Concept explainers
Concept introduction:
General Entries:
General entries are the primary records of business transactions. As we know that every business transaction need to be recorded in the books of account but this recording starts with recording in general journal and recording in general journal is done through
Hence we can say that in the general entries every transaction is recorded primarily by debiting one side and by crediting other side of the business transaction.
Requirement 1:
General journal entries to record transactions.
Answer to Problem 1PSA
General Journal | ||||
Date | Accounts Title & Explanation | PR | Debit | Credit |
April 1 | Cash | 101 | $80,000 | |
Office Equipment | 163 | $26,000 | ||
Common stock | 307 | $106,000 | ||
(For recording investment of cash and office equipment in the company in exchange of common stock) | ||||
April 2 | Prepaid Rent | 131 | $9,000 | |
Cash | 101 | $9,000 | ||
(For recording payment of rent for 12 months) | ||||
April 3 | Office Equipment | 163 | $8,000 | |
Office Supplies | 124 | $3,600 | ||
Accounts Payable | 201 | $11,600 | ||
(For recording credit purchase of office equipment and office supplies) | ||||
April 6 | Cash | 101 | $4,000 | |
Service Revenue | 403 | $4,000 | ||
(For recording service revenue) | ||||
April 9 | 106 | $6,000 | ||
Service Revenue | 403 | $6,000 | ||
(For recording completed services) | ||||
April 13 | Accounts Payable | 201 | $11,600 | |
Cash | 101 | $11,600 | ||
(For recording payment to accounts receivable) | ||||
April 19 | Prepaid Insurance | 128 | $2,400 | |
Cash | 101 | $2,400 | ||
(For recording prepaid insurance payment) | ||||
April 22 | Cash | 101 | $4,400 | |
Accounts Receivable | 106 | $4,400 | ||
(For recording receipt of cash from the accounts receivable) | ||||
April 25 | Accounts Receivable | 106 | $2,890 | |
Service Revenue | 403 | $2,890 | ||
(For recording completed services on credit) | ||||
April 28 | Dividends | 319 | $5,500 | |
Cash | 101 | $5,500 | ||
(For recording payment of cash dividends) | ||||
April 29 | Office Supplies | 124 | $600 | |
Accounts Payable | 201 | $600 | ||
(For recording office supplies on credit) | ||||
April 30 | Utilities Expense | 690 | $435 | |
Cash | 101 | $435 | ||
(For recording payment of utility bill) |
Explanation of Solution
General Journal | ||||
Date | Accounts Title & Explanation | PR | Debit | Credit |
April 1 | Cash | 101 | $80,000 | |
Office Equipment | 163 | $26,000 | ||
Common stock | 307 | $106,000 | ||
(For recording investment of cash and office equipment in the company in exchange of common stock) | ||||
April 2 | Prepaid Rent | 131 | $9,000 | |
Cash | 101 | $9,000 | ||
(For recording payment of rent for 12 months) | ||||
April 3 | Office Equipment | 163 | $8,000 | |
Office Supplies | 124 | $3,600 | ||
Accounts Payable | 201 | $11,600 | ||
(For recording credit purchase of office equipment and office supplies) | ||||
April 6 | Cash | 101 | $4,000 | |
Service Revenue | 403 | $4,000 | ||
(For recording service revenue) | ||||
April 9 | Accounts Receivable | 106 | $6,000 | |
Service Revenue | 403 | $6,000 | ||
(For recording completed services) | ||||
April 13 | Accounts Payable | 201 | $11,600 | |
Cash | 101 | $11,600 | ||
(For recording payment to accounts receivable) | ||||
April 19 | Prepaid Insurance | 128 | $2,400 | |
Cash | 101 | $2,400 | ||
(For recording prepaid insurance payment) | ||||
April 22 | Cash | 101 | $4,400 | |
Accounts Receivable | 106 | $4,400 | ||
(For recording receipt of cash from the accounts receivable) | ||||
April 25 | Accounts Receivable | 106 | $2,890 | |
Service Revenue | 403 | $2,890 | ||
(For recording completed services on credit) | ||||
April 28 | Dividends | 319 | $5,500 | |
Cash | 101 | $5,500 | ||
(For recording payment of cash dividends) | ||||
April 29 | Office Supplies | 124 | $600 | |
Accounts Payable | 201 | $600 | ||
(For recording office supplies on credit) | ||||
April 30 | Utilities Expense | 690 | $435 | |
Cash | 101 | $435 | ||
(For recording payment of utility bill) |
1. When investment is made in exchange of common stock, then cash account and office equipment account will be debited and common stock account will be credited because at the time of receipt, cash account and office equipment account need to be debited. Common stock is credited because it is a liability and liability need to be credited.
