Roadmap Logistic Company Accounting Equation

Background of the Company

Discuss about the Roadmap Logistic Company Accounting Equation.

An accounting equation shows the relationship of assets, liabilities and equity in the firm. It equates assets to liabilities and equity (Clarke, 2005). Assets in a firm should be equal to liabilities and equity owned by the shareholders. If the accounting equation of a firm does not balance, the accounts are said to be containing errors. Accounting equation fails to balance when transactions are incorrectly recorded and entered in financial statements (Sangster, 2016).

This paper discusses accounting equation using Roadmap Logistic Company. It involves entry of transactions to financial statement. The paper also final financial statements of Roadmap Logistics for the accounting period covered.

Roadmap logistic is a company started to offer transport services of cargos in Egypt. The company will specialize in long distance transportation and management of the supply chain. The company will operate by entering into contracts with client.

 The company is set to start with a capital of $500000. The company will buy a truck at $100000

The trucks will be used for transporting cargo around Egypt and neighboring countries. The company will buy a warehouse and a headquarter office in Cairo. The company will open a bank account to ease transactions with customers around the country. The company will also insure it properties to ensure continuity and transfer of risks in the business.  

Putting of capital in the cash account will increase both the cash account and capital account. The cash account will be debited. The capital account will be credited to show an increase of cash to the company. The cash account will be debited $500000 that will be from capital account. This transaction will increase both the assets and the owners share in the company.

Buying one asset by cash will lead to both decrease in cash account and increase in assets account. Buying one truck by cash will reduce the cash account by $100000 and increase the truck account by $100000. The cash account will be credited $100000 while the truck asset account will be debited $100000.

Buying another asset by account payable will increase the account payable and increase the asset account. Account payable is a liability and will be credited the amount payable by the company. The company buying a warehouse on account payable will increase the account payable by $100000 as well as increase the warehouse account by $100000. The warehouse account will be debited.

Accounts Entries in the First Month

Selling some services for cash will increase the revenues accounts and cash account. Revenue account will be credited to amount earned by sale of service while cash account will be debited the same amount to show an increase in cash in the company. For instance selling services that are paid in cash at $20000 will lead to an increase in revenue account by $20000 and cash account by $20000. Revenue increase owner’s capital in the business and therefore credited when it earned.

Selling some services for account receivables will increase both the revenue account and account receivable account. Account receivable is an asset account and will be debited to signify an increase. The revenue account will be credited to indicate amount earned from services to the company. For instance, services provided on credit for $10000 will be credited in the revenue account and debited on the account receivable.

Making an expense of $10000 in the first month will lead to a decrease of cash account and capital account. Expenses reduce the capital and therefore the expense account will be debited while the decreasing cash account will be credited (Davidson & Weil, 2000). The expense account will be debited $10000 and cash account credited $10000 for the month.

Pay dividends for the month will decrease both the cash account and capital account of the company. Dividends paid reduce capital of the company and will lead to debit of the capital account. Cash account will be credited the amount of dividends paid. For instance, paying $5000 as dividends for the month will reduce the capital account by $5000 and cash account by the same amount.

Buying an insurance policy for the whole year will be entered in an asset account to show a prepaid amount that the company has not yet incurred. The first month premiums will be recorded in the expense account. Payment made to the insurance company will reduce the cash account and the insurance expense account will be credited to show an expense that has not been incurred. Paying $12000 for the insurance to cover the company’s assets for the whole year will be credited in the insurance expense account. $1000 for the first month will be debited in the insurance expense account. Cash account will be credited $12000 for the whole year amount directed to insurance.

Roadmap Logistics Company

Cash flow statements

For the period ending 11^th Nov 2016

Inflows                                                                 $

Sales                                                                30000

Outflows                                 

Operating expense                                           16000

Insurances expense                                          1000

Profit                                                               15000

Dividends paid                                                            5000

Retained earnings                                            10000

Balance Sheet 

Balance sheet

As at 11^st Nov 2016

Assets

Current Assets                        

Cash                                        238000

Prepaid Insurance                    11000

Account receivable                  1000

Non Current

Trucks                                                 100000

Building                                   150000

Total Assets                             605000

Liabilities

Current Liabilities

Account payable                      100000

Owners Equity

Capital                                     500000

Less dividends paid                 5000

Retained earnings                    10000

Total Liabilities and Capital     605000

References

Clarke, E. (2005). Accounting (1st ed.). South Melbourne, Vic.: Thomson.

Davidson, S., Stickney, C., & Weil, R. (2000). Financial accounting (1st ed.). Chicago: Dryden Press.

Marriott, P., Edwards, J., & Mellett, H. (2002). Introduction to accounting (1st ed.). London: SAGE.

Rai, A. (2003). Reconciliation of net income to cash flow from operations: an accounting equation approach. Journal Of Accounting Education, 21(1), 17-24. https://dx.doi.org/10.1016/s0748-5751(02)00032-5

Sangster, A. (2016). The Genesis of Double Entry Bookkeeping. The Accounting Review, 91(1), 299-315. https://dx.doi.org/10.2308/accr-51115

Yamey, B. (2001). Early View on the Origins and Development of Book-keeping and Accounting. Accounting And Business Research, 10(sup1), 81-92. https://dx.doi.org/10.1080/00014788.1979.9728773

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