Question

1. Accounting transactions and financial statements (45 marks) Luxury Moment is a small business selling luxury candles and home fragrance. The balance sheet at the end of December 2019 is shown below. Luxury Moment - Balance Sheet as at 31 December, 2019 Assets Liabilities & Owner's Equity Current Assets: Current Liabilities: Cash $58,150 Accounts Payable $4,600 Accounts Receivable $19,600 Inventory $20,000 Non-current Assets: Non-current Liabilities: Computer - Cost $2,000 Bank Loan $65,000 Less Accumulated ($150) Depreciation Computer - Net $1,850 Owner's Equity Share Capital $20,000 Retained Earnings $10,000 Total Assets 500.6L Total Liab' & OE $99.60 Required: (a) Transactions for January 2020 are given below (ignore taxes). Prepare journal entries to account for these transactions, and indicate the impact on the Cash Flow Statement if there is any. The first transaction is done for you in the template as an example. (24 marks) 1 January, collected $4,000 cash from accounts receivable. 1 January, prepaid rent $12,000 for the next 12 months. 2 January, paid $3,000 of accounts payable, which related to inventory purchased in December 2019. 5 January, repaid part of the bank loan $30,000. (v) 7 January, purchased $22,000 of inventory on credit, which is payable in February 2020. (vi) 8 January, sold $13,000 worth of inventory for $25,000 in cash. (vii) 10 January, purchased a new computer for $2,800, paid in cash. (viii) 20 January, paid employee monthly salary of $1,500. 28 January, paid other expenses S500 including power, water, internet and phone, for the month. 29 January, a customer ordered some luxury candles and paid a deposit of S600. The delivery of the order will take place in March 2020. (xi) 31 January, the following adjustments needed to be recorded: • Depreciation expense S200 for the computers in January • Rental expense for the month of January.

Answer 1

Date	Journal entries	Dr. ($)	Cr. ($)
Jan-01	Cash	4000
	To Accounts receivable		4000
	(being cash received from customer)
Jan-01	Prepaid rent	12000
	To Cash		12000
	(being cash paid for rent)
Jan-02	Accounts payable	3000
	To Cash		3000
	(being accounts payable paid)
Jan-05	Bank loan	30000
	To Cash		30000
	(being repayment of loan)
Jan-07	Inventory	22000
	To Accounts payable		22000
	(being inventory purchased on accounts)
Jan-08	Cash	25000
	To Sales		25000
	(being sales of inventory)
Jan-08	Cost of goods sold	13000
	To Inventory		13000
	(being cost recorded for inventory sold)
Jan-10	Computer	2800
	To Cash		2800
	(being purchase of computer)
Jan-20	Salary expenses	1500
	To Cash		1500
	(being salary paid)
Jan-28	Other expenses	500
	To Cash		500
	(being other expenses paid)
Jan-29	Cash	600
	To Deferred revenue		600
	(being advance cash received from customer)
Jan-31	Depreciation expenses	200
	To Accumulated depreciation		200
	(being depreciation expenses for the month recorded)
Jan-31	Rent expenses	1000
	To Prepaid rent		1000
	(being expired rent expense for the month)
	Luxury Moment
	Income statement for the month of Jan. 2020
	Amounts in $
	sales	25000
	cost of goods sold	-13000
	gross profit	12000
	salary expenses	-1500
	other expenses	-500
	depreciation expenses	-200
	rent expenses	-1000
	net income	8800

Luxury Moment - Balance Sheet as at Jan. 31, 2020
Assets		Amount ($)	Liabitilites and Owners equity	Amount ($)
current assets:			current liabilities:
cash		37950	accounts payable	23600
accounts receivable		15600	deferred revenue	600
inventory		29000
prepaid rent		11000
non-current assets:			non-current liabilities:
computer at the start	1850		bank loan	35000
additions during the period	2800		owners equity:
gross total	4650		capital	20000
less:depreciation	-200		reatined earnings	10000
computer, net		4450	net income	8800
total assets		98000	total liabilities and owners equity	98000

Luxury Moment
Statement of cash flows for the month of Jan 2020
Amounts in $
cash flow from operating activities:
net income		8800
adjustments to reconcile net income
depreciation	200
decrease in accounts receivable	4000
increase in inventory	-9000
increase in prepaid rent	-11000
increase in accounts payable	19000
increase in deferred revenue	600	3800
net cash flow operating activities		12600
cash flow from investing activities:
purchase of computers	-2800
net cash flow investing activities		-2800
cash flow from financing activities:
repayment of bank loan	-30000
net cash flow from financing activities		-30000
net change in cash flow		-20200
cash at the start of the year		58150
cash at the end of the year		37950