TACC601 Principles of Accounting
Week 2: Income Statement and Balance Sheet
Seminar Guide
Seminar Activity 2.1: Transactions and Financial Statements
Jock O’Donoghue has recently started Jock’s Tool Supplies, a retailer of tools and other supplies to the heavy haulage and earth moving industry. The following transactions have occurred in the first month of the business’ operations:
Jan 4 Jock commenced business by contributing cash of $4 000, inventory of $15 000, furniture of $1 500, a building $68 000 and a mortgage on the building of $40 000.
4 Purchased a computer on credit for $3 000.
6 Sold inventories for cash of $2 200. The cost price of the inventory was $1 075.
8 Purchased inventory on credit for $8 000.
9 Paid cash of $400 for the telephone calls for the month.
13 Jock took $150 cash and $50 of inventory for his own personal use.
17 Sold tools on credit to a local logging contractor for $5 600. These tools originally cost $540.
18 Paid $2 000 to creditors towards the amount owing.
22 Paid light and power of $250 by cash.
25 The business repaid $1 000 of the mortgage.
27 Paid interest on the mortgage of $100.
28 Another business is renting a small part of the building as office space. The paid $500 for January’s rent.
28 Purchased some tools for resale from a local manufacturer. They cost $700 and the manufacturer was paid in cash.
Required
Complete a worksheet for the month of January using the above data and prepare an income statement and balance sheet at 31st January 2018.
| Worksheet of Jock’s Tool Supplies | |||||||||||
| Cash at | Inventory | Accounts | Office | Office | Building | Accounts | Mortgage | Capital | Profit & | ||
| bank | Receivable | Furniture | Equip. | = | Payable | Loan | loss | ||||
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| TOTALS |
| Jock’s Tool Supplies | |
| Income Statement | |
| For the month ended 31st January 2018 | |
| $ | |
| Sales | |
| Less Cost of goods sold | |
| Gross Profit | |
| Add Other Revenue | |
| Rent revenue | |
| Less Other Expenses | |
| Interest expense | |
| Light and power expense | |
| Telephone expense | |
| Net Profit | |
| Jock’s Tool Supplies | |
| Balance Sheet | |
| as at 31st January 2018 | |
| $ | |
| Current assets | |
| Cash at bank | |
| Inventory | |
| Accounts receivable | |
| Total Current Assets | |
| Non current assets | |
| Office furniture | |
| Office equipment | |
| Building | |
| Total Non Current Assets | |
| Total Assets | |
| Current liabilities | |
| Accounts payable | |
| Total Current Liabilities | |
| Non-current liabilities | |
| Mortgage Loan | |
| Total Non Current Liabilities | |
| Total Liabilities | |
| Net Assets | |
| Equity | |
| Capital | |
| Add Net Profit | |
| Total Equity |
Seminar Activity 2.2: Transactions and Financial Statements
Joe Henry started a new business on 1 January 2017 under the name of Henry’s Hardware. The following transactions took place during the first month of the businesses’ life.
- Henry deposited $30 000 of his own savings into a bank account in the name of his new business.
- Henry purchased a building costing $60 000 from which to run his business. This was financed by a mortgage loan of the same amount arranged with the businesses’ bank.
- Henry purchased furniture and fittings for the business, drawing a cheque for
$10 000 from the businesses’ bank account. - Henry purchased inventory for resale on credit for $20 000.
- Henry needed $500 urgently for personal reasons and withdrew $500 from the businesses’ bank account.
- Sold goods for $3 000 cash which was deposited in the bank account. These goods had cost the business $2 200.
- Paid $250 by cheque for a series of newspaper advertisements to appear in January.
- Sold goods for $5 000 on credit. These goods had cost the business $3 200.
- Paid $4 000 by cheque being part of the amount owing to creditors.
- Henry took some goods home for his personal use which had cost the business $400.
- Paid $180 by cheque for telephone use in January.
- Paid $600 wages by cheque to the person Henry had employed earlier in the month.
- Received $3 500 from debtors which was deposited in the bank account.
Required
Prepare worksheet entries for these transactions. Balance the columns and prepare an income statement and a balance sheet at the end of the month.
| Worksheet of Henry’s Hardware | |||||||||||
| Assets | = | Liabilities | + | Equity | |||||||
| Cash at | Debtors | Inventory | Building | Furniture & | Creditors | Mortgage | Capital | Profit | |||
| bank | fittings | Loan | and loss | ||||||||
| 1-Jan | |||||||||||
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| TOTALS | |||||||||||
| Henry’s Hardware Income Statement | |
| For the month ended 31 January 2017 | |
| $ | |
| Income | |
| Sales | |
| Less cost of goods sold | |
| Gross Profit | |
| Less Other Expenses | |
| Advertising | |
| Telephone | |
| Wages | |
| Net Profit | |
| Henry’s Hardware | |
| Balance Sheet as at 31 January 2017 | |
| $ | |
| Current assets | |
| Cash at bank | |
| Debtors | |
| Inventory | |
| Total Current Assets | |
| Non current assets | |
| Building | |
| Furniture and fittings | |
| Total Non Current Assets | |
| Total Assets | |
| Current liabilities | |
| Creditors | |
| Total Current Liabilities | |
| Non-current liabilities | |
| Mortgage Loan | |
| Total Non Current Liabilities | |
| Total Liabilities | |
| Net Assets | |
| Owners’ equity | |
| Capital | |
| Add Net Profit | |
| Total Owners’ Equity |
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