Concept explainers
1.
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.
To Record: Each transaction of U Sewing machine for the month of March.
1.
Answer to Problem 2.7AP
Journalize the transactions of U Sewing machine for the month of March.
Date | Account Title and Explanation | Debit($) | Credit($) |
March 1 | Cash | 3,000 | |
Common Stock | 3,000 | ||
(To record common stock issued for cash) | |||
March 3 | Equipment | 2,700 | |
Notes Payable | 2,700 | ||
(To record purchase of equipment in exchange of accounts payable.) | |||
March 5 | Rent Expense | 600 | |
Cash | 600 | ||
(To record the rent payment made.) | |||
March 7 | No entry | ||
March 12 | Supplies | 130 | |
Accounts Payable | 130 | ||
(To record purchase of supplies on account) | |||
March 15 | Cash | 800 | |
Service revenue | 800 | ||
(To record the payment received for the altered dresses.) | |||
March 19 | Cash | 700 | |
Deferred Revenue | 700 | ||
(To record the receipt of cash in advance.) | |||
March 25 | Deferred revenue | 700 | |
Service Revenue | 700 | ||
(To record the amount of unearned service revenue earned during the year) | |||
March 30 | Utility Expense | 95 | |
Cash | 95 | ||
(To record utility expense payment) | |||
March 31 | Dividends | 150 | |
Cash | 150 | ||
(To record the payment of dividends) |
Table (1)
Explanation of Solution
Issued Common stock for cash:
- Cash is an asset account and the amount has increased because cash is invested in the business. Therefore, debit Cash account with $3,000.
- Common Stock is a
stockholders’ equity account and the amount has increased because of receipt of stock in exchange of cash. Therefore, credit Common Stock account with $3,000.
Purchased equipment of $2,700, by signing a note:
- Equipment is an asset account and the amount has increased because equipment is purchased. Therefore, debit Equipment account with $2,700.
- Notes payable is a liability account. The liability has increased because equipment is purchased. Therefore, credit Notes Payable account with $2,700.
Payment of rent for the month of March:
- Rent Expense is an expense account. Expenses reduce the amount of stockholders’ equity. Therefore, debit Rent Expense account with $600.
- Cash is an asset account. Since rent is paid, cash amount has decreased. Therefore, credit Cash account with $600.
Payment for alterations after the completion of work:
No entry required.
Purchase of supplies on account:
- Supplies are an asset account and the amount has increased because supplies are purchased. Therefore, debit Supplies Inventory account with $130.
- Accounts Payable is a liability account. Since the amount of supplies is due within a month, the amount to be paid has increased. Therefore, credit Accounts Payable account with $130.
Delivery of altered dresses and received payment:
- Cash is an asset account and it increases by $800. Therefore, debit cash account by $800.
- Service revenue increases the value of equity by $800. Therefore, credit service revenue account by $800.
Receipt of payment in advance:
- Cash is an asset and increased due to receipt of cash in advance. Therefore, is debited.
- Unearned revenue is a liability. There is a increase in liabilities, and therefore it is credited.
Delivery of altered dresses:
- Unearned revenue is a liability. There is a decrease in liabilities, and therefore it is debited.
- Service revenue is a component of Equity account. There is an increase in Equity, and therefore it is credited.
Payment made for the utilities:
- Utility Expense is an expense account. Expenses reduce the amount of stockholders’ equity. Therefore, debit Consulting Expense account with $95.
- Cash is an asset account. Since consulting expense is paid, cash amount has decreased. Therefore, credit Cash account with $95.
Payment of dividends:
- Dividends are an expense and decrease the value of equity. Therefore, debit expense account with $150.
- Cash is an asset and decreases the value of asset due to payment made. Therefore, credit Cash account with $150.
2. and 3.
T-account:
An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:
- The title of the account
- The left or debit side
- The right or credit side
To Calculate: The balance of each account at March 31 by posting each transaction to the T-accounts.
