Kwesi started a business on 1 January 20X4 with the following transactions: a) Show the effect of each transaction on the accounting equation (Assets = Liabilities + Capital) and b) Calculate the final position of assets, liabilities, and capital after all transactions.

Question 2:

a) Show the effect of each transaction on the accounting equation (Assets = Liabilities + Capital)

• Jan 1: Started business with cash GH₵100,000

  • Assets (Cash) increase by GH₵100,000.
  • Capital increases by GH₵100,000.
  • Effect: Assets (+GH₵100,000) = Liabilities (0) + Capital (+GH₵100,000)

• Jan 2: Purchased equipment by cheque GH₵30,000

  • Assets (Equipment) increase by GH₵30,000.
  • Assets (Bank) decrease by GH₵30,000.
  • Effect: Assets (+GH₵30,000 - GH₵30,000 = 0) = Liabilities (0) + Capital (0)

• Jan 3: Purchased goods on credit from supplier GH₵20,000

  • Assets (Inventory) increase by GH₵20,000.
  • Liabilities (Accounts Payable) increase by GH₵20,000.
  • Effect: Assets (+GH₵20,000) = Liabilities (+GH₵20,000) + Capital (0)

• Jan 5: Sold goods for cash GH₵15,000

  • Assets (Cash) increase by GH₵15,000.
  • Capital (Revenue) increases by GH₵15,000.
  • Effect: Assets (+GH₵15,000) = Liabilities (0) + Capital (+GH₵15,000)

• Jan 8: Paid supplier by cheque GH₵10,000

  • Assets (Bank) decrease by GH₵10,000.
  • Liabilities (Accounts Payable) decrease by GH₵10,000.
  • Effect: Assets (-GH₵10,000) = Liabilities (-GH₵10,000) + Capital (0)

• Jan 10: Withdrew cash for personal use GH₵5,000

  • Assets (Cash) decrease by GH₵5,000.
  • Capital (Drawings) decreases by GH₵5,000.
  • Effect: Assets (-GH₵5,000) = Liabilities (0) + Capital (-GH₵5,000)

b) Calculate the final position of assets, liabilities, and capital after all transactions

• Assets:

  • Cash/Bank: GH₵100,000 (Jan 1) - GH₵30,000 (Jan 2) + GH₵15,000 (Jan 5) - GH₵10,000 (Jan 8) - GH₵5,000 (Jan 10) = GH₵70,000
  • Equipment: GH₵30,000 (Jan 2)
  • Inventory: GH₵20,000 (Jan 3)
  • Total Assets = GH₵70,000 + GH₵30,000 + GH₵20,000 = GH₵120,000

• Liabilities:

  • Accounts Payable: GH₵20,000 (Jan 3) - GH₵10,000 (Jan 8) = GH₵10,000

• Capital:

  • Initial Capital: GH₵100,000 (Jan 1)
  • Add: Sales Revenue: GH₵15,000 (Jan 5)
  • Less: Drawings: GH₵5,000 (Jan 10)
  • Total Capital = GH₵100,000 + GH₵15,000 - GH₵5,000 = GH₵110,000

Check: Assets = Liabilities + Capital
GH₵120,000 = GH₵10,000 + GH₵110,000
GH₵120,000 = GH₵120,000

Final Position:

• Assets: GH₵120,000
• Liabilities: GH₵10,000
• Capital: GH₵110,000

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Question 3:

a) For each transaction, identify the two accounts affected and state whether each account should be debited or credited

• Jan 1: Started business with GH₵80,000 cash

  • Accounts affected: Cash, Capital
  • Cash: Debit
  • Capital: Credit

• Jan 2: Paid rent by cash GH₵2,000

  • Accounts affected: Rent Expense, Cash
  • Rent Expense: Debit
  • Cash: Credit

• Jan 3: Purchased equipment on credit from ABC Supplies GH₵15,000

  • Accounts affected: Equipment, Accounts Payable (ABC Supplies)
  • Equipment: Debit
  • Accounts Payable: Credit

• Jan 5: Purchased goods for cash GH₵10,000

  • Accounts affected: Purchases, Cash
  • Purchases: Debit
  • Cash: Credit

• Jan 8: Sold goods for cash GH₵12,000

  • Accounts affected: Cash, Sales
  • Cash: Debit
  • Sales: Credit

• Jan 10: Paid ABC Supplies by cheque GH₵8,000

  • Accounts affected: Accounts Payable (ABC Supplies), Bank
  • Accounts Payable: Debit
  • Bank: Credit

• Jan 12: Received cash from customer GH₵5,000

  • Accounts affected: Cash, Accounts Receivable
  • Cash: Debit
  • Accounts Receivable: Credit

• Jan 15: Paid salaries by cash GH₵3,000

  • Accounts affected: Salaries Expense, Cash
  • Salaries Expense: Debit
  • Cash: Credit

b) Explain the double-entry principle rule applied to each transaction

The double-entry principle states that every financial transaction affects at least two accounts, with equal total debits and credits, ensuring the accounting equation (Assets = Liabilities + Capital) remains balanced.

• Jan 1: Started business with GH₵80,000 cash

  • Cash (an asset) increased, so it is debited. Capital (equity) increased, so it is credited.

• Jan 2: Paid rent by cash GH₵2,000

  • Rent Expense (an expense, which reduces capital) increased, so it is debited. Cash (an asset) decreased, so it is credited.

• Jan 3: Purchased equipment on credit from ABC Supplies GH₵15,000

  • Equipment (an asset) increased, so it is debited. Accounts Payable (a liability) increased, so it is credited.

• Jan 5: Purchased goods for cash GH₵10,000

  • Purchases (an expense/asset) increased, so it