Quiz 2: Analyzing Transactions

Business

Horizontal analysis of company a showing calculates relationships between items in operating income statement. It shows year-to-year changes in sales and expenses amounts in operating income statements Company A is retailer trader who is operating business online. Company's sales and expenses are in millions. They involve material and service products both, and expenses are accordingly. Their operating expenses are indirect expenses. Horizontal analysis shows comparison of change in amounts from year to year. 1. img Above statement is prepared using MS Excel with appropriate formula img In above statement there are two sides shown in T shape, one is debit and other is credit. Debit side of statement shows expenses. Credit side of statement is showing sales which are income credit. Income from operations is showing balancing figure of total of both the sides. This is matching with basic accounting equation where sales less cost gives income.   2.By comparing the results of year 1 and year 2, it can be concluded that though in the year2, there is an increase in the total sales, still there is a huge decrease in the profit. This happened due to increase in the operating expenses. This is figure comparison done in horizontal analysis.

In double entry accounting system, each transaction is recorded in the books of accounts, by giving two effects. The amount debited in one or more account is equal to amount credited in one or more accounts under the double entry accounting system. At the end of the fiscal period, each account is closed and an ending balance is transferred to the trial balance. Among these accounts, some are having debit balances, some have credit balance, and some can have either a debit or credit ending balance. Following are details of all balances: 1.Accounts Payable: This account normally has both type of entries, debit and credit. When supplies are bought on credit, this account is credited, and when payment is done, this account is debited.However, this account is having normally a credit balance at the end.2.Cash: Under this account all the receipts are debited and all the payments are credited. Hence, both type of debit and credit entries are made in this account. However, there can never be a negative amount of cash in the business. So, this account always has a debit balance. 3.Dividend: It is an amount paid to shareholders, this account is debited, and when it is paid to the stockholders, cash is credited. When dividend is increased by paying it out then it is debited, and when it is retained within company as retained earnings then it is credited. So, this account has both debit and credit type entries. Hence, dividend account normally has a debit balance. 4.Miscellaneous Expenses: These are very small amounts of expenditure in nature. So, they are paid off as they become due. So, in this account debit entries only are posted normally. This head is accumulation of many petty expenses. Hence, this is an expenditure account having a debit balance always. 5.Insurance Expense: It is an expense which is booked as per nominal rule, this account is debited. So, this account has debit type entries. In some cases it is paid in advance said to be prepaid insurance and then it will again be debited with different name. This will be shown on asset side of balance sheet under current assets head.Hence, this is an expenditure account having a debit balance always. 6.Fees Earned: It is the revenue/income account of the business. In this account, all the earnings of the business are recorded. Normally, in this account credit entries are passed.Hence, this is a revenue account having credit balance.

Ledger Posting: It is the second process of recording transactions. The debit and credit amounts need to transfer in their corresponding four column accounts of ledger from journal entries. The T account format has substituted with the standard account. Hence, the following account shows the ledger posting of the journal entries. Journal Entry: Entries which help in recording of transactions that has occurred in the accounting process. The respective amounts to account names involved in the transactions are credited and debited under it. Trial Balance: It is a basic tool that lists the ending balances of each account. In the transactions of the business are represented in a summarized form. Its main purpose is to balance the value of debit column with the value of credit column. The errors can be detected, if the total of both columns doesn't match. The reason behind occurrence of any errors is not related to trial balance and the same kind of errors needs to rectify by passing journal entries. 1.Ledger account to show the account balance on July 1, 2018 of PS Music is as follows Cash account: It is based on real account concept, which states that debit is "what comes in" and credit is "what goes out". img Accounts Receivables the Assets that indicate the amount received for sale of asset on credit. It is generally payable within few months of such credit sale that can be extended up to one year only img Supplies are items which are issued to factory for supporting production. When any supplies purchased for cash are debited and vice a versa in case of return of supplies by company. img Accounts Payable is the liability that indicates the amount due for purchased asset on credit. It is generally payable within few months of such credit purchase that can be extended up to one year only img Stock and Shares that are authorized to make issue by the company can be said as capital stock. Generally, it consist the securities that are issued by the company for raising the funds. img Dividends are payment in form of return to stockholders out of profits earned by business during the particular year. Generally, it is distributed as a pre-determined percent of last year profit. img