Assignment 1 - Introduction to Financial Accounting PDF

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Assignment 1 - Introduction to Financial Accounting A. Open Questions 1. What is accounting about? 2. Who are the users of accounting information? How do people use accounting information? 3. What are the differences between financial accounting and management accounting? 4. What is auditing? Why are auditors needed? 5. Name and describe different types of business organizations. What are the advantages and disadvantages of the different types of business organizations? 6. Why do we need accounting concepts and principles in the field of financial accounting? 7. Describe the following concepts/principles: a. Entity concept b. Reliability (Objectivity) Principle c. Cost Principle d. Going-Concern Concept e. Stable-Monetary-Unit Concept 8. What is an asset? 9. What is a liability? 10. What is owner’s equity? 11. What are revenues? 12. What are expenses? 13. What are business transactions? 14. What are accounts? 15. What is the accounting equation about? 16. What are financial statements? What kind of information do they hold? B. Using the Accounting Equation B.1 Gillen eTravel Mrs. Gillen opens a travel agency. She is the sole owner of the proprietorship, which she names Gillen eTravel. During the first month of operation, August 2010, she engages the following transactions: 1. 2. 3. 4. 5.

Mrs. Gillen invests $ 30,000 to begin Gillen eTravel. Mrs. Gillen purchases an office location, paying $ 20,000 in cash. She buys office supplies, agreeing to pay $ 500 in 30 days. She earns and collects $ 5,500 revenues. Mrs. Gillen performs services, and the client agrees to pay $ 3,000 within one month. 6. During the month, she pays $ 1,200 for salary expense, $ 400 for utilities expense, $ 400 for equipment rental expense and $ 1,100 for office rent expense. 7. Mrs. Gillen pays $ 300 to the store from which she purchased $ 500 worth of supplies. 8. The business collected $ 1,000 from the client. 9. She sold some land at cost for $ 9,000. 10. She withdrew $ 2,100 from the business. Required:

Now we have August, 31. Mrs. Gillen wants to know how successful her first month being in business was. Help her by I. II.

analyzing the business transactions in terms of their effects on the accounting equation. Show balances after the last transaction. preparing the financial statements.

B.2 Campus Pizza Jill opens a pizza shop near campus. She is the sole owner of the proprietorship, which she names Campus Pizza. During the first month of operation, August 2010, she engages the following transactions: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Jill invests € 25,000 of personal funds to start the business. She borrows € 10,000 from her financial institution as a loan. She purchases a pizza oven. The oven costs € 10,000. She purchases tables and chairs for € 15,000. She pays € 2,000 rent for the pizza shop. Since she also delivers pizza, she leased a car for € 500 per month. She purchases on account flour, cheese and vegetables costing € 500. She purchases on account pizza boxes costing € 300. Jill remodelled her private apartment at a cost of € 3,000, paying cash from personal funds. 10. She pays her Italian pizza baker € 1,000 per month. 11. Jill sold a lot of pizza on campus. She earned and collected € 3,000. Some students could not pay immediately. They bought pizza agreeing to pay € 100 in 10 days. For baking pizza she used up supplies which had cost her € 400. 12. Jill withdrew cash of € 1,000 for personal use. 13. Jill paid € 100 interest to her financial institution.

Required: Now we have August, 31. Jill wants to know how successful her first month being in business was. Help her by I.

analysing the transactions in terms of their effects on the accounting equation. Show balances after the last transaction.

II. preparing the Income Statement, Statement of Owner’s Equity. Balance Sheet and Statement of Cash Flows of the business after recording the transactions....