Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Should say "Inc.".

Exercise 3.1
a. Analysing Chart
Date

Reap and Sow

Accounts affected

Classification (A / L / Oe / R / E)

Increase / Decrease

Debit $

Credit $

May 1 Bank Capital 2 Prepaid rent Bank 3 Stock Control Creditors Control 4 Office furniture Bank 5 Advertising Bank 6 Computer Capital

A Oe A A A L A A E A A Oe

Inc. Dec. Inc. Dec. Inc. Inc. Inc. Dec. Inc. Dec. Inc. Inc.

40 000 40 000 500 500 8 000 8 000 3 000 3 000 150 150 1 200 1 200

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 5.2
a. Explanation

Phils Pianos

To summarise all credit purchases of stock; total credit purchases of stock can then be posted to the ledger in fewer entries, increasing the efficiency of the recording system

OR: Ledger entries can be traced to the source document that verified the transaction b. Purchases Journal
Date Creditor Invoice number Stock GST Total Creditors

Aug. 3 Yamaha 8 Bernstein 15 Yamaha 24 Rachman 29 Bernstein Totals c. General Ledger

Yh3764 B4801 Yh3784 R132 B4816 $

20 000 6 000 4 000 15 600 3 600 49 200

2 000 600 400 1 560 360 4 920

22 000 6 600 4 400 17 160 3 960 54 120

Creditors Control (L)

Date Cross-reference Amount $ Date Cross-reference Amount $

Aug. 1 Balance 30 Stock Control / GST Clear.

Should read "31".

12 000 54 120

Stock Control (A)

Cross-reference Amount $ Date Cross-reference Amount $

Date

Aug. 1 Balance 30 Creditors Control

27 000 49 200

GST Clearing (A/L)

Date Cross-reference Amount $ Date Cross-reference Amount $

Aug. 30 Stock Control

4 920

Aug. 1 Balance

600

Should read "Creditors Control".

Simmons, Hardy 2006 Cambridge University Press 2

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 5.3
a. Explanation

Glow Warm

Invoices in the Purchases Journal do not run in sequence because they are issued by the suppliers, who will also issue them to their other customers between transactions with Glow Warm.

b./d./e. General Ledger Creditors Control (L)

Date Cross-reference Amount $ Date Cross-reference Amount $

April 30 Bank Balance

1 320 15 950 $17 270

April 1 Balance 30 Stock Control / GST Clear. May 1 Balance

4 070 13 200 $17 270 15 950

Stock Control (A)

Date Cross-reference Amount $ Date Cross-reference Amount $

April 1 Balance 30 Creditors Control

8 000 12 000

GST Clearing (A/L)

Date Cross-reference Amount $ Date Cross-reference Amount $

Aug. 30 Stock Control

1 200

April 1 Balance

1 700

"Aug. 30 Stock Control" should read "Apr. 30 Creditors Control".

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 7.10
a. General Journal

Blue Lines

Date

Details

General Ledger Debit Credit $ $

Subsidiary Ledger Debit Credit $ $

June 30 Equipment Cleaning expenses June 30 Advertising Drawings June 30 Interest expense Loan HBM June 30 Debtor B. Quack Debtor B. Quick June 30 Wages Creditors Control Creditor N. Smythe
Insert a new row between those showing Wages and Creditors Control. This new row will read "Bank" in the Details column and "45" in General Ledger - Debit column.

120 120 500 500 100 100 350 350 505 505 505 350 350
Delete

b.

Should read "550"

Explanation Cleaning expenses would be overstated by $120, meaning Net profit would be understated by $120. (Equipment is an asset, not an expense.) c. Explanation No effect: Drawings decreases meaning Owners equity increases, but Advertising expenses increase meaning Net profit and Owners equity decrease.

d.

All entries for "understated" and "overstated" should be reversed.

Overstated / Understated / No effect

Amount $

Assets Liabilities Owners equity

No effect Overstated (Loan HBM) Understated (Overstated interest expense means Net profit is understated) 100 100

Simmons, Hardy 2006

Cambridge University Press

16

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

d. General Journal
General Ledger Debit Credit $ $ Subsidiary Ledger Debit Credit $ $

Date

Details

Mar. 31 Stock loss Stock Control Stock loss revealed by stocktake (Memo 5)

160 160

e. Calculation
Should read "2 790". Should read "1 120".

Sales revenue less Cost of sales Gross profit less Stock loss Adjusted Gross profit

$5 440 2 770 2 670 160 $2 510

(34 units
$160 per unit) (970 + 700 + 1 100)

Should read "2 490".

Adjusted Gross profit $ 2 510 f.

Should read "$2 490".

Explanation No effect: although Drawings would be understated by $240, the loss of these units would be detected (by the stocktake) as a stock loss, reducing profit by $240. As a result, Owners equity would be unchanged.

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

e. Calculation

Should read "$900". Should read "1 950".

Sales revenue less Cost of sales Gross profit add Stock gain Adjusted Gross profit

$6 930 4 350 2 580 650 $3 230

(7 units
$990 per unit) (3 050 + 1 300)

Should read "2 600".

Adjusted Gross profit $ f.

Should read "$2 600".