Service revenue is the revenue generated from rendering the services after making the payment for the expenses incurred in rendering those services. img Wages expenses are the expenses incurred for paying wages to the employees. This ledger is based on nominal rule. Hence, it is debited img Office rent expenses are the expenses incurred for paying rent for premises of the office. This ledger is based on nominal rule. Hence, it is debited img Equipment rent expenses is the expenses incurred on hiring of plant and its tools for the equipment uses in the business for a particular period of time. img Utility expenses are the cost of usage of utilities during accounting period it is the part of operating expense of the income statement in business img Music expense is the expenses paid towards the repair and maintenance of the equipment of the music. img Advertising expenses are the expenses paid towards the promotion of the products to aware the customer about the product to increase in sale img Supplies are items which are issued to factory for supporting production. When any supplies purchased for cash are debited and vice a versa in case of return of supplies by company. img Miscellaneous expenses are the expenses paid towards purchased miscellaneous items of the company. It always has debit balance and shown as expense in income statement img 2.The required Journal entries for the transaction on July of PS Music is as follows The required journal entry for the common stock issued for cash as follows: img Being common stock issued for cash has been recorded in the books of account by debiting the cash account and by crediting the common stock account with the same amount. The required journal entry for the payment of Rent expense as follows: img Being rent paid has been recorded in the books of account by debiting the rent account and by crediting the cash account with the same amount. The required journal entry for the cash payment of insurance has been recorded as follows: img Being cash paid for insurance has been recorded in the books of account by debiting the Prepaid Insurance account and by crediting the cash account with the same amount. The required journal entry for the cash received on account has been recorded in the books of account as follows: img Being cash received on account has been recorded in the books of account by debiting the cash account and by crediting the account receivable account with the same amount. The required journal entry for the Fees in advance has been recorded in the books of account as follows: img Being received Fees in advance has been recorded in the books of account by debiting the Cashaccount and by crediting the unearned Fees account with the same amount. The required journal entry for the cash paid to the accounts payable has been recorded in the books of account as follows: img Being cash paid on account has been recorded in the books of account by debiting the accounts payable account and by crediting the cashaccount with the same amount. The required journal entry for the payment of Miscellaneous expense as follows: img Being cash paid for miscellaneous expenses has been recorded in the books of account by debiting the miscellaneous expenses account and by crediting the cash account with the same amount. The required journal entry for the payment of office equipment expense as follows: img Being equipment purchased on account has been recorded in the books of account by debiting the Office equipment account and by crediting the accounts payable account with the same amount. The required journal entry for the payment of advertisement expense as follows: img Being cash paid for advertisement has been recorded in the books of account by debiting the advertising expenses account and by crediting the cash account with the same amount. The required journal entry for the received fees from clients as follows: img Being cash received from clients has been recorded in the books of account by debiting the cash account and by crediting the Fees earned account with the same amount. The required journal entry for the payment of rent as follows: img Being equipment rent paid has been recorded in the books of account by debiting the equipment rent account and by crediting the cash account with the same amount. The required journal entry for the payment of wages expense as follows img Being wages paid has been recorded in the books of account by debiting the Wages expenses account and by crediting the cash account with the same amount. Page 2 The required journal entry cash received from clients has been recorded as follows: img Being cash received from clients has been recorded in the books of account by debiting the cash account and by crediting the Fees earned account with the same amount. The required journal entry cash received from clients has been recorded as follows: img Being supplies purchased on account has been recorded in the books of account by debiting the suppliesaccount and by crediting the accounts payable account with the same amount. The required journal entry cash received from clients has been recorded as follows: img Being cash paid for miscellaneous expenses has been recorded in the books of account by debiting the miscellaneous expenses account and by crediting the cash account with the same amount. The required journal entry for the payment of advertisement expense as follows: img Being cash paid for advertisement has been recorded in the books of account by debiting the advertising expenses account and by crediting the cash account with the same amount. The required journal entry for the payment of advertisement expense as follows: img Being Service rendered in account and cash has been recorded in the books of account by debiting the Accounts receivable account and cash account and by crediting the service Fees account with the same amount. The required