Accounting Book Sample

Solutions manual
to accompany
Financial accounting:
Reporting, analysis and
decision making
7th edition
by
Carlon et al.
© John Wiley & Sons Australia, Ltd 2022

Solutions manual to accompany Financial accounting: Reporting, analysis and decision making 7e. Not for
distribution in full.
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© John Wiley and Sons Australia Ltd, 2021 2.1

Chapter 2: The recording process
Assignment classification table

Brief
Learning objectives exercises Exercises Problems
1. Analyse the effect of accounting 1 1,2,3,10 1A,2A,3A,
transactions and events on the basic 1B,2B,3B
accounting equation.
2. Explain what an account is and how it

helps in the recording process.
3. Define debits and credits and explain 2 4,6 4A,5A,6A,7A,

how they are used to record accounting 8A, 4B,5B,6B
transactions. 7B,8B
4. Identify the basic steps in the recording 3

process.
5. Explain what a journal is and how it 4,7 5,7,9,10 4A,5A,6A,7A,8A,

helps in the recording process. 4B,5B,6B,7B 8B
6. Explain what a general ledger is and 10 5A,6A,7A,8A,

how it helps in the recording process. 5B,6B,7B, 8B
7. Explain what posting is and how it 5 8,10 5A,6A,7A,8A,

helps in the recording process. 5B,6B,7B,8B
8. Explain the purposes of a trial balance. 6,7 8,9,11,12, 5A,6A,7A,8A,9A,

13 10A,5B,6B,7B,
8B,9B,10B
Solutions to questions

2.1. Describe the accounting information system and the steps in the recording
process.
The system of collecting and processing transactions or data and communicating
financial information to interested parties is known as the accounting information
system. The first step of the accounting process is to identify transactions and events
that are to be recorded. Once identified and measured, the transactions and events are
recorded to provide a permanent history of the financial activities of the organisation.
Recording begins with a chronological record of transactions and events in an orderly
and systematic manner in a journal. The next step is to transfer the journal
information to the appropriate accounts in the ledger. (Note further steps in the
recording process are discussed in chapter 3.)
2.2. Are the following events recorded in the accounting records?

Explain your answer in each case.
(a) A major shareholder of the company dies.
(b) Supplies are purchased on account.
(c) An employee is fired.
(d) The company pays a cash dividend to its shareholders.
Accounting transactions and events of the enterprise are recorded by accountants
because they affect the basic equation (assets, liabilities and equity items).
(a) No, the death of a major shareholder of the company is not an accounting
transaction or event. Applying the accounting entity concept from chapter 1
and therefore it does not affect the basic equation.
(b) Yes, Supplies purchased on account is an accounting transaction and it is
recorded as an increase in an asset, supplies and an increase in liabilities,
accounts payable.
(c) No, an employee being fired is not an accounting transaction or event which is
recorded. When the employee provides services (works), this is when the
event is recorded. Upon ceasing employment, it is only the services which
have accrued which need to be accounted for.
(d) Yes, paying a cash dividend to shareholders is an accounting transaction
which is recorded as a decrease in an asset, cash and a decrease in equity,
retained earnings.
2.3. Indicate how each business transaction affects the basic accounting equation.
(a) Paid cash for cleaning services.
(b) Purchased equipment for cash.
(c) Issued shares to investors in exchange for cash.
(d) Paid an account payable in full.
(a) Decrease assets, cash and decrease in equity, cleaning expenses.
(b) Increase assets, equipment and decrease assets cash.
(c) Increase assets, cash and increase equity, share capital
(d) Decrease assets, cash and decrease liabilities, accounts payable.
2.4. Charles Nguyen, a fellow student, contends that the double-entry system means
each transaction must be recorded twice. Is Charles correct? Explain.
Charles is incorrect. The double-entry system merely records the dual (two-sided)
effect of a transaction on the accounting equation. A transaction is not recorded twice;
it is recorded once with a dual effect. In other words, for each transaction, debits must
equal credits.

2.5. Tanya Nikolic, an introductory accounting student, believes debit balances are
favourable and credit balances are unfavourable. Is Tanya correct? Discuss.
Tanya is incorrect. A debit balance only means that debit amounts exceed credit
amounts in an account. Conversely, a credit balance only means that credit amounts
are greater than debit amounts in an account. Thus, a debit or credit balance is neither
favourable nor unfavourable.
2.6. State the rules of debit and credit as applied to (a) asset accounts, (b) liability
accounts, (c) the share capital account, (d) revenue accounts, (e) expense
accounts and (f) dividend account.
(a) Asset accounts are increased by debits and decreased by credits.
(b) Liability accounts are decreased by debits and increased by credits.
(c) The share capital account is decreased by debits and increased by credits.
(d) Revenue accounts are decreased by debits and increased by credits.
(e) Expense accounts are increased by debits and decreased by credits.
(f) Dividend account are increased by debits and decreased by credits.
2.7. What is the normal balance for each of these accounts?

(a) Equipment.
(b) Cash.
(c) Advertising expense.
(d) Accounts payable.
(e) Service revenue.
(f) Accounts receivable.
(g) Share capital.
(a) Equipment — debit balance.
(b) Cash — debit balance.
(c) Advertising expense — debit balance.
(d) Accounts payable — credit balance.
(e) Service revenue — credit balance.
(f) Accounts receivable — debit balance.
(g) Share capital — credit balance.
2.8. (a) What is a ledger?

(b) Why is a chart of accounts important?
(a) The entire group of accounts maintained by an entity company, including all
the asset, liability, and equity accounts, is referred to collectively as the ledger.
(b) The chart of accounts is important, particularly for an entity that has a large
number of accounts, because it helps organise the accounts, identify their
location in the ledger and facilitate the recording process. The amount of
detailed information which can be extracted in the form of reports will depend
on the chart of accounts.
2.9. What is a trial balance and what are its purposes?

A trial balance is a list of accounts and their balances at a given time. The primary
purpose of a trial balance is to prove the mathematical equality of debits and credits
after all journalised transactions have been posted. A trial balance also facilitates the
discovery of errors in journalising and posting. In addition, it is useful in preparing
financial statements.

2.10 If you are using a computerised accounting program where all entries have two
accounts nominated, does this mean you do not need to run a trial balance?
Whilst it is true posting errors where debits do not equal credits, are virtually,
eliminated in computerised accounting systems, a trial balance is still useful in
facilitating the discovery of errors in incorrect account allocation. For example, when
recording a purchase of machinery, nominating an expense account instead of an asset
account. In addition, it is useful in preparing financial statements.
2.11. Two students are discussing the use of a trial balance. They wonder whether the
following errors, each considered separately, would prevent the trial balance
from balancing. If the trial balance did balance, does this mean the transactions
were entered correctly? What would you tell them?
(a) The bookkeeper debited accounts receivable for $900 and credited cash
for $900 for receipt of monies from sales made on account, previously
recorded.
(b) Cash collected on account was debited to cash for $900, and service
revenue was credited for $90.
(a) The trial balance would balance. However, this does not mean the transaction
has been analysed and recorded correctly. The correct recording would be to
debit Cash for $900 and credit Accounts receivable for $900. In order to
correct the error a journal reversing the initial entry would also need to be
made.
(b) The trial balance would not balance, as the debit side is $810 greater than the
credit side of the postings.

Solutions to brief exercises
BE2.1 Determine effect on basic accounting equation. (LO1)

Presented here are three economic events. On a sheet of paper ,list the letters (a),
(b) and (c) with columns for assets, liabilities and equity. In each column,
indicate whether the event increased (+), decreased (−) or had no effect (NE) on
assets, liabilities and equity.
(a) Purchased supplies on account.
(b) Received cash for providing a service.
(c) Paid cash to a supplier from whom we had purchased goods the previous
week on account.
Assets Liabilities Equity

(a) + + NE
(b) + NE +
(c) - - NE
BE2.2 Indicate debit and credit effects. (LO3)

For each of the following accounts indicate the effect of a debit or a credit on the
account and the normal balance.
(a) Accounts payable.
(b) Advertising expense.
(c) Service revenue.
(d) Accounts receivable.
(e) Retained earnings.
(f) Dividends.
Debit Credit Normal
effect effect balance
(a) Accounts payable Decrease Increase Credit

(b) Advertising expense Increase Decrease Debit
(c) Service revenue Decrease Increase Credit
(d) Accounts receivable Increase Decrease Debit
(e) Retained earnings Decrease Increase Credit
(f) Dividends Increase Decrease Debit
BE2.3 Indicate basic debit–credit analysis. (LO4)

Dudley Advertising Ltd had the following transactions during August of the
current year. Indicate (a) the basic analysis and (b)the debit–credit analysis.

Dudley Advertising Ltd

(a) Basic Analysis (b) Debit-Credit Analysis
Aug 1 The asset Cash is increased Debits increase assets:

$150,000; Share capital (equity) debit Cash $150,000.
is increased. Credits increase equity:
credit Share capital $150,000
4 The asset Prepaid insurance is Debits increase assets:

increased; the asset Cash is debit Prepaid insurance $3600.
decreased. Credits decrease assets:
credit Cash $3600.
16 The asset Cash is increased; the Debits increase assets:

revenue Service revenue is debit Cash $9000.
increased. Credits increase revenues:
credit Service revenue $9000.
27 The expense Salaries expense is Debits increase expenses:

increased; the asset Cash is debit Salaries expense $1000.
decreased. Credits decrease assets:
credit Cash $1000.

BE2.4 Journalise transactions. (LO5)

Use the data in BE2.3 and journalise the transactions. (Include narrations.)
Dudley Advertising Ltd

DATE Description Debit Credit
Aug. 1 Cash 150,000
Share capital 150,000
Being the issue of share for cash
4 Prepaid insurance 3,600
Cash 3,600
Being the payment of the insurance
premium
16 Cash 9,000
Service revenue 9,000
Being the receipt of cash for services
27 Salaries expense 1,000
Cash 1,000
Being the payment of salaries
BE2.5 Post journal entries to T accounts. (LO7)

Selected transactions for Gonzales Ltd are presented in journal form (without
narrations). Post the transactions to T accounts.
Gonzales Ltd
Accounts receivable
5/5 Service revenue* 3,200 12/5 Cash 2,400
*Service revenue is the cross-reference.
Service revenue
5/5 Accounts receivable 3,200
15/5 Cash 2,000
Cash
15/5 Service revenue 2,000

BE2.6 Prepare a trial balance. (LO8)

From the ledger balances below, prepare a trial balance for Carland Ltd at 30 June
2022. All account balances are normal.
Carland Ltd
Trial balance
as at 30 June 2022
Account name Debit Credit

$ $
Cash 3,800
Accounts receivable 3,000
Equipment 17,000
Accounts payable 4,000
Dividends 1,200
Salaries expense 4,000
Rent expense 1,000
$30,000 $30,000
BE2.7 Prepare a corrected trial balance. (LO8)

An inexperienced book keeper prepared the following trial balance that does not
balance. Prepare a correct trial balance, assuming all account balances are normal.

Timaru Ltd
Trial balance
as at 31 December 2022

$ $
Cash 32,100
Prepaid insurance 1,500
Revenue received in advance 3,500
Retained earnings 9,000
Dividends 4,500
Insurance expense 8,700
Rent expense 15,300
$81,000 $81,000

Solutions to exercises
E2.1 Analyse the effect of transactions. (LO1)
Selected transactions for Speedy Lawn Care Pty Ltd are listed here:
1. Issued shares to investors in exchange for cash.
2. Paid monthly rent.
3. Received cash from customers when service was rendered.
4. Invoiced customers for services performed.
5. Paid dividend to shareholders.
6. Incurred marketing expense on account.
7. Received cash from customers invoiced in (4).
8. Purchased additional equipment for cash.
9. Purchased equipment on account.
Required
Describe the effect of each transaction on assets, liabilities and equity. For example, the
first answer is: (1) Increase in assets and increase inequity.
Speedy Lawn Care Pty Ltd
1. Increase in assets and increase in equity.

2. Decrease in assets and decrease in equity.
5. Decrease in assets and decrease in equity.
6. Increase in liabilities and decrease in equity.
7. Increase in assets and decrease in assets.
8. Increase in assets and decrease in assets.
9. Increase in assets and increase in liabilities.
E2.2 Analysis transactions and calculate profit. (LO1)

An analysis of transactions for Foxes Ltd in August 2022, its first month of operations,
is shown as follow. Each change in equity is explained.
Required
(a) Describe each transaction.
(b) Determine how much equity increased for the month.
(c) Calculate the profit for the month.
(d) Explain the relationship between profit and equity which is shown in the
statement of financial position.

Foxes Ltd
(a) 1. Shareholders invested $34,000 cash in the business.

2. Purchased office equipment for $10,000, paying $4,000 in cash and the balance
of $6,000 on account.
3. Paid $1,100 cash for supplies.
4. Recognised $27,400 in revenue, receiving $21,800 cash and $5,600 on account.
5. Paid $3,000 cash on accounts payable.
6. Paid $1,000 cash dividends to shareholders.
7. Paid $2,750 cash for rent.
8. Collected $3,200 cash from customers on account.
9. Paid salaries of $5,700.
10. Received invoice for $1500 electricity used.
(b) Issued Share capital $34,000

Dividends (1,000)
Rent expense (2,750)
Salaries expense (5,700)
Electricity expense (1,500)
Increase in Equity $50,450
(c) Service revenue $27,400

Rent expense (2,750)
Salaries expense (5,700)
Electricity expense (1,500)
Profit for the Month $17,450
(d) The profit for the month is part of the increase in equity. The profit is part of the
retained earnings which has increased with the $17,450 profit and decreased by the
payment of the dividend of $1,000 leaving a balance of $16,450. At month end equity
is represented by the Share capital of $34,000 and the Retained earnings of $16,450 as
per total equity of $50,450 as per part (b) above.

E2.3 Prepare financial statements. (LO1)

The analysis of transactions for Foxes Ltd is presented in E2.2.
Required
Prepare a statement of profit or loss for August, a statement of financial position as at
31 August 2022 and a calculation of retained earnings.
Foxes Ltd
Statement of profit or loss
for the month ended 31 August 2022
$ $
Revenues:
Expenses:
Rent expense 2,750
Electricity expense 1,500
Total expenses 9,950
Profit $17,450
Foxes Ltd
Statement of financial position
as at 31 August 2022
Assets: $ $
Cash 41,450
Supplies 1,100
Office equipment 10,000
Total assets 54,950
Liabilities:
Net assets $50,450
Equity:
Total equity $50,450
Foxes Ltd
Calculation of Retained earnings
$
Retained earnings 1 August 0
Add: Profit 17,450
17,450
Less: Dividends (1,000)
Retained earnings 31 August $16,450

E2.4 Identify debits, credits and normal balances. (LO3)

Selected transactions for Expensive Designs Pty Ltd, an interior decorator in its first
month of business, are as follows.
1. Issued shares to investors for $10 000 in cash.
2. Purchased used car for $5000 cash for use in business.
3. Purchased supplies on account for $500.
4. Invoiced customers $1800 for services performed.
5. Paid $200 cash for advertising start of business.
6. Received $700 cash from customers invoiced in transaction (4).
7. Paid creditor $300 cash on account.
8. Paid dividends of $400 cash to shareholders.
Required
For each transaction, indicate (a) the basic type of account debited and credited (asset,
liability, equity), (b) the specific account debited and credited (cash, rent expense,
service revenue etc.), (c) whether the specific account is increased or decreased, and (d)
the normal balance of the specific account. Use the following format, in which
transaction 1 is given as an example:
Expensive Designs Pty Ltd
Account debited Account credited

(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Normal Basic Specific Normal
Transaction type account Effect balance type account Effect balance
1 Asset Cash Increase Debit Equity Share Increase Credit

capital
2 Asset Equipment Increase Debit Asset Cash Decrease Debit

/ motor
vehicles
3 Asset Supplies Increase Debit Liability Accounts Increase Credit

payable
4 Asset Accounts Increase Debit Equity Service Increase Credit

receivable revenue
5 Equity Advertisin Increase Debit Asset Cash Decrease Debit

g expense
6 Asset Cash Increase Debit Asset Accounts Decrease Debit

receivable
7 Liabilit Accounts Decrease Credit Asset Cash Decrease Debit

y payable
8 Equity Dividends Increase Debit Asset Cash Decrease Debit

E2.5 Journalise transactions. (LO5)

Data for Expensive Designs Pty Ltd, interior decorator, are presented in E2.4.
Required
Journalise the transactions. Narrations are required.
Expensive Designs Pty Ltd

General journal
Transaction Account Titles Debit Credit

$ $
1 Cash 10,000
(Issued shares to investors for cash)
2 Equipment/motor vehicles 5,000
Cash 5,000
(Purchased car for business for cash)
3 Supplies 500
Accounts payable 500
(Purchased supplies on account)
4 Accounts receivable 1,800

(Invoiced customers for services performed)
5 Advertising expense 200

Cash 200
(Paid advertising expense)
6 Cash 700
Accounts receivable 700
(Received cash from customers on account)
7 Accounts payable 300

Cash 300
(Paid amount owing to accounts payable)
8 Dividends 400
Cash 400
(Paid dividends to shareholders)

E2.6 Identify debits, credits and normal balances. (LO3)

Selected transactions for Bookit Pty Ltd, a bookkeeping service in its first month of
business, are as follows.
1. Issued shares to investors for $20 000 in cash.
2. Purchased used photocopier for $6000 on account, for use in business.
3. Purchased supplies on account for $6800.
4. Invoiced customers $3600 for services performed.
5. Paid $600 cash for marketing start of business.
6. Received $3000 cash from customers invoiced in transaction (4).
7. Paid creditor $6800 cash on account.
8. Paid rent for month, $1200 cash.
Required
For each transaction, indicate (a) the basic type of account debited and credited
(asset, liability, equity), (b) the specific account debited and credited (cash, rent
expense, service revenue etc.), (c) whether the specific account is increased or
decreased, and (d) the normal balance of the specific account. Use the following
format, in which transaction (1) is given as an example:
Bookit Pty Ltd
Account debited Account credited
(a) (b) (c) (d) (a) (b) (c) (d)

Basic Specific Normal Basic Specific Normal
Transaction type account Effect balance type account Effect balance
1 Asset Cash Increase Debit Equity Share Increase Credit

capital
2 Asset Equipment/ Increase Debit Liability Accounts Increase Credit

photocopier payable
3 Asset Supplies Increase Debit Liability Accounts Increase Credit

payable
4 Asset Accounts Increase Debit Equity Service Increase Credit

receivable revenue
5 Equity Marketing Increase Debit Asset Cash Decrease Debit

expense
6 Asset Cash Increase Debit Asset Accounts Decrease Debit

receivable
7 Liability Accounts Decrease Credit Asset Cash Decrease Debit

payable
8 Equity Rent Increase Debit Asset Cash Decrease Debit

expense

E2.7 Journalise transactions. (LO5)

Data for Bookit Pty Ltd, a bookkeeping service, are presented in E2.6.
Required
Journalise the transactions. Narrations are required.
Bookit Pty Ltd

General journal
Transaction Account titles Debit Credit

$ $
1 Cash 20,000
(Issued shares to investors for cash)
2 Equipment/photocopier 6,000
(Purchased photocopier for business on
account)
3 Supplies 6,800

5 Marketing expense 600

Cash 600
(Paid marketing expense)
6 Cash 3,000
7 Accounts payable 6,800

Cash 6,800
(Paid amount owing to accounts payable)
8 Rent expense 1,200

Cash 1,200
(Paid rent for month)

E2.8 Post journal entries and prepare a trial balance. (LO7, 8)

Selected transactions from the journal of Ink Pad Printers Ltd during its first month of
operations are presented here:
Required
(a) Post the transactions to T accounts.
(b) Prepare a trial balance as at 31 August 2023.
Ink Pad Printers Ltd
(a)
Cash
1/8 Share capital 17,000 12/8 Office equipment 1,000
10/8 Service revenue 12,400 31/8 Closing balance 29,000
31/8 Accounts receivable 600
30,000 30,000
1/9 Opening balance 29,000
Accounts receivable
25/8 Service revenue 1,500 31/8 Cash 600
Closing balance 900
1,500 1,500
1/9 Opening balance 900
Office equipment
12/8 Cash/bank loan 4,000
Bank loan
12/8 Office equipment 3,000
Share capital
1/8 Cash 17,000

Service revenue
31/8 Closing balance 13,900 10/8 Cash 12,400
13,900 13,900
31/8 Balance 13,900
(b)
Ink Pad Printers Ltd

Trial balance

$ $
Cash 29,000
Bank loan 3,000
$33,900 $33,900

E2.9 Journalise transactions from T accounts and prepare a trial balance. (LO5, 8)
These simple T accounts summarise the ledger of Zebra Tours Ltd at the end of the first
month of operations:
Required
(a) Prepare in the order they occurred in the journal entries (including narrations)
that resulted in the amounts posted to the account.
(b) Prepare a trial balance as at 30 April 2022.
Zebra Tours Ltd
(a)
General journal
Date Account titles and explanation Debit Credit
Apr. 1 Cash 10,000

(Sold shares for cash)
4 Supplies 4,800

(Invoiced customers for services rendered)
12 Cash 1,900
(Received cash for services performed)
15 Salaries expense 750

Cash 750
(Paid salaries)


Cash 3,500
(Paid creditors on account)
29 Cash 200
30 Cash 700
Revenue received in advance 700
(Received cash for services to be performed in
the future)
(b)
Zebra Tours Ltd

Trial balance
as at 30 April 2022

$ $
Cash 8,550
Supplies 4,800
Salaries expense 750
$16,300 $16,300

E2.10 Analyse transactions, prepare journal entries, and post transactions to T

accounts. (LO1, 5, 7)
Selected transactions for Rover Ltd during its first month in business are presented
below:
Rover Ltd’s chart of accounts shows: Cash (no.100), Equipment (no.120), Accounts
payable (no.200), Share capital (no.300), and Dividends (no.320).
Required
(a) Prepare an analysis of the September transactions. The column headings should
be: Cash + Equipment = Accounts payable + Equity. For transactions affecting
equity, provide explanations at the side, as shown in figure 2.2.
(b) Journalise the transactions. Narrations are required.
(c) Post the transactions to T accounts.
Rover Ltd
(a)
Assets = Liabilities + Equity
Accounts
Cash + Equipment = payable + Equity
Sept 1 + 90,000 +90,000 Issued shares

5 – 20,000 + 50,000 + 30,000
70,000 + 50,000 = 30,000 + 90,000
25 – 15,000 – 15,000
55,000 + 50,000 = 15,000 + 90,000
30 –2,000 –2,000 Dividends
53,000 + 50,000 = 15,000 + 88,000
$103,000 $103,000
(b)
Rover Ltd
General journal
Date Account titles and explanation Ref Debit Credit
Sept 1 Cash 100 90,000

Share capital 300 90,000
(Issued shares for cash)
5 Equipment 120 50,000

Cash 100 20,000
Accounts payable 200 30,000
(Purchased equipment part cash, part on

account)
25 Accounts payable 200 15,000

Cash 100 15,000
(Paid amount owed on account)
30 Dividends 320 2,000

Cash 100 2,000
(Paid cash dividend)
(c)
Ranch Ltd
Cash 100
1/9 Share capital 90,000 5/9 Equipment 20,000
25/9 Accounts payable 15,000
30/9 Dividend 2,000
Equipment 120
5/9 Cash/accounts payable 50,000

25/9 Cash 15,000 5/9 Equipment 30,000
Share capital 300

1/9 Cash 90,000
Dividends 320
30/9 Cash 2,000

E2.11 Analyse errors and their effects on trial balance. (LO8)

The bookkeeper for Equipment Repair Pty Ltd made these errors in journalising and
posting:
1. A credit posting of $600 to accounts payable was omitted.
2. A debit posting of $750 for prepaid insurance was debited to insurance expense.
3. A collection on account of $100 was journalised and posted as a debit to cash
$100 and a credit to service revenue $100.
4. A credit posting of $300 to rates and taxes payable was made twice.
5. A cash purchase of supplies for $250 was journalised and posted as a debit to
supplies $25 and a credit to cash $25.
6. A debit of $465 to advertising expense was posted as $456.
Required
(a) For each error, indicate (a) whether the trial balance will balance; if the trial
balance will not balance, indicate (b) the amount of the difference and (c) the
trial balance column that will have the greater total. Consider each error
separately. Use the following form, in which error 1 is given as an example:
(b) Describe the types of errors a trial balance will not detect.
Equipment Repair Pty Ltd

(a)
(a) (b) (c)
Error In balance Difference Column with larger total
1 No $600 Debit
2 Yes – –
3 Yes – –
4 No 300 Credit
5 Yes – –
6 No 9 Credit
(b) The trial balance will not detect postings to the correct side of the ledger but the
incorrect ledger account, omitted transactions, transactions posted incorrect amounts
on both sides of the ledger. That is the trial balance detects when debits do not equal
credits.

