Concept explainers
Accounting cycle through unadjusted
• LO2–2, LO2–3
Halogen Laminated Products Company began business on January 1, 2018. During January, the following transactions occurred:
Jan. 1 | Issued common stock in exchange for $100,000 cash. |
2 | Purchased inventory on account for $35,000 (the perpetual inventory system is used). |
4 | Paid an insurance company $2,400 for a one-year insurance policy. |
10 | Sold merchandise on account for $12,000. The cost of the merchandise was $7,000. |
15 | Borrowed $30,000 from a local bank and signed a note. Principal and interest at 10% is to be repaid in six months. |
20 | Paid employees $6,000 salaries and wages for the first half of the month. |
22 | Sold merchandise for $10,000 cash. The cost of the merchandise was $6,000. |
24 | Paid $15,000 to suppliers for the merchandise purchased on January 2. |
26 | Collected $6,000 on account from customers. |
28 | Paid $1,000 to the local utility company for January gas and electricity. |
30 | Paid $4,000 rent for the building. $2,000 was for January rent, and $2,000 for February rent. |
Required:
1. Prepare general
2.
3. Prepare an unadjusted trial balance as of January 30, 2018.
1.
Journal:
Journal is the book, where the debit and credit entries of the accounting transactions are recorded in a chronological order. Every company must follow at least the basic form of journal called the ‘General journal’.
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
T-account:
- T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
- The components of the T-account are as follows:
-
- a) The title of the account
- b) The left or debit side
- c) The right or credit side
Unadjusted trial balance:
The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.
To Prepare: The general journal entries to record each transaction.
Explanation of Solution
Prepare journal entry for January month transactions.
Date | Account Title and Explanation | Post Ref | Debit($) | Credit($) |
January 1 2018 | Cash (A+) | 100,000 | ||
Common Stock (E+) | 100,000 | |||
(To record the issuance of common stock) | ||||
January 2 2018 | Inventory (A+) | 35,000 | ||
Accounts Payable (L+) | 35,000 | |||
(To record the purchase of inventory on account) | ||||
January 4 2018 | Prepaid Insurance (A+) | 2,400 | ||
Cash (A–) | 2,400 | |||
(To record the payment of insurance expense in advance) | ||||
January 10 2018 | 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 2018 | Cash (A+) | 30,000 | ||
Notes Payable (L+) | 30,000 | |||
(To record borrowed cash on notes payable) | ||||
January 20 2018 | Salary and Wages Expense (E–) | 6,000 | ||
Cash (A–) | 6,000 | |||
(To record the payment of salary and wages expense in cash) | ||||
January 22 2018 | 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 2018 | Accounts Payable (L–) | 15,000 | ||
Cash (A–) | 15,000 | |||
(To record the payment of cash on account) | ||||
January 26 2018 | Cash (A+) | 6,000 | ||
Accounts Receivable (A–) | 6,000 | |||
(To record the cash received on account) | ||||
January 28 2018 | Utility Expense (E–) | 1,000 | ||
Cash (A–) | 1,000 | |||
(To record the payment of utility expense in cash) | ||||
January 30 2018 | 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 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 | $2,000 |
3.
To Prepare: An unadjusted trial balance as of January 30, 2018.
Explanation of Solution
Prepare an unadjusted trial balance as of January 31, 2018.
Account Title | Debit ($) | 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)
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Chapter 2 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
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