1.
Prepare journal entries for the given transactions.
1.
Explanation of Solution
Debit and credit rules:
- ■ Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - ■ Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entries for the given transactions.
Transaction on October 1:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 1 | Cash | 111 | 25,000 | ||
AV, Capital | 311 | 25,000 | ||||
(Record cash invested in the business by AV) |
Table (1)
Description:
- ■ Cash is an asset account. Since cash is invested in the business, asset account increased, and an increase in asset is debited.
- ■ AV, Capital is an equity account. Since cash is contributed as capital by the owner, equity value increased, and an increase in equity is credited.
Transaction on October 1:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 1 | Spa Equipment | 128 | 3,575 | ||
AV, Capital | 311 | 3,575 | ||||
(Record equipment invested in the business by AV) |
Table (2)
Description:
- ■ Spa Equipment is an asset account. Since equipment is invested in the business, asset account increased, and an increase in asset is debited.
- ■ AV, Capital is an equity account. Since equipment is contributed as capital by the owner, equity value increased, and an increase in equity is credited.
Transaction on October 3:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 3 | Prepaid Insurance | 117 | 840 | ||
Cash | 111 | 840 | ||||
(Record payment of insurance in advance) |
Table (3)
Description:
- ■ Prepaid Insurance is an asset account. Since insurance is paid in advance, it is recorded as asset until it is consumed. So, asset value is increased, and an increase in asset is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 3 | Spa Equipment | 128 | 5,550 | ||
Cash | 111 | 3,000 | ||||
Accounts Payable | 211 | 2,550 | ||||
(Record purchase of equipment) |
Table (4)
Description:
- ■ Spa Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
- ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on October 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 3 | Rent Expense | 612 | 1,000 | ||
Cash | 111 | 1,000 | ||||
(Record payment of rent expense) |
Table (5)
Description:
- ■ Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 3:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 3 | Spa Supplies | 115 | 685 | ||
Accounts Payable | 211 | 685 | ||||
(Record purchase of supplies) |
Table (6)
Description:
- ■ Spa Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on October 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 5 | Office Supplies | 114 | 230 | ||
Cash | 111 | 230 | ||||
(Record purchase of supplies) |
Table (7)
Description:
- ■ Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 5 | Promotional Expense | 630 | 115 | ||
Cash | 111 | 115 | ||||
(Record payment for promotional items) |
Table (8)
Description:
- ■ Promotional Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 5 | Office Equipment | 124 | 520 | ||
Accounts Payable | 211 | 520 | ||||
(Record purchase of equipment) |
Table (9)
Description:
- ■ Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on October 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 5 | Advertising Expense | 616 | 415 | ||
Accounts Payable | 211 | 415 | ||||
(Record receipt of advertising expense bill) |
Table (10)
Description:
- ■ Advertising Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on October 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 5 | Office Equipment | 124 | 825 | ||
Accounts Payable | 211 | 825 | ||||
(Record purchase of equipment) |
Table (11)
Description:
- ■ Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on October 5:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 5 | Office Supplies | 114 | 125 | ||
Accounts Payable | 211 | 125 | ||||
(Record purchase of supplies) |
Table (12)
Description:
- ■ Office Supplies is an asset account. Since supplies are bought, asset account increased, and an increase in asset is debited.
- ■ Accounts Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.
