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Journal entry is a medium of recording the business transactions carried during a particular accounting period.
A trial balance is a statement consisting of all the ledger accounts which is prepared at the end of accounting period.
Four Column Accounts:
The four column accounts keeps track of the balance as transactions takes place. In case of assets and expense accounts, the increase in the expenses and assets are shown in the debit column and vice-versa. When there is increase in liabilities and revenues, it is shown on the credit side and vice-versa.
Income Statement:
The statement which shows the revenues earned and expenses incurred during a particular year is called Income statement.
Statement of Owner's Equity:
Statement of owner's equity is concerned with portion of owner's equity.
A financial statement which shows the financial position of a company during specified accounting period is called a balance sheet.
Prepare journal entries to record the transactions, create financial statements, and assess the impact of each transaction on financial statements.
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Answer to Problem 6GLP
Solution:
Journal entries
Date | Accounts | Debit | Credit |
Mar. 1 | Cash | $150,000 | |
Office Equipment | $22,000 | ||
D. Brooks, Capital | $172,000 | ||
2 | Prepaid Rent | $6,000 | |
Cash | $6,000 | ||
3 | Office Equipment | $3,000 | |
Office Supplies | $1,200 | ||
Accounts Payable | $4,200 | ||
6 | Cash | $4,000 | |
Service Revenue | $4,000 | ||
9 | $7,500 | ||
Service Revenue | $7,500 | ||
12 | Accounts Payable | $4,200 | |
Cash | $4,200 | ||
19 | Prepaid Insurance | $5,000 | |
Cash | $5,000 | ||
22 | Cash | $3,500 | |
Accounts Receivable | $3,500 | ||
25 | Accounts Receivable | $3,820 | |
Service Revenue | $3,820 | ||
29 | D. Brooks, Withdrawals | $5,100 | |
Cash | $5,100 | ||
30 | Office Supplies | $600 | |
Accounts Payable | $600 | ||
31 | Utilities Expense | $500 | |
Cash | $500 | ||
Financial Statements
DENZEL BROOKS CONSULTANCY Income Statement For the Month Ended March 31 | |
Revenues: | |
Service Revenue | $15,320 |
Expenses: | |
Utilities Expense | $500 |
Net Income | $14,820 |
DENZEL BROOKS CONSULTANCY Statement of Owner's Equity For the Month Ended March 31 | |
D. Brooks, Capital, March 1. | $0 |
Owner's contribution during the month | $172,000 |
Net income for the month | $14,820 |
Subtotal | $186,820 |
Owner's withdrawal | ($5,100) |
D. Brooks, Capital, March 31. | $181,720 |
DENZEL BROOKS CONSULTANCY Balance Sheet For the Month Ended March 31 | |
Assets | |
Current Asset: | |
Cash | $136,700 |
Accounts Receivable | $7,820 |
Office Supplies | $1,800 |
Prepaid Insurance | $5,000 |
Prepaid Rent | $6,000 |
Total Current Assets | $157,320 |
Plant, Property and Equipment | |
Office Equipment | $25,000 |
Total Assets | $182,320 |
Liabilities | |
Current Liabilities | |
Accounts Payable | $600 |
Total Liabilities | $600 |
Owner's Equity | |
D. Brooks, Capital | $181,720 |
Total Liabilities and Owner's Equity | $182,320 |
Date | Impact on financial statements |
1. | The contribution of owner increases the assets "Cash account" and "Office Equipment" and equity of the owner in the equity section of the balance sheet. |
2. | Prepaid rent is an assets and outflow of cash results in decrease of cash balance of the company. |
3. | Purchase of office equipment and office supplies on credit increases the assets "Office Equipment" and "Office Supplies" and liabilities "Accounts Payable" at the same time. |
6. | Service performed for cash will increase the cash balance and revenue in the income statement. |
9. | Services performed on accounts for the client will increase the asset "Accounts Receivable" and revenue in the income statement of the company. |
