Journal Entry: Long Answer Question (Problem and Solution)

Arjun EP

Published on: September 29, 2020

Journal Entries for Long Answer Question

Journal entries long answer question is the comprehensive question and solution.

It is the summary of entire chapter of the journal entry.

It is designed for deep knowledge.

It is the base for ledger accounts and trial balance.

PROBLEM: 20

A sole proprietor commenced a new business named EP Traders. Firm does not show profit at the time of goods selling; it has following summarised financial information:

(A) Business commenced with capital Rs 635,000; out of this amount bank balance was Rs 485,000.

(B) Goods purchased from SG Suppliers of Rs 250,000 and paid 25% as partial payment.

(D) Goods sold for cash Rs 115,000 and supplied goods on account to SK Traders for Rs 300,000.

(E) Purchase equity shares of City Bank Ltd of Rs 50,000.

(F) Cheque issued to SG Suppliers for Rs 142,500 after 5% discount.

(G) Cheque received from SK Traders of Rs 237,500 in full settlement of Rs 250,000.

(H) Cash withdrew from bank Rs 25,000 for office use and Rs 50,000 for personal use.

(I) Office expenses Rs 60,000 paid by cheque and rent Rs 80,000 paid in cash.

(J) Dividend received Rs 15,000 on investment.

Additional information:

1. Unpaid office expenses were Rs 25,000.

2. Office rent included Rs 8,000 as unexpired.

3. Charge depreciation on equipment @ 10%.

4. Unsold stock valued Rs 28,000.

Required: (a) Journal entries for the above financial transactions;

SOLUTION

Journal Entries

In the book of EP Traders

Date	Particulars		LF	Dr Amount	Cr Amount
A	Cash account	Dr		150,000
	Bank account	Dr		485,000
	To Capital account				635,000
	(Being- business commenced with cash and bank)

B	Purchase account	Dr		250,000
	To Cash account				62,500
	To SG Suppliers account				187,500
	(Being- goods purchased in cash and on credit)

C	Equipment account	Dr		120,000
	To Bank account				120,000
	(Being- equipment purchased by cheque)

D	Cash account	Dr		115,000
	SK Traders	Dr		300,000
	To Sales account				415,000
	(Being: goods sold in cash and on credit)

E	Investment in equity shares account	Dr		50,000
	To Bank account				50,000
	(Being: equity shares purchased of City Bank Ltd)

F	SG Suppliers account	Dr		150,000
	To Bank account				142,500
	To Discount received account				7,500
	(Being: cash paid and discount received;
	142,500 x 100/95)

G	Bank account	Dr		237,500
	Discount allowed account	Dr		12,500
	To SK Traders account				250,000
	(Being:

H1	Cash account	Dr		25,000
	To Bank account				25,000
	(Being: cash withdrew from bank for office use)

H2	Drawings account	Dr		50,000
	To Bank account				50,000
	(Being: cash withdrew from bank for personal use)

I1	Office expenses account	Dr		85,000
	To Bank account				60,000
	To Office expenses payable				25,000
	(Being: office expenses paid by cheque)

I2	Rent account	Dr		72,000
	Advance rent account	Dr		8,000
	To Cash account				80,000
	(Being: rent paid and paid in advance)

J	Bank account	Dr		15,000
	To Dividend received account				15,000
	(Being: dividend received on investment)

Adj 3	Depreciation on equipment account	Dr		12,000
	To Equipment account				12,000
	(Being: depreciation charged 120,000@10%)

Adj 4	Closing stock account	Dr		28,000
	To Income statement account				28,000
	(Being: unsold stock recorded)

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Click on link for YouTube videos topic wise :
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger Account	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
Accounting Process	http://tiny.cc/mlersz
Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz