Octane Service Station

Prof. Sobhesh Kumar Agarwalla

Indian Institute of Management, Ahmedabad

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 1 / 48

Issues
Whose accounts - Octane Oil Co or Octane Service Station? Julio Trevino’s Service
Station
Nature of business: Operator of a company owned service station
Source of capital - Accounting Entries?
Investment of 100,000 in land and 200,000 in building - Accounting entries?
Goodwill

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 2 / 48

Introduction of Capital
Capital Brought: 20000

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Cash = + Trevino’s Capital

+20000 = + 20000

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Cash ++ 20000 Capital ++ 20000

-Expenses

Net Income Total ++ 20000 Total ++ 20000

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 3 / 48

Payment to Octane Oil Company: Cash of 20000
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Cash Octane Oil Co = +

-20000 +20000 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liab. & OE Amount
Revenues
Cash −− 20000
Oct. Oil Co.(Adv.) ++ 20000

-Expenses

Net Income Total 0 Total 0

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 4 / 48

Purchase of Equipment
Value of Equipment: 12875 or 2575?;
Octane Oil Co (adj.) : 2575; Equipment Loan: 10300

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Octane Oil Co. +Equipment = Equipment Loan +

-2575 +12875 = 10300 +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co −− 2575 Equipment Loan ++ 10300
Equipment ++ 12875
-Expenses

Net Income Total ++ 10300 Total ++ 10300

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 5 / 48

Prepaid rent to Octane Oil Co: 1420
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Octane Oil Co. + Prepaid Rent = +

-1420 +1420 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co −− 1420
Prepaid Rent ++ 1420
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 6 / 48

Inventory Received from Octane Oil Co: 13250
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Octane Oil Co. +Inventory = +

-13250 +13250 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co −− 13250
Inventory ++ 13250
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 7 / 48

Deposit of amount received from Octane Oil
Company to bank account: 2755
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Octane Oil Co. + Bank = +

-2755 +2755 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co. −− 2755
Bank ++ 2755
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 8 / 48

Additional Capital
Capital Brought: 7000 (deposited in bank)

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank = + Trevino’s Capital

+7000 = + 7000
DR = CR

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Bank ++ 7000 Capital ++ 7000

-Expenses

Net Income Total ++ 7000 Total ++ 7000

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 9 / 48

Purchase of Furniture
Furniture purchased by cheque: 1650

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank + Furniture = +

-1650 +1650 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Bank −− 1650
Furniture ++ 1650
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 10 / 48

Prepaid Insurance
Insurance Policy purchased by cheque: 900

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank + Prepaid Insurance = +

-900 +900 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Bank −− 900
Prepaid Insurance ++ 900
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 11 / 48

Cash withdrawn from bank account : 200
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Bank + Cash = +

-200 +200 = +

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Bank −− 200
Cash ++ 200
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 12 / 48

To Do?
Check bank balance: Rs. 7005?
Balance in Trevino’s savings account?
Prepare Balance Sheet of Octane Service Station as on May 1?

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 13 / 48

Issues
Cleanliness
Detail of transaction relating to a particular head
Audit trail
Solution: Provided by Luca Pacioli in 1494
Concept of T-Accounts - Temporary and permanent (or real) accounts
Debit and Credit
Steps: Analyze transactions → Journalize transaction → Post in ledger → Identify,
journalize and post adjusting entries → Journalize and post closing entries → Prepare
financial statements

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 14 / 48

Introduction of Capital
Capital Brought: 20000

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Cash = + Trevino’s Capital

+20000 = + 20000
DR = CR

Cash Capital
Capital 20000 20000 Cash

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Cash ++ 20000 Capital ++ 20000

-Expenses

Net Income Total ++ 20000 Total ++ 20000

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 15 / 48

Payment to Octane Oil Company: Cash of 20000
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Cash Octane Oil Co = +

-20000 +20000 = +
CR DR =

Cash Octane Oil Co

20000 Octane Oil Co. Cash 20000

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amou
Revenues
Cash −− 20000
Octane Oil Co. (Advance) ++ 20000

-Expenses

Net Income Total 0 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 16 / 48

Purchase of Equipment
Value of Equipment: 12875 or 2575?;
Octane Oil Co (adj.) : 2575; Equipment Loan: 10300

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Octane Oil Co. +Equipment = Equipment Loan +

-2575 +12875 = 10300 +

CR DR = CR

Octane Oil Co Equipment Loan Equipment

2575 Equipment 10300 Equipment OCC/Eq.loan 12875

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co −− 2575 Equipment Loan ++ 10300
Equipment ++ 12875
-Expenses

Net Income Total ++ 10300 Total ++ 10300

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 17 / 48

Prepaid rent to Octane Oil Co: 1420
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Octane Oil Co. + Prepaid Rent = +

-1420 +1420 = +
CR DR =

Octane Oil Co Prepaid Rent

1420 Prepaid Rent Octane Oil Co. 1420

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co −− 1420
Prepaid Rent ++ 1420
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 18 / 48

Inventory Received from Octane Oil Co: 13250
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Octane Oil Co. +Inventory = +

-13250 +13250 = +
CR DR =

Octane Oil Co Inventory

13250 Inventory Octane Oil Co. 13250

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co −− 13250
Inventory ++ 13250
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 19 / 48

Deposit of amount received from Octane Oil
Company to bank account: 2755
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Octane Oil Co. + Bank = +

-2755 +2755 = +

Octane Oil Co. Bank

2755 Bank Octane Oil Co. 2755

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Octane Oil Co. −− 2755
Bank ++ 2755
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 20 / 48

Additional Capital
Capital Brought: 7000 (deposited in bank)

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank = + Trevino’s Capital

+7000 = + 7000
DR = CR

Bank Capital
Capital 7000 7000 Bank

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Bank ++ 7000 Capital ++ 7000

-Expenses

Net Income Total ++ 7000 Total ++ 7000

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 21 / 48

Purchase of Furniture
Furniture purchased by cheque: 1650

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank + Furniture = +

-1650 +1650 = +
CR DR =

Bank Furniture
1650 Furniture Bank 1650

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Bank −− 1650
Furniture ++ 1650
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 22 / 48

Prepaid Insurance
Insurance Policy purchased by cheque: 900

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank + Prepaid Insurance = +

-900 +900 = +
CR DR =

Bank Prepaid Insurance

900 Prepaid Insurance Bank 900

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Bank −− 900
Prepaid Insurance ++ 900
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 23 / 48

Cash withdrawn from bank account : 200
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Bank + Cash = +

-200 +200 = +
CR DR =

Bank Cash
200 Cash Bank 200

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount

Revenues
Bank −− 200
Cash ++ 200
-Expenses

Net Income Total Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 24 / 48

To Do?
Check bank balance: Rs. 7005?
Balance in Trevino’s savings account?
Prepare Balance Sheet of Octane Service Station as on May 1?

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 25 / 48

T-Accounts
Capital Equipment Loan Equipment
20000 Bank 10300 Equipment OOC 2575
Cl.Bl. 27000 7000 Bank Cl.Bl. 10300 Equip. loan 10300 12875 Cl.Bl.
27000 Op.Bl 10300 Op.Bl Op.Bl 12875

Furniture Inventory Prepaid Ins.

Bank 1650 OOC 13250 Bank 900
1650 Cl.Bl. 13250 Cl.Bl. 900 Cl.Bl.
Op.Bl 1650 Op.Bl 13250 Op.Bl 900

Bank Cash Prepaid Rent

OOC 2755 Capital 20000 OOC 1420
Capital 7000 20000 OOC
1650 Furniture Bank 200
900 Insurance
200 Cash
7005 Cl.Bl. 200 Cl.Bl. 1420 Cl.Bl.
Op.Bl. 7005 Op.Bl 200 Op.Bl. 1420

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 26 / 48

Opening Balance Sheet
Balance Sheet of Julio Trevino’s Service Station as on 1 May
Assets Amount Liabilities & OE Amount
Equipment 12875 Capital 27000
Furniture 1650
Inventory 13250 Loan for equipment 10300
Prepaid Insurance 900
Prepaid Rent 1420
Bank 7005
Cash 200
Total 37300 Total 37300

Note: There are no entries for closing balances

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 27 / 48

Issues
Trevino worked very hard (60 hours a week)?
Patronage build-up during the first two months?
Let us assume all transactions are bank transactions. Cash balance is always 200.
Accounting period for income statement: May 1 to June 30

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 28 / 48

Cash Sales: 69510

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank = + Sales

+69510 = + + 69510
DR = CR

Bank Sales (Revenue)

Sales 69510 69510 Bank

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Sales 69510 Bank ++ 69510 Capital (profit) ++ 69510

-Expenses

Net Income 69510 Total ++ 69510 Total ++ 69510

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 29 / 48

Credit Sales: 199

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Accounts Receivable = + Sales

+199 = + + 199
DR = CR

Accounts Receivable Sales (Revenue)

Sales 199 199 Accounts Receivable

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Sales 199 Accounts Receivable ++ 199

-Expenses

Net Income Total ++ 199 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 30 / 48

