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Double entry accounting Problems

1. Describe whether we can say that a debit to an account signifies that something
beneficial has happened for the business concerned.

2 Are we able to say that in double entry accounting a debit represents a plus and a credit represents a minus?

3. What is the difference between fixed assets and current assets?

4. Record a hotel’s following five transactions in appropriately headed T-accounts.
(a) Hotel receives $500 for room sales.
(b) Hotel pays staff $400 in wages.
(c) Hotel makes $600 of restaurant sales all on credit.
(d) Hotel owner withdraws $1,000 from the business.
(e) Hotel buys $700 of inventory stock on account.

5. Dublin’s BlarneyStone Pub opened on 1 April and the following six transactions occurred in its first week of business. Record the transactions in appropriately headed T-accounts for the BlarneyStone Pub’s manager.
(a) Owner invested A4,000 in a newly opened bank account for the pub.
(b) Purchased A5,000 of ‘Old Black Creamy’ stout on account.
(c) Paid cash A450 for a delivery of potato crisps and salted peanuts.
(d) Purchased a cash register for A1,000 on credit.
(e) Banked the first week’s bar takings of A350.
(f) Determined that the cost of ‘Old Black Creamy’ sold in the first week was A150.

6. (a) Using ‘T-accounts’, record debit and credit entries for each of the following transactions that all occurred in January 20X1 for a San Francisco restaurant. The T-accounts you will need are: Cash, Food Inventory, Beverage Inventory, Accounts Receivable, Furniture and Equipment, Accounts Payable, Bank Loan, Owners’ Equity, Revenue, Food Purchase Expense, Beverage Purchase Expense, Wage Expense, Supplies Expense, Rent Expense, Interest Expense.
a - Mr T. Francis commenced business by investing $30,000 cash in the restaurant.
b - Purchased on credit food stock for $4,000, and beverage stock for $6,000.
c - Purchased furniture and equipment for $20,000, paying $12,000 cash and owing the balance.
d - The bank extended a loan of $20,000 to the business.
e - Made sales of $40,000 during the month – 75% of this was cash sales, the remainder was on credit.
f - Purchased $9,000 of perishable food items (food purchase expense) on credit and paid $2,000 cash for beverages (beverage purchase expense). The business has established that both these purchases should be immediately expensed.
g - Paid $12,000 to trade creditors.
h -  Repaid $2,000 of the bank loan plus interest of $100.
i - Paid $10,800 of wages.
j - Paid $4,000 for miscellaneous supply items. The business has a policy of expensing these items on purchase.
k - On the last day of the month, paid $1,500 rent for January.
(b) Once the T-account entries have been recorded, prepare a profit and loss
statement for January 20X1 and a balance sheet as at 31 January 20X1.

7. Required
(a) Enter these transactions on T-accounts.
(b) Prepare a profit and loss statement for the first month and a balance sheet as at
the month-end.

The following transactions occurred during the first month of operations for ‘Oz Hinterland’, a hotel proprietor’s new business located in the Australian Kimberleys:
a - Owner invested $80,000 of her own money in Oz Hinterland.
b - In order to provide further capital, a bank extended a loan of $40,000 for the business.
c - Paid cash for land and buildings $99,500.

d - Purchased kitchen equipment for $20,000. $8,000 of this was paid for in cash, with the balance owing.
e - Purchased on credit a stock of linen and uniforms for $5,800.
f - During month received revenue of $12,000 for room sales and restaurant revenue.
g - Paid $1,500 for first month’s wages.
h - Paid $300 covering one month’s interest on the bank loan.
i - Paid $1,200 insurance premium covering the first year of operations.
j - Paid $6,000 of the balance owing for kitchen equipment.
k - Purchased beverage stock of $1,500 for cash. By the end of the first month it
was determined that one third of this stock had been sold in the restaurant.
l Determined that during the month the kitchen had purchased $1,800 of
perishable food supplies for cash. No balance of food stock remained at the
end of the month.
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By Owen on 6-21-2010 05:22 last edited

1. No, it is inappropriate and misleading to suggest a debit to an account represents a good or a bad thing. It is true that a debit to the cash or bank account may be seen as beneficial as it signifies that an inflow of money has occurred. However, a debit to an expense account signifies an increase in the expense account and not many businesses would regard an increase in an expense as beneficial. We can conclude that we can only say that a debit to an account is a good thing if we know what type of account we are talking about.
2. No, in double entry accounting we cannot say that a debit represents a plus and a credit represents a minus. Debiting an asset account will usually represent a plus as asset accounts generally have a debit balance (the bank account can be an exception, however, if it is overdrawn). Liability accounts (e.g. accounts payable), however, generally have a credit balance, therefore a debit entry will have the effect of reducing the account’s credit balance.

3. ‘Fixed assets’ is the term given to all physical assets that will be held by the owning company for more than a year. They are acquired for use in operations rather than for resale to customers. ‘Current assets’ include cash and other assets that through the business’s operating cycle will be converted into cash, sold or consumed within one
year of the balance sheet date. The main current assets are: cash, prepayments accounts receivable and inventory.
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