Practice Questions And Answers Related To Finance And Accounting

Question 1: Preparing adjusting entries and financial statements for Aurora Pty Ltd

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Date	Account name (narration)	Ref # Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Debit	Credit
30-Jun-17	Accounts Receivable	110	300
	Service Revenue	400		300
	(To record amount due in lieu of services provided)
30-Jun-17	Office supplies expense	510	800
	Office supplies	120		800
	(To record office supplies used)
30-Jun-17	Insurance expense	530	750
	Prepaid Insurance	130		750
	(To record amortization of prepaid insurance)
30-Jun-17	Depreciation expense	540	600
	Accu. Dep. – Office Equipment	141		600
	(To record depreciation expense for the year)
30-Jun-17	Salaries expense	500	550
	Salary Payable	210		550
	(To record salaries due to be paid)
30-Jun-17	Rent recd. In advance	220	400
	Rent Revenue	410		400
	(To record rent income against rent recd in advance)

Aurora Pty Ltd.
Statement of Profit or loss for the year ended on 30 June, 2017
		(Amount in $)
Particulars		For the year ended on 30 June, 2017
Income:
Service Revenue		17,300
Rent Revenue		5,900
Total Income – (a)		23,200
Expenses:
Salaries expense		9,050
Office supplies expense		800
Rent expense		7,500
Insurance expense		750
Depreciation expense		600
Total Expenses – (b)		18,700
Net Profit (a-b)		4,500

Aurora Pty Ltd.
Statement of Changes in Equity for the year ended on 30 June, 2017
Particulars	Share Capital	Retained Earnings
Balance as at 1 July, 2016	5,000	2,800
Profit for the year		4,500
Balance as at June 30, 2017	5,000	7,300

Aurora Pty Ltd.
STATEMENT OF FINANCIAL POSITION
For the year ended on 30 June, 2017
		(Amount in $)
Particulars		As at 30 June, 2017
Current assets
Cash and cash equivalents		5,200
Trade receivables		4,700
Office supplies		350
Prepaid Insurance		1,250
Total current assets		11,500
Non-current assets
Property, plant and equipment
– Office Equipment	7,000
– Accumulated depreciation – Office Equipment	(2,400)	4,600
Total non-current assets		4,600
Total assets – (a)		16,100
Current liabilities
Accounts payable		2,900
Salary Payable		550
Rent recd. In advance		350
Total current liabilities		3,800
Non-current liabilities
Total non-current liabilities		–
Total liabilities – (b)		3,800
Net assets (a-b)		12,300
Equity
Share capital		5,000
Retained earnings		7,300
Total equity		12,300

Part (e)	Accounts that would be closed on 30 June, 2017
The following account would be closed on 30 June, 2017:
400	Service Revenue
410	Rent Revenue
500	Salaries expense
510	Office supplies expense
520	Rent expense
530	Insurance expense
540	Depreciation expense

No.	Account Name	Dr.	Cr.
100	Cash	5,200
110	Accounts Receivable	4,700
120	Office supplies	350
130	Prepaid Insurance	1,250
140	Office Equipment	7,000
141	Accu. Dep. – Office Equipment		2,400
200	Accounts Payable		2,900
210	Salary Payable		550
220	Rent recd. In advance		350
300	Share Capital		5,000
310	Retained Earnings		7,300
		18,500	18,500

Cash
Date	Details	Debit	Date	Details	Credit
01-Sep-16	Share Capital	30,000	04-Sep-16	Delivery trucks	20,000
18-Sep-16	Service revenue	5,000	08-Sep-16	Rent Expense	2,000
			15-Sep-16	Prepaid insurance	800
			20-Sep-16	Salaries expense	1,000
			30-Sep-16	Dividend paid	1,500
			30-Sep-16	Balance c/d	9,700

		35,000			35,000
Accounts Receivable
Date	Details	Debit	Date	Details	Credit
30-Sep-16	Service revenue	2,000	30-Sep-16	Balance c/d	2,000

		2,000			2,000
Delivery trucks
Date	Details	Debit	Date	Details	Credit
04-Sep-16	Cash	20,000	30-Sep-16	Balance c/d	45,000
04-Sep-16	Loan payable	25,000
		45,000			45,000
Prepaid insurance
Date	Details	Debit	Date	Details	Credit
15-Sep-16	Cash	800	30-Sep-16	Balance c/d	800
		800			800

