Chapter 2, Problem 2GLP

1.

To determine

To prepare: Journal entry for transactions.

Explanation of Solution

Journal entries to record the transactions

a.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Cash		100,750
	Capital account			100,750
	( Being Cash has been invested by the owner.)

Table (1)

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

b.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Office supplies		1,250
	Cash			1,250
	( Being supplies have been purchased on cash.)

Table (2)

• Supplies belong to asset account they increase the asset account so debited.
• While cash is also an asset account since purchase of supplies will decrease cash so it is credited.

c.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Office equipment		10,050
	Accounts Payable			10,050
	( Being office equipment has been purchased on credit.)

Table (3)

• 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.

d.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Cash		15,500
	Services fees earned			15,500
	( 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.

e.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Accounts payable		10,050
	Cash			10,050
	( Being amount paid due.)

Table (5)

• 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.

f.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Accounts receivable		2,700
	Service fees earned			2,700
	( Being amount is going to receive later on.)

Table (6)

• 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.

g.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Rent		1,225
	Cash			1,225
	( Being rent paid in cash)

Table (7)

• Rent belongs to expense account since rent has been paid so the expense account will increased hence it is debited.
• While cash is a part of asset account it is credited because there is decrease in cash account for the payment of rent.

h.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Cash		1,125
	Account Receivable			1,125
	( Being cash received partially)

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.

i.

Date	Account Title and Explanation	Post. ref	Debit ($)	Credit ($)
	Dividends		10,000
	Cash			10,000
	( Being cash is paid in form of dividend.)

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.

2.

To determine

To prepare: General ledger.

Explanation of Solution

General ledger

Cash
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Common stock		100,750		100,750
	Office supplies			1,250	99,500
	Service fees		15,500		115,000
	Accounts payable			10,050	104,950
	Rent			1,225	103,725
	Accounts receivables		1,125		104,850
	Dividends			10,000	94,850

Table (10)

So the ending balance is $94,850.

Account receivable
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Service fees		2,700		2,700
	Cash			1,125	1,575

Table (11)

So the ending balance is $1575.

Office supplies
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Cash		1,250		1,250

Table (12)

So the ending balance is $1,250.

Office Equipment
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Accounts payable		10,050		10,050

Table (13)

So the ending balance is $10,050.

Rent expense
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Cash		1,225		1,225

Table (14)

So the ending balance is $9,000.

Common stock
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Cash			100,750	100,750

Table (15)

So the ending balance is $100,750.

Accounts payable
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
c.	Office equipment		10,050		10,050
e.	Cash			10,050	0

Table (16)

So the ending balance is $0.

Dividends
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
	Cash		10,000		10,000

Table (17)

So the ending balance is $10,000.

Fees Earned
Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)	Balance ($)
d.	Cash			15,500	15,500
f.	Accounts receivable			2,700	18,200

Table (18)

So the ending balance is $18,200.