Concept explainers
(a)
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:
- (a) The title of the account
- (b) The left or debit side
- (c) The right or credit side
To prepare: The T-accounts to enter the opening balances of HLS Incorporation as on July 31, 2017.
(a)
Explanation of Solution
Cash account:
Cash | |||
Jul, 31 | $4,000 | ||
Bal. | $4,000 |
Account receivable account:
Accounts receivable | |||
Jul, 31 | $1,500 | ||
Bal. | $1,500 |
Supplies account:
Supplies | |||
Jul, 31 | $500 | ||
Bal. | $500 |
Equipment account:
Equipment | |||
Jul, 31 | $5,000 | ||
Bal. | $5,000 |
Accounts payable account:
Accounts payable | |||
Jul, 31 | $4,100 | ||
Bal. | $4,100 |
Common stock account:
Common stock | |||
Jul, 31 | $3,500 | ||
Bal. | $3,500 |
Retained earnings account:
Retained earnings | |||
Jul, 31 | $3,400 | ||
Bal. | $3,400 |
(b)
Journal:
Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To journalize: the transaction as given.
(b)
Answer to Problem 3.9AP
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 3, 2017 | Cash | 1,200 | |
Accounts receivable | 1,200 | ||
(To record the cash received from customer ) |
Table-1
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 5, 2017 | Cash | 1,300 | |
Common stock | 1,300 | ||
(To record the issuance of common stock) |
Table-2
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 6, 2017 | Accounts payable | 2,700 | |
Cash | 2,700 | ||
(To record the cash paid to creditors) |
Table-3
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 7, 2017 | Accounts receivable | 3,500 | |
Cash | 3,000 | ||
Service revenue | 6,500 | ||
(To record the service provided in cash to customer ) |
Table-4
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 12, 2017 | Equipment | 1,200 | |
Accounts payable | 800 | ||
Cash | 400 | ||
(To record the purchase of equipment on account and in cash ) |
Table-5
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 14, 2017 | Salaries and wages expenses | 3,500 | |
Rent expenses | 900 | ||
Advertising expenses | 275 | ||
Cash | 4,675 | ||
(To record the payment of salaries, rent and advertising expenses for the month August ) |
Table-6
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 18, 2017 | Cash | 3,500 | |
Accounts receivable | 3,500 | ||
(To record the cash received from the customer ) |
Table-7
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 20, 2017 | Dividend | 500 | |
Cash | 500 | ||
(To record the dividend paid in cash) |
Table-8
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 24, 2017 | Accounts receivable | 1,000 | |
Service revenue | 1,000 | ||
(To record the service performed on account ) |
Table-9
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 26, 2017 | Cash | 2,000 | |
Notes payable | 2,000 | ||
(To record the cash received on note payable ) |
Table-10
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 28, 2017 | Utilities | 275 | |
Accounts payable | 275 | ||
(To record the utilities expenses on account for the month of August ) |
Table-11
Date | Account Title and Explanation | Debit ($) | Credit ($) |
Aug 31, 2017 | Income tax expenses | 500 | |
Cash | 500 | ||
(To record the payment of income tax expenses for the month of August) |
Table-12
Explanation of Solution
Aug 3, 2017
- Cash is an asset and increased, hence debit cash for $1,200.
- Accounts receivable is an asset and decreased, hence credit account receivable for $1,200.
Aug 5, 2017
- Cash is an asset and increased, hence debit the cash for $1,300.
- Common stock is a component of shareholders’ equity and has increased, hence credit the common stock for $1,300.
Aug 6, 2017
- Accounts Payable is a liability and has decreased, hence debit accounts payable for $2,700.
- Cash is an asset and has decreased, hence credit cash for $2,700.
Aug 7, 2017
- Accounts receivable is an asset and increased, hence debit the account receivable for $3,500.
- Cash is an asset and increased, hence debit the cash for $3,000.
- Service revenue is a component of shareholders’ equity and has increased, hence credit the service revenue for $6,500.
Aug 12, 2017
- Equipment is an asset and has increased, hence debit equipment for $1,200.
- Accounts payable is a liability and has increased, hence credit the accounts payable for $800.
- Cash is an asset and has decreased, hence credit cash for $400.
Aug 14, 2017
- Salary, rent and advertising expenses are component of
stockholders’ equity and they are increased, hence debit the salaries and wages expenses, rent and advertising expenses for $3500, $900 and $275 respectively. - Cash is an asset and has decreased, hence credit cash for $4,675.
Aug 18, 2017
- Cash is an asset and has increased, hence debit cash for $3,500.
