Business Transactions Classification & Simple Transactions

Question 1: Discuss the difference in the role of the journal and the ledger in capturing accounting information efficiently and effectively. Outline the entity concept and how it impacts on the recording of personal and business transactions. 137Identify the type of errors that could be discovered by preparing a trial balance and provide examples of each. Provide examples of two transactions and examine the application of the debit and credit rule. Answer 1: The term journal in accountancy means the application for the recording of the events on the regular basis. Journal refers to the recording of the transaction of the specific accounts that are affected by the transaction. Whereas the amounts are posted from the journal entry on to the ledger accounts. For example, when a sale is made, the cash is debited and sale is credited. This is the journal entry but when the same is posted in the ledger of sales and cash, then it is termed as the ledger. The business entity concept is concerned with the keeping of the personal expenses separate from the affairs of the owner. Or from any other business or the organization. This means that the owner must not use the assets of the organization for the personal choice. In the end of the year when the financial statements are prepared, it must be ensured that the personal expenses are not charged to the income statement. The following are the kinds of the errors that are found: Error of totalling of the debit and the credit balances Error of totalling in the books of accounts of the subsidiaries Errors of showing the wrong balances in the wrong column of the trial balance Omission of showing an amount in the trial balance Error in the calculation of the account balance of the ledger Error in posting the journal entry Error in the recording of the transaction in the books of the subsidiary with the wrong name or the wrong amount. The following are the examples: When a sales is made, sale is credited and accounts receivables or the cash is debited since the credit the income and debit the expense and debit the asset when it increases and credit the liability when it increases and vice versa. When an asset is purchased, cash is credited and asset is debited since the credit the income and debit the expense and debit the asset when it increases and credit the liability when it increases and vice versa. Question 2: The following business transactions relate to Ray Rosa (financial planner) for his first month of business operations in August 2015: 2015 August : 1.Commenced business operations with a $300000 cash injection of personal funds. 2.Paid monthly rent $1500. 4.Purchased office stationery $2000 on credit from Stationery Plus. 7.Purchased office equipment on credit from Supplies Inc. $10000. 9.Sent invoice to client M. Birt for services $3000. 11.Purchased MYOB software for laptop computer $700 cash. 13.M. Birt paid amount outstanding. 14.Met with prospective client and negotiated the provision of financial advice for client and family quoting $5000. 17.Paid car parking permit $220. 19.Withdrew cash from business $2000 for personal use. 22.Paid WWW Ltd for monthly internet use $182. 29.Received interest from business bank account $15. 1.State the impact on the accounting equation for each transaction above. For example: Capital $300000Cash $3000001 Aug 2.Prepare a worksheet for the month of August 2015 from the above information. Answer 2: 1.The following are the impacts of the transactions: Increase in Cash and increase in equity by $300,000 Increase in the expense (rent) and decrease in cash by $1500 Increase in office stationery and increase in accounts payable by $2,000 Increase in office equipment and increase in accounts payable by $10,000 Increase in service revenue and increase in accounts receivables by $3,000 Decrease in cash and increase in asset by $700 Increase in cash and decrease in accounts receivables by $3,000 No entry Decrease in cash and increase in parking expenses by $220 Decrease in cash and decrease in capital by $2,000 Decrease in cash and increase in internet expenses by $182 Increase in bank balance and revenue by $15 2.The following is the required worksheet: Account title Debit Credit Ray Capital 3,00,000.00 Rent expense 1,500.00 Cash 2,98,413.00 Service revenue 3,000.00 MOYB software 700.00 Office stationery 2,000.00 Office equipment 10,000.00 Accounts payable 12,000.00 Accounts receivables - Car parking expense 220.00 Internet expense 182.00 Drawings 2,000.00 Interest revenue 15.00 Total 3,15,015.00 3,15,015.00 Question 3: Using the business transactions in part B, record the transactions in the ledger of Ray Rosa. Prepare a trial balance for Ray Rosa at 31 August 2015. Prepare an income statement for the month ending 31 August 2015. Prepare a balance sheet as at 31 August 2015. Answer 3: Account title Debit Credit Ray Capital 3,00,000.00 Rent expense 1,500.00 Cash 2,98,413.00 Service revenue 3,000.00 MOYB software 700.00 Office stationery 2,000.00 Office equipment 10,000.00 Accounts payable 12,000.00 Accounts receivables - Car parking expense 220.00 Internet expense 182.00 Drawings 2,000.00 Interest revenue 15.00 Total 3,15,015.00 3,15,015.00 Particulars Amounts Service revenue 3,000.00 Interest revenue 15.00 Less: expenses: Rent 1,500.00 Car parking expenses 220.00 Internet expense 182.00 Net profit 1,113.00 Assets Amounts Liabilities Amounts Ray capital 2,99,113.00 Accounts receivables - Accounts payable 12,000.00 Office stationery 2,000.00 Office equipment 10,000.00 MOYB software 700.00 Cash 2,98,413.00 Total Assets 3,11,113.00 Total liabilities 3,11,113.00 References: Thutong.doe.gov.za, (2015). Accounting principles and concepts. Retrieved 10 January 2015, from https://www.thutong.doe.gov.za/ResourceDownload.aspx?id=46210 www.ncert.nic.in, (2015). Trial Balance and Rectification of Errors. Retrieved 10 January 2015, from https://www.ncert.nic.in/NCERTS/l/keac106.pdf