1.

a. Accounting is the process of recording, classifying, summarizing, and interpreting

financial transactions of a business. Accounting provides valuable information to
decision-makers such as investors, creditors, and management about the financial
performance and position of a business. It is a valuable discipline because it helps in
keeping track of financial transactions, monitoring business performance, and making
informed decisions.

b. No, not all economic events are business transactions. Economic events that involve
the exchange of goods or services for money or other assets are considered business
transactions. Non-business economic events include personal transactions, donations,
and government transfers.

c. The equation for the statement of owner's equity is:

Beginning Capital + Investments + Net Income - Withdrawals - Expenses = Ending

Capital

Expenses and withdrawals are similar in that they both decrease the owner's equity in a
business. However, expenses are incurred in the process of generating revenue, while
withdrawals are taken by the owner for personal use.

d. Business transactions need to be documented to provide an accurate record of

financial transactions, which is essential for preparing financial statements, monitoring
business performance, and complying with legal and tax requirements. Proper
documentation helps in identifying errors and fraud, and it provides evidence of the
transactions in case of audits or legal disputes.

2. a. A journal is a book or electronic document that records all financial

transactions in chronological order. A ledger is a book or electronic document
that summarizes the transactions recorded in the journal. The steps in
journalizing and posting are:
3. Analyze the transaction and determine the accounts affected.
4. Record the transaction in the journal using the double-entry accounting system,
which means recording a debit in one account and an equal credit in another
account.
5. Post the transaction to the ledger by transferring the debit and credit amounts to
the appropriate accounts.
6. Prepare a trial balance to ensure that the total debits equal the total credits.
2
Here is the journal entry for the transactions of Brad Cupello's upholstery cleaning
business for the month of October:

Date Account Titles and Explanation Debit Credit

Oct. 1 Cash $15,000

Capital $15,000

Oct. 2 Cleaning Supplies $3,000

Accounts Payable $3,000

Oct. 3 Cleaning Equipment $2,800

Cash $2,800

Oct. 4 Prepaid Rent $1,200

Cash $1,200
 Date Account Titles and Explanation Debit Credit

Oct. 7 Cleaning Supplies $1,500

Accounts Payable $1,500

Oct. 9 Repairs and Maintenance Expense $1,080

Cash $1,080

Oct. 12 Cash $960

Service Revenue $960

Oct. 17 Accounts Payable $1,500

Cash $1,500

Oct. 21 Accounts Receivable $1,340

 Date Account Titles and Explanation Debit Credit

Service Revenue $1,340

Oct. 27 Cash $600

Accounts Receivable $600

ii. Posting to Ledger Accounts:

Cash:

Date Transaction Debit Credit Balance

Oct 1 Initial deposit $15,000 $15,000

Oct 12 Cash received for cleaning upholstery $960 $15,960

Oct 27 Cash received from customers $600 $16,560

 Date Transaction Debit Credit Balance

Oct 3, 4, 9, 17 Cash paid for various expenses $6,080 $10,480

Accounts Receivable:

Date Transaction Debit Credit Balance

Oct 21 Billed customers for cleaning upholstery $1,340 $1,340

Oct 27 Cash received from customers $600 $740

Cleaning Supplies:

Date Transaction Debit Credit Balance

Oct 2 Supplies ordered $3,000 $3,000

Supplies received and agreed to pay in 10 and 30

Oct 7 days $1,500 $1,500 $3,000

Prepaid Lease:
 Date Transaction Debit Credit Balance

Oct 4 Lease payment made in advance $1,200 $1,200

Cleaning Equipment:

Date Transaction Debit Credit Balance

Oct 3 Equipment purchased for cash $2,800 $2,800

Accounts Payable:

Date Transaction Debit Credit Balance

Supplies received and agreed to pay in 10 and 30

Oct 7 days $1,500 $1,500

B. Cupello, Capital:
 Date Transaction Debit Credit Balance

Oct 1 Initial deposit $15,000 $15,000

Cleaning Revenue:

Date Transaction Debit Credit Balance

Oct 12 Cash received for cleaning upholstery $960 $960

Oct 21 Billed customers for cleaning upholstery $1,340 $2,300

Repair Expense:

Date Transaction Debit Credit Balance

Oct 9 Repairs made with cash $1,080 $1,080

iii. Trial Balance for Cupello Upholstery Cleaning as of October 31, 2020:
 Account Debit Credit

Cash $10,480

Accounts Receivable $740

Cleaning Supplies $3,000

Prepaid Lease $1,200

Cleaning Equipment $2,800

Accounts Payable $1,500

B. Cupello, Capital $15,000

Cleaning Revenue $2,300

Repair Expense $1,080

Total $19,300 $19,300

4.
A trial balance is a financial statement that lists all the accounts in the general ledger
along with their debit or credit balances. The purpose of a trial balance is to ensure that
the total of all debits equals the total of all credits, which helps to detect errors in the
general ledger. If the debits and credits do not balance, it indicates that there are errors
in the general ledger that need to be corrected.

However, there are some errors that may not be detected by a trial balance, such as:

1. Errors of omission: These are errors where a transaction is completely left out of
the general ledger.
2. Errors of commission: These are errors where an incorrect amount is recorded in
the general ledger.
 3. Errors of principle: These are errors where an incorrect account is used to record
a transaction.
4. Reversal of entries: These are errors where the debit and credit amounts are
reversed in the general ledger.

Now, using the information in the adjusted trial balance provided, we can prepare the
following financial statements:

(i) Classified Income Statement for the year ended December 31, 2020:

Delivery Fees Earned $611,800 Less: Expenses: Repairs Expense-Trucks $35,600

Depreciation Expense-Trucks $29,000 Depreciation Expense-Equipment $48,000 Salaries
Expense $74,000 Wages Expense $300,000 Office Supplies Expense $31,000 Advertising
Expense $27,200 Interest Expense $15,000 Net Income $1,011,000

(ii) Statement of Owner's Equity for the year ended December 31, 2020:

L. Horace, Capital, January 1, 2020 $125,000 Add: Net Income $1,011,000 Less:
Withdrawals $50,000 L. Horace, Capital, December 31, 2020 $1,086,000

(iii) Classified Balance Sheet as of December 31, 2020:

Assets: Cash $58,000 Accounts Receivable $120,000 Notes Receivable (Due in 90 days)
$210,000 Office Supplies $22,000 Trucks $134,000 Less: Accumulated Depreciation-
Trucks $58,000 Net Trucks $76,000 Equipment $270,000 Less: Accumulated
Depreciation-Equipment $200,000 Net Equipment $70,000 Land $100,000 Total Assets
$656,000

Liabilities and Owner's Equity: Accounts Payable $134,000 Salaries Payable $28,000
Interest Payable $20,000 Unearned Delivery Fees $120,000 L. Horace, Capital $1,086,000
Total Liabilities and Owner's Equity $1,388,000
5.

Adjusted Trial Income Balance

Trial Balance Adjustments Balance Statement Sheet

Debit Debit
Account Debit Credit Debit Credit Debit Credit Credit Credit
 Adjusted Trial Income Balance
Trial Balance Adjustments Balance Statement Sheet

Cash 27,500 27,500 27,500

Accounts
Receivable 2,080 2,080 2,080

Supplies 820 (750) 70 70

Prepaid Insurance 800 (400) 400 400

Land 5,000 5,000 5,000

Equipment 72,000 (12,000) 60,000 60,000

Accumulated
Depreciation 12,000 12,000 12,000

Accounts Payable 8,000 8,000 8,000

Unearned
Revenue 4,000 (3,000) 1,000 1,000

Note Payable 20,000 20,000 20,000

R. Horn, Capital 37,800 37,800 37,800

R. Horn, Drawing 3,000 3,000 3,000

Repair Revenue 72,000 72,000 72,000

 Adjusted Trial Income Balance
Trial Balance Adjustments Balance Statement Sheet

Cleaning Revenue 34,000 (33,000) 1,000 1,000

Wages Expense 60,000 60,900 60,900

Advertising
Expense 2,000 2,000 2,000

Utilities Expense 1,400 1,400 1,400

Maintenance
Expense 200 200 200

Interest Expense 600 600 600

Total 199,800 18,050 217,850 137,100 80,750

Note:

 Adjustments were made for the following:

