Question

On January 3, 2003, Alemu Haba, an ex-manager of the CBE Finfine Branch, established his own consultancy business. He named his business "AH Consultancy Services". The objective of the business is to render financial consultancy services to clients on a fee basis. The following business activities occurred during the first month of operations of the business (January 3 to January 31, 2003).

1. Alemu deposited $20,000 cash in a bank account in the name of his business - AH Consultancy Services. He has $250,000 cash in his personal bank account with Dashen Bank and $50,000 cash in a safe deposit box at his residence.

2. Alemu transferred furniture worth $30,000 from his home for office purposes by AH Consultancy Services. He also has extra home furniture, residential house and personal car worth $620,000, $800,000 and $360,000, respectively.

3. Alemu purchased office supplies worth $5,000 from various suppliers agreeing to pay the sum in the near future. Two-fifth of the supplies will be used for personal purposes while the remaining is for use by AH. Three-fifth of the liability is arranged to be settled from business cash sources.

4. AH received $20,000 cash for consultancy services it rendered to a cash client.

5. AH paid $3,000 cash for advertising aired through ETV.

6. AH forecasted that services fees in the next two weeks will amount to $5,000.

7. AH received $10,000 additional cash investment from Alemu - its owner.

8. AH rendered consultancy services worth $15,000 to clients promising to pay in the near future.

9. AH sold one of the furniture invested by its owner for $5,000 cash. The furniture had a recorded value of $5,000.

10. AH collected $5,000 cash from clients who received services in item-7 above.

11. AH paid $2,000 cash to suppliers on credit.

12. AH purchased a used car for business purposes. The business paid $8,000 cash for the car. Brokers estimated that the car currently worth only $5,000 and the Inland Revenue assessed the car at $12,000 for property tax purposes.

13. AH borrowed $4,000 cash from Dashen Bank. The loan is repayable over ten months.

14. AH employed an accountant and a secretary for monthly salary of $1,200 and $700, respectively.

15. AH incurred and paid for the following expenses

16. Wages................................................. $6,000

17. Rent.................................................... 4,500

18. Utilities................................................ 1,200

19. Others.................................................. 800

20. AH determined that cost of supplies remained on hand at the end of the current month total $1,300.

21. AH paid $450 cash to Dashen Bank consisting of $400 principal and $50 one month interest on the loan due in January.

22. AH paid its owner $5,000 cash for personal uses (to pay house utility expenses).

Required:
a) Analyze the above transactions and record them in the accounting records of AH Consultancy Services

Answer 1

AH Consultancy Services' financial transactions such as initial investment, purchase of office supplies, revenue from services, payments for expenses, and asset acquisition are systematically recorded in its accounting records following double-entry accounting principles, leading to an accurate reflection in the financial statements.

Step-by-step explanation:

To analyze the transactions for AH Consultancy Services, one must record each event in the accounting records appropriately. Here's a summary of how these transactions would be recorded:

• Alemu's initial deposit of $20,000 is recorded as an increase in the business's cash account and an increase in owner's equity.
• The transfer of furniture worth $30,000 will be recorded as a debit to office furniture (asset) and a credit to owner's equity.
• Office supplies worth $5,000 will be recorded as a debit to office supplies (asset) and a credit to accounts payable.
• The receipt of $20,000 cash for services is debited to cash and credited to service revenue.
• Payments for advertising, supplies, and other expenses are recorded as a debit to the corresponding expense account and a credit to cash.
• Business investment, receivables from clients, sale of furniture, and loan transactions are all recorded as per accounting principles, affecting the respective accounts.

All revenues, expenses, assets, and liabilities are recorded adhering to the double-entry accounting system, with the goal of preparing the financial statements accurately reflecting the business activities.