Chapter 2, Problem 5PA

1.

To determine

Prepare the journal entry to record the transactions in the books of Person L.

Answer to Problem 5PA

Prepare the journal entry to record the transactions in the books of Person L.

Date	Account Title and Explanation		Debit($)	Credit($)
July.3	Repairs and maintenance expenses		500
		Accounts payable		500
	(To record the repairs and maintenance expenses on account)
July.6	Accounts Receivable		450
		Service revenue		450
	(To record the repair services rendered on account)
July.9	Accounts payable		500
		Cash		500
	(To record the cash paid for repairs and maintenance expense on account)
July.14	Cash		600
		Notes Payable		600
	(To record the borrowing by signing a note)
July.18	No entry
July.20	Cash		450
		Accounts Receivable		450
	(To record cash received on account)
July.27	Cash		800
		Service revenue		800
	(To record the revenue for the services rendered)
July.30	Salaries expense		300
		Cash		300
	(To record the payment of salaries expense in cash)
July.31	Notes Payable		600
		Cash		600
	(To record the cash paid on note)

Table (1)

Explanation of Solution

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.

Lawn services received on account on July 3:

• Repairs and maintenance expense is an asset and increased by $500. Therefore, debit repairs and maintenance expense account with $500.
• Accounts payable is a liability and increased by $500. Therefore, credit accounts payable account with $500.

Provided repair services on account on July 6:

• Accounts Receivable is an asset and increased by $450. Therefore, debit accounts receivable account with $450.
• Service Revenue is revenue and increased by $450. Therefore, credit service revenue account with $450.

Payment made for lawn services on account on July 9:

• Account Payable is a liability and decreased by $500. Therefore, debit accounts payable account with $500.
• Cash is an asset and decreased by $500. Therefore, credit cash account with $500.

Borrowed by signing a note on July 14:

• Cash is an asset and increased by $600. Therefore, debit cash account with $600.
• Notes payable is a liability and decreased by $600. Therefore, credit notes payable account with $600.

Purchased advertising in a newspaper on July 18:

Receipt of service revenue on account on July 20:

• Cash is an asset and increased by $450. Therefore, debit cash account with $450.
• Accounts Receivable is an asset and decreased by $450. Therefore, credit accounts receivable account with $450.

Receipt of revenue for services rendered on July 27:

• Cash is an asset and increased by $800. Therefore, debit cash account with $800.
• Service revenue is revenue and increased by $800. Therefore, credit service revenue account with $800.

Payment of employee salaries for the month on July 30:

• Salaries Expense is an expense and increased by $300. Therefore, debit salaries expense account with $300.
• Cash is an asset and decreased by $300. Therefore, credit cash account with $300.

Payment of cash on note on July 31:

• Notes payable is a liability and decreased by $600. Therefore, debit Notes payable account with $600.
• Cash is an asset and decreased by $600. Therefore, credit cash account with $600.

2.

To determine

Indicate the impact of each transaction on the accounting equation for each company.

Explanation of Solution

Indicate the impact of each transaction on the accounting equation for J Lawn Maintenance Company.

Lawn Maintenance Company J
Accounting Equation
Date	Assets ($)	=	Liabilities ($)	+	Stockholders' Equity ($)
July.3	500		0		500
July.6	0		450		(450)
July.9	500		0		0
	(500)
July.14	600		0		0
	(600)
July.18	(110)		0		(110)
July.20	(450)		(450)		0
July.27	0		0		0
July.30	0		0		0
July.31	600		0		0
	(600)

Table (2)

Indicate the impact of each transaction on the accounting equation for Repair shop L.

Repair Shop L
Accounting Equation
Date	Assets ($)	=	Liabilities ($)	+	Stockholders' Equity ($)
July.3	0	=	500	=	(500)
July.6	450		0		450
July.9	(500)		(500)		0
July.14	600		600		0
July.18	0		0		0
July.20	450		0		0
	(450)
July.27	800		0		800
July.30	(300)		0		(300)
July.31	(600)		600		0

Table (3)

Accounting Equation:

Accounting equation is the mathematical representation of the relationship among the assets, liabilities, and stockholder’s equity at any given point of time. The components of the accounting equation include the assets, liabilities and stockholder’s Equity. In the accounting equation, the assets, which are placed on the left side of the equation, and the liabilities, and stockholder’s equity which are placed on the right side, must always balance. The accounting equation is as follows:

$\boxed{\text{Assets = Liabilities + Stockholder's Equity}}$