E2.12 Prepare a trial balance. (LO8)

The accounts in the ledger of Sushi To Go Ltd contain the following balances on 31 July
2022:
Required
Prepare a trial balance with the accounts arranged as illustrated in this chapter and fill
in the missing amount for cash.
Sushi To Go Ltd
Trial balance
as at 31 July 2022

$ $
Cash ($193,314 — Debit total without Cash $163,880) 29,434
Delivery equipment 118,620
Bank loan $56,800
Salaries payable 1,530
Dividends 1,300
Fuel expense 1,416
Repair expense 1,822
Insurance expense 946
$193,314 $193,314

E2.13 Prepare a trial balance. (LO8)

The accounts in the ledger of Boxer Ltd contain the following balances on 31 March
2023:
Required
Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill
in the missing amount for retained earnings.
Boxer Ltd
Trial balance
as at 31 March 2023

$ $
Cash 76,526
Delivery equipment 165,000
Salaries payable 3,460
Bank loan 75,000
Retained earnings ($303,600 – $281,823) 21,777
Dividends 2,700
Fuel expense 7,890
Repair expense 3,421
Insurance expense 4,568
$303,600 $303,600

Solutions manual to accompany Financial accounting: Reporting, analysis and decision making 7e. Not for distribution in full.
Solutions to Problem set A

PSA2.1 Analyse transactions and calculate profit. (LO1)
On 1 April, Let’s Go Travel Agency Ltd was established. These transactions were completed during
the month:
1. Shareholders invested $20 000 cash in the company in exchange for shares.
2. Paid $400 cash for April office rent.
3. Purchased office equipment for $2500 cash.
4. Incurred $300 of marketing costs, on account.
5. Paid $600 for office supplies.
6. $9000 of services was provided: cash of $1000 was received from customers, and the balance
of $8000 was in voiced to customers on account.
7. Paid $200 cash dividends.
8. Paid amount due in transaction (4).
9. Paid employees’ salaries, $1200.
10. Received $8000 in cash from customers who had previously been invoiced in transaction (6).
Required
(a) Prepare a transaction analysis using these column headings: Cash, Accounts receivable,
Supplies, Office equipment, Accounts payable, Share capital, and Retained earnings.
Include in the margin all explanations for any changes in retained earnings.
(b) From an analysis of the column Retained earnings, calculate profit or loss for April.

a)
Let’s Go Travel Agency Ltd

Cash + Accounts + Supplies + Office = Accounts + Share + Retained
receivable equipment payable capital profit
1. +$20,000 +$20,000
20,000 = 20,000
2 –400 –400 (a)
19,600 = 20,000 + (400)
3. –2,500 +2,500
17,100 + 2,500 = 20,000 + (400)
4. +300 –300 (b)
17,100 + 2,500 = 300 + 20,000 + (700)
5. –600 +600
16,500 + 600 + 2,500 = 300 + 20,000 + (700)
6. +1,000 +8,000 + +9,000 (c)
17,500 + 8,000 + 600 + 2,500 = 300 + 20,000 + 8,300
7. –200 –200 (d)
17,300 + 8,000 + 600 + 2,500 = 300 + 20,000 + 8,100
8. –300 –300
17,000 + 8,000 + 600 + 2,500 = 0 + 20,000 + 8,100
9. –1,200 –1,200 (e)
15,800 + 8,000 + 600 + 2,500 = 0 + 20,000 + 6,900
10. +8,000 –8,000
$23,800 + $0 + Key to $600
Retained+earnings $2,500 =
column above. $0 + $20,000 + $6,900
(a) Rent expense
(b) Marketing expense
(c) Service revenue
(d) Dividends
(e) Salaries expense

(b) Calculation of profit or loss for the year

Service revenue $9,000
Expenses:
Salaries expense $1,200
Rent expense 400
Marketing expense 400 1,900
Profit $7,100
OR
Increase in retained earnings ($6,900 – $0) $6,900

Add: Dividends 200
Profit $7,100

PSA2.2 Analyse transactions and prepare financial statements. (LO1)

Aurora Goodwin started her own consulting firm, Best Consulting Pty Ltd, on 1 May 2022.The following transactions occurred
during the month of May:
Required
(a) Show the effects of the previous transactions on the accounting equation using the following format:
Include margin explanations for any changes in retained earnings.

(b) Prepare a statement of profit or loss for the month of May.
(c) Prepare a statement of financial position as at 31 May 2022.
(a)
Best Consulting Pty Ltd


Date Cash + Accounts + Supplies + Office = Bank + Accounts + Share + Retained
receivable equipment loan payable capital earnings
1/5 $10,000 $10,000
2/5 (1,050) = ($1050) Rent expense
3/5 $250 $250
5/5 (75) (75) Advertising
expense
9/5 1,250 1,250 Service revenue
12/5 (100) (100) Telephone
15/5 $3,500 3,500 Service revenue
17/5 (2,000) (2,000) Salaries expense
20/5 (250) (250)
23/5 2,250 (2,250)
26/5 2,500 $2,500
29/5 $1,200 1,200
30/5 (125) (125) Electricity expense
$12,400 + $1,250 + $250 + $1,200 = $2,500 + $1,200 + $10,000 + $1,400

(b)

for the month ended 31 May 2022
$ $
Revenues:
Expenses:
Rent expense 1,050
Electricity expense 125
Telephone expense 100
Advertising expense 75
Profit $1,400
(c)

as at 31 May 2022
Assets: $ $
Cash 12,400
Supplies 250
Total assets 15,100
Liabilities:
Bank loan 2,500
Total liabilities 3,700
Net assets $11,400
Equity:

PSA2.3 Analyse transactions and prepare financial statements. (LO1)

Note: An error has been found in this question. Where ‘retained earnings’ reads ‘$300’ in the question text, it should instead read
‘$600’. This has been corrected below and will be corrected in the text at reprint.
Chenyue Zhu started a business providing legal services, Zhu Pty Ltd, on 1 July 2022. On 31 July the statement of financial position
showed: cash $8000; accounts receivable $3000; supplies $1000; office equipment $10 000; accounts payable $8400; share capital
$13 000; and retained earnings $600. During August the following transactions occurred.
1. Collected $2800 of amounts owing from accounts receivable.
2. Paid $5400 cash of the balance of accounts payable.
3. Recorded revenue of $12 800, of which $6000 was collected in cash and the balance is due in September.
4. Purchased additional office equipment for $2000, paying $800 in cash and the balance on account.
5. Paid salaries $3000, rent for August $1800, and advertising expenses $700.
6. Declared and paid a cash dividend of $1100.
7. Borrowed $4000 from Kati Kati Bank.
8. Incurred electricity expense for the month of $500 on account.
Required
(a) Prepare a transaction analysis of the August transactions beginning with 31 July balances. The column headings should be:
Cash + Accounts receivable + Supplies + Office equipment = Bank loan + Accounts payable + Share capital + Retained
earnings. Include in the margin explanations for any changes in retained earnings.
(b) Prepare a statement of profit or loss for August, and a classified statement of financial position as at 31 August.

(a)
Zhu Pty Ltd

Cash + Accounts + Supplies + Office = Bank + Accounts + Share + Retained
receivable equipment loan payable capital earnings
Bal. $8,000 + $3,000 + $1,000 + $10,000 = + $8,400 + $13,000 + $600*
1. +2,800 –2,800
10,800 + 200 + 1,000 + 10,000 = 8,400 + 13,000 + 600
2 –5,400 –5,400
5,400 + 200 + 1,000 + 10,000 = 3,000 + 13,000 + 600
3. +6,000 +6,800 +12,800 (a)
11,400 + 7,000 + 1,000 + 10,000 = 3,000 + 13,000 + 13,400
4. –800 +2,000 +1,200
10,600 + 7,000 + 1,000 + 12,000 = 4,200 + 13,000 13,400
5. –3,000 –3,000 (b)
–1,800 –1,800 (c)
–700 –700 (d)
5,100 + 7,000 + 1,000 + 12,000 = 4,200 + 13,000 + 7,900
6. –1,100 –1,100 (e)
4,000 + 7,000 + 1,000 + 12,000 = 4,200 + 13,000 + 6,800
7. +4,000 +$4,000
8,000 + 7,000 + 1,000 + 12,000 = 4,000 + 4,200 + 13,000 + 6,800
8. +500 –500 (f)
$8,000 + $7,000 + $1,000 + $12,000 = $4,000 + $4,700 + $13,000 + $6,300
*This displays as “300” in the text, which is in error. “600” is the correct value.
Key to Retained earnings column above:

(a) Service revenue.
(b) Salaries expense.
(c) Rent expense.
(d) Advertising expense.
(e) Dividends.
(f) Electricity expense.

(b)
Zhu Pty Ltd

$ $
Revenues:
Expenses:
Rent expense 1,800
Profit $6,800
Zhu Pty Ltd

$ $
Current assets:
Cash 8,000
Supplies 1,000
Total current assets 16,000
Non-current assets:
Total assets 28,000
Current liabilities:
Non-current liabilities:
Bank loan* 4,000
Net assets $19,300
Equity:
Retained earnings ** 6,300 19,300
* Loan could be current or non-current; shown as non-current
**Retained earnings $600 + Profit $6,800 – dividend $1,100 = $6,300

PSA2.4 Journalise a series of transactions. (LO3, 5)

Fantasy Miniature Golf and Driving Range Pty Ltd was opened on 1 March by Jim
Zarle. These selected events and transactions occurred during March:
The company uses these accounts: Cash (no. 100), Prepaid insurance (no. 112), Land
(no. 130), Buildings (no. 135), Equipment (no. 138), Accounts payable (no. 200), Golf
revenue received in advance (no. 213), Share capital (no. 300), Retained earnings (no.
310), Dividends (no. 320), Golf revenue (no. 400), Advertising expense (no. 500) and
Salaries expense (no.510).
Required
Journalise the March transactions. Include narrations.
Fantasy Miniature Golf and Driving Range Pty Ltd
Date Account titles and explanation Post Debit Credit

ref
Mar. 1 Cash 100 30,000

3 Land 130 11,500

Buildings 135 4,500
Equipment 138 3,000
Cash 100 19,000
(Purchased Lee’s Golf Land)
5 Advertising expense 500 800

Cash 100 800
(Paid for advertising)
6 Prepaid insurance 112 740

Cash 100 740
(Paid for one-year insurance policy)
10 Equipment 138 800

Accounts payable 200 800
(Purchased equipment on account)

