Concept explainers
On October 1, 2019, 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.
27. Paid miscellaneous expenses, $1,100.
Oct. 29. Received cash from customers on account, $7,600.
30. Paid wages of employees, $4,800.
31. Withdrew cash for personal use, $3,500.
Instructions
- 1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.)
Journal entry explanations may be omitted.
- 2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
- 3. Prepare an unadjusted
trial balance for Pioneer Designs as of October 31, 2019. - 4. Determine the excess of revenues over expenses for October.
- 5. Can you think of any reason why the amount determined in (4) might not be the net income for October?
1.
Journalize the transactions in a two column journal beginning on Page 1.
Explanation of Solution
Journal:
Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.
Rules of debit and credit:
“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.
Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.
Journalize each transaction in a two column journal beginning on Page 1.
Journal Page 1 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
2019 | Cash | 11 | 18,000 | ||
October | 1 | Person JP, Capital | 31 | 18,000 | |
(To record the transfer of cash from personal bank account to business account) | |||||
4 | Rent expense | 53 | 3,000 | ||
Cash | 11 | 3,000 | |||
(To record the payment of rent for the month of June) | |||||
10 | Truck | 18 | 23,750 | ||
Cash | 11 | 3,750 | |||
Notes payable | 21 | 20,000 | |||
(To record the purchase of truck by cash and on account) | |||||
13 | Equipment | 16 | 10,500 | ||
Accounts payable | 22 | 10,500 | |||
(To record the purchase of equipment on account) | |||||
14 | Supplies | 13 | 2,100 | ||
Cash | 11 | 2,100 | |||
(To record the purchase of supplies) | |||||
15 | Prepaid insurance | 14 | 3,600 | ||
Cash | 11 | 3,600 | |||
(To record the payment made for insurance premiums) | |||||
15 | Cash | 11 | 8,950 | ||
Fees earned | 41 | 8,950 | |||
(To record the receipt of cash for the completed job) |
Table (1)
Journal Page 2 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
2019 | 21 | Accounts payable | 22 | 2,000 | |
October | Cash | 11 | 2,000 | ||
(To record the payment made to creditor on account) | |||||
24 | Accounts receivable | 12 | 14,150 | ||
Fees earned | 41 | 14,150 | |||
(To record the invoices sent to customers for the jobs completed) | |||||
26 | Truck expense | 55 | 700 | ||
Accounts payable | 22 | 700 | |||
(To record the receipt of invoices for truck expenses) | |||||
27 | Utilities expense | 54 | 2,240 | ||
Cash | 11 | 2,240 | |||
(To record the payment of utilities expense) | |||||
27 | Miscellaneous expense | 59 | 1,100 | ||
Cash | 11 | 1,100 | |||
(To record the payment of miscellaneous expense) | |||||
29 | Cash | 11 | 7,600 | ||
Accounts receivable | 12 | 7,600 | |||
(To record the receipt of cash from customers on account) | |||||
30 | Wages expense | 51 | 4,800 | ||
Cash | 11 | 4,800 | |||
(To record the payment of wages expense) | |||||
31 | Person JP, Drawing | 32 | 3,500 | ||
Cash | 11 | 3,500 | |||
(To record the withdrawal of cash for personal use) |
Table (2)
2.
Post the journal to a ledger of four-column accounts with appropriate post references, and the balances after each transaction is posted.
Explanation of Solution
T-account:
An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:
- The title of the account.
- The left or debit side.
- The right or credit side.
General Ledger
Account: Cash Account no. 11 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 1 | 1 | 18,000 | 18,000 | |||
4 | 1 | 3,000 | 15,000 | ||||
10 | 1 | 3,750 | 11,250 | ||||
14 | 1 | 2,100 | 9,150 | ||||
15 | 1 | 3,600 | 5,550 | ||||
15 | 1 | 8,950 | 14,500 | ||||
21 | 2 | 2,000 | 12,500 | ||||
27 | 2 | 2,240 | 10,260 | ||||
27 | 2 | 1,100 | 9,160 | ||||
29 | 2 | 7,600 | 16,760 | ||||
30 | 2 | 4,800 | 11,960 | ||||
31 | 2 | 3,500 | 8,460 |
Table (3)
Account: Accounts Receivable Account no. 12 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 24 | 2 | 11,900 | 14,150 | |||
29 | 2 | 7,600 | 6,550 |
Table (4)
Account: Supplies Account no. 13 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 14 | 1 | 2,100 | 2,100 |
Table (5)
Account: Prepaid Insurance Account no. 14 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 15 | 1 | 3,600 | 3,600 |
Table (6)
Account: Equipment Account no. 16 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 13 | 1 | 10,500 | 10,500 |
Table (7)
Account: Truck Account no. 18 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 10 | 1 | 23,750 | 23,750 |
Table (8)
Account: Notes Payable Account no. 21 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 10 | 1 | 20,000 | 20,000 |
Table (9)
Account: Accounts Payable Account no. 21 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 13 | 1 | 10,500 | – | 10,500 | ||
21 | 2 | 2,000 | 8,500 | ||||
26 | 2 | 700 | 9,200 |
Table (10)
Account: Person JP, Capital Account no. 31 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 1 | 1 | 18,000 | 18,000 |
Table (11)
Account: Person JP, Drawing Account no. 32 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 31 | 2 | 3,500 | 3,500 |
Table (12)
Account: Fees earned Account no. 41 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 15 | 1 | 8,950 | 8,950 | |||
24 | 2 | 14,150 | 23,100 |
Table (13)
Account: Wages expense Account no. 51 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 30 | 2 | 4,800 | 4,800 |
Table (14)
Account: Rent expense Account no. 53 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 4 | 1 | 3,000 | 3,000 |
Table (15)
Account: Utilities expense Account no. 54 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 27 | 2 | 2,240 | 2,240 |
Table (16)
Account: Truck expense Account no. 55 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 26 | 2 | 700 | 700 |
Table (17)
Account: Miscellaneous expense Account no. 59 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
2019 | |||||||
October | 27 | 2 | 1,100 | 1,100 |
Table (18)
3.
