Estimated useful life (years) 4 LO 6.3 Record journal entries for the following purchase transactions of Apex Industries. Cashan assetincreases $9,000, which is shown as a debit. Cash is an asset, and assets increase on the debit side. 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. Communication from Starbucks Corporation regarding 2014 10-K Filing. Sold $5,000 of merchandise, which cost $3,000, on an assortment of bank credit cards. You will write a short description after each journal entry. You purchased the gas on account. There are no changes to liabilities or stockholders equity, so the equation is still in balance. Transaction 1: On January 3, 2019, issues $20,000 shares of common stock for cash. Solution: (1). You will notice that the transaction from January 3 is listed already in this T-account. 1a. Expenses are recognized in the same time period as the revenue they help create. Lets consider the general ledger for Cash. Liability accounts decrease with debit entries. Cash is labeled account number 101 because it is an asset account type. Your uncle adds the total of $28 to your account. Accounting is conservative. Salaries are an expense to the business for employee work. The general journal is maintained essentially on the concept of double entry system of accounting, where each transaction affects at least two accounts. A journal is the first place information is entered into the accounting system. Describe the purpose and structure of a journal entry. On this transaction, Cash has a debit of $5,500. Chapter 12: In a Set of Financial Statements, What Information Is Conveyed about Equity Investments? If you are redistributing all or part of this book in a print format, The same process occurs for the rest of the entries in the ledger and their balances. Transaction 11: On January 27, 2019, provides $1,200 in services to a customer who asks to be billed for the services. 3.5Discuss how each of the following transactions for Watson, International, will affect assets, liabilities, and stockholders equity, and prove the companys accounts will still be in balance. This similarity extends to other retailers, from clothing stores to sporting goods to hardware. Accounts Payable is used to recognize this liability. The debit account title(s) always come first and on the left. If not, which one? Cash is decreasing, so total assets will decrease by $100, impacting the balance sheet. LO Debits and credits are used for this purpose. Accounts Receivable is an asset account. Companies will use ledgers for their official books, not T-accounts. Service Revenue has a credit of $1,200. Prepare T-accounts for each account used. You can buy a sewin g machine for $625 cash or pay$125 down and the balance in 12 monthly payments of $46. When the company issues stock, stockholders purchase common stock, yielding a higher common stock figure than before issuance. Want to cite, share, or modify this book? 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). The business pays for the supplies purchased on account. Chapter 5: Why Must Financial Information Be Adjusted Prior to the Production of Financial Statements? Since there are no revenues or expenses affected, there is no effect on the income statement. For example, all cash sales at one store might be totaled automatically and recorded at one time at the end of each day. Prepare journal entries to record each of the following transactions. Chapter 9: Why Does a Company Need a Cost Flow Assumption in Reporting Inventory? Expenses are matched with revenues. In those cases, the expense is recognized in the most logical time period, in some systematic fashion, or as incurreddepending on the situation. LO 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? Explain the purpose of the revenue realization principle. Cash November 14, 2014. https://www.sec.gov/Archives/edgar/data/829224/000082922415000020/filename1.htm, Creative Commons Attribution-NonCommercial-ShareAlike License, https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters, https://openstax.org/books/principles-financial-accounting/pages/3-5-use-journal-entries-to-record-transactions-and-post-to-t-accounts, Creative Commons Attribution 4.0 International License. This is posted to the Equipment T-account on the debit side. Explain the purpose of the revenue realization principle. Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. The debit is on the left side, and the credit is on the right. We recommend using a Transaction 8: On January 18, 2019, paid in full, with cash, for the equipment purchase on January 5. For illustration purposes, this extra information is not necessary. Want to cite, share, or modify this book? Define accrual accounting and list its two components. You earned $1,200. We now return to our company example of Printing Plus, Lynn Sanders printing service company. In these circumstances, unredeemed card balances may be recognized as breakage income. the sum of the product of the number of units and the value per unit divided by the sum of the number of units, represented by M. Prepare journal entries for the following credit card sales