Chapter 2, Problem 2.1P

1.

To determine

Journal:

Journal is the book, where the debit and credit entries of the accounting transactions are recorded in a chronological order. Every company must follow at least the basic form of journal called the ‘General journal’.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

• To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
• To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

T-account:

• T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
• The components of the T-account are as follows:

1. 1. a) The title of the account
   2. b) The left or debit side
   3. c) The right or credit side

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.

To Prepare: The general journal entries to record each transaction.

Explanation of Solution

Prepare journal entry for January month transactions.

Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
January 1 2016	Cash (A+)		100,000
	Common Stock (E+)			100,000
	(To record the issuance of common stock)
January 2 2016	Inventory (A+)		35,000
	Accounts Payable (L+)			35,000
	(To record the purchase of inventory on account)
January 4 2016	Prepaid Insurance (A+)		2,400
	Cash (A–)			2,400
	(To record the payment of insurance expense in advance)
January 10 2016	Accounts Receivable(A+)		12,000
	Sales revenue (E+)			12,000
	Cost of goods sold (E-)		7,000
	Inventory (A-)			7,000
	(To record a credit sale and the cost of credit sale)
January 15 2016	Cash (A+)		30,000
	Notes Payable (L+)			30,000
	(To record borrowed cash on notes payable)
January 20 2016	Salary  and Wages Expense (E–)		6,000
	Cash (A–)			6,000
	(To record the payment of  salary and wages expense in cash)
January 22 2016	Cash(A+)		10,000
	Sales revenue (E+)			10,000
	Cost of goods sold (E-)		6,000
	Inventory (A-)			6,000
	(To record a cash sale for the month and the cost of that sale)
January 24 2016	Accounts Payable (L–)		15,000
	Cash (A–)			15,000
	(To record the payment of cash on account)
January 26 2016	Cash (A+)		6,000
	Accounts Receivable (A–)			6,000
	(To record the cash received on account)
January 28 2016	Utility Expense (E–)		1,000
	Cash (A–)			1,000
	(To record the payment of utility expense in cash)
January 30 2016	Prepaid Rent (A+)		2,000
	Rent Expense (E		2,000
	Cash (A-)			4,000
	(To record the payment of rent expenses in advance)

Table (1)

2.

To determine

To Post: The entries to T-accounts.

Explanation of Solution

Post the entries to T-accounts.

Cash:

                                                               Cash Account

January 1		0
January 1		$100,000	January 4		$2,400
January 15		$30,000	January 20		$6,000
January 22		$10,000	January 24		$15,000
January 26		$6,000	January 28		$1,000
			January 30		$4,000
January 31		$117,600

Inventory:

Inventory Account

January 1		0
January 2		$35,000	January 10		$7,000
			January 22		$6,000
January 31		$22,000

Prepaid Rent:

     Prepaid Rent Account

January 1		0
January 30		$2,000
January 31		$2,000

Notes Payable:

Notes Payable Account

			January 1		0
			January 15		$30,000
			January 31		$30,000

Accounts Receivable:

Accounts Receivable Account

January 1		0
January 10		$12,000	January 26		$6,000
January 31		$6,000

Prepaid Insurance:

Prepaid Insurance Account

January 1		0
January 4		$2,400
January 31		$2,400

Accounts Payable:

Accounts Payable Account

			January 1		0
January 24		$15,000	January 2		$35,000
			January 31		$20,000

Common Stock:

Common Stock Account

			January 1		0
			January 1		$100,000
			January 31		$100,000

Sales Revenue:

Sales Revenue Account

			January 1		0
			January 10		$12,000
			January 22		$10,000
			January 31		$22,000

Salaries and Wages Expense:

Salaries and Wages Expense Account

January 1		0
January 20		$6,000
January 31		$6,000

Utilities Expense:

Utilities Expense Account

January 1		0
January 28		$1,000
January 31		$1,000

Cost of Goods Sold:

Cost of Goods Sold Account

January 1		0
January 10		$7,000
January 22		$6,000
January 31		$13,000

Rent Expense:

Rent Expense Account

January 1		0
January 30		$2,000
January 31		$2,000

3.

To determine

To Prepare: An unadjusted trial balance as of January 30, 2016.

Explanation of Solution

Prepare an unadjusted trial balance as of January 31, 2016.

Account Title	Debit ($)	Credit ($)
Cash	117,000
Accounts Receivable	6,000
Inventory	22,000
Prepaid insurance	2,400
Prepaid rent	2,000
Accounts payable		20,000
Notes payable		30,000
Common stock		100,000
Sales revenue		22,000
Cost of goods sold	13,000
Salaries and wages expense	6,000
Utilities expense	1,000
Rent expense	2,000
Totals	172,000	172,000

Table (2)