Transaction on October 7:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 7 | Wages Expense | 611 | 2,075 | ||
Cash | 111 | 2,075 | ||||
(Record payment of wages expense) |
Table (13)
Description:
- ■ Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 7:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 7 | Cash | 111 | 3,465 | ||
Income from Services | 411 | 3,465 | ||||
(Record services performed for cash) |
Table (14)
Description:
- ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 7:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 7 | Accounts Receivable | 113 | 350 | ||
Income from Services | 411 | 350 | ||||
(Record services performed on account) |
Table (15)
Description:
- ■ Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 11:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 11 | Accounts Payable | 211 | 1,000 | ||
Cash | 111 | 1,000 | ||||
(Record cash paid on account) |
Table (16)
Description:
- ■ Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 14 | Cash | 111 | 3,307 | ||
Income from Services | 411 | 3,307 | ||||
(Record services performed for cash) |
Table (17)
Description:
- ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 14 | Accounts Receivable | 113 | 468 | ||
Income from Services | 411 | 468 | ||||
(Record services performed on account) |
Table (18)
Description:
- ■ Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 14:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 14 | Wages Expense | 611 | 2,075 | ||
Cash | 111 | 2,075 | ||||
(Record payment of wages expense) |
Table (19)
Description:
- ■ Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 18:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 18 | Accounts Payable | 211 | 1,200 | ||
Cash | 111 | 1,200 | ||||
(Record cash paid on account) |
Table (20)
Description:
- ■ Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 21:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 21 | Cash | 111 | 4,587 | ||
Income from Services | 411 | 4,587 | ||||
(Record services performed for cash) |
Table (21)
Description:
- ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 21:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 21 | Accounts Receivable | 113 | 345 | ||
Income from Services | 411 | 345 | ||||
(Record services performed on account) |
Table (22)
Description:
- ■ Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 21:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 21 | Wages Expense | 611 | 2,075 | ||
Cash | 111 | 2,075 | ||||
(Record payment of wages expense) |
Table (23)
Description:
- ■ Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 25:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 25 | Accounts Payable | 211 | 350 | ||
Cash | 111 | 350 | ||||
(Record cash paid on account) |
Table (24)
Description:
- ■ Accounts Payable is a liability account. Since the payable decreased, the liability decreased, and a decrease in liability is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 28:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 28 | Wages Expense | 611 | 2,075 | ||
Cash | 111 | 2,075 | ||||
(Record payment of wages expense) |
Table (23)
Description:
- ■ Wages Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 28:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 28 | Laundry Expense | 615 | 105 | ||
Cash | 111 | 105 | ||||
(Record payment of laundry expense) |
Table (24)
Description:
- ■ Laundry Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 31:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 31 | Cash | 111 | 6,588 | ||
Income from Services | 411 | 6,588 | ||||
(Record services performed for cash) |
Table (25)
Description:
- ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 31:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
October | 31 | Accounts Receivable | 113 | 110 | ||
Income from Services | 411 | 110 | ||||
(Record services performed on account) |
Table (26)
Description:
- ■ Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
- ■ Income from Services is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Income from Services account is credited.
Transaction on October 31:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 31 | AV, Drawing | 312 | 1,500 | ||
Cash | 111 | 1,500 | ||||
(Record cash withdrawn by AV for personal use) |
Table (27)
Description:
- ■ AV, Drawing is a contra-capital account. The contra-capital accounts decrease the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is withdrawn, asset account decreased, and a decrease in asset is credited.
Transaction on October 31:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 31 | Utilities Expense | 617 | 325 | ||
Cash | 111 | 325 | ||||
(Record payment of utilities expense) |
Table (28)
Description:
- ■ Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Transaction on October 31:
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
October | 31 | Utilities Expense | 617 | 385 | ||
Cash | 111 | 385 | ||||
(Record payment of utilities expense) |
Table (29)
Description:
- ■ Utilities Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
- ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
2.
2.
Explanation of Solution
Ledger: Ledger is a book in which the accounts are summarized and grouped from the transactions recorded in the journal.
Post the journalized transactions in the ledger accounts of the general ledger.
