Chapter 3, Problem 3.6AP

(a)

To determine

T-account:

T-account refers to an individual account, where the increases or decreases in the value of specific asset, liability, stockholder’s equity, revenue and expenditure items are recorded.

This account is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.’ An account consists of the three main components which are as follows:

1. (a) The title of the account
2. (b) The left or debit side
3. (c) The right or credit side

To prepare: The T-accounts to enter the opening balances of L Company as on September 30, 2017.

Explanation of Solution

Common stock account:

Common stock
		Sep, 30	$15,000
		Bal.	$15,000

Equipment account:

Equipment
Sep, 30	$8,000
Bal.	$8,000

Account receivable account:

Accounts receivable
Sep, 30	$2,600
Bal.	$2,600

Unearned service revenue account:

Unearned service revenue
		Sep, 30	$1,100
		Bal.	$1,100

Accounts payable account:

Accounts payable
		Sep, 30	$4,800
		Bal.	$4,800

Retained earnings account:

Retained earnings
		Sep, 30	$11,000
		Bal.	$11,000

Cash account:

Cash
Sep, 30	$19,200
Bal.	$19,200

Supplies account:

Supplies
Sep, 30	$2,100
Bal.	$2,100

(b)

To determine

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:

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

To journalize: the transaction as given.

Answer to Problem 3.6AP

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 5, 2017	Cash	1,300
	Accounts receivable		1,300
	(To record the cash received from customer )

                                                         Table-1

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 10, 2017	Accounts receivable	5,100
	Service revenue		5,100
	(To record the service provided on account to customer )

                                                        Table-2

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 15, 2017	Salaries and wages expenses	1,200
	Cash		1,200
	(To record the salaries paid in the month of October )

                                                            Table-3

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 17, 2017	Cash	600
	Service revenue		600
	(To record the service provided in cash to customer )

                                                        Table-4

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 20, 2017	Accounts payable	1,900
	Cash		1,900
	(To record the cash paid to creditor)

Table-5

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 29, 2017	Dividend	300
	Cash		300
	(To record the dividend paid in cash)

                                                            Table-6

Date	Account Title and Explanation	Debit ($)	Credit ($)
Oct 31, 2017	Utilities	400
	Cash		400
	(To record the payment of  utilities in cash)

                                                            Table-7

Explanation of Solution

Oct 5, 2017

• Cash is an asset and increased, hence debit cash for $1,300.
• Accounts receivable is an asset and decreased, hence credit account receivable for $1,300.

Oct 10, 2017

• Account receivable is an asset and increased, hence debit the Account receivable for $5,100.
• Service revenue is a component of shareholders’ equity and has increased, hence credit the service revenue for $5,100.

Oct 15, 2017

• Salaries and wages expense is a component of stockholders’ equity and has increased, hence debit the salaries and wages expenses for $1,200.
• Cash is an asset and has decreased, hence credit cash for $1,200.

Oct 17, 2017

• Cash is an asset and increased, hence debit the cash for $600.
• Service revenue is a component of shareholders’ equity and has increased, hence credit the service revenue for $600.

Oct 20, 2017

• Accounts Payable is a liability and has decreased, hence debit Accounts Payable for $1,900.
• Cash is an asset and has decreased, hence credit cash for $1,900.

Oct  29, 2017

• Dividend is a component of stockholders’ equity and has increased, hence debit dividend for $300.
• Cash is an asset and has decreased, hence credit cash for $300.

Oct 31, 2017

• Utilities expense is a component of stockholders’ equity and has increased; hence debit the utilities for $400.
• Cash is an asset and has decreased, hence credit cash for $400.

(c)

To determine

To post:  the transaction to ledger accounts of L Company on October 31, 2017.

Explanation of Solution

Account receivable account:

Accounts receivable
Oct, 1 Bal.	$2,600	Oct, 5	$1,300
Oct, 10	$5,100
Total	$7,700	Total	$1,300
Bal.	$6,400

Accounts payable account:

Accounts payable
Oct, 20	$1900	Oct, 1 Bal.	$4,800
		Bal.	$2,900

Service revenue account:

Service revenue
		Oct, 10 Oct, 17	$5,100 $   600
		Bal.	$5,700

Salaries and wages expenses account:

Salaries and wages expenses
Oct, 15	$1,200
Bal.	$1,200

Dividend account:

Dividend
Oct, 29	$300
Bal.	$300

Utilities account:

Utilities
Oct, 31	$400
Bal.	$400

Cash account:

Cash
Oct, 1	$19,200	Oct, 15	$1,200
Oct, 5	$1,300	Oct, 20	$1,900
Oct, 17	$   600	Oct, 29	$   300
		Oct, 31	$   400
Total	$21,100	Total	$3,800
Bal.	$17,300

(d)

To determine

Trial balance:

Trial balance is the list of accounts, and their debit and credit balances at a given time.  It is usually prepared at end of the accounting period.  Debit balances are listed in left   column and credit balances are listed in right column.  The totals of debit and credit column should be equal.  Trial balance is useful in the preparation of the financial statements.

To prepare:  a trial balance as on October 31, 2017.

Explanation of Solution

Trial balance
L Company
October 31, 2017
Particulars	Debit $	Credit $
Common stock		15,000
Equipment	8,000
Retained earnings		11,000
Accounts payable		2,900
Unearned service revenue		1,100
Dividends	300
Service revenue		5,700
Salaries and wages expenses	1,200
Utilities expenses	400
Accounts receivable	6,400
Supplies	2,100
Cash	17,300
	35,700	35,700

Table-8

Conclusion

Thus, the total of debit, and credit columns of a trial balance are $35,700 and agreed.