Biology

Chapter 2
Recording Business Transactions

Questions
1. The basic summary device of accounting is the account. It
resembles the letter T, and its left side is called the debit side and its
right side the credit side.
2. False. Debit means left and credit means right. Debits and credits
are used to record increases and decreases in accounts. Debits can be
increases or decreases depending on the type of account involved,
and the same is true for credits.
3. The three basic types of accounts are ASSETS, LIAILITIES, and
!"#E$%S E&'IT(. T)o additional types of accounts are
$E*E#'ES and E+,E#SES. They are most closely related to
o)ner%s e-uity. revenues increase o)ner%s e-uity and e/penses
decrease o)ner%s e-uity.
4. usiness Source Transaction Entry in ,osting to
Transaction Documents Analysis 0ournal Ledger
5. Account Type Normal Balance
Assets Debit
Liabilities 1redit
1apital 1redit
$evenues 1redit
E/penses Debit
1hapter 2 $ecording usiness Transactions 34
6. ,osting copies information from the 5ournal to the ledger. This is
important because the transaction entries in the 5ournal do not
accumulate all the information related to each account. The accounts
in the ledger hold that information. Therefore, the copying of data to
the accounts in the ledger6that is, posting from the 5ournal to the
ledger6ma7es it possible to determine the balance in each account.
,osting comes after 5ournali8ing.
9. : a. Investment by o)ner ! f. "ithdra)al by o)ner
: b. $evenue transaction ; g. orro)ing money on a
; c. ,urchase of supplies on credit note payable
! d. E/pense transaction : h. Sale of service on account
; e. 1ash payment on account
<. 1ash 0ane East, 1apital
Accounts $eceivable Sales $evenue
#otes ,ayable Salary E/pense
=. >Accounts ,ayable has a credit balance of ?4,9;;@ means that the
entity o)es ?4,9;; to its creditors on a debt that is not evidenced by
a formal note payable.
4;. Accountants prepare a trial balance to summari8e all the accounts
and their balances. efore computers, the trial balance provided a
chec7 on accuracy by sho)ing )hether total debits e-ual total
credits.
44. A compound 5ournal entry is one that affects more than t)o
accounts.
42. This error does not cause the trial balance to be out of balance
because both total debits and total credits are overstated by the same
amount, ?A,B;; C?B,;;; ! ?B;;D.
Accounting BEe Solutions Fanual
32
4G. 1ollecting cash on account has no effect on total assets because the
increase in cash, )hich increases total assets, is offset by the
decrease in accounts receivable, )hich decreases total assets.
4A. The advantage of >5ournalHless@ transaction analysis is the saving of
time. Transactions can be analy8ed for -uic7 decision ma7ing by
recording the transactions directly in THaccounts )ithout first
recording them in the 5ournal.
1hapter 2 $ecording usiness Transactions 3G
Daily Exercises
CBH4; min.D DE 2-1
4. !)ner%s e-uity is the o)ner%s claim to the assets of the business.
ASSETS I LIAILITIES : !"#E$%S E&'IT(
?<,;;; I ?B,;;; : ?G,;;;
2. T)o categories of transactions that increase o)ner%s e-uityJ
Investments by the o)ner
$evenues Cor #et incomeD
T)o categories of transactions that decrease o)ner%s e-uityJ
"ithdra)als by the o)ner
E/penses Cor #et lossD
G. Asset H Economic resource
E/amplesJ 1ash
#otes receivable
Accounts receivable
,repaid e/penses
Land
uilding
E-uipment, furniture, and fi/tures
Liability H Debt
E/amplesJ #otes payable
Accounts payable
Accrued liabilities CTa/es ,ayable, Interest ,ayable,
Salary ,ayableD
3A
CBH4; min.D DE 2-2
Across: Down:
G. Economic resource of an entity. 4. A debt.
A. $ecords an increase in a liability 2. $ecords an increase in an asset or an
or o)ner%s e-uity. e/pense.
B. Assets ! Liabilities I !)ner%s KKKKK.
4
L
I
2
D
G
A S S E T

I I
L T
A
1 $
B
E D I T
& T
' (
I
T
(
CB min.D DE 2-3
Schmidt%s payment )as not an e/pense.
Schmidt ac-uired an asset, E-uipment, because the e-uipment is an
economic resource of the business.
1hapter 2 $ecording usiness Transactions 3B
CB min.D DE 2-4
Eri7a Darby, an introductory accounting student, is describing the
accounting process for a friend )ho is a philosophy ma5or. Eri7a states,
>The basic summary device in accounting is the account, )hich can be
represented by the letter T . The left side of an account is called the
debit side, and the right side is called the credit side.
>"e record transactions first in a 5ournal. Then )e post Ccopy the dataD
to the accounts in the ledger. It is helpful to list all the accounts )ith their
balances on a trial balance.@
33
C4; min.D DE 2-5
I 4. Ledger A. $ecord of transactions
E 2. ,osting . Al)ays an asset
D G. #ormal balance 1. Left side of an account
L A. ,ayable D Side of an account )here increases are
recorded
A B. 0ournal E. 1opying data from the 5ournal to the
ledger
3. $eceivable F. 'sing up assets in the course of
operating a business
0 9. 1apital L. Al)ays a liability
1 <. Debit M.
$evenues ! E/penses
F =. E/pense I. Lrouping of accounts
M 4;. #et income 0. !)ner%s e-uity in the business
CBH4; min.D DE 2-6
1redits are increases in these types of accountsJ
Liabilities
1apital
$evenues
1redits are decreases in these types of accountsJ
Assets
"ithdra)als
E/penses
Debits are increases in the follo)ing types of accountsJ
Assets
"ithdra)als
E/penses
Debits are decreases in these types of accountsJ
Liabilities
1apital
$evenues
3<
C4; min.D DE 2-7
Journal
DATE A11!'#TS A#D E+,LA#ATI!#S
,!ST.
$EF. DEIT 1$EDIT
0une 4 1ash 2B,;;;
Lee 0ac7son, 1apital 2B,;;;
$eceived investment from o)ner.
2 Fedical Supplies 4;,;;;
Accounts ,ayable 4;,;;;
,urchased supplies on account.
2 $ent E/pense A,;;;
1ash A,;;;
,aid office rent.
G 1ash 4,;;;
Accounts $eceivable A,;;;
Service $evenue B,;;;
,erformed service for patients.
1hapter 2 $ecording usiness Transactions 3=
C4; min.D DE 2-8
Journal
,!ST.
$EF. DEIT 1$EDIT
0uly 4B 1ash 2;,;;;
#ote ,ayable 2;,;;;
orro)ed money from the ban7.
22 Accounts $eceivable 2,<;;
Service $evenue 2,<;;
,erformed service on account.
G; 1ash 4,;;;
Accounts $eceivable 4,;;;
$eceived cash on account.
G4 'tilities E/pense 2;;
Accounts ,ayable 2;;
$eceived utility bill.
G4 Salary E/pense G,;;;
1ash G,;;;
,aid salary e/pense.
G4 Interest E/pense 2;;
1ash 2;;
,aid interest e/pense.
9;
CBH4; min.D DE 2-9
#ormal alance
AssetsNNNNNNNN... Debit
LiabilitiesNNNNNNN. 1redit
!)ner%s E-uity O overall 1redit
1apitalNNNNNNN. 1redit
"ithdra)alsNNNNN Debit
$evenuesNNNNNN. 1redit
E/pensesNNNNNN.. Debit
C4;H4B min.D DE 2-10
Re. 1
Journal
,!ST.
$EF. DEIT 1$EDIT
Supplies G,;;;
Accounts ,ayable G,;;;
Accounts ,ayable 4,B;;
1ash C?G,;;; PD
4,B;;
,aid cash on account.
Re. 2
Accounts ,ayable
4,B;; G,;;;
al. 4,B;;
Re. 3
*ogel o)es ?4,B;;, as sho)n in the Accounts ,ayable account.
92
Re. 1
Journal
,!ST.
