Test your knowledge of fundamental accounting concepts
Complete the definition
An is a present resource controlled by the as a result of a
Complete the definition
is an amount owed by the business to another business or individual. Examples include a and amounts owed to the suppliers of goods or services which have yet to be paid for.
Complete the definition
is an asset comprising goods purchased for resale, components for inclusion in manufactured products, and the finished products which have been manufactured which have not yet been sold.
Complete the definition
is the liability of the business to the owner of the business.
Complete the definition
is the term which refers to amounts taken out of the business by the owner.
Identify whether each item is an asset, liability, expense, or income
Resources owned by the business
Amounts owed by the business
Costs incurred by the business
Money received by the business
Select the appropriate classification for each transaction
Goods stored in the warehouse awaiting resale
Electricity bill paid
Cash received from sale of goods
Amounts owing from a customer
Rent paid for the factory building
Cash paid into the business by the owner
Amounts owed to suppliers
Cash held in the till
Machinery purchased for use in the factory
Rent received for subletting part of the factory premises
Cash held in the business bank account
Exercise 6 (11 marks) • Complete the accounting equation for each transaction
Bao Smith starts a new business by depositing $10,000 into a business bank account.
A bank lends the business a further $5,000.
Bao buys a delivery van for $6,000.
Bao buys inventory for $2,500 by writing out a business cheque.
All of the inventory is sold for $4,000. The money is paid direct to the business bank account.
Bao pays a business expense of $400 out of the business bank account.
Finally Bao takes $300 out of the business for personal expenses.
Fill in the amounts for each category after each transaction. The accounting equation must always balance. Remember that some transactions affect multiple elements of the equation.
Ledger Accounts Exercise
Samin begins business as a second-hand bookseller on 1 February 20X7. The transactions for the first week are listed below. For each transaction, indicate which ledger account would be debited and which would be credited.
Complete the table below by identifying the correct debit and credit accounts for each transaction.
Enter the appropriate account names for each transaction (5 marks total)
| Transaction | Description | Amount | Account to be Debited | Account to be Credited |
|---|---|---|---|---|
| (a) | Deposited $5,000 in a business bank account as the opening capital. | $5,000 | ||
| (b) | Purchased books for $600, by paying by cheque. | $600 | ||
| (c) | Sold books for $800 paid in cash. | $800 | ||
| (d) | Paid rent of $500, paying by cheque. | $500 | ||
| (e) | Bought a second-hand van for $2,000, paying by cheque. | $2,000 |
Chris Findlay Fishing Tackle Shop - Interactive Exercise
Record the transactions below in the appropriate T-accounts. For each transaction, determine which accounts are affected and whether each account should be debited or credited.
Remember: Assets, Expenses, and Drawings increase with debits. Liabilities, Capital, and Income increase with credits.
Record each transaction in the appropriate T-accounts above (11 marks)
Paid $1,500 into business bank account
$1500
Paid one month's rent of $230
$230
Purchased rods for $420, by cheque
$420
Purchased nets for $180, by cheque
$180
Sold some of the rods for $240 cash
$240
Purchased live bait for $10, by cheque
$10
Sold live bait for $16
$16
Purchased flies for $80, by cheque
$80
Paid shop assistant's wages of $95
$95
Sold some of the flies for $50
$50
Paid sundry expenses of $10
$10
Frozen food business - First two weeks (April 14, 20X5)
(a) Paid $10,000 redundancy money into business bank account
(b) Used $3,600 to buy second hand van by cheque
(c) Spent $1,700 by cheque having van converted as travelling deep freeze
(d) Paid $400 in cash for first consignment of frozen food
(e) Received $110 cheques and $80 cash for sales in first week
(f) Spent $260 in cash on back-up freezer for additional inventory
(g) Paid $190 in cash for additional inventory
(h) Received $170 cheques and $50 cash for sales in second week
(i) Paid neighbour $40 in cash as wages for help moving inventory
(j) Withdrew $60 in cash from business bank account as living expenses
Classify each business item as either an Asset or a Liability. Assets provide future economic benefits, while liabilities represent future obligations.