Concept explainers
(a)
T-Accounts:
T-accounts are referred as T-account because its format represents the letter “T”. The T-accounts consists of the following:
- The title of accounts.
- The debit side (Dr) and,
- The credit side (Cr).
To Enter: The beginning balances of July in the ledger accounts.
(a)
Explanation of Solution
Enter the beginning balances of July in the ledger accounts as follows:
Cash | |||
July. 1 | $ 5,230 | ||
Bal. | $ 5,230 |
Supplies | |||
July. 1 | $ 690 | ||
Bal. | $ 690 |
Equipment | |||
July. 1 | $ 24,000 | ||
Bal. | $ 24,000 |
Accounts Payable | |||
July. 1 | $ 400 | ||
Bal. | $ 400 |
| |||
July. 1 | $ 1,200 | ||
Bal. | $ 1,200 |
Unearned Service Revenue | |||
July. 1 | $ 1,120 | ||
Bal. | $ 1,120 |
Common Stock | |||
July. 1 | $ 3,600 | ||
Bal. | $ 3,600 |
| |||
July. 1 | $ 2,000 | ||
Bal. | $ 2,000 |
Notes payable | |||
July. 1 | $20,000 | ||
Bal. | $20,000 |
(b)
Journal:
Journal is the book of original entry. Journal consists of the day-to-day financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.
To Journalize: The transaction of Company G for the month of July.
(b)
Explanation of Solution
Journalize the transaction of Company G for the month of July.
Date | Account Title and Description | Debit ($) | Credit ($) |
July. 1 | Equipment | 24,000 | |
Cash | 4,000 | ||
Accounts Payable | 20,000 | ||
(To record the purchase of equipment party on cash and party by signing a notes) | |||
July. 2 | Cash | 50,000 | |
Common stock | 50,000 | ||
(To record the issuance of common stock) | |||
July. 3 | Prepaid insurance | 3,600 | |
Cash | 3,600 | ||
(To record the payment of insurance in advance) | |||
July. 3 | Prepaid rent | 8,000 | |
Cash | 8,000 | ||
(To record the payment of rent in advance) | |||
July. 6 | Supplies | 3,800 | |
Cash | 3,800 | ||
(To record the purchase of supplies) | |||
July. 9 | No entry required | 0 | |
July. 10 | Cash | 1,200 | |
Accounts receivable | 1,200 | ||
(To record the cash received on account) | |||
July. 13 | Unearned Service revenue | 1,120 | |
Service Revenue | 1,120 | ||
(To record the service performed for the unearned service) | |||
July. 14 | Accounts Payable | 400 | |
Cash | 400 | ||
(To record the payment of cash on utilities accrued) | |||
July. 16 | Cash | 12,000 | |
Unearned Service revenue | 12,000 | ||
(To record the cash received for the service yet to provide) | |||
July. 18 | Salaries and wages expense | 11,000 | |
Cash | 11,000 | ||
(To record the payment made for semi-monthly salaries) | |||
July. 20 | Accounts receivable | 28,000 | |
Service Revenue | 28,000 | ||
(To record the services performed on account) | |||
July. 20 | Advertising expense | 2,200 | |
Accounts payable | 2,200 | ||
(To record the amount due on advertising service received) | |||
July. 23 | Unearned Service revenue | 10,000 | |
Service Revenue | 10,000 | ||
(To record the service performed for the unearned service on July 16) | |||
July. 27 | Cash | 15,000 | |
Accounts receivable | 15,000 | ||
(To record the cash received from customers for the service rendered on July 20) |
(c)
T-Accounts:
T-accounts are referred as T-account because its format represents the letter “T”. The T-accounts consists of the following:
- The title of accounts.
- The debit side (Dr) and,
- The credit side (Cr).
