“The secret of getting ahead is getting started.

” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Lesson 2 for week beginning 16 August 2021

Topics:
1. The accounting cycle
2. Rules of debit and credits
3. GST Input and Output Taxes
4. Accrual vs cash basis of accounting

Learning objectives:
Refer to the course outline

Reading:
STH Chapter 2 (Part B) and Chapter 3 pages 114 to 118 in the customised textbook

Textbook:
1. STH - Spiceland J. D., Thomas W., Herrmann D. (2019), “Financial Accounting”, 5th edition,
McGraw-Hill.

Discussion Questions

Question 1 (Applying online lesson 2.2 on the rules of debit and credit)

One often hears the statement: “Debits are bad and Credits are good for the business.” Do you
agree? Why or why not?

Question 2 (Applying online lesson 1.6 on the elements of financial statements and online
lesson 2.2 on the normal balances)

The below twenty accounts are selected from SingPost's financial statements for the year
ended 31 March 2013. Classify each account as asset, liability, equity, income or expense. Also
indicate whether the normal account balance is a debit or credit.

Account Name Classification Normal Balances

1. Deposits and Prepayments
2. Collections on Behalf of Third Parties
3. Interests Receivable
4. Trade Payable
5. Borrowings
6. Cash and Cash Equivalents
7. Trade Receivable
8. Acquired License

21S1 AC1103 Lesson 2 Discussion Questions 1

 “The secret of getting ahead is getting started.” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

9. Staff Loan
10. Postal Equipment
11. Customer Deposits
12. Wages and Salaries
13. Revenue from Services Rendered
14. Customer Relationships
15. Inventories
16. Retained Earnings
17. Rental on Operating Leases
18. Investment Properties
19. Advance Billing
20. Tender Deposits

Question 3 (Applying online lessons 2.2 and 2.4 on the preparation of journal entries,
posting to ledgers, the preparation of trial balance and GST Input and Output
Taxes)

Ute Sewing Pte Ltd is in a business of providing sewing and alteration services. It is a GST-
registered company. The prevailing GST rate is 7%. Below are the transactions for March 20x4,
the first month of operations. The company prepares financial statements monthly.

Date Transactions

March 1 Issue shares in exchange for cash of $10,000.

March 1 Obtained a loan with a local bank, $5,000, at an interest rate of 12% per annum.

March 1 Sign employment contract with one employee at a monthly salary of $1,500. The
employee starts work immediately on 1 March.

March 2 Place orders with the supplier for some sewing supplies amounting to $250 plus
GST. The sewing supplies will be delivered on March 12.

March 3 Purchase sewing equipment on credit, $1,700 plus GST.

March 5 Pay rent of $1,000 for March and April.

March 7 Martha, a customer, places an alteration order for several dresses. Ute estimates
that the alterations will cost Martha $700 (before GST). Martha is not required to
pay for the alternations until the work is complete.

21S1 AC1103 Lesson 2 Discussion Questions 2

 “The secret of getting ahead is getting started.” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

March 12 Receive the sewing supplies ordered on March 2 and pay cash.

March 15 Martha receives the altered dresses and pays cash to Ute.

March 16 Pay the supplier of sewing equipment, which is purchased on March 3.

March 17 Complete alteration of 10 dresses for Cathy and bill Cathy for $800 plus GST.

March 19 Bob needs 100 pairs of overall expanded as he purchased too many small and
medium sizes. Ute charges $30 plus GST for each pair of overall altered. Bob pays
$1,605, inclusive of GST, in advance to Ute for services and expects the alteration
to be completed by April 2.

March 25 Receive cash from Cathy, for alteration of 10 dresses completed on March 17.

March 31 Pay employee $1,500 as salary for March.

March 31 Pay dividends of $100 to the shareholders.

March 31 Pay loan principal of $500 and interest for March.

Required:

(i) Prepare the journal entries, with narrations, for each transaction.

(ii) Post each transaction to the appropriate ledger accounts. Compute the balance for each
account as at 31 March 20x4.

(iii) Prepare an unadjusted trial balance as at 31 March 20x4.

21S1 AC1103 Lesson 2 Discussion Questions 3

 “The secret of getting ahead is getting started.” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Question 4 STH Problem 3-1A (Applying online lesson 2.5 on the cash vs accrual basis of
accounting)

Required: For each transaction, determine the amount of revenue or expense, if any, that
is recorded under accrual-basis accounting and under cash-basis accounting in the current
period. In addition, determine the net profit or loss for the period under accrual-basis
accounting and under cash-basis accounting

21S1 AC1103 Lesson 2 Discussion Questions 4

 “The secret of getting ahead is getting started.” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Self-Practice Questions

Question 5 (Applying online lesson 2.2 on the preparation of trial balance)

What is the purpose of preparing a trial balance? What are the errors revealed and not
revealed by the trial balance?

