Chapter 4

Objective test 2 Provide jnl entries & show the effect on the acc equation for the following transactions in the records of ABC Entity. 15 Jan 20x3 The entity orders a new vehicle on credit from Toyota for R The vehicle is delivered to ABC Entity on 17 Jan 20x3. 20 Jan 20x3 ABC entity purchases trade inventory cash, R Jan 20x3 Sell trade inventory on credit to Debtor A at R The cost price of the inventory amounted to R Jan 20x3 Pay the owner’s private telephone account, R420.

15 Jan 20x3 The entity orders a new vehicle on credit from Toyota for R The vehicle is delivered to ABC Entity on 17 Jan 20x3. 3 DrCr 17 Jan Dr Vehicles (SFP) Cr Creditor: Toyota (SFP) Recognise the purchase of vehicle on credit Assets= Liabiliti es +EquityClassification = + 0

20 Jan 20x3 ABC entity purchases trade inventory cash, R DrCr 20 Jan Dr Trade inventory (SFP)5 000 Cr Bank (SFP) Purchase trade inventory cash Assets= Liabiliti es +EquityClassification =0+ 0

28 Jan 20x3 Sell trade inventory on credit to Debtor A at R The cost price of the inventory amounted to R DrCr 28 Jan Dr Debtor A (SFP)3 000 Cr Sales (P&L) Recognise the sale of inventory Assets=Liabilities+EquityClassification = Income (RE) Expense (RE) DrCr 28 Jan Dr Cost of sales (P&L)2 000 Cr Trade inventory (SFP) Recognise the cost of sales on sale

30 Jan 20x3 Pay the owner’s private telephone account, R DrCr 30 Jan Dr Drawings (SCE)420 Cr Bank (SFP) 420 Owner draws R420 for private use Assets=Liabilities+EquityClassification - 420=0+ Retained earnings- Drawings

7 Trade inventory Jan 20 Bank Jan 28 Cost of sales Balance cf Balance bd 3 000

The accounting process 8 Transactio n/event Journal (prime entry) General ledger (accounts) Trial balance & adjustments AFS (Annual financial statements) of: -Profit and loss (P&L) -Statement of financial position (SFP) -Statement of changes in Equity (SCE) -Cash flow statement (C/F) -Notes & policies

The accounting equation 9 Assets=Equity+Liabilities DRCRDRCRDRCR Income CR Expense s DR

The accounting process 10 Transactio n/event Journal (prime entry) General ledger (accounts) Trial balance & adjustments AFS (Annual financial statements) of: -Profit and loss (P&L) -Statement of financial position (SFP) -Statement of changes in Equity (SCE) -Cash flow statement (C/F) -Notes & policies

Class Example 11 -Opening balance (list of accounts) -Journal entries -T-accounts -List of accounts -P&L -SCE -SFP

Class Example 12 | Feb 20.7 | 1 Feb 28 Feb List List AFS

On 1 February 20.7, a deposit to the amount of R was paid to the local authority for the connection of water and electricity. The deposit is repayable with the disposal of the property. 13

DrCr 1 Feb. Dr Deposit: Water and electr. (SFP) Cr Bank (SFP) Recognise payment of deposit Assets= Liabiliti es +EquityClassification =0+ 0 Bank Receivable

On 3 February 20.7, trade inventories to the amount of R were purchased from Payable M and it was agreed with the payable that the amount due would be paid within 30 days after delivery of the trade inventories. On 5 February 20.7, Payable M delivered the trade inventories to AC Entity’s premises. 15

DrCr 5 Feb. Dr Trade Inventory (SFP) Cr Payable M (SFP) Recognise purchase of trade inventory and the liability Assets= Liabiliti es +EquityClassification = + 0

Trade inventories to the amount of R were purchased on 4 February 20.7 and it was agreed with the supplier that payment would occur with delivery (COD). On 6 February 20.7, the supplier delivered the trade inventories to AC Entity’s premises. 17

DrCr 6 Feb. Dr Trade Inventory (SFP) Cr Bank (SFP) Recognise purchase of trade inventory for cash Assets= Liabiliti es +EquityClassification =0+ 0

On 24 February 20.7, trade inventories were sold on credit to Receivable A for R The trade inventories were delivered to Receivable A on the same day and it was agreed that the amount due must be paid within 30 days after delivery. The cost price of the trade inventories sold is R

DrCr 24 Feb. Dr Receivable A (SFP) Cr Sales (P/L) Recognise income from sale of inventory Assets= Liabiliti es +EquityClassification =0+ RE – Income (Sales)

DrCr 24 Feb. Dr Cost of sales (P/L) Cr Trade Inventory (SFP) Recognise cost of inventory sold Assets= Liabiliti es +EquityClassification =0+ RE – Expense (Cost of sales)

On 24 February 20.7, a payment was made to Payable L for the amount due in respect of trade inventories purchased on credit on 25 January

DrCr 24 Feb. Dr Payable L (SFP) Cr Bank (SFP) Derecognise Payable L due to settlement Assets= Liabiliti es +EquityClassification = + 0

On 28 February 20.7, trade inventories were sold for R cash and delivered on the same day. The cost price of the trade inventories sold is R

DrCr 28 Feb. Dr Bank (SFP) Cr Sales (P/L) Recognise income from cash sale of inventory Assets= Liabiliti es +EquityClassification =0+ RE – Income (Sales)

DrCr 28 Feb. Dr Cost of sales (P/L) Cr Trade Inventory (SFP) Recognise cost of inventory sold Assets= Liabiliti es +EquityClassification =0+ RE – Expense (Cost of sales)

Gross salaries to the amount of R was paid on 28 February

DrCr 28 Feb. Dr Salaries and Wages (P/L) Cr Bank (SFP) Recognise payment of salaries for February 20.7 Assets= Liabiliti es +EquityClassification =0+ RE – Expense (Salaries)

On 28 February 20.7, a cheque to the amount of R was issued to the owner for personal use. 29

DrCr 28 Feb. Dr Drawings (SCE) Cr Bank (SFP) Recognise distribution to owner Assets= Liabiliti es +EquityClassification =0+ RE – Drawings

The account for the use of water and electricity during February 20.7 was received electronically on 28 February An amount of R8 000 is payable before 24 March

DrCr 28 Feb. Dr Water and electricity (P/L) Cr Payable: Local munic. (SFP) Recognise water and electricity expense for February 20.7 and liability Assets= Liabiliti es +EquityClassification 0= RE – Expense (Water and electr.)

On 28 February 20.7, the owner deposited an additional R in AC Entity’s bank account as an increase in capital. 33

DrCr 28 Feb. Dr Bank (P/L) Cr Capital (SFP) Recognise capital contribution by owner Assets= Liabiliti es +EquityClassification =0+ Capital

Homework 35 -Do Example 4.6: Prepare T- accounts for the transactions in this example