18 Cash 100 400

Golf revenue 400 400
(Revenue received in cash)
19 Cash 100 750

Golf revenue received in advance 750
(Received cash for voucher books sold)
25 Dividends 320 250

Cash 100 250
(Payment of cash dividend)
30 Salaries expense 510 300

Cash 100 300
(Paid salaries expense)
30 Accounts payable 200 800

Cash 100 800
(Paid creditor on account)
31 Cash 100 400

Golf revenue 400 400

PSA2.5 Journalise transactions, post, and prepare a trial balance. (LO3, 5, 6, 7, 8)

Mahon Consultants Pty Ltd opened as licensed architects on 1 April 2022. During the
first month of the operation of the business, these events and transactions occurred:
Mahon Consultants Pty Ltd uses these accounts: Cash (no. 100), Accounts receivable
(no. 110), Supplies (no. 115), Accounts payable (no. 200), Revenue received in advance
(no. 209), Share capital (no. 300), Service revenue (no. 400), Salaries expense
(no. 500), and Rent expense (no. 510).
Required
(a) Journalise the transactions. Include narrations.
(b) Post to the ledger T accounts.
(c) Prepare a trial balance on 30 April 2022.
Mahon Consultants Pty Ltd
(a)

ref
Apr. 1 Cash 100 76,500

1 No entry — not a transaction.
2 Rent expense 510 2,850

Cash 100 2,850
(Paid monthly office rent)
3 Supplies 115 7,650

(Purchased supplies on account from Speedy
Art Supplies)
10 Accounts receivable 110 4,050

Service revenue 400 4,050
(Invoiced clients for services rendered)
11 Cash 100 1,650

Revenue received in advance 209 1,650
(Received cash advance for future service)

20 Cash 100 9,450

30 Salaries expense 500 5,850

Cash 100 5,850
(Paid monthly salary)

Cash 100 3,450
(Paid Speedy Art Supplies on account)

(b)
Cash 100
1/ 4 Share capital 76,500 2/4 Rent expense 2,850
11/4 Revenue received in 1,650 30/4 Salaries expense 5,850
advance
20/4 Service revenue 9,450 30/4 Accounts payable 3,450
30/4 Closing balance 75,450
86,700 86,700

10/4 Service revenue 4,050
Supplies 115
¾ Accounts payable 7,650

30/4 Cash 3,450 3/4 Supplies 7,650
7,650 7,650

11/4 Cash 1,650
Share capital 300

1/4 Cash 76,500
Service revenue 400

20/4 Cash 9,450
13,500

30/4 Cash 5,850
Rent expense 510

2/4 Cash 2,850

(c)
Mahon Consultants Pty Ltd

Trial balance
as at 30 April 2022

$ $
Cash 75,450
Supplies 7,650
Rent expense 2,850
$95,850 $95,850

PSA2.6 Journalise transactions, post and prepare a trial balance. (LO3, 5, 6, 7, 8)

This is the trial balance of Lou Lou’s Beauty Centre Pty Ltd on 30 September:
The October transactions were as follows:
Required
(a) Prepare a general ledger using T accounts. Enter the opening balances in the
ledger accounts as of 1 October. Provision should be made for these additional
accounts: Dividends (no. 310), Service revenue (no. 400), Salaries expense (no.
500), and Electricity expense (no. 510).
(b) Journalise the transactions, including narrations.
(c) Post to the ledger accounts, which you prepared in part (a).
(d) Prepare a trial balance as at 31 October 2022.
Lou Lou’s Beauty Centre Pty Ltd
(a) & (c)
Cash 100
1/10 Opening balance 32,800 15/10 Salaries expense 3,600
5/10 Accounts receivable 2,400 20/10 Accounts payable 5,200
29/10 Dividend 800
31/10 Electricity expense 1,600
35,200 35,200

1/10 Opening balance 7,600 5/10 Cash 2,400
20,400 20,400

Supplies 120
Equipment 130

20/10 Cash 5,200 1/10 Opening balance 18,800
18,800 18,800

17/10 Service revenue 1,200 1/10 Opening balance 1,600
31/10 Closing balance 400
1,600 1,600
Share capital 300

Dividends 310
29/10 Cash 800
Service revenue 400

17/10 Revenue received in advance 1,200
14,000

15/10 Cash 3,600

31/10 Cash 1,600

(b)

ref
Oct 5 Cash 100 2,400

Accounts receivable 115 2,400


Cash 100 3,600
(Paid employee salaries)
17 Revenue received in advance 210 1,200

(Performed services for customers who paid in
advance)

Cash 100 5,200
Cash 100 800
31 Electricity expense 510 1,600

Cash 100 1,600
(Paid electricity)

(d)
Lou Lou’s Beauty Centre Pty Ltd

Trial balance
as at 31 October 2022
No. Account name Debit Credit

$ $
100 Cash 24,000
120 Supplies 5,600
130 Equipment 30,800
210 Revenue received in advance 400
300 Share capital 56,400
310 Dividends 800
400 Service revenue 14,000
510 Electricity expense 1,600
$84,400 $84,400


This is the trial balance of Western Laundry Services Pty Ltd on 30 April:
The May transactions were as follows:
Required
ledger accounts as of 1 May. Provision should be made for these additional
accounts: Dividends (no. 310), Service revenue (no. 400), Salaries expense (no.
500), and Electricity expense (no. 510).
(b) Journalise the transactions, including narrations.
(d) Prepare a trial balance as at 31 May 2022.
Western Laundry Services Pty Ltd
(a) & (c)
Cash 100
1/5 Opening balance 4,250 12/5 Salaries expense 600
2/5 Accounts receivable 450 18/5 Accounts payable 800
25/5 Dividend 250
31/5 Electricity expense 350
4,700 4,700

1/5 Opening balance 1,100 2/5 Cash 450
2,850 2,850
Supplies 120

Equipment 130

18/5 Cash 800 1/5 Opening balance 2,500
2,500 2,500

15/5 Service revenue 300 1/5 Opening balance 350
31/5 Closing balance 50
350 350
Share capital 300

Dividends 310
25/5 Cash 250
Service revenue 400

15/5 Revenue received in
advance 300
2,050

12/5 Cash 600

31/5 Cash 350

(b)

Ref
May 2 Cash 100 450

Accounts receivable 115 450


Cash 100 600
(Paid employee salaries)
15 Revenue received in advance 210 300

Service revenue 400 300
(Performed services for customers who paid in
advance)
18 Accounts payable 200 800

Cash 100 800
Cash 100 250
31 Electricity expense 510 350

Cash 100 350
(Paid electricity)

(d)
Western Laundry Services Pty Ltd

Trial balance
as at 31 May 2022

$ $
100 Cash 2,700
120 Supplies 850
130 Equipment 4,000
210 Revenue received in advance 50
310 Dividends 250
500 Salaries expense 600
510 Electricity expense 350
$11,150 $11,150


Triple Cinemas Pty Ltd was recently formed. It began operations in March 2022. Triple
Cinemas is unique in that will show only triple features of sequential theme movies. As
of 28 February, the ledger of Triple Cinemas Pty Ltd showed: (100) Cash $57 300; (110)
Equipment $57 300; (120) Land $135 300; (130) Buildings $63 300; (200) Accounts
payable $45 300; and (300) Share capital $267 900. During the month of March the
following events and transactions occurred:
In addition to the accounts identified above, the chart of accounts includes: (105)
Accounts receivable, (400) Admission revenue, (410) Coffee cart revenue, (500)
Advertising expense, (510) Film rental expense, and (520) Salaries expense.
Required
(a) Using T accounts, enter the beginning balances in the ledger.
(b) Journalise the March transactions, including narrations.
(c) Post the March journal entries to the ledger accounts you prepared in part (a).
(d) Prepare a trial balance as at 31 March 2022.
Triple Cinemas Pty Ltd
(a) & (c)
Cash 100
1/3 Opening balance 57,300 2/3 Film rental expense 24,000
9/3 Admission revenue 34,800 10/3 Accounts payable 42,600
20/3 Admission revenue 30,900 12/3 Advertising 11,700
31/3 Coffee cart revenue 3,330 20/3 Film rental expense 15,000
31/3 Admission revenue 64,800 31/3 Salaries expense 20,700
191,130 191,130
¼ Opening balance 77,130

31/3 Coffee cart revenue 3,330
Equipment 110

Land 120
Buildings 130

10/3 Cash 42,600 1/3 Opening balance 45,300
31/3 Closing balance 24,000 2/3 Film rental expense 21,300
66,600 66,600
Share capital 300

Admission revenue 400

9/3 Cash 34,800
20/3 Cash 30,900
31/3 Cash 64,800
130,500
Coffee cart revenue 410

31/3 Cash/Accounts receivable 6,660

12/3 Cash 11,700
Film rental expense 510

2/3 Accounts payable/Cash 45,300
20/3 Cash 15,000
60,300

31/3 Cash 20,700

(b)
Date Account titles and explanation Post ref Debit Credit

Mar. 2 Film rental expense 510 45,300
Cash 100 24,000
(Rented films for cash and on account)
3 No entry.
9 Cash 100 34,800

Admission revenue 400 34,800
(Received cash for admissions)
10 Accounts payable ($21,300 + $21,300) 200 42,600

Cash 100 42,600
11 No entry.
12 Advertising expense 500 11,700
Cash 100 11,700
(Paid advertising expenses)
20 Cash 100 30,900

20 Film rental expense 510 15,000

Cash 100 15,000
(Paid film rental)

Cash 100 20,700
31 Cash 100 3,330

Accounts receivable 105 3,330
Coffee cart revenue 410 6,660
(Received cash and balance on account
for coffee cart revenue)
31 Cash 100 64,800


(d)
Triple Cinemas Pty Ltd

Trial balance
as at 31 March 2022

$ $
100 Cash 77,130
120 Land 135,300
130 Buildings 63,300
400 Admission revenue 130,500
410 Coffee cart revenue 6,660
500 Advertising expense 11,700
510 Film rental expense 60,300
$429,060 $429,060

PSA2.9 Prepare a correct trial balance. (LO8)

This trial balance of Queenstown Ltd does not balance.
Each of the listed accounts has a normal balance. An examination of the ledger and
journal reveals the following errors.
1. Cash received from a customer on account was debited to cash for $3420, and
accounts receivable was credited for the same amount. The actual collection was
for $4320.
2. The purchase of a scientific calculator on account for $500 was recorded as a
debit to supplies for $500 and a credit to accounts payable for $500.
3. Services were performed on account for a client for $6240. Accounts receivable
was debited for $6240 and service revenue was credited for $624.
4. A debit posting to salaries expense of $4500 was omitted.
5. A payment on account for $2136 was credited to cash for $2136 and credited to
accounts payable for $2163.
6. Payment of a $3300 cash dividend to Queenstown Ltd’s shareholders was
debited to salaries expense for $3300 and credited to cash for $3300.
Required
(a) Prepare the correct trial balance.
(b) Explain what adjustments were made and why they were necessary.
(a)
Queenstown Ltd
Trial balance
as at 30 June 2023

$ $
Cash ($17940 + $900) 18,840
Accounts receivable ($21093 – $900) 20,193
Supplies ($5700 – $500) 5,200
Equipment ($18,900 + $500) 19,400
Accounts payable ($16896 – $2163 – $2136) 12,587
Dividends ($5700 + $3300) 9,000

Service revenue ($15180 + $5,616) 20,796

Salaries expense ($21300 + $4500 – $3300) 22,500
Office expense 6,360
$101,493 $101,493
(b)
Explanation: The first number in the brackets is the balance as per the initial trial balance
given in the question. The subsequent numbers are the corrections.
Note that Cash should start in the debit and Revenue received in advance should start in the
credit.
Brief explanation of each error:
1. $4320 – $3420 = $900. Need to decrease Accounts receivable by $900 and increase
cash by $900 to correctly record the collection of $4320 on account.
2. Calculator should not be included in Supplies so decrease Supplies by $500.

