Chapter 2, Problem 6GLP

To determine

Journal Entry:

Journal entry is a medium of recording the business transactions carried during a particular accounting period.

Trial Balance:

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.

Balance Sheet:

A financial statement which shows the financial position of a company during specified accounting period is called a balance sheet.

To determine:

Prepare journal entries to record the transactions, create financial statements, and assess the impact of each transaction on financial statements.

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	Accounts Receivable	$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

Explanation:

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

Conclusion

Conclusion:

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.