018
28 7 Cash at Bank 560 560

ACCOUNT: Revenue Account No. 400

Date Explanation Post Debit Credit Balance
Ref
2018
16 7 Cash and Accounts Receivable 3 870 3 870
31 7 Cash and Accounts Receivable 4 260 8 130

ACCOUNT: Rent Expense Account No. 500

Date Explanation Post Debit Credit Balance
Ref
2018
2 7 Cash at Bank 1 800 1 800

ACCOUNT: Advertising Expense Account No. 501

Date Explanation Post Debit Credit Balance
Ref
2018
6 7 Cash at Bank 890 890

Page 9 of 27
 ACCOUNT: Insurance Expense Account No. 502
Date Explanation Post Debit Credit Balance
Ref
2018
20 7 Cash at Bank 480 480

ACCOUNT: Telephone Expense Account No. 503

Date Explanation Post Debit Credit Balance
Ref
2018
31 7 Cash at Bank 330 330

c.

NICOLE ANDREOU BEAUTY SALON

Trial Balance

as at 31 July 2018

Account Account Debit Credit

No.
Cash at Bank 100 $82 610
Accounts Receivable 101 1 060
Supplies 102 8 400
Equipment 103 70 000
Loan Payable 200 $38 000
Nicole Andreou, Capital 300 120 000
Nicole Andreou, Drawings 301 560
Revenue 400 8 130
Rent Expense 500 1 800
Advertising Expense 501 890
Insurance Expense 502 480
Telephone Expense 503 330
$166 130 $166 130

Page 10 of 27
 Problem 3.21 Preparation of running balance ledger accounts and trial balance

(Modified)

On 1 March 2017, James Taylor decided to open Taylor’s Tailormade that makes suits, trousers and jackets and
repairs and alters clothes. He contributed for this purpose sewing equipment $46 000 and a commercial van $48 000,
and deposited $10 000 cash in a business bank account. Transactions during March were as follows (ignore GST):

March 4 Took a 3-year lease on a shop and paid first month’s rent $1200.
4 Purchased haberdashery supplies for $4200, and paid with an electronic transfer
of $1200 and paid for the rest with credit.
6 Cash received for minor clothing repairs, $120.
Revenue earned for tailor making a two piece suit for Andrea Fraser on credit, $840.
7 Purchased a sewing machine, $3800, paying $800 cash and taking out a loan for
the balance.
8 Cash revenue earned, $1260.
Engaged a sewer at an agreed wage of $1100 per week.
11 Paid petrol $120, postage $20, and electricity bill $760.
12 Cash of $200 received for over-the-counter repairs.
13 Revenue of $1500 earned from a customer on credit.
14 Paid for haberdashery supplies purchased on credit on 4 March.
15 Withdrew $600 for own use.
16 Cash revenue received, $380.
17 Haberdashery supplies purchased for $500 on credit.
18 Paid wages to employee.
21 Revenue earned for making clothes: cash $240; on account $1200.
23 Andrea Fraser paid the bill for services rendered on 6 March.
24 Petrol expenses paid $80.
25 Paid weekly wages to employee.
28 Revenue earned for clothes $2420, receiving $200 in cash and the remainder on
credit.
31 Haberdashery supplies used, $620.

Required

a. Prepare three-column running balance T-ledger accounts. Give each account a suitable account number.
b. Prepare a trial balance as at 31 March 20192017.

Additional exercise
Assume that a GST of 10% needs to be added for all appropriate transactions.