Calculators should be included in Equipment, so increase Equipment by $500.
3. Rental Revenue needs to be adjusted upwards by $5616 ($6240 – $624).
4. Increase Salaries expenses by $4500.
5. A payment on account should be debit to Accounts payable. The amount of $2163

was incorrectly credited. To correct this entry, the balance of Accounts payable must
be reduced by $2163. To correctly record the payment of $2136 on account,
Accounts payable is reduced further by $2136.
6. Need to reduce Salaries expense by $3300 and increase Dividends by $3300.

PSA2.10 Prepare a correct trial balance. (LO8)

This trial balance of Helpful Services Ltd does not balance.
1. Cash received from a customer on account was debited to cash for $1140, and
for $1500.
2. The purchase of a printer on account for $680 was recorded as a debit to
supplies for $680 and a credit to accounts payable for $680.
was debited for $1780 and service revenue was credited for $178.
5. A payment on account for $412 was credited to cash for $412 and credited to
accounts payable for $520.
6. Payment of an $800 cash dividend to shareholders was debited to salaries
expense for $800 and credited to cash for $800.
Required
(a)
Helpful Services Ltd

Trial balance
as at 30 June 2022

$ $
Cash ($5680 + $360) 6,040
Accounts receivable ($6462 – $360) 6,102
Supplies ($1600 – $680) 920
Equipment ($6,000 + $680) 6,680
Accounts payable ($5332 – $520 – $412) 4,400
Dividends ($1600 + $800) 2,400
Service revenue ($4760 + $1602) 6,362
Salaries expense ($6800 + $1200 – $800) 7,200

Office expense 1,820
$31,162 $31,162
(b)
Explanation: The first number in the brackets is the balance as per the initial trial balance in
question. The subsequent numbers are the corrections.
credit.
2. Calculator should not be included in Supplies so decrease Supplies by $680.

Calculators should be included in Equipment, so increase Equipment by $680.
3. Service revenue needs to be adjusted upwards by $1602 ($1780 – $178).
5. A payment on account should be debit to Accounts payable. The amount of $520 was
incorrectly credited. To correct this entry, the balance of Accounts payable must be
reduced by $520. To correctly record the payment of $206 on account, Accounts
payable is reduced further by $412.
6. Need to reduce Salaries expense by 800 and increase Dividends by $800.

Key to Retained earnings column:
a) Rent expense
b) Advertising Expense
Solutions to Problem set B c) Service revenue
d) Dividends
e) Salaries expense
PSB2.1 Analyse transactions and calculate profit. (LO1) f) Electricity expense
g) Service revenue.
Crazy Bob’s Repair Shop Ltd was started on 1 May. Here is a summary of the May transactions.
1. Shareholders invested $16 000 cash in the company in exchange for shares.
2. Purchased equipment for $5000 cash.
3. Paid $400 cash for May office rent.
4. Paid $500 cash for supplies.
5. Incurred $550 of advertising costs in the North Shore Times on account.
6. Received $4100 in cash from customers for repair service.
7. Declared and paid a $500 cash dividend.
8. Paid part-time employee salaries, $1200.
9. Paid electricity bill, $140.
10. Provided repair service on account to customers, $400.
11. Collected cash of $120 for services invoiced in transaction (10).
Required
(a) Prepare a transaction analysis using these column headings: Cash, Accounts receivable, Supplies, Equipment, Accounts payable,
Share capital, and Retained earnings. Revenue is called service revenue. Include in the margin explanations for any changes in
retained earnings.
(b) From an analysis of the column retained earnings, calculate the profit or loss for May.
CRAZY BOB’S REPAIR SHOP LTD
(a) Cash + Accounts + Supplies + Office equip = Accounts + Share + Retained

receivable payable capital earnings
(1) + 16,000 + 16,000

16,000 16,000
(2) – (5,000) + 5,000

11,000 5,000 16,000
(3) – (400) – (400) (a)

10,600 (400)
(4) – (500) 500

(a) Cash + Accounts + Supplies + Office equip = Accounts + Share + Retained

receivable payable capital earnings
10,100 500
(5) + 550 – (550) (b)

10,100 500 5,000 550 16,000 (950)
(6) + 4,100 + 4,100 (c)

14,200 500 5,000 550 16,000 3,150
(7) – (500) (500) (d)

13,700 500 5,000 550 16,000 2,650
(8) – (1,200) (1,200) (e)

12,500 500 5,000 550 16,000 1,450
(9) – (140) (140) (f)

12,360 500 5,000 550 16,000 1,310
(10) + 400 + 400 (g)

12,360 400 500 5,000 550 16,000 1,710
(11) + 120 – (120)

12,480 280 500 5,000 550 16,000 1,710

(b) Service revenue .............................................................. $4,500

Expenses
Salaries expense ...................................................$1,200
Rent expense ................................................... 400
Advertising expense ................................................... 550
Electricity expense ................................................... 140 2,290
Profit .............................................................. $2,210
Increase in retained earnings ($1,710 – $0) .............................................. $1,710

Add: Dividends .............................................. 500
Profit .......................................... $2,210

PSB2.2 Analyse transactions and prepare financial statements. (LO1)

Ethan Goodwin started his own delivery service, Fast Deliveries Ltd, on 1 June 2022. The following transactions occurred during the month
of June:
The transaction on the 5th should be “$4000”, not “$42 000”

Required
(a) Show the effects of the previous transactions on the accounting equation using the following format:
Include in the margin explanations for any changes in retained earnings.

(b) Prepare a statement of profit or loss for the month of June.
(c) Prepare a statement of financial position at 30 June 2022.

Key to Retained earnings column:
a) Rent expense
b) Service revenue
c) Dividend
FAST DELIVERIES LTD d) Petrol expense
e) Service revenue
Shareholders’ f) Electricity expense
(a) Assets Liabilities g) Salary expense.
equity
Date Cash + Accounts + Supplies + Delivery = Accounts + Share capital + Retained
receivable van payable earnings
01/06 + 60,000 60,000
60,000 60,000
02/06 – (8,000) + 40,000 + 32,000

52,000 40,000 32,000 60,000
03/06 – (2,000) – (2,000) A

50,000 40,000 32,000 60,000 (2,000)
05/06 + 4,000 + 4,000 B

50,000 4000 40,000 32,000 60,000 2,000
09/06 – (800) – (800) C

49,200 4,000 40,000 32,000 60,000 1,200
12/06 + 600 + 600

49,200 4,000 600 40,000 32,600 60,000 1,200
15/06 + 3,000 – (3,000) 60,000

52,200 1,000 600 40,000 32,600 60,000 1,200
17/06 + 400 – (400) D

52,200 1,000 600 40,000 33,000 60,000 800
20/06 + 6,000 + 6,000 E

58,200 1,000 600 40,000 33,000 60,000 6,800
23/06 – (2,000) – (2,000)

56,200 1,000 600 40,000 31,000 60,000 6,800

(a) Assets Liabilities Shareholders’

equity
Date Cash + Accounts + Supplies + Delivery = Accounts + Share capital + Retained
receivable van payable earnings
26/06 (1,000) (1,000) F
27,200 1,000 600 40,000 31,000 60,000 5,800
29/06 (400) (400)

54,800 1,000 600 40,000 30,600 60,000 5,800
30/06 (2,000) (2,000) G

52,800 1,000 600 40,000 30,600 60,000 3,800

(b) FAST DELIVERIES LTD

for the Month Ended 30 June 2022
$ $
Revenues:
Expenses:
Rent expense 2,000
Petrol expense 400
Profit $4,600
(c)
FAST DELIVERIES LTD
as at 30 June 2022
Assets: $ $
Cash 52,800
Supplies 600
Delivery Van 40,000
Total assets 94,400
Liabilities:
Net assets $63,800
Equity:
Retained earnings* 3,800
*Retained earnings = Profit $4600 less dividends $800 = $3800

PSB2.3 Analyse transactions and prepare a statement of profit or loss and a statement of financial position. (LO1)
Sonia Cai opened Healthy Pets Ltd, a veterinary business, on 1 August 2022. On 31 August the statement of financial position
showed: Cash $36 000; Accounts receivable $6800; Supplies $2400; Office equipment $24 000; Accounts payable $14 400; Share
capital $52 000; and Retained earnings $2800. During September the following transactions occurred.
1. Paid $12 400 cash on accounts payable.
2. Collected $5200 of accounts receivable.
3. Purchased additional office equipment for $16 400, paying $3200 in cash and the balance on account.
4. Earned a revenue of $35 600, of which $10 000 was paid in cash and the balance is due in October.
5. Declared and paid a $2400 cash dividend.
6. Paid salaries $2800, rent for September $3600, and marketing expense $1200.
7. Incurred electricity expense for month on account, $680.
8. Borrowed $28 000 from Westpac Bank.
Required
(a) Prepare a transaction analysis of the September transactions beginning with 31 August balances. The column headings should be:
Cash + Accounts receivable + Supplies + Office equipment = Bank loan + Accounts payable + Share capital + Retained earnings.
Include in the margin explanations for any changes in retained earnings.
(b) Prepare a statement of profit or loss for September, a calculation of retained earnings for September, and a classified statement of
financial position at 30 September 2022.
HEALTHY PETS LTD
Equity
(a) Assets Liabilities
Cash + Account + Supplies + Office = Accounts + Bank loan + Share + Retained
receivable equipment payable capital earnings
O/B 36,000 6,800 2,400 24,000 14,400 52,000 2,800

1 – (12,400) – (12,400)
23,600 6,800 2,400 24,000 2,000 52,000 2,800
2 + 5,200 (5,200)
28,800 1,600 2,400 24,000 2,000 52,000 2,800
3 – (3,200) + 16,400 + 13,200

25,600 1,600 2,400 40,400 15,200 52,000 2,800
4 + 10,000 + 25,600 + 35,600 (a)

35,600 27,200 2,400 40,400 15,200 52,000 38,400
5 – (2,400) – (2,400) (b)

33,200 27,200 2,400 40,400 15,200 52,000 36,000
6 (2,800) (2,800) (c)

(3,600) (3,600) (d)
(1,200) (1,200) (e)
25,600 27,200 2,400 40,400 15,200 52,000 28,400
7 + 680 – (680) (f)

25,600 27,200 2,400 40,400 15,880 52,000 27,720
8 + 28,000 + 28,000
53,600 27,200 2,400 40,400 = 15,880 28,000 52,000 27,720

Key to Retained earnings column on previous page.
(a) Service revenue

(b) Dividends
(c) Salaries expense
(d) Rent expense
(e) Marketing expense
(f) Electricity expense
(b) Healthy Pets Ltd

for the Month Ended 30 September 2022
$ $
Revenues:
Expenses:
Rent expense 3,600
Marketing expense 1,200
Profit $27,320
Healthy Pets Ltd

Calculation of Retained earnings
for the Month Ended 30 September 2021
$
Retained earnings 1 September 2,800
Add: Profit 27,320
30,120
Less: Dividends (2,400)
Retained earnings 30 September $27,720

Healthy Pets Ltd

as at 30 September 2022
$ $
Current assets:
Cash 53,600
Supplies 2,400
Non-current assets:
Total assets 123,600
Non-current liabilities:
Bank loan* 28,000
Net assets $79,720
Equity:

PSB2.4 Journalise a series of transactions. (LO3, 5)

Just for Fun Park was started on 1 April by Greg Winters. These selected events and
transactions occurred during April:
Just for Fun Park uses the following accounts: Cash, Prepaid insurance, Land,
Accounts payable, Revenue received in advance, Share capital, Dividends, Admission
revenue, Advertising expense, and Salaries expense.
Required
Journalise the April transactions, including narrations.
Just for Fun Park

