The transactions completed by PS Music during June 2018 were described at the end of Chapter1. The following transactions were completed during July, the second month of the business’soperations: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.1. Instead of continuing to share office space with a local real estate agency, Peyton decided to rent officespace near a local music store. Paid rent for July, $1,750.1. Paid a premium of $2,700 for a comprehensive insurance policy covering liability, theft, and fire.The policy covers a one-year period.2. Received $1,000 on account.3. On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spotsfor the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours permonth for a monthly fee of $3,600. Any additional hours beyond 80 will be billed to KXMD at $40 perhour. In accordance with the contract, Peyton received $7,200 from KXMD as an advance payment for thefirst two months.3. Paid $250 on account.4. Paid an attorney $900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.)5. Purchased office equipment on account from Office Mart, $7,500.8. Paid for a newspaper advertisement, $200.11. Received $1,000 for serving as a disc jockey for a party.13. Paid $700 to a local audio electronics store for rental of digital recording equipment.14. Paid wages of $1,200 to receptionist and part-time assistant.Enter the following transactions on Page 2 of the two-column journal:16. Received $2,000 for serving as a disc jockey for a wedding reception.18. Purchased supplies on account, $850.21. Paid $620 to Upload Music for use of its current music demos in making various music sets.22. Paid $800 to a local radio station to advertise the services of PS Music twice daily for the remainder ofJuly.23. Served as disc jockey for a party for $2,500. Received $750, with the remainder due August 4, 2018.27. Paid electric bill, $915.28. Paid wages of $1,200 to receptionist and part-time assistant.29. Paid miscellaneous expenses, $540.30. Served as a disc jockey for a charity ball for $1,500. Received $500, with the remainder due onAugust 9, 2018.31. Received $3,000 for serving as a disc jockey for a party July 31. Paid $1,400 royalties (music expense) to National Music Clearing for use of various artists’ music duringJuly.31. Paid dividends, $1,250.PS Music’s chart of accounts and the balance of accounts as of July 1, 2018 (all normal balances), are as follows:11 Cash $3,920 41 Fees Earned $6,20012 Accounts Receivable 1,000 50 Wages Expense 40014 Supplies 170 51 Office Rent Expense 80015 Prepaid Insurance — 52 Equipment Rent Expense 67517 Office Equipment — 53 Utilities Expense 30021 Accounts Payable 250 54 Music Expense 1,59023 Unearned Revenue — 55 Advertising Expense 50031 Common Stock 4,000 56 Supplies Expense 18033 Dividends 500 59 Miscellaneous Expense 415Instructions1. Enter the July 1, 2018, account balances in the appropriate balance column of a four-columnaccount. Write Balance in the Item column, and place a check mark () in the PostingReference column. (Hint: Verify the equality of the debit and credit balances in the ledgerbefore proceeding with the next instruction.)2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations.3. Post the journal to the ledger, extending the account balance to the appropriate balancecolumn after each posting.4. Prepare an unadjusted trial balance as of July 31, 2018.
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.
The transactions completed by PS Music during June 2018 were described at the end of Chapter
1. The following transactions were completed during July, the second month of the business’s
operations:
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.
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.
1. Paid a premium of $2,700 for a comprehensive insurance policy covering liability, theft, and fire.
The policy covers a one-year period.
2. Received $1,000 on account.
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.
3. Paid $250 on account.
4. Paid an attorney $900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.)
5. Purchased office equipment on account from Office Mart, $7,500.
8. Paid for a newspaper advertisement, $200.
11. Received $1,000 for serving as a disc jockey for a party.
13. Paid $700 to a local audio electronics store for rental of digital recording equipment.
14. Paid wages of $1,200 to receptionist and part-time assistant.
Enter the following transactions on Page 2 of the two-column journal:
16. Received $2,000 for serving as a disc jockey for a wedding reception.
18. Purchased supplies on account, $850.
21. Paid $620 to Upload Music for use of its current music demos in making various music sets.
22. Paid $800 to a local radio station to advertise the services of PS Music twice daily for the remainder of
July.
23. Served as disc jockey for a party for $2,500. Received $750, with the remainder due August 4, 2018.
27. Paid electric bill, $915.
28. Paid wages of $1,200 to receptionist and part-time assistant.
29. Paid miscellaneous expenses, $540.
30. Served as a disc jockey for a charity ball for $1,500. Received $500, with the remainder due on
August 9, 2018.
31. Received $3,000 for serving as a disc jockey for a party
July 31. Paid $1,400 royalties (music expense) to National Music Clearing for use of various artists’ music during
July.
31. Paid dividends, $1,250.
PS Music’s chart of accounts and the balance of accounts as of July 1, 2018 (all normal balances), are as follows:
11 Cash $3,920 41 Fees Earned $6,200
12
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
Instructions
1. Enter the July 1, 2018, account balances in the appropriate balance column of a four-column
account. Write Balance in the Item column, and place a check mark () in the Posting
Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger
before proceeding with the next instruction.)
2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting
3. Post the journal to the ledger, extending the account balance to the appropriate balance
column after each posting.
4. Prepare an unadjusted
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