Accounting Principles ACCT 101: Analyzing Ratios & Journal Entries

This assignment solution delves into fundamental accounting principles, focusing on ratio analysis, journal entries, and the implications of FOB (Freight on Board) shipping terms. It calculates the acid-test ratio to assess a company's ability to meet short-term liabilities with quick assets. The solution also provides detailed journal entries for various transactions, including sales on account, cash sales, sales returns, and collections. Furthermore, it elucidates the difference between FOB shipping point and FOB destination point, explaining how each affects the transfer of ownership and responsibility for goods in transit. Desklib offers a platform for students to access similar solved assignments and past papers for comprehensive learning.

Running head: ACCOUNTING PRINCIPLES
Accounting Principles
Name of the Student
Name of the University
Authors Note
Course ID

1ACCOUNTING PRINCIPLES
Table of Contents
Answer to question 1............................................................................................2
Answer to question 2:...........................................................................................2
Purpose of Acid – Test Ratio:...............................................................................2
Answer to question 3:...........................................................................................4
Answer to question 4:...........................................................................................5
References:...........................................................................................................6

2ACCOUNTING PRINCIPLES
Answer to question 1
Answer to question 2:
Purpose of Acid – Test Ratio:
The acid test ratio is referred as the liquidity ratio that assesses the
capability of the business to pay its current liabilities when it becomes
outstanding with its quick assets. The purpose of the quick ratio is to measure
the liquidity of the business by reflecting its ability of paying off its current
liabilities with respect to its quick assets (Brown, 2017). If the company has
sufficient quick assets to meet its current liabilities, the company would be
capable of paying its outstanding liabilities without selling any long term or
capital assets. The main purpose of the quick ratio is treated as highly
favourable for the companies since it is mainly useful in reflecting that there is
greater amount of quick assets than the current liabilities.

3ACCOUNTING PRINCIPLES
Acid Test Ratio
=
Total Current Assets - Inventory - Prepaid Expenses
Current liabilities
Acid Test
Ratio =
460500 - 32500 - 17500 0.90
131500

4ACCOUNTING PRINCIPLES
Answer to question 3:
Date Particulars Amount ($) Dr Amount ($) Cr
03-May Accounts Receivable A/C…………..Dr 600
To Sales ……………..A/c 600
(Goods sold on account, terms 2/10, n30)
Cost of Goods Sold A/C……………..Dr 350
To Merchandise Inventory …….A/C 350
(The cost of goods sold recorded)
04-May Cash A/C…………………………………Dr 425
To Sales ……………………………….A/C 425
(The goods sold in cash)
Cost of Goods Sold A/C………………………….Dr 250
To Merchandise Inventory …………………A/C 250
(The cost of goods sold recorded)
06-May Accounts Receivable A/C…………..Dr 1300
To Sales ……………..A/c 1300
(Goods sold on account, terms 2/10, n30)
Cost of Goods Sold A/C……………..Dr 750
To Merchandise Inventory …….A/C 750
(The cost of goods sold recorded)
08-May Sales Return A/C……………………….Dr 100
To Accounts Receivables ………A/C 100
(Sales return received from the customer)
Merchandise Inventory A/C……….Dr 55
To Cost of Goods Sold ……….A/C 55
(To record of merchandise cost)
15-May Cash A/C……………………………………Dr 1300
To Accounts Receivable ……….A/C 1300
(Receipt of collection, not inside the discount period)
31-May Cash A/C……………………………………Dr 500
To Accounts Receivable ……….A/C 500
(Receipt of collection with no discount taken)
In the books of Maia's Bike Shop
Journal Entries

5ACCOUNTING PRINCIPLES
Answer to question 4:
The term FOB stand for “Freight on Board”.
The difference between FOB Shipping and Destination Point is given below;
FOB Shipping Point FOB on Destination Point
FOB on shipping provides an
indication that the title of
merchandises is transported from the
supplier to the purchaser when the
good are positioned on the goods
carriage van (Brown, 2017).
On the other hand, FOB Destination
provides an indication that the title of
the goods is transferred from the
vender to the purchaser when the
product is transported on the
destination of the purchaser.
FOB Shipping Point refers to the sign
that the sale occurred at the point of
shipping at the dock of seller.
FOB Destination provides an
indication that the sale occurred when
the product is arrived at the
destination of the purchaser receiving
dock (Leiwy, 2015).
FOB shipping point transfers the title
of the shipment to the place of the
buyer
While FOB Destination transfer the
title of the ownership is transferred to
loading dock or post office box of the
buyer.

6ACCOUNTING PRINCIPLES
References:
Brown, W. (2017). ACCT1310-02. Accounting Principles I. Sp17. Brown,
William.
Leiwy, D. (2015). Principles of accounting. University of London International
Programmes Publications Office, London.