Cash Parking Rental
Bank/Cash Parking Rental from May 15 to July 15: 500
Unearned rent? 500 * 0.5/2 = 125

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank = Unearned rent + Parking Rent

+500 = +125 + + 375

DR = CR CR

Parking Rent Unearned Parking Rent Bank

375 Bank 125 Bank Parking Rent 375
Unearned Parking Rent 125

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Parking Rent 375 Bank ++ 500 Unearned Parking Rent 125

-Expenses

Net Income Total ++ 500 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 31 / 48

Inventory purchased - cash and credit
Purchased inventory for cash/bank: 44694 and for credit: 1804

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Inventory Bank = Accounts Payable +

+46498 -44694 = +1804 +

DR CR = CR

Bank Accounts Payable Inventory

44694 Inventory 1804 Inventory Bank 44694
Accounts Payable 1804

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Bank −− 44694 Accounts Payable 1804
Inventory ++ 46498

-Expenses

Net Income Total ++ 1804 Total ++ 1804

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 32 / 48

Inventory Withdrawn
How much should you charge - 79 or 101 ?

∆ Asset = ∆ Liabilities + New Capital - Drawings + Revenues - Expenses

Inventory = - Drawings

-79 = + 79
CR = DR

Drawings Inventory
Inventory 79 79 Drawings

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Capital
Inventory −− 79 Less: Drawings ++ 79

-Expenses

Net Income Total −− 79 Total −− 79

Alternatively, it can be shown both as COGS and Sales (especially in the case of
companies).
Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 33 / 48
Inventory - Closing Balance
The closing balance of inventory was 10018. Any entry for this?
How much shall you Increase(Dr)/ Decrease (Cr) to reach the value of 10,018 ? See your
inventory account
Inventory Account
Debit Amount Credit Amount
Opening Balance 13250 Drawings 79
Purchase - Cash 44694
Purchase - Credit 1804
Evaporation loss 360
COGS (Balancing figure) 49291
Closing balance 10018
Total 59748 Total 59748

Shall we report COGS and evaporation loss separately? Normal losses are part of COGS
whereas abnormal (non-recurring) losses are shown separately.

Inventory Account
Debit Amount Credit Amount
Opening Balance 13250 Drawings 79
Purchase - Cash 44694 Evaporation loss 360
Purchase - Credit 1804 COGS 49291 49651
Closing balance 10018
Total 59748 Total 59748

Record transaction for COGS = 49651

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 34 / 48
Cost of Goods Sold: 49651
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Inventory = COGS

-49651 = + 49651
CR = DR

COGS Inventory
Inventory 49651 49651 COGS

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues

-Expenses
COGS 49651 Inventory −− 49651

Net Income Total −− 49651 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 35 / 48

Rent Expenses
How much is the rent expense for the period?
Opening prepaid = 1420; Cash paid=2018; Closing Outstanding = 75; Rent Expenses =
1420+2018+75 = 3513

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Prepaid Rent Bank = Outstanding Rent - Rent Expenses

-1420 -2018 = +75 3513

CR CR = CR DR

Rent Expenses Prepaid Rent Bank Outstanding Rent

Prep Rent 1420 1420 Rent Exp. 2018 Rent Exp 75
Bank 2018
O/S. rent 75

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues

-Expenses Prepaid Rent −− 1420 Outstanding Rent 75

Rent 3513 Bank −− 2018

Net Income Total −− 3438 Total ++ 75

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 36 / 48

Payroll Paid and Payable
Payroll expenses? Paid = 9450 and Payable = 232 ; Total expenses = 9682

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank = Outstanding Payroll + - Payroll expenses

-9450 = +232 + 9682

CR = CR DR

Bank Outstanding Payroll Payroll Expenses

9450 Payroll exp 232 Payroll exp Bank 9450
O/S. payroll 232

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues

-Expenses Bank −− 9450 Outstanding payroll 232

Payroll Expenses 9682

Net Income Total −− 9450 Total ++ 232

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 37 / 48

Utilities Paid and Payable
Utilities expenses? Paid = 445 and Payable = 425 ; Total expenses = 870

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Bank = Outstanding Utilities + - Utilities expenses

-445 = +425 + 870

CR = CR DR

Bank Outstanding Utilities Utilities Expenses

445 Utilities exp 425 Utilities exp Bank 445
O/S. Utilities 425

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues

-Expenses Bank −− 445 Outstanding Utilities 425

Utilities Expenses 870

Net Income Total −− 445 Total ++ 425

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 38 / 48

Advertising Exp.: 690
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Bank = Advertising Exp.

-690 = + 690
CR = DR

Advertising Exp. Bank

Bank 690 690 Advertising Exp.

