Fundamentals of Accounting: Journal Entries, Adjusting Entries and Accounting Standards

This unit covers journal entries, adjusting entries and accounting standards. It includes practical questions on journal entries and adjusting entries, and an explanation of accounting standards, interpretations and the accounting framework.

Unit: ACC101 – Fundamentals of Accounting
I
Weighting: The assignment is worth 40% of the total unit weight.
Instructions:
1. Students are required to cover all stated requirements.
2. Your answer must be uploaded to Moodle in word file
with your full name and student ID number.
3. You need to support your answers with appropriate Harvard
style references where necessary.
4. Only include information in your appendixes that has
been directly referred to in the body of your document.
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and the name, student id number and name.
6. Please save the document as
ACC101_B1T32018_first
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1

Question 1 Practical Questions (15 marks in total)
The following transactions for ABC Constructions occurred during April and
May 2014:
April 1 Owner contributes capital of $40 000, by an additional injection of
cash.
April 3 Cash is received from a customer, F. Turnip, $14 000.
April 5 Supplies are requisitioned for use in the office, $500.
April 9 Installation services are provided on credit for $13 500 to Banana
Ltd.
April 12 A $7 000 loan is taken out with AMP Loans Ltd. Interest is
payable at 10% p.a.
April 18 A bill for electricity consumed is received, $400.
April 24 Office fixtures are purchased from Dots Ltd for $6 000. $2 000 is
paid immediately by cheque, the remainder is due in July.
April 27 A cheque is issued in payment of the electricity account received
on 18 April.
April 29 Prepaid insurance costs have been used to the extent of $800.
May 1 Payment on account is made by cheque to Apple Suppliers, $40
000.
May 2 Supplies are purchased on account from Deluxe Supplies Ltd, $2
900.
May 13 Rent for the month is paid by cheque, $7 000.
May 17 Insurance expired, $780.
May 23 Installation equipment is purchased on account from Apple
Suppliers, $26 000.
May 29 A salary of $5 000 is paid by cheque.
Required
Assuming that the accounting period is a calendar year, prepare general
journal entries for ABC Constructions Ltd during April and May 2014.
Ignore GST.
Particulars Dr Cr
Cash A/c..Dr 40000
To Capital A/c 40000
(Being Capital added to business)

Cash A/c..Dr 14000
To Accounts Receivable A/c 14000
(Being Cash received from F. Turnip)
Supplies A/c..Dr 500
To Supplies Payable A/c 500
(Being Supplies requisitioned)
Sundry Debtors A/c..Dr 13500
To Sales A/c 13500
(Being Services rendered on credit to Banana Ltd)
Cash A/c…..Dr 7000
To Loan A/c 7000
(Being Loan taken)
Utilities A/c…Dr 400
To Utilities Payable A/c 400
(Being Utilities bill outstanding)
Fixtures A/c…Dr 6000
To Bank A/c 2000
To Fixture Payable A/c 4000
(Being Fixture purchased on cash and credit basis)
Utilities Payable A/c..Dr 400
To Bank A/c 400
(Being Outstanding bill paid)
Insurance A/c..Dr 800
To Prepaid Insurance A/c 800
(Being insurance utilized)

Accounts Payable A/c..Dr 40000
To Bank A.c 40000
( Being Apple Suppliers paid)
Purchase A/c..Dr 2900
To Accounts Payable A/c 2900
(Being goods purchased on credit from deluxe supplier)
Rent A/c..Dr 7000
To Bank A/c 7000
(Being Rent paid via cheque)
Equipment A/c..Dr 26000
To Accounts Payable A/c. 26000
(Being Equipment Purchased from Apple Suppliers)
Salary Expense A/c..Dr 5000
To Bank A/c 5000
(Being Salary paid)
Question 2: (18 marks)
ADJUSTING ENTRIES AND IMPACT ON FINANCIAL STATEMENTS
Newcastle Retail Services ends its financial year on 30 June.
Required
A. Using the following information, make the necessary adjusting entries. (12 mark)

