ACC 100 Week Three

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Toronto Metropolitan University *

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100

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Finance

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Feb 20, 2024

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Finally, if the other party is a customer or a supplier, determine when the related goods or services have been or will be delivered - previously, now or later. What? who? when? (goods/ services) Cash receipt (increase cash) Customer Past: Increase accounts receivable Present: increase revenue Future: increase deferred revenue Lender (bank) Shareholder Increase: loan payable Increase: owner’s capital Cash payment (decrease cash) Supplier Past: decrease accounts payable Present: increase asset or expense Future: increase prepaid expense Lender (bank) Shareholder decrease: loan payable Increase: dividends (decrease equity) Sale on account : increase accounts receivable, increase revenue Purchase on account : increase asset or expense, increase accounts payable Returned sales and purchases : reverse original entry, whether cash or on account (but sales returns go to a contra-revenue account, not to revenue itself)

If you are buying goods or services Have you received the goods or services yet? Yes No Have you paid the cash yet? Yes The transaction is complete. The entry is already recorded. No further action is needed A prepaid expense has already been recorded. Now record the portion that has been used or has expired. Increase expense and decrease prepaid No Transaction has occurred but nothing has been recorded yet. Increase an asset or an expense and increase accounts payable No transaction has happened and nothing needs to be recorded If you are selling goods or services Have you delivered the goods or services yet? Yes No Have you paid the cash yet? Yes The transaction is complete. The entry is already recorded. No further action is needed Unearned revenue has already been recorded. Now record the portion that has been earned: Increase revenue and decrease deferred revenue

No A transaction has occurred but nothing has been recorded yet. Increase accounts receivable and increase revenue No transaction has happened and nothing needs to be recorded You start a consulting business in June of the current year, Record the following transactions in the expanded accounting equation using account names. 1. You make a cash contribution to your business, $3,500. 2. You set up a business bank account at Scotiabank. They will charge you $15 at the end of every month. 3. Borrow $4,000 cash from the bank. 4. Purchase supplies for your business, $600, plus HST, using a business credit card. 5. Paid your landlord rent for the month, $1,700 cash. 6. Purchased a 1-year liability insurance policy for $2,400, plus 8% sales tax, paying cash. 7. Paid $200, plus HST, for business cards from Staples, using your business credit card. 8. Provided services to your customers worth $2,670. you receive cash of $2,100. The other customer has promised to pay next month. 9. At the end of the month you count your supplies and you have $390 remaining. 10. You use up 1 month of your insurance coverage. 11. The bank withdraws $27 from the business bank account to pay the interest on the loan. 12. The bank also withdraws the monthly fee for the bank account. 13. You have used up half of your business cards, which you charge to your Supplies Expense account. 14. You pay the outstanding balance on your credit card

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1. Contribute capital - cash increases and owner’s capital increases ($3,500) 2. Open bank account- no entry 3. Borrow from Bank- Cash increase and bank loan increases (4,500) 4. Purchase supplies - supplies increase, accounts payable increase (600 x 1.13 = 678) 5. Paid month’s rent - rent expense increase, cash decreases (1,700) 6. Took out a 1-year insurance policy- cash decreases, prepaid insurance increases, (2400 x 1.08 = 2,592) 7. Bought business cards - office supplies increase, accounts payable increase (200 x 1.13 =226) 8. Provided services to customers, some paid, some didn’t -cash increases (2,100) -accounts receive increases: (570) -revenue increases: (2670) All of it 9. You counted supplies - 390 remain Supplies decrease (678 - 390) Supplies expense increases (288 used) 10. One month of insurance expires Prepaid insurance decreases Insurance expense increases 2592 / 12 = 216 11. Bank has taken interest 12. The bank takes monthly fees - Cash decreases (42) - Increase expense increases (27) - Bank charges increases (15) 13. You used half of your business cards -office supplies decreases, supplies expense increases (226/ 2= 113) 14. Pay your credit card -cash decreases, accounts payable decreases (678+226= 904)

Ankita starts up All4U, a home-based business that provides salon services to her customers. She travels to their home and provides manicures, pedicures, polish, sculptured nails, European facials and body waxing, all in the comfort of your own home. Ankita uses her own car to travel to and from her client's homes. The following transactions took place during Ankita's first month of business. 1. Ankita contributes $3,000 of her own cash to start the business. 2. Ankita's parents lend her an additional $2,000. They will not charge interest. 3. Ankita registers her business name, All4U, at Service Ontario for $60 using a credit card. 4. Ankita opens a business bank account, which allows her 50 transactions a month, at Royal Bank. The bank will charge her $16 on the last day of every month. She also signs up for a business VISA®. This credit card has no annual fees. 5. Ankita purchases all the necessary supplies for her business online using the business credit card. The invoice is for $500, plus HST. Because her order is over $250 the shipping is free. 6. Ankita purchases a 1-year insurance policy, just in case either she or a client is hurt. She is charged $1,800, plus 8% sales tax, for the policy and pays cash. 7. Ankita designs and orders 1,000 flyers to advertise her business to Mississauga neighbourhoods from Staples®. She pays $200.00, plus HST, for the services using the business credit card. 8. Ankita posts a free ad on Kijiji® Mississauga titled "Esthetician and Manicurist - All4U!" Every evening she renews the ad so it is always listed first. 9. Ankita delivers 500 of the flyers to homes in Mississauga. 10. By the end of the month Ankita has provided $1,590 of services to various clients in exchange for cash. 11. Ankita counts her supplies at the end of the month and discovers that $378 of supplies are remaining. 12. Online Ankita sees that the bank has charged the business account for the monthly service fee. 13. Ankita has been tracking her mileage and sees that, for the last month, 50% of her travel was related to business. Total vehicle expenses paid for the month are $190 (including taxes). Ankita withdraws the correct amount from the business bank account. 14. Ankita used her personal phone for business 50% of the time. The total monthly charge for her phone is $92 (all taxes included). She pays the business portion from the business bank account using cash. 15. Ankita has used up 1 month of her insurance policy. 16. Ankita's credit card statement has arrived and she pays the outstanding balance 1. Cash increases, capital increases (3000)