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues

-Expenses
Advertising Exp. 690 Bank −− 690

Net Income Total −− 690 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 39 / 48

Miscellaneous Exp.: 355
∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses
Bank = Miscellaneous Exp.

-355 = + 355
CR = DR

Miscellaneous Exp. Bank

Bank 355 355 Miscellaneous Exp.

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
“
-Expenses
Miscellaneous Exp. 355 Bank −− 355

Net Income Total −− 355 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 40 / 48

Cash Drawings
∆ Asset = ∆ Liabilities + New Capital - Drawings + Revenues - Expenses
Bank = - Drawings

-6750 = + 6750
CR = DR

Drawings Bank
Bank 6750 6750 Drawings

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues
Capital
Bank −− 6750 Less: Drawings ++ 6750

-Expenses

Net Income Total −− 6750 Total −− 6750

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 41 / 48

Depn. - Equipment:
Depreciation amount: 12875 / (5*6) = 429

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Acc. Depn. (Equipment) = Depn.- Equipment Exp.

429 = + 429
CR = DR

Depn.- Equipment Exp. Acc. Depn. (Equipment)

Acc. Depn. (Equipment) 429 429 Depn.- Equipment Exp.

Income Statement Balance Sheet

Particulars Amount Assets Amount Liab. & OE Amount
Revenues

-Expenses Equipment 12875

Depn.- Equipment Exp. 429 Acc. Depn. (Equip) −− 429

Net Income Total −− 429 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 42 / 48

Depn. - Furniture:
Depreciation amount: 1650 / (10*6) = 28

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Acc. Depn. (Furniture) = Depn.- Furniture Exp.

28 = + 28
CR = DR

Depn.- Furniture Exp. Acc. Depn. (Furniture)

Acc. Depn. (Furniture) 28 28 Depn.- Furniture Exp.

Income Statement Balance Sheet

Particulars Amount Assets Amount Liab. & OE Amount
Revenues

-Expenses Furniture 1650

Depn.- Furniture Exp. 28 Acc. Depn. (Furniture) −− 28

Net Income Total −− 28 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 43 / 48

Insurance
Insurance expenses: 150

∆ Asset = ∆ Liabilities + ∆ Capital + Revenues - Expenses

Prepaid Insurance = Insurance Exp.

-150 = + 150
CR = DR

Insurance Exp. Prepaid Insurance

Prepaid Insurance 150 150 Insurance Exp.

Income Statement Balance Sheet

Particulars Details Amount Assets Amount Liabilities & OE Amount
Revenues

-Expenses
Insurance Exp. 150 Prepaid Insurance −− 150

Net Income Total −− 150 Total

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 44 / 48

Issues
Bad Debt: 2% of all outstanding
I Wealthy widow friend : 143
I Regular customer : 56

Obligation to meet married son’s bank loan?

What is the closing bank balance?

Bank Account
Debit Amount Credit Amount
Opening Balance 7005 Inventory 44694
Cash Sales 69510 Rent 2018
Parking Rent 375 Payroll 9450
Unearned Parking 125 Utilities 445
Advertising 690
Miscellaneous 355
Drawings 6750
Total 77015 Total 64402
Closing balance 12613
Prepare the income statement for the period 1 May to 30 June.
Prepare the balance sheet as on 30 June.

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 45 / 48

Income Statement
Income Statement of Octane Service Station for the period 1 May to 30 June
Particulars Detail Amount
Revenues
Sales Revenue 69709
Parking Rent 375
Total Revenue 70084

Expenses
COGS 49651
Rent 3513
Payroll 9682
Utilities 870
Advertising 690
Depreciation - Equipment 429
Depreciation - Furniture 28
Insurance 150
Miscellaneous 355
Prov. for bad debt -
Total Expenses 65368
Profit for the period 4716

Cash sales and credit sales should be shown together

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 46 / 48

Closing Balance Sheet
Balance Sheet of Octane Service Station as on 30 June
Assets Amount Liabilities & OE Amount
Equipment 12875 Capital - Op. bal. 27000
(-)Acc. Depn. 429 12446 Add: Profit 4716
Furniture 1650 Less: Drawings (6750+79) 6829 24887
(-)Acc. Depn. 28 1622
Inventory 10018 Loan for equipment 10300
Prepaid Insurance 750 Unearned Parking 125
Accounts Receivable 199 Accounts payable 1804
Bank 12613 Rent payable 75
Cash 200 Utilities payable 425
Wages payable 232
Total 37848 Total 37848

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 47 / 48

 Thanks!

Comments/suggestions

Prof. Sobhesh Kumar Agarwalla (IIMA) Octane Service Station 48 / 48