Post: The
(c)
Explanation of Solution
Explanation
The posting of the journal entries to the general ledger accounts are as follows:
Cash | |||
July. 1 | $ 5,230 | July. 1 | $ 4,000 |
2 | $ 50,000 | 3 | $ 3,600 |
10 | $ 1,200 | 3 | $ 8,000 |
16 | $ 12,000 | 6 | $ 3,800 |
27 | $ 15,000 | 3 | $ 400 |
25 | $11,000 | ||
Total | $ 69,180 | Total | $30,800 |
Bal. | $ 52,630 |
Accounts receivable | |||
July. 1 | $ 1,200 | July. 10 | $ 1,200 |
27 | $ 28,000 | 27 | $15,000 |
$ 29,200 | $16,200 | ||
Bal. | $ 13,000 |
Prepaid insurance | |||
July. 3 | $ 3,600 | ||
Bal. | $ 3,600 |
Prepaid rent | |||
July. 3 | $ 8,000 | ||
Bal. | $ 8,000 |
Supplies | |||
July. 1 | $ 690 | ||
6 | $ 3,800 | ||
Bal. | $ 4,490 |
Equipment | |||
July. 1 | $ 24,000 | ||
Bal. | $ 24,000 |
Accounts Payable | |||
July. 14 | $ 400 | July. 1 | $ 400 |
20 | $ 2,200 | ||
Total | $ 400 | Total | $ 2,600 |
Bal. | $ 2,200 |
Unearned Service Revenue | |||
July. 13 | $ 1,120 | July. 1 | $ 1,120 |
23 | $ 10,000 | 16 | $12,000 |
Total | $ 11,120 | Total | $13,120 |
Bal. | $ 2,000 |
Notes Payable | |||
July. 1 | $20,000 | ||
Bal. | $20,000 |
Common Stock | |||
July. 1 | $ 3,600 | ||
2 | $50,000 | ||
Bal. | $53,600 |
Salaries and Wages Expenses | |||
July. 18 | $ 11,000 | ||
Bal. | $ 11,000 |
Retained Earnings | |||
July. 1 | $ 2,000 | ||
Bal. | $ 2,000 |
Service Revenue | |||
July. 13 | $ 1,120 | ||
20 | $28,000 | ||
27 | $10,000 | ||
Bal. | $39,120 |
Advertising expense | |||
July. 20 | $ 2,200 | ||
Bal. | $ 2,200 |
(d)
A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit column with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger balances, and before the preparation of financial statements.
To prepare: The trial balance of Company G at July, 31.
(d)
Explanation of Solution
Prepare a trial balance of Company G for the month ended July, 31 as follows:
Company G Trial Balance July 31, 2017 | ||
Particulars | Debit $ | Credit $ |
Cash | 52,630 | |
Accounts receivable | 13,000 | |
Supplies | 4,490 | |
Prepaid insurance | 3,600 | |
Prepaid rent | 8,000 | |
Equipment | 24,000 | |
Notes payable | 20,000 | |
Accounts payable | 2,200 | |
Unearned service revenue | 2,000 | |
Common stock | 53,600 | |
Service revenue | 39,120 | |
Retained earnings | 2,000 | |
Salaries and wages expense | 11,000 | |
Advertising expense | 2,200 | |
Total | 118,920 | 118,920 |
Table (1)
(e)
An adjusting entry is prepared when the trial balance is not up-to-date, and complete, and they are usually prepared at the end of the accounting period. This adjusting entry is essential for preparing the financial statements of the business
To Journalize: Theadjusting entries of Company G for July 31.
To post: The adjusting entries to the ledger accounts.
