1. Chapter 4

2. Objective test 2 On 20 June 20x3 an entity pays R500 in advance for repairs on its vehicle. The supplier first had to order the spare part that needs to be replaced, so the repairs would be done later. On 5 July 20x3 the supplier informed the entity that the spare part had arrived. The entity took the vehicle in for repairs on 6 July 20x3 and the work was completed on the same day. With reference to the concept of Accrual accounting, explain on which date the repair expense will be recognised.(6 marks)

3. The accounting equation 3 ASSETS = EQUITY + LIABILITIES INCOME (+) EXPENSES (-)

4. The accounting equation 4 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR

5. The accounting equation 5 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR Income CR Expenses DR

6. The accounting process 6 Transaction/ 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

7. T-Account 7 Page 83 -Date, -Name of contra account, -Amount

8. Journal entry 8 Page 96 -Date, -Account debited (+ F/S) -Account credited (+ F/S), -Amounts -Reason for journal (journal narration/description)

9. Exercise 9 Indicate the effect (DR and CR) on the accounting equation of the following transactions: 1)Owner contributes R10 000 as capital cash. 2)Purchase inventory for R2 000 cash. 3)Pay rent expense R5 000 cash. 4)Obtain loan from Bank for R20 000. 5)Pay water & electricity R1 000 cash.

10. Owner contributes R10 000 as capital cash 10 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR 10 000 (Equity classification: Capital) DR CR Dr Bank (SFP)10 000 Cr Capital (SCE)10 000

11. Purchase inventory for R2 000 cash 11 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR 2 000 DR CR Dr Trade inventories (SFP)2 000 Cr Bank (SFP) 2 000

12. Pay rent expense R5 000 cash 12 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR 5 000 (Equity classification: Expense) DR CR Dr Rent expense (P&L) 2 000 Cr Bank (SFP) 2 000

13. Obtain loan from Bank for R20 000 13 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR 20 000 DR CR Dr Bank (SFP)20 000 Cr Loan: Bank (SFP)20 000

14. Pay water & electricity R1 000 cash 14 Assets=Equity+Liabilities +--+-+ DRCRDRCRDRCR 1 000 (Equity classification: Expense) DR CR Dr Water and electricity (P&L)1 000 Cr Bank (SFP)1 000

15. The accounting process 15 Transaction/ 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

16. Account (Ledger/GL) 16 Bank Tx1 Capital 10 000 Tx2 Trade inventories 2 000 Tx3 Rent expense 5 000 Tx4 Loan: Bank 20 000 Tx5 Water & electricity 1 000.Balance cf 22 000 30 000 Balance bd 22 000

17. Example 4.5 – nr 1 17 On 2 January 20.7, the owner made the property that AC Entity utilises available for the exclusive use of the entity. The property was registered in the owner’s name a few days before 2 January 20.7. The purchase price of the property was R1 200 000 (R200 000 for the land and R1 000 000 for the buildings).

18. Example 4.5 – nr 1 18 20.7 DrCr 2 JanLand (SFP)200 000 Buildings (SFP)1 000 000 Capital (SFP) 1 200 000 Recognise capital contribution by owner Assets=Liabilities+EquityClassification + 200 000 +1 000 000 =0+ +1 200 000 Capital

19. Example 4.5 – nr 2 19 On 2 January 20.7, the owner opened a cheque account for the entity and deposited R1 800 000 in the account.

20. Example 4.5 – nr 2 20 20.7 DrCr 2 Jan Bank (SFP) 1 800 000 Capital (SFP) 1 800 000 Recognise capital contribution by the owner Assets= Liabilitie s +EquityClassification +1 800 000 =0+ Capital

21. Example 4.5 – nr 3 21 On 2 January 20.7, furniture and equipment to the amount of R225 000 was ordered. The supplier, Payable K, delivered the furniture and equipment on 5 January 20.7 to AC Entity’s premises. The invoice price is R225 000 and it was agreed with Payable K to pay the outstanding amount on 30 January 20.7.

22. Example 4.5 – nr 3 22 20.7 DrCr 5 JanFurniture and equipment (SFP) 225 000 Payable K (SFP) 225 000 Recognise furniture and equipment received together with accompanying liability Assets=Liabilities+EquityClassification +225 000= + 0

23. Example 4.5 – nr 4 23 Trade inventories to the amount of R20 000 was ordered on 7 January 20.7 and it was agreed with Payable L that the outstanding amount will be paid 30 days after delivery. On 25 January 20.7, Payable L delivered the trade inventories to AC Entity’s premises. The invoice price is R20 000 and the invoice reflects that the amount is payable on 24 February 20.7.

24. Example 4.5 – nr 4 24 20.7 DrCr 25 Jan Trade inventories (SFP)20 000 Payable L (SFP) 20 000 Recognise trade inventories received together with accompanying liability Assets=Liabilities+EquityClassification +20 000= + 0

25. Example 4.5 – nr 5 25 On 30 January 20.7, the amount due to Payable K was paid.

26. Example 4.5 – nr 5 26 20.7 DrCr 30 JanPayable K (SFP)225 000 Bank (SFP) 225 000 Derecognise Payable K due to settlement of debt Assets=Liabilities+EquityClassification - 225 000= + 0

27. Homework 27 -Prepare T-accounts for Example 4.5