journal entry for the payment of Utility expense as follows: img Being electric bill paid has been recorded in the books of account by debiting the Utility expenses account and by crediting the cash account with the same amount. The required journal entry for the payment of Wages expense as follows: img Being wages paid has been recorded in the books of account by debiting the Wages expenses account and by crediting the cash account with the same amount. The required journal entry for the payment of Miscellaneous expenses as follows: img Being cash paid for miscellaneous expenses has been recorded in the books of account by debiting the miscellaneous expenses account and by crediting the cash account with the same amount. The required journal entry for the accounts receivable account and cash account and by crediting the service Fees account as follows: img Being Service rendered in account and cash has been recorded in the books of account by debiting the Accounts receivable account and cash account and by crediting the service Fees account with the same amount. The required journal entry for the cash received from clients has been recorded in the books of account as follows: img Being cash received from clients has been recorded in the books of account by debiting the cash account and by crediting the Fees earned account with the same amount. The required journal entry for the cash paid for music expenses has been recorded in the books of account as follows: img Being cash paid for music expenses has been recorded in the books of account by debiting the music expenses account and by crediting the cash account with the same amount. The required journal entry for cash paid for Dividend has been recorded in the books of account as follows: img Being cash paid for Dividend has been recorded in the books of account by debiting the Dividend account and by crediting the cash account with the same amount. 3. Ledger entries for the transaction ofJuly, 2018 of PS Music is as follows Cash account: It is based on real account concept, which states that debit is "what comes in" and credit is "what goes out". img Accounts Receivables the Assets that indicate the amount received for sale of asset on credit. It is generally payable within few months of such credit sale that can be extended up to one year only img Supplies are items which are issued to factory for supporting production. When any supplies purchased for cash are debited and vice a versa in case of return of supplies by company. img Final, debit balance of supplies is said to be assets. It cannot be termed as expenses unless it is issued. Accounts Payable is the liability that indicates the amount due for purchased asset on credit. It is generally payable within few months of such credit purchase that can be extended up to one year only. img Stock and Shares that are authorized to make issue by the company can be said as capital stock. Generally, it consist the securities that are issued by the company for raising the funds. img Dividends are payment in form of return to stockholders out of profits earned by business during the particular year. Generally, it is distributed as a pre-determined percent of last year profit. img If dividend is already paid, the deduction of respective amount need to make from retained earnings under shareholders' fund. If it is payable, it is an item of liability that would be shown in balance sheet. Hence, all journal entries are posted to their ledger accounts Fees earned are revenue that indicates the amount received for sale of services. It is generally payable within few months of such credit services that can be extended up to one year only img Wages expenses are the expenses incurred for paying wages to the employees. This ledger is based on nominal rule. Hence, it is debited img Office rent expenses are the expenses incurred for paying rent for premises of the office. This ledger is based on nominal rule. Hence, it is debited img Equipment rent expenses is the expenses incurred on hiring of plant and its tools for the equipment uses in the business for a particular period of time. img Utility expenses are the cost of usage of utilities during accounting period it is the part of operating expense of the income statement in business. img Music expense is the expenses paid towards the repair and maintenance of the equipment of the music img Advertising expenses are the expenses paid towards the promotion of the products to aware the customer about the product to increase in sale img Supplies are items which are issued to factory for supporting production. When any supplies purchased for cash are debited and vice a versa in case of return of supplies by company. img Miscellaneous expenses are the expenses paid towards purchased miscellaneous items of the company. It always has debit balance and shown as expense in income statement img The balance of miscellaneous expense of $2,475 is an indirect expense that needs to show as expenses in income statement. Prepaid insurance is current assets which indicates the insurance paid in advance for the current year which has not been expired img Unearned revenue refers to income received for estimated goods and service from the company, firm or any individual which is expected to be fulfilled all the dues in future time img Office equipment the expense which is paid for occupying the assets for using in office premises which helps a firm in running its daily business operations. img 4. Trial balance refers to a statement designed to check the arithmetical accuracy of the ledger accounts. It shows the aggregate of all debit and credit balance at the end of the accounting period. The following unadjusted trial balance has presenting the balances of the accounts on its debit or credit side of PS Music as on July 31, 2018. img Above trail balance shows the total amount of $40,750 on both sides.