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Question:

Please find below, some commonly asked questions that should assist you further:

Q1. What do I do if my answer comes out in dollars and cents?

Q2. If there are two depreciation amounts?

Q3. Which depreciation method do I use?

Q4. When was the business purchased?

Answer:

 

 

Dr.

Cr.

Date

Particulars

Amount

Amount

01-06-2018

Cash at Bank

$10,120

 

 

Accounts Receivable

$19,111

 

 

Motor Vehicle

$32,752

 

 

Gym equipment

$21,829

 

 

Stationery Supplies

$409

 

 

Accounts Payable

 

$7,445

 

Bank Loan

 

$25,131

 

Capital

 

$51,645

01-06-2018

Prepaid Insurance

$2,375

 

 

Cash at Bank

 

$2,375

01-06-2018

Sundry Expenses

$278

 

 

Cash at Bank

 

$278

01-06-2018

Accounts Receivable

$1,012

 

 

Gym Fees

 

$1,012

03-06-2018

Prepaid Rent

$3,177

 

 

Cash at Bank

 

$3,177

03-06-2018

Accounts Receivable

$1,046

 

 

Squash Fees

 

$1,046

04-06-2018

Cash at Bank

$1,484

 

 

Accounts Receivable

 

$1,484

08-06-2018

Cash at Bank

$1,862

 

 

Accounts Receivable

 

$1,862

10-06-2018

Cash at Bank

$1,954

 

 

Squash Fees

 

$1,954

11-06-2018

Cash at Bank

$1,456

 

 

Gym Fees

 

$1,456

12-06-2018

Cash at Bank

$2,091

 

 

Membership Fees

 

$2,091

13-06-2018

Equipment Hiring Charges

$671

 

 

Accounts Payable

 

$671

13-06-2018

Accounts Receivable

$825

 

 

Gym Fees

 

$825

14-06-2018

Accounts Payable

$610

 

 

Cash at Bank

 

$610

15-06-2018

Wages Expense

$2,157

 

 

Cash at Bank

 

$2,157

16-06-2018

Advertising Expense

$745

 

 

Cash at Bank

 

$745

18-06-2018

Cash at Bank

$1,860

 

 

Squash Fees

 

$1,860

19-06-2018

Stationery Supplies

$817

 

 

Cash at Bank

 

$817

21-06-2018

Accounts Receivable

$1,022

 

 

Squash Fees

 

$1,022

21-06-2018

Drawings

$879

 

 

Cash at Bank

 

$879

24-06-2018

Cash at Bank

$3,939

 

 

Capital

 

$3,939

24-06-2018

Motor Vehicle Expense

$238

 

 

Cash at Bank

 

$238

25-06-2018

Accounts Payable

$688

 

 

Cash at Bank

 

$688

26-06-2018

Cash at Bank

$2,103

 

 

Membership Fees

 

$2,103

26-06-2018

Advertising Expense

$1,132

 

 

Accounts Payable

 

$1,132

27-06-2018

Equipment Hiring Charges

$463

 

 

Cash at Bank

 

$463

29-06-2018

Wages Expenses

$2,157

 

 

Cash at Bank

 

$2,157

29-06-2018

Cash at Bank

$1,587

 

 

Gym Fees

 

$1,587

 
 
General Ledger:

 

Cash at Bank

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

$10,120

 

$10,120

 

01-06-2018

Prepaid Insurance

 

$2,375

$7,745

 

 

Sundry Expenses

 

$278

$7,467

 

03-06-2018

Prepaid Rent

 

$3,177

$4,290

 

04-06-2018

Accounts Receivable

$1,484

 

$5,774

 

08-06-2018

Accounts Receivable

$1,862

 

$7,636

 

10-06-2018

Squash Fees

$1,954

 

$9,590

 

11-06-2018

Gym Fees

$1,456

 

$11,046

 

12-06-2018

Membership Fees

$2,091

 

$13,137

 

14-06-2018

Accounts Payable

 

$610

$12,527

 

15-06-2018

Wages Expenses

 

$2,157

$10,370

 

16-06-2018

Advertising Expense

 

$745

$9,625

 

18-06-2018

Squash Fees

$1,860

 

$11,485

 

19-06-2018

Stationery Supplies

 

$817

$10,668

 

21-06-2018

Drawings

 

$879

$9,789

 

24-06-2018

Capital

$3,939

 

$13,728

 

24-06-2018

Motor Vehicle Expenses

 

$238

$13,490

 

25-06-2018

Accounts Payable

 

$688

$12,802

 

26-06-2018

Membership Fees

$2,103

 

$14,905

 

27-06-2018

Equipment Hiring Charges

 

$463

$14,442

 

29-06-2018

Wages Expenses

 

$2,157

$12,285

 

 

Gym Fees

$1,587

 

$13,872

 

 

 

 

 

$13,872

 

 

Accounts Receivable

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

$19,111

 

$19,111

 

 

Gym Fees

$1,012

 

$20,123

 

03-06-2018

Squash Fees

$1,046

 

$21,169

 

04-06-2018

Cash at Bank

 

