Concept explainers
Accounting cycle through unadjusted
• LO2–2, LO2–3
Account Title | Debits | Credits |
Cash | 5,000 | |
Accounts receivable | 2,000 | |
Inventory | 5,000 | |
Equipment | 11,000 | |
Accumulated |
3,500 | |
Accounts payable | 3,000 | |
Common stock | 10,000 | |
6,500 | ||
Sales revenue | –0– | |
Cost of goods sold | –0– | |
Salaries and wages expense | –0– | |
Rent expense | –0– | |
Advertising expense | –0– | |
Totals | 23,000 | 23,000 |
The following transactions occurred during January 2018:
Jan. 1 | Sold merchandise for cash, $3,500. The cost of the merchandise was $2,000. The company uses the perpetual inventory system. |
2 | Purchased equipment on account for $5,500 from the Strong Company. |
4 | Received a $150 bill from the local newspaper for an advertisement that appeared in the paper on January 2. |
8 | Sold merchandise on account for $5,000. The cost of the merchandise was $2,800. |
10 | Purchased merchandise on account for $9,500. |
13 | Purchased equipment for cash, $800. |
16 | Paid the entire amount due to the Strong Company. |
18 | Received $4,000 from customers on account. |
20 | Paid $800 to the owner of the building for January’s rent. |
30 | Paid employees $3,000 for salaries and wages for the month of January. |
31 | Paid a cash dividend of $1,000 to shareholders. |
Required:
1. Set up T-accounts and enter the beginning balances as of January 1, 2018.
2. Prepare general
3.
4. Prepare an unadjusted trial balance as of January 31, 2018.
1.
Journal:
Journal is the book, where the debit and credit entries of the accounting transactions are recorded in a chronological order. Every company must follow at least the basic form of journal called the ‘General journal’.
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
T-account:
- T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
- The components of the T-account are as follows:
-
- a) The title of the account
- b) The left or debit side
- c) The right or credit side
Unadjusted trial balance:
The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.
To Prepare: The general journal entries to record each transaction.
Explanation of Solution
Prepare journal entry for January month transactions.
Date | Account Title and Explanation | Post Ref | Debit($) | Credit($) |
January 1 2018 | Cash(A+) | 3,500 | ||
Sales revenue (E+) | 3,500 | |||
Cost of goods sold (E-) | 2,000 | |||
Inventory (A-) | 2,000 | |||
(To record a cash sale for the month and the cost of that sale) | ||||
January 2 2018 | Equipment (A+) | 5,500 | ||
Accounts payable (L+) | 5,500 | |||
(To record the purchase of equipment on account) | ||||
January 4 2018 | Advertising expense (E–) | 150 | ||
Accounts payable (L+) | 150 | |||
(To record the receipt of advertising bills) | ||||
January 8 2018 | Accounts receivable (A+) | 5,000 | ||
Sales revenue (E+) | 5,000 | |||
Cost of goods sold (E-) | 2,800 | |||
Inventory (A-) | 2,800 | |||
(To record a cash sale for the month and the cost of that sale) | ||||
January 10 2018 | Inventory (A+) | 9,500 | ||
Accounts Payable (L+) | 9,500 | |||
(To record the purchase of inventory on account) | ||||
January 13 2018 | Equipment (A+) | 800 | ||
Cash (A–) | 800 | |||
(To record the purchase of equipment on account) | ||||
January 16 2018 | Accounts Payable (L–) | 5,500 | ||
Cash (A–) | 5,500 | |||
(To record the payment of cash on account) | ||||
January 18 2018 | Cash (A+) | 4,000 | ||
Accounts Receivable (A–) | 4,000 | |||
(To record the cash received on account) | ||||
January 20 2018 | Rent Expense (E–) | 800 | ||
Cash (A–) | 800 | |||
(To record the payment of utility expense in cash) | ||||
January 30 2018 | Salary and Wages Expense (E–) | 3,000 | ||
Cash (A–) | 3,000 | |||
(To record the payment of salary and wages expense in cash) | ||||
January 31 2018 | Retained earnings (E–) | 1,000 | ||
Cash (A–) | 1,000 | |||
(To record the payment of cash dividend) |
Table (1)
1, and 3.
To Post: The beginning balances and entries to T-accounts.
Explanation of Solution
Post the beginning balances and entries to T-accounts.
Set up T-accounts with beginning balance and post the entries to T-accounts.
