The Accounting Cycle

Overall Expectations
Describe the accounts for a service business.
Demonstrate an understanding of basic procedures.
Specific Expectations
Explain the relationship among the classifications used in a balance sheet
Assess the effects that transactions have on the accounts

R Level 1 Level 2 Level 3 Level 4

Remedial — Limited understanding Approaching the Achieved the Sophisticated and
additional learning of concepts expectations expectations thorough achievement
required before of expectations
expectation is met

Name: ____________________________________
September 25, 2023 Test #1: The Balance Sheet (Chapter 2)
Analyzing Changes in Financial Position (Chapter 3)
BAF3M: Financial Accounting Fundamentals

ALL QUESTIONS REFER TO A SOLE PROPRIETORSHIP OPERATING IN A SERVICE INDUSTRY.

1. For each of the following, describe a transaction that will have the stated effect on the elements
of the accounting equation.

a) increase in an asset; increase in a liability

b) increase in an asset; increase in owner’s equity

c) decrease in an asset; decrease in a liability

d) decrease in an asset; decrease in owner’s equity

e) increase in an asset; decrease in an asset

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2. Jane Chasowy, DVM.1, owns and operates a veterinary practice.
a) Record these opening balance sheet figures on the equation analysis sheet.

Bank 900
Accounts Receivable 3,800
Supplies 2,700
Equipment 8,200
Accounts Payable 300
Bank Loan 2,500

b) Analyze the transactions and record the necessary changes on the equation analysis sheet.

Transaction 1 Accounts payable were paid in full.

Purchased, but did not pay for, a x-ray machine for small animals from Vet
Transaction 2
Supply Ltd. The cost was $5,400.

Transaction 3 Received $2,400 cash from a client in partial payment of his debt.

Transaction 4 Bought veterinarian supplies, $500.

Bought a new computer for the office to handle billing of clients. Total cost
Transaction 5 was $2,500. Part of the cost was paid for by writing a cheque for $1,500. The
rest is still owed to the Computer Shoppe.

Transaction 6 Paid $500 to reduce the amount of the bank loan.

Transaction 7 Dr. Chasowy invested $5,000 into her veterinary practice.

Transaction 8 Paid $120 to advertise on Kanata Breaking News.

Transaction 9 Received $500 for services rendered.

Transaction 10 Paid $634 for renovations to operating room.

Transaction 11 Paid a creditor $250 to reduce the amount owed to him.

Transaction 12 Sent an invoice for $1800 to a customer for services rendered on account.

c) After completing the last transaction ensure that the fundamental accounting equation is still in
balance.

1
Doctor of Veterinary Medicine
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3. Examine the source document below and answer the questions that follow, using what you
know so far.

a) Who sent the bill? __________________________________________________________

b) What accounts are affected when this bill is sent? ___________________________________

c) Who received the bill? ____________________________________________________

d) What accounts are affected when this bill is received? _____________________________

e) When was the bill issued? ____________________________________________________

f) When is the bill due for payment. _______________________________________________
g) Why was this bill issued? ____________________________________________________
h) Why does the bill represent good objective evidence.?

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4. Indicate the effect each of the following transactions has on total assets,
total liabilities and owner’s equity by writing I for an increase, D for a
decrease, and NC for no change.

Total Total Owner’s

Transaction Assets Liabilities Equity

Example: A cash payment is made to Ace

D D NC
Supplies, a creditor.

a A new desk for the office is purchased for

) cash from Equipment Supply Co.

D. Rubin, who owes the company a sum of

b
money, makes a cash payment on his
)
debt.
The business performs a service for a
c
customer,
)
J. Rothfels, who pays in full with
The business purchases a new truck from
d
Pine Motors and pays one-third of the
)
cost in cash
Stationery and supplies are purchased
e
from Angeloff’s Stationers, but are
)
not paid for at
The owner, J. Lemaire, takes a sum of
f) money
from the business for his personal
g Land is sold for cash at a price less than
) its cost.

h The business obtains a loan from the

) bank.

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5. Françoise Boudreau has just purchased a crafts shop in Chicoutimi, Quebec.
She believes that she knows enough about accounting to prepare her first
balance sheet, as illustrated below, before starting business on May 1, 2023.

Françoise Boudreau
Balance Sheet
May 1, 20—

Assets Liabilities
Supplies $ 500 Mortgage on House $ 6 000
Cash $ 4 500 Bank Loan $ 3 000
Building $ 30 000 $ 9 000
Less Mortgage $ 12 000 $ 18 000
Office Equipment $ 10 000 Owner’s Equity
Delivery Equipment $ 5 000 Boudreau Crafts $ 32 000
Household Furniture $ 3 000 $ 41 000
$ 41 000

What generally accepted accounting principle has Françoise violated? Explain and
give an example.

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6. a) At the beginning of the year, Lam Company had total assets of $700,000 and total liabilities of
$500,000.

If the total assets increased by $150,000 during the year and total liabilities decreased by $80,000, what is the
amount of owner’s equity at the end of the year? Show all calculations.

b) At the beginning of the year, Lam Company had total assets of $700,000 and total liabilities of
$500,000.

During the year, total liabilities increased by $100,000 and owner’s equity decreased by
$70,000. What is the amount of total assets at the end of the year? Show all calculations.

c) At the beginning of the year, Lam Company had total assets of $700,000 and total liabilities of
$500,000.

If total assets decreased by $90,000 and owner’s equity increased by $120,000 during the year,
what is the amount of total liabilities at the end of the year? Show all calculations.

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7. From the list of items below, prepare a balance sheet as of June 30, 2023, for
Skiway Chalet.

Household Finance Co., $ 12 Snowmobiles $ 23

creditor 500 200
Charles Finley, Capital ? Land 20 000
Building 109 500 M. Plummer, creditor 12 500
Bank Loan 30 000 J. Ashton, debtor 8 200
P. Lombardi, debtor 11 250 Equipment 52 000
General Merchants Co., 5 500
Cash 9 750 creditor

_____________________________________________________________
__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

show your figures like this:

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111 0 0 0 —
9 9 9 99
8 8 88

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