Exercise 2.6: The owner of Prestige Paints has provided the following list of tr

Question

Exercise 2.6: The owner of Prestige Paints has provided the following list of transactions in relation to her business: April 1 C. Barry (owner) banked $28 000 to commence a business account 2 3 4 5 6 7 8 Bought goods to sell in the shop for $12 000 cash Sold stock for $1 200 cash (cost price $700) Paid rent $500 Purchased stock on credit for $8 000 Sold stock for $1 900 cash (cost of sale $900) Paid creditor $2 000 of amount owing Borrowed $5 000 from EZ Finance a Prepare a worksheet to show the twofold effect of these transactions. Follow the format shown in figure 2.8 and use the following headings: Assets: Cash at bank, Stock Liabilities: Creditor, Loan Owner's equity: Capital b Prepare a statement of financial position as at 8 April 2005, taking into account al these trans- actions.

Explanation / Answer

a) worksheet showing the twofold effect of the transactions (ie. Accounting Equation) :

b) Financial Statements :

Income Statements :

Balance Sheet as on April 8, 2005 :

Date Assets = Liabilities + Owner's Equity Cash at bank Stock = Creditors + Loan + Capital+ Retained earnings Apr 1 28000 = 28000 2 -12000 +12000 = 3 +1200 = +1200 -700 = -700 4 -500 = -500 5 +8000 = +8000 6 +1900 = +1900 -900 = -900 7 -2000 = -2000 8 +5000 = +5000       Total 21600 18400 = 6000 5000 28000 1000

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