Lecture 14

Accounting Cycle solving problem

Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Overview Lecture 13

• Unadjusted Trial Balance• Adjustments• Adjusted Trial Balance• Preparation of Income Statement Column• Preparation of Balance Sheet Column• Closing Entries• After Closing Trial Balance

Questions to Solve• Stadium Parking was organized on 1 July to operate a parking lot near new sports arena.

The following transactions occurred during July prior to the company beginning its regular business operations

• July 1. Imran opened a bank account in the name of the business with a deposit of Rs. 45000 cash.

• July 2. purchased land to be used as the parking lot for a total price of Rs. 140000. A cash down payment of Rs. 28000 was made and note payable was issued for the balance.

• July 5. purchased a small portable building for Rs. 4000 cash. Purchase price include installation charges.

• July 12. purchased office equipment on credit from Suzuki company for Rs. 3000.

• July 28. Paid Rs. 2000 of the amount owed to Suzuki company.

Instructions• Prepare Journal Entries for the month of July• Post to ledger accounts.• Prepare Trial Balance.

Questions to Solve• Stadium Parking was organized on 1 July to operate a parking lot near new sports arena.

The following transactions occurred during July prior to the company beginning its regular business operations

• July 1. Imran opened a bank account in the name of the business with a deposit of Rs. 45000 cash.

• July 2. purchased land to be used as the parking lot for a total price of Rs. 140000. A cash down payment of Rs. 28000 was made and note payable was issued for the balance.

• July 5. purchased a small portable building for Rs. 4000 cash. Purchase price include installation charges.

• July 12. purchased office equipment on credit from Suzuki company for Rs. 3000.

• July 28. Paid Rs. 2000 of the amount owed to Suzuki company.

Trial Balance

Adjusting Entries• July 31. Earned Revenue from Parking Rs. 1000

but no cash received.

Ledgers

Adjusted Trial Balance

Financial Statements

Financial Statements

Accounts Title

UnadjustedTrial Balance

Adjustments Adjusted Trial Balance

Income Statement

Balance Sheet

Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr

total

Closing Entries

After Closing Trial Balance

Practice Question • Laeeq Ahmed, a certified public accountant, resigned from his position

in order to start his own practices. The business transactions were incurred during the month were:

• Sep 1. Ahmed opened a bank account in his name by depositing Rs. 32000 with he had saved over a period of years.

• Sep 10. purchased small office building at a price of Rs. 91200 of which Rs. 48000 was related to land and 43200 to building. A cash payment was made and note payable was issued for the balance amount

• Sep 15. purchased a micro-computer from computer store for Rs.4680.

• Sep 19. purchased office furniture, from furniture shop at cost of Rs.3960. a down payment was made Rs.720 and balance in three equal installments due on Sep 28, Oct 28 and Nov 28. purchase was made on open account with out any note.

• Sep 26. Rs.140 monitor purchased for computer Sep 15 stopped working. The monitor was returned to store which promised to return within five days.

• Sep 28. paid for furniture first installment.

• Sep 3o. Received Rs.140 cash from computer store.

• Requirement: • Pass necessary journal entries and their ledgers.• Make a trial balance

End of Lecture 14

Lecture 15

Accounting Cycle

Practice questions

Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Practice Question 1• Laeeq Ahmed, a certified public accountant, resigned from his position

in order to start his own practices. The business transactions were incurred during the month were:

• Sep 1. Ahmed opened a bank account in his name by depositing Rs. 32000 with he had saved over a period of years.

• Sep 10. purchased small office building at a price of Rs. 91200 of which Rs. 48000 was related to land and 43200 to building. A cash payment was made and note payable was issued for the balance amount

• Sep 15. purchased a micro-computer from computer store for Rs.4680.

• Sep 19. purchased office furniture, from furniture shop at cost of Rs.3960. a down payment was made Rs.720 and balance in three equal installments due on Sep 28, Oct 28 and Nov 28. purchase was made on open account with out any note.

• Sep 26. Rs.140 monitor purchased for computer Sep 15 stopped working. The monitor was returned to store which promised to return within five days.

• Sep 28. paid for furniture first installment.

• Sep 3o. Received Rs.140 cash from computer store.