(e)
Explanation of Solution
The adjusting entries of Company G for July 31, 2017 are as follows:
(1)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Insurance expense (1) | 300 | |
Prepaid insurance | 300 | ||
(To record the insurance expense for July) |
Working notes:
(2)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Rent expense | 4,000 | |
Prepaid rent | 4,000 | ||
(To record the rent expense for July) |
(3)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Supplies expense | 1,250 | |
Supplies | 1,250 | ||
(To record the supplies expenses) |
(4)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 |
| 500 | |
Accumulated depreciation –Equipment | 500 | ||
(To record the depreciation and the accumulated depreciation) |
Working notes:
(5)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Interest expense (3) | 100 | |
Interest payable | 100 | ||
(To record the interest expense on note payable) |
Working notes:
(6)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Salaries and wages expense | 11,000 | |
Salaries and wages payable | 11,000 | ||
(To record the accrued salaries payable) |
(7)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Utilities expense | 800 | |
Accounts payable | 800 | ||
(To record the accrued utilities) |
(8)
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Income tax expense | 1,200 | |
Income tax payable | 1,200 | ||
(To record the income tax accrued) |
Post the adjusting entries to the respective ledger accounts as follows:
Supplies | |||
July. 31 | $ 4,490 | July 31 | $ 1,250 |
Bal. | $ 3,240 |
Prepaid insurance | |||
July. 31 | $ 3,600 | July 31 | $ 300 |
Bal. | $ 3,300 |
Prepaid rent | |||
July. 31 | $ 8,000 | July 31 | $ 4,000 |
Bal. | $ 4,000 |
Accumulated Depreciation-Equipment | |||
July 31 | $ 500 | ||
Bal. | $ 500 |
Accounts payable | |||
July 31 | $ 2,200 | ||
31 | $ 800 | ||
Bal. | $ 3,000 |
Interest payable | |||
July 31 | $ 100 | ||
Bal. | $ 100 |
Salaries and Wages payable | |||
July 31 | $11,000 | ||
Bal. | $11,000 | ||
Interest payable | |||
July 31 | $ 1,200 | ||
Bal. | $ 1,200 | ||
Salaries and Wages Expenses | |||
July. 31 | $ 11,000 | ||
31 | $ 11,000 | ||
Bal. | $ 22,000 |
Rent Expense | |||
July. 31 | $ 4,000 | ||
Bal. | $ 4,000 |
Supplies Expense | |||
July. 31 | $ 1,250 | ||
Bal. | $ 1,250 | ||
Utilities Expense | |||
July. 31 | $ 800 | ||
Bal. | $ 800 |
Depreciation Expense | |||
July. 31 | $ 500 | ||
Bal. | $ 500 |
Insurance expense | |||
July. 31 | $ 300 | ||
Bal. | $ 300 |
Interest expense | |||
July. 31 | $ 100 | ||
Bal. | $ 100 |
Income tax expense | |||
July. 31 | $ 1,200 | ||
Bal. | $ 1,200 |
(f)
Adjusted trial balance:
The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.
To prepare: An adjusted trial balance of Company G at July 31.
(f)
Explanation of Solution
Prepare an adjusted trial balance of Company G for the month ended July 31 as follows:
Company G Trial Balance July 31, 2017 | ||
Particulars | Debit $ | Credit $ |
Cash | 52,630 | |
Accounts receivable | 13,000 | |
Supplies | 3,240 | |
Prepaid insurance | 3,300 | |
Prepaid rent | 4,000 | |
Equipment | 24,000 | |
Accumulated Depreciation-Equipment | 500 | |
Notes payable | 20,000 | |
Interest payable | 100 | |
Accounts payable | 3,000 | |
Salaries and wages payable | 11,000 | |
Income tax payable | 1,200 | |
Unearned service revenue | 2,000 | |
Common stock | 53,600 | |
Service revenue | 39,120 | |
Retained earnings | 2,000 | |
Salaries and wages expense | 22,000 | |
Rent Expense | 4,000 | |
Supplies Expense | 1,250 | |
Advertising expense | 2,200 | |
Utilities expense | 800 | |
Depreciation expense | 500 | |
Insurance expense | 300 | |
Interest expense | 100 | |
Income tax expense | 1,200 | |
Total | 132,520 | 132,520 |
Table (2)
(g)
Income statement:
An income statement is one of the financial statements which shows the revenues, and expenses of the company. The income statement is prepared to ascertain the net income/loss of the company, by deducting the expenses from the revenues.
Statement of retained earnings:
This is an equity statement which shows the changes in the
Classified balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
To Prepare: The income statement for the month of July.
