Chapter 2, Problem 2.2P

Accounting cycle through unadjusted trial balance

• LO2–2, LO2–3

Account Title	Debits	Credits
Cash	5,000
Accounts receivable	2,000
Inventory	5,000
Equipment	11,000
Accumulated depreciation—equipment		3,500
Accounts payable		3,000
Common stock		10,000
Retained earnings		6,500
Sales revenue		–0–
Cost of goods sold	–0–
Salaries and wages expense	–0–
Rent expense	–0–
Advertising expense	–0–
Totals	23,000	23,000

The following transactions occurred during January 2018:

Jan. 1	Sold merchandise for cash, $3,500. The cost of the merchandise was $2,000. The company uses the perpetual inventory system.
2	Purchased equipment on account for $5,500 from the Strong Company.
4	Received a $150 bill from the local newspaper for an advertisement that appeared in the paper on January 2.
8	Sold merchandise on account for $5,000. The cost of the merchandise was $2,800.
10	Purchased merchandise on account for $9,500.
13	Purchased equipment for cash, $800.
16	Paid the entire amount due to the Strong Company.
18	Received $4,000 from customers on account.
20	Paid $800 to the owner of the building for January’s rent.
30	Paid employees $3,000 for salaries and wages for the month of January.
31	Paid a cash dividend of $1,000 to shareholders.

Required:

1. Set up T-accounts and enter the beginning balances as of January 1, 2018.

2. Prepare general journal entries to record each transaction. Omit explanations.

3. Post the entries to T-accounts.

4. Prepare an unadjusted trial balance as of January 31, 2018.

To determine

Journal:

Journal is the book, where the debit and credit entries of the accounting transactions are recorded in a chronological order. Every company must follow at least the basic form of journal called the ‘General journal’.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

• To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
• To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

T-account:

• T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
• The components of the T-account are as follows:

1. 1. a) The title of the account
   1. b) The left or debit side
   1. c) The right or credit side

Unadjusted trial balance:

The unadjusted trial balance is the summary of all the ledger accounts that appears on the ledger accounts before making adjusting journal entries.

To Prepare: The general journal entries to record each transaction.

Explanation of Solution

Prepare journal entry for January month transactions.

Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
January 1 2018	Cash(A+)		3,500
	Sales revenue (E+)			3,500
	Cost of goods sold (E-)		2,000
	Inventory (A-)			2,000
	(To record a cash sale for the month and the cost of that sale)
January 2 2018	Equipment (A+)		5,500
	Accounts payable (L+)			5,500
	(To record the purchase of equipment on account)
January 4 2018	Advertising expense (E–)		150
	Accounts payable (L+)			150
	(To record the receipt of advertising bills)
January 8 2018	Accounts receivable (A+)		5,000
	Sales revenue (E+)			5,000
	Cost of goods sold (E-)		2,800
	Inventory (A-)			2,800
	(To record a cash sale for the month and the cost of that sale)
January 10 2018	Inventory (A+)		9,500
	Accounts Payable (L+)			9,500
	(To record the purchase of inventory on account)
January 13 2018	Equipment (A+)		800
	Cash   (A–)			800
	(To record the purchase of equipment on account)
January 16 2018	Accounts Payable (L–)		5,500
	Cash (A–)			5,500
	(To record the payment of cash on account)
January 18 2018	Cash (A+)		4,000
	Accounts Receivable (A–)			4,000
	(To record the cash received on account)
January 20 2018	Rent Expense (E–)		800
	Cash (A–)			800
	(To record the payment of utility expense in cash)
January 30 2018	Salary  and Wages Expense (E–)		3,000
	Cash (A–)			3,000
	(To record the payment of  salary and wages expense in cash)
January 31 2018	Retained earnings (E–)		1,000
	Cash (A–)			1,000
	(To record the payment of cash dividend)

Table (1)

To determine

To Post: The beginning balances and entries to T-accounts.

Explanation of Solution

Post the beginning balances and entries to T-accounts.

Set up T-accounts with beginning balance and post the entries to T-accounts.

Cash Account:

Cash Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	5,000		January 13	Equipment	800
January 1	Sales Revenue	3,500		January 16	Accounts payable	5,500
January 18	Accounts Receivable	4,000		January 20	Rent Expense	800
				January 30	Salaries and Wages  Expense	3,000
				January 31	Retained Earnings	1,000
	Total	12,500			Total	11,100
January 31	Ending Balance	1,400

Table (2)

Accounts Receivable:

Accounts Receivable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	2,000		January 18	Cash	4,000
January 8	Sales Revenue	5,000
	Total	7,000			Total	4,000
January 31	Ending Balance	3,000

Table (3)

Inventory Account:

Inventory Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	5,000		January 1	Cost of goods sold	2,000
January 10	Accounts payable	9,500		January 8	Cost of goods sold	2,800
	Total	14,500			Total	4,800
January 31	Ending Balance	9,700

Table (4)

Equipment Account:

Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	11,000				-
January 2	Accounts payable	5,500				-
January 13	Cash	800
	Total	17,300			Total	-
January 31	Ending Balance	17,300

Table (5)

Accumulated Depreciation- Equipment:

Accumulated Depreciation-Equipment Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				January 1	Beginning balance	3,500
				January 31	Ending Balance	3,500

Table (6)

Accounts Payable:

Accounts Payable Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 16	Cash	5,500		January 1	Beginning balance	3,000
				January 2	Equipment	5,500
				January 4	Advertising Expense	150
				January 10	Inventory	9,500
	Total	5,500			Total	18,150
				January 31	Ending Balance	12,650

Table (7)

Common Stock:

Common Stock Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				January 1	Beginning balance	10,000
					Total	10,000
					Ending Balance	10,000

Table (8)

Retained Earnings:

Retained Earnings Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 31	Cash (Dividends paid)	1,000		January 1	Beginning balance	6,500
	Total	1,000			Total	6,500
				January 31	Ending Balance	5,500

Table (9)

Sales Revenue:

Sales Revenue Account
Date	Details	Debit ($)		Date	Details	Credit ($)
				January 1	Beginning balance	0
				January 1	Cash	3,500
				January 8	Accounts receivable	5,000
					Total	8,500
				January 31	Ending Balance	8,500

Table (10)

Cost of Goods Sold:

Cost of Goods Sold Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	0				-
January 1	Inventory	2,000
January 8	Inventory	2,800
	Total	4,800			Total	-
January 31	Ending Balance	4,800

Table (11)

Rent Expense:

Rent Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	0				-
January 20	Cash	800
	Total	800			Total	-
January 31	Ending Balance	800

Table (12)

Salaries and Wages Expense:

Salaries and Wages Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	0				-
January 30	Cash	3,000
	Total	3,000			Total	-
January 31	Ending Balance	3,000

Table (13)

Advertising Expense:

Advertising Expense Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Beginning balance	0				-
January 4	Cash	150
	Total	150			Total	-
January 31	Ending Balance	150

Table (14)

To determine

To Prepare: An unadjusted trial balance as of January 30, 2018.

Explanation of Solution

Prepare an unadjusted trial balance as of January 31, 2018.

Corporation WM Unadjusted Trial Balance As of January 31, 2016
Particulars	Debit ($)	Credit ($)
Cash	1,400
Accounts receivable	3,000
Inventory	9,700
Equipment	17,300
Accumulated depreciation		3,500
Accounts payable		12,650
Common stock		10,000
Retained Earnings		5,500
Sales revenue		8,500
Cost of goods sold	4,800
Salaries and wages expense	3,000
Rent expense	800
Advertising expense	150
Total	40,150	40,150

Table (15)