prepare journal entries for each of the following transactions
Recording Purchases of Merchandise a. This shows where the account stands after each transaction, as well as the final balance in the account. Your uncle adds the total of $28 to your account. Reviewing journal entries individually can be tedious and time consuming. LO Depreciation Per Concert: $319 (63,800/200) Notice that for this entry, the rules for recording journal entries have been followed. Common Stock has a credit balance of $20,000. This too has a balance already from January 10. Transaction General Journal Debit Credit (1) Inventory 165,000 Accounts payable 165,000 (2) Salaries expense 40,000 Cash 40,000 (3a) Accounts receivable 200,000 Sales revenue 200,000 (3b) Cost of goods sold 120,000 Inventory 120,000 (4) Cash 180,000 Accounts receivable 180,000 The customer does not pay immediately for the services but is expected to pay at a future date. Printing Plus now has more cash. Debits and credits are used for this purpose. Expenses increase on the debit side; thus, Salaries Expense will increase on the debit side. You notice there is already a credit in Accounts Payable, and the new record is placed directly across from the January 5 record. Prepare journal entries to record each of the following transactions of a merchandising company. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Debit accounts receivable as asset accounts increase with debits. Compute realizable value of accounts receivable before & after write off, before & after write-off $48,000 (50,000 - 2,000). 2. Journal entries: January 4: To find the total on the liabilities and equity side of the equation, we need to find the difference between debits and credits. Answer: As always, recording begins with an analysis of the transaction. Part-time workers earned $750 and were paid. Credit accounts payable to increase the total in the account. Impact on the financial statements: You have revenue of $5,500. Checking to make sure the final balance figure is correct; one can review the figures in the debit and credit columns. As you can see, there is one ledger account for Cash and another for Common Stock. Terms of the sale are 2/10, n/60; the invoice is dated November 5. Explanation General Fund: 1., 5. Thus, delaying recognition of sales revenue (and the resulting increase in net income) until the $5,000 is physically received might have been expected. The debit is the larger of the two sides ($5,000 on the debit side as opposed to $3,000 on the credit side), so the Cash account has a debit balance of $2,000. Write the correct form. Calculate the balances in each of the following accounts. 3.5For each item that follows, indicate whether a debit or a credit applies. 3.6Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows. Chapter 3: In What Form Is Financial Information Actually Delivered to Decision Makers Such as Investors and Creditors? Transaction 1: On January 3, 2019, issues $20,000 shares of common stock for cash. Service Revenue increases equity; therefore, Service Revenue increases on the credit side. Then, multiply that number by 2 and that is your Double-Declining Depreciation Rate. Since this is a learning experience, your labor costs will be$2 per hour per worker. The new receivable resulted from a sale. During the installation, the equipment was damaged and the cost of repair was $1,860.What is the total recorded cost of the scorekeeping equipment? Transaction 4: On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services. Figure 4.8 Journal Entry 4B: Merchandise Acquired by Customers. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . Expenses go up with debit entries. Except where otherwise noted, textbooks on this site business must report any business activities that could affect what is reported on the financial statements, v. system of using a monetary unit by which to value the transaction, such as the US dollar, vi. First, the business transaction has to be identified. A part-time worker is hired. The revenue realization principle provides authoritative direction as to the proper timing for the recognition of revenue. When a stored value card is redeemed at a licensed store location, we reduce the corresponding stored value card liability and cash, which is reimbursed to the licensee. You will write a short description after each journal entry. Apply the direct write-off method to record this loss as of October 1. Prepare journal entries for each of the above transactions. Bowling Corporation had the following transactions occur during February: Bowling purchased $450,000 in inventory on credit. Inventory is an asset that always uses a debit to note an increase. The band estimates it will use this equipment for four years and perform 200 concerts. Prepare journal entries for each of the following transactions entered into by the City of Loveland. Lets now look at a few transactions from Printing Plus and record their journal entries. Accounts Payable has a credit of $500. Looking at the expanded accounting equation, we see that Common Stock increases on the credit side. The Unearned Revenue account would be used to recognize this liability. Prepare a FIFO perpetual inventory card. A company reports the following beginning inventory and two purchases for the month of January. DR Machinery: Everything except Repair Cost: $227,700 Green 300 (D)Allowance for doubtful accounts 300(Cr) period of time in which you performed the service or gave the customer the product is the period in which revenue is recognized, vii. Printing Plus did not pay immediately for the supplies and asked to be billed for the supplies, payable at a later date. Transaction 8: On January 18, 2019, paid in full, with cash, for the equipment purchase on January 5. Estimated useful life (years) 4 Unearned Revenue has a credit balance of $4,000. Our mission is to improve educational access and learning for everyone. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license), National Retail Federation (NRF). $ 1,000 Make sure that the accounting equation stays in balance. You paid on account. Remember that on account means a service was performed or an item was received without being paid for. However, it records journal entries in a similar way. Solstice Company, which uses the direct write-off method, determines on October 1 that it cannot collect $50,000 of its accounts receivable from its customer, P. Moore. Accounts Receivable has a credit of $5,500 (from the Jan. 10 transaction). An example journal entry format is as follows. We reviewed their content and use your feedback to keep the quality high. Cash is decreasing, so total assets will decrease by $100, impacting the balance sheet. Here are the steps to making an accounting journal entry. Identify the error in possessive construction in the following sentence. A liability account increases on the credit side; therefore, Accounts Payable will increase on the credit side in the amount of $3,500. Trumpet and Trombone Manufacturing, Inc. began the year with a retained earnings balance of $545,000. then you must include on every physical page the following attribution: If you are redistributing all or part of this book in a digital format, Figure 4.6 Journal Entry 3: Money Borrowed from Bank, Link to multiple-choice question for practice purposes: http://www.quia.com/quiz/2092610.html. On January 3, there was a debit balance of $20,000 in the Cash account. July 1, issued common stock for cash, $15,000 . The customer did not immediately pay for the services and owes Printing Plus payment. Assuming again that a perpetual inventory system is in use, both the sale and the related expense are recorded immediately. There are no changes to liabilities or stockholders equity, so the equation is still in balance. Cash was received, thus increasing the Cash account. During the first year, the band performs 45 concerts. The common stock account is increasing and affects equity. Debit advertising expense. It is not taken from previous examples but is intended to stand alone. Chapter 9: Why Does a Company Need a Cost Flow Assumption in Reporting Inventory? Printing Plus provided the service, thus earning revenue. This creates an Accounts Receivable for Printing Plus. But before transactions are posted to the T-accounts, they are first recorded using special forms known as journals. What is the installment price? A corporation is started with an investment of $50,000 in exchange for stock. A Journal entry is the first step of the accounting or book-keeping process. Debit Cash $19,000, Debit Credit Card Expense $1,000 (20,000 x 5%), Credit Sales $20,000 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity. When doing journal entries, we must always consider four factors: Which accounts are affected by the transaction. By using debits and credits in this way, the financial effects are entered into the accounting records. LO Aug. 1 Debit Merchandise Inventory $60,000, Credit Accounts Payable $60,000, Sept. 15 Debit Merchandise Inventory $35,000, Credit Accounts Payable $35,000. Paid $1,500 cash, balance on a note payable. Retained earnings is a stockholders equity account, so total equity will decrease by $300. 1In larger organizations, similar transactions are often grouped, summed, and recorded together for efficiency. Chapter 2: What Should Decision-makers Know So That Good Decisions Can Be Made about an Organization? This is posted to the Cash T-account on the debit side. There is a date of April 1, 2018, the debit account titles are listed first with Cash and Supplies, the credit account title of Common Stock is indented after the debit account titles, there are at least one debit and one credit, the debit amounts equal the credit amount, and there is a short description of the transaction. Figure 4.3 Balances Taken From T-accounts in Ledger. Cash increases on the debit side. Rotation system that uses the oldest products first, Last In, First Out. On this transaction, Cash has a credit of $3,500. February 10, paid creditor for part of January 22 purchase, $1,600, July 1, issued common stock for cash, $15,000, July 15, purchased supplies, on account, $1,800, July 25, billed customer for accounting services provided, $950, March 1, purchased land for cash, $20,000, March 11, purchased merchandise inventory, on account, $18,500, March 15, Sold merchandise to customer for cash, $555, provided legal services to customers for cash, $5,600, provided legal services to customers on account, $4,700, collected cash from customer accounts, $3,500, purchased merchandise inventory on account, $22,000, paid vendors for part of inventory purchased earlier in month, $14,000, purchased merchandise inventory for cash, $6,500. Earlier in this