Chapter 2, Problem 1PSB

1.

To determine

To prepare: Journal entry for September transactions.

Explanation of Solution

Journal entries to record the transactions

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 1	Cash		38,000
	Office Equipment		15,000
	H.H Capital account			53,000
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 4	Office supplies		2,400
	Office equipment		8,000
	Accounts payable			10,400
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 8	Cash		3,280
	Services fees earned			3,280
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 12	Accounts receivable		15,400
	Service fees earned			15,400
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 13	Accounts payable		10,400
	Cash			10,400
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 19	Prepaid Insurance		1,900
	Cash			1,900
	( 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..

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 22	Cash		7,700
	Account receivable			7,700
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 24	Accounts receivables		2,100
	Services fees earned			2,100
	( 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.

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

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 29	Office supplies		550
	Accounts payable			550
	( 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.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
Sep 30	Utility expense		1,860
	Cash			1,860
	( 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

Cash No.101
Date Sept.	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
1	Capital		38,000		38,000
2	Prepaid rent			9,000	29,000
8	Service fees		3,280		32,280
13	Accounts payable			10,400	21,880
19	Prepaid Insurance			1,900	19,980
22	Accounts Receivable		7700		27,680
28	Dividends			5,300	22,380
30	Utility Expense			860	21,520

Table (15)

So the ending balance is $21,520

Account receivable No.106
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
12	Service fees		15,400		15,400
22	Cash			7,700	7,700
24	Servicer fees		2,100		9,800

Table (16)

So the ending balance is $9,800

Office supplies No.124
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
4	Accounts payable		2,400		2,400
29	Accounts payable		550		2,950

Table (17)

So the ending balance is $2,950

Office Equipment No.163
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
1	Capital		15,000		15,000
4	Accounts payable		8,000		23,000

Table (18)

So the ending balance is $23,000.

Prepaid Insurance No.128
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
19	Cash		1,900		1,900

Table (19)

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

Table (20)

So the ending balance is $9,000

Capital No.301
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
1	Cash			53,000	53,000

Table (21)

So the ending balance is $53,000

Accounts payable No.201
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
4	Office equipment and supplies			10,400	10,400
13	Cash		10,400		0
29	Office supplies			550	550

Table (22)

So the ending balance is $(550)

Utility Expense .690
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
30	Cash		860		860

Table (23)

So the ending balance is $860

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

Table (24)

So the ending balance is $5,300

Fees Earned No.401
Date Sept	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
8	Cash			3,280	3,280
12	Accounts receivable			15,400	18,680
24	Accounts receivable			2,100	20,780

Table (25)

So the ending balance is $(20,780)

3.

To determine

To prepare: Trial balance.

Explanation of Solution

Trial balance account

Company H
Trial Balance
September 30, 20XX
Accounts Title	Amount ($)	Amount ($)
Cash	21,520
Accounts Payable		550
Accounts Receivable	9,800
Office Supplies	2,950
Office Equipment	23,000
Prepaid Insurance	1,900
Prepaid Rent	9,000
Capital		53,000
Dividends	5,300
Fees earned		20,780
Utility expenses	860
Totals	74,330	74,330

Table (26)

So, total trial balance is $74,330.