Financial accounting assignment

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Financial accounting for degree

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BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

INTRODUCTION
Nicol David spent time learn the art of cookie-making from her grandmother
and involved in the squash games during her childhood. She mastered every type of
cookie imaginable and created new recipes with her grandmother. Now, she is at her
second year in the University and she is investigating the possibilities of opening her
own business as a part of the entrepreneurship program in which she is enrolled.
Nicol decided to open a cookie-making school after discuss with her family
and friends. To begin, she will start on a part-time basis and provide her services in
peoples’ homes. Nicol will concentrate on making holiday cookies during her long
semester break. She will offer group sessions and individual lessons of making
cookies. She decided to include the children in her target market. Nicol has decided to
opearate her business as a Corporation “Cookie Creation Inc”.
Nicol is introduced to Mr.Bean, the operation manager of “London Biscuits”
at a trade show. Nicol is asked to become the major supplier of oatmeal chocolate chip
cookies. Mr Bean expects Nicol will supply approximately 1500 dozen cookies a
week to “London Biscuits” Ayer Keroh warehouse. Nicol will be paid after 30 days
from the invoice date after Nicol sent the invoive to London Biscuit KL office every
month.
Nicol is excited with the offer. Unfortunately, she has recently found that the
consumer demand for the London Biscuit company’s product has decreased because
of selling cookies and donuts with high amounts of sugar and fats.

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BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

(a)What type of information does each financial statement provide?
Financial statements are used to provide the record of the financial status for
any individuals, organizations and business. There are four basic types of financial
statement, which is balance sheet, income statement, cash flows statement and
statement of retained earnings.
 Income statement lists revenues first, followed by expenses. Finally the
statement shows net income ( or net loss). Net income results when
revenues exceed expenses. A net loss occurs when expenses exceed


revenues.
Retained earning statement reports the changes in retained earning for
a specific period of time. The retained earnings statement uses the
information in income statement and provides the information in
balance sheet. The retained earnings will record in the balance sheet



and it will affected by the amount of net income and dividends.
Balance sheet provides the statement of financial position of a
company at a given point of time. The balance sheet reports the total



assets, total liabilities and the stockholders’ equity at a specific date.
Cash flow statement provides information on the cash receipts and
payments for a specific period of time. The cash inflows show the
receipts during the business and the cash outflows show the payments
for the business.

Conclusion, the four financial statements are connected with each other
because the net income or net loss in the income statement is used to add or subtract
from the beginning retained earnings in the Statement of Retained Earnings. Then, the
retained earnings of the end period in retained earnings statement are reported into the
balance sheet. The amount of cash present in the balance sheet is reported in the cash
flows statement.

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BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

b) What financial statements would Nicol need in order to evaluate :
(I) Whether London Biscuits will have enough cash to meet its current liabilities?
Nicol can refer to London Biscuits’ cash flow statement or sometimes can call
as funds flow statement to determine whether London Biscuits have enough cash to
meet its current liabilities. The statement of cash flows reports the cash receipts, cash
payments, and net change in cash resulting from operating, investing and financing
activities. The cash flow statement reflects a firm’s liquidity. It is very vital as it will
show the cash in the company’s hand and their ability to pay their current liabilities.
The cash flow statement is intended to provide information that can be used to
generate future cash flows, to pay dividends and meet their obligations.
Statement of cash flow can be classified into operating activities, investing
activities and financing activities.


Operating activities
This tells us how much cash the company generated from its core business, as
opposed to the peripheral activities such as investing and borrowing. The
indirect method adjusts the net income figure to remove non-cash revenues
and expenses. It also removes items like gains and losses that are not
attributable to the operating activities of the business.



Investing activities
This report the aggregate change in a company’s cash position resulting from
any gains (or losses) from investment in the financial markets and operating
subsidies and changes resulting from amount spent on investments in capital
assets such as plant and equipment.



Financing activities
This tells us activities that involve the company’s owners or creditors. This
section is relates to long-term liabilities and shareholders’ equity.

