4 double entry rules (1)

Objective test2 On 20 June 20x3 an entity pays R500 in advance for repairs on its vehicle.. On 5 July 20x3 the supplier informed the entity that the spare part had arrived.. The entity

Double entry rules

Chapter 4

Objective test

2

On 20 June 20x3 an entity pays R500 in advance for repairs

on its vehicle The supplier first had to order the spare part that needs to be replaced, so the repairs would be done later On 5 July 20x3 the supplier informed the entity that the spare part had arrived The entity took the vehicle

in for repairs on 6 July 20x3 and the work was completed

on the same day.

With reference to the concept of Accrual accounting, explain on which date the repair expense will be recognised (6 marks)

The accounting equation

3

ASSETS = EQUITY + LIABILITIES

INCOME (+) EXPENSES (-)

The accounting equation

The accounting equation

DR  

The accounting process

6

Transaction

/event

Journal(prime entry)

- Statement of

changes in Equity (SCE)

- Cash flow

statement (C/F)

- Notes & policies

9

Indicate the effect (DR and CR) on the accounting equation of the following transactions:

Owner contributes R10 000 as capital cash

Purchase inventory for R2 000 cash

Pay rent expense R5 000 cash

Obtain loan from Bank for R20 000

Pay water & electricity R1 000 cash

The accounting process

15

Transaction

/event

Journal(prime entry)

- Statement of

changes in Equity (SCE)

- Cash flow

statement (C/F)

- Notes & policies

Tx5 Water & electricity 1 000

Balance cf 22 000

30 000 30 000

Balance bd 22 000

Example 4.5 – nr 1

17

On 2 January 20.7, the owner made the property that AC Entity utilises available for the exclusive use of the entity

The property was registered in the owner’s name a few days before 2 January 20.7

The purchase price of the property was R1 200 000 (R200 000 for the land and R1 000 000 for the buildings).

Example 4.5 – nr 1

18

2 Jan

= 0 + +1 200

000

Capital

000

Capital

The invoice price is R225 000 and it was agreed with Payable K to pay the outstanding amount

on 30 January 20.7.

Furniture and equipment (SFP) 225

000

  Payable K (SFP)   225

000   Recognise furniture and

equipment received together with accompanying liability

000

= +225

000

Example 4.5 – nr 4

23

Trade inventories to the amount of R20 000 was ordered on 7 January 20.7 and it was agreed with Payable L that the outstanding amount will be paid 30 days after delivery On 25 January 20.7, Payable L delivered the trade inventories to AC Entity’s premises The invoice price is R20 000 and the invoice reflects that the amount is payable on 24 February 20.7.

Example 4.5 – nr 4

24

25 Jan

Trade inventories (SFP) 20 000  

  Payable L (SFP)   20 000   Recognise trade inventories

received together with accompanying liability

Assets = Liabilitie

s

+ Equity Classification +20 000 = +20 000 + 0  

Example 4.5 – nr 5

25

On 30 January 20.7, the amount due to Payable K was paid.

Example 4.5 – nr 5

26

30 Jan

settlement of debt

Assets = Liabilities + Equity Classification

- 225 000

= - 225 000 + 0  

27

- Prepare T-accounts for Example 4.5