2. Prepaid rent is treated as asset that is why prepaid rent account is debited while cash account will be credited because cash is gone out from business.
3. Office equipment and office supplies both are assets that is why at the time of purchase these accounts will be debited while accounts payable account will be credited because it is a liability.
4. At the time of receipt, cash account will be debited because cash comes in to business while service revenue account will be credited because revenues need to be credited.
5. When services are performed on credit then accounts receivable account is debited and service revenue account is credited.
6. At the time of payment to accounts payable, accounts payable account will be debited because liability is decreased while cash account will be credited because cash is gone out the business.
7. When insurance premium is paid for next 12 months then prepaid insurance account will be debited because it is an asset account while cash account will be credited because cash is gone out from the business.
8. At the time of cash receipt from accounts receivable, cash account is debited because cash comes in to the business while accounts receivable account is credited because balance of account receivable is decreased.
9. When dividend is paid then dividend account will be debited because it is an expense while cash account will be credited because cash is gone out from business.
10. When utility bill is paid then utilities expense account will be debited because it is an expense while cash account will be credited because cash is gone out from the business.
Concept introduction:
General Entries:
General entries are the primary records of business transactions. As we know that every business transaction need to be recorded in the books of account but this recording starts with recording in general journal and recording in general journal is done through journal entries.
Hence, we can say that in the general entries every transaction is recorded primarily by debiting one side and by crediting other side of the business transaction.
Requirement 2:
Prepare ledger accounts.
Answer to Problem 1PSA
Cash Account No. 101 | ||||
Date | PR | Debit | Credit | Balance |
April 1 | G1 | $80,000 | $80,000 | |
April 2 | G1 | $9,000 | $71,000 | |
April 6 | G1 | $4,000 | $75,000 | |
April 13 | G1 | $11,600 | $63,400 | |
April 19 | G1 | $2,400 | $61,000 | |
April 22 | G1 | $4,400 | $65,400 | |
April 28 | G1 | $5,500 | $59,900 | |
April 30 | G1 | $435 | $59,465 |
Accounts Receivable Account No. 106 | ||||
Date | PR | Debit | Credit | Balance |
April 9 | G1 | $6,000 | $6,000 | |
April 22 | G1 | $4,400 | $1,600 | |
April 25 | G1 | $2,890 | $4,490 |
Office Supplies Account No. 124 | ||||
Date | PR | Debit | Credit | Balance |
April 3 | G1 | $3,600 | $3,600 | |
April 29 | G1 | $600 | $4,200 |
Prepaid Insurance Account No. 128 | ||||
Date | PR | Debit | Credit | Balance |
April 19 | G1 | $2,400 | $2,400 |
Prepaid Rent Account No. 131 | ||||
Date | PR | Debit | Credit | Balance |
April 2 | G1 | $9,000 | $9,000 |
Office Equipment Account No. 163 | ||||
Date | PR | Debit | Credit | Balance |
April 1 | G1 | $26,000 | $26,000 | |
April 3 | G1 | $8,000 | $34,000 |
Accounts Payable Account No. 201 | ||||
Date | PR | Debit | Credit | Balance |
April 3 | G1 | $11,600 | $11,600 | |
April 13 | G1 | $11,600 | $0 | |
April 29 | G1 | $600 | $600 |
Common Stock Account No. 307 | ||||
Date | PR | Debit | Credit | Balance |
April 1 | G1 | $106,000 | $106,000 |
Dividends Account No. 319 | ||||
Date | PR | Debit | Credit | Balance |
April 28 | G1 | $5,500 | $5,500 |
Service Revenue Account No. 403 | ||||
Date | PR | Debit | Credit | Balance |
April 6 | G1 | $4,000 | $4,000 | |
April 9 | G1 | $6,000 | $10,000 | |
April 28 | G1 | $2,890 | $12,890 |
Utilities Expense Account No. 690 | ||||
Date | PR | Debit | Credit | Balance |
April 30 | G1 | $435 | $435 |
Explanation of Solution
Cash Account No. 101 | ||||
Date | PR | Debit | Credit | Balance |
April 1 | G1 | $80,000 | $80,000 | |
April 2 | G1 | $9,000 | $71,000 | |
April 6 | G1 | $4,000 | $75,000 | |
April 13 | G1 | $11,600 | $63,400 | |
April 19 | G1 | $2,400 | $61,000 | |
April 22 | G1 | $4,400 | $65,400 | |
April 28 | G1 | $5,500 | $59,900 | |
April 30 | G1 | $435 | $59,465 |
As we know that in case of cash account debit side increase the ending balance while credit side decrease the ending balance.