The retained earnings statement for the month of July.
The classified balance sheet of Company G as on July 31, 2017.
(g)
Explanation of Solution
The income statement of Company G for the month of July, 31 2017 is computed in the table below:
S Company | ||
Income Statement | ||
As on July 31, 2017 | ||
Particulars | $ | $ |
Revenue: | ||
Service Revenue | 39,120 | |
Less: Expenses | ||
Salaries and Wages Expenses | 22,000 | |
Supplies Expenses | 1,250 | |
Rent Expenses | 4,000 | |
Depreciation Expenses | 500 | |
Advertising Expenses | 2,200 | |
Insurance Expenses | 300 | |
Utilities Expenses | 800 | |
Interest Expenses | 100 | |
Income tax Expenses | 1,200 | |
Total Expenses | 32,350 | |
Net income | 6,770 |
Table (3)
The retained earnings statement of Company G for the month of July, 2017 is computed in the table below:
G Company | ||
Retained earnings statement | ||
For the month ended July 31, 2017 | ||
Particulars | $ | |
Retained earnings at July, 1 | 2,000 | |
Add: Net income | 6,770 | |
Retained earnings at July, 31 | 8,770 |
Table (4)
Prepare a classified balance sheet of Company G for the month ended July 31, 2017.
S Company | ||
Classified Balance sheet Statement | ||
As at November 30, 2017 | ||
Assets | $ | $ |
Current assets: | ||
Cash | 52,630 | |
Accounts receivable | 13,000 | |
Prepaid rent | 4,000 | |
Prepaid insurance | 3,300 | |
Supplies | 3,240 | |
Total of current assets | 76,170 | |
Other assets: | ||
Equipment | 24,000 | |
Less: Accumulated depreciation -Equipment | 500 | |
Total of other assets | 23,500 | |
Total assets | $99,670 | |
Liabilities and Stockholders' equity | $ | $ |
Liabilities: | ||
Accounts payable | 3,000 | |
Unearned service revenue | 2000 | |
Interest payable | 100 | |
Income tax payable | 1,200 | |
Salaries and wages payable | 11,000 | |
Total current liabilities | 17,300 | |
Long-term Liabilities: | ||
Notes payable | 20,000 | |
Total liabilities | 37,300 | |
Stockholders' equity: | ||
Common stock | 53,600 | |
Retained earnings | 8,770 | |
Total stockholders' equity | 62,370 | |
Total liabilities and stockholders' equity | 99,670 |
Table (5)
The retained earnings for the month of July, 2017 are $8,770.
The classified balance sheet for the month ended July, 31 2017 are agreed, both the assets account and the liabilities account shows a balance of $99,670.
(h)
Closing entries:
Closing entries are those journal entries, which are passed to transfer the final balances of temporary accounts, (all revenues account, all expenses account and dividend) to the income summary account. These are passed at the end of the accounting period to transfer the final balances of the temporary accounts. In other words, the closing entries transfer the net income, or net loss, and dividends to the retained earnings account.
To prepare: The closing entries of Company G.
To post: The closing entries of Company G to the respective ledger account.
(h)
Explanation of Solution
The closing entries of Company G for July 31, 2017 are as follows:
- 1. Closing entry for revenue account.
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Service revenue | 39,120 | |
Income summary | 39,120 | ||
(To record the closure of revenues account ) |
Description:
Service revenue account has a normal credit balance of $39,120, now to close this account, the service revenue account must be debited with $39,120 and, income summary account must be credited with $39,120.
- In this closing entry, the service revenue account balance is being transferred to the income summary account, to bring the revenues account balance to zero.
- Thereby, the income summary account balance gets increased by $39,120 and, the revenue account balance gets decreased by $39,120.
- 2. Closing entry for expenses account.
