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ACCT2511: Financial Accounting Fundamentals Week 2

Topic 1: The Accounting Cycle (Part 1): Recording and Analysing Business Transactions

Class Discussion Question

What business decisions can be made from accurate accounting data and information?

Homework Questions | Week 2

Problem 3.13: Complete Transaction Analysis and Prepare Financial Statements

The following transactions occurred for the month of November 2022 for Hoad Ltd:

a) The company was incorporated, with shareholders investing $200 000 in cash.

b) Purchased inventory for cash, $20 000.

c) Paid $4000 for a month’s rent on the premises.

d) Purchased inventory on credit, $30 000.

e) Received an advertising bill for a newspaper advertisement to promote the new company. The $1000 bill will be paid in December.

f) Inventory with a cost of $40 000 was sold on credit for $90 000.

g) Paid $25 000 of accounts payable.

h) Received $30 000 from accounts receivable.

i) Paid wages of $15 000.

j) Paid sales commission at the rate of 1 per cent on sales made during the month.

k) Purchased a new computer for $6000; paid $3000 in cash and $3000 to be paid in 15 months’ time.

l) Owed employees $2000 in wages at the end of the month.

Required:

1. Show the effect of each of the transactions on the accounting equation.

2. Prepare an income statement and a balance sheet at 30 November 2022.

3. Prepare journal entries for each transaction and determine the balance for each account.

4. For each transaction a to l, what is the effect on net profit and total assets? Write ‘increase’, ‘decrease’ or ‘no effect’ for each transaction.