Tutorial 2

a)          The owner invested additional cash to the business.

• cash + (A)

  capital - (OE)

• cash + (A)

  capital + (OE)

b)         The bank has granted a loan to the business and the proceeds has been deposited into the business’s bank account.

• loan + (L)

  bank + (A)

• loan - (L)

  bank - (A)

c)          Received rent in cash.

• rent expense + (OE-)

  cash + (A)

• rent revenue+ (OE)

  cash +(A)

d)         The company purchased a new building, of which 10% deposit was paid through cheque and the remainder will be paid through mortgage loan.

• building + (A)

  cheque + (A)

  mortgage loan + (L)

• building + (A)

  bank + (A)

  mortgage loan + (L)

• building + (A)

  cheque - (A)

  mortgage loan + (L)

• building + (A)

  bank - (A)

  mortgage loan + (L)

Answer explanation

cheque = must be recorded as BANK

e)          The owner withdrew some cash from the business for personal use.

• drawing - (OE+)

  cash - (A)

• drawing + (OE-)

  cash - (A)

f)          The company received a cheque from customer as part of the payment on the outstanding amount(amount owed).

• bank - (A)

  customer - (A)

• bank + (A)

  customer - (A)

• bank + (A)

  account receivable - (A)

• bank + (A)

  account receivable + (A)

Answer explanation

account receivable

= $$ owed by customers to the company

it's called receivable because the money is to be received back by the company eventually.

In this question, company has received the money from the customer, hence, AR - .

g)         Paid electricity by cheque.

• electricity expense - (OE+)

  bank - (A)

• electricity expense + (OE-)

  bank - (A)

h)         The business purchased  raw materials from its suppliers on credit.

• purchases - (OE)

  cash - (A)

• purchases + (OE-)

  cash - (A)

• purchases + (OE-)

  account payable + (L)

• purchase + (OE)

  account payable - (L)

Answer explanation

1. purchase raw material/goods = must be recorded as purchases

raw materials and goods are for customers, not for company's own use

2.on credit/on account means pay later

3.account payable= amount that company owes to suppliers

it's called payable because the amount is to be paid later by the company

i)           A cheque has been drawn out to pay for the owner’s household expenses.

• household expense + (OE)

  bank - (A)

• drawing + (OE-)

  bank - (A)

Answer explanation

house, household, family, personal, private= drawing

j)           Company paid the first installment to the supplier.

• cash/bank + (A)

  supplier - (L)

• cash/ bank - (A)

  account payable - (L)

Answer explanation

paid back to supplier,

therefore:

cash reduce

amount owed to supplier (acc payable) reduce