Introduction to accounting

Transactions related to inventories

1/50. The following opening balances are extracted from STOCUL S.A. trial balance for the month of
December (lei): 301 Raw materials 55.000, 371 Goods for resale 32.000 lei, 345 Finished goods 40.000.
Analyze the following transactions that occurred in December and prepare the T-accounts for all inventories
accounts.
Analysis of transactions
02.12.N Acquisition of fruit for a purchase price of lei 110.000, transport costs lei 5.000, VAT 24%;
Acquisition of raw materials, cost of purchase = 110.000 + 5.000 = 115.000
Increase in inventories, A + Debit, 301 Raw materials
Increase in trade liabilities, L + Credit, 401 Suppliers
Increase in tax receivables, A + Debit, 4426 Input VAT
% = 401 142.600
301 115.000
4426 27.600

05.12.N Acquisition of compote in the amount of lei 180.000, VAT 24%;

Acquisition of goods for resale
Increase in inventories, A + Debit, 371 Goods for resale
Increase in trade liabilities, L + Credit, 401 Suppliers
Increase in tax receivables, A + Debit, 4426 Input VAT
% = 401 223.200
371 180.000
4426 43.200

07.12.N Consumption of fruit in the amount of lei 160.000;

Consumption of raw materials
Decrease in inventories, A Credit, 301 Raw materials
Increase in operating expenses, E + Debit, 601 expenses related to raw materials
601 = 301 160.000

10.12.N Production of jam in the amount of lei 150.000;

Production of finished goods
Increase in inventories, A + debit, 345 Finished goods
Increase in operating revenues, A + Debit, 711 Revenues associated with the costs of the completed
production
345 = 711 150.000

15.12.N Sale of compote for a selling price of lei 130.000, cost of purchase 90.000, VAT 24%;
Sale of goods for resale, selling price 130.000, VAT 24%
Increase in operating revenues, R + Credit, 707 Revenues from the sale of goods for resale
Increase in trade receivables, A + Debit, 4111 Customers
Increase in tax liabilities related to VAT, L + Credit, 4427 Output VAT
4111 = % 161.200
707 130.000
4427 31.200
Removal from stock of goods for resale, cost of purchase 90.000
 Introduction to accounting
Decrease in inventories, A Credit, 371 Goods for resale
Increase in operating expenses, E + Debit, 607 Expenses related to goods for resale
607 = 371 160.000

16.12.N Acquisition of lei 7.000 overalls, VAT 24%;

Acquisition of small inventories
Increase in inventories, A + Debit, 303 Materials in the form of small inventory items
Increase in trade liabilities, L + Credit, 401 Suppliers
Increase in tax receivables, A + Debit, 4426 Input VAT
% = 401 8.680
303 7.000
4426 1.680

18.12.N Consumption (use) of lei 5.000 overalls;

Consumption of small inventories
Decrease in inventories, A Credit, 303 Materials in the form of small inventory items
Increase in operating expenses, E + Debit, 603 Expenses with materials in the form of small inventory
items
603 = 303 160.000

23.12.N Sale of jam for a selling price of lei 200.000, production cost lei 170.000, VAT 24%.
Sale of finished goods
Increase in operating revenues, R + Credit, 701 Revenues from the sale of finished goods
Increase in trade receivables, A + Debit, 4111 Customers
Increase in tax liabilities related to VAT, L + Credit, 4427 Output VAT
4111 = % 248.000
701 200.000
4427 48.000

Removal from stock of goods for resale, production cost 170.000

Decrease in inventories, A Credit, 345 Finished goods
Decrease in operating revenues, R + Debit, 711 Revenues associated with the costs of the completed
production
711 = 345 170.000

Transactions related to accounts receivable

1/51. DEBITORUL SA has the following opening balances at the beginning of December, N, as presented in
the trial balance (lei): 4111 Customers 25.000, 461 Sundry debtors 12.000, 456 Transactions with
shareholders/members related to share capital 40.000. IN December, the following transactions are
recorded:
05.12.N sale of a land acquired for lei 90.000, at a selling price of lei 120.000, VAT 24%; - see lecture
notes
07.12.N sale at a selling price of lei 80.000, VAT 24%, of goods for resale in the amount of lei 75.000
(cost of purchase); - see lecture notes
09.12.N collecting the consideration for the land sold, from debtors;
 Introduction to accounting
Collection of receivables
Increase in cash, A + Debit, 5121 Cash at bank in lei
Decrease in receivables, A Credit, 461 Sundry debtors
5121 = 461 148.800 (120.000 x 1,24, from 05.12)

12.12.N rendering a service to a customer, in the amount of lei 130.000, VAT 24%;
Rendering of services (sale)
Increase in operating revenues, R + Credit, 704 Revenues from services rendered
Increase in trade receivables, A + Debit, 4111 Customers
Increase in tax liabilities related to VAT, L + Credit, 4427 Output VAT
4111 = % 161.200
701 130.000
4427 31.200

