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Financial Accounting Tutorial 1, Wk 1 1. (a) Define the term accounting. (b) Distinguish between financial and management accounting.

2. Define the FOUR qualitative characteristics of accounting. Is there any reason why accounting information might not possess all of these qualities?

3. List and explain any FIVE accounting conventions.

4. Copy and complete the following table.

Assets($)

Liabilities($)

Owners Equity($)

(a) (b) (c) (d) (e) (f) (g)

125,000
? 645,000 65,000 225,000 385,000

45,000 347,000 ? 45,000 225,000 ?

? 223,000 330,700 ? ? 385,000

5. List the users of accounting information. Describe the kinds of information needed by each user group. Explain why one set of accounting information is unlikely to satisfy the needs of all users.

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6. Henry starts a business on 1 March 2011. His business transactions for the month of trading are as follows: 1 March Henry pays 35,000 of his own money into a business bank account. He also transfers his own motor car (valued at 18,750) to the business.

2 March

Premises costing 120,000 are acquired for the business. 20,000 of this is paid by business cheque. The remaining 100,000 is borrowed and is due for repayment in 10 years time.

5 March

A stock of goods for resale is acquired at a cost of 24,600. These goods are bought on credit from R Black Ltd.

7 March 16 March

Stock costing 8,700 is sold on credit to P Stevens for 11,300. Stock costing 9,700 is bought from a supplier and is paid for immediately by business cheque.

21 March

A 220 cheque is drawn on the business bank account to purchase opera tickets for Henry and his wife.

23 March 28 March

Stock costing 5,500 is sold on credit to K Jones for 7,850. Henry draws 1,000 out of the business bank account to cover personal living expenses. He also takes goods out of business for his own use. These goods had cost the business 500.

31 March

A cheque for 10,000 is sent to R. Black Ltd in part payment of the amount owing to the company.

Required:

(a) Describe the effect of these transactions on the assets, liabilities and capital of the business and show the balance sheet as at 31 March 2011. (b) Record the above transactions in necessary T accounts and extract a trial balance.

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7. A business has the following assets and liabilities on 30 September 2011:


Assets & liabilities Trade debtors Trade creditors Bank overdraft Cash in hand Stock of goods for resale Land and buildings Office furniture and equipment Amount () 12,670 17,850 4,800 35 21,950 54,000 3,500

How much is the owners capital on 30 September 2011 8. Help Marcus Adams to identify the debit and credit entries in the following transactions. (a) Bought a machine on credit from Angelo, cost 6,400 (b) Bought goods on credit from Barnfield, cost 2,100 (c) Sold goods on credit to Carla, value 750 (d) Paid Daris (a creditor) 250 (e) Collected 300 from Elsa, a debtor (f) Paid wages 5,000 (g) Received rent bill of 1,000 from landlord Graham (h) Paid rent of 1,000 to landlord Graham (i) Paid an insurance premium of 150
9.
a. The basic accounting equation is Assets = Liabilities + __________ _______.

For each of the transactions in items b through h, indicate the two (or more) effects on the accounting equation of the business or company.
b. The owner invests personal cash in the business. Assets: Liabilities: Owner's (or Stockholders') Equity: Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect

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c.

The owner withdraws business assets for personal use. Assets: Liabilities: Owner's (or Stockholders') Equity: The company receives cash from a bank loan. Assets: Liabilities: Owner's (or Stockholders') Equity: Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect

d.

e.

The company repays the bank that had lent money to the company. Assets: Liabilities: Owner's (or Stockholders') Equity: The company purchases equipment with its cash. Assets: Liabilities: Owner's (or Stockholders') Equity: Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect

f.

g.

The owner contributes her personal truck to the business. Assets: Liabilities: Owner's (or Stockholders') Equity: Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect

h.

The company purchases a significant amount of supplies on credit. Assets: Liabilities: Owner's (or Stockholders') Equity: Increase Increase Increase Decrease Decrease Decrease No Effect No Effect No Effect

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