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Concept explainers
1.
Prepare the
1.
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Explanation of Solution
Prepare the journal entry to record the transaction for Maintenance Services O.
Date | Account Title and Explanation | Debit($) | Credit($) | |
May 2 | Prepaid insurance | 300 | ||
Cash | 300 | |||
(To record the prepaid insurance) | ||||
May 5 | 425 | |||
Service revenue | 425 | |||
(To record the maintenance services rendered on account) | ||||
May 7 | Notes receivable | 500 | ||
Cash | 500 | |||
(To record the loan provided by signing a note) | ||||
May 14 | Supplies | 200 | ||
Cash | 200 | |||
(To record the purchase of maintenance supplies) | ||||
May 19 | Cash | 425 | ||
Accounts Receivable | 425 | |||
(To record cash received on account) | ||||
May 25 | No entry | |||
May 28 | Insurance expense | 300 | ||
Prepaid insurance | 300 | |||
(To record the revenue for the services rendered) | ||||
May 31 | Cash | 500 | ||
Notes receivable | 500 | |||
(To record the cash received on note) |
Table (1)
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.
Paid advance insurance on May 2:
- Prepaid Insurance is an asset and increased by $300. Therefore, debit Prepaid Insurance account with $300.
- Cash is an asset and decreased by $300. Therefore, credit Cash account with $300.
Rendered service on account on May 5:
- Accounts Receivable is an asset and increased by $425. Therefore, debit accounts receivable account with $425.
- Service Revenue is revenue and increased by $425. Therefore, credit service revenue account with $425.
Loaned cash to E Insurance Service by receiving notes receivable on May 7:
- Notes Receivable is an asset and increased by $500. Therefore, debit Notes Receivable account with $500.
- Cash is an asset and decreased by $500. Therefore, credit cash account with $500.
O Maintenance Service purchased supplies from S Corporation on May 14:
- Supplies are an asset and increased by $200. Therefore, debit office supplies account with $200.
- Cash is an asset and decreased by $200. Therefore, credit cash account with $200.
Cash received from clients for service rendered May 19:
- Cash is an asset and increased by $425. Therefore, debit cash account with $425.
- Accounts Receivable is an asset and decreased by $425. Therefore, credit accounts receivable account with $425.
E Insurance Services paid monthly Utilities on May 25:
No entry.
Received service paid in advance on May 28:
- Insurance Expense is an expense. There is an increase in the expenses, and therefore it is debited.
- Prepaid Insurance is an asset. There is a decrease in assets, and therefore it is credited.
Cash received from E Insurance Services for the note on May 31:
- Cash is an asset and increased by $500. Therefore, debit cash account with $500.
- Notes Receivable is an asset and decreased by $500. Therefore, credit Notes Receivable account with $500.
2.
Indicate the impact of each transaction on the
2.
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Explanation of Solution
Indicate the impact of each transaction on the
Lawn Maintenance Company J | |||||
Accounting Equation | |||||
Date | Assets ($) | = | Liabilities ($) | + |
Stockholders' Equity ($) |
May 2 | 300 | 300 | 0 | ||
May 5 | 0 | 425 | 425 | ||
May 7 | 500 | 500 | 0 | ||
May 14 | 0 | 0 | 0 | ||
May 19 | (425) | (425) | 0 | ||
May 25 | (135) | (135) | |||
May 28 | 0 | (300) | (300) | ||
May 31 | (500) | (500) | 0 | ||
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 ($) |
May 3 | 0 | 500 | (500) | ||
May 6 | 450 | 0 | 450 | ||
May 9 | (500) | (500) | 0 | ||
May 14 | 600 | 600 | 0 | ||
May 18 | 0 | 0 | 0 | ||
May 20 | 450 | 0 | 0 | ||
(450) | |||||
May 27 | 800 | 0 | 800 | ||
May 30 | (300) | 0 | (300) | ||
May 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:
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Chapter 2 Solutions
Financial Accounting
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