Payal Garments started selling Pakistani designer suits on July 1, 2014. The trial balance of Payal Garments as on July 31st 2014 is given below:
Payal Garments
Trial Balance as on July 31st 2014
| Cash | 57,700 | |
| Accounts receivable | 1,600 | |
| Supplies | 9,800 | |
| Equipment | 65,000 | |
| Accumulated depreciation | 20,500 | |
| Accounts payable | 24,000 | |
| Unearned revenue | 2,700 | |
| Salaries Payable | 1,700 | |
| Share Capital – Ordinary | 30,000 | |
| Retained earnings | 22,600 | |
| Sales revenue | 142,100 | |
| Service Revenue | 50,000 | |
| Cost of Goods Sold | 56,900 | |
| Depreciation expense | 10,500 | |
| Insurance expense | 17,500 | |
| Salaries expense | 23,800 | |
| Inventory | 14,500 | |
| Utilities expense | 10,000 | |
| Interest Expense | 3,200 | |
| Advertising expense | 23,100 | |
| 293,600 | 293,600 |
Requirement 1: Give journal entries for the following transactions for the month of August:
Aug 1: Stockholders invest an additional AED 40,000 cash in Payal Garments in exchange for ordinary shares.
Aug 1: Paid AED 30,000 for one year’s insurance.
Aug 1: Hired a receptionist at a salary of AED 2,000 per month.
Aug 1: Paid rent AED 9,000 for six months.
Aug 1: Borrowed AED 20,000 from First Arab Bank for business operations. The loan must be repaid in
three years and is charged 6% interest.
Aug 1: Purchase equipment for AED 5,000, paying AED 2,000 in cash and the balance on credit.
Aug 5: Purchased Inventory worth AED 20,000 for on account.
Aug 7: Sold goods on account for $50,000 terms 2/10, n/30. The cost of goods sold amounted to AED 29,000.
Aug 8: Purchased AED 2,500 of supplies on account.
Aug 14: Received AED 20,000 cash for the goods sold on Aug 7.
Aug 28: Paid salaries worth AED15,000.
Aug 29: Paid AED 10,000 of the amount due to suppliers (accounts payable) for the purchases made in July, 2014.
Requirement 2: Give journal entries for the following adjusting entries as on 31st August 2014.
- Payal’s employees are paid AED 1,000 at the end of each week every Friday for a five-day week. August 31st falls on a Wednesday.
- Make the required adjustment for the insurance paid on 1 August.
- Utility bill of AED 565 was received after August 31st (not paid and not recorded).
- Depreciation expense for the month of August is AED 1,400 .
- Make the required adjustment for the rent paid on 1st August.
- Make the required adjustment for the interest on loan taken on August 1st.
- Supplies remaining on hand amounted to AED 8,500.
- AED 4,100 of the unearned revenue balance has been earned by the end of August.
Requirement 3: Open ledger accounts and post the beginning balances from the trial balance into the ledger accounts.
Requirement 4: Post all the above-mentioned transactions (including adjusting entries) into the ledger accounts and balance them.
Requirement 5: Prepare the trial balance as on August 31.
Requirement 6: Prepare the multiple-step income statement, retained earnings statement and a classified balance sheet as on August 31st 2014.
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