Loan Payable
Date	Details	Debit	Date	Details	Credit
30-Sep-16	Balance c/d	25,000	04-Sep-16	Delivery trucks	25,000
		25,000			25,000
Accounts Payable
Date	Details	Debit	Date	Details	Credit
30-Sep-16	Balance c/d	200	25-Sep-16	Electricity Expense	200
		200			200

Service Revenue
Date	Details	Debit	Date	Details	Credit
30-Sep-16	Balance c/d	7,000	18-Sep-16	Cash	5,000
			30-Sep-16	Accounts receivable	2,000
		7,000			7,000

Rent expense
Date	Details	Debit	Date	Details	Credit
08-Sep-16	Cash	2,000	30-Sep-16	Balance c/d	2,000
		2,000			2,000
Salaries expense
Date	Details	Debit	Date	Details	Credit
20-Sep-16	Cash	1,000	30-Sep-16	Balance c/d	1,000
		1,000			1,000
Electricity expense
Date	Details	Debit	Date	Details	Credit
25-Sep-16	Accounts Payable	200	30-Sep-16	Balance c/d	200
		200			200
Dividend Paid
Date	Details	Debit	Date	Details	Credit
30-Sep-16	Cash	1,500	30-Sep-16	Balance c/d	1,500
		1,500			1,500

Share Capital
Date	Details	Debit	Date	Details	Credit
30-Sep-16	Balance c/d	30,000	01-Sep-16	Cash	30,000
		30,000			30,000

Account Name	Dr.	Cr.
Cash	9,700
Accounts Receivable	2,000
Delivery trucks	45,000
Prepaid insurance	800
Loan Payable		25,000
Accounts Payable		200
Service Revenue		7,000
Rent expense	2,000
Salaries expense	1,000
Electricity expense	200
Dividend Paid	1,500
Share Capital		30,000
	62,200	62,200

The limitations of the trial balance are as below:

Complete omission of voucher recording – If a voucher is completely omitted to be recorded from ledgers, than the trial balance will not be able to identify such mistakes. As the trial balance only checks the total of debit and credit side. If an voucher is not entered than it will neither reflect on debit side nor on the credit side, hence can’t the mistake be identified.

Compensating Errors – These errors are those errors in which two errors are done in such a way that it compensates one another and will have no impact. For instance, if a totaling error is done in which purchases account is recorded less by $500 and similarly, a totaling error is done in Sales account in which sales account is recorded less by $500, then these both errors will compensate each other. Since these error nullifies the impact of wrong transactions, it will not get reflected in trial balance and both sides of trial balance will have equal balance.

Error of commission – In this error, the amount is posted on the correct side but in the wrong ledger but of same category. For instance, goods sold to Ramu is recorded in the Raman account. Since, Ramu and Raman both are debtors of the company, so the entry will not be having any impact on trial but the independent ledgers of Ramu and Raman will reflect the wrong balance. Hence, this type of error is not reflected by the trial balance.

Error of Principle – Preparation of financials needs to follow certain rules of accounting, these are commonly known as fundamental of accounting. According to these rules, a transaction must be posted to the correct class of accounts. In the error of principle, the transaction is not posted to the correct account or is posted to a wrong chart, class of account. Revenue expenditure if recorded as a capital expenditure and vice versa, results in error of principle. For example, purchase of furniture is debited to the purchase account instead of furniture account, another example is repairs to vehicle debited to vehicle account instead of repairs expense account. Hence, in this error the trail balance agrees, in spite of the error.

Statement of Cash flow for Medical Supplies Pty Ltd.
For the Financial Year ended on 30 June, 2016
Particulars		Amount (in $)
Cash flow from operating activities
Cash received from customers	895,000
Cash paid to suppliers	(520,000)
Payment to employees	(325,000)
Cash generated from operations	50,000
Income taxes paid	(75,000)
Net cash flow from operating activities – (a)		(25,000)
Cash flows from investing activities
Investment in buildings	(550,000)
Proceeds from sale of vehicle	19,500
Net cash flow from investing activities – (b)		(530,500)
Cash flows from financing activities
Proceeds from issue of shares	420,000
Proceeds from long-term borrowings	245,000
Dividend payments	(37,500)
Interest payments	(87,500)
Net cash flow from financing activities – (c)		540,000
Net increase in cash and cash equivalents (a+b+c)		(15,500)
Cash and cash equivalents at the beginning		70,000
Cash and cash equivalents at the end		54,500

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