Hi everyone and welcome to this lecture My name is Justin light from think numbers and in this lecture today we'll be going through the short feel automotive practical case study. And this is really an opportunity for you to get your accounting skills in shape, and go through the 22 transactions within the case study and try to put them into practice. And this is putting them in the general journal format, then taking it from a general journal, to a take out to eventually a trial balance. And from that trial balance, we have to prepare our financial statements from our balance sheet and a profit loss statement. But let's start from the beginning. So really the first thing you need to be doing is we've got here standard Chart of Accounts.
Now Chart of Accounts is a sequential numbering system with all of the accounts on the balance sheet and the p&l They used to actually code the individual transactions each side of the transaction to an individual account, whether it's a cash or bank account or an intangible account, or so on and so forth. Now, in practice, there's no sort of golden rule on how they should be set up. However they are, they do follow a logical sequence. And in this case, I've broken the assets into a numbering sequence where it starts with 100 and the liabilities into the 200. For the owner's equity, I did separate the share capital retained earnings into 300. Accounts sales revenue is 400.
And the supplies and all the other expense accounts are really just continue on from that sequence. So no Golden Rule, it's really just an opportunity for you to code the individual accounts to to individual reference numbers. So let's jump into actually applying this to the case study. You remember this format I've been talking about for the general general format. So we're going to work through the case study now. And we'll start from the first one.
So Tom injected 50,000 of his own cash to start a company. So we'll start by putting a date in here. And the reference number will be the chart of accounts code. So in this case, when you're injecting cash, you're going to you're going to debit cash at Bank, in this case, $50,000. And we're actually going to credit our share capital, because that's the capital we've actually placed in the business. From Tom's funds, and we'll write that to say proceeds from issue of new shares.
Second transaction Thomas spent $3,000, registering a trademark of Short Hills automotive with a patent attorney and paid in cash. So we know from those four questions that the first thing he has paid in cash, and the other thing is that he's actually purchased The patent and the patent, as we know is an intangible asset. So in this case, we're going to book this to increase an asset, which is an intangible asset. And this email is for $3,000. And he actually paid some cash because it actually said that in the questions to cash it bank or cash is fine. And in this case he purchased purchased paitent for cash.
Food food transaction is that Tom spent away painting and fixing up the shop and the cost of $5,000. And he had to pay for this to set the shop. So there's $5,000 of costs where he's paid this so the cash bank has been affected. And it when you actually when you actually set up a shop and you actually painted a Put carpet in it and fittings, you can actually capitalize this which means putting on your fixed assets, which is your property plant equipment. So in this case, it's going to go to property plant equipment for $5,000 and the other side of this has actually paid for it as cash. So that's going to come out of cash at Bank.
And this is a capital improvements to set up shop. And the narration as I mentioned previously, helps explain the nature of what these transactions the fourth transaction is that a deal was negotiated with the landlord to rent the premises at the back of the petrol station paying six months upfront will save one month of rent and the cost was $8,000 for six months rent saving Tom $1,000. So if you recall, he has actually paid cash For this, because he's paid up front, so cash has gone down assets gone down, but at the same time when you pay something up front, if you recall from earlier lectures we were talking about that this is actually called a prepayment. And so in this case, we've got a capital pre prepaid rent $1,000 and he paid cash is $8,000 paid six months right up front in advance fees transaction service services of a local marketing agency, which costs $2,500 terms 30 days.
So if you engage a local marketing marketing costs a generally a cost or expense of the business and should be going to your profit and loss, which case it's an expense and if you have terms of 30 days, this would imply that it's actually going to be put on your accounts payable and paid in the next month. So, this is actually going to go to our account core marketing expense for $2,500. And for our purposes, we're also we're not factoring in the fact of any kind of sales tax or GST or anything like that. So for our purposes, we keep this quite simple. And marketing marketing posts on a cap that will be paid in 30 days time, but it's true. Okay, six transaction set up a mobile contract with telco costing $100 per month and pay $200 for the first month.
So we can only assume that this is this cost has been incurred for telephone, and therefore that's an expense. Telephone expense, reduces our equity. That's $400. And this is actually come out of the bank account. Telephone costs paid in cash, there's no indication that it was actually paid late it was actually paid up for for this particular period. The seventh transaction is that we purchase supplies for 10,000 those by sitting for trade account, we supply a jus end of month.
So, first, the first thing is supplies that purchase supplies supplies, we know a form of asset like an inventory, and we've set up a trade account with the supply. So therefore, it's gonna be paid in the future future economic sacrifice, therefore that's a caps payable, so we're going to put the debit to supplies or inventory $10,000 and the other side of it will be going to liability which will be paying in the future. In about a month's time, and we purchased supplies from supply, but we haven't actually sold it yet. We've just purchased it. Okay, the transaction, invoice customer a for $5,000 for servicing their fleet of 10 cars. So when you invoice a customer, you've actually earned revenue.
And there's no indication here that it's actually been paid at all. It just looks like it's been invoiced. So if you recall from earlier lectures on assets, what this is actually going to do is it's actually going to be debit to accounts receivable $5,000 and the other side will be going to sales revenue $5,000 sales sale made on account today Customer this customer. Okay. Not transaction paid wages for staff for the week $3,000. So, from the question, it's already said that we've paid so cash has gone down and the weights already passed.
So we've actually incurred a cost for the wages so therefore, it's going to be expense and we're going to debit our wages expense $3,000 and we're going to that's going to come straight out of that cash bank. wages paid the wages. Okay, so cheap girls scroll up a little bit. So now on the transaction, invoice customer base for $10,000 for mechanical repairs to their vehicles. Again, this is Similar to a previous question we had where you invoice a customer there's no indication that the cash has been transacted and the business is an automotive business so we've actually invoice the customer for mechanical repairs. So therefore that's going to go to accounts receivable because you're going to collect that in the future fantastic bolos and with my style, so that's going to go to sales revenue that will be recorded in your p&l as a revenue auto.
And in this case, we have sale made on account to customer Okay, question 11. Customer I paid five cents $5,000 for the asked any invoices from the statement. So in this case, what's happened here, a customer has paid us so cash is gone. up and they had outstanding invoices from a statement. So if you recall from question eight here they actually made the sale without actually for $5,000 but now we're actually going to have to reduce the accounts receivable because they've actually paid us. So what's gonna happen is out cash at Bank it's going up by $5,000 and our accounts receivable go down by $5,000 customer you paid cash