Chapter 2, Problem 1PSA

1.

To determine

Journal Entries:

A journal records a transaction by debiting one account and giving credit to another account. All the transactions affecting the business entity are passed through the journal recording.

To Prepare:

Journal entries to record the transactions occurred for April in the books of LW.

Answer to Problem 1PSA

When assets are invested into the business, all assets are debited, and the capital account is credited.

Expenses paid in advance before they are accrued represents asset and hence debited and cash is credited.

Asset purchase on credit requires the asset accounts to be debited and the liability for payable is credited.

Income earned in cash requires the cash account to be debited and income or revenue account is credited. Similarly, for income earned but not received in cash, an asset for receivable is debited and revenue is credited.

When trade payable is settled through payment, liability account is debited, and cash account is credited.

When cash is collected from the receivable asset, cash is debited, and the receivable is credited.

In case the owner withdraws cash from the business, the withdrawals account is debited, and cash is credited.

For expenses paid in cash, the expense account is debited, and cash is credited.

Explanation of Solution

LW
Journal
Date	Account Titles & Explanations	Account No.	Debit	Credit
1-Apr	Cash	101	$80,000
	Office Equipment	163	$26,000
	KT, Capital	301		$106,000
	(to record the cash &equipment invested into the business)
2-Apr	Prepaid Rent	131	$9,000
	Cash	101		$9,000
	(To record the rent paid in advance for 12 months)
3-Apr	Office Equipment	163	$8,000
	Office Supplies	124	$3,600
	Accounts Payable	201		$11,600
	(To record the equipment and supplies purchased on credit)
6-Apr	Cash	101	$4,000
	Service Revenue	403		$4,000
	(Services rendered for cash)
9-Apr	Accounts Receivable	106	$6,000
	Service Revenue	403		$6,000
	(Services rendered on credit)
13-Apr	Accounts Payable	201	$11,600
	Cash	101		$11,600
	(Cash paid in full settlement)
19-Apr	Prepaid Insurance	128	$2,400
	Cash	101		$2,400
	(Insurance paid in advance for 12 months)
22-Apr	Cash	101	$4,400
	Accounts Receivable	106		$4,400
	(Cash collection as part payment)
25-Apr	Accounts Receivable	106	$2,890
	Service Revenue	403		$2,890
	(Services rendered on credit)
28-Apr	KT, Withdrawals	302	$5,500
	Cash	101		$5,500
	(Cash drawn for personal use)
29-Apr	Office Supplies	124	$600
	Accounts Payable	201		$600
	(Supplies are purchased on credit)
30-Apr	Utilities Expense	690	$435
	Cash	101		$435
	(Utility bill paid in cash)

Under the date column, the transaction date is entered. In account titles and explanations tab, the respective accounts are recorded and the corresponding amount in debit or credit is entered in their respective column. Account numbers are maintained to identify a particular account.

2.

To determine

Posting to Ledger:

After the journal entries are passed, the accounts are posted to the ledger and the balances in each ledger arecalculated. Ledger preparation can have different formats depending on the business needs.

To Post:

Journal entries to the ledger accounts and computation of balances for each of those ledger accounts.

Answer to Problem 1PSA

When the journal entries are posted to the ledger accounts, the following balances will appear:

Cash: $59,465

Accounts Receivable: $4,490

Office Supplies: $4,200

Prepaid Insurance: $2,400

Prepaid Rent: $9,000

Office Equipment: $34,000

KT, Withdrawals: $5,500

Utilities Expense: $435

Accounts Payable: $600

KT, Capital: $106,000

Service Revenue: $12,890

Explanation of Solution

General Ledger

Cash			Account No: 101
Date	Debit	Credit	Balance
1-Apr	$80,000		$80,000
2-Apr		$9,000	$71,000
6-Apr	$4,000		$75,000
13-Apr		$11,600	$63,400
19-Apr		$2,400	$61,000
22-Apr	$4,400		$65,400
28-Apr		$5,500	$59,900
30-Apr		$435	$59,465
Accounts Receivable		Account No: 106
Date	Debit	Credit	Balance
9-Apr	$6,000		$6,000
22-Apr		$4,400	$1,600
25-Apr	$2,890		$4,490
Office Supplies		Account No: 124
Date	Debit	Credit	Balance
3-Apr	$3,600		$3,600
29-Apr	$600		$4,200
Prepaid Insurance		Account No: 128
Date	Debit	Credit	Balance
19-Apr	$2,400		$2,400
Prepaid Rent		Account No: 131
Date	Debit	Credit	Balance
2-Apr	$9,000		$9,000
Office Equipment		Account No: 163
Date	Debit	Credit	Balance
1-Apr	$26,000		$26,000
3-Apr	$8,000		$34,000
KT, Withdrawals		Account No: 302
Date	Debit	Credit	Balance
28-Apr	$5,500		$5,500
Utilities Expense		Account No: 690
Date	Debit	Credit	Balance
30-Apr	$435		$435
Accounts Payable		Account No: 201
Date	Debit	Credit	Balance
3-Apr		$8,000	$8,000
3-Apr		$3,600	$11,600
13-Apr	$11,600		$0
29-Apr		$600	$600
KT, Capital		Account No: 301
Date	Debit	Credit	Balance
1-Apr		$80,000	$80,000
1-Apr		$26,000	$106,000
Service Revenue		Account No: 403
Date	Debit	Credit	Balance
6-Apr		$4,000	$4,000
9-Apr		$6,000	$10,000
25-Apr		$2,890	$12,890

Ledger entries are recorded in accordance with the journal chronologically and at each date balances are drawn.

3.

To determine

Trial Balance:

A trial balance is prepared to show the arithmetical accuracy of the ledgers so posted. However, this does not guarantee that accounts are prepared correctly. The trial balance serves as the prima facie document to show that the ledger balances are properly recorded from the journal.

To Prepare:

A trial balance as at April 30.

Answer to Problem 1PSA

The debit and credit side of the trial balance are matched with the amount of $119,490.

Explanation of Solution

LW Trial Balance As of April 30
Account Title	Account No.	Debit	Credit
Cash	101	$59,465
Accounts Receivable	106	$4,490
Office Supplies	124	$4,200
Prepaid Insurance	128	$2,400
Prepaid Rent	131	$9,000
Office Equipment	163	$34,000
Accounts Payable	201		$600
K. Tanner, Capital	301		$106,000
K. Tanner, Withdrawals	302	$5,500
Services Revenue	403		$12,890
Utilities Expense	690	$435
Total		$119,490	$119,490

The total of the debit side must be equal to the total of the credit side to prove the arithmetical accuracy of the ledger accounts posted.