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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Following is the chart of accounts of Smith Financial Services:

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Smith completed the following transactions during June (the first month of business):

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Required

  1. 1. Journalize the transactions for June in the general journal.
  2. 2. Post the entries to the general ledger accounts. (Skip this step if you are using CLGL.)
  3. 3. Prepare a trial balance as of June 30, 20–.
  4. 4. Prepare an income statement for the month ended June 30, 20–.
  5. 5. Prepare a statement of owner’s equity for the month ended June 30, 20–.
  6. 6. Prepare a balance sheet as of June 30, 20–.

1.

To determine

Prepare journal entries for the given transactions.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

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 June 1:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June1Cash11110,000 
   AS, Capital311 10,000
  (Record cash invested in the business by AS)   

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.
  • ■ AS, 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 June 3:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June3Accounts Receivable1133,030 
   Professional Fees411 3,030
  (Record services performed on account)   

Table (2)

Description:

  • ■ Accounts Receivable is an asset account. The amount is increased because amount to be received increased, and an increase in asset is debited.
  • ■ Professional Fees is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Professional Fees account is credited.

Transaction on June 8:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June8Advertising Expense513100 
   Cash111 100
  (Record payment of advertising expense)   

Table (3)

Description:

  • ■ Advertising 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 June 9:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June9Supplies11575 
   Accounts Payable221 75
  (Record supplies bought on account)   

Table (4)

Description:

  • ■ Supplies is an asset account. Since store 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 June 13:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June13Cash1113,200 
   Professional Fees411 3,200
  (Record services performed for cash)   

Table (5)

Description:

  • ■ Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
  • ■ Professional Fees is a revenue account. Since gains and revenues increase equity, and an increase in equity is credited, Professional Fees account is credited.

Transaction on June 17:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June17Utilities Expense514104 
   Cash111 104
  (Record payment of utilities expense)   

Table (6)

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 June 19:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
June19Office Furniture124600 
   Cash111 50
   Accounts Payable221 550
  (Record purchase of furniture for office)   

Table (7)

Description:

  • ■ Office Furniture is an asset account...

2.

To determine

Post the journalized transactions in the ledger accounts.

3.

To determine

Prepare the trial balance for SF Services as at June 30, 20--, based on the account balances derived in Part (2).

4.

To determine

Prepare an income statement of SF Services for the month ended June 30, 20--, based on the account balances derived in Part (2).

5.

To determine

Prepare a statement of owners’ equity of SF Services, based on the account balances derived in Part (2), and net income computed in Part (4).

6.

To determine

Prepare a balance sheet for SF Services, based on the account balances derived in Part (2) and capital of the owner from the statement of owners’ equity prepared in Part (5).

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