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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Transactions and T accounts

The following selected transactions were completed during August of the current year:

1.    Billed customers for fees earned, $73,900.

2.    Purchased supplies on account, $1,960.

3.    Received cash from customers on account, $62,770.

4.    Paid creditors on account, $820.

a.    Journalize these transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted.

b.    Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.

c.    Assume that the unadjusted trial balance on August 31 shows a credit balance for Accounts Receivable. Does this credit balance mean that an error has occurred?

a.

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

Following rules are followed for debiting, and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expense, dividends, and owner’s drawing accounts, and all decrease in liabilities, revenues and owner’s capital accounts.

Credit, all increase in liabilities, revenues, and owner’s capital accounts, and all decrease in assets, expenses, and owner’s drawing account.

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 journalize: The transactions in a two-column journal, using the appropriate number to identify the transactions.

Explanation

   

  1. 1. Fees earned on account:
Date Particulars Post. Ref. Debit ($) Credit ($)
  Accounts receivable 73,900  
    Fees earned   73,900
(To record the fees earned on account)    

Table (1)

  • Accounts receivable is an asset account, and it is increased. Hence, debit the accounts receivable account by $73,900.
  • Fees earned are the revenue account which is a component of owner’s equity, and they are increased, which in turn has increased the owner’s equity. Hence, credit the fees earned account by $73,900.
  1. 2. Purchased supplies on account:
Date Particulars Post. Ref. Debit ($) Credit ($)
  Supplies 1,960  
    Accounts payable   1,960
(To record the purchase of supplies on account)    

Table (2)

  • Supplies are the asset account, and they are increased. Hence, debit the supplies account by $1,960.
  • Accounts payable is a liability account, and it is increased...

b.

To determine

To post: The entries in (a) to their respective T-accounts.

c.

To determine

To identify: Whether the credit balance of accounts receivable in the unadjusted trial balance mean that an error has occurred.

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