Chapter 2, Problem 1PSA

1.

To determine

To prepare: journal entry for April transactions.

Explanation of Solution

Journal entries to record the transactions

1.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 1	Cash		80,000
	Office Equipment		26,000
	H.H Capital account			106,000
	(Being Cash and equipment has been invested by the owner.)

Table (1)

• Cash is an asset account. Here, asset balance has increased. Hence cash account is debited.
• Office Equipment is an asset account. Here, asset balance has increased. Hence office equipment account is debited.
• As the equity is raised by investing cash and equipment resulted in increased equity so increased in equity account is credited.

2

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 2	Prepaid Rent		9,000
	Cash			9,000
	(Being rent has been paid in advance.)

Table (2)

• Prepaid rent belongs to asset accounts it has been debited as its payment resulted in increase in assets.
• Cash is an asset account it has been credited for the payment of rent as it resulted in decrease in asset account.

3.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 3	Office supplies		3,600
	Office equipment		8,000
	Accounts Payable			11,600
	(Being office supplies and equipment has been purchased on credit.)

Table (3)

• Office supplies equipment belongs to asset accounts they have been debited as their purchase resulted in increase in assets.
• Office equipment belongs to asset accounts they have been debited as their purchase resulted in increase in assets.
• As the purchase is made on credit which causes increased liabilities account so it will record under accounts payable account.

6.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 6	Cash		4,000
	Services fees earned			4,000
	(Being cash earned for providing services.)

Table (4)

• Cash is belonging to asset account so providing services in cash causes increase in asset account so debited.
• Services have been provided so it will be credited as they will decrease the stock account.

9.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 9	Accounts receivable		6,000
	Service fees earned			6,000
	(Being amount is going to receive later on.)

Table (5)

• Account receivable is belonging to current asset account so providing services causes increase in asset account so debited.
• Services have been provided so it recorded in credited account as they will decrease the stock account.

13.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 13	Accounts payable		11,600
	Cash			11,600
	(Being amount paid due.)

Table (6)

• Accounts payable is a current liability account so payment of amount due will increase the liability account so debited.
• Cash belongs to current asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

19.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 19	Prepaid Insurance		2,400
	Cash			2,400
	(Being premium for insurance has been paid in advance)

Table (7)

• Prepaid expense belongs to current asset account so there is an increase in asset account so it is debited.
• While cash is also a part of asset account it is credited because there is decrease in cash account for the payment of premium..

22.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 22	Cash		4,400
	Account Receivable			4,400
	(Being cash for previously provided services)

Table (8)

• Cash account is an asset account. Since cash is earned, so it is to be increased. Therefore, cash account is to be debited.
• Account receivable is also belongs to asset account so receiving cash will decrease it so credited.

25.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 25	Accounts receivables		2,890
	Services fees earned			2,890
	(Being billed client for completed work.)

Table (9)

• Accounts receivable is a current asset account as the amount due and not received so it causes increase in asset account so debited.
• Services are credit as it is a part of asset account as they will decrease the stock account.

28.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 28	Dividends		5,500
	Cash			5,500
	(Being cash is paid in form of dividend..)

Table (10)

• Since dividends has been paid which will increase equity so debited.
• Cash is credited as dividends have been paid in cash which decrease the cash account so credited.

29.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 29	Office supplies		600
	Accounts payable			600
	(Being purchased on credit.)

Table (11)

• Supplies belong to asset account they increase the asset account so debited.
• While accounts payable is a current liability account so purchasing supplies on credit will increase them so credited.

30.

Date	Account Title and Explanation	Post.ref	Debit($)	Credit($)
April 30	Utility expense		435
	Cash			435
	(Being expenses paid.)

Table (12)

• Utility expense account is an expense account. Since utility expense is increased, expense is to be increased. So, debit the utility expense account.
• Cash account is an asset account. Since cash is shrinked, so it is to be reduced. Therefore, cash account is to be credited.

2

To determine

To prepare: ledger account

Explanation of Solution

General ledger

Cash No.101
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 1.	Capital		80,000		80,000
APR 2.	Prepaid rent			9,000	71,000
APR 8	Service fees		4,000		75,000
APR 13	Accounts payable			11,600	63,400
APR 19	Prepaid Insurance			2,400	61,000
APR 22	Accounts Receivable		4,400		65,400
APR 28	Dividends			5,500	59,900
APR 30	Utility Expense			435	59,465

Table (15)

So the ending balance is $59,465

Account receivable No.106
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 12	Service fees		6,000		6,000
APR 22.	Cash			4,400	1,600
APR 24.	Servicer fees		2,890		4,490

Table (16)

So the ending balance is $4,490

Office supplies No.124
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 3.	Accounts payable		3,600		3,600
APR 29	Accounts payable		600		4,200

Table (17)

So the ending balance is $4,200

Office Equipment No.163
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
APR 1.	Capital		26,000		26,000
APR 3.	Accounts payable		8,000		34,000

Table (18)

So the ending balance is $34,000.

Prepaid Insurance No.128
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 19	Cash		2,400		2,400

Table (19)

So the ending balance is $2,400

Prepaid rent No.131
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 2.	Cash		9,000		9,000

Table (20)

So the ending balance is $9,000

Capital No.301
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 1.	Cash			106,000	106,000
APR 28	Cash		5,500		100,500

Table (21)

So the ending balance is $53,000

Accounts payable No.201
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 4	Office equipment and supplies			11,600	11,600
APR 13.	Cash		11,600		0
APR 29.	Office supplies			600	600

Table (22)

So the ending balance is $600

Utility Expense .690
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 30	Cash		435		435

Table (23)

So the ending balance is $435

Dividends .302
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 28	Cash		5,300		5,300

Table (24)

So the ending balance is $5,300

Fees Earned No.403
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
APR 8	Cash			4,000	4,000
APR 12	Accounts receivable			6,000	10,000
APR 24	Accounts receivable			2,890	12,890

Table (25)

So the ending balance is $12,890

3.

To determine

To prepare: Trial balance

Explanation of Solution

Trial balance account

Company H
Trial Balance
April 30, 20XX
Accounts Title	Amount($)	Amount($)
Cash	59,465
Accounts Payable		600
Accounts Receivable	4,490
Office Supplies	4,200
Office Equipment	34,000
Prepaid Insurance	2,400
Prepaid Rent	9,000
Capital		100,500
Dividends	5,300
Fees earned		12,890
Utility expenses	435
Totals	113,990	113,990

Table (26)

So, total trial balance is $113,990.