2. Cash increases, loan payable increases (2,000) 3. Businesses license increases, accounts payable increases (60) 4. NO ENTRY 5. Supplies increases, accounts payable increase (565) 6. Cash decreases, prepaid insurance increases (1944) 7. Prepaid advertising increases, accounts payable increases (226) 8. No entry 9. Prepaid advertising decreases, advertising expense increases (113) 10. Cash increases, revenue increases (1,590) 11. Supplies decrease, supplies expense increases (565 - 378 = 187) 12. Cash decreases, bank charges increases (16) 13. Cash decreases, travel expenses increase (190 /2 = 95) 14. Cash decreases, phone expense increases (46) 15. Prepaid insurance decreases, insurance expense increases (162) 16. Cash decreases, accounts payable decreases (851) Darren Gretzky (no relation to you-know-who) is a registered massage therapist (RMT). For a number of years, he has worked for a spa in Oakville but Darren Gretzky (no relation to you- know-who) is a registered massage therapist (RMT). For a number of years, he has worked for a spa in Oakville but he has decided start his own business. To differentiate his business Darren will travel to his clients’ homes to provide full massage treatments. He knows that providing in- home massage treatments will set him apart from his competitors and help him build a client base. Luckily Darren already has a portable massage table that he received as a gift from his parents when he graduated. Darren will use his own car to travel to and from his client's homes. The following business activities took place during May of the current year. 1. Darren contributes $500 cash to start the business. 2. Darren's parents lend him an additional $500 to help him out. They will not be charging him interest. 3. Darren registers his business name, DG Massage, at Service Ontario for $60 using a credit card. 4. Darren opens a business bank account at the Bank of Montreal®. A fee of $10 per month, will be charged to the account at the end of every month. He also signs up for a MasterCard® in his business name. 5. Darren purchases a $188 table warmer from Massage Essentials in Edmonton, Alberta. He pays shipping of $12 and HST. Note that HST is paid on the total amount of the invoice, including shipping costs. He pays using the business credit card. 6. Darren purchases supplies for $90 (including taxes) from Massage Supply Depot for cash. 7. Darren already has an excellent selection of relaxing music on his iPhone 5S. Using the business credit card, he purchases a Bose SoundDock XT Speaker Dock for $300, plus HST, from Best Buy. 8. Darren posts a free ad on Kijiji Oakville with the title "IN HOME FULL BODY MASSAGE by MALE RMT". Every morning he renews the ad so that it is always at the top of the day's listings. 9. Darren has decided to advertise by delivering flyers to Oakville neighbourhoods where some

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of his previous spa clients live. He goes to Staples and they help him design a tasteful flyer. He uses a credit card to pay the $161.95, plus HST, for the service, which includes 500 copies of the flyer. 10. Darren delivers all of his flyers to homes in Oakville. 11. Darren will charge clients as follows: $70 for a 60-minute massage, $100 for a 90-minute massage and $120 for a 120-minute massage. He will provide an official receipt for insurance purposes. He is permitted to do so because he is an RMT - Registered Massage Therapist. 12. Darren will use his own car and he can deduct the business portion of all his car expenses (gas, oil, insurance, license and registration, and maintenance and repairs)4. To help him track his business usage Darren purchases MileIQ, an iPhone app which tracks mileage, for $61.95 plus HST, using the business credit card. 13. By the end of May Darren has provided the following services in exchange for cash: Service # Provided 60-minute massage 14 90-minute massage 9 120-minute massage 5 14. Darren determines that, by the end of May, he has used up about 50% of his supplies he purchased in Transaction #6. 15. Online Darren sees that BMO® has charged the business account the monthly service fee. 16. MileIQ shows Darren that he has travelled 725 kilometers over the last month. A total of 435 kilometers was for business purposes. Total vehicle expenses for the month are $285.00, which Darren paid personally so he needs the business to reimburse him. 17. Darren is using his cell phone 50% for business. Total monthly charge for his phone is $80 (including taxes), which Darren paid personally so he needs the business to reimburse him. 18. It is now May 31. Darren's credit card statement has arrived but he will not pay for his business purchases until June 5th 1. Cash increases, capital increases (500) 2. Cash increase, loan payable increases (500) 3. License increase, accounts payable increases (60) 4. NO ENTRY 5. Equipment increases, accounts payable increases (226) 6. Supplies increases, cash decreases (90) 7. Equipment increases, accounts payable increases (339) 8. NO ENTRY 9. Prepaid advertising increases, accounts payable increases (183) 10. Prepaid advertising decreases, advertising expense increases (183) 11. NO ENTRY 12. Software increases, accounts payable increases (70) 13. Cash increases, revenue increases (2,480) (14 x 70)+( 9 x 100) + (5 x 120) 14. Supplies decreases, supplies expense increases (45) 15. Cash decreases, bank charges increases (10) 16. Cash decreases, car expense increases (435/725 x 285) =171 17. Cash decreases, phone expense increases (40) 18. NO ENTRY