Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 2, Problem 6GLP
To determine

Journal Entry:

Journal entry is a medium of recording the business transactions carried during a particular accounting period.

Trial Balance:

A trial balance is a statement consisting of all the ledger accounts which is prepared at the end of accounting period.

Four Column Accounts:

The four column accounts keeps track of the balance as transactions takes place. In case of assets and expense accounts, the increase in the expenses and assets are shown in the debit column and vice-versa. When there is increase in liabilities and revenues, it is shown on the credit side and vice-versa.

Income Statement:

The statement which shows the revenues earned and expenses incurred during a particular year is called Income statement.

Statement of Owner’s Equity:

Statement of owner’s equity is concerned with portion of owner’s equity.

Balance Sheet:

A financial statement which shows the financial position of a company during specified accounting period is called a balance sheet.

To determine:

Prepare journal entries to record the transactions, create financial statements, and assess the impact of each transaction on financial statements.

Expert Solution & Answer
Check Mark

Answer to Problem 6GLP

Solution:

Journal entries

Date Accounts Debit Credit
       
Mar. 1 Cash $150,000  
  Office Equipment $22,000  
  D. Brooks, Capital   $172,000
       
2 Prepaid Rent $6,000  
  Cash   $6,000
       
3 Office Equipment $3,000  
  Office Supplies $1,200  
  Accounts Payable   $4,200
       
6 Cash $4,000  
  Service Revenue   $4,000
       
9 Accounts Receivable $7,500  
  Service Revenue   $7,500
       
12 Accounts Payable $4,200  
  Cash   $4,200
       
19 Prepaid Insurance $5,000  
  Cash   $5,000
       
22 Cash $3,500  
  Accounts Receivable   $3,500
       
25 Accounts Receivable $3,820  
  Service Revenue   $3,820
       
29 D. Brooks, Withdrawals $5,100  
  Cash   $5,100
       
30 Office Supplies $600  
  Accounts Payable   $600
       
31 Utilities Expense $500  
  Cash   $500
       

Financial Statements

DENZEL BROOKS CONSULTANCY
Income Statement
For the Month Ended March 31
Revenues:  
Service Revenue $15,320
   
Expenses:  
Utilities Expense $500
   
Net Income $14,820
DENZEL BROOKS CONSULTANCY
Statement of Owner’s Equity
For the Month Ended March 31
D. Brooks, Capital, March 1. $0
Owner’s contribution during the month $172,000
Net income for the month $14,820
Subtotal $186,820
Owner’s withdrawal ($5,100)
D. Brooks, Capital, March 31. $181,720
DENZEL BROOKS CONSULTANCY
Balance Sheet
For the Month Ended March 31
Assets  
Current Asset:  
Cash $136,700
Accounts Receivable $7,820
Office Supplies $1,800
Prepaid Insurance $5,000
Prepaid Rent $6,000
Total Current Assets $157,320
   
Plant, Property and Equipment  
Office Equipment $25,000
   
Total Assets $182,320
   
Liabilities  
Current Liabilities  
Accounts Payable $600
   
Total Liabilities $600
   
Owner’s Equity  
D. Brooks, Capital $181,720
   
Total Liabilities and Owner’s Equity $182,320
   
Date Impact on financial statements
1. The contribution of owner increases the assets “Cash account” and “Office Equipment” and equity of the owner in the equity section of the balance sheet.
2. Prepaid rent is an assets and outflow of cash results in decrease of cash balance of the company.
3. Purchase of office equipment and office supplies on credit increases the assets “Office Equipment” and “Office Supplies” and liabilities “Accounts Payable” at the same time.
6. Service performed for cash will increase the cash balance and revenue in the income statement.
9. Services performed on accounts for the client will increase the
asset “Accounts Receivable” and revenue in the income statement of the company.
12. Payment on accounts payable decreases the liabilities “Accounts Payable” and assets “Cash Account” at the same time.
19. Insurance premium for 18 months is paid in advance increases the assets as it is a prepaid insurance and the outflow of cash will result in decrease of cash.
22. Collections on accounts will decrease the assets of accounts receivable and increases the assets of cash accounts simultaneously.
25. Debiting the Accounts Receivable increases the assets and crediting the Service Revenue increases the revenue of the company in the income statement.
29. Withdrawal by the owner will result in decrease of equity and cash balance of the company.
30. Purchase of additional office supplies on credit increases the assets “Office Supplies” and liabilities “Accounts Payable” at the same time.
31. Utilities expense incurred increases the expenses in the income statement and decreases the assets of cash accounts as it results in outflow of cash.
   

Explanation of Solution

Explanation:

Ledger Accounts

Cash
Account no. 101
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 1 D. Brooks, Capital $150,000   $150,000
2 Prepaid Rent   $6,000 $144,000
6. Service Revenue $4,000   $148,000
12 Accounts Payable   $4,200 $143,800
19 Prepaid Insurance   $5,000 $138,800
22 Accounts Receivable $3,500   $142,300
29 D. Brooks, Withdrawals   $5,100 $137,200
31 Utilities Expense   $500 $136,700
         
Accounts Receivable
Account no. 106
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 9 Service Revenue $7,500   $7,500
22 Cash   $3,500 $4,000
25 Service Revenue $3,820   $7,820
         
Office Supplies
Account no. 124
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 3 Accounts Payable $1,200   $1,200
30 Accounts Payable $600   $1,800
         
Prepaid Insurance
Account no. 128
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 19 Cash $5,000   $5,000
Prepaid Rent
Account no. 131
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 2 Cash $6,000   $6,000
Office Equipment
Account no. 163
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 1 D. Brooks, Capital $22,000   $22,000
3 Accounts Payable $3,000   $25,000
Accounts Payable
Account no. 201
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 3 Office Equipment $3,000   $3,000
  Office Supplies $1,200   $4,200
12 Cash   $4,200 $0
30 Office Supplies   $600 $600
         
D. Brooks, Capital
Account no. 301
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 1 Cash   $150,000 $150,000
  Office Equipment   $22,000 $172,000
         
D. Brooks, Withdrawals
Account no. 302
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 29 Cash $5,100   $5,100
Service Revenue
Account no. 403
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 6 Cash   $4,000 $4,000
9 Accounts Receivable   $7,500 $11,500
25 Accounts Receivable   $3,820 $15,320
Utilities Expense
Account no. 690
Date Description Debit Credit Balance
  Beginning Balance     -
Mar. 31 Cash $500   $500
         

Trial Balance

DENZEL BROOKS CONSULTANCY
Trial Balance
For the Month Ended March 31
Cash $136,700  
Accounts Receivable $7,820  
Office Supplies $1,800  
Prepaid Insurance $5,000  
Prepaid Rent $6,000  
Office Equipment $25,000  
Accounts Payable   $600
D. Brooks, Capital   $172,000
D. Brooks, Withdrawals $5,100  
Service Revenue   $15,320
Utilities Expense $500  
     
Total $187,920 $187,920
Conclusion

Conclusion:

Denzel Brooks’ net income for the month ended March 31 is $14,820 and the total assets, liabilities and owner’s equity is $182,320.

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Chapter 2 Solutions

Fundamental Accounting Principles

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