Question 6 STH Problem 2-3A (Applying online lesson 1.6 on the elements of financial
statements and online lesson 2.2 on the normal balances)

Question 7 STH Problem 2-8A (Applying online lesson 2.2 on the preparation of journal
entries, posting to ledgers and the preparation of trial balance)

(Key answers: Trial Balance -- Total Debits = Total Credits = $42,500)

Question 8 STH Problem 2-9A (Applying online lesson 2.2 on the preparation of journal
entries, posting to ledgers and the preparation of trial balance)

(Key answers: Trial Balance -- Total Debits = Total Credits = $296,900)

Question 9 (Applying online lessons 2.2 and 2.4 on the preparation of journal entries,
posting to ledgers, the preparation of trial balance and GST Input and Output
Taxes)

Salukis Pte Ltd is in a business of providing car washing services. It is a GST-registered company.
The prevailing GST rate is 7%. The company charges $10 plus 7% GST for each car washing
service rendered to customers. Below are the transactions for June 20x4, the first month of
operations. The company prepares financial statements monthly.

Date Transactions

June 1 Issue shares in exchange for cash of $60,000.

June 1 Obtain a loan of $30,000 from the bank, at an interest rate of 12% per annum.

June 1 Sign employment contracts with two employees at a monthly salary of $1,000
each. The employees start work immediately on 1 June.

21S1 AC1103 Lesson 2 Discussion Questions 5

 “The secret of getting ahead is getting started.” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

June 2 Place an order with the supplier for car wash equipment at a value of $65,000 plus
7% GST. The equipment will be delivered on 7 June.

June 7 Receive the car wash equipment ordered on 2 June and pay cash.

June 8 Pay rent of $2,000 for June and July.

June 10 Purchase cleaning supplies of $7,000 plus 7% GST on credit.

June 12 Wash 400 cars and all customers pay cash.

June 19 Pay for advertising in a local newspaper, costing $400 plus 7% GST.

June 19 Wash 500 cars for a corporate customer on account.

June 23 Pay the supplier of cleaning supplies, which is purchased on 10 June.

June 28 Receive cash from the corporate customer who has received the car washing
services on 19 June.

June 29 Pay employees $2,000 as salary for June.

June 29 Receive an order to wash 200 cars. Expect to complete service by 5 July. The
customer pays $535, inclusive of GST, in advance.

June 30 Pay loan principal of $3,000 and interest for June.

June 30 Pay dividends of $500 to shareholders.

Required:

(i) Prepare the journal entries, with narrations, for each transaction.

(ii) Post each transaction to the appropriate ledger accounts. Compute the balance for each
account as at 30 June 20x4.

(iii) Prepare an unadjusted trial balance as at 30 June 20x4.

(Key answers: Trial Balance -- Total Debits = Total Credits = $97,165)

21S1 AC1103 Lesson 2 Discussion Questions 6

 “The secret of getting ahead is getting started.” ~ Mark Twain

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022

Question 10 (Applying online lesson 2.5 on the cash vs accrual basis of accounting)

Safety Transport Pte Ltd has been providing school bus services for a few years. It owns a fleet
of five buses. The company has the following transactions relating to January 20x4:

Date Transaction
Jan 1 Drawn down a loan of $20,000 at an annual interest rate of 6%. The loan will be
fully repaid on 31 December 20x4. Interest is payable on 31 December 20x4. The
company has no other borrowings.

Jan 3 Collected $42,800 cash from school students for bus transport services for the
months of January and December 20x4. It is an industry practice to collect
December’s transport fee in the first month of a school year, January.

Jan 5 Paid $12,000 annual insurance premium for 20x4. The insurance policy covers the
whole of 20x4.

Jan 8 The company issued 10,000 shares at $1.20 each for cash.

Jan 15 Received an invoice, amounting to $1,000, from the petroleum company for diesel
consumption by the five buses for first two weeks of January 20x4. The company
paid the invoice on 5 February 20x4.

Jan 31 Paid $9,000 to the drivers as salary for January 20x4. Overtime pay of $1,700
incurred in January 20x4 was not paid till 3 February 20x4.

Jan 31 The company paid dividends of $2,500 to its shareholders.

Feb 2 Received an invoice, amounting to $1,250, from the petroleum company for diesel
consumption by the five buses for last two weeks of January 20x4.

The company prepares its financial statements at end of each month. What is the net profit or
loss for the month of January 20x4 using accrual and cash basis of accounting?

(Key answers: Net profit under accrual basis of accounting: $7,350; Net profit under cash basis
of accounting: $21,800)

21S1 AC1103 Lesson 2 Discussion Questions 7