(II) Whether London Biscuits will be able to survive over a long period of time?
Nicol can refer to balance sheet of the London Biscuits to determine whether
they can survive over a long period of time. Balance sheet reports the assets,
3

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

liabilities and stockholders’ equity of a company at a specific time period. A balance
sheet shows the financial position of a company. It often described as “snapshot of a
company’s financial condition”. According to accounting equation, assets are always
equals to liabilities plus stockholder’s equity. If in a company, the assets are less than
current liabilities, this will create a working capital deficiency, also called a working
capital deficit. The company is facing short of liquidity under this situation because
the assets cannot readily be converted into the cash. This will lead a company to stop
their operations. When assets are greater than current liabilities, the company will
obtain a positive working capital that is very important for a company because this
show that the company is financially health. It is to ensure that the company is able
to continue its operations and to satisfy both maturing short-term debt and upcoming
expenses.
Nicol can also refer to retained earnings statement of the London Biscuits.
Retained earnings refer to the portion of net income which is retained by the
corporation rather than distributed to its owner as dividends. If retained earnings
balance is a positive, this means that the company is generating profit and it is able to
survive longer. If retained earnings is a negative, this mean that the company is
incurring loss and the company is unable to survive long period of time in this
situation.

(III) London Biscuits profitability?
Nicol can refer to Income statement to determine London Biscuits
profitability. Income statement can be called as profit and loss statement (P&L),
statement of operations, or statement of income. Besides balance sheet, statement of
cash flow and the statement of stockholders’ equity, income statement is one of the
financial statements frequently used by the accountants and business owners. The

4

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

main aim of preparing an income statement is to report a company’s earning to the
investors over a specific period of time. Income statement is important because it
shows the profitability of a company during a specific time interval. Most of the
company will have revenue and expenses from primary activities, secondary
activities as well as gains and losses reported in their income statement. If total
amount of revenues and gains exceeds the total amount of expenses and losses, it
means that the company is gaining profit. However, if the total expenses and losses
exceed the total revenues and gains, it means that the company is suffering from loss.
By referring to an income statement, we can know more than a company’s net
earnings. For instance, by looking at any company’s income statement, we can know
how the management of the company controls their expenses, interest income, and
taxes. Besides, in order for investors to know the rate of return of the business, they
may use the income statement analysis to calculate the financial ratios. As we know,
many entrepreneurs start business is to generate profits. Some examples of the tool
needed in order to analyze a company’s operations and to compute the profitability
are profitability ratios, break-even analysis, return on assets and return on
investment.

5

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

(c) Where can Nicol find out whether London Biscuits has outstanding debt? How
can Nicol determine whether London Biscuits would be able to meet its interest
and debt payments on any debt it has?
Outstanding debt is an unsettled portion of a debt that may include interest
accrued on the balance. In a simple word, outstanding debt stand for unpaid debt.
Nicole may find out the London Biscuit outstanding debt by referring to its Balance
Sheet. Balance sheet is a financial statement that summarizes a company's assets,
liabilities and shareholders' equity in a specific point of time. These three balance
sheet segments give investors an idea as to what the company owns and owes, as well
as the amount invested by the shareholders. Liabilities can be split into two categories
which are current liabilities and long-term liability. Current liabilities are debts
payable within one year, while long-term liabilities are debts payable over a longer
period. To find outstanding debt, Nicol should look for the total amount of liabilities
for the current amount in the Balance Sheet.
Besides, Nicol may use Interest Coverage Ratio to determine whether London
Biscuits would be able to meet its interest. Interest Coverage Ratio is used to verify
how simply a company can pay its interest on outstanding debt. Interest coverage ratio
is calculated by dividing a company's earnings before interest and taxes (EBIT) by the
company's interest expenses.
Formula :
interest coverage ratio=

EBIT
interest expenses

Nicol can calculate Interest Coverage Ratio by referring to income statement.
The lower the ratio, the more London Biscuit will be burden by the debt expense. On
the other hand, a high coverage ratio is neglecting opportunities to increase earnings
through leverage. An interest coverage ratio that below 1.0 indicates that a company is
not able to meet its interest obligations.
The best way to determined debt payments on any debt that would be able to
meet for London Biscuits is to use Debt Ratio. Debt Ratio is a ratio that indicates the
proportion of debt a company has relative to its assets. A debt ratio is basically a
company's total debt divided by its total assets.