- Accounts receivable is an asset and has decreased, hence credit accounts receivable for $3,500.
Aug 20, 2017
- Dividend is a component of stockholders’ equity and has increased, hence debit dividend for $500.
- Cash is an asset and has decreased, hence credit cash for $500.
Aug 24, 2017
- Account receivable is an asset and has increased, hence debit account receivable for $1,000.
- Service revenue is a component of stockholders’ equity and has increased, hence credit service revenue for $1,000.
Aug 26, 2017
- Cash is an asset and has increased, hence debit cash for $2,000.
- Notes payable is a liability and has increased, hence credit the note payable for $2,000.
Aug 27, 2017 - Agree to performed legal services for a client. No entry because no financial transaction has occurred.
Aug 28, 2017
- Utilities expense is a component of stockholders’ equity and has increased; hence debit the utilities for $275.
- Accounts payable is a liability and has increased, hence credit accounts receivable for $275.
Aug 31, 2017
- Income tax expense is a component of stockholders’ equity and has increased; hence debit the income tax expenses for $500.
- Cash is an asset and has decreased, hence credit cash for $500.
(c)
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 post: the transaction to the ledger accounts of HLS Incorporation as on August 31, 2017
(c)
Explanation of Solution
Account receivable account:
Accounts receivable | |||
Aug, 1 Bal. | $1,500 |
Aug, 8 Aug, 18 |
$1,200 $3,500 |
Aug, 7 Aug, 24 |
$3,500 $1,000 | ||
Total | $6,000 | Total | $4,700 |
Bal. | $1,300 |
Common stock account:
Common stock | |||
Aug, 01 Bal. | $3,500 | ||
Aug, 5 | $1,300 | ||
Bal. | $4,800 |
Accounts payable account:
Accounts payable | |||
Aug, 8 | $2,700 |
Aug, 1 Bal. Aug, 12 Aug, 28 |
$4,100 $800 $275 |
Total | $2,700 | Total | $5,175 |
Bal. | $2,475 |
Service revenue account:
Service revenue | |||
Aug, 7 Aug, 24 |
$6,500 $1,000 | ||
Bal. | $7,500 |
Equipment account:
Equipment | |||
Aug, 1 Aug, 12 |
$5,000 $1,200 | ||
Bal. | $6,200 |
Salaries and wages expenses account:
Salaries and wages expenses | |||
Aug, 14 | $3,500 | ||
Bal. | $3,500 |
Rent expenses account:
Rent expenses | |||
Aug, 14 | $900 | ||
Bal. | $900 |
Advertising expenses account:
Advertising expenses | |||
Aug, 14 | $275 | ||
Bal. | $275 |
Dividend account:
Dividend | |||
Aug, 20 | $500 | ||
Bal. | $500 |
Dividend account:
Dividends | |||
Aug, 26 | $500 | ||
Bal. | $500 |
Utilities account:
Utilities | |||
Aug, 28 | $275 | ||
Bal. | $275 |
Income tax expenses account:
Income tax expenses | |||
Aug, 31 | $500 | ||
Bal. | $500 |
Cash account:
Cash | |||
Aug, 1 Bal. | $4,000 | Aug, 6 | $2,700 |
Aug, 3 | $1,200 | Aug, 12 | $ 400 |
Aug, 5 | $ 1,300 | Aug, 14 | $4,675 |
Aug, 7 Aug, 18 |
$3,000 $3,500 |
Aug, 20 Aug, 31 |
$ 500 $ 500 |
Aug, 26 | $2,000 | ||
Total | $15,000 | Total | $8,775 |
Bal. | $6,225 |
(d)
To prepare: a trial balance of HLS Incorporation as on August 31, 2017.
(d)
Explanation of Solution
Trial balance | ||
HLS Incorporation | ||
August 31, 2017 | ||
Particulars | Debit $ | Credit $ |
Common stock | 4,800 | |
Equipment | 6,200 | |
Retained earnings | 3,400 | |
Supplies | 500 | |
Accounts payable | 2,475 | |
Notes payable | 2,000 | |
Dividends | 500 | |
Service revenue | 7,500 | |
Salaries and wages expenses | 3,500 | |
Utilities expenses | 275 | |
Rent expenses | 900 | |
Advertising expenses | 275 | |
Income tax expenses | 500 | |
Accounts receivable | 1,300 | |
Cash | 6,225 | |
20,175 | 20,175 |
Table-13
Thus, the total of debit, and credit columns of a trial balance are $20,175 and agree.
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Chapter 3 Solutions
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