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 RH Expeditions for the month of December.
1.
Explanation of Solution
Journalize the transactions of RH Expeditions for the month of December.
Date | Account Title and Explanation | Debit($) | Credit($) |
December 1 | Rent Expense | 900 | |
Cash | 900 | ||
(To record the payment of rent expenses) | |||
December 5 | Cash | 2,800 | |
Service Revenue | 2,800 | ||
(To record the revenues earned) | |||
December 8 | Cash | 10,000 | |
Note Payable | 10,000 | ||
(To record the purchase of equipment) | |||
December 12 | Cash | 3,500 | |
3,500 | |||
(To record the receipt of cash from revenues earned) | |||
December 13 | Cash | 20,000 | |
Common Stock | 20,000 | ||
(To record the issuance of common stock) | |||
December 15 | Salaries Expense | 1,200 | |
Cash | 1,200 | ||
(To record the payment of salaries expense) | |||
December 17 | Advertising Expense | 1,000 | |
Cash | 1,000 | ||
(To record the payment of advertising expense) | |||
December 22 | Accounts Receivable | 3,200 | |
Service Revenue | 3,200 | ||
(To record the revenues earned) | |||
December 23 | No journal entry | ||
December 26 | Equipment | 28,500 | |
Cash | 28,500 | ||
(To record the purchase of equipment) | |||
December 28 | Accounts Payable | 1,500 | |
Cash | 1,500 | ||
(To record the payment of cash) | |||
December 31 | Dividends | 2,000 | |
Cash | 2,000 | ||
(To record the payment of cash dividends) |
Table (1)
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 by posting each transaction to the appropriate T-accounts.
2. and 3.
Explanation of Solution
Cash Account
Cash Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning Balance | 9,200 | December 1 | Cash payment for rent | 900 | |
December 5 | Cash received | 2,800 | December 15 | Cash payment for Salaries | 1,200 | |
December 8 | Cash borrowed | 10,000 | December 17 | Cash payment for advertising | 1,000 | |
December 12 | Cash collection | 3,500 | December 28 | Cash payment for Equipment | 28,500 | |
December 13 | Common stock | 20,000 | December 28 | Cash payment to Accounts payable | 1,500 | |
December 31 | Dividends paid | 2,000 | ||||
December 31 | Closing balance | 10,400 | ||||
Total | 45,500 | Total | 45,500 | |||
December 31 | Balance | 10,400 |
Table (2)
Accounts Receivable
Accounts Receivable Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning balance | 4,500 | December 12 | Cash collection from customers | 3,500 | |
December 22 | Service on account | 3,200 | December 31 | Closing balance | 4,200 | |
Total | 7,700 | Total | 7,700 | |||
December 31 | Balance | 4,200 |
Table (3)
Prepaid Insurance
Prepaid Insurance Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
December 1 | Beginning balance | 400 | December 31 | Closing balance | 400 | |
Total | 400 | Total | 400 | |||
December 31 | Balance | 400 |
Table (4)
Equipment
Equipment Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning balance | 24,100 | December 31 | Closing balance | 52,600 | |
December 26 | Purchased for cash | 28,500 | ||||
Total | 52,600 | Total | 52,600 | |||
December 31 | Balance | 52,600 |
Table (5)
Land
Land Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning balance | 170,000 | December 31 | Closing balance | 170,000 | |
Total | 170,000 | Total | 170,000 | |||
December 31 | Balance | 170,000 |
Table (6)
Accounts Payable
Accounts Payable Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 28 | Cash paid | 1,500 | December 1 | Beginning balance | 3,300 | |
December 31 | Closing balance | 1,800 | ||||
Total | 3,300 | Total | 3,300 | |||
December 31 | Balance | 1,800 |
Table (7)
Notes Payable
Notes Payable Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31 | Closing balance | 60,000 | December 1 | Beginning balance | 50,000 | |
December 2 | Cash borrowed | 10,000 | ||||
Total | 60,000 | Total | 60,000 | |||
December 31 | Balance | 60,000 |
Table (8)
Common Stock
Common Stock Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31 | Closing balance | 140,000 | December 1 | Beginning balance | 120,000 | |
December 1 | Cash | 20,000 | ||||
Total | 140,000 | Total | 140,000 | |||
December 31 | Balance | 140,000 |
Table (9)
Retained earnings Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31 | Closing balance | 14,100 | December 1 | Beginning balance | 14,100 | |
Total | 14,100 | Total | 14,100 | |||
September 30 | Balance | 14,100 |
Table (10)
Dividends
Dividends Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
December 1 | Beginning balance | 5,000 | July 31 | Closing Balance | 7,000 | |
December 31 | Dividends paid | 2,000 | ||||
Total | 7,000 | Total | 7,000 |
Table (11)
Service revenue
Service revenue | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 31 | Closing balance | 81,000 | December 1 | Beginning balance | 75,000 | |
December 5 | Cash | 2,800 | ||||
December 22 | Accounts receivable | 3,200 | ||||
Total | 81,000 | Total | 81,000 | |||
December 31 | Balance | 81,000 |
Table (12)
Advertising Expense
Advertising Expense Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning balance | 11,000 | December 31 | Closing balance | 12,000 | |
December 17 | Cash | 1,000 | ||||
Total | 12,000 | Total | 12,000 | |||
December 31 | Balance | 12,000 |
Table (13)
Salaries Expense
Salaries Expense Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning balance | 28,300 | December 31 | Closing balance | 29,500 | |
December 15 | Cash | 1,200 | ||||
Total | 29,500 | Total | 29,500 | |||
December 31 | Balance | 29,500 |
Table (14)
Rent Expense
Rent Expense Account | ||||||
Date | Details | Debit ($) | Date | Details | Credit ($) | |
December 1 | Beginning balance | 9,900 | December 31 | Closing balance | 10,800 | |
December 1 | Cash | 900 | ||||
Total | 10,800 | Total | 10,800 | |||
December 31 | Balance | 10,800 |
Table (15)
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 December.
4.
Explanation of Solution
Prepare the trial balance of RH Expeditions for the month of December.
RH Expeditions | ||
Trial Balance | ||
December 31 | ||
Accounts | Debit ($) | Credit ($) |
Cash | 10,400 | |
Accounts Receivable | 4,200 | |
Prepaid Insurance | 400 | |
Equipment | 52,600 | |
Land | 170,000 | |
Accounts Payable | 1,800 | |
Notes Payable | 60,000 | |
Common Stock | 140,000 | |
Retained Earnings | 14,100 | |
Dividends | 7,000 | |
Service revenue | 81,000 | |
Advertising Expense | 12,000 | |
Salaries Expense | 29,500 | |
Rent Expense | 10,800 | |
Total | 296,900 | 296,900 |
Table (16)
Hence, the trial balance is prepared, and the debit column and credit column of the trial balance are agreed, both having balance of $296,900.
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Chapter 2 Solutions
FINANCIAL ACCOUNTING (LL+CONNECT)
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