15.12.N collecting lei 70.000 of the consideration for the goods for resale sold, into the bank account;
Collection of receivables
Increase in cash, A + Debit, 5121 Cash at bank in lei
Decrease in receivables, A Credit, 411 Customers
5121 = 461 99.200 (80.000 x 1,24, from 07.12)

20.12.N receiving an equipment from shareholders as a contribution to share capital;

Collection of a shareholders receivable
Increase in non-current tangible assets, A + Debit, 2131 Plant and machinery
Decrease in receivables, A Credit, 456 Transactions with shareholders/ members related to share
capital
2131 = 456 40.000 (from the opening balance of the account 456)

24.12.N payment of advances to employees in the amount of lei 12.000, in cash.

Advance payment of salaries
Decrease in cash, A Credit, 5311 Cash in hand in lei
Increase in other receivables, A Debit, 425 Advances to employees
425 = 5311 12.000

3/55. ALFA SA has the following closing balances at the end of December N: Share capital lei 15.000 lei,
Short-term bank loans lei 1.000, Cash at bank lei 3.500, Cash in hand lei 1.000, Equipment lei 15.000,
depreciated for lei 3.000, Suppliers lei 4.000, Raw materials lei 3.500. In January, ALFA SA engages in the
following transactions:
02.01 consumption of raw materials, lei 1.500;
08.01 acquisition of consumables, lei 2.000, VAT 24%;
15.01 production of finished goods, lei 4.000;
16.01 payment of suppliers, lei 3.500;
20.01 sale of finished goods, selling price lei 6.500, VAT 24%, production cost of the finished goods sold is
lei 3.000; the receivable is collected on January 25, in cash;
31.01 recording of equipment depreciation, lei 1.000.
Analyze the transactions above; prepare the T-accounts at the end of January and a trial balance with our
sets of columns. What is the value of current assets at the end of January? And what is the value of current
liabilities? What is your evaluation of ALFAs solvency at this time?
 Introduction to accounting
Analysis of transactions
02.01
Consumption of raw materials
Decrease in inventories, A Credit, 301 Raw materials
Increase in operating expenses, E + Debit, 601 expenses related to raw materials
601 = 301 1.500

08.01
Acquisition of consumables
Increase in inventories, A + Debit, 302 Consumables
Increase in trade liabilities, L + Credit, 401 Suppliers
Increase in tax receivables, A + Debit, 4426 Input VAT
% = 401 2.480
302 2.000
4426 480

15.01
Production of finished goods
Increase in inventories, A + debit, 345 Finished goods
Increase in operating revenues, A + Debit, 711 Revenues associated with the costs of the completed
production
345 = 711 4.000

16.01
Payment of suppliers
Decrease in cash, A Credit, 5121 Cash at bank in lei
Decrease in trade liabilities, L Debit, 401 Suppliers
401 = 5121 3.500

20.01
a. Sale of finished goods, selling price 6.500, VAT 24%
Increase in operating revenues, R + Credit, 701 Revenues from the sale of finished goods
Increase in trade receivables, A + Debit, 4111 Customers
Increase in tax liabilities related to VAT, L + Credit, 4427 Output VAT
4111 = % 8.060
701 6.500
4427 1.560

Removal from stock of goods for resale, production cost 3.000

Decrease in inventories, A Credit, 345 Finished goods
Decrease in operating revenues, R + Debit, 711 Revenues associated with the costs of the completed
production
711 = 345 3.000

25.01
Collecting of trade receivables
 Introduction to accounting
Decrease in trade receivables, A Credit, 4111 Customers
Increase in cash, A + Debit, 5311 Cash in hand in lei
5311 = 4111 8.060

31.01 Recording of depreciation

Increase in depreciation, De + Credit of A Credit, 2813 Depreciation of plant and machinery..
Increase in operating expenses, E + Debit, 6811 Operating expenses related to non-current assets
depreciation
6811 = 2813 1.000

Note: The closing of the VAT accounts and the closing of the expenses and revenues accounts is not
required. Therefore, some temporary accounts will have a closing balance which is not zero, as stipulated in
the accounting regulations. This is an incomplete picture of the accounting cycle.