• Requirement: • Pass necessary journal entries and their ledgers.• Make a trial balance

Practice Question 2

Mr. Naeem started business of renting tool equipment to its customers. Business was started on May 1. Following were the transactions incurred during the month of May

• May 1. Naeem opened bank account in his name with the deposit of Rs. 70000 cash.

• May 2. Naeem bought land for use in its operation at cost of Rs. 75000. A cash down payment of Rs.15000 was made and note payable within 90 days was issued for balance.

• May 5. a movable building was purchased for Rs. 16000 and installed on the lot.

• May 10. equipment was purchased on credit from the Ace Tool Company at cost of Rs.14100. A/P was to be paid within 90 days.

• May 31, a cash payment of Rs. 20000 was made in partial settlement of the note payable issue on may 3.

• Requirement: • Pass necessary journal entries and their

ledgers.• Make a trial balance

• Complete Accounting Cycle

Practice Question 3Mr. Abdullah after completing his medical education, establish his own practice on May 1. the following transactions occurred during the first month.

• May 1. Abdullah opened a bank account in the name of Abdulla Clinic by making deposit of Rs. 12000.

• May 1. paid office rent for may Rs. 1700

• May 2. Purchased office equipment for cash Rs.7200

• May 3. purchased medical instruments from Niles instruments Inc. at a cost of Rs. 9000. A cash payment of Rs. 1000 was made and a note payable was issued for the remaining Rs. 8000.

• May 4. Retained by Rafi construction to be on call for emergency service at a monthly fee of Rs. 400. the fee for May was collected in cash.

• May 15. excluding the retainer of May 4 fees earned during the first 15 days of month to Rs. 1600 of which Rs. 600 was in cash and Rs. 1000 was in account receivable.

• May 15. paid Noman a staff nurse salary for the first half of May Rs. 1000.

• May 16. Dr. Abdullah withdrew Rs. 975 for personal use.

• May 19. Treated patient for minor injuries employee from Rafi construction.

• May 27. Treated patient who paid Rs. 25 cash for an office visit and who agreed to pay Rs. 35 on June 1 for laboratory medical tests completed May 27.

• May 31. excluding the treatment of patient on may 27 fees earned during the last half of month amounted to Rs. 4000 of which Rs. 2100 was in cash and Rs. 1900 was in account receivable.

• May 31. paid Noman a Staff nurse Rs. 1000 salary for the second half of month.

• May 31. received a bill from Sialkot medical supplies in the amount of Rs. 640 representing the amount of medical supplies used during May.

• May 31. paid utilities for month Rs. 300.

Other Information• Dr. Abdullah estimated the useful life of medical instruments at three years

and of office equipment five years.

• Requirement: • Prepare necessary journal entries• ledgers.• Make a trial balance• Adjustments• Adjusted Trial Balance• Income Statement • Balance Sheet• Closing entries • After closing trial balance

Sample Financial Statements

Income Statement• Interest Income 1000• Interest Expenses 500• Net Interest Income 500

– Fees and Commission Income 500– Fees and Commission Expenses 200– Net Trading Income 50– Other operating income 50

• Total Non Interest Income 400• Operating Income 900

– Staff Cost 400– Premises Cost 100– General Administrative Expenses 50– Depreciation and amortization 50

• Operating Expenses 600• Operating profit before impairment losses and taxation 300

– impairment losses and taxation 50

• Profit before taxation 250– Taxation 50

• Profit for the year 200

Income Statement• Sales Revenue 1000• Less Cost of Goods Sold 500• Gross profit 500• Operating Cost:• Selling General Administration Expenses 100• Operating profit 400• Less other interest expenses 40• Profit before taxes 360• Provision for income tax 70• Less Minority interest 10• Net Income 280

Income Statement• Sales Revenue 1000• Less Cost of Goods Sold 500• Gross profit 500• Operating Cost:

– Selling General Administration Expenses 100– Research and Development Expenses 50– Interest Expenses of financial assets 50– Other operating expenses 20

• Total Operating cost 220• Operating profit 280• Less other interest expenses 40• Add other interest income 30• Profit before taxes 270• Provision for income tax 70• Add Equity in earning of unconsolidated companies 10• Net Income 210

End of Lecture 15