6

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

Formula:
debt ratio=

total debt
total assets

When the debt ratio is high, it means that London Biscuit has more debt relative to its
assets. This will result a burden in the sense that the interest payment might take a
very large amount of the company’s cash flow or courses a rise in the interest rate.
Meanwhile, when the debt ratio is low, the interest payments do not control a large
portion of the company's cash flows. Therefore, debt ratio can quantifies how
leveraged a company is.
There is also another solvency ratio that measures the portion of the assets of a
business which are financed through debt. This debt-to-assets ratio or simply debt
ratio is the ratio of total liability of the company over its total assets. The total
liabilities include both the current liabilities and non-current liabilities.
Formula:
debt ratio=

total liabilities
totalassets

The range of the ratio is from 0.00 to 1.00. When the debt ratio is lower, it is more
complimentary. Meanwhile, a higher value indicates that higher portion London
Biscuit assets are claimed by it creditors which leads a higher risk in operation. If the
debt ratio is 0.5, it means that half of the company's assets are financed through debts.

7

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

(d)In deciding whether to go ahead with this opportunity, are there other areas of
concern that Nicol should be aware of?
Others than concerning about the London Biscuit Company’s financial status,
Nicol should also concern about the image and the reputation of the company. It is
because that the image and the reputation are very important for a company to do
their business. If the reputation of the company is good, then there are more
consumers choose to purchase the goods of the company, the company will
increases their sales of the product and generate a higher profit. But if the reputation
of company is not good as like the London Biscuit Company, the sales of the
product will decreases because the consumers have changes their decision and
choose another products rather than buying the product of London Biscuit. So, the
company will has a low profit and it may cause the losses if it keeps unchanged for
a long time. As a conclusion, company’s image and reputation are also important for
the business. Although the financial statement shows the company is generating the
profit, but if suddenly the reputation of company drop, it may influence the sales of
company and at last it may causes the loss of the company.

8

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

e) Prepare journal entries to record the November transactions

COOKIE CREATIONS INC.
GENERAL JOURNAL
DATE

ACCOUNT TITLE

DEBIT
($)
500

2011
Nov 8

Cash
Common Stock

Nov 11

Supplies
Cash

95

Baking Supplies
Cash

125

Baking Equipment
Common Stock

300

Cash
Note Payable

2000

Baking Equipment
Cash

900

Cash
Unearned Revenue

60

Cash
Service Revenue

100

Website
Note Payable

600

Prepaid Insurance
Cash

1200

Account Receivable
Service Revenue

300

Cell Phone Bill Expenses
Cell Phone Bill Payable

50

Nov 14

Nov 15

Nov 16

Nov 17

Nov 25

Nov 29

Nov 30

Nov 30

Nov 30

Nov 30

CREDIT
($)
500

95

125

300

2000

900

60

100

600

1200

300

50

9

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

10

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

f) Post the journal entries to the general ledger accounts

GENERAL LEDGER
Cash
DATE
Nov 8
11
14
16
17
25
29
30

ACCOUNT TITLE
Common stock
Supplies
Baking Supplies
Note Payable
Baking Equipment
Unearned Revenue
Service Revenue
Prepaid Insurance

DEBIT($)
500

CREDIT($)
95
125

2000
900
60
100
1200

BALANCE($)
500
405
280
2280
1380
1440
1540
340

Common Stock
DATE
Nov 8
15

ACCOUNT TITLE

DEBIT($)

CREDIT($)
500
300

BALANCE($)
500
800

DEBIT($)
95

CREDIT($)

BALANCE($)
95

CREDIT($)

BALANCE($)
125

CREDIT($)
2000

BALANC ($)
2000

Cash
Baking Equipment

Supplies
DATE
Nov 11

ACCOUNT TITLE
Cash

Baking Supplies
DATE
Nov 14

ACCOUNT TITLE

DEBIT($)
125

Cash

Note Payable
DATE
Nov 16

ACCOUNT TITLE
Website

DEBIT($)

Baking Equipment
11

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

DATE
Nov 15
17

Trimester 1
2012/2013

ACCOUNT TITLE
Common Stock
Cash

DEBIT($)
300
900

CREDIT($)

BALANCE($)
300
1200

CREDIT($)
60

BALANCE($)
60

DEBIT($)

CREDIT($)
100
300

BALANCE($)
100
400

DEBIT($)
600

CREDIT($)

BALANCE($)
600

CREDIT($)

BALANCE($)
1200

CREDIT($)

BALANCE($)

CREDIT($)
100
300

BALANCE($)
100
400

CREDIT($)

