1.
To Record: The given transactions.
1.
Explanation of Solution
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Record the given transactions.
Date | Account Title | Debit | Credit |
October 02 | Cash | $8,500 | |
Service Revenue | $8,500 | ||
(To record the membership dues collected) | |||
October 05 | Cash | $12,000 | |
Common Stock | $12,000 | ||
(To record the common stock issued) | |||
October 09 | Equipment | $9,600 | |
Cash | $4,800 | ||
Account Payable | 4800 | ||
(To record the purchase of equipment) | |||
October 12 | Advertising Expense | $1,500 | |
Cash | $1,500 | ||
(To record the advertising expenses paid) | |||
October 19 | Dividends | $4,400 | |
Cash | $4,400 | ||
(To record the dividends issued) | |||
October 22 | Prepaid Insurance | $6,900 | |
Cash | $6,900 | ||
(To record the prepaid expenses) | |||
October 25 | Cash | $5,600 | |
Deferred Revenue | $5,600 | ||
(To record the membership dues collected in advance) | |||
October 30 | Utilities Expense | $5,200 | |
Utilities Payable | $5,200 | ||
(To record the utilities expenses) | |||
October 31 | Salaries Expense | $7,300 | |
Cash | $7,300 | ||
(To record the salaries paid) |
Table (1)
2.
To Identify: The transactions involving cash.
2.
Answer to Problem 4.5AP
All the transactions are cash transactions except the Utilities which are purchased on account on October 30th.
Explanation of Solution
The transactions in which the cash is involved either as receipt or payment are alone recorded as cash transactions. The transactions in which no cash is involved include the purchase of utilities on account.
3.
To Post: The given cash transactions to Cash T-Account and compute the closing cash balance.
3.
Answer to Problem 4.5AP
Cash Account | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
October 01 | Opening cash balance | $16,600 | October 09 | Equipment purchased | $4,800 |
October 02 | Service Revenue | $8,500 | October 12 | Advertising Expense | $1,500 |
October 05 | Common Stock | $12,000 | October 19 | Dividends | $4,400 |
October 25 | Deferred Revenue | $5,600 | October 22 | Prepaid Insurance | $6,900 |
October 31 | Salaries Expenses | $7,300 | |||
$17,800 | $24,900 |
Explanation of Solution
T-account:
T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
The components of the T-account are as follows:
a) The title of the account
b) The left or debit side
c) The right or credit side
4.
To Prepare: The statement of cash flows for the month of October for B Gym.
4.
Answer to Problem 4.5AP
B Gym | ||
Statement of Cash Flows | ||
For the month ended October 31 | ||
Particulars | Amount ($) | Amount ($) |
Cash flows from Operating Activities | ||
From Customers | $14,100 | |
Advertising expense | ($1,500) | |
Prepaid insurance | ($6,900) | |
Salaries expense | ($7,300) | |
Net cash flow from Operating Activities | ($1,600) | |
Cash flows from Investing Activities | ||
Purchase of boxing equipment | ($4,800) | |
Net cash flow from Investing Activities | ($4,800) | |
Cash flows from Financing Activities | ||
Issuance of Common Stock | $12,000 | |
Payment of dividends | ($4,400) | |
Net cash flow from Financing Activities | $7,600 | |
Net increase in cash | $1,200 | |
Cash at the beginning of the month | $16,600 | |
Cash at the end of the month | $17,800 |
Table (2)
Explanation of Solution
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
5.
To Verify: The net cash flows reported in the statement of cash flows equal the change in the cash balance for the month.
5.
Answer to Problem 4.5AP
The net cash flows reported in the statement of cash flows for the month is $1,200.
Explanation of Solution
Calculate the net cash flows reported in the statement of cash flows equal the change in the cash balance for the month of October.
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