Accounts Receivable Account No. 106 | ||||
Date | PR | Debit | Credit | Balance |
April 9 | G1 | $6,000 | $6,000 | |
April 22 | G1 | $4,400 | $1,600 | |
April 25 | G1 | $2,890 | $4,490 |
As we know that in case of accounts receivable account debit side increase the ending balance while credit side decrease the ending balance of this account.
Office Supplies Account No. 124 | ||||
Date | PR | Debit | Credit | Balance |
April 3 | G1 | $3,600 | $3,600 | |
April 29 | G1 | $600 | $4,200 |
As we know that in case of office supplies account debit side increase the ending balance while credit side decrease the ending balance of this account.
Prepaid Insurance Account No. 128 | ||||
Date | PR | Debit | Credit | Balance |
April 19 | G1 | $2,400 | $2,400 |
As we know that in case of prepaid insurance account debit side increase the ending balance while credit side decrease the ending balance of this account.
Prepaid Rent Account No. 131 | ||||
Date | PR | Debit | Credit | Balance |
April 2 | G1 | $9,000 | $9,000 |
As we know that in case of prepaid rent account debit side increase the ending balance while credit side decrease the ending balance of this account.
Office Equipment Account No. 163 | ||||
Date | PR | Debit | Credit | Balance |
April 1 | G1 | $26,000 | $26,000 | |
April 3 | G1 | $8,000 | $34,000 |
As we know that in case of office equipment account debit side increase the ending balance while credit side decrease the ending balance of this account.
Accounts Payable Account No. 201 | ||||
Date | PR | Debit | Credit | Balance |
April 3 | G1 | $11,600 | $11,600 | |
April 13 | G1 | $11,600 | $0 | |
April 29 | G1 | $600 | $600 |
As we know that in case of accounts payable account credit side increase the ending balance while debit side decrease the ending balance of this account.
Common Stock Account No. 307 | ||||
Date | PR | Debit | Credit | Balance |
April 1 | G1 | $106,000 | $106,000 |
As we know that in case of common stock account credit side increase the ending balance while debit side decrease the ending balance of this account.
Dividends Account No. 319 | ||||
Date | PR | Debit | Credit | Balance |
April 28 | G1 | $5,500 | $5,500 |
As we know that in case of dividend account debit side increase the ending balance while credit side decrease the ending balance of this account because it is an expense.
Service Revenue Account No. 403 | ||||
Date | PR | Debit | Credit | Balance |
April 6 | G1 | $4,000 | $4,000 | |
April 9 | G1 | $6,000 | $10,000 | |
April 28 | G1 | $2,890 | $12,890 |
As we know that in case of service account credit side increase the ending balance while debit side decrease the ending balance of this account.
Utilities Expense Account No. 690 | ||||
Date | PR | Debit | Credit | Balance |
April 30 | G1 | $435 | $435 |
As we know that in case of utilities expense account debit side increase the ending balance while credit side decrease the ending balance of this account because it is an expense.
Concept introduction:
General Entries:
General entries are the primary records of business transactions. As we know that every business transaction need to be recorded in the books of account but this recording starts with recording in general journal and recording in general journal is done through journal entries.
Hence we can say that in the general entries every transaction is recorded primarily by debiting one side and by crediting other side of the business transaction.
Requirement 3:
The
Answer to Problem 1PSA
Trial Balance | ||
As on April 30 | ||
Debit | Credit | |
Cash | $59,465 | |
Accounts receivable | $4,490 | |
Office supplies | $4,200 | |
Prepaid insurance | $2,400 | |
Prepaid rent | $9,000 | |
Office equipment | $34,000 | |
Accounts payable | $600 | |
Common stock | $106,000 | |
Dividends | $5,500 | |
Service revenue | $12,890 | |
Utilities expense | $435 | |
Totals | $119,490 | $119,490 |
Explanation of Solution
4. All expenses and losses have debit balance, that is why these are shown in the debit column of the trial balance.
2. All revenues and gains have credit balance, that is why these are shown in the credit column of the trial balance.
3. All assets have debit balance, that is why these are shown in the debit column of the trial balance.
4. Liabilities and equity have credit balance, that is why these are shown in the credit column of the trial balance.
Trial Balance | ||
As on April 30 | ||
Debit | Credit | |
Cash | $59,465 | |
Accounts receivable | $4,490 | |
Office supplies | $4,200 | |
Prepaid insurance | $2,400 | |
Prepaid rent | $9,000 | |
Office equipment | $34,000 | |
Accounts payable | $600 | |
Common stock | $106,000 | |
Dividends | $5,500 | |
Service revenue | $12,890 | |
Utilities expense | $435 | |
Totals | $119,490 | $119,490 |
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Chapter D Solutions
Managerial Accounting
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