2. and 3.
Explanation of Solution
Cash Account
Cash | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 1 | Common stock | 3,000 | March 6 | Rent expense | 600 | |
March 15 | Service revenue | 800 | March 30 | Utility expense | 95 | |
March 19 | Unearned revenue | 700 | March 31 | Dividends | 150 | |
March 31 | Balance c/d | 3,655 | ||||
4,500 | 4,500 | |||||
April 1 | Balance b/d | 3,655 |
Table (2)
Common Stock Account
Common Stock | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 31 | Balance c/d | 3,000 | March 1 | Cash | 3,000 | |
Total | 3,000 | Total | 3,000 | |||
April 1 | Balance | 3,000 |
Table (3)
Equipment Account
Equipment | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 3 | Notes Payable | 2,700 | March 31 | Balance c/d | 2,700 | |
Total | 2,700 | Total | 2,700 | |||
April 1 | Balance b/d | 2,700 |
Table (4)
Supplies Account
Supplies | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 12 | Accounts payable | 130 | March 31 | Balance c/d | 130 | |
Total | 130 | Total | 130 | |||
April 1 | Balance b/d | 130 |
Table (5)
Accounts Payable Account
Accounts Payable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 31 | Balance c/d | 130 | March 12 | Supplies | 130 | |
Total | 130 | Total | 130 | |||
April1 | Balance b/d | 130 |
Table (6)
Unearned Revenue Account
Unearned Revenue | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 25 | Service Revenue | 700 | March 15 | Cash | 700 | |
Total | 700 | Total | 700 |
Table (7)
Service Revenue Account
Sales Revenue | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 31 | Balance c/d | 1,500 | March 15 | Cash | 800 | |
March 25 | Unearned Revenue | 700 | ||||
Total | 1,500 | Total | 1,500 | |||
April 1 | Balance b/d | 1,500 |
Table (8)
Notes Payable | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 31 | Balance c/d | 2,700 | March 3 | Equipment | 2,700 | |
Total | 2,700 | Total | 2,700 | |||
April1 | Balance b/d | 2,700 |
Table (9)
Utility Expense Account
Utility Expense | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 30 | Cash | 95 | March 31 | Balance c/d | 95 | |
Total | 95 | Total | 95 | |||
April 1 | Balance b/d | 95 |
Table (10)
Rent Expense Account
Utility Expense | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 5 | Cash | 600 | March 31 | Balance c/d | 600 | |
Total | 600 | Total | 600 | |||
April 1 | Balance b/d | 600 |
Table (11)
Dividends Account
Dividends | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
March 31 | Cash | 150 | March 31 | Balance c/d | 150 | |
Total | 150 | Total | 150 | |||
April 1 | Balance b/d | 150 |
Table (12)
4.
A trial balance is the summary of all the ledger accounts. Debit balances are listed in left column and credit balances are listed in right column of the trial balance. The totals of debit and credit column should be equal. The trial balance is usually prepared to check the accuracy of ledger accounts balances, before the preparation of financial statements.
To Prepare: A trial balance as of March 31.
4.
Explanation of Solution
Prepare the trial balance of U Sewing machine for the month of March 31.
U Sewing Machine Trial Balance March 31 | ||
Account Titles | Debit ($) | Credit ($) |
Cash | 3,655 | |
Supplies | 130 | |
Equipment | 2,700 | |
Accounts payable | 1300 | |
Unearned revenue | 0 | |
Notes payable | 2,700 | |
Common stock | 3,000 | |
Dividends | 150 | |
Service revenue | 1,500 | |
Rent expense | 600 | |
Utilities expense | 95 | |
Total | 7,330 | 7,330 |
Table (13)
Hence, the trial balance is prepared, and the debit column and credit column of the trial balance are agreed, both having balance of $7,330.
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Chapter 2 Solutions
FINANCIAL ACCOUNTING (LL+CONNECT)
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