Chapter 6

Business Transactions and their

Analysis

PROBLEM 1: TRUE OR FALSE

1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. FALSE – purchase order
6. TRUE
7. FALSE
8. TRUE
9. FALSE – also ‘cash’
10. TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. A
2. A
3. D
4. D
5. B
6. Journal entries
Oct. Cash 800,000
1, Owner’s equity 800,000
20x1 to record the owner’s investment to the
business
Oct. Inventory 100,000
3 Cash 100,000
to record purchase of inventory for cash
Oct. Inventory 400,000
4 Accounts payable 400,000
to record purchase of inventory on account
 Oct. Cash 300,000
8 Sales 300,000
to record cash sale

Cost of sales 120,000

Inventory 120,000
to charge the cost of the goods sold as expense

Oct. Accounts receivable 700,000

12 Sales 700,000
to record sale on account

Cost of sales 280,000

Inventory 280,000
to record the cost of the goods sold as expense

Oct. Accounts payable 400,000

15 Cash 400,000
to record payment of accounts
payable
Oct. Cash 700,000
17 Accounts receivable 700,000
to record collection of accounts
receivable
Oct. Equipment 280,000
18 Cash 280,000
to record the purchase of equipment
Oct. Owner’s drawings 20,000
22 Cash 20,000
to record the owner’s drawings from
the business
Oct. Salaries expense 50,000
31 Cash 50,000
to record payment of salaries

PROBLEM 3: IDENTIFYING THE ACCOUNTS AFFECTED

 TRANSACTIONS ACCOUNT TITLES
AFFECTED
1. Owner’s investment to the Cash Owner’s
business equity
2. Purchase of equipment on Equipment Cash
cash basis
3. Sale of goods on cash basis Cash Sales
(disregard cost of sales)
4. Charging the cost of the goods Cost of sales/ Inventory
sold in #3 above as expense Cost of goods
sold
5. Purchase of inventory for cash Inventory Cash
6. Payment of utilities expense Utilities Cash
expense
7. Purchase of inventory on cash Inventory Cash
basis
8. Payment of various small Miscellaneous Cash
expenses that do not warrant expense
separate presentation
9. Payment of local taxes Taxes and Cash
licenses
10. Payment of taxi fare of Transportatio Cash
employees working night shift n expense/
Transportatio
n and travel
expense
PROBLEM 4: IDENTIFYING THE ACCOUNTS AFFECTED

TRANSACTIONS ACCOUNT TITLES

AFFECTED
1. Sale of inventory on account Accounts Sales
(disregard cost of sales) receivable
2. Charging of the cost of the Cost of Inventory
inventory sold in #1 above as sales/ Cost
expense of goods
sold
3. Collection of accounts receivable Cash Accounts
receivable
4. Purchase of inventory on account Inventory Accounts
payable
5. Obtaining a loan Cash Notes
payable
6. Payment of accounts payable Accounts Cash
payable
7. Provision of additional capital to Cash Owner’s
the business by the owner equity/
Owner’s
capital
8. Payment of the loan obtained in Notes Cash
#5 above payable
9. Payment of interest expense Interest Cash
expense
10. Drawings of the owner from the Owner’s Cash
business drawings
PROBLEM 5: IDENTIFYING THE EFFECTS ON ACCOUNTS

ACCOUNTS EFFECTS
Example: Payment of advertising Advertising INCREASE
expense expense
Cash DECREASE
1. Owner’s contribution to the Cash INCREASE
business Owner’s INCREASE
equity
2. Purchase of inventory for cash Inventory INCREASE
Cash DECREASE
4. Sale on cash basis and the Cash INCREASE
charging of the cost of the Sales INCREASE
goods sold as expense Cost of INCREASE
sales/ Cost
of goods
sold
Inventory DECREASE
5. Purchase of equipment for cash Equipment INCREASE
Cash DECREASE
6. Payment of interest expense Interest INCREASE
expense
Cash DECREASE
PROBLEM 6: IDENTIFYING THE ACCOUNTS AFFECTED

ACCOUNTS EFFECTS
1. Owner’s withdrawals from Owner’s INCREASE
the business drawings
Cash DECREASE
2. Sale on account and the Accounts INCREASE
charging of the cost of the receivable
goods sold as expense Sales INCREASE
Cost of sales INCREASE
Inventory DECREASE
3. Collection of accounts Cash INCREASE
receivable Accounts DECREASE
receivable
4. Obtaining a loan Cash INCREASE
Notes payable INCREASE
5. Payment of the loan in #4 Notes payable DECREASE
above Cash DECREASE

6. Payment of salaries expense Salaries INCREASE

expense
Cash DECREASE
7. Purchase of inventory on Inventory INCREASE
account Accounts INCREASE
payable
8. Payment of accounts payable Accounts DECREASE
payable
Inventory DECREASE
9. Payments of various small Miscellaneous INCREASE
expenditures which do not expense
warrant separate presentation Cash DECREASE

10. The dog of the business owner NONE NONE

won 1st prize in an accounting NONE NONE
quiz bee.
PROBLEM 7: JOURNAL ENTRIES
1. Cash 100,000
Owner’s equity 100,000

