Business School

ACCT1501 Accounting and Financial Management 1A

Session 1 2016
TUTORIAL WEEK 5 Solutions to Tutorial Questions
Tutorial Questions:
DQ 4.3, 4.7, 4.9, P4.18, P4.19, Case 3B*
DQ4.3
A chart of accounts is a listing of the titles of all the accounts of an entity. Each account is
assigned a number.
DQ4.7
Closing entries formally transfer the balances of the revenue and expense accounts to a profit
and loss summary and then to retained profits. Closing entries also reset the revenue and
expense account balances to zero to begin recording these items for the next accounting period.
DQ4.9
The basic point is that accounting records and financial statements need not be complex or
expensive to be useful. Every manager needs to know how the business is performing and to
be able to explain that to bankers and others. This performance goes beyond mere sales
records, even if sales are the lifeblood of the firm. The accounting system provides
information about profitability, cash flows, debts and other factors important to the business
besides sales. Bankers and tax authorities want to know about such things, even if the
businessman claims not to.
It should be said also that the entrepreneur mentioned may well have an accounting system
that fits the modest needs of his/her business well. He/she understands cost-benefit:
accounting, like everything else, should be worth its cost. But he/she should ask
himself/herself if he/she could be a better manager if he/she had more information, and
perhaps accounting could help him/her there.

P4.18
1
Morilla Ltd
General journal

(a) Dr
Cr

Inventory
Accounts Payable

$
8,250

$
8,250
1

(b) Dr
Cr
Dr
Cr

Accounts Receivable
Sales
COGS
Inventory

11,000

(c) Dr
Cr

Cash
Accounts Receivable

19,000

(d) Dr
Cr

Accounts Payable
Cash

11,000

(e) Dr
Cr

Misc. Expenses
Cash

1,500

(f) Dr
Cr

Salaries Expense
Cash

2,600

(g) Dr
Cr

Depreciation Expense
Accumulated Depreciation

200

(h) Dr
Cr

Long-term loan
Cash

800

11,000
7,700
7,700
19,000
11,000
1,500
2,600
200
800

Posting to the ledger accounts

Cash
31/1/16
Feb/16

31/1/16

31/1/16
Feb/16
31/1/16

Opening balance
Accounts receivable

21,000
19,000

Accounts payable
Misc. expenses
Salaries expense
Long-term loan

Opening balance
Sales

Accounts receivable
25,000
Feb/16 Cash
11,000

Opening balance
Accounts payable

Inventory
36,000
Feb/16
8,250

Opening balance

Equipment
24,000

COGS

Accumulated depreciation
31/1/16 Opening balance
Feb/16 Depreciation expense
Feb/16

Feb/16

Cash

Cash

Accounts payable
11,000
31/1/16 Opening balance
Feb/16 Inventory

11,000
1,500
2,600
800
19,000

7,700

3,000
200
13,000
8,250

Long-term loan
800
31/1/16

Opening balance

49,000

Share capital
31/1/16

Opening balance

30,000

Retained profits
31/1/16

Opening balance

11,000

Accounts receivable

11,000

Sales
Feb/16
COGS
Feb/16

Inventory

7,700

Feb/16

Cash

Misc. expenses
1,500

Feb/16

Cash

Salaries expense
2,600

Depreciation expense
Feb/16

Accumulated
depreciation

200

3
Morilla Ltd
Trial balance at end February 2016

Cash
Accounts receivable
Inventory
Equipment
Accumulated depreciation
Accounts payable
Long-term loan
Share capital
Retained profits
Sales
COGS
Misc. expenses
Salaries expense
Depreciation expense

$
24,100
17,000
36,550
24,000

3,200
10,250
48,200
30,000
11,000
11,000
7,700
1,500
2,600
200
113,650

113,650

$
11,000

Preparing closing entries

Dr
Cr

Sales
Profit and loss summary

Dr

Profit and loss summary

COGS
Misc. expenses
Salaries expense
Depreciation expense

Dr
Cr

Retained profits
Profit and loss summary

11,000
12,000
7,700
1,500
2,600
200
1,000
1,000

5
Morilla Ltd
Income Statement for February 2016
$
Sales
Cost of goods sold
Gross profit
Operating expenses
Salaries expense
Misc. expenses
Depreciation expense

$
11,000
(7,700)
3,300

2,600
1,500
200
(4,300)

Net loss

(1,000)

Morilla Ltd
Balance Sheet as at 28 February 2016
$
Assets
Current assets
Cash
Accounts receivable
Inventory
Noncurrent assets
Equipment
Accumulated depreciation
Total assets
Liabilities and shareholders equity
Current liabilities
Account payable
Noncurrent liabilities
Long-term loan
Shareholders equity
Share capital
Retained profits
Total liabilities and shareholders equity

24,100
17,000
36,550
77,650
24,000
(3,200)
20,800
98,450

10,250
48,200
58,450
30,000
10,000
40,000
98,450

P4.19
Dr
a

Cash
Share capital
Issue of shares for cash. (Number of shares unknown.)

$
30,000

5,000

Equipment
Cash
Notes payable
Purchase of equipment, partly for cash.

3,600

5,000

1,200
2,400

Supplies expense
Accounts payable
Supplies expense, not yet paid for.

700

Accounts receivable
Sales revenue
Credit sales.

900

Cost of goods sold

Inventory
Cost of the goods sold on credit.

540

Cash
Accounts receivable
Sales revenue
Credit sales with down payment.

1,300
1,400

Cost of goods sold

Inventory
Cost of the goods sold with down payment.

1,620

Accounts payable
Cash
Payments to suppliers.

$
30,000

Inventory
Accounts payable
Purchases of inventory, on credit.

Cash
Accounts receivable
Collections on customer accounts.

Cr

700

900

540

2,700

1,620
650
650
1,000
1,000

Supplies
Supplies expense
Supplies on hand at end of the month.

300

Interest expense
Notes payable
Cash
To record payment of interest and principal on notes.

60
500

300

560

Case 3B*
This is an open question. Students should pick a company and go to its website to answer the
questions. Individual answers depend on the company chosen.