ACCOUNT Cash ACCOUNT NO. 111 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 1 | 1 | 25,000 | 25,000 | |||
3 | 1 | 840 | 24,160 | ||||
3 | 1 | 3,000 | 21,160 | ||||
3 | 1 | 1,000 | 20,160 | ||||
5 | 1 | 230 | 19,930 | ||||
5 | 1 | 115 | 19,815 | ||||
7 | 1 | 2,075 | 17,740 | ||||
7 | 1 | 3,465 | 21,205 | ||||
11 | 1 | 1,000 | 20,205 | ||||
14 | 1 | 3,307 | 23,512 | ||||
14 | 1 | 2,075 | 21,437 | ||||
18 | 1 | 1,200 | 20,237 | ||||
21 | 1 | 4,587 | 24,824 | ||||
21 | 1 | 2,075 | 22,749 | ||||
25 | 1 | 350 | 22,399 | ||||
28 | 1 | 2,075 | 20,324 | ||||
28 | 1 | 105 | 20,219 | ||||
31 | 1 | 6,588 | 26,807 | ||||
31 | 1 | 1,500 | 25,307 | ||||
31 | 1 | 325 | 24,982 | ||||
31 | 1 | 385 | 24,597 |
Table (30)
ACCOUNT Accounts Receivable ACCOUNT NO. 113 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 7 | 1 | 350 | 350 | |||
14 | 1 | 468 | 818 | ||||
21 | 1 | 345 | 1,163 | ||||
31 | 1 | 110 | 1,273 |
Table (31)
ACCOUNT Office Supplies ACCOUNT NO. 114 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 5 | 1 | 230 | 230 | |||
5 | 1 | 125 | 355 |
Table (32)
ACCOUNT Spa Supplies ACCOUNT NO. 115 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 3 | 1 | 685 | 685 |
Table (33)
ACCOUNT Prepaid Insurance ACCOUNT NO. 117 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 3 | 1 | 840 | 840 |
Table (34)
ACCOUNT Office Equipment ACCOUNT NO. 124 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 5 | 1 | 520 | 520 | |||
5 | 1 | 825 | 1,345 |
Table (35)
ACCOUNT Spa Equipment ACCOUNT NO. 128 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 1 | 1 | 3,575 | 3,575 | |||
3 | 1 | 5,550 | 9,125 |
Table (36)
ACCOUNT Accounts Payable ACCOUNT NO. 211 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 3 | 1 | 2,550 | 2,550 | |||
3 | 1 | 685 | 3,235 | ||||
5 | 1 | 520 | 3,755 | ||||
5 | 1 | 415 | 4,170 | ||||
5 | 1 | 825 | 4,995 | ||||
5 | 1 | 125 | 5,120 | ||||
11 | 1 | 1,000 | 4,120 | ||||
18 | 1 | 1,200 | 2,920 | ||||
25 | 1 | 350 | 2,570 |
Table (37)
ACCOUNT AV, Capital ACCOUNT NO. 311 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 1 | 1 | 25,000 | 25,000 | |||
1 | 1 | 3,575 | 28,575 |
Table (38)
ACCOUNT AV, Drawing ACCOUNT NO. 312 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 31 | 1 | 1,500 | 1,500 |
Table (39)
ACCOUNT Income from Services ACCOUNT NO. 411 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 7 | 1 | 3,465 | 3,465 | |||
7 | 1 | 350 | 3,815 | ||||
14 | 1 | 3,307 | 7,122 | ||||
14 | 1 | 468 | 7,590 | ||||
21 | 1 | 4,587 | 12,177 | ||||
21 | 1 | 345 | 12,522 | ||||
31 | 1 | 6,588 | 19,110 | ||||
31 | 1 | 110 | 19,220 |
Table (40)
ACCOUNT Wages Expense ACCOUNT NO. 611 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 7 | 1 | 2,075 | 2,075 | |||
14 | 1 | 2,075 | 4,150 | ||||
21 | 1 | 2,075 | 6,225 | ||||
28 | 1 | 2,075 | 8,300 |
Table (41)
ACCOUNT Rent Expense ACCOUNT NO. 612 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 3 | 1 | 1,000 | 1,000 |
Table (42)
ACCOUNT Laundry Expense ACCOUNT NO. 615 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 28 | 1 | 105 | 105 |
Table (43)
ACCOUNT Advertising Expense ACCOUNT NO. 616 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 5 | 1 | 415 | 415 |
Table (44)
ACCOUNT Utilities Expense ACCOUNT NO. 617 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 31 | 1 | 325 | 325 | |||
31 | 1 | 385 | 710430 |
Table (45)
ACCOUNT Promotional Expense ACCOUNT NO. 630 | |||||||
Date | Item | Post. Ref. | Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
October | 5 | 1 | 115 | 115 |
Table (46)
3.
Prepare the
3.
Explanation of Solution
Trial balance: Trial balance is a summary of all the asset, liability, and equity accounts and their balances.
Prepare the trial balance for ABY Spa as at October 31, 20--, based on the account balances derived in Part (2).
