Sultan started a new business on jan 1, 2016 by investing $800,000 cash in the b

Question

Sultan started a new business on jan 1, 2016 by investing $800,000 cash in the bank as capital. The following transaction took place during the first month of operations:

Jan 3. Purchased office supplies for $10,000 in cash

Jan 7. Purchased office equipment for $30,000, paid $14,000 in cash and the remaining on credit.

Jan 10. Provided services to customers for $70,000 on credit

Jan 15. Paid rent for the month $5,000 in cash.

Jan 19. Paid $4,000 salaries in cash

Jan 25. Received a utility bill for $3,000

Jan 27. Paid the amount due for office equipment

Jan 31. Sultan withdraw $2,000cash for personal use.

Requires:

1- Prepare Journal entries to record the above transactions.

2- Post to the appropriate ledger accounts.

3- Prepare the trial balance on September 30, 2015.

4. Prepare the financial statements

Explanation / Answer

Solution: 1- Prepare Journal entries to record the above transactions. Journal entries of Sultan as on Jan1, 2016 Date Particulars Debit Credit 2016 Jan. 1 Cash A/c-------------Dr $800,000          To Capital A/c $800,000 (Being the business commenced with investment) Jan. 3 Purchases A/c---------Dr $10,000           To Cash A/c $10,000 (Being the office supplies purchased for cash) Jan. 7 Office equipment A/c----Dr $30,000           To Cash A/c $14,000           To Notes Payable A/c $16,000 (Being the office equipment purchased for cash and the remaining on credit) Jan. 10 Accounts Receivable A/c---Dr $70,000          To Service Revenue A/c $70,000 (Being services provided to customers on credit) Jan. 15 Rent A/c----Dr $5,000           To Cash A/c $5,000 (Being the rent paid) Jan. 19 Salaries A/c----Dr $4,000           To Cash A/c $4,000 (Being the salaries paid) Jan. 25 Utility Expense A/c----Dr $3,000         To Utilities Payable A/c $3,000 (Being the utility bill payable) Jan. 27 Office equipment A/c----Dr $16,000           To Cash A/c $16,000 (Being the amount paid which was due for office equipment) Jan. 31 Drawings A/c----Dr $2,000           To Cash A/c $2,000 (Being Sultan used the amount for personal use) 2- Post to the appropriate ledger accounts. Ledger Accounts DR Cash Account CR DR Capital Account CR Date Particulars Amount Date Particulars Amount Date Particulars Amount Date Particulars Amount 2016 Jan. 1 To Capital A/C $800,000 Jan. 3 By Purchases A/C $10,000 2016 Jan. 1 To Balance C/D $800,000 2016 Jan. 1 By Cash A/C $800,000 Jan. 7 By Office equipment A/C $30,000 $800,000 $800,000 Jan. 15 By Rent A/C $5,000 2016 Feb. 1 By Balance B/D $800,000 Jan. 19 By Salaries A/C $4,000 Jan. 31 By Drawings A/C $2,000 DR Office Equipment Account CR Jan. 31 By Balance C/D $749,000 Date Particulars Amount Date Particulars Amount $800,000 $800,000 2016 Jan. 7 To Cash A/c $30,000 Jan. 31 By Balance C/D $46,000 2016 Feb. 1 To Balance B/D $749,000 To Notes Payable A/c $16,000 $46,000 $46,000 DR Purchases Account CR 2016 Feb. 1 To Balance B/D $46,000 Date Particulars Amount Date Particulars Amount 2016 Jan. 1 To Cash A/C $10,000 Jan. 31 By Balance C/D $10,000 DR Salaries Account CR $10,000 $10,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 To Balance B/D $10,000 2016 Jan. 19 To Cash A/c $4,000 Jan. 31 By Balance C/D $4,000 DR Drawings Account CR $4,000 $4,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 To Balance B/D $4,000 2016 Jan. 31 To Cash A/c $2,000 2016 Jan. 31 By Balance C/D $2,000 DR Rent Account CR $2,000 $2,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 To Balance B/D $2,000 2016 Jan. 15 To Cash A/c $5,000 Jan. 31 By Balance C/D $5,000 DR Utility Expense Account CR $5,000 $5,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 To Balance B/D $5,000 2016 Jan. 35 To Utilities Payable A/c $3,000 2016 Jan. 31 By Balance C/D $3,000 DR Service Revenue Account CR $3,000 $3,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 To Balance B/D $3,000 2016 Jan. 31 To Balance C/D $70,000 2016 Jan. 31 By Accounts Receivable A/C $70,000 DR Utilities Payable Account CR $70,000 $70,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 To Balance B/D $70,000 2016 Jan. 31 To Balance C/D $3,000 2016 Jan. 31 By Utility Expense A/C $3,000 DR Notes Payable Account CR $3,000 $3,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 By Balance B/D $3,000 2016 Jan. 7 To Cash A/c $14,000 2016 Jan. 7 By Office equipment A/C $16,000 2016 Jan. 31 To Balance C/D $2,000 DR Accounts Receivable Account CR $16,000 $16,000 Date Particulars Amount Date Particulars Amount 2016 Feb. 1 By Balance B/D $2,000 2016 Jan. 31 To Service Revenue A/c $70,000 2016 Jan. 31 By Balance C/D $70,000 $70,000 $70,000 2016 Feb. 1 To Balance B/D $70,000 3- Prepare the trial balance on September 30, 2015. Trial balance as on September 30, 2015. S.No. Particulars Debit Credit 1 Cash $749,000 2 Capital $800,000 3 Purchases $10,000 4 Salaries $4,000 5 Office Equipment Account $46,000 6 Rent $5,000 7 Notes Payable Account $16,000 8 Accounts Receivable $70,000 9 Drawings $2,000 10 Utilities Payable $3,000 11 Utility Expense $3,000 12 Service Revenue $70,000 $889,000 $889,000 4. Prepare the financial statements Profit and loss A/C of Sultan as on 31st Dec'2015 DR CR CR Particulars Amount Particulars Amount To Purchases $10,000 By Service Revenue $70,000 To Salaries $4,000 To Rent $5,000 To Utility Expense $3,000 To Office Equipment Expenses $46,000 To Net Profit $2,000 $70,000 $70,000 Balancesheet of Sultan as on 31st Dec'2015 Liabilities Amount Assets Amount Capital $800,000 Cash $749,000 Add: Net Profit $2,000 Accounts Receivable $70,000 $802,000 Less: Drawings ($2,000) Total $800,000 Add: Notes Payable $16,000 Add: Utilities Payable $3,000 Total of Liabilities $819,000 Total of Assets $819,000

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