Explanation Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system. Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions: Debit , all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities. Credit , all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses. Journal entries of Company M are as follows: June, 1– Payment of interest expense Date Accounts Post Ref. Debit ($) Credit ($) June, 1 Interest expense 900 Cash 900 (To record payment of interest expense) Table (1) Interest expense is a component of stockholder’s equity and it decreased the value of stockholder’s equity by $900. Hence, debit the interest expense account for $900. Cash is an assets account and it decreased the value of asset by $900. Hence, credit the cash account for $900. June, 5 – Office furniture purchased on account: Date Accounts Post Ref. Debit ($) Credit ($) June, 5 Office furniture 2,500 Accounts payable 2,500 (To record purchase of office furniture on account) Table (2) Office furniture is an assets account and it increased the value of asset by $2,500. Hence, debit the office furniture account for $2,500. Accounts payable is a liability account and it increased the value of liability by $2,500. Hence, credit the liability account by $2,500. June, 10– Service performed on account: Date Accounts Post Ref. Debit ($) Credit ($) June, 10 Accounts receivable 1,500 Service revenue 1,500 (To record service performed to customer on account) Table (3) Accounts receivable is an assets account and it increased the value of asset by $1,500. Hence, debit the accounts receivable account for $1,500. Service revenue is a component of stockholder’s equity and it increased the value of stockholder’s equity by $1,500. Hence, debit the service revenue account for $1,500. June, 12 – Cash borrowed on note: Date Accounts Post Ref...

5th Edition

ISBN: 9780134728858

Author: Kemp

Publisher: PEARSON CO

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Solution Summary: The author explains the rules of debiting and crediting different accounts while they occur in business transactions.

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