Chapter 2, Problem 2SP

To determine

Journal Entry:

Journal entry is an entry to journal account which records the accounting transactions in a chronological order.

1.

To prepare: Journal entry for October transactions.

Explanation of Solution

Journal entries to record the transactions

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 1	Cash		45,000
	Office Equipment		8,000
	Computer Equipment		20,000
	Capital account			73,000
	( Being cash and equipment has been invested by the owner.)

Table (1)

• Cash and all the equipment has been converted into capital to invest in the business so the entire amount has been debited
• Amount invested in the business is actually generated from all the cash and equipment and owner invested the entire amount in business so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 2	Prepaid rent		3,300
	Cash			3,300
	( Being 4 months’ rent has been paid in advance.)

Table (2)

• Prepaid belongs to asset accounts it has been debited as its payment resulted in increase in assets.
• Cash is an asset account it has been credited for the payment of rent as it resulted in decrease in asset account.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 3	Computer Supplies		1,420
	Account payable			1,420
	( Being computer supplies has been purchased for credit.)

Table (3)

• Computer supplies belong to asset accounts it has been debited as their purchase resulted in increase in assets.
• Accounts payable is a liability account it has been credited for the purchase of supplies as it resulted in increase in liability account.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 5	Prepaid Insurance		2,220
	Cash			2,220
	( Being premium of 12 months for insurance has been paid in advance)

Table (4)

• Prepaid expense belongs to asset account so there is an increase in asset account so it is debited.
• While cash is also a part of asset account it is credited because there is decrease in cash account for the payment of premium.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 6	Account receivable		4,800
	Services revenue			4,800
	( Being customer billed for providing services.)

Table (5)

• Account receivable is belonging to asset so providing services on crdit causes increase in asset account so debited.
• Services have been provided so it recorded in credited account.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 8	Accounts payable		1,420
	Cash			1,420
	( Being paid balance due on account payable)

Table (6)

• Paid the balance for computer supplies that were purchased on credit. Since the liability is decreased so accounts payable account is debited.
• Cash is an asset account it has been credited for the payment of computer supplies as it resulted in decrease in asset account so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 12	Accounts receivable		1,400
	Service Revenue			1,400
	( Being customer billed for providing services.)

Table (7)

• Account receivable is debited as it is a current asset account so it will give rise to the asset account.
• Services have been provided but cash not received as the money would be received later on so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 15	Cash		4,800
	Accounts receivable			4,800
	( Being amount received for credit services.)

Table (8)

• Cash is an asset account it is debited because receiving cash for previously providing services will increase asset account.
• While accounts receivable is also an asset account so receiving credit money will decrease it so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 17	Repairs expense		805
	Cash			805
	( Being amount paid for incurring repair)

Table (9)

• Repairs are expense and increase in expense account is debited.
• Cash is an asset account using cash for repairs will decrease asset account so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 20	Advertising expense		1,728
	Cash			1,728
	( Being rented on credit.)

Table (10)

• Advertising is an expense and increase in expense account is debited.
• Cash is an asset account using cash for advertising will decrease asset account so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 22	Cash		1,400
	Account Receivable			1,400
	( Being cash for previously provided services)

Table (11)

• Cash account is an asset account. Since cash is earned, so it is to be increased. Therefore, cash account is to be debited.
• Account receivable is belonging to asset account so receiving amount which was due will decrease it so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 28	Account receivable		5,208
	Service revenue			5,208
	( Being customer billed for providing services.)

Table (12)

• Account receivable is debited as it is a current asset account so it will give rise to the asset account.
• Services have been provided but cash not received as the money would be received later on so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 31	Wages expense		875
	Cash			875
	( Being wages paid on cash for part time work )

Table (13)

• Wages expense account is an expense account. Since wages expense is increased, expense is to be increased. So, debit the wages expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Oct 31	Dividends		3,600
	Cash			3,600
	( Being cash is paid in form of dividend.)

Table (14)

• Since dividends has been paid and it will decrease equity so debited
• Cash is credited as dividends have been paid in cash which decrease the account so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 1	Mileage Expense		320
	Cash			320
	( Being mileage expense paid on cash)

Table (15)

• Mileage expense is an expense account. Since mileage expense is increased, expense is to be increased. So, debit the mileage expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 2	Cash		4,633
	Service revenue			4,633
	( Being cash received for providing services.)

Table (16)

• Being cash received for the services which has been provided earlier so debited as it will increase asset account.
• Since there is a decrease in account receivable for the services which was provide earlier so it is credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 5	Computer Supplies		1,125
	Cash			1,125
	( Being purchase of computer supplies for cash.)

Table (17)

• Computer supplies belong to asset accounts it has been debited as their purchase resulted in increase in assets.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 8	Account receivable		5,668
	Service revenue			5,668
	( Being customer billed for providing services.)

