
Concept explainers
1.
To prepare:
1.

Answer to Problem 2PSA
Solution:
a.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Dec 31 | Office Supplies Expenses | 14,846 | ||
Office Supplies | 14,846 | |||
(Being office supplies used during the year) |
Explanation of Solution
- Office supplies expense is an expense. Since, office supply expense reduce equity, office supply expense account is debited.
- Office supplies are an asset. Since office supply has decreased due to usage, it reduces asset. Hence, it is credited.
Working Notes:
Calculation of office supplies used,
b.
Date | Account Title and Explanation | Post ref. | Debit ($) | Credit ($) |
Dec 31 | Insurance Expenses | 7,120 | ||
Prepaid insurance | 7,120 | |||
(Being Insurance paid in advance) |
- Insurance expense is an expense. Since, it reduce equity, it is debited.
- Prepaid insurance is an asset. Since, we have used up prepaid insurance worth $7,120, it reduce our asset. Hence, it is debited.
Working note:
Calculation of amount of insurance of policy A,
Calculation of amount of insurance of policy B,
Calculation of amount of insurance of policy C,
Calculation of total amount of policy,
c.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Dec 31 | Salaries Expenses | 3,920 | ||
Salaries payable | 3,920 | |||
(Being salary accrued but not paid) |
- Salaries expense is an expense. Since it reduces equity, it is debited.
- Salaries payable is a liability. Since, salaries expense has occurred but not paid yet, liability is increased. So, credit interest payable account.
Working Notes:
Calculation of accrued salary,
d.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
December 31 | Depreciation Expense | 30,500 | ||
Accumulated Depreciation-Building | 30,500 | |||
(Being to record the depreciation expense.) |
- Depreciation expense is an expense. Since, it reduce equity, it is debited.
- Accumulated depreciation-building is a contra asset account. Since, it has normal credit balance; credit accumulated depreciation-building account.
e.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
December 31 | Rent receivable | 3,000 | ||
Rent Earned | 3,000 | |||
(Being rent earned but not received yet)) |
- Rent receivable is an asset. Since, revenue is earned but not recorded, the asset is increased. Hence debit Accounts Receivable account.
- Rent is revenue. Since, revenue increase equity. Hence credit Rent Earned account.
f.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
December 31 | Unearned rent | 5,600 | ||
Rent Earned | 5,600 | |||
(Being rent earned adjusted |
- Unearned rent is a liability. Since, two months period has expired, liability is reduced. Hence, debit unearned rent account.
- Rent is an income. Since, rent is earned. Since, income is increased, debit rent earned account.
2.
To prepare:
2.

Answer to Problem 2PSA
Solution:
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
January 6 | Salaries payable | 3,920 | ||
Salaries Expense | 5,880 | |||
Cash | 9,700 | |||
(Being salary paid) |
Explanation of Solution
- Salaries payable is a liability. The liability has been paid. Since, liability is decreased, debit salaries payable account.
- Salaries expense is an expense. Since, expense reduces equity, salaries expense account is debited.
- Cash is an asset. Since, cash is used in paying salaries, it is decreased. Hence, credit cash account.
Working Notes:
e.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
January 15 | Cash | 6,000 | ||
Rent receivable | 3,000 | |||
Rent Earned | 3,000 | |||
(Being rent received)) |
- Cash is an asset. Since, rent is earned and received, it increases value of asset. Hence, cash is debited.
- Rent receivable is an asset. Since, Rent is received, it reduces asset. Hence, credit rent receivable account.
- Rent earned is an income. Since, income is earned, it increases income. Hence it is credited.
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Chapter 3 Solutions
Financial & Managerial Accounting: Information for Decisions w Access Card, 5th edition, ACC 211 & 212, Northern Virginia Community College
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