 Supplies on hand at the end of the year is $70 ($820 - $750 = $70)
 Prepaid Insurance expense for the year is $400 ($800 / 2 = $400)
 Depreciation expense for the year is $12,000 (straight-line method)
 Accrued wages expense at the end of the year is $900
 Unearned Cleaning Revenue that has been earned is $3,000 ($4,000 -
$1,000 = $3,000)
 Gasoline, oil, and fuel used during the last two weeks of December
amounting to $200 is recorded as maintenance expense
 Interest expense for the note payable is $600 ($20,000 * 3% * 3/12 = $600)
 The income statement shows the revenue and expense accounts, with Repair
Revenue and Cleaning Revenue already adjusted for unearned revenues.
 The balance sheet shows the adjusted account
6.
. Cost of Goods Sold Section:

Cost of Goods Sold = Beginning Inventory + Purchases - Purchases Returns and

Allowances - Ending Inventory

Cost of Goods Sold = $37,950 + Purchases - $10,350 - $50,600 $273,700 = $37,950 +

Purchases - $10,350 - $50,600 $273,700 = $27,000 + Purchases Purchases = $273,700 -
$27,000 Purchases = $246,700

Therefore, the cost of goods sold section of the merchandising income statement
(periodic inventory system) is:

Cost of Goods Sold: Beginning Inventory $37,950 Add: Purchases $246,700 Freight-in
$13,800 Total Cost of Goods Purchased $260,500 Less: Purchases Returns and
Allowances $10,350 Ending Inventory $50,600 Cost of Goods Sold $273,700

b. Calculation of amount collected by Meier on April 25:

Amount to be paid by Curran on or before April 25 = $5,000 - $850 = $4,150 Discount

available if paid by April 25 = 2% of $5,000 = $100 Amount to be paid after deducting
discount = $5,000 - $100 = $4,900 Therefore, the amount collected by Meier on April 25
is $4,900.

c. Journal entries for Chilton Systems (perpetual inventory system):

1. Nov 1: Purchases (Inventory) $1,500 Accounts Payable $1,500

2. Nov 5: Accounts Payable $1,470 Purchase Discounts ($1,500 x 2%) $30 Cash
$1,440
3. Nov 7: Accounts Payable $200 Cash $200
4. Nov 10: Inventory $90 Cash $90
5. Nov 13: Accounts Receivable $1,600 Sales $1,600 Cost of Goods Sold $800
Inventory $800
6. Nov 16: Sales Returns and Allowances $300 Accounts Receivable $300 Inventory
$130 Cost of Goods Sold $130

7,

a. Important things to be remembered while preparing a bank reconciliation statement

are:

1. Reconciling the cash book balance with the bank statement balance
 2. Checking for any discrepancies between the two balances
3. Identifying and recording any items that are in the bank statement but not in the
cash book, and vice versa
4. Ensuring that all transactions are correctly recorded and dated in both the cash
book and the bank statement
5. Taking into account any outstanding cheques, deposits or charges that are yet to
be reflected in the bank statement or the cash book
6. Ensuring that the reconciled cash book balance matches the balance as per the
bank statement
7. Making necessary adjustments and preparing journal entries to record any
differences between the two balances.

b. Bank Reconciliation Statement of Mr. Ron as of 30 June, 2021:

Particulars Amount (Tk.)

Balance as per Cash Book 7,600

Add: Interest on Fixed Deposit credited by bank (not in

cash book) 600

Add: Cheque deposited but not credited (12,000 - 5,800) 6,200

Less: Cheque issued but not presented (2,600) 4,000

Less: Cash withdrawal not recorded in Pass Book 1,500

 Particulars Amount (Tk.)

Less: Dishonored bill (not in cash book) 720

Balance as per Pass Book 6,180

The adjusted balance as per Pass Book is Tk. 6,180.

Journal Entries:

1. To record the interest on fixed deposit:

Particulars Debit Credit

Bank Account 600

Interest Income 600

2. To record the cash withdrawal not recorded in Pass Book:

Particulars Debit Credit

Cash Account 1,500

 Particulars Debit Credit

Bank Account 1,500

3. To record the dishonored bill:

Particulars Debit Credit

Bank Charges 720

Bank Account 720

The above entries will reconcile the balances in the Cash Book and the Pass Book.