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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Journal entries and trial balance

On October 1, 2016, 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, $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.
Oct. 27. Paid miscellaneous expenses, $1,100.
29. Received cash from customers on account, $7,600.
30. Paid wages of employees, $4,800.
31. Withdrew cash for persona l use, $3,500.

Instructions

  1. 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.

    11 Cash

    12 Accounts Receivable

    13 Supplies

    14 Prepaid Insurance

    16 Equipment

    18 Truck

    21 Notes Payable

    22 Accounts Payable

    31 Jay Pryor, Capital

    32 Jay Pryor, Drawing

    41 Fees Earned

    51 Wages Expense

    53 Rent Expense

    54 Utilities Expense

    55 Truck Expense

    59 Miscellaneous Expense

  2. 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. 3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 2016.
  4. 4. Determine the excess of revenues over expenses for October.
  5. 5. Can you think of any reason why the amount determined in (4) might not be the net income for October?

1.

To determine

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”.

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

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 journalize: The transactions in a two column journal beginning on Page 1.

Explanation

Journalize each transaction in a two column journal beginning on Page 1.

                                                   Journal                                           Page          1    
Date Description Post. Ref Debit ($) Credit ($)
2016   Cash 11 18,000  
October 1     Person JP, Capital 31   18,000
    (To record the transfer of cash from personal bank account to business account)      
 
  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...

2.

To determine

To post: The journal to a ledger of four-column accounts with appropriate post references, and the balances after each transaction is posted.

3.

To determine

To prepare: An unadjusted trial balance of P Designs as of October 31, 2016.

4.

To determine

The excess of revenues over expenses for the month of October.

5.

To determine

To discuss: The reason behind the amount determined in (4) might not be the net income for October.

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