ABY Spa | ||
Trial Balance | ||
October 31, 20-- | ||
Account Title | Debit ($) | Credit ($) |
Cash | $24,597 | |
Accounts Receivable | 1,273 | |
Office Supplies | 355 | |
Spa Supplies | 685 | |
Prepaid Insurance | 840 | |
Office Equipment | 1,345 | |
Spa Equipment | 9,125 | |
Accounts Payable | $2,570 | |
AV, Capital | 28,575 | |
AV, Drawing | 1,500 | |
Income from Services | 19,220 | |
Wages Expense | 8,300 | |
Rent Expense | 1,000 | |
Laundry Expense | 105 | |
Advertising Expense | 415 | |
Utilities Expense | 710 | |
Promotional Expense | 115 | |
Total | $50,365 | $50,365 |
Table (47)
Hence, the debit and credit total of trial balance of ABY Spa at October 31, 20-- is $50,365.
4.
Prepare an income statement of ABY Spa for the month ended October 31, 20--, based on the account balances derived in Part (2).
4.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations, and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare an income statement of ABY Spa for the month ended October 31, 20--.
ABY Spa | ||
Income Statement | ||
For the Month Ended October 31, 20-- | ||
Revenues: | ||
Income from Services | $19,220 | |
Expenses: | ||
Wages Expense | $8,300 | |
Rent Expense | 1,000 | |
Laundry Expense | 105 | |
Advertising Expense | 415 | |
Utilities Expense | 710 | |
Promotional Expense | 115 | |
Total expenses | 10,645 | |
Net income | $8,575 |
Table (48)
5.
Prepare a statement of owners’ equity of ABY Spa, based on the account balances derived in Part (2), and net income computed in Part (4).
5.
Explanation of Solution
Statement of owners’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owners’ equity. Additional capital, net income from income statement is added to, and drawings is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare a statement of owners’ equity for ABY Spa for the month ended October 31, 20--.
ABY Spa | ||
Statement of Owners’ Equity | ||
For the Month Ended October 31, 20-- | ||
AV, Capital, October 1, 20-- | $0 | |
Investments during October | $28,575 | |
Net income for October | 8,575 | |
37,150 | ||
Less: Withdrawals for October | 1,500 | |
Increase in capital | 35,650 | |
AV, Capital, October 31, 20-- | $35,650 |
Table (49)
6.
Prepare a balance sheet for ABY Spa, based on the account balances derived in Part (2), and capital of the owner from the statement of owners’ equity prepared in Part (5).
6.
Explanation of Solution
Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and owners (owners’ equity) over those resources. The resources of the company are assets which include money contributed by owners and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and owners’ equity.
Prepare the balance sheet for ABY Spa as at October 31, 20--.
ABY Spa | ||
Balance Sheet | ||
October 31, 20-- | ||
Assets | ||
Cash | $24,597 | |
Accounts Receivable | 1,273 | |
Office Supplies | 355 | |
Spa Supplies | 685 | |
Prepaid Insurance | 840 | |
Office Equipment | 1,345 | |
Spa Equipment | 9,125 | |
Total assets | $38,220 | |
Liabilities | ||
Accounts Payable | $2,570 | |
Owners’ Equity | ||
AV, Capital | 35,650 | |
Total liabilities and owners’ equity | $38,220 |
Table (50)
Want to see more full solutions like this?
Chapter 3 Solutions
Bundle: College Accounting: A Career Approach (with QuickBooks Online), Loose-leaf Version,13th + CengageNOWV2, 1 term (6 months) Printed Access
- Journalize the following transactions from the books of Arts and Styles. The owner wants to see the result of its operation after a month of existence December, 2020. December 1 Chon Loo invested 1,500,000 and equipment worth 500,000. 3 Paid Permits and licenses to operate 12,000. 5 Bought tables, chairs, on account from SM Malls, 250,000. 8 Rendered services for cash worth 50,000. 9 Rendered services on account with a promissory note from Aces worth 30,000. 10 Bought canvas and paints worth 20,000. 15 Paid salaries of artist for 6 months, worth 300,000. 20 The owner withdraw 10,000 for personal use. 25 Borrowed money from Metro Bank 1,000,000 giving a promissory payable in a year with Interest of 8% per annum. 27 Collected from Aces ½ of the account.…arrow_forwardHi Team! Greetings again to you all. For this week we will be focusing on the theme The Financial Accounting Cycle (Part 1). I have already uploaded the week 2 mini lecture notes to the course page under the heading Course Materials. I implore you to use this additional material alongside the other materials provided in building your knowledge base on this area. Please see our week 2 discussion question as follows: Question: During February 2015, Claude Sample who operates a sports clinic presented the following for the first month of his company’s operation: Feb 1. Sample invested $55,000 in the business by depositing it into the company’s bank account. Feb 2. Paid $46,000 cash for land. Feb 3. Purchased medical supplies for $1,800 on account. Feb 4. Officially opened for business. Feb 5. During the month, Sample treated patients and earned service revenue of $8,000, receiving cash. Feb 6. Paid cash expenses:…arrow_forwardIT IS URGENT Sharon Samson starts a plumbing service called Reliable Waterworks. Selected transactions are described as follows: A) Sharon deposits $7,000 into a new checking account for the business, recording the capital contribution. B) Reliable pays $4,000 cash for equipment to be used for plumbing repairs. C) Reliable borrows $15,000 from a local bank and deposits the money in the checking account. D) Reliable pays $600 rent for the first month. E) Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future. F) Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash. G) Sharon takes a cash withdrawal of $2,500. After all of the transactions, what is the amount of total liabilities? A)15,000 B)4,000 C)19,000 D)4.400arrow_forward
- Task : Ms. Amanda being a motivated entrepreneur, opened her beauty salon at the beginning of March 2020 trading as ‘Amanda Beauty Salon’. Her speciality lies in skin, hair and nail care services and treatment and the mandatory cleaning of the salon. As Amanda is quite inexperienced in book- keeping and the accounting requirements as per the IFRS, she asked for your assistance in accounting for all the transactions. You need to prepare a report of 1,200 words addressed to Ms. Amanda. The structure of the report should be as follows: A question Give an example for each of the following types of transactions for the accounting equation: i. Increase in one asset, decrease in another asset.ii. Increase in an asset, increase in liability.iii. Increase in an asset, increase in owner’s equity capital.iv. Decrease in an asset, decrease in liability.v. Decrease in an asset, decrease in owner’s capital.arrow_forwardTask Ms. Amanda being a motivated entrepreneur, opened her beauty salon at the beginning of March 2020 trading as ‘Amanda Beauty Salon’. Her speciality lies in skin, hair and nail care services and treatment and the mandatory cleaning of the salon. As Amanda is quite inexperienced in book- keeping and the accounting requirements as per the IFRS, she asked for your assistance in accounting for all the transactions. You need to prepare a report of 1,200 words addressed to Ms. Amanda. The structure of the report should be as follows: Give an example for each of the following types of transactions for the accounting equation: i. Increase in one asset, decrease in another asset.ii. Increase in an asset, increase in liability.iii. Increase in an asset, increase in owner’s equity capital.iv. Decrease in an asset, decrease in liability.v. Decrease in an asset, decrease in owner’s capital.arrow_forwardNicole has decided that she is going to start her business, Nicole’s Getaway Spa (NGS). A lot hasto be done when starting a new business. Here are some transactions that have occurred prior toApril 30.a. Received $80,000 cash when issuing 8,000 new common shares.b. Purchased land by paying $2,000 cash and signing a note payable for $7,000 due in threeyears.c. Hired a new aesthetician for a salary of $1,000 a month, starting next month.d. NGS purchased a company car for $18,000 cash (list price of $21,000) to assist in runningerrands for the business.e. Bought and received $1,000 in supplies for the spa on credit.f. Paid $350 of the amount owed in ( e ).g. Nicole sold 100 of her own personal shares to Raea Gooding for $300.Required:1. For each of the events, prepare journal entries if a transaction exists, checking that debitsequal credits. If a transaction does not exist, explain why there is no transaction.2. Assuming that the beginning balances in each of the accounts are zero,…arrow_forward
- SP2. In September 2019, Kate incorporated Kate's Cards after investigating different organizational forms, and began the process of getting her business up and running. The following events occurred during the month of September 2019: 1. Kate deposited $10,000 that she had saved into a newly opened business checking account. She received common stock in exchange. 2. Kate designed a brochure that she will use to promote her greeting cards at local stationary stores. 3. Kate paid Fred Simmons $50 to critique her brochure before undertaking her final design and printing. 4. Kate purchased a new iMac computer tablet, specialized graphic arts software, and commercial printer for the company, paying $4,800 in cash. She decided to record all of these items under the same equipment account. 