Cash Account:
Cash Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 5,000 | January 13 | Equipment | 800 | |
January 1 | Sales Revenue | 3,500 | January 16 | Accounts payable | 5,500 | |
January 18 | Accounts Receivable | 4,000 | January 20 | Rent Expense | 800 | |
January 30 | Salaries and Wages Expense | 3,000 | ||||
January 31 | Retained Earnings | 1,000 | ||||
Total | 12,500 | Total | 11,100 | |||
January 31 | Ending Balance | 1,400 |
Table (2)
Accounts Receivable:
Accounts Receivable Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 2,000 | January 18 | Cash |
4,000 | |
January 8 | Sales Revenue | 5,000 | ||||
Total | 7,000 | Total | 4,000 | |||
January 31 | Ending Balance | 3,000 |
Table (3)
Inventory Account:
Inventory Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 5,000 | January 1 | Cost of goods sold | 2,000 | |
January 10 | Accounts payable | 9,500 | January 8 | Cost of goods sold | 2,800 | |
Total | 14,500 | Total | 4,800 | |||
January 31 | Ending Balance | 9,700 |
Table (4)
Equipment Account:
Equipment Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 11,000 | - | |||
January 2 | Accounts payable |
5,500 | - | |||
January 13 | Cash | 800 | ||||
Total | 17,300 | Total | - | |||
January 31 | Ending Balance | 17,300 |
Table (5)
Accumulated Depreciation- Equipment:
Accumulated Depreciation-Equipment Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 3,500 | ||||
January 31 | Ending Balance | 3,500 |
Table (6)
Accounts Payable:
Accounts Payable Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 16 | Cash |
5,500 | January 1 | Beginning balance | 3,000 | |
January 2 | Equipment | 5,500 | ||||
January 4 | Advertising Expense | 150 | ||||
January 10 | Inventory | 9,500 | ||||
Total | 5,500 | Total | 18,150 | |||
January 31 | Ending Balance | 12,650 |
Table (7)
Common Stock:
Common Stock Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 10,000 | ||||
Total | 10,000 | |||||
Ending Balance | 10,000 |
Table (8)
Retained Earnings:
Retained Earnings Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 31 | Cash (Dividends paid) | 1,000 | January 1 | Beginning balance | 6,500 | |
Total | 1,000 | Total | 6,500 | |||
January 31 | Ending Balance | 5,500 |
Table (9)
Sales Revenue:
Sales Revenue Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 0 | ||||
January 1 | Cash | 3,500 | ||||
January 8 | Accounts receivable | 5,000 | ||||
Total | 8,500 | |||||
January 31 | Ending Balance | 8,500 |
Table (10)
Cost of Goods Sold:
Cost of Goods Sold Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 0 | - | |||
January 1 | Inventory | 2,000 | ||||
January 8 | Inventory | 2,800 | ||||
Total | 4,800 | Total | - | |||
January 31 | Ending Balance | 4,800 |
Table (11)
Rent Expense:
Rent Expense Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 0 | - | |||
January 20 | Cash | 800 | ||||
Total | 800 | Total | - | |||
January 31 | Ending Balance | 800 |
Table (12)
Salaries and Wages Expense:
Salaries and Wages Expense Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 0 | - | |||
January 30 | Cash | 3,000 | ||||
Total | 3,000 | Total | - | |||
January 31 | Ending Balance | 3,000 |
Table (13)
Advertising Expense:
Advertising Expense Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Beginning balance | 0 | - | |||
January 4 | Cash | 150 | ||||
Total | 150 | Total | - | |||
January 31 | Ending Balance | 150 |
Table (14)
3.
To Prepare: An unadjusted trial balance as of January 30, 2018.
Explanation of Solution
Prepare an unadjusted trial balance as of January 31, 2018.
Corporation WM Unadjusted Trial Balance As of January 31, 2016 |
||
Particulars | Debit ($) | Credit ($) |
Cash | 1,400 | |
Accounts receivable | 3,000 | |
Inventory | 9,700 | |
Equipment | 17,300 | |
Accumulated depreciation | 3,500 | |
Accounts payable | 12,650 | |
Common stock | 10,000 | |
Retained Earnings | 5,500 | |
Sales revenue | 8,500 | |
Cost of goods sold | 4,800 | |
Salaries and wages expense | 3,000 | |
Rent expense | 800 | |
Advertising expense | 150 | |
Total | 40,150 | 40,150 |
Table (15)
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