BALANCE($)
300

Unearned Revenue
DATE
Nov 25

ACCOUNT TITLE

DEBIT($)

Cash

Service Revenue
DATE
Nov 29
30

ACCOUNT TITLE
Cash
Account Receivable

Website
DATE
Nov 30

ACCOUNT TITLE
Account Payable

Prepaid Insurance
DATE
Nov 30

ACCOUNT TITLE

DEBIT($)
1200

Cash

Account Receivable
DATE
Nov 30

ACCOUNT TITLE
Service Revenue

DEBIT($)
300

Account Payable
DATE
Nov 29
30

ACCOUNT TITLE
Website
Cell Phone Bill Expenses

DEBIT($)

Cell Phone Bill Expenses
DATE
ACCOUNT TITLE
DEBIT($)
Nov 30
Account Payable
300
g) Prepare a trial balance at November 30, 2011
12

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

COOKIE CREATIONS INC.
Trial Balance as of November 31, 2011
DEBIT
($)
340

ACCOUNT TITLE
Cash
Common Stock
Supplies
Baking Equipment
Baking Supplies
Note Payable
Unearned Revenue
Service Revenue
Website
Prepaid Insurance
Account Receivable
Account Payable
Cell Phone Bill Expenses
TOTAL

CREDIT
($)
800

95
1200
125
2000
60
400
600
1200
300
650
50
3910

13

3910

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

h) Journalize the above transactions

COOKIE CREATIONS INC.
GENERAL JOURNAL
DATE
2011
Dec 5

Dec 8

Dec 9

Dec 15

Dec 16

Dec 19

Dec 23

Dec 23

Dec 23

Dec 28

ACCOUNT TITLE
Unearned Revenue
Cash
Service Revenue

DEBIT
($)
60
90

CREDIT
($)

150

Cash in Bank
Account Receivable

300

Cash
Unearned Revenue

750

Cell Phone Bill Payable
Cash

50

Account Payable
Cash in Bank

600

Cash
Unearned Revenue

60

Cash
Account Receivable
Service Revenue

3000
1000

Baking Supplies
Cash

1250

Salaries Expense
Cash in Bank

800

Dividend
Cash

500

300

750

50

600

60

4000

1250

800

500

14

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

i) Post the December transactions. (Use the General ledger accounts that was
prepared earlier in (f) above)

GENERAL LEDGER
Cash
DATE
Dec 1
5
9
15
19
23
23
28

ACCOUNT TITLE
Balance b/d from November
Service Revenue
Unearned Revenue
Cell Phone Bill Payable
Unearned Revenue
Service Revenue
Supplies
Dividend

DEBIT($)
340
90
750

CREDIT($)

50
60
3000
1250
500

BALANCE($)
340
430
1180
1130
1190
4190
2940
2440

Cash In Bank
DATE
Dec 8
16
23

ACCOUNT TITLE
Service Revenue
Account Payable
Salaries Expense

DABIT($)
300

CREDIT($)
600
800

BALANCE($)
300
(300)
(1100)

CREDIT($)
400
90
60
3000
1000

BALANCE($)
400
490
550
3550
4550

CREDIT($)

BALANCE ($)
300
0
1000

Service Revenue
DATE
Dec 1
5
23

ACCOUNT TITLE
Balance b/d from November
Cash
Unearned Revenue
Cash
Account Receivable

DABIT($)

Account Receivable
DATE
Dec 1
8
23

ACCOUNT TITLE
Balance b/d from November
Cash in Bank
Service Revenue

DABIT($)
300

300
1000

15

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

Unearned Revenue
DATE
Dec 1
5
9
19

ACCOUNT TITLE
Balance b/d from November
Service Revenue
Cash
Cash

DEBIT($)

CREDIT($)
60

60
750
60

BALANCE($)
60
0
750
810

Account Payable
DATE
Dec 1
15
16

ACCOUNT TITLE
Balance b/d from November
Cash
Cash in Bank

DEBIT($)

CREDIT($)
650

BALANCE($)
650
600
0

CREDIT($)

BALANCE($)
125
1375

DEBIT($)
800

CREDIT($)

BALANCE($)
800

DEBIT($)
500

CREDIT($)

BALANCE($)
500

CREDIT($)