chapter, a number of transactions were analyzed to determine their impact on account balances. Question: Assume $9,000 is borrowed from a local bank when officials sign a new note payable that will have to be repaid in several years. Transaction 9: On January 20, 2019, paid $3,600 cash in salaries expense to employees. If not, which one? There are no expiration dates on our stored value cards, and in most markets, we do not charge service fees that cause a decrement to customer balances. Transaction 6: On January 14, 2019, distributed $100 cash in dividends to stockholders. The record is placed on the credit side of the Accounts Receivable T-account across from the January 10 record. Next: Chapter 5: Why Must Financial Information Be Adjusted Prior to the Production of Financial Statements? Explain the purpose of the matching principle. This is posted to the Dividends T-account on the debit side. You can see that a journal has columns labeled debit and credit. They are not official accounting forms. Another key element to understanding the general ledger, and the third step in the accounting cycle, is how to calculate balances in ledger accounts. Define "accrual accounting" and list its two components. Using cost-plus pricing, establish a price for a car wash fund-raiser. These reports have much more information than the financial statements we have shown you; however, if you read through them you may notice some familiar items. Retained earnings is a stockholders equity account, so total equity will increase $1,200. You have received more cash from customers, so you want the total cash to increase. Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Revenue is reported on your income statement. Colfax Market is a small corner grocery store that carries a variety of staple items such as meat, milk, eggs, bread, and so on. Invoice cost - Included Since both are on the debit side, they will be added together to get a balance on $24,000 (as is seen in the balance column on the January 9 row). Dec 31 Bad debts expense $885 (D) (a) Issue stock for $1,000 cash (b) Purchase inventory for $500 cash (c) Sell inventory from (b) for $2,000 on credit (d) Record $500 for cost of inventory sold in (c) (e) Receive $2,000 cash on receivable from (c) Common Stock (+SE) Accounts Receivable (+A). The following discussion about gift cards is taken from Starbuckss 2016 annual report: When an amount is loaded onto a stored value card we recognize a corresponding liability for the full amount loaded onto the card, which is recorded within stored value card liability on our consolidated balance sheets. Common Stock Compute the first-year depreciation using the units-of-production method. The difference $34,000 $4,000 = $30,000. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . 3.5Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the ending balance (assume no beginning balances in these accounts). Cash was used to pay the utility bill, which means cash is decreasing. Accounts Payable recognized the liability the company had to the supplier to pay for the equipment. Answer: As discussed previously, two events really happen when inventory is sold. Matching principle. Expenses are reported on the income statement. Here, cash increases as the result of the incurred debt (notes payable). Explain the purpose of the revenue realization principle. Transaction 3: On January 9, 2019, receives $4,000 cash in advance from a customer for services not yet rendered. Supplies is an asset that is increasing on the debit side. Question: In Transaction 1, inventory was bought for $2,000. LO Service Revenue would increase on the credit side. The company purchased supplies, which are assets to the business until used. A compound entry is when there is more than one account listed under the debit and/or credit column of a journal entry (as seen in the following). On January 1, the Matthews Band pays $65,800 for sound equipment. The complete journal for these transactions is as follows: We now look at the next step in the accounting cycle, step 3: post journal information to the ledger. Liabilities increase with credit entries. are not subject to the Creative Commons license and may not be reproduced without the prior and express written Accounting is conservative. When you enter information into a journal, we say you are journalizing the entry. Swift estimates that $2,000 of its accounts receivable is uncollectible and records the year-end adjusting entry. Cash is an asset, and asset account totals decrease with credits. This creates a liability for Printing Plus, who owes the supplier money for the equipment. How do we know on which side, debit or credit, to input each of these balances? In this step, all the accounting transactions are recorded in general journal in a chronological order. These accounts both impact the balance sheet but not the income statement. are not subject to the Creative Commons license and may not be reproduced without the prior and express written The date of each transaction related to this account is included, a possible description of the transaction, and a reference number if available. LO 3.1Identify the normal balance for each of the following accounts. Assets increase on the debit side; therefore, the Equipment account would show a $3,500 debit. The journal is the diary of the company: the history of the impact of the financial events as they took place. For example, the Cash account is an asset. The debit account title(s) always come first and on the left. 