Concept explainers
Journal entries and
On October 1, 20Y4, Jay Pryor established an interior decorating business. Pioneer Designs. During the month, Jay completed the following transactions related to the business:
Oct 1. Jay transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $18,000.
4. Paid rent for period of October 4 to end of month, $3,000.
10. Purchased a used truck for $23,750, paying $3,750 cash and giving a note payable for the remainder.
13. Purchased equipment on account, $10,500.
14. Purchased supplies for cash, $2,100.
Oct 15 Paid annual premiums on property and casualty insurance, $3,600.
15. Received cash for job completed, $8,950.
Enter the following transactions on Page 2 of the two column journal:
21. Paid creditor a portion of the amount owed for equipment purchased on October 13, $2,000.
24. Recorded jobs completed on account and sent invoices to customers. $ 14.1 SO.
26. Received an invoice for truck expenses, to be paid in November, $700.
27. Paid utilities expense, $2,240.
27. Paid miscellaneous expenses, $1,100.
29. Received cash from customers on account $7,600.
30. Paid wages of employees, $4,800.
31. Paid dividends, $3,500.
Instructions
1. Journalize each transaction in a two-column journal beginning on Page I. referring to the following chart of accounts in selecting the accounts to lie debited and credited. (Do not insert the account numbers in the journal at this time.)
11 Cash
12
13 Supplies
14 Prepaid Insurance 16 Equipment
18 Truck
21 Notes Payable
22 Accounts Payable
31 Common Stock
33 Dividends
41 Fees Earned
51 Wages Expense
53 Rent Expense
54 Utilities Expense
55 Truck Expense
59 Miscellaneous Expense
2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 20Y4.
4. Determine the excess of revenues over expenses for October.
5. Can you think of any reason why the amount determined in (4) might not be the net income for October?
1.
To journalize: The transactions in a two column journal beginning on Page 1.
Explanation of Solution
Journal:
Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.
Rules of debit and credit:
“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.
Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.
Journalize each transaction in a two column journal beginning on Page 1.
Journal Page 1 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
20Y4 | Cash | 11 | 18,000 | ||
October | 1 | Common stock | 31 | 18,000 | |
(To record the transfer of cash from personal bank account to business account in exchange for common stock) | |||||
4 | Rent expense | 53 | 3,000 | ||
Cash | 11 | 3,000 | |||
(To record the payment of rent for the month of June) | |||||
10 | Truck | 18 | 23,750 | ||
Cash | 11 | 3,750 | |||
Notes payable | 21 | 20,000 | |||
(To record the purchase of truck by cash and on account) | |||||
13 | Equipment | 16 | 10,500 | ||
Accounts payable | 22 | 10,500 | |||
(To record the purchase of equipment on account) | |||||
14 | Supplies | 13 | 2,100 | ||
Cash | 11 | 2,100 | |||
(To record the purchase of supplies) | |||||
15 | Prepaid insurance | 14 | 3,600 | ||
Cash | 11 | 3,600 | |||
(To record the payment made for insurance premiums) | |||||
15 | Cash | 11 | 8,950 | ||
Fees earned | 41 | 8,950 | |||
(To record the receipt of cash for the completed job) |
Table (1)
Journal Page 2 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
20Y4 | 21 | Accounts payable | 22 | 2,000 | |
October | Cash | 11 | 2,000 | ||
(To record the payment made to creditor on account) | |||||
24 | Accounts receivable | 12 | 14,150 | ||
Fees earned | 41 | 14,150 | |||
(To record the invoices sent to customers for the jobs completed) | |||||
26 | Truck expense | 55 | 700 | ||
Accounts payable | 22 | 700 | |||
(To record the receipt of invoices for truck expenses) | |||||
27 | Utilities expense | 54 | 2,240 | ||
Cash | 11 | 2,240 | |||
(To record the payment of utilities expense) | |||||
27 | Miscellaneous expense | 59 | 1,100 | ||
Cash | 11 | 1,100 | |||
(To record the payment of miscellaneous expense) | |||||
29 | Cash | 11 | 7,600 | ||
Accounts receivable | 12 | 7,600 | |||
(To record the receipt of cash from customers on account) | |||||
30 | Wages expense | 51 | 4,800 | ||
Cash | 11 | 4,800 | |||
(To record the payment of wages expense) | |||||
31 | Dividends | 33 | 3,500 | ||
Cash | 11 | 3,500 | |||
(To record the withdrawal of cash for personal use) |
Table (2)
2.
To post: The journal to a ledger of four-column accounts with appropriate post references, and the balances after each transaction is posted.
