FUN PACK 3

Question 1

State how the transaction will affect assets, equity and liabilities:
Owner contributed cash into biz bank account

Answer 1

Assets increase (cash at bank)
Equity  increases (capital)

Question 2

State how the transaction will affect assets, equity and liabilities:
Owner took inventory for own use.

Answer 2

Asset decrease (inventory)
Equity decrease (drawings)
* an increase in drawings causes equity to decrease

Question 3

State how the transaction will affect assets, equity and liabilities (with amount):
Biz purchased inventory listed at $5 000 on credit. A trade discount of 20% was given.

Answer 3

Assets increase (inventory increases) by $4 000
Liabilities increase (Trade payable increases) by $4 000

Question 4

State how the transaction will affect assets, equity and liabilities (with amount):
Sold goods costing $5000 on credit for $6 800.

Answer 4

Assets increase by $1800 (Trade receivables increases by $6 800; inventory reduces $5 000)
Equity increases by $1 800 (cost of sales decreases equity by $5 000; sales revenue increases equity by
$6 800)

Question 5

State how the transaction will affect assets, equity and liabilities (with amount):
Borrowed a long term loan of $10 000 and use 80% to pay for new equipment.

Answer 5

Assets increase by $10 000 (cash at bank increases by
$2 000 while equipment increases by $8 000)
Liabilities increase by $10 000 (loan increases NCL by $10 000)

Question 6

State how the transaction will affect assets, equity and liabilities (with amount):
Depreciate motor vehicles by $8 400

Answer 6

Assets decrease by $ 8 400 (accumulated depreciation increased, causing net book value of NCA to decrease)
Equity decreases by $8 400 (depreciation is an expense which causes profit to reduce)

Question 7

State how the transaction will affect assets, equity and liabilities (with amount):
Paid trade creditor $580 by cheque to settle debt of $600

Answer 7

Assets decrease by $580 (cash at bank reduced)
Liabilities decrease by $600 (trade payable reduced)
Equity increases by $20 (discount received from trade payable is an income, causing profit to increase)

Question 8

State how the transaction will affect assets, equity and liabilities (with amount):
Bought a second hand delivery van on credit, $15 000

Answer 8

Assets increase by $15 000 (delivery van is NCA)

Liabilities increase by $15 000 (other payable increases)

Question 9

State how the transaction will affect assets, equity and liabilities (with amount):
Trade debtor returned goods bought for $300. These goods cost $180.

Answer 9

Assets decrease by $120 (trade receivables reduced by $300 while inventory increased by $180)
Equity decreases by $120 (sales returns reduced net sales revenue by $300; cost of sales reduced by $180; the net effect is a reduction of gross profit, $120)

Question 10

State how the transaction will affect assets, equity and liabilities (with amount):
Cheque from trade debtor $450 to settle debt of $480 was returned unpaid by the bank.

Answer 10

Assets increase by $30 (trade receivables increase by $480; bank reduced by $450)
Equity increases by $30 (discount given previously was taken back. Lower discount allowed means less expense and thus higher profit)