2. 2
Date Explanation P.R. Debit Credit
2011
July 1.
Cash
Office Equipment
Wilf Eazy Capital
Capital Introduced
40000
30000
70000
2. Office Equipment
Truck
Note Payable
Purchase of equipment and truck
9000
56000
65000
3. Land
Cash
Note payable
Purchase of a land for an office use
124000
40800
83200
5. Building
Cash
Purchase a building for cash
21000
21000
9. Insurance Policy
Cash
Paid the premium on two one year
insurance policy
9600
9600
12. Cash
Service Revenue
Provide a service to a child
3200
3200
15. Office Equipment
Cash
Note Payable
Purchase office equipment for cash and
give note payable
6500
700
5800
20. Account Receivable
Service Revenue
Complete service for a client
3750
3750
21. Account Receivable
Service Revenue
Complete another on credit
9200
9200
22. Rent 1300
3. 3
Account Payable
Received a bill for rent
1300
Date Explanation P.R. Debit Credit
23. Cash
Account Receivable
Collected cash from July 21
5000
5000
24. Wages
Cash
Paid wages
1600
1600
25. Account Payable
Cash
Paid Cash for Account Payable
1300
1300
26. Misc. Exp.
Cash
Paid cash for some repair of truck
1425
1425
27. Owner Withdrawals
Cash
Withdrew cash for Personal Use
3785
3785
28. Wages
Cash
Paid cash to wages
1600
1600
29. Advertisement
Cash
Paid Cash to a Local Newspaper
8000
8000
30. Cash
Accrued Service Revenue
Received in advance for service in
August
1400
1400
4. 4
List of Accounts: -
Account
Number
Assets
Cash 101
Office Equipment 102
Land 103
Building 104
Insurance Policy 105
Account Receivable 106
Truck 107
Liabilities
Notes Payable 201
Account Payable 201
Accrued Service Revenue 203
Income
Service Revenue 301
Expenses
Wages 401
Misc. Exp. 402
Rent 403
Advertisement 404
Owner Withdrew 405
5. 5
Ledger
Cash
Account Number 101
Date Explanation P.R. Debit Credit Balance
2011
July 1.
Wilf Eazy Capital 40000 40000
3. Land 40800 (40800)
5. Building 21000 (21800)
9. Insurance Policy 9600 (31400)
12. Service Revenue 3200 (28200)
15. Office Equipment 700 (28900)
23. Account Receivable 5000 (23900)
24. Wages 1600 (25500)
25. Account Receivable 1300 (26800)
26. Misc. Exp. 1425 (28225)
27. Owner Withdrawal 3785 (32010)
28. Wages 1600 (33610)
29. Advertisement 1400 (34410)
(33010)
Office Equipment
Account Number 102
Date Explanation P.R. Debit Credit Balance
2011
July 1.
Wilf Eazy Capital 30000 30000
2. Note Payable 9000 39000
15. Cash 700 39700
15. Note Payable 5800 45500
Land
Account Number 103
Date Explanation P.R. Debit Credit Balance
2011
July 3.
Cash 40800 40800
Note Payable 85200 124000
6. 6
Building
Account Number 104
Date Explanation P.R. Debit Credit Balance
2011
July 5.
Cash 21000 21000
Insurance Policy
Account Number 105
Date Explanation P.R. Debit Credit Balance
2011
July 9.
Cash 9600 9600
Account Receivable
Account Number 106
Date Explanation P.R. Debit Credit Balance
2011
July 20.
Service Revenue 3750 3750
21. Service Revenue 9200 12950
23. Cash 5000 7950
Truck
Account Number 107
Date Explanation P.R. Debit Credit Balance
2011
July 2.
Note Payable 56000 56000
7. 7
Notes Payable
Account Number 201
Date Explanation P.R. Debit Credit Balance
2011
July 2.
Office Equipment 9000 9000
Truck 56000 65000
3. Land 83200 148200
15. Office Equipment 5800 (154000)
Account Payable
Account Number 202
Date Explanation P.R. Debit Credit Balance
2011
July 22.
Rent 1300 1300
Cash 1300 -
Accrued Service Revenue
Account Number 203
Date Explanation P.R. Debit Credit Balance
2011
July 30.
Cash 1400 (1400)
Service Revenue
Account Number 301
Date Explanation P.R. Debit Credit Balance
2011
July 12.
Cash 3200 3200
20. Account Receivable 3750 6950
21. Account Receivable 9200 (16150)
8. 8
Wages
Account Number 401
Date Explanation P.R. Debit Credit Balance
2011
July 24.
Cash 1600 1600
28. Cash 1600 3200
Misc. Exp.
Account Number 402
Date Explanation P.R. Debit Credit Balance
2011
July 24.
