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Part A

1.Part A

Record the General Journal entries in the proforma provided on the following page to record each of the following transactions where required. Remember to format the journals correctly and include narration (explanation) for each journal entry.

Claude Cogsworth is the sole proprietor of Classic Clocks. He has been operating Classic Clocks successfully and has now decided to expand his business to include a watchmaking school. The following is a list of transactions that took place during the month of November 2017.

Nov 1 Classic Clocks received $1,540 from a new student who has enrolled in the watchmaking school.

Nov 2 Claude Cogsworth visited a physiotherapist for a sore back as a result of an injury sustained while coaching the local soccer team. He paid $183 for the appointment using the business bank account.

Nov 4 Classic Clocks sold and delivered 4 new silver framed wall clocks to the Hilton Hotel for their foyer for $2 520 each. The Hilton Hotel paid 20% in cash and would pay the remaining amount within 30 days.

Nov 13 Classic Clocks purchased a new laptop for $2,760 cash.

Nov 14 Busy Bee Cleaners Ltd cleaned the shop and left invoice #6435 for $120 with payment terms of 30 days.

Nov 17 Classic Clocks purchased 7 new adjustable tables for the watchmaking school. The adjustable tables cost $896 each, 50% of the purchase was paid for in cash, with the balance payable in 30 days.

Nov 29 Classic Clocks paid the business electricity bill for the quarter which amounted to $1376.

Nov 30 Classic Clocks received the outstanding amount from the Hilton Hotel from the sale of the silver framed wall clocks on November 4th.

Part B

Post the General Journals recorded below to the General Ledger provided on the following page. Remember to foot each ledger to determine the ledger balance.

Date

Details

Debit ($)

Credit ($)

1 Dec

Shop Fittings

54 000

   Cash at Bank

15 000

   Loan

39 000

(The business purchased shop fittings)

4

Drawings

15

     Cash at Bank

15

(The owner took money from the business for his own use)

9

Cash at Bank

23 500

Computer

1 500

     Capital – C Cogsworth

25 000

(The owner contributed a computer and cash to the business)

18

Loan

15 800

     Cash at Bank

15 800

(The business repaid $15 800 off the loan)

24

Cash at Bank

11 980

Accounts Receivable

3 200

     Sales

15 180

(The business sold a ladies Rolex watch for $15 180 and has received $11 980 in cash. The remaining amount is to be collected from the customer)

26

Advertising

1 250

     Advertising Payable

 1 250

(The business has signed up for an advertising campaign in the Watch Journal and must pay within 30 days)

 

Part C 

Required:

Post the General Ledger balances from Part B to the Trial Balance below.

Complete the Unadjusted Trial Balance provided below. Please total both the debit and credit column on completion.

Debit ($)

Credit ($)

Classic Clocks

Trial Balance

31-December-18

Electricity Expense

9 165

Telephone Expense

1 555

Motor Vehicle

31 150

Cash at Bank

 

 

Advertising Expense

 

Accounts Payable

 

Office Supplies Expense

1 713

Drawings – Cogsworth

 

 

Office Gas Expense

2 275

Water Expense

        2 661

Capital – Cogsworth

                 

 

Accounts Receivable

 

 

Loan

 

Accumulated Depreciation – Motor Vehicle

       14 489

Stock / Clocks

65 256

Shop Fittings

Repairs and Maintenance Payable

        4 913

Sales

 

 

Accumulated Depreciation – Cash Register and Scanning Equipment

   15 042

Cash Register and Scanning Equipment

22 542

Discount Allowed

           919

Rent Expense

      52 354

Repairs and Maintenance

3 637

Sales Returns & Allowances

           473

Interest expense

4 429

Computer

 

 

Totals

 

 

2.Element: Asset, Liability, Revenue, Expense, Equity)

Claude Cogsworth has written to the managing partner of the accounting firm you work at because he is confused about some of the transactions you have recorded in question 1 Part A.

Required

Please write a letter in your own words to the managing partner of your accounting firm explaining the following with reference to your journal entries in question 1 Part A:
Explain with reference to the appropriate accounting definition the accounting element** that was credited on the 14th of November. (4 marks)

Identify which accounting assumption is relevant to the transaction which occurred on November 2nd and explain in your own words how this assumption is relevant to recording the transaction. 

