Scenario:

Robert Bruce has started a new business of selling mobile phones. But he is quite ignorant about keeping accounts. Somebody has told him that Accounting works on a magic. Accounting has an equation similar to that used in Algebra and after recording each transaction the left hand side total of the equation is exactly the same as the right hand side of the equation. He cannot understand how that is possible. He asks you to explain how it works. You then said that it will not be very clear to Robert if you just explain to him verbally. You need some real transaction to demonstrate how the accounting equation works. Robert then presents the following information to you. He presents the information in the form of a running story of events for the month of January 2020.

1.On 2 January I had transferred $23 000 from my personal account to the business's bank account.

2.I was keeping my eyes open for office fittings. On 3 January I purchased some office fittings for $21 450 (including GST of $1 950) paying $21 450 cash.

3.I needed some stationery etc. So, on 5 January, I had to purchase $770 (including GST $70) of office supplies from Officeworks, agreeing to pay for half of the supplies on 15 January and the remainder on 15 February.

4.I also needed some desks, computers and printers etc. On 12 January, I had to buy the computers and printers from Harvey Norman at a cost of $3300 (including GST $300). I made a down payment of $1300 and signed a note agreeing to pay the remaining $2 000 at the end of the year.

5.As I had promised to Officeworks, I paid on 15 January half of the amount owed to Officeworks for the supplies purchased on 5 January.

6.The first delivery of mobile phones arrived in my shop on 18 January. I paid $7 700 cash (including $700 GST).

7.My office is fairly small. But it had too many desks. On 28 January, I decided that I did not need one desk I had purchased on 12 January for $440. The desk was sold for $440 cash to Nigel Farage, the next door office.

8.It took a while for me to make my first sale. On 30 January, I managed to sell the first mobile set for $990 (including GST $90). The cost of the phone was $500

9.Unfortunately we had a small electrical problem in the office. I had to spend $440 (including GST $40) to fix that problem

10.Although I had not much luck in selling any mobile set, office phone was quite busy.On 31 January I had received a telephone bill totalling $132 (including GST $12) for January. I will pay for this bill in early February.

11.In order to feed my family I withdrew $600 from the business bank account for my family use.

Required:

a.As a recent accounting graduate you are required to explain the accounting magic to Robert through recording the above transactions for him in the basic accounting equation:

Assets = Liabilities + Owner's Equity.

b.Show that the total of both sides of the equation is equal after all the transactions are recorded. Explain to him in plain English how the equation works.

Here is the Direction of the answer:

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