Cash 1425 1425
Rent
Account Number 403
Date Explanation P.R. Debit Credit Balance
2011
July 22.
Account Payable 1300 1300
Advertisement
Account Number 404
Date Explanation P.R. Debit Credit Balance
2011
July 29.
Cash 800 800
Owner Withdrawal
Account Number 405
Date Explanation P.R. Debit Credit Balance
2011
July 27.
Cash 3785 3785
9. 9
Wilf Eazy Capital
Account Number 204
Date Explanation P.R. Debit Credit Balance
2011
July 1.
Cash 40000 40000
Office Equipment 30000 (70000)
Eazy-Carry Co.
Trial Balance
1 July, 2011
Account Number Account Name Debit Credit
101 Cash - 33010
102 Office Equipment 45500 -
103 Land 124000 -
104 Building 21000 -
105 Insurance Policy 9600 -
106 Account Receivable 7950 -
107 Truck 56000 -
201 Notes Payable - 154000
202 Account Payable - -
203 Accrued Payable - 1400
204 Wilf Eazy Capital - 70000
301 Service Revenue - 16150
11. 11
Question 1) What are Adjusting Entries? How do you record these entries? Explain various
types of Adjusting Entries with 2 examples of each?
Answer 1) Adjusting entries are journal entries recorded at the end of an accounting period to
adjust Income and expense accounts so that they comply with the accrual concept of accounting.
Main purpose is to match incomes and expenses to appropriate accounting periods.
Various types are:-
Accruals: These include revenues not yet received nor recorded and expenses not yet
paid nor recorded.
For example, interest expense on loan accrued in the current period but not yet paid.
Non-cash:
These adjusting entries record non-cash items such as depreciation expense, allowance
for doubtful debts etc.
Prepayments:
These are revenues received in advance and recorded as liabilities, to be recorded as
revenue and expenses paid in advance and recorded as assets, to be recorded as expense.
For example, adjustments to unearned revenue, prepaid insurance, office supplies,
prepaid rent, etc.
12. 12
Ques2) What is a Revering Entry? What is the procedure to record it? Illustrate with an example?
Ans2) Reversing entries are passed at the beginning of an accounting period as an optional step
of accounting cycle to cancel the effect of previous period adjusting entries involving future
payments or receipts of cash.
For Example: - For example: Dec 31, 2012 Balance Sheet shows Salaries Payable for $ 1000
under Current Liabilities.
Treatment:
On Jan 1, 2013: Pass the Revering Entry:
o Salaries Payable $1000
Salaries Expense $1000
When the Salaries will be paid in cash, the normal entry will be passed (Present
Salary=$500)
o Salaries Expense $1500
Cash $1500
13. 13
Question 3) What do you mean by GAAP? Explain in brief main principles with 1 example?
Answer 3) The underlying concepts that make up acceptable accounting practices are referred to
as Generally Accepted Accounting Principles (GAAP)
Main principles are:-
Business Entity Principle:-Example, Ram having two businesses ABC & XYZ should
make accounts of both the businesses separately instead of making single for both of
them.
Cost Principles:-Example, A company purchased machinery for $ 3000 should record it
as $ 3000 only, though the market value of the same is $ 4000.
Revenue Recognition Principles:-Example, On Jan 10, Mr. John provided services to a
client for $ 500 but client paid cash on Jan 15. Therefore, revenue will be recorded on Jan
10 only and as Cash Equivalent (Accounts Receivable) not Cash.
Going Concern Principles:-Example, Purchase Building for $20000.It will give profit to
business for the long period of time say 10-15 years.
Accrual Principles:-Example, Salaries expense for December 2012 which are to be paid
in January 2013 should be recorded in December 2012 only and not in January 2013. As
the expenses should match to the period in which they occurred.
Matching Principles:-Example, Salaries expense for December 2012 which are to be paid
in January 2013 should be recorded in December 2012 only and not in January 2013. As
the expenses should match to the period in which they occurred.
Timeliness Principles:-Example, A company can prepare its statements for a period of 1
year from Jan to Dec (Calendar year) or April to March (Financial Year).
14. 14
Question 4) What is Accounting Cycle? Illustrate its various steps through diagram?
Answer 4) Accounting cycle is a step-by-step process of recording, classification and
summarization of economic transactions of a business. It generates useful financial information
in the form of Financial Statements including Income Statement, Balance Sheet, Cash Flow
Statement and Statement of Changes in Equity.
15. 15
Question 5) What is Rectification of Error? How would you rectify following errors:
i) The purchase of Office Furniture for $ 500 cash was recorded as Office Supplies
Purchases.
ii) The $ 450 Service Revenue received in cash was recorded as $ 540.
Answer 5)
Date Explanation P.R. Debit Credit
1. Office Furniture
Office Supplies
500
500
2. Service Revenue
Cash
90
90