Date

Details

 Debit ($)

 Credit ($)

01-Nov

Bank and Cash a/c

 1,540.00

To Revenue a/c

 1,540.00

(Being cash received form a student towards fee for watch-making school)

02-Nov

Drawings a/c

183.00

To Bank and Cash a/c

183.00

(Being spent by the proprietor towards personal expenses towards physiotherapist charges)

04-Nov

Bank and Cash a/c

 2,016.00

Debtors for goods-Hilton Hotels a/c

 8,064.00

To Revenue a/c

 10,080.00

(Being sold to Hilton hotel partly in cash and partly in credit)

13-Nov

Laptop a/c

 2,760.00

To Bank and Cash a/c

 2,760.00

(Being laptop purchased in cash for business)

14-Nov

Cleaning Expenses a/c

120.00

To Creditors for expense- Busy bee Cleaners

120.00

(Being invoiced raised by busy bee cleaners towards cleaning expense- invoice ref 6435)

17-Nov

Furniture a/c

 6,272.00

To Bank and Cash a/c

 3,136.00

To Creditors for furniture a/c

 3,136.00

(Being 7 adjustable purchased, partly in cash partly in credit)

29-Nov

Electricity Expenses a/c

 1,376.00

To Bank and Cash a/c

 1,376.00

(Being electricity expenses for the quarter paid)

30-Nov

Bank and Cash a/c

 8,064.00

To Debtors for goods-Hilton Hotels a/c

 8,064.00

(Being Amount received form Hilton Hotels towards sale made on 4th Nov)

Cash at Bank (CAB)

December 1

Balance

44668

December 1

Shop Fittings

15000

December 9

Capital

23500

December 4

Drawings

15

December 24

Sales

11980

December 18

Loan

15800

December 31

Balance

49333

80148

80148

Accounts Receivable (A/R)

December 1

Balance

8656

December 31

Balance

11856

December 24

Sales

3200

11856

11856

Shop Fittings

December 1

Balance

26850

December 31

Balance

80850

December 1

Cash and Bank

15000

December 1

Loan

39000

80850

80850

Computer

December 9

Capital

1500

December 31

Balance

1500

1500

1500

Advertising Payable

December 31

Balance

1250

December 24

Advertising

1250

1250

1250

Loan

December 18

Cash and Bank

15800

December 1

Shop Fittings

39000

December 31

Balance

23200

39000

39000

Drawings

December 1

Balance

40 400

December 31

Balance

40415

December 4

Cash and Bank

15

40415

40415

Capital

December 31

Balance

153708

December 1

Balance

128708

December 9

Cash and bank

23500

December 9

Computer

1500

153708

153708

Sales

December 31

Balance

170731

December 1

Balance

155551

December 24

Cash and Bank

11980

December 24

Account Receivables

3200

170731

170731

Advertising

December 26

Advertising Payable

1250

December 31

Balance

1250

1250

1250

Classic Clocks - Trial Balance-31-Dec-18

 Debit ($)

 Credit ($)

Electricity Expense

9,165

Telephone Expense

1,555

Motor Vehicle

31,150

Cash at Bank

49,333

Advertising Expense

1,250

Accounts Payable

 1,250

Office Supplies Expense

1,713

Drawings – Cogsworth

 40,415

Office Gas Expense

2,275

Water Expense

2,661

Capital – Cogsworth

1,53,708

Accounts Receivable

 11,856

Loan

23,200

Accumulated Depreciation – Motor Vehicle

14,489

Stock / Clocks

65,256

Shop Fittings

 80,850

Repairs and Maintenance Payable

 4,913

Sales

1,70,731

Accumulated Depreciation – Cash Register and Scanning Equipment

15,042

Cash Register and Scanning Equipment

22,542

Discount Allowed

919

Rent Expense

52,354

Repairs and Maintenance

3,637

Sales Returns & Allowances

473

Interest expense

4,429

Computer

 1,500

Totals

 3,83,333

3,83,333


2.Dan Stevens

Managing Director

Mandeville Accounting Solutions Pty Ltd

1800 Adelaide Terrace

Adelaide, SA 5000

3rd December 2017

Dear Mr Stevens,

With respect to the journal entries passed in the books on 2nd of November and on 14th of November the following explanation is being provided:

  • 2ndNovember 2017:  the accounting assumption used for this transaction is business entity assumption, also popularly known as separate entity assumption. Under this assumption it has been explained that the entity has a separate financial status and that it is separate from its owners. To further explain this, we can say that the business entity is to be treated as a separate person from its owners. Under this transaction, since the expense is a personal expense of the proprietor, it has been charged to the drawings account. It is not a business expense and has been deducted from the capital of the proprietor. (Piper, 2015)
  • 14thNovember 2017: the account credited in this journal is Creditors for expense- Busy bee Cleaners account which is in the element of liability. The company has used the services of Busy Bee Cleaners and is entitled to pay for the same. A liability is a sacrifice of the economic benefits of the entity as a result of any past event which will be settled by outflow of resources. Therefore, in the given case the past event is using the services of Busy Bee Cleaners and sacrifice will be made by outflow of cash. (Siciliano, 2015)

I hope that the above helps to clear the confusion regarding the transactions recorded. Kindly let me know in case any future explanation is required.

Yours Sincerely

Claude Cogsworth

Classic Clocks

References:

Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.

Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.

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