MN12003 Fundamentals of Accounting

Seminar 3 Questions

Objectives:

 Posting adjusting entries and prepare an adjusted trial balance that can be used to prepare income
statement and statement of financial position. (Q1 – 45 mins)

Key terminologies and rules you should know before you attempt the questions:

 You should be comfortable with the Debit & Credit rules (if not, you should revisit week 2 notes):
o The three accounts on the left, or debit, side of DEALOR—Dividends, Expenses, and Assets—
increase with a debit and decrease with a credit.
o The three accounts on the right, or credit, side of DEALOR —Liabilities, Owners’ (stockholders’)
equity, and Revenues—increase with a credit and decrease with a debit.

 Understand Accrual-basis accounting – we record revenues when we provide goods and services to
customers (regardless if cash has been received), and we record expenses when costs are incurred in
company operations (regardless if cash has been paid).
 The adjusting entries at the year-end are necessary because of accrual-basis accounting.
 The adjusting entries refer to any changes in assets, liabilities, revenues and expenses that have
occurred during the period but have not yet been recorded by end of the period.
 This week we mainly consider:
o Prepaid expenses refer to the expenses paid but not consumed yet, such as:
 Prepaid rent => ensure rent expense is accurately measured for the period and prepaid
rent represents the up-to-date asset value.
 Depreciation => ensure the asset value is up-to-date and any value lost during the
period should be recognised as an expense.
o Deferred revenue refers to the money received by a company for goods or services that have
not yet been delivered to the customer:
 once the goods/services are provided the deferred revenue will become Revenue and
the Deferred revenue (liability) would reduce => ensure all revenue earned in the period
are measured, and the liability is up-to-date.
o Accrued expenses refer to the costs incurred but not yet paid or billed:
 ensure all expenses during the period are included and the liability is up-to-date.

Q1 (From Spiceland Textbook E3-21)

Note: you may complete the questions from scratch, or use the template on the next few pages to help you
complete the task.
Requirement 1: record the transactions given:

January 2 Debit Credit

January 9 Debit Credit

January 13 Debit Credit

January 17 Debit Credit

January 20 Debit Credit

January 22 Debit Credit

January 29 Debit Credit

Requirement 2: Record the adjusting entries

(a) January 31 Debit Credit

(b) January 31 Debit Credit

(c) January 31 Debit Credit

(d) January 31 Debit Credit

Requirement 3: prepare the adjusted trial balance

Dynamite Fireworks
Adjusted Trial Balance
January 31, 2024
Accounts Debit Credit

Cash
Accounts Receivable
Supplies
Prepaid Rent
Land
Accounts Payable
Deferred Revenue
Salaries Payable
Common Stock
Retained Earnings
Service Revenue
Salaries Expense
Rent Expense
Supplies Expense

Totals
Requirement 4: prepare income statement
Dynamite Fireworks
Income Statement
For the year ended January 31, 2024

Revenues:
Service revenue

Expenses:
Salaries Expense
Rent Expense
Supplies Expense

Total expenses

Net income

Requirement 5: prepare statement of financial position

Dynamite Fireworks
Balance Sheet
January 31, 2024

Assets Liabilities
Current assets: Current liabilities
Cash Accounts payable
Accounts Receivable Deferred revenue
Supplies Salaries payable

Prepaid Rent Total current liabilities 9,000

Total current assets

Stockholders’ Equity
Common stock
Long-term assets: Retained earnings

Land Total stockholders’ equity 86,000

Total liabilities and

Total assets $95,000 stockholders’ equity $95,000
Requirement 6: record closing entries

January 31, 2024 Debit Credit

Service Revenue

Retained Earnings

(Close revenue accounts)

Retained Earnings

Salaries Expense

Rent Expense

Supplies Expense

(Close expense accounts)

Requirement 7: simple analysis

(a) Profit is the amount of net income reported in the income statement = __________.

(b) Currents assets ($________) divided by current liabilities ($_________) = ________.

(c) In your analysis, you may consider:

 what does the net income from Income Statement suggest?

 what can we tell by comparing current assets and current liabilities?
 overall is the company in a good or bad condition?