The T-accounts (General Ledger)

D 101 Share capital C D 519 Short term bank loans C

15.000 OB 1.000 OB

CDA 0 0 CCA CDA 0 0 CCA

TDA 0 15.000 TCA TDA 0 1.000 TCA
CCB 15.000 CCB 1.000

D 5121 Cash at bank in lei C D 5311 Cash in hand in lei C

OB 3.500 OB 1.000
3.500 16.01/401 25.01/4111 8.060

CDA 0 3.500 CCA CDA 8.060 0 CCA

TDA 3.500 3.500 TCA TDA 9.060 0 TCA
9.060 CDB

D 2131 Plant and machinery C D 2813 Depr. of plant and machinery C

OB 15.000 3.000 OB
1.000 31.01/6811

CDA 0 0 CCA CDA 0 1.000 CCA

TDA 15.000 0 TCA TDA 0 4.000 TCA
15.000 CDB CCB 4.000

D 401 Suppliers C D 301 Raw materials C

4.000 OB OB 3.500
16.01/5121 3.500 2.000 08.01/302 1.500 02.01/601
 Introduction to accounting
480 08.01/4426

CDA 3.500 CCA 2.480 CDA 0 1.500 CCA

TDA 3.500 TCA 6.480 TDA 3.500 1.500 TCA
CCB 2.980 2.000 CDB

D 601 Expenses related to raw materials C D 302 Consumables C

OB 0 OB 0
02.01/301 1.500 08.01/401 2.000

CDA 1.500 0 CCA CDA 2.000 0 CCA

TDA 1.500 0 TCA TDA 2.000 0 TCA
1.500 CDB* 2.000 CDB

D 4426 Input VAT C D 345 Finished goods C

OB 0 OB 0
08.01/401 480 15.01/711 4.000 3.000 20.01/711

CDA 480 0 CCA CDA 4.000 3.000 CCA

TDA 480 0 TCA TDA 4.000 3.000 TCA
480 CDB* 1.000 CDB

D 711 Revenues associated with the costs of f.g. C D 4111 Customers C

0 OB OB 0
20.01/345 3.000 4.000 15.01/345 20.01/701 6.500 8.060 25.01/5311
20.01/4427 1.560

CDA 3.000 4.000 CCA CDA 8.060 8.060 CCA

TDA 3.000 4.000 TCA TDA 8.060 8.060 TCA
CCB* 1.000

D 701 Revenues from the sale of finished goods C D 4427 Output VAT C
0 OB 0 ON
6.500 20.01/4111 1.560 20.01/4111

CDA 0 6.500 CCA CDA 0 1.560 CCA

TDA 0 6.500 TCA TDA 0 1.560 TCA
CCB* 6.500 CCB* 1.560

D 6811 OP. exp. related to depreciation of NCA C

OB 0
31.01/2813 1.000

CDA 1.000 0 CCA

TDA 1.000 0 TCA
1.000 CDB*
 Introduction to accounting
Trial balance at 31.01
Opening Current Closing
Account Total amounts
Account name balances amounts balances
symbol
Debit Credit Debit Credit Debit Credit Debit Credit
101 Share capital - 15.000 0 0 0 15.000 - 15.000
2131 Plant and machinery 15.000 - 0 0 15.000 0 15.000 -
2813 Depreciation of plant and - 3.000 0 1.000 0. 4.000 - 4.000
machinery.
301 Raw materials 3.500 - 0 1.500 3.500 1.500 2.000 -
302 Consumables 0 - 2.000 0 2.000 0 2.000 -
345 Finished goods 0 - 4.000 3.000 4.000 3.000 1.000 -
401 Suppliers - 4.000 3.500 2.480 3.500 6.480 - 2.980
4111 Customers 0 - 8.060 8.060 8.060 8.060 0 -
4426* Input VAT 0 - 480 0 480 0 480* -
4427* Output VAT - 0 0 1.560 0 1.560 - 1.560*
5121 Cash at bank in lei 3.500 - 0 3.500 3.500 3.500 0 -
5191 Short term bank loans - 1.000 0 0 0 1.000 - 1.000
5311 Cash in hand in lei 1.000 - 8.060 0 9.060 0 9.060 -
601* Expenses related to raw 0 - 1.500 0 1.500 0 1.500* -
materials
6811* Operating expenses 0 - 1.000 0 1.000 0 1.000* -
related to the depreciation
of non-current assets
701* Revenues from the sale of - 0 0 6.500 0 6.500 - 6.500*
finished goods
711* Revenues associated with - 0 3.000 4.000 3.000 4.000 - 1.000*
the costs of the completed
production
TOTAL 23.000 23.000 31.600 31.600 54.600 54.600 32.040 32.040
* In the case of a complete case study, the closing balances of the VAT, expenses and revenues accounts would be
zero.

What is the value of current assets at the end of January?

Current assets = the sum of closing debit balances of current assets accounts = 2.000 (301) + 2.000 (302) + 1.000
(345) + 0 (4111) + 480 (4426) + 0 (5121) + 9.060 (5311) = 14.540

And what is the value of current liabilities?

Current liabilities = the sum of closing credit balances of current liabilities accounts = 2.980 (401) + 1.560 (4427) +
1.000 (5191) = 5.540

What is your evaluation of ALFAs solvency at this time?

Solvency is good, the value of current assets is higher than the value of current liabilities, and therefore ALFA will not
have difficulties in settling its liabilities in the following year.