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. Prepare the journal entries for the given transactions as follows: May, 1 – Cash borrowed from bank: Figure (1) Cash is an assets account and it increased the value of asset by $210,000. Hence, debit the cash account for $210,000. Notes payable is a liability account, and it increased the value of liabilities by $210,000. Hence, credit the notes payable for $210,000. May, 3 –Building purchased in cash: Figure (2) Building is an assets account and it increased the value of asset by $145,000. Hence, debit the Building account for $145,000. Cash is an assets account and it decreased the value of asset by $145,000. Hence, credit the cash account for $145,000. May, 6 – Service performed on account: Figure (3) Accounts receivable is an assets account and it increased the value of asset by $14,100. Hence, debit the accounts receivable account for $14,100. Service revenue is a component of stockholder’s equity and it increased the value of stockholder’s equity by $14,100. Hence, debit the service revenue account for $14,100. May, 9 – Supplies purchased on account: Figure (4) Supplies are an assets account and it increased the value of asset by $275. Hence, debit the supplies account for $275. Accounts payable is a liability account and it increased the value of liability by $275. Hence, credit the liability account by $275. May, 13 – Revenue earned in cash and on account: Figure (5) Cash is an assets account and it increased the value of asset by $6,800. Hence, debit the cash account for $6,800. Service revenue is a component of stockholder’s equity and it increased the value of stockholder’s equity by $6,800...

5th Edition

ISBN: 9780134728858

Author: Kemp

Publisher: PEARSON CO

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Chapter 2, Problem 32AP

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EP FINANCIAL ACCOUNTING-MYACCOUNTINGLAB

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Prepare the journal entries for the given transactions.

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

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