3 230

Explanation It would be reported under the heading Other expenses as Advertising, as it is a loss or outflow of an economic benefit in the form of a decrease in assets (Stock Control), which leads to a decrease in Owners equity, but it occurs after the goods are ready for sale.

Simmons, Hardy 2006

Cambridge University Press

11

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 3.1
a. Analysing Chart
Date

Reap and Sow

Accounts affected

Classification (A / L / Oe / R / E)

Increase / Decrease

Debit $

Credit $

May 1 Bank Capital 2 Prepaid rent Bank 3 Stock Control Creditors Control 4 Office furniture Bank 5 Advertising Bank 6 Computer Capital

A Oe A A A L A A E A A Oe

Inc. Inc. Inc. Dec. Inc. Inc. Inc. Dec. Inc. Dec. Inc. Inc.

40 000 40 000 500 500 8 000 8 000 3 000 3 000 150 150 1 200 1 200

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 5.2
a. Explanation

Phils Pianos

To summarise all credit purchases of stock; total credit purchases of stock can then be posted to the ledger in fewer entries, increasing the efficiency of the recording system

OR: Ledger entries can be traced to the source document that verified the transaction b. Purchases Journal
Date Creditor Invoice number Stock GST Total Creditors

Aug. 3 Yamaha 8 Bernstein 15 Yamaha 24 Rachman 29 Bernstein Totals c. General Ledger

Yh3764 B4801 Yh3784 R132 B4816 $

20 000 6 000 4 000 15 600 3 600 49 200

2 000 600 400 1 560 360 4 920

22 000 6 600 4 400 17 160 3 960 54 120

Creditors Control (L)

Date Cross-reference Amount $ Date Cross-reference Amount $

Aug. 1 Balance 31 Stock Control / GST Clear.

12 000 54 120

Stock Control (A)

Date Cross-reference Amount $ Date Cross-reference Amount $

Aug. 1 Balance 31 Creditors Control

27 000 49 200

GST Clearing (A/L)

Date Cross-reference Amount $ Date Cross-reference Amount $

Aug. 31 Creditors Control

4 920

Aug. 1 Balance

600

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 5.3
a. Explanation

Glow Warm

Invoices in the Purchases Journal do not run in sequence because they are issued by the suppliers, who will also issue them to their other customers between transactions with Glow Warm.

b./d./e. General Ledger Creditors Control (L)

Date Cross-reference Amount $ Date Cross-reference Amount $

April 30 Bank Balance

1 320 15 950 $17 270

April 1 Balance 30 Stock Control / GST Clear. May 1 Balance

4 070 13 200 $17 270 15 950

Stock Control (A)

Date Cross-reference Amount $ Date Cross-reference Amount $

April 1 Balance 30 Creditors Control

8 000 12 000

GST Clearing (A/L)

Date Cross-reference Amount $ Date Cross-reference Amount $

Apr. 30 Creditors Control

1 200

April 1 Balance

1 700

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

Exercise 7.10
a. General Journal

Blue Lines

Date

Details

General Ledger Debit Credit $ $

Subsidiary Ledger Debit Credit $ $

June 30 Equipment Cleaning expenses June 30 Advertising Drawings June 30 Interest expense Loan HBM June 30 Debtor B. Quack Debtor B. Quick June 30 Wages Bank Creditors Control Creditor N. Smythe

120 120 500 500 100 100 350 350 505 45 550 550

b. Explanation Cleaning expenses would be overstated by $120, meaning Net profit would be understated by $120. (Equipment is an asset, not an expense.) c. Explanation No effect: Drawings decreases meaning Owners equity increases, but Advertising expenses increase meaning Net profit and Owners equity decrease.

d.
Overstated / Understated / No effect Amount $

Assets Liabilities Owners equity

Simmons, Hardy 2006

No effect Understated (Loan HBM) Overstated (Understated interest expense means Net profit is overstated)
Cambridge University Press

100 100
16

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

d. General Journal
General Ledger Debit Credit $ $ Subsidiary Ledger Debit Credit $ $

Date

Details

Mar. 31 Stock loss Stock Control Stock loss revealed by stocktake (Memo 5)

160 160

e. Calculation Sales revenue less Cost of sales Gross profit less Stock loss Adjusted Gross profit $5 440 2 790 2 670 160 $2 490 Adjusted Gross profit $ 2 490 f. Explanation No effect: although Drawings would be understated by $240, the loss of these units would be detected (by the stocktake) as a stock loss, reducing profit by $240. As a result, Owners equity would be unchanged. (34 units $160 per unit) (970 + 700 + 1 120)

Simmons, Hardy 2006

Cambridge University Press

Cambridge VCE Accounting Units 3 & 4 Teacher CD-ROM

e. Calculation Sales revenue less Cost of sales Gross profit add Stock gain Adjusted Gross profit $6 930 4 350 1 950 650 $2 600 Adjusted Gross profit $ f. Explanation It would be reported under the heading Other expenses as Advertising, as it is a loss or outflow of an economic benefit in the form of a decrease in assets (Stock Control), which leads to a decrease in Owners equity, but it occurs after the goods are ready for sale. 2 600 (7 units $900 per unit) (3 050 + 1 300)

Simmons, Hardy 2006

Cambridge University Press

11