UNSW Business School

School of Accounting

ACCT1501 Accounting and Financial Management 1A

Session 1 2017

TUTORIAL WEEK 5 Solutions to Tutorial Questions

Tutorial Questions:
DQ 4.3, 4.6, 4.9, 4.15, 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.

DQ4.6
A trial balance is a standard bookkeeping procedure to check whether certain errors have
been made in posting the journal entries to the ledger. It is a test to see whether total debits
equal total credits.

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.

DQ4.15

Given the equality of debits and credits in a trial balance, the following errors may still remain in
a set of accounting records:
i an inaccuracy in the amount of the initial recording;
ii a case of incorrect analysis of transaction;
iii posting the correct amount to the wrong ledger account;
1
 iv failure to post both the debit and credit sides of one or more entries;
v a compensating error, i.e., where a mistake in one transaction is exactly offset by
a second error in another transaction in such a way that equality of debits and credits
in the system as a whole is maintained; and
vi recording a fictitious transaction.

These errors should be guarded against by supervision or systematic checking, e.g.:

i checking journal entries and ledger posting;
ii perusing items in the trial balance;
iii comparing amounts in the current trial balance with the figures in the trial balance for
the previous period; and
iv checking that all entries are based on authorised source documents.

P4.18
1
Morilla Ltd
General journal

$ $
(a) Dr Inventory 8,250
Cr Accounts Payable 8,250

(b) Dr Accounts Receivable 11,000

Cr Sales 11,000
Dr COGS 7,700
Cr Inventory 7,700

(c) Dr Cash 19,000

Cr Accounts Receivable 19,000

(d) Dr Accounts Payable 11,000

Cr Cash 11,000

(e) Dr Misc. Expenses 1,500

Cr Cash 1,500

(f) Dr Salaries Expense 2,600

Cr Cash 2,600

(g) Dr Depreciation Expense 200

Cr Accumulated Depreciation 200

(h) Dr Long-term loan 800

Cr Cash 800

2
2 Posting to the ledger accounts

Cash
31/1/16 Opening balance 21,000 Accounts payable 11,000
Feb/16 Accounts receivable 19,000 Misc. expenses 1,500
Salaries expense 2,600
Long-term loan 800

Accounts receivable
31/1/16 Opening balance 25,000 Feb/16 Cash 19,000
Sales 11,000

Inventory
31/1/16 Opening balance 36,000 Feb/16 COGS 7,700
Feb/16 Accounts payable 8,250

Equipment
31/1/16 Opening balance 24,000

Accumulated depreciation
31/1/16 Opening balance 3,000
Feb/16 Depreciation expense 200

Accounts payable
Feb/16 Cash 11,000 31/1/16 Opening balance 13,000
Feb/16 Inventory 8,250

Long-term loan
Feb/16 Cash 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

Sales
Feb/16 Accounts receivable 11,000

COGS
Feb/16 Inventory 7,700

Misc. expenses
Feb/16 Cash 1,500

Salaries expense
Feb/16 Cash 2,600

3
 Depreciation expense
Feb/16 Accumulated
depreciation 200

3
Morilla Ltd
Trial balance at end February 2016

$ $
Cash 24,100
Accounts receivable 17,000
Inventory 36,550
Equipment 24,000
Accumulated depreciation 3,200
Accounts payable 10,250
Long-term loan 48,200
Share capital 30,000
Retained profits 11,000
Sales 11,000
COGS 7,700
Misc. expenses 1,500
Salaries expense 2,600
Depreciation expense 200

113,650 113,650

4 Preparing closing entries

$ $
Dr Sales 11,000
Cr Profit and loss summary 11,000

Dr Profit and loss summary 12,000

COGS 7,700
Misc. expenses 1,500
Salaries expense 2,600
Depreciation expense 200

Dr Retained profits 1,000

Cr Profit and loss summary 1,000

4
5
Morilla Ltd
Income Statement for February 2016

$ $
Sales 11,000
Cost of goods sold (7,700)
Gross profit 3,300
Operating expenses
Salaries expense 2,600
Misc. expenses 1,500
Depreciation expense 200
(4,300)

Net loss (1,000)

Morilla Ltd
Balance Sheet as at 28 February 2016

Assets
Current assets
Cash 24,100
Accounts receivable 17,000
Inventory 36,550
77,650
Noncurrent assets
Equipment 24,000
Accumulated depreciation (3,200)
20,800
Total assets 98,450

Liabilities and shareholders equity

Current liabilities
Account payable 10,250
Noncurrent liabilities
Long-term loan 48,200
58,450

Shareholders equity
Share capital 30,000
Retained profits 10,000
40,000
Total liabilities and shareholders equity 98,450

5
P4.19
Dr Cr
$ $
a Cash 30,000
Share capital 30,000
Issue of shares for cash

b Inventory 5,000
Accounts payable 5,000
Purchases of inventory on credit.

c Equipment 3,600
Cash 1,200
Notes payable 2,400
Purchase of equipment partly for cash.

d Supplies expense 700

Accounts payable 700
Supplies expense not yet paid for.

e Accounts receivable 900

Sales revenue 900
Credit sales.

Cost of goods sold 540

Inventory 540
Cost of the goods sold on credit.

f Cash 1,300
Accounts receivable 1,400
Sales revenue 2,700
Credit sales with down payment.

Cost of goods sold 1,620

Inventory 1,620
Cost of the goods sold with down payment.

g Cash 650
Accounts receivable 650
Collections on customer accounts.

h Accounts payable 1,000

Cash 1,000
Payments to suppliers.

i Supplies 300
Supplies expense 300
Supplies on hand at end of the month.

j Interest expense 60
Notes payable 500
Cash 560
To record payment of interest and principal on notes.

6
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.