Question

Hello. There is a question that I am stuck at, I have no clue how to do it. It is LONG

Accounting Transactions – Hair Today:

Charlene Jackson’s business, Hair Today, has been operating in Auckland for the month of February 2020. It is set up as a sole trader.
You call in for a haircut, and while she is trimming your hair, she tells you how business is going.
“I think it’s going very well,” she says. “Last time I went to the bank there were a lot of deposits. There were cash deposits of $100, $110, $105 and so on, totalling exactly $10,500 for February, the first month’s business. These don’t include the $500 still owed me for haircuts provided to the builders working on the new Recreation Centre at the University and the $1,000 prepaid by staff at the nearby office block. Of course the bank account also includes the $25,000 of savings that I put into the business when I started it up and the $10,000 loan that the bank gave me. Not to mention the balance of $20,000 in my personal savings account that I can always use, if necessary”.
“I have spent $12,000 on the furniture and equipment for the business, $9,500 on hairdressers’ supplies and then there is the lease of this place. It is a TWO-year lease, but I paid six months rent in advance (from February to July), that’s $5,400 and a lease deposit of $2,000 that I can get back.”
“The furniture and equipment should last 5 years with no residual value. Straight-line depreciation method is used. And the supplies, well I still have $4,000 worth unopened and sitting in the storeroom. I also get a cleaning company to come and do the floors; they charge $25 a week. I haven’t had to pay them anything yet, and I still owe them for four weeks work. Oh, there’s Marama. I just hired her yesterday at a salary of $2,000 per month. Today’s her first day of work. I also drew out $300 in cash to take my sister out to dinner on her birthday”

Required:
(a) Prepare a worksheet using the template in the Answer workbook showing how the above accounting events will affect the Balance Sheet Equation. Note: calculate one month’s depreciation on the furniture and equipment. Ignore tax.

(b) Prepare an Income Statement for the month of February 2020 and a Balance Sheet as at 29 February 2020 using the template in the Answer booklet.

Answer 1

(a)

S.No.	Accounting event	Amount	Change in Balance sheet equation
1	Cash Deposit	10500	Increase in Bank Balance by 10500
2	Haircut Provided to builders working on the recreation centre	500	Increase in Debtors by 500
3	Prepaid by staff at office block	1000	Incease in Advance in Liability side
4	Bank Balance put into business	25000	Increase in Capital in Lability side and incease in Bank Balance in Assets side
5	Loan For business	10000	Increase in Loans and advances in Liability side and Increase in Cash or Bank balance in Assets side
6	Purchase of furniture	12000	Fixed assets of 12000 created and Decease in Bank balance
7	Straight line depreciation on furniture for the month of Feb	12000/5/12 = 200	Depreciation P&L Debit
8	Purchase of Hairdresser Supplies	9500	Increase in Supplies stock and Decease in Bank Balance
9	Rent paid	5400	900 will debited in P& L and 4500 will be Prepaid Expense in Assets side of Balance sheet
10	Deposit for Lease	2000	Increase in Deposits in Assets side of the Balance sheet
11	Unopened Supplies	4000	Closing Stock At assets side of Balance sheet
12	cleaning company Due	100	Increase in Creditors by 100 and Cleaning Expense of 100
13	Salary	2000	No effect
14	Sister's Birthday Expense	300	Personal expenese , Drawing , decrease in capital

(b)

Income Statement for the month of February 2020

Particulars	Amount	Particulars	Amount
To Hairdresser Supplies	9500	By Sales	11000
To Gross Profit	5500	By Closing Stock	4000
	15000		15000
To Depreciation on Furniture	200	By Gross Profit	5500
To Cleaning	100
To Rent	900
To Net Profit	4300
	5500		5500

Balance Sheet as at 29 February 2020

Liability	Amount	Assets	Amount
Charlene Jackson’s Capital 25000 Less - Drawing 300 Add - Net Profit 4300	29000	Furniture	11800
Loan	10000	Current Assets Closing Stock	4000
Creditors	100	Debtors	500
Advance - Prepaid by staff at office block	1000	Cash
		Bank Balance	17300
		Prepaid Expenses	4500
		Security Deposit - Rent	2000
	40100		40100