Table (18)

• Account receivable is debited as it is a current asset account so it will give rise to the asset account.
• Services have been provided but cash not received as the money would be received later on so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 18	Cash		2,208
	Account receivable			2,208
	( Being cash received for previously provided services)

Table (19)

• Cash account is an asset account. Since cash is earned, so it is to be increased. Therefore, cash account is to be debited.
• Account receivable is belonging to asset account so receiving amount which was due will decrease it so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 22	Miscellaneous Expense		250
	Cash			250
	( Being miscellaneous expense paid on cash)

Table (20)

• Miscellaneous expense is an expense account. Since miscellaneous expense is increased, expense is to be increased. So, debit the miscellaneous expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 24	Account receivable		3,950
	Service revenue			3,950
	( Being customer billed for providing services.)

Table (21)

• Account receivable is debited as it is a current asset account so it will give rise to the asset account.
• Services have been provided but cash not received as the money would be received later on so credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 28	Mileage expenses		384
	Cash			384
	( Being cash paid for expenses occurred.)

Table (22)

• Mileage expense is an expense account. Since mileage expense is increased, expense is to be increased. So, debit the mileage expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 30	Wages expenses		1,750
	Cash			1,750
	( Being salary paid to part time worker)

Table (23)

• Wages expense is an expense account. Since Wages expense is increased, expense is to be increased. So, debit the wages expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
Nov 30	Dividends		2,000
	Cash			2,000
	( Being cash is paid in form of dividend.)

Table (24)

• Since dividends has been paid and it will decrease equity so debited
• Cash is credited as dividends have been paid in cash which decrease the account so credited.

2.

To determine

To prepare: Ledger account.

Explanation of Solution

Cash
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 1	Capital		45,000		45,000
Oct 2	Prepaid rent			3,330	41,700
Oct 5	Prepaid Insurance			2,220	39,480
Oct 8	Account Payable			1,420	38,060
Oct 15	Account receivables		4,800		42,860
Oct 17	Repair Expense			805	42,055
Oct 20	Advertising Expense			1,728	40,327
Oct 22	Account receivables		1,400		41,727
Oct 31	Wages			875	40,852
Oct 31	Dividends			3,600	37,252
Nov 1	Mileage Expense			320	36,932
Nov 2	Computer service revenue		4,633		41,565
Nov 5	Computer Supplies			1,125	40,440
Nov 18	Account receivables		2,208		42,648
Nov 22	Miscellaneous Expense			250	42,398
Nov 28	Mileage Expense			384	42,014
Nov 30	Wages expense			1,750	40,264
Nov 30	Dividends			2,000	38,264

Table (25)

So the ending balance is $38,264

Account receivable
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 6	Computer service revenue		4,800		4,800
Oct 12	Computer service revenue		1,400		6,200
Oct 15	Cash			4,800	1,400
Oct 22	Cash			1,400	0
Oct 28	Computer service revenue		5,208		5,208
Nov 8	Computer service revenue		5,668		10,876
Nov 18	Cash			2,208	8,668
Nov 24	Computer service revenue		3,950		12,618

Table (26)

So the ending balance is $12,618

Prepaid Insurance
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 5	Cash		2,220		2,220

Table (27)

So the ending balance is $2,220

Office Equipment
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 1	Cash		8,000		8,000

Table (28)

So the ending balance is $8,000

Computer Equipment
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 1	Cash		20,000		20,000

Table (29)

So the ending balance is $20,000

Prepaid Rent
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 2	Cash		3,300		3,300

Table (30)

So the ending balance is $3,300

Accounts payable
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 3	Computer supplies			1,420	1,420
Oct 8	Cash		1,420		0

Table (31)

So the ending balance is $0

Common stock
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 1	Cash			73,000	73,000

Table (32)

So the ending balance is $73,000

Dividends
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 31	Cash		3,600		3,600
Nov 30	Cash		2,000		5,600

Table (33)

So the ending balance is $5,600

Service revenue
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 6	Accounts receivable			4,800	4,800
Oct 12	Accounts receivable			1,400	6,200
Oct 28	Accounts receivable			5,208	11,408
Nov 2	Cash			4,633	16,041
Nov 28	Cash			5,668	21,709
Nov 24	Accounts receivable			3,950	25,659

Table (34)

So the ending balance is $25,659

Wages expense
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 31	Cash		875		875
Nov 30	Cash		1,750		2,625

Table (35)

So the ending balance is $2,625

Advertising expense
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 20	Cash		1,728		1,728

Table (36)

So the ending balance is $1,728

Mileage expense
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Nov 1	Cash		320		320
Nov 28	Cash		384		704

Table (37)

So the ending balance is $704

Miscellaneous expense
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Nov 22	Cash		250		250

Table (38)

So the ending balance is $250

Repairs expense
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
Oct 17	Cash		805		805

Table (39)

So the ending balance is $805

3.

To determine

To prepare: Trial balance.

Explanation of Solution

BS
Trial Balance
November 30, 2017
Accounts Title	Amount($)	Amount($)
Cash	38,264
Accounts Payable		0
Accounts Receivable	12,618
Equipment	8,000
Computer Equipment	20,000
Prepaid rent	3,300
Prepaid insurance	2,220
Misc. expense	250
Mileage expense	704
Capital		73,000
Dividends	5,600
Fees earned		25,659
Wages Expenses	2,625
Repair expenses	805
Advertising Expense	1,728
Supplies	2,545
Totals	98,659	98,659

Table (40)

So, total trial balance is $98,659.