Concept explainers
1.
A journal records a transaction by debiting one account and giving credit to another account. All the transactions affecting the business entity are passed through the journal recording.
To Prepare:
Journal entries to record the transactions occurred for April in the books of LW.
1.
Answer to Problem 1PSA
When assets are invested into the business, all assets are debited, and the capital account is credited.
Expenses paid in advance before they are accrued represents asset and hence debited and cash is credited.
Asset purchase on credit requires the asset accounts to be debited and the liability for payable is credited.
Income earned in cash requires the cash account to be debited and income or revenue account is credited. Similarly, for income earned but not received in cash, an asset for receivable is debited and revenue is credited.
When trade payable is settled through payment, liability account is debited, and cash account is credited.
When cash is collected from the receivable asset, cash is debited, and the receivable is credited.
In case the owner withdraws cash from the business, the withdrawals account is debited, and cash is credited.
For expenses paid in cash, the expense account is debited, and cash is credited.
Explanation of Solution
LW | ||||
Journal | ||||
Date | Account Titles & Explanations | Account No. | Debit | Credit |
1-Apr | Cash | 101 | $80,000 | |
Office Equipment | 163 | $26,000 | ||
KT, Capital | 301 | $106,000 | ||
(to record the cash &equipment invested into the business) | ||||
2-Apr | Prepaid Rent | 131 | $9,000 | |
Cash | 101 | $9,000 | ||
(To record the rent paid in advance for 12 months) | ||||
3-Apr | Office Equipment | 163 | $8,000 | |
Office Supplies | 124 | $3,600 | ||
Accounts Payable | 201 | $11,600 | ||
(To record the equipment and supplies purchased on credit) | ||||
6-Apr | Cash | 101 | $4,000 | |
Service Revenue | 403 | $4,000 | ||
(Services rendered for cash) | ||||
9-Apr | Accounts Receivable | 106 | $6,000 | |
Service Revenue | 403 | $6,000 | ||
(Services rendered on credit) | ||||
13-Apr | Accounts Payable | 201 | $11,600 | |
Cash | 101 | $11,600 | ||
(Cash paid in full settlement) | ||||
19-Apr | Prepaid Insurance | 128 | $2,400 | |
Cash | 101 | $2,400 | ||
(Insurance paid in advance for 12 months) | ||||
22-Apr | Cash | 101 | $4,400 | |
Accounts Receivable | 106 | $4,400 | ||
(Cash collection as part payment) | ||||
25-Apr | Accounts Receivable | 106 | $2,890 | |
Service Revenue | 403 | $2,890 | ||
(Services rendered on credit) | ||||
28-Apr | KT, Withdrawals | 302 | $5,500 | |
Cash | 101 | $5,500 | ||
(Cash drawn for personal use) | ||||
29-Apr | Office Supplies | 124 | $600 | |
Accounts Payable | 201 | $600 | ||
(Supplies are purchased on credit) | ||||
30-Apr | Utilities Expense | 690 | $435 | |
Cash | 101 | $435 | ||
(Utility bill paid in cash) |
Under the date column, the transaction date is entered. In account titles and explanations tab, the respective accounts are recorded and the corresponding amount in debit or credit is entered in their respective column. Account numbers are maintained to identify a particular account.
2.
After the journal entries are passed, the accounts are posted to the ledger and the balances in each ledger arecalculated. Ledger preparation can have different formats depending on the business needs.
To Post:
Journal entries to the ledger accounts and computation of balances for each of those ledger accounts.
2.
