Concept explainers
Journal entries and
On October 1, 20Y4, Jay Pryor established an interior decorating business, Pioneer Designs. During the month, Jay completed the following transactions related to the business:
Oct. 1. Jay transferred cash from a personal bank account to an account to be used for the business in exchange for common stock, $18,000.
4. Paid rent for period of October 4 to end of month, $3,000.
10. Purchased a used truck for $23,750, paying $3,750 cash and giving a note payable for the remainder.
13. Purchased equipment on account, $10,500.
14. Purchased supplies for cash, $2,100.
Oct. 15. Paid annual premiums on property and casualty insurance, $3,600. 15. Received cash for job completed, $8,950.
Enter the following transactions on Page 2 of the two-column journal:
21. Paid creditor a portion of the amount owed for equipment purchased on October 13, $2,000.
24. Recorded jobs completed on account and sent invoices to customers, $14,150.
26. Received an invoice for truck expenses, to be paid in November, $700.
27. Paid utilities expense, $2,240.
27. Paid miscellaneous expenses, $1,100.
29. Received cash from customers on account, $7,600.
30. Paid wages of employees, $4,800.
31. Paid dividends, $3,500.
Instructions
1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.)
11 Cash
12 Accounts Receivable
13 Supplies
14 Prepaid Insurance
16 Equipment
18 Truck
21 Notes Payable
22 Accounts Payable
31 Common Stock
33 Dividends
41 Fees Earned
51 Wages Expense
53 Rent Expense
54 Utilities Expense
55 Truck Expense
59 Miscellaneous Expense
2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
3. Prepare an unadjusted trial balance for Pioneer Designs as of October 31, 20Y4.
4. Determine the excess of revenues over expenses for October.
5. Can you think of any reason why the amount determined in (4) might not be the net income for October?
1.
Journalize the transactions in a two column journal beginning on Page 1.
Explanation of Solution
Journal:
Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.
Rules of debit and credit:
“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.
Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.
Journalize each transaction in a two column journal beginning on Page 1.
Journal Page1 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
20Y4 | Cash | 11 | 18,000 | ||
October | 1 | Common stock | 31 | 18,000 | |
(To record the transfer of cash from personal bank account to business account in exchange for common stock) | |||||
4 | Rent expense | 53 | 3,000 | ||
Cash | 11 | 3,000 | |||
(To record the payment of rent for the month of June) | |||||
10 | Truck | 18 | 23,750 | ||
Cash | 11 | 3,750 | |||
Notes payable | 21 | 20,000 | |||
(To record the purchase of truck by cash and on account) | |||||
13 | Equipment | 16 | 10,500 | ||
Accounts payable | 22 | 10,500 | |||
(To record the purchase of equipment on account) | |||||
14 | Supplies | 13 | 2,100 | ||
Cash | 11 | 2,100 | |||
(To record the purchase of supplies) | |||||
15 | Prepaid insurance | 14 | 3,600 | ||
Cash | 11 | 3,600 | |||
(To record the payment made for insurance premiums) | |||||
15 | Cash | 11 | 8,950 | ||
Fees earned | 41 | 8,950 | |||
(To record the receipt of cash for the completed job) |
Table (1)
Journal Page 2 | |||||
Date | Description | Post. Ref | Debit ($) | Credit ($) | |
20Y4 | 21 | Accounts payable | 22 | 2,000 | |
October | Cash | 11 | 2,000 | ||
(To record the payment made to creditor on account) | |||||
24 | Accounts receivable | 12 | 14,150 | ||
Fees earned | 41 | 14,150 | |||
(To record the invoices sent to customers for the jobs completed) | |||||
26 | Truck expense | 55 | 700 | ||
Accounts payable | 22 | 700 | |||
(To record the receipt of invoices for truck expenses) | |||||
27 | Utilities expense | 54 | 2,240 | ||
Cash | 11 | 2,240 | |||
(To record the payment of utilities expense) | |||||
27 | Miscellaneous expense | 59 | 1,100 | ||
Cash | 11 | 1,100 | |||
(To record the payment of miscellaneous expense) | |||||
29 | Cash | 11 | 7,600 | ||
Accounts receivable | 12 | 7,600 | |||
(To record the receipt of cash from customers on account) | |||||
30 | Wages expense | 51 | 4,800 | ||
Cash | 11 | 4,800 | |||
(To record the payment of wages expense) | |||||
31 | Dividends | 33 | 3,500 | ||
Cash | 11 | 3,500 | |||
(To record the withdrawal of cash for personal use) |
Table (2)
2.
Post the journal to a ledger of four-column accounts with appropriate post references, and the balances after each transaction is posted.
Explanation of Solution
General ledger: General ledger is a record of all accounts of assets, liabilities, and stockholders’ equity, necessary to prepare financial statements.
General Ledger
Account: Cash Account no. 11 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 1 | 1 | 18,000 | 18,000 | |||
4 | 1 | 3,000 | 15,000 | ||||
10 | 1 | 3,750 | 11,250 | ||||
14 | 1 | 2,100 | 9,150 | ||||
15 | 1 | 3,600 | 5,550 | ||||
15 | 1 | 8,950 | 14,500 | ||||
21 | 2 | 2,000 | 12,500 | ||||
27 | 2 | 2,240 | 10,260 | ||||
27 | 2 | 1,100 | 9,160 | ||||
29 | 2 | 7,600 | 16,760 | ||||
30 | 2 | 4,800 | 11,960 | ||||
31 | 2 | 3,500 | 8,460 |
Table (3)
Account: Accounts Receivable Account no. 12 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 24 | 2 | 11,900 | 14,150 | |||
29 | 2 | 7,600 | 6,550 |
Table (4)
Account: Supplies Account no. 13 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 14 | 1 | 2,100 | 2,100 |
Table (5)
Account: Prepaid Insurance Account no. 14 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 15 | 1 | 3,600 | 3,600 |
Table (6)
Account: Equipment Account no. 16 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 13 | 1 | 10,500 | 10,500 |
Table (7)
Account: Truck Account no. 18 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 10 | 1 | 23,750 | 23,750 |
Table (8)
Account: Notes Payable Account no. 21 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 10 | 1 | 20,000 | 20,000 |
Table (9)
Account: Accounts Payable Account no. 22 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 13 | 1 | 10,500 | 10,500 | |||
21 | 2 | 2,000 | 8,500 | ||||
26 | 2 | 700 | 9,200 |
Table (10)
Account: Common Stock Account no. 31 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 1 | 1 | 18,000 | 18,000 |
Table (11)
Account: Dividends Account no. 33 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 31 | 2 | 3,500 | 3,500 |
Table (12)
Account: Fees earned Account no. 41 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 15 | 1 | 8,950 | 8,950 | |||
24 | 2 | 14,150 | 23,100 |
Table (13)
Account: Wages expense Account no. 51 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 30 | 2 | 4,800 | 4,800 |
Table (14)
Account: Rent expense Account no. 53 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 4 | 1 | 3,000 | 3,000 |
Table (15)
Account: Utilities expense Account no. 54 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 27 | 2 | 2,240 | 2,240 |
Table (16)
Account: Truck expense Account no. 55 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 26 | 2 | 700 | 700 |
Table (17)
Account: Miscellaneous expense Account no. 59 | |||||||
Date | Item | Post. Ref |
Debit ($) | Credit ($) | Balance | ||
Debit ($) | Credit ($) | ||||||
20Y4 | |||||||
October | 27 | 2 | 1,100 | 1,100 |
Table (18)
3.
Prepare an unadjusted trial balance for Company PD for the year ended October 31, 20Y4.
Explanation of Solution
Unadjusted 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.
Prepare an unadjusted trial balance of P Designs as of October 31, 20Y4 as follows:
P Designs Unadjusted Trial Balance October 31, 20Y4 | |||
Particulars |
Account No. |
Debit $ | Credit $ |
Cash | 11 | 8,460 | |
Accounts receivable | 12 | 6,550 | |
Supplies | 13 | 2,100 | |
Prepaid insurance | 14 | 3,600 | |
Equipment | 16 | 10,500 | |
Truck | 18 | 23,750 | |
Notes payable | 21 | 20,000 | |
Accounts payable | 22 | 9,200 | |
Common stock | 31 | 18,000 | |
Dividends | 33 | 3,500 | |
Fees earned | 41 | 23,100 | |
Wages expense | 51 | 4,800 | |
Rent expense | 53 | 3,000 | |
Utilities expense | 54 | 2,240 | |
Van expense | 55 | 700 | |
Miscellaneous expense | 59 | 1,100 | |
Total | 70,300 | 70,300 |
Table (19)
The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $70,300.
4.
Determine the excess of revenues over expenses for the month of October.
Answer to Problem 3PB
The excess of revenues over expenses for the month of October is $11,260.
Explanation of Solution
Revenues: Revenues are earnings from operations of a business. The operating activities are sale of goods and services, and rent revenue.
Expenses: Expenses are costs incurred for the operations of a business. The costs incurred for generating revenues are rent expense, depreciation expense, general and administrative expenses, selling expenses, and utilities expense.
Working note:
Calculate the excess of revenues over expenses.
Hence, the excess of revenues over expenses for the month of October is $11,260.
5.
Discuss the reason behind the amount determined in (4) might not be the net income for October.
Explanation of Solution
The amount determined in (4) might not be the net income for October, because adjusting entries for supplies used, insurance expired, and depreciation should be passed at the end of the accounting period in order to bring the accounts up to date.
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Chapter 2 Solutions
Financial And Managerial Accounting
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