Northlake’s December, first half

December opens

Northlake Nordic Centre Inc. closed November (Module 3) with cash 19,700, supplies 4,200, a lodge and groomer, a 400,000 bank loan, 46,000 owing on the groomer, 30,000 of unearned season-pass revenue, and a year end of 31 December. Six transactions in the first nine days of December, each analysed with the four questions.

Worked example — 1 to 9 December

1 Dec — issued common shares for $50,000 cash. Cash (asset, up) and Common Shares (equity, up). Debit Cash 50,000, credit Common Shares 50,000. The whole proceeds go to Common Shares: Canadian shares have no par value, so there is no premium to split off. Not Retained Earnings — that is earned equity, and nothing has been earned; not Service Revenue — the shareholders are not customers.

2 Dec — bought a rental-ski fleet for $42,000:$12,000 cash, the balance on a 6 % note payable due in one year. Equipment (asset, up 42,000); Cash (asset, down 12,000); Notes Payable (liability, up 30,000). One entry, one debit, two credits:

Dec 2   Equipment                        42,000
            Cash                                   12,000
            Notes Payable                          30,000
        Rental-ski fleet; 6 % one-year note for the balance.

The asset is recorded at its full cost regardless of how it was financed. Not Accounts Payable — a signed note with interest is a Notes Payable; and no Interest Expense yet, because no time has passed. Interest is an adjustment at year end (Module 5), and on 2 December it is zero.

3 Dec — paid $6,000 for a twelve-month insurance policy effective 1 December. Prepaid Insurance (asset, up) and Cash (asset, down). Debit Prepaid Insurance 6,000, credit Cash 6,000. Twelve months of coverage bought is an asset; one month of it will become Insurance Expense at year end. Booking the whole 6,000 as expense in December is the trap.

4 Dec — bought café supplies for $3,100 on account. Supplies (asset, up) and Accounts Payable (liability, up). Not Supplies Expense — nothing has been used; the count at year end decides that. Not Inventory — Northlake does not resell these; inventory is a merchandiser's account (Module 8).

5 Dec — received $24,000 for season passes covering 1 December to 31 March. Cash (asset, up) and Unearned Revenue (liability, up). Debit Cash 24,000, credit Unearned Revenue 24,000. With November's 30,000, Northlake now holds 54,000 of passes for a four-month season — Module 5 releases one month of it.

8 Dec — signed a contract with the township to groom its trails for $9,000 over the winter. Which accounts? None. Nothing has been given and nothing received: no cash, no grooming, no invoice. A mutually unperformed contract is not a transaction, and the journal has no line for it. When the grooming is done, revenue is earned; when the township is billed, a receivable exists — each of those is an exchange, and each gets its entry then.

9 Dec — paid $30,000 of the groomer payable from November. Accounts Payable (liability, down — debit) and Cash (asset, down — credit). Not Equipment: the groomer was recorded at 96,000 when it was bought in November; paying for it later changes the liability, not the asset. Recording the asset again is how a balance sheet grows a phantom second groomer.