12. | Payment on accounts payable decreases the liabilities "Accounts Payable" and assets "Cash Account" at the same time. |
19. | Insurance premium for 18 months is paid in advance increases the assets as it is a prepaid insurance and the outflow of cash will result in decrease of cash. |
22. | Collections on accounts will decrease the assets of accounts receivable and increases the assets of cash accounts simultaneously. |
25. | Debiting the Accounts Receivable increases the assets and crediting the Service Revenue increases the revenue of the company in the income statement. |
29. | Withdrawal by the owner will result in decrease of equity and cash balance of the company. |
30. | Purchase of additional office supplies on credit increases the assets "Office Supplies" and liabilities "Accounts Payable" at the same time. |
31. | Utilities expense incurred increases the expenses in the income statement and decreases the assets of cash accounts as it results in outflow of cash. |
Explanation of Solution
Ledger Accounts
Cash Account no. 101 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 1 | D. Brooks, Capital | $150,000 | $150,000 | |
2 | Prepaid Rent | $6,000 | $144,000 | |
6. | Service Revenue | $4,000 | $148,000 | |
12 | Accounts Payable | $4,200 | $143,800 | |
19 | Prepaid Insurance | $5,000 | $138,800 | |
22 | Accounts Receivable | $3,500 | $142,300 | |
29 | D. Brooks, Withdrawals | $5,100 | $137,200 | |
31 | Utilities Expense | $500 | $136,700 | |
Accounts Receivable Account no. 106 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 9 | Service Revenue | $7,500 | $7,500 | |
22 | Cash | $3,500 | $4,000 | |
25 | Service Revenue | $3,820 | $7,820 | |
Office Supplies Account no. 124 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 3 | Accounts Payable | $1,200 | $1,200 | |
30 | Accounts Payable | $600 | $1,800 | |
Prepaid Insurance Account no. 128 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 19 | Cash | $5,000 | $5,000 |
Prepaid Rent Account no. 131 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 2 | Cash | $6,000 | $6,000 |
Office Equipment Account no. 163 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 1 | D. Brooks, Capital | $22,000 | $22,000 | |
3 | Accounts Payable | $3,000 | $25,000 |
Accounts Payable Account no. 201 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 3 | Office Equipment | $3,000 | $3,000 | |
Office Supplies | $1,200 | $4,200 | ||
12 | Cash | $4,200 | $0 | |
30 | Office Supplies | $600 | $600 | |
D. Brooks, Capital Account no. 301 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 1 | Cash | $150,000 | $150,000 | |
Office Equipment | $22,000 | $172,000 | ||
D. Brooks, Withdrawals Account no. 302 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 29 | Cash | $5,100 | $5,100 |
Service Revenue Account no. 403 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 6 | Cash | $4,000 | $4,000 | |
9 | Accounts Receivable | $7,500 | $11,500 | |
25 | Accounts Receivable | $3,820 | $15,320 |
Utilities Expense Account no. 690 | ||||
Date | Description | Debit | Credit | Balance |
Beginning Balance | - | |||
Mar. 31 | Cash | $500 | $500 | |
Trial Balance
DENZEL BROOKS CONSULTANCY Trial Balance For the Month Ended March 31 | ||||
Cash | $136,700 | |||
Accounts Receivable | $7,820 | |||
Office Supplies | $1,800 | |||
Prepaid Insurance | $5,000 | |||
Prepaid Rent | $6,000 | |||
Office Equipment | $25,000 | |||
Accounts Payable | $600 | |||
D. Brooks, Capital | $172,000 | |||
D. Brooks, Withdrawals | $5,100 | |||
Service Revenue | $15,320 | |||
Utilities Expense | $500 | |||
Total | $187,920 | $187,920 |
Denzel Brooks' net income for the month ended March 31 is $14,820 and the total assets, liabilities and owner's equity is $182,320.
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Fundamental Accounting Principles
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