Question 1

Russell Smith Pty is a small private start-up company that initially is involved in buying and selling of goods. During the first few days of the companys existence the following transactions occur.

The owner opens a business bank account and deposits $20,000 into it on the 3 rd May in order to commence business. $6,000 of the deposit is from the personal funds of the owner and $14,000 is a loan from a family member who expects to be fully repaid with interest within two years.

On 4 th May, the company purchases a vehicle for $5,000 paying by cheque.

On 5 th May, the company purchased inventory (stock to sell) for $3,000 on 30 days' credit.

On 6 th May, $2,000 of the loan is repaid.

On 10 th May, the owner adds $4,000 of his funds to the business bank account.

On 11 th May, the business manages to sell almost all of its inventory for $4,500. This is paid for partly by a cheque for $2,500 and the remainder on credit of 30 days. $500 worth of stock could not be sold at this time.

Using appropriate headings, DRAW up Statements of Financial Position (Balance Sheets) for the end of business on 3 rd May, 5 th May and 11 th May, and a Statement of Financial Performance (Profit and Loss Statement) for the period of operation from the beginning of 3 rd May to the end of 11 th May.