Explanation of Solution
T-account:
An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:
- The title of the account
- The left or debit side
- The right or credit side
General Ledger
Account: Cash Account no. 11 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 1 | 1 | 18,000 | 18,000 | |||
4 | 1 | 3,000 | 15,000 | ||||
10 | 1 | 3,750 | 11,250 | ||||
14 | 1 | 2,100 | 9,150 | ||||
15 | 1 | 3,600 | 5,550 | ||||
15 | 1 | 8,950 | 14,500 | ||||
21 | 2 | 2,000 | 12,500 | ||||
27 | 2 | 2,240 | 10,260 | ||||
27 | 2 | 1,100 | 9,160 | ||||
29 | 2 | 7,600 | 16,760 | ||||
30 | 2 | 4,800 | 11,960 | ||||
31 | 2 | 3,500 | 8,460 |
Table (3)
Account: Accounts Receivable Account no. 12 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 24 | 2 | 11,900 | 14,150 | |||
29 | 2 | 7,600 | 6,550 |
Table (4)
Account: Supplies Account no. 13 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 14 | 1 | 2,100 | 2,100 |
Table (5)
Account: Prepaid Insurance Account no. 14 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 15 | 1 | 3,600 | 3,600 |
Table (6)
Account: Equipment Account no. 16 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 13 | 1 | 10,500 | 10,500 |
Table (7)
Account: Truck Account no. 18 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 10 | 1 | 23,750 | 23,750 |
Table (8)
Account: Notes Payable Account no. 21 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 10 | 1 | 20,000 | 20,000 |
Table (9)
Account: Accounts Payable Account no. 22 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 13 | 1 | 10,500 | 10,500 | |||
21 | 2 | 2,000 | 8,500 | ||||
26 | 2 | 700 | 9,200 |
Table (10)
Account: Common Stock Account no. 31 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 1 | 1 | 18,000 | 18,000 |
Table (11)
Account: Dividends Account no. 33 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 31 | 2 | 3,500 | 3,500 |
Table (12)
Account: Fees earned Account no. 41 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 15 | 1 | 8,950 | 8,950 | |||
24 | 2 | 14,150 | 23,100 |
Table (13)
Account: Wages expense Account no. 51 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 30 | 2 | 4,800 | 4,800 |
Table (14)
Account: Rent expense Account no. 53 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 4 | 1 | 3,000 | 3,000 |
Table (15)
Account: Utilities expense Account no. 54 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 27 | 2 | 2,240 | 2,240 |
Table (16)
Account: Truck expense Account no. 55 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 26 | 2 | 700 | 700 |
Table (17)
Account: Miscellaneous expense Account no. 59 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 27 | 2 | 1,100 | 1,100 |
Table (18)
3.
To prepare: An unadjusted trial balance of P Designs as of October 31, 20Y4.
Explanation of Solution
Unadjusted trial balance:
The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.
Prepare an unadjusted trial balance of P Designs as of October 31, 20Y4 as follows:
P Designs Unadjusted Trial Balance October 31, 20Y4 |
|||
Particulars |
Account No. |
Debit $ | Credit $ |
Cash | 11 | 8,460 | |
Accounts receivable | 12 | 6,550 | |
Supplies | 13 | 2,100 | |
Prepaid insurance | 14 | 3,600 | |
Equipment | 16 | 10,500 | |
Truck | 18 | 23,750 | |
Notes payable | 21 | 20,000 | |
Accounts payable | 22 | 9,200 | |
Common stock | 31 | 18,000 | |
Dividends | 33 | 3,500 | |
Fees earned | 41 | 23,100 | |
Wages expense | 51 | 4,800 | |
Rent expense | 53 | 3,000 | |
Utilities expense | 54 | 2,240 | |
Van expense | 55 | 700 | |
Miscellaneous expense | 59 | 1,100 | |
Total | 70,300 | 70,300 |
Table (19)
4.
The excess of revenues over expenses for the month of October.
Answer to Problem 2.3BPR
The excess of revenues over expenses for the month of October is $11,260.
Explanation of Solution
Calculate the excess of revenues over expenses.
Hence, the excess of revenues over expenses for the month of October is $11,260.
5.
To discuss: The reason behind the amount determined in (4) might not be the net income for October.
Explanation of Solution
The amount determined in (4) might not be the net income for October, because adjusting entries for supplies used, insurance expired, and depreciation should be passed at the end of the accounting period in order to bring the accounts up to date.