Page 11 of 27
Additional: Journal Entries
TAYLOR'S TAILORMADE

GENERAL JOURNAL

Date Particulars Dr ($) Cr ($)

1/3/2017 Sewing Equipment 46000
Commercial Vehicle 48000
Cash at Bank 10000
Capital 104000
(Capital contribution by owner, James Taylor, to the
business)
4/3/2017 Rent Expense 1200
Cash at Bank 1200
(Paid first month's shop rent)

4/3/2017 Haberdashery Supplies 4200

Cash at Bank 1200
Accounts Payable 3000
(Bought haberdashery supplies partially paid by cash and the
rest on credit)

6/3/2017 Cash at Bank 120

Tailoring Revenue 120
(Cash received for tailoring work done)

6/3/2017 Accounts Receivable 840

Tailoring Revenue 840
(Sold two piece suit to Andrea Fraser on credit)

7/3/2017 Sewing Equipment 3800

Cash at Bank 800
Loan Payable 3000
(Bought a sewing maching and paid partially by cash and
taking up a loan for
the remaining amount)

8/3/2017 Cash at Bank 1260

Tailoring Revenue 1260
(Cash received for tailoring work done)

11/3/2017 Petrol Expense 120

Postage Expense 20
Electricity Expense 760
Cash at Bank 900
(Paid various expenses)

Page 12 of 27
Date Particulars Dr ($) Cr ($)
12/3/2017 Cash at Bank 200
Tailoring Revenue 200
(Cash received for tailoring work done)

13/3/2017 Accounts Receivable 1500

Tailoring Revenue 1500
(Tailoring work sold on credit)
14/3/2017 Accounts Payable 3000
Cash at Bank 3000
(Paid supplier of haberdashery supplies the amount owed from 4 March)

15/3/2017 Drawings 600

Cash at Bank 600
(Owner withdrew cash for his own use)

16/3/2017 Cash at Bank 380

Tailoring Revenue 380
(Cash received for tailoring work done)

17/3/2017 Haberdashery Supplies 500

Accounts Payable 500
(Bought haberdashery supplies on credit)

18/3/2017 Wages Expense 1100

Cash at Bank 1100
(Paid wages to employee)

21/3/2017 Cash at Bank 240

Accounts Receivable 1200
Tailoring Revenue 1440
(Revenue earned for tailoring work completed)

23/3/2017 Cash at Bank 840

Accounts Receivable 840
(Andrea Fraser paid amount outstanding from 6 March)

24/3/2017 Petrol Expense 80

Cash at Bank 80
(Paid petrol expense)

25/3/2017 Wages Expense 1100

Cash at Bank 1100
(Paid wages to employee)

Page 13 of 27
Date Particulars Dr ($) Cr ($)
28/3/2017 Cash at Bank 200
Accounts Receivable 2220
Tailoring Revenue 2420
(Revenue earned for tailoring work completed)

31/3/2017 Haberdashery Supplies Expense 620

Haberdashery Supplies 620
(Haberdashery supplies consumed)

Page 14 of 27
a.
TAYLOR'S TAILORMADE

GENERAL LEDGER

Sewing Equipment (A/c no.112)

1/3/2017 Capital 46000 31/3/2017 Bal c/d 49800
7/3/2017 Cash at Bank 800
Loan Payable 3000
49800 49800

Commercial Vehicle (A/c no. 113)

1/3/2017 Capital 48000 31/3/2017 Bal c/d 48000
48000 48000

Cash at Bank (A/c no. 100)

1/3/2017 Capital 10000 4/3/2017 Rent Expense 1200
6/3/2017 Tailoring Revenue 120 4/3/2017 Haberdashery Supplies 1200
8/3/2017 Tailoring Revenue 1260 7/3/2017 Sewing Equipment 800
12/3/2017 Tailoring Revenue 200 11/3/2017 Petrol Expense 120
16/3/2017 Tailoring Revenue 380 Postage Expense 20
3/21/2017 Tailoring Revenue 240 Electricity Expense 760
3/23/2017 Accounts Receivable 840 14/3/2017 Accounts Payable 3000
3/28/2017 Tailoring Revenue 200 15/3/2017 Drawings 600
18/3/2017 Wages Expense 1100
24/3/2017 Petrol Expense 80
25/3/2017 Wages Expense 1100
31/3/2017 Bal c/d 3260
13240 13240

James Taylor, Capital (A/c no. 300)

31/3/2017 Bal c/d 104000 1/3/2017 Sewing Equipment 46000
Commercial Vehicle 48000
Cash at Bank 10000
104000 104000

Rent Expense (A/c no. 351)

4/3/2017 Cash at Bank 1200 31/3/2017 P&L Summary 1200
1200 1200

Page 15 of 27
 Haberdashery Supplies (A/c no. 101)
Haberdashery Supplies
4/3/2017 Cash at Bank 1200 31/3/2017 Expense 620
Accounts Payable 3000 31/3/2017 Bal c/d 4080
17/3/2017 Accounts Payable 500
4700 4700

Accounts Payable (A/c no. 201)

14/3/2017 Cash at Bank 3000 4/3/2017 Haberdashery Supplies 3000
31/3/2017 Bal c/d 500 17/3/2017 Haberdashery Supplies 500
3500 3500

Loan Payable (A/c no. 202)

31/3/2017 Bal c/d 3000 7/3/2017 Sewing Equipment 3000
3000 3000

Tailoring Revenue (A/c no. 340)

31/3/2017 P&L Summary 8160 6/3/2017 Cash at Bank 120
Accounts Receivable 840
8/3/2017 Cash at Bank 1260
12/3/2017 Cash at Bank 200
13/3/2017 Accounts Receivable 1500
16/3/2017 Cash at Bank 380
21/3/2017 Cash at Bank 240
Accounts Receivable 1200
28/3/2017 Cash at Bank 200
Accounts Receivable 2220
8160 8160

Accounts Receivable (A/c no. 110)

6/3/2017 Tailoring Revenue 840 23/3/2017 Cash at Bank 840
13/3/2017 Tailoring Revenue 1500 31/3/2017 Bal c/d 4920
21/3/2017 Tailoring Revenue 1200
28/3/2017 Tailoring Revenue 2220
5760 5760

Fuel Expense (A/c no. 352)

11/3/2017 Cash at Bank 120 31/3/2017 P&L Summary 200
24/3/2017 Cash at Bank 80
200 200

Page 16 of 27
 Postage Expense (A/c no. 354)
11/3/2017 Cash at Bank 20 31/3/2017 P&L Summary 20
20 20

Electricity Expense (A/c no. 353)

11/3/2017 Cash at Bank 760 31/3/2017 P&L Summary 760
760 760

James Taylor, Drawings (A/c no. 301)

15/3/2017 Cash at Bank 600 31/3/2017 Bal c/d 600
600 600

Wages Expense (A/c no. 355)

18/3/2017 Cash at Bank 1100 31/3/2017 P&L Summary 2200
25/3/2017 Cash at Bank 1100
2200 2200

Haberdashery Supplies Expense (A/c no.356)

31/3/2017 Haberdashery Supplies 620 31/3/2017 P&L Summary 620
620 620

Page 17 of 27
b.
TAYLOR’S TAILORMADE
Trial Balance
as at 31 March 2017
Account Account Debit Credit
No.
Cash at bank 100 $3 260
Haberdashery supplies 101 4 080
Accounts receivable 110 4 920
Sewing equipment 112 49 800
Commercial vehicles 113 48 000
Accounts payable 201 500
Loan payable 202 3 000
James Taylor, Capital 300 104 000
James Taylor, Drawings 301 600
Tailoring revenue 340 8160
Rent expense 351 1 200
Fuel expense 352 200
Electricity expense 353 760
Postage expense 354 20
Wages expense 355 2 200
Haberdashery supplies expense 356 620
$115 660 $115660

Page 18 of 27
Additional Exercise Solutions

Problem 3.21 Preparation of running balance ledger accounts and trial balance

(a) Trial Balance as at 31 March 2017 with GST

Taylor's Tailormade
Trial Balance as at 31 March 2017
(with GST)

Accounts Debit ($) Credit ($)

Sewing Equipment 49800
Commercial Van 48000
Cash at Bank 2926
GST Receivable 1068
Haberdashery Supplies 4080
Accounts Receivable 5432
Accounts Payable 550
GST Payable 816
Loan Payable 3380
James Taylor, Capital 104000
James Taylor, Drawings 600
Tailoring Revenue 6720
Repairs Revenue 1440
Rent Expense 1200
Fuel expense 200
Postage expense 20
Electricity expense 760
Wages Expense 2200
Haberdashery Supplies
Expense/ Used 620
116906 116906

Page 19 of 27
 (b) Profit for March 2017 = Revenue - Expenses

$ $
Tailoring revenue 6720
Repairs Revenue 1440
Total Revenue 8160
Less Expenses
Rent Expense 1200
Fuel expense 200
Postage expense 20
Electricity expense 760
Wages Expense 2200
Haberdashery Supplies
Expense/ Used 620
Total Expenses (5000)
Profit for March 2017 3160

(c) Net Assets as at 31 March 2017 = Assets – Liabilities

$ $
Commercial Van 48000
Cash at Bank 2926
GST Receivable 1068
Haberdashery Supplies 4080
Accounts Receivable 5432
Total Assets 111306
Accounts Payable 550
GST Payable 816
Loan Payable 3380
Less Total Liabilities 4746
106560

Self-check!
Assets - Liabilities = Capital -
Drawings + Profit
=> Net Assets = Total Equity

James Taylor, Capital $104000

James Taylor, Drawings ($600)
Profit $3160
Total Equity $106560
Page 20 of 27
 Problem 3.23 Journal entries, T accounts and trial balance (With GST)

On 1 April 2018, Kenny’s Equipment Hire opened for operations. Kenny Kowslowski contributed the
capital of the business of $720 000 cash. He has asked you to be record- keeper for the business on
a part-time basis, and you initially establish the need for the following accounts (and numbers).
Additional accounts may need to be added in the near future.

Cash at Bank 100

Accounts Receivable 110
Land 120
Building 130
Motor Vehicles 150
Hire Equipment 170
GST Receivable 180
Accounts Payable 220
Mortgage Payable 250
GST Payable 260
Kenny Kowslowski, Capital 300
Kenny Kowslowski, Drawings 310
Equipment Hire Income 320

During April the following transactions were undertaken by the business, including the initial
investment by the owner:

April 1 Kenny Kowslowski contributed $720 000 to the business.

2018 2 The business acquired land for $300 000 plus GST and a building on the land for
$160 000 plus GST. A cash payment of $100 000 was made and a mortgage loan
with the Bank of Australia was arranged for the balance owing.
4 Purchased gardening, maintenance and repair equipment to hire out to
customers for $450 000 plus GST from General Equipment Manufacturers. The
business paid $200 000 cash, and the remainder was due to be paid in 30 days.
7 A garden mulcher was transferred from the business to the owner, Kenny
Kowslowski, for cost price of $2500 plus GST.
10 A trailer was found to be defective, and the business returned it to General
Equipment Manufacturers. The amount due to the creditor was reduced by
$12 000 plus GST.
13 The business acquired some computer equipment for the main office at a total
cost of $8200 plus GST, paid in cash.
28 Equipment hire income of $21 600 (inclusive of GST) was received in cash.
29 Paid the remaining cash owing to General Equipment Manufacturers.
30 The business paid wages of $2200 to you for keeping the accounts.
Equipment hire income of $14 400 plus GST was received in cash and an
additional $6000 plus GST remained owing by clients.
Required
a. Prepare general journal entries for the business for the month of April 2018.
b. Post these entries to appropriate T accounts and determine their balances.
c. Provide an analysis for each transaction to explain each entry you have made in a.

Page 21 of 27
a.
April 1 Dr. Cash at Bank 100 720 000
Cr. Kenny Kowslowski, Capital 300 720 000
Cash invested by owner.

2 Dr. Land 120 300 000

Dr. Building 130 160 000
Dr. GST Receivable (460k x 10%) 180 46 000
Cr. Mortgage Payable 250 406 000
Cr. Cash at Bank 100 100 000
Land and buildings acquired for
cash and under mortgage.

4 Dr. Hire Equipment 170 450 000

Dr. GST Receivable (10%) 180 45 000
Cr. Cash at Bank 100 200 000
Cr. Accounts Payable 220 295 000
Equipment purchased for cash and
on credit.

7 Dr. Kenny Kowslowski, Drawings 310 2 750

Cr. Hire Equipment 170 2 500
Cr. GST Receivable (10%) 180 250
Equipment withdrawn by owner.

10 Dr. Accounts Payable 220 13 200

Cr. Hire Equipment 170 12 000
Cr. GST Receivable (10%) 180 1 200
Equipment returned to supplier.

13 Dr. Office Equipment 160 8 200

Dr. GST Receivable (10%) 180 820
Cr. Cash at Bank 100 9 020
Acquisition of computer
equipment.

Page 22 of 27
 28 Dr. Cash at Bank 100 21 600
Cr. Equipment Hire Income 320 19 636.36
Cr. GST Payable (1/11 x 21600) 260 1 963.64
Hire income received from customers. Cash received of $21600 is assumed to
be inclusive of GST.

29 Dr. Accounts Payable 220 281 800

Cr. Cash at Bank 100 281 800
Payment to equipment supplier

30 Dr. Wages Expense 420 2 200

Cr. Cash at Bank 100 2 200
Payment of wages

30 Dr. Cash at Bank 100 15 840

Dr. Accounts Receivable 110 6 600
Cr. Equipment Hire Income 320 20 400
Cr. GST Payable (10%) 260 2 040
Rental income received and receivable

b.
Cash at Bank 100
Apr 2 K. Kowslowski, 720 000 Apr 2 Land, Building 100 000
Capital
28 Equip Hire Income 21 600 4 Hire Equipment 200 000
30 Equip Hire Income 15 840 13 Office Equipment 9 020
29 Accounts Payable 281 800
30 Wages Expense 2 200

30 Balance c/d 164 420

757 440 757 440
May 1 Balance b/d 164 420

Accounts Receivable 110

Apr 30 Equip Hire Income 6 600 Apr 30 Balance c/d 6 600

May 1 Balance b/d 66 00

Land 120
Apr 2 Cash and Mortgage 300 000 Apr 30 Balance c/d 300 000
Payable

May 1 Balance b/d 300 000

Building 130
Apr 2 Cash and Mortgage 160 000 Apr 30 Balance c/d 160 000
Payable

May 1 Balance b/d 160 000

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 Hire Equipment 170
Apr 4 Cash and Accounts 450 000 Apr 7 K. Kowslowski, 2 500
Payable Drawings
10 Accounts Payable 12 000
30 Balance c/d 435 500
450 000 450 000
May 1 Balance b/d 435 500

Office Equipment 160

Apr 13 Cash at Bank 8 200 Apr 30 Balance c/d 8 200
May 1 Balance b/d 8 200

GST Receivable 180

Apr 2 Cash and Mortgage 46 000 Apr 7 K. Kowslowski, 250
Payable Drawings
4 Cash and Accounts 45 000 10 Accounts Payable 1 200
Payable
13 Cash at Bank 820 30 Balance c/d 90 370

91 820 91 820
May 1 Balance b/d 90 370

Accounts Payable 220

Apr 10 Hire Equipment 13 200 Apr 4 Hire Equipment 295 000
29 Cash at Bank 281 800

295 000 295 000

Mortgage Payable 250

Apr 30 Balance c/d 406 000 Apr 2 Land, Building 406 000
May 1 Bal b/d 406 000

GST Payable 260

Apr 30 Balance c/d 4 003.64 Apr 28 Cash at Bank 1 963.64
30 Cash at Bank and 2 040
Accounts
Receivable
4 003.64 4 003.64
May 1 Balance b/d 4 003.64

Kenny Kowslowski, Capital 300

Apr 30 Balance c/d 720 000 Apr 1 Cash at Bank 720 000
May 1 Balance b/d 720 000

Kenny Kowslowski, Drawings 310

Apr 7 Hire Equipment 2 750 Apr 30 Balance c/d 2 750
May 1 Balance b/d 2 750

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 Equipment Hire Income 320
Apr 28 Cash at Bank 19 636.36
30 Cash at Bank and 20 400.00
Accounts
Receivable
Apr 30 P/L Summary 40 036.36

40 036.36 40 036.36

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 Wages Expense 420
Apr30 Cash at Bank 2 200 Apr 30 P/L Summary 2 200

Let’s check your answer:

Kenny’s Equipment Hire

Trial Balance
as at 30 April 2018
Account Debit Credit

Cash at bank $164 420

Accounts receivable 6 600
Land 300 000
Buildings 160 000
Hire equipment 435 500
Office equipment 8 200
GST receivable 90 370
Mortgage payable $406 000
GST payable 4 003.64
Kenny Kowslowski, Capital 720 000
Kenny Kowslowski, Drawings 2 750
Equipment hire income 40 036.36
Wages expense 2 200
$1 170 040 $1 170 040

c.
April 1 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. There is no GST impact.
2 The Land account and the Buildings account (assets) are
increased to record the acquisition by debiting the accounts.
GST receivable is also increased by 10% of total costs of the
land and building. At the same time, Cash at Bank is decreased
by crediting the account for the amount of the cash paid; and a
liability account, Mortgage Payable, is credited to record the
amount to be paid to the Bank of Australia. However, at this
point in time, no entry is made for any future interest payable
as the entity has not yet incurred the interest expense, which
accrues as time goes by.
4 The Hire Equipment account (asset) is increased to record the
purchase of the equipment by debiting the account. GST
Receivable is increased to record 10% of costs of the
equipment. At the same time, Cash at Bank is decreased by
crediting the account for the amount of the cash paid; and a
liability account, Accounts Payable, is credited to record
the amount to be paid in 30 days

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 7 The withdrawal of equipment by the owner from the business is
not an expense of the business but is regarded as a reduction of
the owner’s capital. It is recorded by debiting a special
(negative) equity account, Kenny Kowslowski, Drawings, to
distinguish it from the owner’s capital account, which records
capital contributions made by the owner. The Hire Equipment
account is credited to record the withdrawal of the vehicle from
the business. At the same time, the GST receivable related to
this equipment is reduced (Credited) as the withdrawal of
equipment will reduce the amount of input tax to be claimed by
the business.
10 The return of the defective equipment to the dealer is recorded
by debiting the liability, Accounts Payable, as this represents a
reduction of the amount due to be paid by the business to the
dealer. The Hire Equipment account is credited to record the
decrease in the assets held by the entity. At the same time, the
GST receivable related to this equipment is reduced (Credited)
as the return of equipment to the supplier will reduce the
amount of input tax to be claimed by the business.
13 The Office Equipment account (asset) is increased to record the
purchase of the computer equipment by debiting the account.
GST Receivable is increased to record 10% of costs of the
equipment. At the same time, Cash at Bank is decreased by
crediting the account for the amount of the cash paid.
28 This is an income transaction reflecting the amount of car rental
fees received from clients so far for the month of April. This
amount is inclusive of GST. Hence, an income/revenue
account, called Equipment Hire Income and GST Payable, are
credited and an asset, Cash at Bank, is debited to record the
amount paid in by these customers for services received by
them from the business.
29 Cash payments made to a creditor are recorded by reducing the
liability account, Accounts Payable, previously established on 4
April, by debiting the account; at the same time Cash at Bank is
credited to record the reduction in the cash asset.
30 Wages are an expense of the business to reflect the cost of
services received by the business from its employees. The
business pays you as an employee for keeping the accounts for
the month by crediting the Cash at Bank account and debiting
the Wages Expense account. There is no GST impact.
30 This is an income transaction reflecting car rental income
earned during the month of A. This income is exclusive of GST
as per the question. Hence, a revenue account, called
Equipment Hire Income and GST Payable, are credited and the
asset, Cash at Bank, is debited to record the amount received
from these clients who paid immediately for the rental services
obtained from the business. The Accounts Receivable is also
debited to record the amount owing to the business by clients
who have previously been supplied with equipment hire
services by the business.

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