Chapter 2, Problem 6AE

To determine

Prepare journal entry to record the given transactions.

Explanation of Solution

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:

Ø  Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Ø  Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, and expenses.

Prepare journal entry to record the amount of $8,000 invested by the Person L to begin the business.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 1	Cash	8,000
	Common Stock		8,000
	(To record shares purchased for cash)

(Table 1)

• Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $8,000.
• Common stock is a component of stockholder’s equity and there is an increase in the value of equity. Hence, credit the common stock by $8,000.

Prepare journal entry to record payment of rent.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 2	Rent expense	450
	Cash		450
	(To record payment of rent)

(Table 2)

• Rent expense is a component of stockholder’s equity and there is an increase in the value of stockholder’s equity. Hence, debit, the rent expense by $450.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $450.

Prepare journal entry to record purchase of equipment on account.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 3	Office equipment	3,500
	Accounts payable		3,500
	(To record purchase on account)

(Table 3)

• Office equipment is an asset and there is an increase in the value of an asset. Hence, debit the office equipment by $3,500.
• Accounts payable is a liability and there is an increase in the value of a liability. Hence, credit the accounts payable by $3,500.

Prepare journal entry to record purchase of art materials and other supplies costing $2,500 and paying $900 down with the remainder due within 30 days.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 6	Supplies	2,500
	Cash		900
	Accounts payable		1,600
	(To record purchase of office supplies)

(Table 4)

• Supplies are an asset and there is an increase in the value of an asset. Hence, debit the supplies by $2,500.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $900.
• Accounts payable is a liability and there is an increase in the value of a liability. Hence, credit the accounts payable by $1,600.

Prepare journal entry to record for the service performed being billed by the company for $4,750 on client.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 11	Accounts receivable	4,750
	Service revenue		4,750
	(To record service rendered on account)

(Table 5)

• Accounts receivable is an asset and there is an increase in the value of an asset. Hence, debit the accounts receivable by $4,750.
• Service revenue is a component of stockholder’s equity an there is an increase in the value of revenue. Hence, credit the service revenue by $4,750.

Prepare journal entry to record for cash of $2,100 being collected from the client for the service provided.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 17	Cash	2,100
	Accounts receivable		2,100
	(To record amount collected from the client for the service provided)

(Table 6)

• Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $2,100.
• Accounts receivable is an asset and there is a decrease in the value of an asset. Hence, debit the accounts receivable by $2,100.

Prepare journal entry to record payment made on purchase of office equipment.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 19	Accounts payable	2,000
	Cash		2,000
	(To record the payment made on purchase of office equipment on account)

(Table 7)

• Accounts payable is a liability and there is a decrease in the value of a liability. Hence, debit the accounts payable by $2,000.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $2,000.

Prepare journal entry to record dividend received by Person L.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 25	Cash	750
	Dividend		750
	(To record the dividend received by Person L)

(Table 8)

• Cash is an asset and there is an increase in the value of an asset. Hence, credit the cash by $750.
• Dividend is a component of stockholder’s equity and there is an increase in the value of equity. Hence, credit the dividend by $750.

Prepare journal entry to record payment of utility bill.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 30	Utility expense	450
	Cash		450
	(To record the payment made on utility expense)

(Table 9)

• Utility expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit, the utility expense by $450.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $450.

Prepare journal entry to record payment of salary.

Date	Account Titles and Explanations	Debit ($)	Credit ($)
June 30	Salaries expense	2,750
	Cash		2,750
	(To record the payment made on salary )

(Table 10)

• Salaries expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit, the salaries expense by $2,750.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $2,750.