Financial Accounting I – III
BBA | BBA-BI | BBA-TT | BCIS 1st
PU 2015 Spring Q. No. 13 [10 marks]
Clear-vision Service Incorporation was established on May 1, 2013 by two founding directors. The corporation will provide consultancy services to small business. The following transactions took place during the month of May.
May 1: Received contribution Rs. 20,000 from each of the two directors in exchange of shares.
May 4: Signed two-year promissory notes at the bank and received cash Rs. 7,500.
May 6: Purchased office supplies on account for Rs. 500 payment due in 30 days.
May 10: Billed a client Rs. 2,000 for consultancy services. According to an agreement between two companies, the client to pay 25% of the bill upon its receipt and the remaining balance within 30 days.
May 15: Paid Rs. 1,000 bill to the local newspaper for advertising for the month of May.
May 20: Received 25% of the amount billed on May 10.
May 24: Received cash of Rs. 4,000 for rendering services to the clients.
May 31: Paid Rs. 700 for electricity and water bills.
Required:
a. Journalize the above transactions. [4]
b. Show the recording of transactions in T accounts. [4]
c. Prepare trial balance. [2]
Solution to this question:
May 1
Cash a/c Dr. Rs. (20,000 × 2) 40,000
Share capital a/c Rs. 40,000
(To record the received contribution from two owners)
May 4
Cash a/c Dr. Rs. 7,500
Notes payable a/c Rs. 7,500
(To record the signing of two-years promissory note)
May 6
Office supplies a/c Dr. Rs. 500
Account payable a/c Rs. 500
(To record the purchase of office supplies on account)
May 10
Account receivable a/c Dr. Rs. 2,000
Service revenue a/c Rs. 2,000
(To record the service revenue received but not yet received)
May 15
Advertisement expenses a/c Dr. Rs. 1,000
Cash a/c Rs. 1,000
(To record the payment advertisement expenses)
May 20
Cash a/c Dr. Rs. (0.25 × 2,000) 500
Account receivable a/c Rs. 500
(To record the partial cash received from the above account receivable)
May 24
Cash a/c Dr. Rs. 4,000
Service revenue a/c Rs. 4,000
(To record the service revenue received)
May 31
Utility expenses a/c Dr. Rs. 700
Cash a/c Rs. 700
(To record the payment of electricity and water bills)
b. T-accounts
c. Trial balance
Clear-vision Service Incorporation
May 31, 2013
| S.N. | Particulars | Dr. Rs. | Cr. Rs. |
| 1. 2. 3. 4. 5. 6. 7. 8. 9. | Cash a/c Share capital a/c Notes payable a/c Office supplies a/c Account payable a/c Account receivable a/c Service revenue a/c Advertisement expenses a/c Utility expenses a/c | 50,300 500 1,500 1,000 700 | 40,000 7,500 500 6,000 |
| Total | Rs. 54,000 | Rs. 54,000 |