Chapter 5, Problem 4PA

AquaFresh Water Testing Service was established on April 16, 2016. AquaFresh uses field equipment and field supplies (chemicals and other supplies) to analyze water for unsafe contaminants in streams, lakes, and ponds. Transactions related to purchases and cash payments during the remainder of April are as follows:

Instructions

1.    Journalize the transactions for April. Use a purchases journal and a cash payments journal, similar to those illustrated in this chapter, and a two-column general journal. Use debit columns for Field Supplies, Office Supplies, and Other Accounts in the purchases journal. Refer to the following partial chart of accounts:

At the points indicated in the narrative of transactions, post to the following accounts in the accounts payable subsidiary ledger:

Best Office Supply Co.

Hydro Supply Co.

Pure Equipment Co.

2.    Post the individual entries (Other Accounts columns of the purchases journal and the cash payments journal and both columns of the general journal) to the appropriate general ledger accounts.

3.    Total each of the columns of the purchases journal and the cash payments journal, and post the appropriate totals to the general ledger. (Because the problem does not include transactions related to cash receipts, the cash account in the ledger will have a credit balance.)

4.    Prepare a schedule of the accounts payable creditor balances.

5.    Why might AquaFresh consider using a subsidiary ledger for the field equipment?

To determine

Prepare single column revenue journal and cash receipt journal, and post the accounts in the accounts payable subsidiary ledger.

Explanation of Solution

General Ledger: General ledger refers to the ledger that records all the transactions of the business related to the company’s assets, liabilities, owners’ equities, revenues, and expenses. Each subsidiary ledger is represented in the general ledger by summarizing the account.

Accounts payable control account and subsidiary ledger: Accounts payable account and subsidiary ledger is the ledger which is used to post the creditors transaction in one particular ledger account. It helps the business to locate the error in the creditor ledger balance. After all transactions of creditor accounts are posted, the balances in the accounts payable subsidiary ledger should be totaled, and compare with the balance in the general ledger of accounts payable. If both the balance does not agree, the error has been located and corrected.

Purchase journal: Purchase journal refers to the journal that is used to record all purchases on account. In the purchase journal, all purchase transactions are recorded only when the business purchased the goods on account. For example, the business purchased cleaning supplies on account.

Cash payments journal: Cash payments journal refers to the journal that is used to record all transaction which involves the cash payments. For example, the business paid cash to employees (salary paid to employees).

Purchase journal

Purchase journal of Company AF in the month of April, 2016 is as follows:

Figure (1)

Cash payment journal

Cash payment journal of Company AF in the month of April is as follows:

Cash payment journal

Date		Check No.	Account debited	Post Ref.	Other accounts Dr.	Accounts payable Dr.	Cash Dr.
2016
Apr.	16	1	Rent expense	71	3,500		3,500
	19	2	Field supplies	14	3,340		3,340
			Office supplies	15	400		400
	23	3	Land	19	140,000		140,000
	24	4	HS Company	✓		5,340	5,340
	26	5	P Equipment Company	✓		21,450	21,450
	30	6	BO Supply Company	✓		510	510
	30	7	Salary expense	61	29,400		29,400
	30				176,640	27,300	203,940
					✓	(21)	(11)

Table (1)

Accounts payable subsidiary ledger

Name: BO Supply Company
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
April	17		P1		510	510
	23		P1		660	1,170
	30		CP1	510		660

Table (2)

Name: HS Company
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
April	16		P1		5,340	5,340
	24		CP1	5,340		-
	30		P1		7,650	7,650

Table (3)

Name: P Equipment Company
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance ($)
2016
April	16		P1		21,450	21,450
	26		CP1	21,450		-
	30		P1		6,040	6,040

Table (4)

To determine

Post individual entries to the appropriate general ledger accounts.

Explanation of Solution

Prepare the general ledger for given accounts as follows:

Account:         Cash                                                              Account no. 11
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30		CP1	203,940			203,940

Table (5)

Account:    Field supplies                                                             Account no. 14
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	19		CP1	3,340		3,340
	30		P1	14,330		17,670

Table (6)

Account:    Office supplies                                                             Account no. 15
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	19		CP1	400		400
	30		P1	1,170		1,570

Table (7)

Account:  Field equipment                                                         Account no. 17
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	16		P1	21,450		21,450
	30		P1	4,700		26,150
	30		J1		12,000	14,150

Table (8)

Account:  Land                                                                             Account no. 19
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	23		CP1	140,000		140,000
	30		J1	12,000		152,000

Table (9)

Account:  Accounts payable                                                         Account no. 21
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30		P1		41,650		41,650
	30		CP1	27,300			14,350

Table (10)

Account:  Salary expense                                                         Account no. 61
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	30		CP1		29,400		29,400

Table (11)

Account:  Rent expense                                                         Account no. 71
Date		Item	Post. Ref	Debit  ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
2016
April	16		CP1		3,500		3,500

Table (12)

Journal                                                      Page  01
Date		Description	Post. Ref	Debit ($)	Credit ($)
April	30	Land	19	12,000
		Field equipment	17		12,000
		(To record the acquisition of land in exchange for field equipment)

Table (13)

To determine

Prepare accounts payable creditor balances.

Explanation of Solution

Accounts payable creditor balance

Accounts payable creditor balance is as follows:

Company AF
Accounts payable creditor balances
April 30
	Amount ($)
BO Supply Company	660
HS Company	7,650
P Equipment Company	6,040
Total accounts receivable	14,350

Table (14)

Accounts payable controlling account

Ending balance of accounts payable controlling account is as follows:

Company AF
Accounts payable (Controlling account)
April 30
	Amount ($)
Opening balance	0
Add:
Total credits (from purchase journal)	41,650
Less:
Total debits (from cash payment journal)	(27,300)
Total accounts payable	14,350

Table (15)

In this case, accounts payable subsidiary ledger is used to identify, and locate the error by way of cross check the creditor balance and accounts payable controlling account. From the above calculation, we can understand that the both balance of accounts payable is agree, hence there is no error in the recording and posing of transactions.

To determine

Discuss the reason for using subsidary ledger for the field equipment.

Explanation of Solution

A subsidiary ledger for the field equipment helps the company to track the cost of each piece of equipment, location, useful life, and other necessary data. This information is useful for safeguarding the equipment, and determining depreciation of equipment.