5. Kate purchased supplies such as paper and ink for $350 at the local stationary store. She opened a business account with the store and was granted 30 days credit on all purchases, including the one she…arrow_forwardMASTERY PROBLEM Lisa Vozniak started her own business, We Do Windows. She offers interior and exteriorwindow cleaning for local area residents. Lisa rents a garage to store her tools andcleaning supplies and has a part-time assistant to answer the phone and handle thirdstory work. (Lisa is afraid of heights.) The transactions for the month of July are asfollows: (a) Lisa invested cash by making a deposit in a bank account for the business, $8,000. (b) Paid rent for July, $150. (c) Purchased a used van for cash, $5,000. (d) Purchased tools on account from Clean Tools, $600. (e) Purchased cleaning supplies that cost $300. Paid $200 cash and will pay the balance next month, $100. (f) Paid part-time assistant (wages) for first half of month, $100. (g) Paid for advertising, $75. (h) Paid two-year premium for liability insurance on van, $480. (i) Received cash from clients for services performed, $800. (j) Performed cleaning services for clients on account, $500. (k) Paid phone bill, $40.…arrow_forwardSEPTEMBER 2019: In September 2019, Kate incorporated Kate’s Cards after investigating different organizational forms, and began the process of getting her business up and running. The following events occurred during the month of September 2019: Kate deposited $10,000 that she had saved into a newly opened business checking account. She received common stock in exchange. Kate designed a brochure that she will use to promote her greeting cards at local stationery stores. Kate paid Fred Simmons $50 to critique her brochure before undertaking her final design and printing. Kate purchased a new iMac computer tablet, specialized graphic arts software, and commercial printer for the company, paying $4,800 in cash. She decided to record all of these items under the same equipment account. Kate purchased supplies such as paper and ink for $350 at the local stationery store. She opened a business account with the store and was granted 30 days credit on all purchases, including the one she just…arrow_forward
- SEPTEMBER 2019: In September 2019, Kate incorporated Kate’s Cards after investigating different organizational forms, and began the process of getting her business up and running. The following events occurred during the month of September 2019: Kate deposited $10,000 that she had saved into a newly opened business checking account. She received common stock in exchange. Kate designed a brochure that she will use to promote her greeting cards at local stationery stores. Kate paid Fred Simmons $50 to critique her brochure before undertaking her final design and printing. Kate purchased a new iMac computer tablet, specialized graphic arts software, and commercial printer for the company, paying $4,800 in cash. She decided to record all of these items under the same equipment account. Kate purchased supplies such as paper and ink for $350 at the local stationery store. She opened a business account with the store and was granted 30 days credit on all purchases, including the one she just…arrow_forwardSEPTEMBER 2019: In September 2019, Kate incorporated Kate’s Cards after investigating different organizational forms and began the process of getting her business up and running. The following events occurred during the month of September 2019: Kate deposited $10,000 that she had saved into a newly opened business checking account. She received common stock in exchange. Kate designed a brochure that she will use to promote her greeting cards at local stationery stores. Kate paid Fred Simmons $50 to critique her brochure before undertaking her final design and printing. Kate purchased a new iMac computer tablet, specialized graphic arts software, and commercial printer for the company, paying $4,800 in cash. She decided to record all of these items under the same equipment account. Kate purchased supplies such as paper and ink for $350 at the local stationery store. She opened a business account with the store and was granted 30 days credit on all purchases, including the one she just…arrow_forwardI'm needing some help with journal entries for each transaction. Thanks. In April 2019, Sarah Jones created a new business, IthacaDeep, Inc., offering therapeutic deep massage for stress reduction, pain management, injury recovery, and relief from muscle strains and tightness experienced by anyone, especially athletes, fitness enthusiasts, runners, and physical laborers. You have been hired to record the transactions occurring in the first month of operations. Received investment of cash by three organizers and issued to them a total of 200 shares of $0.05 par value stock with a market price of $40 per share. Borrowed $20,000 from a local bank, signing a note due in three years, 6 percent interest rate. Signed a one-year lease for a space near a health club, paying $600 for April rent and $1,800 for rent for May, June, and July. Purchased equipment costing $15,200, paying 20 percent in cash and owing the rest on account to the supplier, due in 60 days. Ordered a business computer…arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning