Concept explainers
1.
To indicate: The effects of the
1.
Explanation of Solution
The accounting equation implies the relationship between the assets, liabilities, and the
The effects of the accounting equation for the August and September events using a table are indicated as follows:
Date | Assets | = | Liabilities | + | Stockholders’ Equity | |||
August 31 | Cash | 1,500 | = | Unearned Revenue | 1,500 | NE | ||
September 11 | Cash | 3,800 | = | NE | Service Revenue (+R) | 3,800 | ||
September 13 | Supplies | 200 | = | Accounts Payable | 200 | NE | ||
September 15 | Cash | -1,500 | = | NE | Salaries & Wages Expense (+E) | -1,500 | ||
September 25 | Cash | 7,200 | = | NE | Service Revenue (+R) | 7,200 | ||
September 26 | Accounts Receivable | 210 | = | NE | Service Revenue (+R) | 210 | ||
September 27 | Prepaid Advertising | 300 | = | NE | NE | |||
Cash | -300 | |||||||
September 29 | Cash | 210 | = | NE | NE | |||
Accounts Receivable | -210 | |||||||
September 30 | NE | = | Accounts Payable | 300 | Utilities Expense (+E) | -300 |
Table (1)
2.
To prepare:
2.
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.
Journal entries for August and September events are prepared as follows:
Date |
Account Title and Explanation | Debit ($) | Credit ($) | |
August 31 | Cash (A+) | 1,500 | ||
Unearned Revenue (L+) | 1,500 | |||
(To record the cash received for the service yet to provide) | ||||
September 11 | Cash (A+) | 3,800 | ||
Service Revenue (R+, SE+) | 3,800 | |||
(To record the cash received from the rental service) | ||||
September 13 | Supplies (A+) | 200 | ||
Accounts Payable (L+) | 200 | |||
(To record the supplies purchased on accounts) | ||||
September 15 | Salaries and Wages Expense (E+, SE–) | 1,500 | ||
Cash (A–) | 1,500 | |||
(To record the payment of wages expenses to employees) | ||||
September 25 | Cash (A+) | 7,200 | ||
Service Revenue (R+, SE+) | 7,200 | |||
(To record cash received for the service provided) | ||||
September 26 | Accounts Receivable (A+) | 210 | ||
Service Revenue (R+, SE+) | 210 | |||
(To record the service provide on account) | ||||
September 27 | Prepaid Advertising (A+) | 300 | ||
Cash (A–) | 300 | |||
(To record the cash paid in advance for the advertisement expenses) | ||||
September 29 | Cash (A+) | 210 | ||
Accounts Receivable (A–) | 210 | |||
(To record the cash received for the service provided on account) | ||||
September 30 | Utilities Expense(E+, SE–) | 300 | ||
Accounts Payable (L+) | 300 | |||
(To record the utilities expenses incurred which are to be paid later) |
Table (2)
3.
To calculate: The preliminary net income for September and also describe whether Company L is profitable based on its net income.
3.
Explanation of Solution
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
The preliminary net income of the company is determined as follows:
Particulars | Amount ($) | Amount ($) |
Revenues: | ||
Service Revenue
|
$11,210 | |
Total Revenues | 11,210 | |
Less: Expenses: | ||
Utilities Expense | 300 | |
Salaries and Wages Expense | 1,500 | |
Total Expenses | 1,800 | |
Net Income | $9,410 |
Table (3)
Based on the preliminary net income of $9,410, it is clear that Company L is profitable since it has higher net income than zero.
4.
To identify: AnyTwo adjustments thatCompany L will be required to make, before it prepare a final income statement for September.
4.
Explanation of Solution
An adjusting entry is prepared when the
Adjustments thatCompany L will be required to make, before it can prepare a final income statement for September are identified as follows:
- The supplies used in September are not yet recorded.
- The wages and salaries expenses incurred in the month of September, which are not yet recorded.
- The cash earned for the service yet to provide are to be reported in September.
- The revenue earned from the Rental service is not yet recorded.
- The income taxes on the net income of the company for the month of September are not yet recorded.
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Chapter 3 Solutions
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