1. Rent of office premises of $1,216 for the 4-month period ending 30 August is due to be
paid in July.
Rent A/c…. …Dr 608
To Rent Payable A/c 608
2. The Supplies account had a $600 debit balance on 1 July of the preceding year. Supplies
costing $1,400 were purchased during the year, and $400 of supplies are on hand as at 30
June.
Supplies A/c..Dr 400
Supplies Expense A/c..Dr 1600
To Bank 1400
To Supplies A/c 600
3. The telephone expense of $400 is unpaid and unrecorded at 30 June.
Telephone expense A/c..Dr 400
To Telephone Expense Payable A/c 400
4. Annual depreciation on equipment is estimated to be $14,000. The balance in Accumulated
Depreciation at the beginning of the financial year was $18,000.
Depreciation A/c…Dr 14000
To Accumulated Depreciation A/c 14000
5. Newcastle Retail Services borrowed $60 000 from ABC Bank on 15 April. The principal,
plus 8% interest, is payable on 15 August. Accrued interest on 30 June has not been recorded.
Interest A/c..Dr 4800
To Accrued Interest A/c 4800
(60000*8%)

6. The office assistant earns $280 a day. He will be paid in July for the 5-day period ending 2
July.
Salary A/c..Dr 840
To Salary Payable A/c 840
7. Newcastle Retail Services purchased a 6-month insurance policy for $1,134 on 1
December. A 24-month policy was purchased on 30 May for $2,544. Both purchases were
recorded by debiting Prepaid Insurance.
Insurance A/c..Dr 1240
To Prepaid Insurance A/c 1240
(1134+2544/24)
8. On 1 June, Newcastle Retail Services received 4 months’ rent in advance, totalling $1,792.
This was recorded by a credit to Unearned Rental Revenue.
Unearned Revenue A/c..Dr 448
To Earned Revenue A/c 448
(1792/4)
B. As you know, all adjusting entries affect one balance sheet account and one income
statement account. Based on your adjusting entries prepared in requirement A (6 mark):
1. Calculate the increase or decrease in profit. (2 mark)
Decrease in Profit= -608-400-14000-4800-840-1240+448+1600 =19840
2. Calculate the increase or decrease in total assets, total liabilities and total equity. (4 mark)

Total Assets= -1240
Increase in Total Liability=608+400+14000+4800+840-448=20200
Question 3
Explain the difference between accounting standards, interpretations and the accounting
framework. (7 marks)
.
Accounting standard are the standards, which are issued for financial reporting purpose and it
generally issued by the governing authorities. It prescribes the accounting norms for a
transaction taken place in a corporate world. For instance like change in foreign exchange
rate, how to recognise revenue transaction, government grants. At the international level
international accounting standard board issue the accounting standard known as now
International Financial Reporting standard (IFRS) (frascanada, 2018)
Accounting interpretation interprets how the accounting standard should be used and
applied .Accounting interpretation is issued by the accounting standard group for example by
Financial Accounting standard Boards or by an International Accounting standard Board.
Through accounting interpretation, it gives us a clarity and further explanation regarding
accounting standard (MyAccountingCourse.com, 2018)
Accounting Framework is a set of standard that is used while preparing the financial
statements. The financial statement of the company must be prepared on the basis of
accounting framework otherwise the auditor of the company will not issue a clean audit
report. (Bragg, 2018)
References:
Bragg, S., 2018. Accounting Framework. [Online]
Available at: https://www.accountingtools.com/articles/2017/5/7/accounting-framework
[Accessed 28 November 2018].
frascanada, 2018. What are Accounting Standards. [Online]
Available at: http://www.frascanada.ca/accounting-standards-board/what-we-do/about-the-acsb/
item55939.aspx
[Accessed 28 November 2018].
MyAccountingCourse.com, 2018. What is an Accounting Interpretation?. [Online]
Available at: https://www.myaccountingcourse.com/accounting-dictionary/interpretation
[Accessed 28 November 2018].