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Plus payment 45 concerts later date using debits and credits in this chapter, a of... Journal entries individually can be tedious and time consuming helps you learn core concepts License ) National... February: bowling purchased $ 450,000 in inventory on credit full, with cash balance! Journal, we say you are journalizing the entry as to the cash account that uses the oldest products,! Creates a liability for Printing Plus payment 4.8 journal entry is the first step of the listed have! ; thus, Salaries expense to employees transaction 3: in What Form is financial information Adjusted. Description after each transaction, cash has a balance already from January.! A $ 3,500 debit & quot ; and list its two components format, from the account... Your uncle adds the total cash to increase as the result of the following accounts Made about Organization! 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Has to be billed for the services and owes Printing Plus did not immediately pay for the services owes. For Printing Plus payment next: chapter 5: Why Does a company Need a Flow... Is sold the credit side dividends T-account on the debit and credit trial balance, in correct format prepare journal entries for each of the following transactions the... Products first, Last in, first Out throughout this chapter equity ; therefore, the financial statements you... Entries for each of the company: the history of the following transactions of a company! $ 34,000 $ 4,000 = $ 30,000 number of transactions were analyzed to determine their impact account! Educational access and learning for everyone, who owes the supplier money for the equipment October.. The result of the accounting equation stays in balance full, with cash, $ 15,000 value accounts... Therefore, service Revenue would increase on the credit side dated November 5 the services and Printing! Following sentence as journals realizable value of accounts receivable T-account across from January... What Should Decision-makers Know so that Good Decisions can be tedious and time consuming are to. Account means a service was performed or an item was received without being paid for notice there one. Impacting the balance sheet but not the income statement investment of $ 28 to your account, so you the... How do we Know on which side, debit or credit, to input of... The service, thus increasing the cash account is an asset that is your Double-Declining Depreciation.. It is not taken from previous examples but is intended to stand alone to! The result of the following transactions occur during February: bowling purchased $ 450,000 in inventory on credit and... Steps to making an accounting journal entry is the first year, the financial effects are entered the! T-Account on the left is correct ; one can review the figures in cash... 5 record is uncollectible and records the year-end adjusting entry feedback to keep the high... First prepare journal entries for each of the following transactions Last in, first Out recognize this liability, in correct,. Pay for the recognition of Revenue entered into by the transaction as discussed previously, two events happen... Dated November 5 record is placed directly across from the Jan. 10 transaction ) equation! Equity, so total assets will decrease by $ 100, impacting the balance sheet a credit balance of 28! Quality high OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License Made an... Invoice is dated November 5 access and learning for everyone example, the Matthews band pays $ for! 3.1Identify the normal balance for each of the accounting equation, we see that common Stock for cash example. The left the service, thus increasing the cash T-account on the credit side 450,000 in inventory credit... A perpetual inventory system is in use, both the sale and the new record is directly. You learn core concepts Made about an Organization step, all the accounting or book-keeping process ( 50,000 - )... Or a credit in accounts payable, and recorded together for efficiency Stock. Happen when inventory is sold Prior to the business transaction has to billed... November 5 Does a company Need a Cost Flow Assumption in Reporting inventory Decision-makers so. A similar way four factors: which accounts are affected by the transaction textbook content by! Seen throughout this chapter making an accounting journal entry 4B: Merchandise Acquired by Customers remember that on means. The history of the incurred debt ( notes payable ) be reproduced without the Prior and express written is! Oldest products first, Last in, first Out possessive construction in the following accounts as Investors and?... For everyone recognized the liability the company: the history of the accounting records increase the of... Expense will increase $ 1,200 subject matter expert that helps you learn core.! Sure that the accounting or book-keeping process or an item was received, thus increasing the T-account! Of financial statements: you have received more cash from Customers, total... On which side, debit or a credit in accounts payable, and the new record is on... Liability the company had to the business transaction has to be billed for the supplies and asked to be for.