Apr. 1 Cash 90,000
4 Land 45,000
Cash 45,000
(Purchased land for cash)
8 Advertising expense 2,700
(Incurred advertising expense on account)
Cash 2,550
(Paid salaries)
12 No entry.
13 Prepaid insurance 4,500
Cash 4,500
(Paid for one-year insurance policy)
17 Dividends 900
Cash 900
20 Cash 8,550
Admission revenue 8,550
(Received cash for services rendered)
25 Cash 3,750
(Received advance for future services)
30 Cash 11,850
(Received cash for services provided)
Cash 1,050

PSB2.5 Journalise transactions, post, prepare a trial balance and financial statements.
(LO3, 5, 6, 7, 8)
George Dario incorporated Accurate Accountants, an accounting practice, on 1 May
2022. During the first month of operations of his business, these events and transactions
occurred:
The following chart of accounts is used: (100) Cash, (110) Accounts receivable, (115)
Supplies, (200) Accounts payable, (210) Revenue received in advance, (300) Share
capital, (400) Service revenue, (500) Salaries expense, and (510) Rent expense.
Required
(a) Journalise the transactions, including narrations.
(c) Prepare a trial balance on 31 May 2022.
(d) Prepare a statement of profit or loss for the month of May and a classified
statement of financial position as at 31 May 2022.
(a) Accurate Accountants

$ $
May 1 Cash 100 78,000


Cash 100 1,350
(Paid office rent)
11Accounts receivable 110 1,650

(Billed client for services provided)
12Cash 100 6,750

(Received an advance for future services)

17Cash 100 1,800

(Received cash for revenue earned)
31Salaries expense 500 1,500

Cash 100 1,500
(Paid salaries)
31Accounts payable ($1800 X 40%) 200 720

Cash 100 720

(b) Accurate Accountants’ general ledger
Cash 100
1-May Share capital 78,000 7-May Rent expense 1,350
12-May Revenue received 6,750 31-May Salaries expense 1,500
in advance
17-May Service revenue 1,800 31-May Accounts payable 720
31-May Closing balance 82,980
86,550 86,550
1-Jun Opening balance 82,980

11-May Service revenue 1,650
Supplies 115
3-May Accounts payable 1,800

31-May Cash 720 3-May Supplies 1,800
31-May Closing balance 1,080
1,800 1,800
1-June Opening balance 1,080

12-May Cash 6,750
Share capital 300

1-May Cash 78,000
Service revenue 400

11-May Accounts receivable 1,650
31-May Closing balance 3,450 17-May Cash 1,800
3,450 3,450
1-June Opening balance 3,450

31-May Cash 1,500
Rent expense 510

7-May Cash 1,350

(c)
Accurate Accountants
Trial balance
as at 31 May 2022

$ $
100 Cash 82,980
115 Supplies 1,800
210 Revenue received in advance 6,750
$89,280 $89,280
(d) Accurate Accountants

for the month ended 31 May 2022
$ $
Revenues:
Expenses:
Rent expense 1,350
Total expenses
2,850
Profit $ 600

Accurate Accountants
as at 31 May 2022
$ $
Current assets:
Cash 82,980
Supplies 1,800
Total assets 86,430
Rent revenue received in advance 6,750
Net assets $78,600
Equity:
Retained earnings 600

(LOS3, 5, 6, 7, 8)
The trial balance of Wellington Dry Cleaners on 30 June is given here:
The July transactions were as follows:
Required
ledger accounts as of 1 July. Provision should be made for the following
additional accounts: (310) Dividends, (400) Dry cleaning revenue, (500) Repair
expense, (510) Salaries expense, and (520) Electricity expense.
(b) Journalise the transactions.
(d) Prepare a trial balance on 31 July 2022.
(e) Prepare a statement of profit or loss for July and a classified statement of
financial position as at 31 July 2022.
(a) and (c)
100 Cash
1-Jul Opening balance 25,064 9-Jul Salaries expense 4,200
8-Jul Accounts receivable 9,872 14-Jul Accounts payable 21,500
11-Jul Dry cleaning revenue 9,850 30-Jul Various expenses 10,380
31-Jul Dividends 1,000

31-Jul Closing balance 7,706
44,786 44,786
1-Aug Opening balance 7,706
110 Accounts receivable

1-Jul Opening balance 21,072 8-Jul Cash 8,872
22-Jul Dry cleaning revenue 9,400 31-Jul Closing balance 20,600

30,472 30,472
120 Supplies
1-Jul Opening balance 9,688
17-Jul Accounts payable 1,108 31-Jul Closing balance 10,796
10,796 10,796
130 Equipment
200 Accounts payable

14-Jul Cash 21,500 1-Jul Opening balance 31,756
31-Jul Closing balance 11,364 17-Jul Supplies 1,108
32,864 32,864
210 Revenue received in advance

300 Share capital

310 Dividends
31-Jul Cash 1,000
400 Dry cleaning revenue

11-Jul Cash 9,850
31-Jul Closing balance 19,250 22-Jul Accounts receivable 9,400
19,250 19,250
500 Repair expense

30-Jul Cash 984
510 Salaries expense

9-Jul Cash 4,200
30-Jul Cash 6,228 31-Jul Closing balance 10,428
10,428 10,428
520 Electricity expense

30-Jul Cash 3,168
(b)

July 8 Cash 9,872
(Received cash on account)

Cash 4,200
(Paid salaries)
11 Cash 9,850
Dry cleaning revenue 9,850
(Received cash for services provided)

Cash 21,500
(Paid creditors)
17 Supplies 1,108

Dry cleaning revenue 9,400
(Billed for services provided)

Repair expense 984
Cash 10,380
(Paid for various expenses)
31 Dividends 1,000
Cash 1,000

(d)
Wellington Dry Cleaners

Trial balance
as at 31 July, 2022

$ $
100 Cash 7,706
120 Supplies 10,796
310 Dividends 1,000
400 Dry cleaning revenue 19,250
500 Repairs Expense 984
520 Electricity expense 3,168
$106,582 $106,582
(e)
for the month ended 31 July 2022
$ $
Revenues:
Expenses:
Repairs expense 984
Profit $4,670


as at 31 July 2022
$ $
Current assets:
Cash 7,706
Supplies 10,796
Non-current assets:
Equipment 51,900
Total assets 91,002
Net assets $76,178
Equity:
Retained earnings * 3,670
*retained earnings profit $4,670 less dividend $1000 = $3,670

(LO3, 5, 6, 7, 8)
Maria George incorporated Busy Bookkeepers Pty Ltd, a bookkeeping practice, on 1
January 2022. During the first month of operations, these events and transactions
occurred:
The following chart of accounts is used: (100) Cash, (110) Accounts receivable, (115)
Supplies, (200) Accounts payable, (210) Revenue received in advance, (300) Share
capital, (400) Service revenue, (500) Salaries expense, and (510) Rent expense.
Required
(a) Journalise the transactions, including narrations.
(c) Prepare a trial balance as at 31 January 2022.
(d) Prepare a statement of profit or loss for the month of January and a classified
statement of financial position as at 31 January 2022.
(a) Busy Bookkeepers Pty Ltd

$ $
Jan. 2 Cash 100 88,000


Cash 100 2,400
(Paid office rent)

(Billed client for services provided)
12 Cash 100 3,000

(Received an advance for future services)

17 Cash 100 1,700

(Received cash for revenue earned)

Cash 100 2,000
(Paid salaries)
31 Accounts payable ($1,600 x 40%) 200 640

Cash 100 640

(b) Busy Bookkeepers Pty Ltd
Cash 100
2-Jan Share capital 88,000 7-Jan Rent expense 2,400
12-Jan Revenue received 3,000 31-Jan Salaries expense 2,000
in advance
17-Jan Service revenue 1,700 31-Jan Accounts payable 640
31-Jan Closing balance 87,660
92,700 92,700
1-Feb Opening balance 87,660

11-Jan Service revenue 3,800
Supplies 115
4-Jan Accounts payable 1,600

31-Jan Cash 640 4-Jan Supplies 1,600
31-Jan Closing balance 960
1,600 1,600
1-Feb Opening balance 960

12-Jan Cash 3,000
Share capital 300

2-Jan Cash 88,000
Service revenue 400

11-Jan Accounts receivable 3,800
31-Jan Closing balance 5,500 17-Jan Cash 1,700
5,500 5,500
1-Feb Opening balance 5,500

31-Jan Cash 2,000
Rent expense 510

7-Jan Cash 2,400

(c)
Busy Bookkeepers Pty Ltd

Trial balance
as at 31 January 2022

$ $
100 Cash 87,660
115 Supplies 1,600
200 Accounts payable 960
$97460 $97460
(d)
for the month ended 31 January 2022
$ $
Revenues:
Expenses:
Rent expense 2,400
Profit $1,100


as at 31 January 2022
$ $
Current assets:
Cash 87,660
Supplies 1,600
Total assets 93,060
Net assets $89,100
Equity:

(LO3, 5, 6, 7, 8)
Lights Out Theatre Ltd was recently formed. All facilities were completed on 31 March
2022. On 1 April, the ledgers howed: (100) Cash $6000; (120) Land $10 000; (130)
Buildings $8000; (140) Equipment $6000; (200) Accounts payable $2000; (210)
Mortgage payable $8000; and (300) Share capital $20 000. During April, the following
events and transactions occurred:
In addition to the accounts identified above, the chart of accounts shows: (105)
Accounts receivable, (107) Prepaid rentals, (400) Admission revenue, (410) Candy bar
revenue, (510) Advertising expense, (520) Film rental expense, (530) Salaries expense.
Required
(a) Enter the beginning balances in the ledger T accounts as of 1 April.
(b) Journalise the April transactions, including narrations.
(c) Post the April journal entries to the ledger T accounts prepared in part (a).
(d) Prepare a trial balance on 30 April 2022.
(e) Prepare a statement of profit or loss for April and a classified statement of
financial position as at 30 April 2022.
Lights Out Theatre Ltd
(a) and (c)
100 Cash
1-Apr Opening balance 6,000 2-Apr Film rental expense 800
9-Apr Admission revenue 3,800 10-Apr Accounts payable 1,000
25-Apr Admission revenue 3,200 10-Apr Mortgage payable 2,000
30-Apr Candy bar revenue 85 12-Apr Advertising expense 300
29-Apr Salaries expense 1,600
30-Apr Prepaid rentals 700
Closing balance 6,685
13,085 13,085
Opening balance 6,685
105 Accounts receivable

30-Apr Candy bar revenue 85
107 Prepaid rentals

30-Apr Cash 700
120 Land
1-Apr Opening balance 10,000
130 Buildings
140 Equipmen
t
200 Accounts payable

10-Apr Cash 1,000 1-Apr Opening balance 2,000
30-Apr Closing balance 1,500 20-Apr Film rental expense 500
2,500 2,500
1-May Opening balance 1,500
210 Mortgage payable

10-Apr Cash 2,000 1-Apr Opening balance 8,000
30-Apr Closing balance 6,000
8,000 8,000
300 Share capital


400 Admission revenue

9-Apr Cash 3,800
Closing balance 7,000 25-Apr Cash 3,200
7,000 7,000
410 Candy bar revenue

30-Apr Cash 85
30-Apr Closing balance 170 30-Apr Accounts receivable 85
170 170
1-May Opening balance 170
510 Advertising expense

12-Apr Cash 300
520 Film rental expense

2-Apr Cash 800
20-Apr Accounts payable 500 30-Apr Closing balance 1,300
1,300 1,300
530 Salaries expense

29-Apr Cash 1,600

(b)

Apr. 2 Film rental expense 800
Cash 800
(Paid film rental)
9 Cash 3,800
10 Mortgage payable 2,000

Cash 3,000
(Made payments on mortgage
and accounts payable)
12 Advertising expense 300

Cash 300
(Paid advertising expenses)
20 Film rental expense 500

(Rented film on account)
25 Cash 3,200

Cash 1,600
30 Cash 85
Candy bar revenue (17% X $1,000) 170
(Received cash and balance on
account for concession revenue)
30 Prepaid rentals 700