Answer to Problem 1PSA
When the journal entries are posted to the ledger accounts, the following balances will appear:
Cash: $59,465
Accounts Receivable: $4,490
Office Supplies: $4,200
Prepaid Insurance: $2,400
Prepaid Rent: $9,000
Office Equipment: $34,000
KT, Withdrawals: $5,500
Utilities Expense: $435
Accounts Payable: $600
KT, Capital: $106,000
Service Revenue: $12,890
Explanation of Solution
General Ledger
Cash | Account No: 101 | ||||
Date | Debit | Credit | Balance | ||
1-Apr | $80,000 | $80,000 | |||
2-Apr | $9,000 | $71,000 | |||
6-Apr | $4,000 | $75,000 | |||
13-Apr | $11,600 | $63,400 | |||
19-Apr | $2,400 | $61,000 | |||
22-Apr | $4,400 | $65,400 | |||
28-Apr | $5,500 | $59,900 | |||
30-Apr | $435 | $59,465 | |||
Accounts Receivable | Account No: 106 | ||||
Date | Debit | Credit | Balance | ||
9-Apr | $6,000 | $6,000 | |||
22-Apr | $4,400 | $1,600 | |||
25-Apr | $2,890 | $4,490 | |||
Office Supplies | Account No: 124 | ||||
Date | Debit | Credit | Balance | ||
3-Apr | $3,600 | $3,600 | |||
29-Apr | $600 | $4,200 | |||
Prepaid Insurance | Account No: 128 | ||||
Date | Debit | Credit | Balance | ||
19-Apr | $2,400 | $2,400 | |||
Prepaid Rent | Account No: 131 | ||||
Date | Debit | Credit | Balance | ||
2-Apr | $9,000 | $9,000 | |||
Office Equipment | Account No: 163 | ||||
Date | Debit | Credit | Balance | ||
1-Apr | $26,000 | $26,000 | |||
3-Apr | $8,000 | $34,000 | |||
KT, Withdrawals | Account No: 302 | ||||
Date | Debit | Credit | Balance | ||
28-Apr | $5,500 | $5,500 | |||
Utilities Expense | Account No: 690 | ||||
Date | Debit | Credit | Balance | ||
30-Apr | $435 | $435 | |||
Accounts Payable | Account No: 201 | ||||
Date | Debit | Credit | Balance | ||
3-Apr | $8,000 | $8,000 | |||
3-Apr | $3,600 | $11,600 | |||
13-Apr | $11,600 | $0 | |||
29-Apr | $600 | $600 | |||
KT, Capital | Account No: 301 | ||||
Date | Debit | Credit | Balance | ||
1-Apr | $80,000 | $80,000 | |||
1-Apr | $26,000 | $106,000 | |||
Service Revenue | Account No: 403 | ||||
Date | Debit | Credit | Balance | ||
6-Apr | $4,000 | $4,000 | |||
9-Apr | $6,000 | $10,000 | |||
25-Apr | $2,890 | $12,890 |
Ledger entries are recorded in accordance with the journal chronologically and at each date balances are drawn.
3.
A trial balance is prepared to show the arithmetical accuracy of the ledgers so posted. However, this does not guarantee that accounts are prepared correctly. The trial balance serves as the prima facie document to show that the ledger balances are properly recorded from the journal.
To Prepare:
A trial balance as at April 30.
3.
Answer to Problem 1PSA
The debit and credit side of the trial balance are matched with the amount of $119,490.
Explanation of Solution
LW Trial Balance As of April 30 | |||
Account Title | Account No. | Debit | Credit |
Cash | 101 | $59,465 | |
Accounts Receivable | 106 | $4,490 | |
Office Supplies | 124 | $4,200 | |
Prepaid Insurance | 128 | $2,400 | |
Prepaid Rent | 131 | $9,000 | |
Office Equipment | 163 | $34,000 | |
Accounts Payable | 201 | $600 | |
K. Tanner, Capital | 301 | $106,000 | |
K. Tanner, Withdrawals | 302 | $5,500 | |
Services Revenue | 403 | $12,890 | |
Utilities Expense | 690 | $435 | |
Total | $119,490 | $119,490 |
The total of the debit side must be equal to the total of the credit side to prove the arithmetical accuracy of the ledger accounts posted.
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Chapter 2 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
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