Before you begin:It's important for testing and exams to make sure you not only answer questions correctly but also complete them at the right speed. Grab a pen and piece of paper and time yourself while attempting this exercise.
Difficulty Rating: Intermediate --> Advanced
Time limit: 15 minutes
Record the journal entries for the following:
1 - Business started with cash 8,000 and plant & machinery 3,000. 2 - Stock purchase for sale (cash purchase) = 3,000, credit purchase = 5,000 3 - Wages paid 120,000 (including 20,000 relating to a future year). 4 - Salaries paid 200,000 but due 110,000. 5 - Sales made for cash 600,000 and on credit 800,000. 6 - Depreciation 10 percent on plant & machinery. 7 - Goods costing 20,000 destroyed by fire. 8 - Payment made to creditors to the value of 200,000 at 10 percent discount.
1. Dr Cash 8,000 Dr Plant and machinery 3,000 Cr Capital 11,000
2. Dr Purchases 8,000 Cr Cash 3,000 Cr Creditors 5,000
3. Dr Wages (expense) 100,000 Dr Prepaid Wages (asset*) 20,000 Cr Cash 120,000
*Note that this is called a prepayment. A prepayment of a future expense is an asset and is counted as part of debtors - this is because you paid the expense before you should have, so it's like your business is owed the money right now for paying to early.
Note that prepayments are not really covered on this website, but I do go over them in my accounting books.
As far as I understand, for journal 4 above, the salaries of 200,000 were actually paid but another 110,000 are still outstanding (salaries "due" means "owed" or "outstanding").
5. Dr Cash 600,000 Dr Debtors 800,000 Cr Sales 1,400,000
6. Dr Depreciation (3,000 x 0.1) 300 Cr Accumulated Depreciation 300
7. Dr Loss due to fire (expense) 20,000 Cr Purchases/Cost of Goods Sold 20,000
In the journal entry above, an expense has to be recorded to show the loss. And as a contra entry against this, we have to reduce our purchases account (it is purchases for the periodic system of inventory) or inventory account (for the perpetual system).