Question 2 is based on B124 Book 2 Chapters 1, 2 (2.2) and 3 (3.1 to 3.5). (Completing Activity 1.2 in Chapter 1 of Book 2 would be excellent preparation for part (a). Completing Activities 3.23.4 in Chapter 3 of Book 2 would be very good preparation for parts (b)(c). Completing the Self-assessed Question 3 (SAQ 3) at the end of Book 2 would be good preparation for part (d).)

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 the Assets, Capital, and Liabilities at the end of the week. (Use a table for your answer similar to that given in Book 2 Chapter 1 Activity 1.2 so that each entry for each transaction shows the relevant amount as well as the relevant account.)

i.On 1 October Angela started a business selling crayons and put 15,000 of her savings into a business bank account.

ii.On 2 October Angela bought equipment for long-term use in the business for 7,500, paying by cheque from the business bank account.

iii.On 3 October Angela bought supplies of crayons for resale costing 400, paying by cheque from the business bank account.

iv.On 3 October Angela bought a laptop for 875, paying by cheque from the business bank account.

v.On 6 October Angela bought, on business credit, supplies of crayons for resale costing 1,500.

vi.On 7 October Angela took 70 from the business bank account for a personal expense.

(14 marks)

b.During the second week of business, the following transactions, all through the business bank account as appropriate, took place:

i.On 8 October Angela paid by cheque a quarter of the money owing on her payables account.

ii.On 11 October Angela paid by cheque 600 for two weeks rent for her business premises.

iii.On 11 October Angela paid by cheque 250 for two weeks insurance.

iv.By the end of the day on the 14 October (i.e. after two weeks of trade), Angela had made sales for 4,000. Fifty per cent of the sales had been in cash and the rest on credit. Angela had sold all her inventory after these two weeks of trade.

Using the new template below, demonstrate how the transactions in the second week will affect the expanded accounting equation (Assets = Capital + (Income Cost of Sales Expenses) + Liabilities. As for part (a) above, each entry for each transaction should show the relevant amount as well as the relevant account. Your answer should include a summary total for each of the Assets, Capital, and Liabilities at the beginning of the second week, i.e. from your answer to part (a), as well as at the end of the same week.

Transactions Week 2	Effect on A = (C + (I - C of S - E)) + L
	Assets =	(Capital + (Income - Cost of Sales - Expenses))	Liabilities
Balance from Week 1
1
2
3
4
Summary (overall effect)

(12 marks)

c.Using the information completed in the column (Capital + (Income Cost of Sales Expenses)) in (b), calculate (i) gross profit and (ii) net profit made by Angelas business in its first two weeks of trading. You do not need to provide an income statement. (Ignore any depreciation expense.)

(4 marks)

d.Based on your answers to (a)(c) above, prepare the balance sheet for Angelas crayon business at 14 October. (The format of the balance sheet should follow SAQ 3 at the end of Book 2.)

(8 marks)