a.Demonstrate how each of the following transactions will affect the accounting equation (Assets = Capital + Liabilities). Your answer should include a summary total for each of Assets, Capital and Liabilities at the end of the month. (Use a table for your answer similar to that given in Book 2 Chapter 1 Activity 1.2)

On 1 September Celia started a business selling ornaments and put 14,000 of her savings into a business bank account.

On 2 September Celia bought machinery for 4,000 paying by cheque.

On 2 September Celia bought, on credit, ornaments for resale costing 1,100.

On 3 September Celia bought a computer for 575 paying by cheque.

On 7 September Celia took 20 from the bank for a personal expense.

On 8 September Celia paid by cheque 800 for one months rent for her business premises.

On 15 September Celia paid by cheque 130 for one months insurance.

By 31 September Celia had sold ornaments for 2,400. Sixty percent of sales had been on cash and the rest on credit. The ornaments had originally cost Celia 950.

(20 marks)

b.Calculate the profit made by Celias business in its first month of trading. (Ignore any depreciation expense.) (3 marks)

c.Calculate the profit made by Celias business in its first month of trading if the drawings on the personal expense on the 7th September had been a business expense instead. (Ignore any depreciation expense.) (1 mark)

d.Based on your answers to (a) (c) above state the formula for the capital figure at the end of an accounting period i.e. the closing capital balance. Your formula should start with the opening capital balance. (1 mark)

Transactions Effect on A = C + L Assets = Capital + Liabilities +5,000 +5,000 0 (bank) 0 +400 (furniture) +400 (payables: Pearl Ltd) 0 0 +600 (computer) -600 (bank) 1. The owner starts the business with 5,000 paid into a business bank account on 1 July 20x2. 2. The business buys furniture for 400 on credit from Pearl Ltd on 2 July 20X2 3. The business buys a computer for 600 on 3 July 20X2 using the bank account 4. The business borrows 5,000 on loan from a bank on 4 July 20x2. The money is paid into the business bank account. 5. The business pays Pearl Ltd 200 on 5 July 20x2. 6. The owner takes 50 from the bank for personal spending on 6 July 20X2. Summary (overall effect) +10,150 +4,950 +5,200 After these transactions the accounting equation becomes: Assets = Capital + Liabilities 10,150 = 4,950 + 5,200