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Income summary | 32,350 | |
Salaries and wages Expense | 22,000 | ||
Rent Expense | 4,000 | ||
Advertising Expense | 2,200 | ||
Depreciation Expense | 500 | ||
Utilities Expense | 800 | ||
Supplies Expense | 1,250 | ||
Insurance Expense | 300 | ||
Income tax Expense | 1,200 | ||
Interest Expense | 100 | ||
(To record the closure of expense account to income summary) |
Description:
All expenses accounts have a normal debit balance, the total of expenses are $32,350 have to be closed by transferring these account balances to the income summary account. All expenses account must be credited, and the income summary account must be debited with $32,350.
- In this closing entry, all the expenses account balances are transferred to the income summary account, to bring the expenses account balances to zero.
- Thereby, both the income summary account, and the expenses account balances get decreased by $32,350.
- 3. Closing entry for income summary account.
Date | Accounts title and Description |
Debit ($) |
Credit ($) |
July 31 | Income summary (1) | 6,770 | |
Retained earnings | 6,770 | ||
(To record the closure of net income from income summary to retained earnings) |
Working note:
Determine the balance amount in the income summary.
Description:
Determined amount balance of income summary is $6,770, which has to be closed by debiting the income summary account with $6,770, and crediting the retained earnings account with $6,770.
- In this closing entry, the income summary account balance is being transferred to the retained earnings account, to bring the income summary account balance to zero.
- Thereby, the income summary account gets decreased, and the retained earnings account balance gets increased by $6,770.
Post the closing entries to the respective ledger accounts as follows:
Service revenue | |||
July 31 | $39,120 | July 31 | $39,120 |
Bal. | $ 0 | ||
Retained earnings | |||
July 31 | $ 6,770 | ||
$ 2,000 | |||
Bal. | $ 8,770 | ||
Income Summary | |||
July 31 | $ 32,350 | July 31 | $39,120 |
31 | $ 6,770 | ||
Bal. | $ 0 |
Salaries and Wages Expenses | |||
July. 31 | $ 22,000 | July. 31 | $22,000 |
Bal. | $ 0 |
Rent Expense | |||
July. 31 | $ 4,000 | July. 31 | $ 4,000 |
Bal. | $ 0 |
Supplies Expense | |||
July. 31 | $ 1,250 | July. 31 | $ 1,250 |
Bal. | $ 0 | ||
Utilities Expense | |||
July. 31 | $ 800 | July. 31 | $ 800 |
Bal. | $ 0 |
Depreciation Expense | |||
July. 31 | $ 500 | July. 31 | $ 500 |
Bal. | $ 0 |
Insurance expense | |||
July. 31 | $ 300 | July. 31 | $ 300 |
Bal. | $ 0 |
Interest expense | |||
July. 31 | $ 100 | July. 31 | $ 100 |
Bal. | $ 0 |
Income tax expense | |||
July. 31 | $ 1,200 | July. 31 | $ 1,200 |
Bal. | $ 0 |
Advertising expense | |||
July. 20 | $ 2,200 | July. 31 | $ 2,200 |
Bal. | $ 0 |
(i)
Post-closing trial balance:
Once the closing entries are journalized, and posted by the company, then the next step is to prepare another trial balance known as post-closing trial balance. The post-closing trial balance contains a list of all the permanent accounts, and its balances.
To prepare: A post–closing trial balance of Company G at July 31.
(i)
Explanation of Solution
Prepare a post–closing trial balance of Company G for the month ended July, 31 as follows:
Company G Post-closing Trial Balance July, 31, 2017 | ||
Particulars | Debit $ | Credit $ |
Cash | 52,630 | |
Accounts receivable | 13,000 | |
Supplies | 3,240 | |
Prepaid insurance | 3,300 | |
Prepaid rent | 4,000 | |
Equipment | 24,000 | |
Accumulated depreciation – Equipment | 500 | |
Accounts payable | 3,000 | |
Notes payable | 20,000 | |
Salaries and wages payable | 11,000 | |
Income tax payable | 1,200 | |
Unearned service revenue | 2,000 | |
Interest payable | 100 | |
Common stock | 53,600 | |
Retained earnings | 8,770 | |
Total | 100,170 | 100,170 |
Table (6)
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