Question

TASK: Exercise 2.4 Joe Conday from core textbook On 1st March, Joe Conday started a new business. During March he carried out the following transactions/activities: Deposited £20,000 in a newly opened bank account 1st March 2nd March 3rd March 4th March Bought fixtures and fittings for £6,000 cash, and inventories £8,000 on credit Borrowed £5,000 from a relative and deposited it in the bank account. Bought a motor car for £7,000 cash and withdrew £200 in cash for his own use A further motor car costing £9,000 was bought. The motor car bought on 4th March was given in part exchange at a value of £6,500. The balance of the purchase price for the new car was paid in cash Joe won £2,000 in a lottery and paid the amount into the business bank account. He also repaid £1,000 of the loan. 5th March 6th March Required: Draw up a statement of financial position for the business at the end of each day.

Answer 1

March 1- Cash in assets side and capital in equity side

March 2-Fixtures and fittings in assets side and cash goes out in assets side

Inventories in assets side and payables in liabilities side

March 3-Cash in assets side and loan in liabilities side

March 4- Motor car in assets side and cash negative in assets side

Cash negative in assets side and capital negative in equity side

March 5- Motor car 9000 increase and 7000 decrease. 7000 value motor car is exchanged for 6500, so 500 loss, show it in equity side. and 2500 cash payment for the difference, which is negative in assets side.

March 6-Lottery winning bought in to the business shown in capital of equity side and cash increase in assets side.

Loan payment negative 1000 in loan of liabilities side and negative 1000 in cash of assets side.

Note: In the attachment, go through the transactions one by one.

while calculating the ending balance of particular day, use the following formula.

Ending balance of previous day + current day transaction amount = ending balance of current day.

Date Statement of Financial Position for each day Assets Liabilities Equity Fixtures & Accounts + Inventorie + Fittings + Motor Car = Payable + Loan + Capital + Reained Earnings Cash or Bank Mar-01 20000 20000 Balance 20000 20000 Mar-02 -6000 8000 6000 8000 Balance 14000 8000 6000 8000 20000 Mar-03 5000 5000 Balance 19000 8000 6000 8000 5000 20000 Mar-04 -7000 7000 -200 -200 Balance 11800 8000 6000 7000 8000 5000 19800 Mar-05 -2500 9000 -7000 -500 Balance 9300 8000 6000 9000 8000 5000 19800 -500 Mar-06 2000 2000 -1000 -1000 Balance 10300 8000 6000 9000 8000 4000 21800 -500