Roadmap Logistic Company Accounting Equation

Question: Discuss about theRoadmap Logistic Company Accounting Equation. Answer: Introduction An accounting equation shows the relationship of assets, liabilities and equity in the firm. It equates assets to liabilities and equity (Clarke, 2005). Assets in a firm should be equal to liabilities and equity owned by the shareholders. If the accounting equation of a firm does not balance, the accounts are said to be containing errors. Accounting equation fails to balance when transactions are incorrectly recorded and entered in financial statements (Sangster, 2016). This paper discusses accounting equation using Roadmap Logistic Company. It involves entry of transactions to financial statement. The paper also final financial statements of Roadmap Logistics for the accounting period covered. Background of the Company Roadmap logistic is a company started to offer transport services of cargos in Egypt. The company will specialize in long distance transportation and management of the supply chain. The company will operate by entering into contracts with client. The company is set to start with a capital of $500000. The company will buy a truck at $100000 The trucks will be used for transporting cargo around Egypt and neighboring countries. The company will buy a warehouse and a headquarter office in Cairo. The company will open a bank account to ease transactions with customers around the country. The company will also insure it properties to ensure continuity and transfer of risks in the business. Accounts Entries in the First Month Putting of capital in the cash account will increase both the cash account and capital account. The cash account will be debited. The capital account will be credited to show an increase of cash to the company. The cash account will be debited $500000 that will be from capital account. This transaction will increase both the assets and the owners share in the company. Buying one asset by cash will lead to both decrease in cash account and increase in assets account. Buying one truck by cash will reduce the cash account by $100000 and increase the truck account by $100000. The cash account will be credited $100000 while the truck asset account will be debited $100000. Buying another asset by account payable will increase the account payable and increase the asset account. Account payable is a liability and will be credited the amount payable by the company. The company buying a warehouse on account payable will increase the account payable by $100000 as well as increase the warehouse account by $100000. The warehouse account will be debited. Selling some services for cash will increase the revenues accounts and cash account. Revenue account will be credited to amount earned by sale of service while cash account will be debited the same amount to show an increase in cash in the company. For instance selling services that are paid in cash at $20000 will lead to an increase in revenue account by $20000 and cash account by $20000. Revenue increase owners capital in the business and therefore credited when it earned. Selling some services for account receivables will increase both the revenue account and account receivable account. Account receivable is an asset account and will be debited to signify an increase. The revenue account will be credited to indicate amount earned from services to the company. For instance, services provided on credit for $10000 will be credited in the revenue account and debited on the account receivable. Making an expense of $10000 in the first month will lead to a decrease of cash account and capital account. Expenses reduce the capital and therefore the expense account will be debited while the decreasing cash account will be credited (Davidson Weil, 2000). The expense account will be debited $10000 and cash account credited $10000 for the month. Pay dividends for the month will decrease both the cash account and capital account of the company. Dividends paid reduce capital of the company and will lead to debit of the capital account. Cash account will be credited the amount of dividends paid. For instance, paying $5000 as dividends for the month will reduce the capital account by $5000 and cash account by the same amount. Buying an insurance policy for the whole year will be entered in an asset account to show a prepaid amount that the company has not yet incurred. The first month premiums will be recorded in the expense account. Payment made to the insurance company will reduce the cash account and the insurance expense account will be credited to show an expense that has not been incurred. Paying $12000 for the insurance to cover the companys assets for the whole year will be credited in the insurance expense account. $1000 for the first month will be debited in the insurance expense account. Cash account will be credited $12000 for the whole year amount directed to insurance. Accounting Entries for Suggested Transactions Transactions Dr ($) Cr ($) 1 Cash Capital 500000 500000 2 Purchase of one truck by cash(asset) Cash account 100000 100000 3 Purchase of a warehouse(asset) Account payable 100000 100000 4 Sales/revenue account Cash account 20000 20000 5 Account receivables Sales/revenues account 10000 10000 6 Expenses account Cash account 15000 15000 7 Capital account Cash account 5000 5000 8 Insurance expense Prepaid Insurance Cash account 1000 11000 12000 Ledger Accounts Capital account Dr Cr Dividends 5000 Cash 500000 c/d 495000 Cash Account Dr Cr Capital 500000 Sales 20000 c/d 388000 Truck 100000 Insurance 12000 O/Expenses 15000 Dividends 5000 Expense Account Dr Cr O/Expenses 15000 Insurance Expense 1000 c/d 16000 Sales/Revenue Account Dr Cr Cash 20000 Credit 10000 c/d 30000 Trucks Accounts Dr Cr On cash 100000 Warehouse Accounts Dr Cr On Credit 100000 Account Receivable Dr Cr Sales 10000 c/d 10000 Insurance Account Dr Cr 12000 c/d 11000 1000 Account Payable Dr Cr Warehouse 100000 c/d 100000 Adjusting Entries Transactions Dr ($) Cr ($) 1 Cash Adjusted cash Capital Adjusted Capital 500000 388000 500000 495000 2 Purchase of one truck by cash(asset) Cash account 100000 100000 3 Purchase of a truck(asset) Account payable 100000 100000 4 Sales/revenue account Cash account 20000 20000 5 Account receivables Sales/revenues account 10000 10000 6 Expenses account Adjusted expenses Cash account Adjusted Cash account 15000 16000 15000 16000 7 Capital account Cash account 5000 5000 8 Insurance expense Prepaid Insurance Cash account 1000 11000 12000 Income Statement Roadmap Logistics Company Cash flow statements For the period ending 11th Nov 2016 Inflows $ Sales 30000 Outflows Operating expense 16000 Insurances expense 1000 Profit 15000 Dividends paid 5000 Retained earnings 10000 Balance Sheet Roadmap Logistics Company Balance sheet As at 11st Nov 2016 Assets Current Assets Cash 238000 Prepaid Insurance 11000 Account receivable 1000 Non Current Trucks 100000 Building 150000 Total Assets 605000 Liabilities Current Liabilities Account payable 100000 Owners Equity Capital 500000 Less dividends paid 5000 Retained earnings 10000 Total Liabilities and Capital 605000 References Clarke, E. 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