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Australian

School of Business
ACCT1501 Accounting and Financial Management 1A
Session 1 2013


TUTORIAL WEEK 4 Solutions to Tutorial Questions
Tutorial Questions:

v Discussion Question 3.3, 3.5, 3.7; Problems 3.12, 3.19


DQ3.3
Revenues increase profit, and profit increases retained profits, which is a part of shareholders
equity. It is likely that revenues (sales) also increase an asset, such as cash, or accounts
receivable.

DQ3. 5
Assets normally have a debit balance, whilst liabilities and equity normally have a credit
balance. Revenues have a credit balance, and expenses have a debit balance
Therefore, some examples of accounts that normally have a debit balance are:
Cash
Accounts receivable
Inventory
Furniture, fittings & fixtures
Land & buildings
Investments
Intangibles
Prepayments
Some liability accounts that normally have a credit balance are:
Accounts payable
Loan
Other payables (income tax, wages, etc.)
Revenue received in advance (unearned revenue)
Mortgage
Provisions
Some equity accounts that normally have a credit balance are:
Share capital
Retained profits
Reserves
Some revenue accounts that have a credit balance are:
Sales
Dividends received from investments
Other revenue
Some expense accounts that normally have a debit balance are:
Electricity expense
Income tax expense

Salaries and wages expense


Rent
Sundry expenses
Depreciation expense
Amortisation expense
DQ3.7
Accounting accumulates information about activities and the financial statements are
prepared from the accounts that are produced as the information is accumulated. The balance
sheet and the income statement fit together or articulate because they are both based on the
double-entry accounting system. A set of accounts is created which is in balance. From these
accounts are produced:
The income statement, the bottom line net profit after tax being transferred to
The statement of retained profits, the bottom line ending retained profits being
transferred to
The balance sheet, which summarizes all the accounts
Thus activities affecting profit affect the balance sheet through the double-entry system. In
particular recognition of revenue and expense relies on the fact that revenue causes a change
in the balance sheet, as does an expense.

Problem 3.12
1 Revenue
Sales
Interest Revenue


2 Expense
Depreciation (50% *200,000* 20%)
Rent
Interest (200,000*10%*50%)
COGS
Salaries (10,000 + 3,000)




Problem 3.19
a. DR Loan from shareholders
CR Cash



b. DR Cash



CR Accounts receivable

c. DR Inventory


CR Accounts payable

$
70,000
8,000
78,000


20,000
4,000
10,000
30,000
13,000
77,000

10,000

10,000
11,240

11,240
5,320

5,320

d. DR Cash



22,000
CR Share capital issues

22,000

e. DR Bank overdraft

22,000
CR Cash



22,000

f. DR Land



52,000
CR Cash



12,000
CR Mortgage


40,000

g. DR Equipment




31,900
CR Notes Payable Current


13,900
CR Notes Payable Non Current

18,000

South Shore Manufacturing Pty Ltd


Balance sheet as at 31 July 2012

Assets

Liabilities and shareholders equity
Current assets

Current liabilities
Cash
13 628 Bank overdraft
Accounts receivable
78 027 Accounts payable
Inventories, cost
116 756 Notes payable
Prepayments
7 321 Taxes payable

215 732 Current part of mortgage
Non-current assets


Land, cost
130 200 Non-current liabilities
Factory & equipment cost
616 111 Notes payable

746 311 Mortgage, less current
Accumulated depreciation -198 368 Employee entitlements

547 943 Loan from shareholders





Shareholders equity


Share capital issues


Retained profits




763 675



31 000
83 762
13 900
12 665
18 322
159 649

18 000
253 734
67 674
90 000
429 408

77 000
97 618
174 618
763 675

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