Chapter 3, Problem 3.9AP

(a)

To determine

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue and expenditure items are recorded.

This account is referred to as the 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:

1. (a) The title of the account
2. (b) The left or debit side
3. (c) The right or credit side

To prepare: The T-accounts to enter the opening balances of HLS Incorporation as on July 31, 2017.

Explanation of Solution

Cash account:

Cash
Jul, 31	$4,000
Bal.	$4,000

Account receivable account:

Accounts receivable
Jul, 31	$1,500
Bal.	$1,500

Supplies account:

Supplies
Jul, 31	$500
Bal.	$500

Equipment account:

Equipment
Jul, 31	$5,000
Bal.	$5,000

Accounts payable account:

Accounts payable
		Jul, 31	$4,100
		Bal.	$4,100

Common stock account:

Common stock
		Jul, 31	$3,500
		Bal.	$3,500

Retained earnings account:

Retained earnings
		Jul, 31	$3,400
		Bal.	$3,400

(b)

To determine

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To journalize: the transaction as given.

Answer to Problem 3.9AP

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 3, 2017	Cash	1,200
	Accounts receivable		1,200
	(To record the cash received from customer )

                                                         Table-1

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 5, 2017	Cash	1,300
	Common stock		1,300
	(To record the issuance of common stock)

                                                        Table-2

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 6, 2017	Accounts payable	2,700
	Cash		2,700
	(To record the cash paid to creditors)

Table-3

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 7, 2017	Accounts receivable	3,500
	Cash	3,000
	Service revenue		6,500
	(To record the service provided in cash to customer )

                                                        Table-4

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 12, 2017	Equipment	1,200
	Accounts payable		800
	Cash		400
	(To record the purchase of equipment on account and in cash )

Table-5

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 14, 2017	Salaries and wages expenses	3,500
	Rent expenses	900
	Advertising expenses	275
	Cash		4,675
	(To record the payment of  salaries, rent and advertising expenses for the month August )

                                                            Table-6

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 18, 2017	Cash	3,500
	Accounts receivable		3,500
	(To record the cash received from the customer )

                                                            Table-7

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 20, 2017	Dividend	500
	Cash		500
	(To record the dividend paid in cash)

                                                            Table-8

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 24, 2017	Accounts receivable	1,000
	Service revenue		1,000
	(To record the service performed on account )

Table-9

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 26, 2017	Cash	2,000
	Notes payable		2,000
	(To record the cash received on note payable )

                                                           Table-10

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 28, 2017	Utilities	275
	Accounts payable		275
	(To record the utilities expenses on account  for  the month of August )

                                                            Table-11

Date	Account Title and Explanation	Debit ($)	Credit ($)
Aug 31, 2017	Income tax expenses	500
	Cash		500
	(To record the payment of income tax expenses for  the month of August)

                                                            Table-12

Explanation of Solution

Aug 3, 2017

• Cash is an asset and increased, hence debit cash for $1,200.
• Accounts receivable is an asset and decreased, hence credit account receivable for $1,200.

Aug 5, 2017

• Cash is an asset and increased, hence debit the cash for $1,300.
• Common stock is a component of shareholders’ equity and has increased, hence credit the common stock for $1,300.

Aug 6, 2017

• Accounts Payable is a liability and has decreased, hence debit accounts payable for $2,700.
• Cash is an asset and has decreased, hence credit cash for $2,700.

Aug 7, 2017

• Accounts receivable is an asset and increased, hence debit the account receivable for $3,500.
• Cash is an asset and increased, hence debit the cash for $3,000.
• Service revenue is a component of shareholders’ equity and has increased, hence credit the service revenue for $6,500.

Aug 12, 2017

• Equipment is an asset and has increased, hence debit equipment for $1,200.
• Accounts payable is a liability and has increased, hence credit the accounts payable for $800.
• Cash is an asset and has decreased, hence credit cash for $400.

Aug 14, 2017

• Salary, rent and advertising expenses are component of stockholders’ equity and they are increased, hence debit the salaries and wages expenses, rent and advertising expenses for $3500, $900 and $275 respectively.
• Cash is an asset and has decreased, hence credit cash for $4,675.

Aug 18, 2017

• Cash is an asset and has increased, hence debit cash for $3,500.
• Accounts receivable is an asset and has decreased, hence credit accounts receivable for $3,500.

Aug 20, 2017

• Dividend is a component of stockholders’ equity and has increased, hence debit dividend for $500.
• Cash is an asset and has decreased, hence credit cash for $500.

Aug 24, 2017

• Account receivable is an asset and has increased, hence debit account receivable for $1,000.
• Service revenue is a component of stockholders’ equity and has increased, hence credit service revenue for $1,000.

Aug 26, 2017

• Cash is an asset and has increased, hence debit cash for $2,000.
• Notes payable is a liability and has increased, hence credit the note payable for $2,000.

Aug 27, 2017 - Agree to performed legal services for a client. No entry because no financial transaction has occurred.

Aug 28, 2017

• Utilities expense is a component of stockholders’ equity and has increased; hence debit the utilities for $275.
• Accounts payable is a liability and has increased, hence credit accounts receivable for $275.

Aug 31, 2017

• Income tax expense is a component of stockholders’ equity and has increased; hence debit the income tax expenses for $500.
• Cash is an asset and has decreased, hence credit cash for $500.

(c)

To determine

Trial balance:

Trial balance is the list of accounts, and their debit and credit balances at a given time.  It is usually prepared at end of the accounting period.  Debit balances are listed in left   column and credit balances are listed in right column.  The totals of debit and credit column should be equal.  Trial balance is useful in the preparation of the financial statements.

To post:  the transaction to the ledger accounts of HLS Incorporation as on August 31, 2017

Explanation of Solution

Account receivable account:

Accounts receivable
Aug, 1 Bal.	$1,500	Aug, 8 Aug, 18	$1,200 $3,500
Aug, 7 Aug, 24	$3,500 $1,000
Total	$6,000	Total	$4,700
Bal.	$1,300

Common stock account:

Common stock
		Aug, 01 Bal.	$3,500
		Aug, 5	$1,300
		Bal.	$4,800

Accounts payable account:

Accounts payable
Aug, 8	$2,700	Aug, 1 Bal. Aug, 12 Aug, 28	$4,100 $800 $275
Total	$2,700	Total	$5,175
		Bal.	$2,475

Service revenue account:

Service revenue
		Aug, 7 Aug, 24	$6,500 $1,000
		Bal.	$7,500

Equipment account:

Equipment
Aug, 1 Aug, 12	$5,000 $1,200
Bal.	$6,200

Salaries and wages expenses account:

Salaries and wages expenses
Aug, 14	$3,500
Bal.	$3,500

Rent expenses account:

Rent expenses
Aug, 14	$900
Bal.	$900

Advertising expenses account:

Advertising expenses
Aug, 14	$275
Bal.	$275

Dividend account:

Dividend
Aug, 20	$500
Bal.	$500

Dividend account:

Dividends
		Aug, 26	$500
		Bal.	$500

Utilities account:

Utilities
Aug, 28	$275
Bal.	$275

Income tax expenses account:

Income tax expenses
Aug, 31	$500
Bal.	$500

Cash account:

Cash
Aug, 1 Bal.	$4,000	Aug, 6	$2,700
Aug, 3	$1,200	Aug, 12	$   400
Aug, 5	$ 1,300	Aug, 14	$4,675
Aug, 7 Aug, 18	$3,000 $3,500	Aug, 20 Aug, 31	$   500 $   500
Aug, 26	$2,000
Total	$15,000	Total	$8,775
Bal.	$6,225

(d)

To determine

To prepare:  a trial balance of HLS Incorporation as on August 31, 2017.

Explanation of Solution

Trial balance
HLS Incorporation
August 31, 2017
Particulars	Debit $	Credit $
Common stock		4,800
Equipment	6,200
Retained earnings		3,400
Supplies	500
Accounts payable		2,475
Notes payable		2,000
Dividends	500
Service revenue		7,500
Salaries and wages expenses	3,500
Utilities expenses	275
Rent expenses	900
Advertising expenses	275
Income tax expenses	500
Accounts receivable	1,300
Cash	6,225
	20,175	20,175

Table-13

Conclusion

Thus, the total of debit, and credit columns of a trial balance are $20,175 and agree.