2. Cash 800,000
Notes payable 800,000

3. Equipment 200,000
Cash 200,000

4. Inventory 500,000
Cash 500,000

5. Cash 120,000
Sales 120,000

Cost of sales 50,000

Inventory 50,000

6. Prepaid rent 60,000

Cash 60,000

7. Notes payable 400,000

Cash 400,000

8. Interest expense 80,000

Cash 80,000

9. Utilities expense 10,000

Cash 10,000

10. Salaries expense 32,000

Cash 32,000
PROBLEM 8: JOURNAL ENTRIES

1. Cash 1,000,000
Owner’s equity 1,000,000

2. Taxes and licenses 30,000

Cash 30,000

3. Advertising expense 200,000

Cash 200,000

4. Inventory 600,000
Accounts payable 600,000

5. Accounts receivable 800,000

Sales 800,000

Cost of sales 500,000

Inventory 500,000

6. Cash 700,000
Accounts receivable 700,000

7. Accounts payable 300,000

Cash 300,000

8. Rent expense 70,000

Cash 70,000

9. Utilities expense 8,000

Cash 8,000

10. Owner’s drawings 20,000

Cash 20,000
PROBLEM 9: JOURNAL ENTRIES & ACCTG. EQUATION

1st requirement: Journal entries

1. Cash 100,000
Owner’s equity 100,000

2. Taxes and licenses 10,000

Cash 10,000

3. Advertising expense 20,000

Cash 20,000

4. Prepaid supplies 1,000

Cash 1,000

5. Inventory 40,000
Cash 40,000

6. Accounts receivable 70,000

Sales 70,000

Cost of sales 30,000

Inventory 30,000

7. Freight-out 10,000
Cash 10,000

8. Cash 50,000
Accounts receivable 50,000

9. Salaries expense 8,000

Cash 8,000

10. Utilities expense 12,000

Cash 12,000
2nd requirement: Journal entries

ASSETS LIABILITIES EQUITY

1. Cash 100,000 Owner's equity 100,000
2. Cash (10,000) Taxes and licenses (10,000)
Advertising
3. Cash (20,000)
expense (20,000)
4. Prepaid supplies 1,000
Cash (1,000)
5. Inventory 40,000
Cash (40,000)
6. Accounts receivable 70,000 Sales 70,000
Inventory (30,000) Cost of sales (30,000)
7. Cash (10,000) Freight-out (10,000)
8. Cash 50,000
Accounts receivable (50,000)
9. Cash (8,000) Salaries expense (8,000)
10. Cash (12,000) Utilities expense (12,000)
TOTALS 80,000 0 80,000
PROBLEM 10: JOURNAL ENTRIES & ACCTG. EQUATION
1st requirement: Journal entries
1. Cash 200,000
Owner’s equity 200,000

2. Cash 600,000
Notes payable 600,000

3. Equipment 450,000
Cash 450,000

4. Prepaid rent 20,000

Cash 20,000

5. Inventory 500,000
Accounts payable 500,000

6. Cash 200,000
Sales 200,000

Cost of sales 80,000

Inventory 80,000

7. Accounts receivable 900,000

Sales 900,000

Cost of sales 400,000

Inventory 400,000

8. Accounts payable 400,000

Cash 400,000

9. Owner’s drawings 10,000

Cash 10,000

10. Interest expense 15,000

Cash 15,000
2nd requirement: Journal entries

ASSETS LIABILITIES EQUITY

1. Cash 200,000 Owner's equity 200,000
2. Cash 600,000 Notes payable 600,000
3. Equipment 450,000
Cash (450,000)
4. Prepaid rent 20,000
Cash (20,000)
Accounts
5. Inventory 500,000
payable 500,000
6. Cash 200,000 Sales 200,000
Inventory (80,000) Cost of sales (80,000)
7. Accounts receivable 900,000 Sales 900,000
Inventory (400,000) Cost of sales (400,000)
Accounts (400,000
8. Cash (400,000)
payable )
9. Cash (10,000) Owner’s drawings (10,000)
10. Cash (15,000) Interest expense (15,000)
TOTALS 1,495,00 700,000 795,00
0 0
PROBLEM 11: JOURNAL ENTRIES
1. Cash 35,000
Owner’s capital 35,000

2. Supplies expense 15,000

Cash 15,000

3. Rent expense 5,000

Cash 5,000

4. Utilities expense 2,000

Cash 2,000

5. Cash 10,000
Notes payable 10,000

6. Accounts receivable 75,000

Service fees 75,000

7. Interest expense 500

Cash 500

8. Cash 50,000
Accounts receivable 50,000

9. Owner’s drawings 20,000

Cash 20,000

10. Salaries expense 10,000

Cash 10,000
PROBLEM 12: MULTIPLE CHOICE
1. C
2. B
3. D
4. B
5. D
6. D
7. C
8. D
9. D
10. D
PROBLEM 13: CLASSROOM ACTIVITY

JOURNAL ENTRIES:

A Company B Company
1. Cash 5
Owner’s capital 5
2. Cash 7
Owner’s capital 7
3. Cash 5
Notes payable 5
4. Equipment 6
Cash 6
5. Inventory 3
Cash 3
6. Cash 5 Inventory 15
Accounts receivable 10 Cash 5
Sales 15 Accounts payable 10

Cost of sales 3
Inventory 3

7. Cash 9
Sales 9

Cost of sales 5
Inventory 5

8. Accounts receivable 10
Sales 10

Cost of sales 5
Inventory 5
 9. Cash 5 Cash 3
Accounts receivable 5 Accounts receivable 3

Accounts payable 5
Cash 5

10. Salaries expense 1

Cash 1

ANSWERS TO QUESTIONS:
a. Answers: A Company = ₱11; B Company = ₱8; Side = ₱1

b. Answers: A Company = 0; B Company = 1 stuff; Side = 2 stuffs

c. Answer: ₱5

d. Answer: ₱7

e. Answer: ₱5