Cash 700
(Paid cash for future film rental)

(d)
Trial balance
as at 30 April 2022

100 Cash.......................................................................................
$ 6,685
105 Accounts receivable............................................................... 85
107 Prepaid rentals.......................................................................
700
120 Land.......................................................................................
10,000
130 Buildings................................................................................
8,000
140 Equipment..............................................................................
6,000
200 Accounts payable................................................................... $ 1,500
210 Mortgage payable.................................................................. 6,000
300 Share capital.......................................................................... 20,000
400 Admission revenue................................................................ 7,000
410 Candy bar revenue................................................................. 170
510 Advertising expense.............................................................. 300
520 Film rental expense................................................................
1,300
530 Salaries expense.....................................................................
1,600 000,000
$34,670 $34,670

(e)

for the month ended 30 April 2022
Revenues
Admission revenue 7000
Candy bar revenue 170
Total revenue 7170
Expenses
Film rental expense 1300
Profit $3,970

as at 30 April 2022
Assets: $ $
Current assets
Cash 6,685
Account receivable 85
Prepaid rentals 700
Non-current assets
Land 10,000
Buildings 8,000
Equipment 6,000
Total non-current assets 24,000
Total assets 31,470
Liabilities
:
Current liabilities
Non-current liabilities
Mortgage payable 6,000
Net assets $23,970
Equity
PSB2.9 Prepare a correct trial balance. (LO8)

This trial balance for Theatre Adelaide Ltd does not balance.
Your review of the ledger reveals that each account has a normal balance. You also
discover the following errors.
1. The totals of the debit sides of prepaid insurance, accounts payable, and rates
and taxes expense were each understated $100.
2. Transposition errors were made in accounts receivable and service revenue.
Based on postings made, the correct balances were $2570 and $6960,
respectively.
4. A $700 cash dividend was debited to share capital for $700 and credited to cash
for $700.
5. A $420 purchase of supplies on account was debited to equipment for $420 and
credited to cash for $420.
6. A cash payment of $250 for advertising was debited to advertising expense for
$25 and credited to cash for $25.
7. A collection from a customer for $210 was debited to cash for $210 and credited
to accounts payable for $210.
Required
(a) Prepare the correct trial balance. (Note: The chart of accounts also includes the
following: Dividends, Supplies, and Supplies expense.)
New Trial balance as follows.
Theatre Adelaide Ltd

Trial balance
as at 31 May 2022
Debit Credit
Account names $ $
Cash ($5,850 + $420 – $225)................................................................. 6,045
Accounts receivable ($2,750 – $180 – $210)......................................... 2,360
Prepaid insurance ($700 + $100)............................................................ 800
Supplies ($0 + $420).............................................................................. 420
Equipment ($8,000 – $420).................................................................... 7,580

Accounts payable ($4,500 – $100 + $420 – $210)................................. 4,610

Rates and taxes payable.......................................................................... 560
Share capital ($5,700 + $700)................................................................ 6,400
Retained earnings .................................................................................. 6,000
Dividends ($0 + $700)............................................................................ 700
Service revenue ($6,690 + $270)............................................................ 6,960
Salaries expense ($4,200 + $200)........................................................... 4,400
Advertising expense ($1,100 + $225).................................................... 1,325
Rates and Taxes Expense ($800 + $100)............................................... 900 000,000
$24,530 $24,530
The following explanations assume normal balances (i.e. an increase in a debit account =
debit the relevant amount):
1 Prepaid insurance, Rates and taxes expense each increase by $100; Accounts
payable decreases by $100
2 Accounts receivable decreases by $(2750 – 2570) = 180; Service revenue
increases by $(6960 – 6690) = 270
3 Salaries expense increases by $200
4 Dividends increases by $700, Share capital increases by $700
5 Equipment decreases by $420; Supplies increases by $420; Cash increases by
$420; Accounts payable increases by $420
6 Cash decreases by $(250 – 25) = 225; Advertising expense increases by $225
7 Accounts payable decreases by $210; Account receivable decreases by $210
Note also: Accounts receivable, Rates and taxes payable, Service revenue and Advertising
expense were listed on the incorrect sides for their normal balances.

PSB2.10 Prepare a correct trial balance. (LO8)

This trial balance for Glasgow Pty Ltd does not balance.
1. Cash received from a customer on account was debited to cash for $1680 and
for $960.
2. The purchase of a printer on account for $440 was recorded as a debit to
supplies for $440 and a credit to accounts payable for $440.
was debited $1280 and service revenue was credited $128.
5. A payment made on account for $818 was credited to cash for $818 and credited
to accounts payable for $980.
6. Payment of a $1200 cash dividend to shareholders was debited to salaries
expense for $1200 and credited to cash for $1200.
Required
New Trial balance as follows.
Glasgow Pty Ltd

Trial balance
as at 31 December 2022
Debit Credit
Account names $ $
Cash ($7,804 – $720).............................................................................. 7,084
Accounts receivable ($5,752 + $360)..................................................... 10,456
Supplies ($1,820 – $220)........................................................................ 3,200
Equipment ($7,780 + $220).................................................................... 10,000
Accounts payable ($5,399 – $490-$409)................................................ 9,000
Revenue received in advance................................................................. 3,200
Share capital........................................................................................... 18,000
Dividends ($1200 + $1200).................................................................... 2,400

Service revenue ($19,808 + $1152)........................................................ 20,960

Salaries expense ($12,600 + $1800 – $1200)......................................... 13,200
Office expense........................................................................................ 4,820
$51,160 $51,160
Explanation: The first number in the brackets is the balance as per the initial trial balance in
the question. The subsequent numbers are the corrections.
credit.
2. Printer should not be included in Supplies so decrease Supplies by $440. Printers

should be included in Equipment, so increase Equipment by $440.
3. Service revenue needs to be adjusted upwards by $1152 ($1280 – $128).
5. A payment on account should be debit to Accounts payable. The amount of $980 was
incorrectly credited. To correct this entry, the balance of Accounts payable must be
reduced by $980. To correctly record the payment of $818 on account, Accounts
payable is reduced further by $818.
6. Need to reduce Salaries expense by $1200 and increase Dividends by $1200.

Building business skills
Financial reporting and analysis
BBS2.1
Financial reporting problem: Giorgina’s Pizza Enterprises Ltd
The financial statements of Giorgina’s (found in chapter 1, figures 1.14 and 1.16)
contain the following selected accounts, all in thousands of dollars:
Required
(a) What is the increase and decrease side for each account? What is the normal
balance for each account?
(b) Identify the probable other account in the transaction and the effect on that
account when:
1. Accounts receivable is decreased.
2. Accounts payable is decreased.
3. Inventories is increased.
(c) Identify the other account(s) that ordinarily would be involved when:
1. Marketing expense is increased.
2. Property, plant and equipment is increased.
(a)
Account 1. Increase 2. Decrease 3. Normal

side side balance
Issued capital Right Left Credit

Trade and other payables (Accounts Right Left Credit
payable)
Trade and other receivables (Accounts Left Right Debit
receivable)
Marketing expenses Left Right Debit
Inventories Left Right Debit
Property, plant and equipment (net book Left Right Debit
value)
Sales revenue Right Left Credit

(b) 1. Cash is increased.

2. Cash is decreased.
3. Cash is decreased.
(c) 1. Cash is decreased.

2. Cash is decreased or Bank loan is increased.

BBS2.2
Comparative analysis problem: Giorgina’s Pizza Enterprises Ltd

Refer to the financial statements for Giorgina’s Pizza Limited from chapter 1 and to the
financial statements of Freedom Foods Group (www.freedomfoods.com.au).
Required
(a) Determine the normal balance for each of the accounts listed as follow for
Giorgina’s Pizza Limited and Freedom Foods Group Limited.
(b) Identify the other account ordinarily involved when:

1. Accounts receivable is decreased.
2. Bank loan is increased.
3. Equipment is increased.
4. Sales revenue is increased.
Giorgina’s Pizza Enterprises Ltd vs. Freedom Foods Group Limited
(a)
Giorgina’s Pizza Enterprises Ltd Freedom Foods Group Limited
1. Cash Debit 1. Inventories Debit

2. Goodwill Debit 2. Current Tax Liabilities Credit
3. Borrowings Credit 3. Provisions Credit
4. Retained earnings Credit 4. Issued capital Credit
5. Sales revenue Credit 5. Administrative Expenses Debit
(b) The following other accounts are ordinarily involved:
1. Decrease in accounts receivable: Cash is increased (debited).
2. Bank loan is increased: Cash is increased (debited).
3. Increase in equipment: Bank loan is increased (credited) and/or Cash is

decreased (credited).
4. Sales revenue is increased: Cash and/or Accounts receivable are increased

(debited).

BBS2.3
Interpreting financial statements
Obtain the latest annual report of a public company.

Address: www.asx.com.au or www.nzx.com
Steps:
1. On the Australian Securities Exchange (ASX) homepage, you will notice a blue
banner across the top of the page. Click on MARKETS and then under TRADE
OUR CASH MARKET select Company directory from the drop-down menu.
There is also a heading for New Zealand-based companies dual listed in
Australia and New Zealand.
2. You are now at the index for listed companies. Choose a letter and select a
particular company (don’t just choose the first company) by clicking on the ASX
code.
3. From this page browse down to the internet address and click on the address
which will take you to the company’s website.
4. From the website, search around and find the latest annual report.
OR
For the New Zealand Stock Exchange:
1. Go to the home page and click on MARKETS on the top menu and select NZX
Main Board.
2. This will take you to a side menu. Click on All Securities. You are now at the
index for listed entities.
3. Scroll down the names and click on a company. This will take you to its page,
click on the company name at the right and under Contact information you will
see the company’s website address.
Required
Answer the following questions:
(a) What company did you select? Please also provide the web address and date you
accessed the website.
(b) Search the annual report you selected and provide the following information and
reference in the annual report where you found the information, e.g. trade and
other receivables in the statement of financial position, page 31.
1. Principal activities.
2. The number of controlled entities/subsidiaries and the countries in which they
operate.
3. The percentage ownership in the company of the 20 largest shareholders.
4. The number of directors.
5. The accounting policy for depreciation.
6. The amount of income tax expense and the profit for the year.
7. Name of its auditors.
8. List the business segments.
9. The amount of current assets.
10. The amount of net cash flows from operating activities.
11. The amount of dividends paid.
12. Describe any related party transactions.

NOTE TO INSTRUCTOR:
Students are required to select their own company. Part of the requirements is to provide the
web address of the company selected and where in the financial statements they located the
information.
Below is where the information is often located. The solution will depend on company
selected.
(a) What company did you select? Please also provide web address and date you
accessed the website.
(b) The solution here only provides where the information is usually located but it may be
in numerous locations in the annual report.
1. Principal activities — in Directors’ report

2. The number of controlled entities/subsidiaries and the countries in which they
operate — Notes to the financial statements towards the end after Contingency Note
3. The percentage ownership in the company of the 20 largest shareholders — In
Notes to the financial statements towards the end.
4. The number of Directors — Directors’ report
5. The accounting policy for Depreciation — Accounting policy note in Notes to the
financial statements
6. The amount of Income tax expense and the profit for the year — Statement of
profit and loss.
7. Name of its auditors — Auditors’ report
8. List the business segments — Notes to the financial statements
9. The amount of Current assets — Statement of financial position
10. The amount of Net cash flows from operating activities — Statement of cash flows
11. The amount of Dividends paid — In dividend note in Notes to the financial
statements
12. Describe any related party transactions — Notes to the financial statements

Critical thinking
BBS2.4
Group Decision case

Mark Dingo operates Supreme Riding School Pty Ltd. The riding school’s main sources
of revenue are riding fees and lesson fees, which are provided on a cash basis. Mark also
boards horses for owners, who are invoiced monthly for boarding fees. In a few cases,
boarders pay in advance of expected use. For its revenue transactions, the riding school
maintains these accounts: Cash, Accounts receivable, Revenue received in advance,
Riding revenue, Lesson revenue, and Boarding revenue.
The riding school owns 20 horses, a stable, a riding field, riding equipment and office
equipment. These assets are accounted for in accounts: Horses, Building, Riding field,
Riding equipment, and Office equipment.
The riding school employs stable helpers and an office worker, who receive weekly
salaries. At the end of each month, invoices are received by email for advertising,
electricity and veterinary services. Other expenses include feed for the horses and
insurance. The riding school also maintains the following accounts: Hay and feed
supplies, Prepaid insurance, Accounts payable, Salaries payable, Salaries expense,
Advertising expense, Electricity expense, Veterinary expense, Hay and feed expense,
and Insurance expense.
Mark Dingo’s sole source of personal income is dividends from the riding school. Thus,
the business declares and pays periodic dividends. To record equity in the business and
dividends, two accounts are maintained: Share capital and Dividends.
During the first month of operations an inexperienced book keeper was employed.
Mark asks you to review the following nine general journal entries of the 50 entries
made during the month. In each case, the explanation for the entry is correct.
Required
With the class divided into groups, answer the following.
(a) State which journal entries are correct. For each journal entry that is incorrect,
prepare the entry that should have been made by the bookkeeper.
(b) Which of the incorrect entries would prevent the trial balance from balancing?
(c) What was the correct profit for May, assuming the bookkeeper originally
reported profit of $15 100 after posting all 50 entries?
(Hint: Assume errors occurred only in the nine entries reported, i.e. the
remaining 41 entries were recorded correctly.)
(d) What was the correct cash balance at 31 May, assuming the bookkeeper
reported a balance of only $20 650 after posting all 50 entries?
Supreme Riding School Pty Ltd
(a) Note to instructor the entries below are the journal which should have been entered
not a correcting journal entry.
May 1 Correct.
2 No entry should be recorded
5 Cash 5,000
Lesson Revenue 5,000
7 Cash 5,000
9 Hay and Feed Expense 2,000

Hay and Feed Supplies 8,000
14 Office Equipment 2,500

Cash 2,500
15 Dividends 6,000
Cash 6,000
20 Cash 13,500
Riding Revenue 13,500
31 Veterinary Expense 6,750

(b) The error in the entries of May 14 and May 20 would prevent the trial balance from
balancing.
(c)
Profit as reported $15,100
Add: May 2, Salaries expense $10,000
May 5, Lesson fees 5,000
May 9, Hay and Feed Expense* 8,000
May 15, Salaries expense (Dividends declared and paid) 6,000 29,000
44,100
Less: May 7, Boarding revenue received in advance (5,000)
Correct Profit $39,100
* Student may treat the entire transaction as supplies as accrual accounting is in next chapter.
If so increase the profit by $2,000 more to $ 41,100
(d) Cash as reported $ 20,650

Add: 9/5, Purchase on account..................................................... 10,000
............................................................................................. 30,650
Less: 20/5, Transposition error..................................................... (18,000)
$12,650

BBS2.5
Communication activity
Fancy Flowers Ltd provides a flower delivery service. Two recurring transactions for
the business are invoicing customers for services provided and paying employee
salaries. For example, on 15 March invoices totalling $8500 were sent to customers, and
$3200 was paid in salaries to employees.
Required
Write a memorandum to the new assistant accountant at Fancy Flowers that explains
and illustrates the steps in the recording process for each of the 15 March transactions.
Use the format demonstrated in this text under the heading ‘The recording process
illustrated’ (in section 2.7).
Fancy Flowers Limited
To: Assistant Accountant — Fancy Flowers Limited

From: Accounting Student
Re: Steps in Recording Process
In the first transaction, invoices totalling $8,500 were sent to customers for services provided.
Therefore, the asset Accounts receivable is increased $8,500 and the revenue Service revenue
is increased $8,500. Debits increase assets and credits increase revenues, so the journal entry
is:

(Invoice customer for services provided)
The $8,500 amount is then posted to the debit side of the general ledger account Accounts
receivable and to the credit side of the general ledger account Service revenue.
In the second transaction, $3,200 was paid in salaries to employees. Therefore, the expense
Salaries expense is increased $3,200 and the asset Cash is decreased $3,200. Debits increase
expenses and credits decrease assets, so the journal entry is:

Cash 3,200
(Salaries paid)
The $3,200 amount is then posted to the debit side of the general ledger account Salaries
expense and to the credit side of the general ledger account Cash.

BBS2.6
Communication activity
John Jones, a new university graduate, has just been appointed as an assistant
accountant in the small business division of a public accounting practice. One of John’s
first tasks is to verify the balances in the ledger of a new client. A trial balance listing
was completed but it did not balance.
Required
Write a memorandum to John Jones explaining the purpose of the trial balance,
outlining the types of recording errors a trial balance will and will not detect.
John Jones
To: John Jones Assistant Accountant — ABC Accounting Practice

From: Accounting Student
Re: Purposes of a Trial balance
A trial balance is a list of the accounts in the general ledger and their balances at a given time.
The trial balance is usually prepared at the end of an accounting period, for example monthly
and the accounts are listed in the order they appear in the general ledger. The debit balances
are listed in one column and the credit balances in the other and the totals of the two columns
must be equal.
The purpose of the trial balance is primarily to check the mathematical equality after the
postings have been completed. This is necessary particularly in a manual accounting system.
In today’s accounting environment the transactions are often processed with the use of
computers so the programs are written as such that the debits will equal the credits. However,
the use of computers does not ensure the transactions have been processed correctly, nor if
the trial balance balances does it ensure the transactions have been processed and posted
correctly.
The types of errors the trail balance detects is where the debits do not equal the credits such
as omitting one side of the posting or transposing a figure when the entry was posted. The
trial balance will not specifically identify if the posting was to the correct side of the ledger,
say a debit to an assets account when the item should have been expensed, nor will it identify
an omitted transaction, a journal entry posted twice, incorrect amounts are posted to both
sides or errors where co-incidentally offset one another so the debits still equal the credits.
However, the listing of the balances would facilitate in the identification of posting errors,
where you as the accountant use your knowledge of the expected balances. For example, you
would not expect Accounts receivable to have a credit balance or the miscellaneous expense
account to have a large balance. So despite the limitation the trail balance is a useful screen in
identifying recording errors.
The trail balance is also useful in providing an overview of the account balances for review
and preparation of the financial statements.

BBS2.7
Ethics case
Answer the following questions on ethics by conducting research using the library
and/or internet and reflecting on your knowledge of ethics, your life experiences and
beliefs.
(a) What does the word ‘ethics’ mean and what is its origin (e.g. does the word come
from a Latin or Greek word)?
(b) Now that you have a definition of ethics, explain in your own words what is
considered ‘ethical behaviour’.
(c) List five criteria you feel would indicate that an accountant was behaving
ethically. Two examples of criteria are (i) the accountant has respect for the law
and (ii) the accountant acts with discretion, i.e. not revealing private business
affairs to outside parties.
(d) What are the ‘costs’, both personal and financial, of unethical behaviour?
(e) Provide an example from your own life experiences to illustrate how someone
has behaved unethically in relation to you or with someone you know.
(a) The word ethics comes from the Greek word ethicos meaning related to custom or
habit. The second edition of the Macquarie concise dictionary (page 320) defines
ethical as ‘1. pertaining to or dealing with morals or the principles of morality;
pertaining to right and wrong conduct 2. in accordance with the rules or standards for
right conduct or practice, esp. the standards of a profession’.
(b) The student answer could include: ethical behaviour is acting morally, acting in a way
that is right or appropriate, acting in a way that people should behave, acting
according to rules or agreed and acceptable ways of behaving, acting for the good or
benefit of others rather than harm etc.
(c) Criteria that an accountant was behaving ethically could include:

acts credibly and honestly — e.g. Provides credible information/advice and acts
honestly
abides by the professional rules/standards
fair cost for service provided
safeguard the interests of clients and the public
integrity — honest and sincere approach to their work
objectivity — fair and not prejudice or bias — treat all clients equally
Reliability — can be relied upon to get the job done
(d) Personal and financial costs of unethical behaviour include:

feeling of shame, remorse or guilt for acting unethically
if caught — being disgraced, discredited
if caught — damaged reputation and loss of current and future employment
if caught — jail sentence or fine or be excluded from the profession and unable to
practice as a professional
cause harm to others — e.g. financial loss
(e) Students’ own experiences …

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Solutions manual

© John Wiley & Sons Australia, Ltd 2022

Copyright Notice & Terms of Use

© John Wiley and Sons Australia Ltd, 2021 2.1

Chapter 2: The recording process

Assignment classification table

2. Explain what an account is and how it

3. Define debits and credits and explain 2 4,6 4A,5A,6A,7A,

4. Identify the basic steps in the recording 3

5. Explain what a journal is and how it 4,7 5,7,9,10 4A,5A,6A,7A,8A,

6. Explain what a general ledger is and 10 5A,6A,7A,8A,

7. Explain what posting is and how it 5 8,10 5A,6A,7A,8A,

8. Explain the purposes of a trial balance. 6,7 8,9,11,12, 5A,6A,7A,8A,9A,

© John Wiley and Sons Australia Ltd, 2022 2.2

2.2. Are the following events recorded in the accounting records?

© John Wiley and Sons Australia Ltd, 2021 2.3

2.7. What is the normal balance for each of these accounts?

2.8. (a) What is a ledger?

2.9. What is a trial balance and what are its purposes?

© John Wiley and Sons Australia Ltd, 2022 2.4

© John Wiley and Sons Australia Ltd, 2021 2.5

Solutions to brief exercises

BE2.1 Determine effect on basic accounting equation. (LO1)

Assets Liabilities Equity

BE2.2 Indicate debit and credit effects. (LO3)

(a) Accounts payable Decrease Increase Credit

BE2.3 Indicate basic debit–credit analysis. (LO4)

© John Wiley and Sons Australia Ltd, 2022 2.6

Dudley Advertising Ltd

Aug 1 The asset Cash is increased Debits increase assets:

4 The asset Prepaid insurance is Debits increase assets:

16 The asset Cash is increased; the Debits increase assets:

27 The expense Salaries expense is Debits increase expenses:

© John Wiley and Sons Australia Ltd, 2021 2.7

BE2.4 Journalise transactions. (LO5)

Dudley Advertising Ltd

BE2.5 Post journal entries to T accounts. (LO7)

*Service revenue is the cross-reference.

© John Wiley and Sons Australia Ltd, 2022 2.8

BE2.6 Prepare a trial balance. (LO8)

Account name Debit Credit

BE2.7 Prepare a corrected trial balance. (LO8)

© John Wiley and Sons Australia Ltd, 2021 2.9

Account name Debit Credit

© John Wiley and Sons Australia Ltd, 2022 2.10

Speedy Lawn Care Pty Ltd

1. Increase in assets and increase in equity.

E2.2 Analysis transactions and calculate profit. (LO1)

© John Wiley and Sons Australia Ltd, 2021 2.11

(a) 1. Shareholders invested $34,000 cash in the business.

(b) Issued Share capital $34,000

(c) Service revenue $27,400

© John Wiley and Sons Australia Ltd, 2022 2.12

E2.3 Prepare financial statements. (LO1)

© John Wiley and Sons Australia Ltd, 2021 2.13

E2.4 Identify debits, credits and normal balances. (LO3)

Expensive Designs Pty Ltd

Account debited Account credited

1 Asset Cash Increase Debit Equity Share Increase Credit

2 Asset Equipment Increase Debit Asset Cash Decrease Debit

3 Asset Supplies Increase Debit Liability Accounts Increase Credit

4 Asset Accounts Increase Debit Equity Service Increase Credit

5 Equity Advertisin Increase Debit Asset Cash Decrease Debit

6 Asset Cash Increase Debit Asset Accounts Decrease Debit