BALANCE($)
1200

50
600

Baking Supplies
DATE
Dec 1
23

ACCOUNT TITLE
Balance b/d from November
Cash

DEBIT($)
125
1250

Salaries Expense
DATE
Dec 23

ACCOUNT TITLE
Cash in Bank
Dividend

DATE
Dec 28

ACCOUNT TITLE
Cash

Prepaid Insurance
DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November

DEBIT($)
1200

Website
DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November

16

DEBIT ($)
600

CREDIT ($)

BALANCE ($)
600

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

Note Payable
DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November

DEBIT($)

CREDIT($)
2000

BALANCE($)
2000

CREDIT($)

BALANCE($)
1200

DEBIT$)

CREDIT($)
800

BALANCE($)
800

DEBIT($)
95

CREDIT($)

BALANCE($)
95

CREDIT($)
50

BALANCE($)
50
0

CREDIT($)

BALANCE($)
50

Baking Equipment
DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November

DEBIT($)
1200

Common Stock
DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November
Supplies

DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November

Cell Phone Bill Payable
DATE
Dec 1
15

ACCOUNT TITLE
Balance b/d from November
Cash

DEBIT($)
50

Cell Phone Bill Expenses
DATE
Dec 1

ACCOUNT TITLE
Balance b/d from November

DEBIT($)
50

17

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

j) Prepare a trail balance at December 31, 2011.

COOKIE CREATIONS INC.
Trial Balance as of December 31, 2011
ACCOUNT TITLE

DEBIT
($)
2440

Cash
Cash in Bank
Account Receivable
Note Payable
Service Revenue
Unearned Revenue
Supplies
Baking Supplies
Common Stock
Salaries Expense
Prepaid Insurance
Dividend
Baking Equipment
Website
Cell Phone Expenses
TOTAL

CREDIT
($)
1100

1000
2000
4550
810
95
1375
800
800
1200
500
1200
600
50
9260

18

9260

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

k) Prepare and post adjusting journal entries for the month of December.

COOKIE CREATIONS INC.
GENERAL JOURNAL
DATE

ACCOUNT TITLE

DEBIT
($)

CREDIT
($)

Adjusting Entries
2011
Dec 31

Dec 31

Dec 31

Dec 31

Dec 31

Dec 31

Dec 31

Dec 31

Dec 31

Dec 31

Supplies expense
Supplies

45

Depreciation expenses – baking equipment
Accumulated depreciation expenses –baking equipment

40

Amortization
Website

25

Interest expense
Interest payable

11

Insurance expense
Prepaid insurance

100

Account Receivable
Service revenue

450

Baking supplies expenses
Baking Supplies

1025

Cell phone bill expenses
Account payable

75

Salaries and wages expenses
Cash

56

Prepaid revenue
Service revenue

450

45

40

25

11

100

450

1025

75

56

450

19

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

GENERAL LEDGER

Supplies Expense
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)
45

CREDIT($)

BALANCE($)
45

DEBIT($)

CREDIT($)

BALANCE($)
95
50

Supplies
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

45

Depreciation Expense – Baking Equipment
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)
40

CREDIT($)

BALANCE($)
40

Accumulated Depreciation – Baking Equipment
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)

CREDIT($)
40

BALANCE($)
40

DEBIT($)
25

CREDIT($)

BALANCE($)
25

DEBIT($)

CREDIT($)

BALANCE($)
600
575

Amortization
DATE
Dec 31

ACCOUNT TITLE
Adjustment
Website

DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

25

Interest Expense
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)
11

20

CREDIT($)

BALANCE($)
11

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

Interest Payable
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)

CREDIT($)
11

BALANCE($)
11

CREDIT($)

BALANCE($)
1200
1100

Prepaid Insurance
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

DEBIT($)

100

Insurance Expense
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)
100

CREDIT($)

BALANCE($)
100

CREDIT($)

BALANCE($)
1000
1450

CREDIT($)

BALANCE($)
4550
5000
5450

Account Receivable
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

DEBIT($)
450

Service Revenue
DATE
Dec 31
31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment
Adjustment

DEBIT($)

450
450

Baking Supplies Expense
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)
1025

CREDIT($)

BALANCE($)
1025

CREDIT($)

BALANCE($)
1375
350

Baking Supplies
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

DEBIT($)

1025

21

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

Cell Phone Bill Expense
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

DEBIT($)

CREDIT($)

