Question

Can someone please help me with this question?​

Answer 1

Answer:

We can first assess the effects of each of the transactions on the balance cheat.

the a) transaction will reduce cash by $500, and reduce creditors by the same amount.

the b) transaction will increase cash by $300, and reduce debtors by the same amount.

the c) transaction will reduce cash by $1,000, and reduce the Loan from L. Stennett by the same amount.

Now we can list this effects.

Cash is reduced by $500 + $1,500 and increased by $300. The total net effect on cash is then a $1,200 decrease ($1,500 decrease + $300 increase).

All the other accounts have only one reduction, so we simply substract that figure from the balance sheet on the picture to obtain our new figures.

Now we can write the new balance sheet

Balance Sheet as at 10 April 2007

Assets

Buildings                $6,000

Motor Vehicle        $4,000

Stock of Goods      $2,000

Debtors                  $2,500 (-$300)

Cash at bank         $2,000 (-$1,200)

Total Assets           $16,500

Liabilities

Loan L. Stennet      $1,000 (-$1,000)

Creditors                 $1,100 (-$500)

Total Liabilities        $2,100

Capital                     $14,400

By the accounting equation, Capital + Liabilities = Assets, we see that it holds true: $14,400 + $2,100 = $16,500, so are figures are right.