Question

Part 1 Read the following information and answer the questions that follow. You, and two other accounting students, were asked by a friend to assist with some basic financial accounting for a new business named Tasmanian Essential Oils in the Tamar Valley. This business was opened by Dr Arthur Lavender, on the 1st of July 2020 and he is the sole owner of this entity. Tasmanian Essential Oils buys (in bulk) and then on sells essential oils mainly to local customers. The owner has supplied you with the following information (note - It is assumed the Tasmanian Essential Oils is not registered for GST and it uses a perpetual inventory system): Required: Complete one Excel workbook with three linked worksheets (1. transactions, 2. Income Statement and 3. Balance Sheet) for the month of July 2020 using the information below. Use formulas for all calculations and format the workbook to create a positive visual effect. During July 2020, the following transactions occurred at Tasmanian Essential Oils:

Answer 1

Solution:

S.No. Debit Credit Requirement 1 Journal Entries Date Accounts Title July 1 Cash Dr Lavender, Capital (To record cash invested into business) 1 $ 27,500 $ 27,500 2 $ 5,500 1 Inventory Accounts Payable (To record purchase of oil on credit) $ 5,500 3 $ 1,650 1 Packaging Supplies Cash (To record purchase of packaging supplies) $ 1,650 4 $ 27,500 2 Truck Bank Loan (To record purchase of truck via bank loan) $ 27,500 5 $ 1,650 2 Cash Sales Revenue (To record sale of oil products for cash) $ 1,650 6 $ 825 2 Cost of Goods Sold Inventory (To record cost of inventory sold) $ 825 7 $ 2,200 2 Accounts Receivable Sales Revenue (To record sale of oil products on credit) $ 2,200 8 $ 1,100 2 Cost of Goods Sold Inventory (To record cost of inventory sold) $ 1,100 9 $ 2,310 3 Accounts Receivable Sales Revenue (To record sale of oil products on credit) $ 2,310

10 $ 1,155 3 Cost of Goods Sold Inventory (To record cost of inventory sold) $ 1,155 11 $ 3,300 3 Inventory Accounts Payable (To record purchase of oil on credit) $ 3,300 12 $ 2,200 7 Cash Accounts Receivable (To record cash collection from customer) $ 2,200 13 $ 275 8 Dr Lavender, Withdrawals Cash (To record cash paid for personal groceries) 275 14 $ 2,200 9 Salaries and Wages Expense Cash (To record payment of salary to employees) $ 2,200 15 $ 9,900 11 Prepaid Insurance Cash (To record advance paid for insurance) $ 9,900 16 $ 3,300 12 Dr Lavender, Withdrawals Cash (To record cash paid for personal insurance) $ 3,300 17 $ 2,200 13 Rent Expense Cash (To record cash paid for rent for business) $ 2,200 18 $ 5,500 18 Accounts Payable Cash (To record cash paid to supplier on account) $ 5,500 19 $ 4,400 19 Cash Unearned Sales Revenue (To record cash in advance from customer) $ 4,400

20 $ 2,200 20 Cash Accounts Receivable (To record cash collection from customer) $ $ 2,200 21 $ 1,650 21 Dr Lavender, Withdrawals Cash (To record cash withdrew for personal use) $ 1,650 22 $ 1,760 22 Utilities Expense Cash (To record cash paid for business expenses) $ 1,760 23 $ 220 23 Office Supplies Accounts Payable (To record purchase of office supplies) $ 220 24 $ 4,400 24 Unearned Sales Revenue Sales Revenue (To record revenue earned from customer) $ 4,400 25 $ 2,200 24 Cost of Goods Sold Inventory (To record cost of inventory sold) 2,200 26 $ 110 25 Cash Accounts Receivable (To record cash collection from customer) $ $ 110 27 $ 5,500 26 Equipment Bank Loan (To record purchase of equip. via bank loan) $ 5,500 28 $ 3,300 26 Accounts Receivable Sales Revenue (To record sale of oil products on credit) $ 3,300 29 $ 1,650 26 Cost of Goods Sold Inventory (To record cost of inventory sold) $ $ 1,650

30 $ 44,000 27 Cash Dr Lavender, Capital (To record cash invested into business) $ 44,000 31 $ 25,300 28 Truck Dr Lavender, Capital (To record personal truck introduced) $ 25,300 32 $ 220 29 Accounts Payable Cash (To record payment made for office supplies) $ 220 33 $ 3,300 30 Cash Accounts Receivable (To record cash collection from customer) $ 3,300 34 $ 2,200 30 Salaries and Wages Expense Cash (To record cash paid for wages to employees) 2,200 35 $ 165 31 Office Supplies Expense Office Supplies (To record consumption of office supplies) $ 165 36 $ 137 31 Interest Expense Interest Payable (To record interest expense due on loan) $ 137 37 $ 825 31 Insurance Expense Prepaid Insurance (To record insurance expired for July) $ 825 38 $ 825 31 Depreciation Expense Trucks Accumulated Depreciation-Trucks (To record depreciation expense on trucks) $ 825

Calculation of Depreciation Expense on Trucks = (Original Cost - Residual Value) / Useful Life Depreciation Expense = [($27,500 + $25,300) - $13,200] / 4 yrs = $9,900 *1/12 = $825

$ $ $ 13,860 6,930 6,930 Requirement 2 TASMANIAN ESSENTIAL OILS Income Statement For the Month Ended July 31, 2020 Sales Revenue Less: Cost of Goods Sold Gross Profit Expenses: Salaries and Wages Expense Rent Expense Office Supplies Expense Utilities Expense Deprciation Expense Interest Expense Insurance Expense Total Expenses Net Income (Loss) 4,400 2,200 165 $ $ $ $ $ $ $ 1,760 825 137 825 $ $ 10,312 -3,382

$ $ 54,505 Requirement 3 TASMANIAN ESSENTIAL OILS Balance Sheet As of July 31, 2020 Assets Current Assets: Cash Accounts Receivable Packaging Supplies Office Supplies Prepaid Insurance Inventory Total Current Assets Long-term Assets: Trucks Less: Accumulated Depreciation Equipment 1,650 $ $ $ $ $ $ 55 9,075 1,870 $ 67,155 $ $ $ 52,800 825$ $ 51,975 5,500 Total Assets $ 1,24,630 Liabilities $ Accounts Payable Interest Payable Bank Loan Total Liabilities $ $ $ 3,300 137 33,000 $ 36,437 Owner's Equity Dr Lavender, Capital $ 88,193 Total Liabilities & Owner's Equity $ 1,24,630