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Chapter 2 Solutions
Corporate Financial Accounting
- Prepare journal entries to record the following transactions that occurred in March: A. on first day of the month, purchased building for cash, $75,000 B. on fourth day of month, purchased inventory, on account, $6,875 C. on eleventh day of month, billed customer for services provided, $8,390 D. on nineteenth day of month, paid current month utility bill, $2,000 E. on last day of month, paid suppliers for previous purchases, $2,850arrow_forwardLavender Company started its business on April 1, 2019. The following are the transactions that happened during the month of April. Prepare the journal entries in the journal on Page 1. A. The owners invested $7,500 from their personal account to the business account. B. Paid rent $600 with check #101. C. Initiated a petty cash fund $250 check #102. D. Received $350 cash for services rendered. E. Purchased office supplies for $125 with check #103. F. Purchased computer equipment $1,500, paid $500 with check #104, and will pay the remainder in 30 days. G. Received $750 cash for services rendered. H. Paid wages $375, check #105. I. Petty cash reimbursement Office Supplies $50, Maintenance Expense $80, Miscellaneous Expense $60. Cash on hand $8. Check #106. J. Increased Petty Cash by $70, check #107.arrow_forwardInner Resources Company started its business on April 1, 2019. The following transactions occurred during the month of April. Prepare the journal entries in the journal on Page 1. A. The owners invested $8,500 from their personal account to the business account. B. Paid rent $650 with check #101. C. Initiated a petty cash fund $550 check #102. D. Received $750 cash for services rendered. E. Purchased office supplies for $180 with check #103. F. Purchased computer equipment $8,500, paid $1,600 with check #104 and will pay the remainder in 30 days. G. Received $1,200 cash for services rendered. H. Paid wages $560, check #105. I. Petty cash reimbursement office supplies $200, Maintenance Expense $140, Miscellaneous Expense $65. Cash on Hand $93. Check #106. J. Increased Petty Cash by $100, check #107.arrow_forward
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Jay transferred cash from a personal bank account to an account to be used for the business, 18,000. 4.Paid rent for period of October 4 to end of month, 3,000. 10.Purchased a used truck for 23,750, paying 3,750 cash and giving a note payable for the remainder. 13.Purchased equipment on account, 10,500. 14.Purchased supplies for cash, 2,100. 15.Paid annual premiums on property and casualty insurance, 3,600. 15.Received cash for job completed, 8,950. Enter the following transactions on Page 2 of the two-column journal: 21.Paid creditor a portion of the amount owed for equipment purchased on October 13, 2,000. 24.Recorded jobs completed on account and sent invoices to customers, 14,150. 26.Received an invoice for truck expenses, to be paid in November, 700. 27.Paid utilities expense, 2,240. 27.Paid miscellaneous expenses, 1,100. Oct. 29. Received cash from customers on account, 7,600. 30.Paid wages of employees, 4,800. 31.Withdrew cash for personal use, 3,500. Instructions 1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Journal entry explanations may be omitted. 2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted. 3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 2019. 4. Determine the excess of revenues over expenses for October. 5. Can you think of any reason why the amount determined in (4) might not be the net income for October?arrow_forwardThe following transactions were completed by Hammond Auto Supply during January, which is the first month of this fiscal year. Terms of sale are 2/10, n/30. The balances of the accounts as of January 1 have been recorded in the general ledger in your Working Papers or in CengageNow. Hammond Auto Supply does not track cash sales by customer. Jan. 2Issued Ck. No. 6981 to JSS Management Company for monthly rent, 775. 2J. Hammond, the owner, invested an additional 3,500 in the business. 4Bought merchandise on account from Valencia and Company, invoice no. A691, 2,930; terms 2/10, n/30; dated January 2. 4Received check from Vega Appliance for 980 in payment of 1,000 invoice less discount. 4Sold merchandise on account to L. Paul, invoice no. 6483, 850. 6Received check from Petty, Inc., 637, in payment of 650 invoice less discount. 7Issued Ck. No. 6982, 588, to Fischer and Son, in payment of invoice no. C1272 for 600 less discount. 7Bought supplies on account from Doyle Office Supply, invoice no. 1906B, 108; terms net 30 days. 7Sold merchandise on account to Ellison and Clay, invoice no. 6484, 787. 9Issued credit memo no. 43 to L. Paul, 54, for merchandise returned. 11Cash sales for January 1 through January 10, 4,863.20. 11Issued Ck. No. 6983, 2,871.40, to Valencia and Company, in payment of 2,930 invoice less discount. 14Sold merchandise on account to Vega Appliance, invoice no. 6485, 2,050. Jan. 18Bought merchandise on account from Costa Products, invoice no. 7281D, 4,854; terms 2/10, n/60; dated January 16; FOB shipping point, freight prepaid and added to the invoice, 147 (total 5,001). 21Issued Ck. No. 6984, 194, to M. Miller for miscellaneous expenses not recorded previously. 21Cash sales for January 11 through January 20, 4,591. 23Issued Ck. No. 6985 to Forbes Freight, 96, for freight charges on merchandise purchased on January 4. 23Received credit memo no. 163, 376, from Costa Products for merchandise returned. 29Sold merchandise on account to Bruce Supply, invoice no. 6486, 1,835. 31Cash sales for January 21 through January 31, 4,428. 31Issued Ck. No. 6986, 53, to M. Miller for miscellaneous expenses not recorded previously. 31Recorded payroll entry from the payroll register: total salaries, 6,200; employees federal income tax withheld, 872; FICA Social Security tax withheld, 384.40, FICA Medicare tax withheld, 89.90. 31Recorded the payroll taxes: Social Security tax, 384.40, FICA Medicare tax, 89.90; state unemployment tax, 334.80; federal unemployment tax, 37.20. 31Issued Ck. No. 6987, 4,853.70, for salaries for the month. 31J. Hammond, the owner, withdrew 1,000 for personal use, Ck. No. 6988. Required 1. Record the transactions for January using a sales journal, page 73; a purchases journal, page 56; a cash receipts journal, page 38; a cash payments journal, page 45; and a general journal, page 100. Assume the periodic inventory method is used. 2. Post daily all entries involving customer accounts to the accounts receivable ledger. 3. Post daily all entries involving creditor accounts to the accounts payable ledger. 4. 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