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M. Lewis opened an Innovation Furniture shop on 01 August. During August, the following transactions of the business took place. (Note GST is ignored).1.      The owner invested cash of $22,000 to start the business.2.      The shop borrowed $5,500 from the bank.3.      A 6-month shop supplies inventory (boxes, scissors, tape, glue gun, ribbon, etc.) was purchased for $1,100 cash.4.      Office equipment was purchased at the cost of $16,000 in cash.5.      A store location was rented and $2,500 was paid for the first month's rent.6.      Inventory of $15,500 was purchased, $5,500 cash was paid to the suppliers and the balance will be paid within 30 days.7.      During the first month, Sales totalled $23,000, of which $10,200 was sold on account. The cost of the goods sold totalled 40% of sales.8.      Paid a total of $ 1,350 of the amount owed to suppliers from the transaction (6).9.      M. Lewis withdrew $ 470 for personal use.10.  At the end of the month, a stocktake of the supplies showed an amount of supplies worth $545.Answer the following five (5) questions based on the above information and enter only the whole number as an answer, for example, 123456. Two (2) marks for each correct answer, a total of ten (10) marks.What is the Net income of Innovation Furniture Shop for August ($)?   Answer 1 Question 1         What is the Cash balance on 31 August ($)? Answer 2 Question 1What is the Account payable balance on 31 August ($)?     Answer 3 Question 1                     What is the Owner's capital balance on 31 August ($)?   Answer 4 Question 1What is the Expense for August ($)?

Question

M. Lewis opened an Innovation Furniture shop on 01 August. During August, the following transactions of the business took place. (Note GST is ignored).1.      The owner invested cash of 22,000tostartthebusiness.2.     Theshopborrowed22,000 to start the business.2.      The shop borrowed 5,500 from the bank.3.      A 6-month shop supplies inventory (boxes, scissors, tape, glue gun, ribbon, etc.) was purchased for 1,100cash.4.     Officeequipmentwaspurchasedatthecostof1,100 cash.4.      Office equipment was purchased at the cost of 16,000 in cash.5.      A store location was rented and 2,500waspaidforthefirstmonth′srent.6.     Inventoryof2,500 was paid for the first month's rent.6.      Inventory of 15,500 was purchased, 5,500cashwaspaidtothesuppliersandthebalancewillbepaidwithin30days.7.     Duringthefirstmonth,Salestotalled5,500 cash was paid to the suppliers and the balance will be paid within 30 days.7.      During the first month, Sales totalled 23,000, of which 10,200wassoldonaccount.Thecostofthegoodssoldtotalled4010,200 was sold on account. The cost of the goods sold totalled 40% of sales.8.      Paid a total of 1,350 of the amount owed to suppliers from the transaction (6).9.      M. Lewis withdrew 470forpersonaluse.10. Attheendofthemonth,astocktakeofthesuppliesshowedanamountofsuppliesworth 470 for personal use.10.  At the end of the month, a stocktake of the supplies showed an amount of supplies worth 545.Answer the following five (5) questions based on the above information and enter only the whole number as an answer, for example, 123456. Two (2) marks for each correct answer, a total of ten (10) marks.What is the Net income of Innovation Furniture Shop for August ()?  Answer1Question1     WhatistheCashbalanceon31August()?   Answer 1 Question 1         What is the Cash balance on 31 August ()? Answer 2 Question 1What is the Account payable balance on 31 August ()?    Answer3Question1           WhatistheOwner′scapitalbalanceon31August()?     Answer 3 Question 1                     What is the Owner's capital balance on 31 August ()?   Answer 4 Question 1What is the Expense for August ($)?

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Solution

To answer these questions, we need to understand the basic accounting equation: Assets = Liabilities + Owner's Equity. We also need to understand the concept of revenues, expenses, and net income (Revenues - Expenses = Net Income).

  1. Net Income for August: The revenue for August is 23,000(frompoint7).Thecostofgoodssoldis4023,000 (from point 7). The cost of goods sold is 40% of sales, which is 9,200 (40% of 23,000).Therentexpenseis23,000). The rent expense is 2,500 (from point 5). The supplies used is 555(555 (1,100 - 545,frompoint3and10).So,thetotalexpenseis545, from point 3 and 10). So, the total expense is 12,255 (9,200+9,200 + 2,500 + 555).Therefore,thenetincomeis555). Therefore, the net income is 10,745 (23,000−23,000 - 12,255).

  2. Cash Balance on 31 August: The initial cash is 22,000(frompoint1).Theshopborrowed22,000 (from point 1). The shop borrowed 5,500 (from point 2). The shop spent 1,100onsupplies(frompoint3),1,100 on supplies (from point 3), 16,000 on equipment (from point 4), 2,500onrent(frompoint5),and2,500 on rent (from point 5), and 5,500 on inventory (from point 6). The shop also paid 1,350tosuppliers(frompoint8)andtheownerwithdrew1,350 to suppliers (from point 8) and the owner withdrew 470 (from point 9). The shop made 12,800incashsales(12,800 in cash sales (23,000 - 10,200,frompoint7).So,thecashbalanceis10,200, from point 7). So, the cash balance is 8,380 (22,000+22,000 + 5,500 + 12,800−12,800 - 1,100 - 16,000−16,000 - 2,500 - 5,500−5,500 - 1,350 - $470).

  3. Account Payable Balance on 31 August: The shop owed 10,000tosuppliers(10,000 to suppliers (15,500 - 5,500,frompoint6)andpaid5,500, from point 6) and paid 1,350 (from point 8). So, the account payable balance is 8,650(8,650 (10,000 - $1,350).

  4. Owner's Capital Balance on 31 August: The owner initially invested 22,000(frompoint1).Thenetincomeof22,000 (from point 1). The net income of 10,745 (from the first calculation) increases the owner's equity. The owner withdrew 470(frompoint9).So,theowner′scapitalbalanceis470 (from point 9). So, the owner's capital balance is 32,275 (22,000+22,000 + 10,745 - $470).

  5. Expense for August: As calculated in the first point, the total expense for August is $12,255.

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