Prepare an unadjusted trial balance of EC Designs as of June 30, 2019.
Explanation of Solution
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.
Prepare an unadjusted trial balance of P Designs as of October 31, 2019 as follows:
P Designs Unadjusted Trial Balance October 31, 2019 | |||
Particulars |
Account No. | Debit $ | Credit $ |
Cash | 11 | 8,460 | |
Accounts receivable | 12 | 6,550 | |
Supplies | 13 | 2,100 | |
Prepaid insurance | 14 | 3,600 | |
Equipment | 16 | 10,500 | |
Van | 18 | 23,750 | |
Notes payable | 21 | 20,000 | |
Accounts payable | 22 | 9,200 | |
Storey K, Capital | 31 | 18,000 | |
Storey K, Drawings | 32 | 3,500 | |
Fees earned | 41 | 23,100 | |
Wages expense | 51 | 4,800 | |
Rent expense | 53 | 3,000 | |
Utilities expense | 54 | 2,240 | |
Van expense | 55 | 700 | |
Miscellaneous expense | 59 | 1,100 | |
Total | 70,300 | 70,300 |
Table (19)
The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $70,300.
4.
Calculate the excess of revenues over expenses for the month of October.
Explanation of Solution
The excess of revenues over expenses for the month of October is $11,260.
Working note:
Calculate the excess of revenues over expenses.
Hence, the excess of revenues over expenses for the month of October is $11,260.
5.
Discuss the reason behind the amount determined in (4) might not be the net income for June.
Explanation of Solution
The amount determined in (4) might not be the net income for October, because adjusting entries for supplies used, insurance expired, and depreciation should be passed at the end of the accounting period in order to bring the accounts up to date.
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Chapter 2 Solutions
Bundle: Financial Accounting, Loose-Leaf Version, 15th + LMS Integrated CengageNOWv2, 1 term Printed Access Card
- Domingo Company started its business on January 1, 2019. The following transactions occurred during the month of May. Prepare the journal entries in the journal on Page 1. A. The owners invested $10,000 from their personal account to the business account. B. Paid rent $500 with check #101. C. Initiated a petty cash fund $500 with check #102. D. Received $1,000 cash for services rendered. E. Purchased office supplies for $158 with check #103. F. Purchased computer equipment $2,500, paid $1,350 with check #104, and will pay the remainder in 30 days. G. Received $800 cash for services rendered. H. Paid wages $600, check #105. I. Petty cash reimbursement: office supplies $256, maintenance expense $108, postage expense $77, miscellaneous expense $55. Cash on hand $11. Check #106. J. Increased petty cash by $30, check #107.arrow_forwardThe transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the businesss operations: July 1.Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Musics checking account. 1.Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music store. Paid rent for July, 1,750. 1.Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. 2.Received 1,000 cash from customers on account. 3.On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of 3,600. Any additional hours beyond 80 will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3.Paid 250 to creditors on account. 4.Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5.Purchased office equipment on account from Office Mart, 7,500. 8.Paid for a newspaper advertisement, 200. 11.Received 1,000 for serving as a disc jockey for a party. 13.Paid 700 to a local audio electronics store for rental of digital recording equipment. 14.Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16.Received 2,000 for serving as a disc jockey for a wedding reception. 18.Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22.Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23.Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27.Paid electric bill, 915. 28.Paid wages of 1,200 to receptionist and part-time assistant. 29.Paid miscellaneous expenses, 540. 30.Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31.Received 3,000 for serving as a disc jockey for a party. 31.Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists music during July. 31.Withdrew 1,250 cash from PS Music for personal use. PS Musics chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: Instructions 1. Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations. 3. Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance as of July 31, 2019.arrow_forwardThe transactions completed by PS Music during June 2019 were described at the end of Chapter 1. The following transactions were completed during July, the second month of the business's operations: July 1. Peyton Smith made an additional investment in PS Music by depositing 5,000 in PS Music's checking account. 1. Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music: store. Paid rent for July, 1,750. 1. Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. 2. Received 1,000 cash from customers on account. 3. On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for SO hours per month for a monthly fee of 3,600. Any additional hours beyond SO will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3. Paid 250 to creditors on account. 4. Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5. Purchased office equipment on account from Office Mart, 7,500. 8. Paid for a newspaper advertisement, 200. 11. Received 1,000 for serving as a disc jockey for a party. 13. Paid 700 to a local audio electronics store for rental of digital recording equipment. 11. Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16. Received 2,000 for serving as a disc jockey for a wedding reception. 18. Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22. Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23. Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27. Paid electric bill, 915. 28. Paid wages of 1,200 to receptionist and part-time assistant. 29. Paid miscellaneous expenses, 540. 30. Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31. Received 3,000 for serving as a disc jockey for a party. 31. Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists' music during July. 31. Withdrew l,250 cash from PS Music for personal use. PS Music's chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: 11 Cash 3,920 12 Accounts receivable 1,000 14 Supplies 170 15 Prepaid insurance 17 Office Equipment 21 Accounts payable 250 23 Unearned Revenue 31 Peyton smith, Drawing 4,000 32 Fees Earned 500 41 Wages Expense 6,200 50 Office Rent Expense 400 51 Equipment Rent Expense 800 52 Utilities Expense 675 53 Supplies Expense 300 54 music Expense 1,590 55 Advertising Expense 500 56 Supplies Expense 180 59 Miscellaneous Expense 415 Instructions 1.Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. 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