Chapter 2 - Instruction #1 PS Music's chart of accounts and the balance of accounts as of July 1, 20Y5 (all normal balances), are as follows: 11 Cash $ 3,920 41 Fees Earned $6,200 12 Accounts Receivable 1,000 50 Wages Expense 400 14 Supplies 170 51 Office Rent Expense 800 15 Prepaid Insurance — 52 Equipment Rent Expense 675 17 Office Equipment — 53 Utilities Expense 300 21 Accounts Payable 250 54 Music Expense 1,590 23 Unearned Revenue — 55 Advertising Expense 500 31 Common Stock 4,000 56 Supplies Expense 180 33 Dividends 500 59 Miscellaneous Expense 415 Required: Review the spreadsheet and notice that the July 1, 20Y5, account balances have been entered in the appropriate balance column of the four-column accounts. The word Balance has been entered in the Item column, and a check mark (√) has been entered in the Posting Reference column. Continuing Problem Chapter 2 - Instruction #2 The transactions completed by PS Music during June 20Y5. The following transactions were completed during July, the second month of the business’s operations: Analyze and journalize each transaction in the two-column journal below. Include Posting References, using the account numbers in your spreadsheet. If an amount box does not require an entry, leave it blank. July 1: Peyton Smith made an additional investment in PS Music in exchange for common stock by depositing $5,000 in PS Music’s checking account. Account Post. Ref. Debit Credit fill in the blank 2 fill in the blank 3 fill in the blank 4 fill in the blank 6 fill in the blank 7 fill in the blank 8 July 1: Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music store. Paid rent for July, $1,750. Account Post. Ref. Debit Credit fill in the blank 10 fill in the blank 11 fill in the blank 12 fill in the blank 14 fill in the blank 15 fill in the blank 16 July 1: Paid a premium of $2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. Account Post. Ref. Debit Credit fill in the blank 18 fill in the blank 19 fill in the blank 20 fill in the blank 22 fill in the blank 23 fill in the blank 24 July 2: Received $1,000 on account. Account Post. Ref. Debit Credit fill in the blank 26 fill in the blank 27 fill in the blank 28 fill in the blank 30 fill in the blank 31 fill in the blank 32 July 3: On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of $3,600. Any additional hours beyond 80 will be billed to KXMD at $40 per hour. In accordance with the contract, Peyton received $7,200 from KXMD as an advance payment for the first two months. Account Post. Ref. Debit Credit fill in the blank 34 fill in the blank 35 fill in the blank 36 fill in the blank 38 fill in the blank 39 fill in the blank 40 July 3: Paid $250 on account. Account Post. Ref. Debit Credit fill in the blank 42 fill in the blank 43 fill in the blank 44 fill in the blank 46 fill in the blank 47 fill in the blank 48 July 4: Paid an attorney $900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) Account Post. Ref. Debit Credit fill in the blank 50 fill in the blank 51 fill in the blank 52 fill in the blank 54 fill in the blank 55 fill in the blank 56 July 5: Purchased office equipment on account from Office Mart, $7,500. Account Post. Ref. Debit Credit fill in the blank 58 fill in the blank 59 fill in the blank 60 fill in the blank 62 fill in the blank 63 fill in the blank 64 July 8: Paid for a newspaper advertisement, $200. Account Post. Ref. Debit Credit fill in the blank 66 fill in the blank 67 fill in the blank 68 fill in the blank 70 fill in the blank 71 fill in the blank 72 July 11: Received $1,000 for serving as a disc jockey for a party. Account Post. Ref. Debit Credit fill in the blank 74 fill in the blank 75 fill in the blank 76 fill in the blank 78 fill in the blank 79 fill in the blank 80
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Chapter 2 - Instruction #1
PS Music's chart of accounts and the balance of accounts as of July 1, 20Y5 (all normal balances), are as follows:
| 11 | Cash | $ 3,920 | 41 | Fees Earned | $6,200 | |
| 12 | 1,000 | 50 | Wages Expense | 400 | ||
| 14 | Supplies | 170 | 51 | Office Rent Expense | 800 | |
| 15 | Prepaid Insurance | — | 52 | Equipment Rent Expense | 675 | |
| 17 | Office Equipment | — | 53 | Utilities Expense | 300 | |
| 21 | Accounts Payable | 250 | 54 | Music Expense | 1,590 | |
| 23 | Unearned Revenue | — | 55 | Advertising Expense | 500 | |
| 31 | Common Stock | 4,000 | 56 | Supplies Expense | 180 | |
| 33 | Dividends | 500 | 59 | Miscellaneous Expense | 415 |
Required:
Review the spreadsheet and notice that the July 1, 20Y5, account balances have been entered in the appropriate balance column of the four-column accounts. The word Balance has been entered in the Item column, and a check mark (√) has been entered in the Posting Reference column.
Continuing Problem
Chapter 2 - Instruction #2
The transactions completed by PS Music during June 20Y5. The following transactions were completed during July, the second month of the business’s operations:
Analyze and journalize each transaction in the two-column journal below. Include Posting References, using the account numbers in your spreadsheet.
If an amount box does not require an entry, leave it blank.
July 1: Peyton Smith made an additional investment in PS Music in exchange for common stock by depositing $5,000 in PS Music’s checking account.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 2 | fill in the blank 3 | fill in the blank 4 | |
| fill in the blank 6 | fill in the blank 7 | fill in the blank 8 |
July 1: Instead of continuing to share office space with a local real estate agency, Peyton decided to rent office space near a local music store. Paid rent for July, $1,750.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 10 | fill in the blank 11 | fill in the blank 12 | |
| fill in the blank 14 | fill in the blank 15 | fill in the blank 16 |
July 1: Paid a premium of $2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 18 | fill in the blank 19 | fill in the blank 20 | |
| fill in the blank 22 | fill in the blank 23 | fill in the blank 24 |
July 2: Received $1,000 on account.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 26 | fill in the blank 27 | fill in the blank 28 | |
| fill in the blank 30 | fill in the blank 31 | fill in the blank 32 |
July 3: On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of $3,600. Any additional hours beyond 80 will be billed to KXMD at $40 per hour. In accordance with the contract, Peyton received $7,200 from KXMD as an advance payment for the first two months.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 34 | fill in the blank 35 | fill in the blank 36 | |
| fill in the blank 38 | fill in the blank 39 | fill in the blank 40 |
July 3: Paid $250 on account.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 42 | fill in the blank 43 | fill in the blank 44 | |
| fill in the blank 46 | fill in the blank 47 | fill in the blank 48 |
July 4: Paid an attorney $900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.)
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 50 | fill in the blank 51 | fill in the blank 52 | |
| fill in the blank 54 | fill in the blank 55 | fill in the blank 56 |
July 5: Purchased office equipment on account from Office Mart, $7,500.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 58 | fill in the blank 59 | fill in the blank 60 | |
| fill in the blank 62 | fill in the blank 63 | fill in the blank 64 |
July 8: Paid for a newspaper advertisement, $200.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 66 | fill in the blank 67 | fill in the blank 68 | |
| fill in the blank 70 | fill in the blank 71 | fill in the blank 72 |
July 11: Received $1,000 for serving as a disc jockey for a party.
| Account | Post. Ref. | Debit | Credit |
|---|---|---|---|
| fill in the blank 74 | fill in the blank 75 | fill in the blank 76 | |
| fill in the blank 78 | fill in the blank 79 | fill in the blank 80 |
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