BALANCE($)
50
75

CREDIT($)
75

BALANCE($)
75

CREDIT($)

BALANCE($)
800
856

CREDIT($)

BALANCE($)
2440
2384

75

Account Payable
DATE
Dec 31

ACCOUNT TITLE
Adjustment

DEBIT($)

Salaries and Wages Expense
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Cash

DEBIT($)
56
Cash

DATE
Dec 31
31

ACCOUNT TITLE
Balance ( b/d )
Salaries and wages expenses

DEBIT($)

56

Unearned service revenue
DATE
Dec 31
31

ACCOUNT TITLE
Balance (b/d)
Adjustment

DEBIT($)
450

22

CREDIT($)

BALANCE($)
810
360

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

(l) Prepare and adjusted trial balance as of December 31, 2011.

COOKIE CREATIONS INC.
Adjusted Trial Balance as of December 31, 2011
ACCOUNT TITLE
Cash
Bank
Service Revenue
Account Receivable
Unearned Revenue
Account Payable
Baking Supplies
Supplies
Salaries Expenses
Dividends
Common Stock
Note Payable
Baking Equipment
Prepaid Insurance
Insurance Expense
Website
Cell Phone Bill Expense
Baking Supplies Expense
Supplies Expense
Depreciation – Baking Equipment
Accumulated Depreciation – Baking Equipment
Amortization
Interest Expense
Interest Payable
TOTAL

DEBIT
($)
2384

1100
5450
1450
360
75
350
50
856
500
800
2000
1200
1100
100
575
125
1025
45
40
40
25
11
11
9836

23

CREDIT
($)

9836

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

m) Prepare an income statement and a retained earnings statement for the 2 month
period ending December 31, 2011 and a classified balance sheet as of December
31,2011.

COOKIE CREATION INC.
Income Statement at December 31, 2011
($)
Revenue
Service Revenue

($)
5450

Expenses
Salaries Expenses
Cell Phone Bill Expense
Baking Supplies Expenses
Supplies Expense
Amortization
Interest Expense
Insurance Expense
Depreciation – Baking Equipment
Net Income

856
125
1025
45
25
11
100
40

(2227)
3223

COOKIE CREATION INC.
Retained Earnings Statement at December 31,2011
($)
0
3223
3223
(500)
2723

Retained Earnings, December 1
Net Income
Dividend
Retained Earnings, December 31

COOKIE CREATION INC.
Balance Sheet as of December 31, 2011
24

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

($)
Current asset
Cash
Account receivable
Prepaid insurance
Supplies
Baking supplies

($)

($)

2384
1450
1100
50
350

Non-current asset
Baking equipment
Less : accumulated equipment
website

5334
1200
(40)

Current Liability
Bank
Unearned revenue
Account payable
Interest payable

1160
575

1100
360
75
11

Non-current liability
Note payable

1735
7069

1546

2000
3546

Owner’s equity
Retained earnings
Common stock

2723
800
7069

25

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

n) Prepare and post-closing entries as of December 31,2011

COOKIE CREATION INC.
DATE

ACCOUNT TITLE

DEBIT
($)

CREDIT
($)

Closing Entries
2011
Dec. 31

31

31

31

Service Revenue
Income Summary
(To close revenue account)

5450

Income Summary
Salaries Expenses
Cell Phone Bill Expenses
Baking Supplies Expense
Supplies Expense
Amortization
Interest Expense
Insurance Expense
Depreciation- Baking Equipment
(To close expense account)

2227

Income Summary
Retained Earning
(To close net income to retained earnings)

3223

Retained Earnings
Dividends
(To close dividends to capital)

500

26

5450

856
125
1025
45
25
11
100
40

3223

500

BAC 1614
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Trimester 1
2012/2013

o) Prepare a post-closing trial balance

COOKIE CREATIONS
Post-closing Trial Balance
December 31,2011
ACCOUNT TITLE

DEBIT
($)
2328
1145
1100
50
350
1200

Cash
Account Receivable
Prepaid Insurance
Supplies
Baking Supplies
Baking Equipment
Accumulated Equipment
Website
Bank
Unearned Revenue
Account Payable
Interest Payable
Note Payable
Retained Earning
Common Stock

CREDIT
($)

40
575
1100
360
75
11
2000
2723
800

Total

7109

27

7109

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