$1,484

$19,685

 

08-06-2018

Cash at Bank

 

$1,862

$17,823

 

13-06-2018

Gym Fees

$825

 

$18,648

 

18-06-2018

Squash Fees

$1,022

 

$19,670

 

 

Prepaid Insurance

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Cash at Bank

$2,375

 

$2,375

 

 

Prepaid Rent

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

03-06-2018

Cash at Bank

$3,177

 

$3,177

 

 

Motor Vehicle

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

$32,752

 

$32,752

 

 

 

 

 

$32,752

 

 

Office Equipment

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

$21,829

 

$21,829

 

 

 

 

 

$21,829

 

 

Stationery Supplies

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

$409

 

$409

 

19-06-2018

Cash at Bank

$817

 

$1,226

 

 

 

 

 

$1,226

 

 

Accounts Payable

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

 

$7,445

 

$7,445

13-06-2018

Equipment Hiring Charges

 

$671

 

$8,116

14-06-2018

Cash at Bank

$610

 

 

$7,506

25-06-2018

Cash at Bank

$688

 

 

$6,818

26-06-2018

Advertising Expenses

 

$1,132

 

$7,950

 

 

 

 

 

$7,950

 

Bank Loan

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Capital

 

$25,131

 

$25,131

 

 

 

 

 

$25,131

 

Capital

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Cash at Bank

 

$10,120

 

$10,120

 

Accounts Receivable

 

$19,111

 

$29,231

 

Motor Vehicle

 

$32,752

 

$61,983

 

Gym equipment

 

$21,829

 

$83,812

 

Stationery Supplies

 

$409

 

$84,221

 

Accounts Payable

$7,445

 

 

$76,776

 

Bank Loan

$25,131

 

 

$51,645

24-06-2018

Cash at Bank

 

$3,939

 

$55,584

 

 

 

 

 

$55,584

 

Drawings

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

21-06-2018

Cash at Bank

$879

 

$879

 

 

 

 

 

$879

 

 

Gym Fees

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Accounts Receivable

 

$1,012

 

$1,012

11-06-2018

Cash at Bank

 

$1,456

 

$2,468

13-06-2018

Accounts Receivable

 

$825

 

$3,293

29-06-2018

Cash at Bank

 

$1,587

 

$4,880

 

 

 

 

 

$4,880

 

 

 

 

 

$4,880

 

Squash Fees

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

03-06-2018

Accounts Receivable

 

$1,046

 

$1,046

10-06-2018

Cash at Bank

 

$1,954

 

$3,000

18-06-2018

Cash at Bank

 

$1,860

 

$4,860

21-06-2018

Accounts Receivable

 

$1,022

 

$5,882

 

 

 

 

 

$5,882

 

Membership Fees

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

12-06-2018

Cash at Bank

 

$2,091

 

$2,091

26-06-2018

Cash at Bank

 

$2,103

 

$4,194

 

 

 

 

 

$4,194

 

Sundry Expenses

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

01-06-2018

Cash at Bank

$278

 

$278

 

 

 

 

 

$278

 

 

Equipment Hiring Charges

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

13-06-2018

Accounts Payable

$671

 

$671

 

27-06-2018

Cash at Bank

$463

 

$1,134

 

 

Wages Expenses

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

15-06-2018

Cash at Bank

$2,157

 

$2,157

 

29-06-2048

Cash at Bank

$2,157

 

$4,314

 

 

Advertising Expenses

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

16-06-2018

Cash at Bank

$745

 

$745

 

26-06-2018

Accounts Payable

$1,132

 

$1,877

 

 

Motor Vehicle Expense

 

 

Balance

Date

Particulars

Dr.

Cr.

Debit

Credit

24-06-2018

Cash at Bank

$238

 

$238

 

 

 

 

 

$238

 

Unadjusted Trial Balance:

Unadjusted Trial Balance

as on 30 June 2018

Account

Unadjusted T/B

 

DR

CR

Cash at Bank

$13,872

 

Accounts Receivable

$19,670

 

Prepaid Insurance

$2,375

 

Prepaid Rent

$3,177

 

Motor Vehicle

$32,752

 

Accumulated Depreciation - Motor Vehicle

 

 

Office Equipment

$21,829

 

Accumulated Depreciation - Office Equipment

 

 

Stationery Supplies

$1,226

 

Accounts Payable

 

$7,950

Interest Payable

 

 

Wages Payable

 

 

Bank Loan

 

$25,131

Capital

 

$55,584

Drawings

$879

 

Gym Fees

 

$4,880

Squash Fees

 

$5,882

Membership Fees

 

$4,194

Sundry Expenses

$278

 

Equipment Hiring Charges

$1,134

 

Wages Expenses

$4,314

 

Advertising Expenses

$1,877

 

Motor Vehicle Expenses

$238

 

Interest Expenses

 

 

Depreciation Expenses

 

 

Insurance Expenses

 

 

Rent Expenses

 

 

Supplies Expenses

 

 

TOTAL

$1,03,621

$1,03,621

Income Statement:
Balance Sheet:

Balance Sheet

as on 30 June 2018

Current Assets:

 

 

Cash at Bank

13,872

 

Accounts Receivable

19,670

 

Prepaid Insurance

1,781

 

Prepaid Rent

2,542

 

Stationery Supplies

643

 

TOTAL CURRENT ASSETS

 

38,508

Non-Current Assets:

 

 

Motor Vehicle

32,752

 

Accumulated Depreciation - Motor Vehicle

-1,148

 

Office Equipment

21,829

 

Accumulated Depreciation - Office Equipment

-4,155

 

TOTAL NON-CURRENT ASSETS

 

49,278

TOTAL ASSETS

 

87,786

Current Liabilities:

 

 

Accounts Payable

7,950

 

Interest Payable

188

 

Wages Payable

308

 

TOTAL CURRENT LIABILITIES

 

8,447

Non-Current Liabilities:

 

 

Bank Loan

25,131

 

TOTAL NON-CURRENT LIABILITIES

 

25,131

TOTAL LIABILITIES

 

33,578

Capital:

 

 

Capital

55,584

 

Less: Net Loss

-497

 

 

55,087

 

Less: Drawings

-879

 

TOTAL CAPITAL

 

54,208

TOTAL LIABILITIES & CAPITAL

 

87,786

Difference between Accrual Profit & Cash Profit:

The main concepts which is used in accounting which is related to reporting and recognising expenses and income are accrual and cash basis of accounting. The main difference which can be identified between cash basis and accrual basis of accounting is related to the difference in timing in which revenue and expenses of the business are recognize (Bac, 2013). The cash method of accounting is considered to be immediate in recognition of revenue and expenses whereas the accrual method considers anticipated revenue expenses of the business (Weil, Schipper & Francis, 2013).  Another major difference which is present between cash basis and accrual basis of accounting is that cash basis of accounting does not consider any non-cash expenses such as depreciation expense and thereby does not provide a true view of the performance of the business. In the case of accrual basis of accounting, both cash and non-cash transactions are considered for estimating the accounting profits of the business. As cash basis of accounting  does not recognize non-cash items of the business, a true and clear view of the profits cannot be obtained and therefore the method is not used much in large businesses.

In case of cash basis, revenues are only recognized in the income statement when cash is actually received and expenses are recognized only actual cash is paid. On the other hand, accrual method considers revenue which are actually earned during the period irrespect6ive of the fact that cash for the same is received or not. Similarly, expenses are also recorded in a similar manner. The accrual basis of accounting considers that money will be received for the goods and services which is delivered to the customers. Generally, cash basis of accounting is applied in small business organizations as in big businesses it has a tendency of overstating the health of the business (Weygandt, Kimmel & Kieso, 2015). Whereas accrual basis provides a true view of the financial health of a business for a year and is mostly used by businesses. Thus, it can be said that accrual basis of accounting is more appropriate in comparison to cash basis of accounting.

Workings:

In the books of Muscle Up

Adjusting Entries

 

 

Dr.

Cr.

Date

Particulars

Amount

Amount

30-06-2018

Interest Expense

$188

 

 

Interest Payable

 

$188

 

Depreciation Expense

$5,303

 

 

Accum. Depreciation - Motor Vehicle

 

$1,148

 

Accum. Depreciation - Office Equipment

 

$4,155

 

Insurance Expense

$594

 

 

Prepaid Rent

 

$594

 

Rent Expense

$635

 

 

Prepaid Rent

 

$635

 

Supplies Expense

$583

 

 

Stationery Supplies

 

$583

 

Wages Expenses

$308

 

 

Wages Payable

 

308.1429

Computation of Cash Profit:

 

Particulars

Amount

Accounting Loss

-$497

Add:

 

Interest Payable

$188

Depreciation Expense

$5,303

Insurance Expense

$594

Rent Expense

$635

Supplies Expense

$583

Wages Payable

$308

 

$7,115

Less:

 

Prepaid Rent

$3,177

Prepaid Insurance

$2,375

Purchase of Supplies

$817

Cash Profit

$746

The above figure shows the various items which are considered for the purpose of computing the accounting profits of the business. The figure shows that accounting loss which is computed considering accrual basis which considers non-cash expenses as well (Drexler, Fischer & Schoar, 2014). In order to obtain the cash profits of the business, all non-cash deductions are to be added back and the expenses which are still not paid are also to be added back to the figure. In addition to this, any prepaid expense which is associated with previous year is to be removed and this deducted. The prepaid expenses of the business which is shown in the above figure relates to expenses of another accounting period which have been paid in advance and therefore to ascertain the cash profits of the business, such expenses are to be deducted from the accounting profits. The cash profits of the business is shown to be $ 746 whereas following the accrual basis it showed a loss of $ 497.

 
Reference

Bac, A. (Ed.). (2013). International comparative issues in government accounting: The similarities and differences between central government accounting and local government accounting within or between countries. Springer Science & Business Media.

Drexler, A., Fischer, G., & Schoar, A. (2014). Keeping it simple: Financial literacy and rules of thumb. American Economic Journal: Applied Economics, 6(2), 1-31.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.

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