transactions (the company uses the perpetual inventory system) On January 31, it wrote off an $800 account of a customer, C. Green. The customer used cash as the payment method, thus increasing the amount in the Cash account. Liabilities increase with credit entries. You paid, which means you gave cash (or wrote a check or electronically transferred) so you have less cash. Debit Cost of goods Sold $15,000, Credit Merchandise Inventory $15,000 Impact on the financial statements: You have an expense of $300. Journaling the entry is the second step in the accounting cycle. The company purchased supplies, which are assets to the business until used. Revolution Co. purchases $64,000 of inventory on account, terms 2/10 net 30 from Likins Company b. Assuming again that a perpetual inventory system is in use, both the sale and the related expense are recorded immediately. This money will be received in the future, increasing Accounts Receivable. The titles of the credit accounts will be indented below the debit accounts. First, Divide "100%" by the number of years in the asset's useful life, this is your straight-line depreciation rate. Cash has a credit of $300. 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). Accounts Payable has a credit balance of $3,500. Write a short report that outlines your pricing strategy and calculations and be ready to share it with your classmates. The record is placed on the credit side of the Service Revenue T-account underneath the January 17 record. Cash is an asset that is increasing, and it does so on the debit side. Figure 4.4 Journal Entry 1: Inventory Acquired on Credit. Question: Part 1: Prepare Revolution Co. journal entries for each of the following transactions. On January 23, 2019, received cash payment in full from the customer on the January 10 transaction. Compute the cost of goods sold and the cost of inventory in hand at the end of the month of January 2012. 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. The fewer earnings you have, the fewer retained earnings you will end up with. The general ledger is helpful in that a company can easily extract account and balance information. Answer: As always, recording begins with an analysis of the transaction. Allowance for doubtful accounts $1,400 (Cr) (140,000 x 1%), Principal value x Interest Rate x Days / 360, 1. EA 8. The balance at that time in the Common Stock ledger account is $20,000. Note that this example has only one debit account and one credit account, which is considered a simple entry. Retained earnings is a stockholders equity account, so total equity will increase $5,500. Prepare journal entries to record each of the following purchases transactions of a merchandising company. Let's look at the journal entries for Printing Plus and post each of those entries to their respective T-accounts. You pay your local newspaper $35 to run an advertisement in this weeks paper. In practice, the date of each transaction could also be included here. The balance in this Cash account is a debit of $24,800. Depreciation: $14,355 (319 x 45), divide net price (purchase price less the salvage price) by the number of useful years of life the asset has. Why is revenue reported at the time of sale rather than when the cash is eventually collected? 1. 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 Prepare a trial balance for June. Gift cards have become an important topic for managers of any company. Accounts Payable has a credit of $500. Explain why you debited and credited the accounts you did. This is posted to the Cash T-account on the credit side. LO For the revenue reported in Journal Entry 4A, assuming that the Lawndale Company has substantially completed the work required of this sale and $5,000 is a reasonable estimate of the amount that will be collected, recognition at the time of sale is appropriate. On January 20, 2019, paid $3,600 cash in salaries expense to employees. This creates an Accounts Receivable for Printing Plus. Repair costs - Excluded (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) 1In larger organizations, similar transactions are often grouped, summed, and recorded together for efficiency. Impact on the financial statements: Since both accounts in the entry are balance sheet accounts, you will see no effect on the income statement. Notice that for this entry, the rules for recording journal entries have been followed. Chapter 17: In a Set of Financial Statements, What Information Is Conveyed by the Statement of Cash Flows? Supplies is increasing, because the company has more supplies than it did before. They are not official accounting forms. Also, knowing when and how to determine that a gift card will not likely be redeemed will affect both the companys balance sheet (in the liabilities section) and the income statement (in the revenues section). In the journal entry, Cash has a debit of $20,000. Explanation General Fund: 1., 5. The credit account title(s) always come after all debit titles are entered, and on the right. Cash was used to pay the dividends, which means cash is decreasing. 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