$EF. DEIT 1$EDIT
Accounts $eceivable B,;;;
Service $evenue B,;;;
1ash 2,9;;
Accounts $eceivable 2,9;;
Re. 2
1ash Accounts $eceivable Service $evenue
2,9;; B,;;; 2,9;; B,;;;
al. 2,9;; al. 2,G;; al. B,;;;
Re. 3
a. #guyen earned ?B,;;;J Service $evenue
b. Total assets ?B,;;;J 1ash ?2,9;;
Accounts receivable 2,G;;
Total ?B,;;;
Res. 1 and 2
1ash Accounts $eceivable
2B,;;; A,;;; A,;;;
4,;;; al. A,;;;
al. 22,;;;
Fedical Supplies Accounts ,ayable
4;,;;; 4;,;;;
al. 4;,;;; al. 4;,;;;
Lee 0ac7son, 1apital Service $evenue
2B,;;; B,;;;
al. 2B,;;; al. B,;;;
$ent E/pense
A,;;;
al. A,;;;
Re. 3
Lee 0ac7son, FD
Trial alance
0une G, 2;+<
A11!'#T DEIT 1$EDIT
1ash ?22,;;;
Accounts receivable A,;;;
Fedical supplies 4;,;;;
Accounts payable ?4;,;;;
Lee 0ac7son, capital 2B,;;;
Service revenue B,;;;
$ent e/pense A,;;; KKKKKKKKK
Total ?A;,;;; ?A;,;;;
9A
C4; min.D DE 2-13
Intel 1orporation
Trial alance
December G4, 4=+=
Billions
A11!'#T DEIT 1$EDIT
1ash ? A
!ther assets A;
Accounts payable ? 4
!ther liabilities 44
1apital 2B
$evenues 2=
E/penses 22 KKKKKKKK
Total ?33 ?33
C4B min.D DE 2-14
Error 1
Re. 1
Incorrect Trial alance
A11!'#T DEIT 1$EDIT
1ash ? =,G<;
Accounts receivable 9;;
Accounts payable ? ;
0eff Matton, capital 4;,;;;Q
0eff Matton, )ithdra)als 4,4;;
Service revenue A,2;;
$ent e/pense =;;
Salary e/pense 4,B;;
'tilities e/pense 32; KKKKKKKK
Total ?2A,2;; ? A,2;;
KKKKKKKKKK
QIncorrect. should be listed as a credit.
Re. 2
To correct this error,
4. Ta7e the difference bet)een total debits and total creditsJ
?2A,2;; ! ?A,2;; I ?2;,;;;
2. Divide the error by 2J
?2;,;;; ) 2 I ?4;,;;;
G. Locate ?4;,;;; on the trial balance. The 1apital account normally has
a credit balance.
93
CcontinuedD DE 2-14
Error 2
Re. 1
Incorrect Trial alance
A11!'#T DEIT 1$EDIT
1ash ? =,G<;
Accounts receivable 9;;
Accounts payable ? ;
0eff Matton, capital 4;,;;;
0eff Matton, )ithdra)als 4,4;;
Service revenue A2,;;;Q
$ent e/pense =;;
Salary e/pense 4,B;;
'tilities e/pense 32; KKKKKKKK
Total ?4A,2;; ?B2,;;;
KKKKKKKKKK
QIncorrect. should be listed at ?A,2;;.
Re. 2
To correct this error,
4. Ta7e the difference bet)een total debits and total creditsJ
?B2,;;; ! ?4A,2;; I ?G9,<;;
2. Divide the error by =J
?G9,<;; ) = I ?A,2;;
G. Locate an amount on the trial balance similar to ?A,2;;. Service
$evenue, at ?A2,;;;, is similar. Trace Service $evenue%s balance bac7
to the ledger account, )hich sho)s ?A,2;;.
CB min.D DE 2-15
1hart of Accounts
Assets Liabilities !)ner%s E-uity
4;4 1ash 2;4 Accounts payable G;4 "ayne Libbs, 1apital
444 Accounts receivable 2G4 #otes payable G44 "ayne Libbs, "ithdra)als
4A4 Supplies
4B4 E-uipment $evenues
434 Furniture A;4 Service $evenue
E/penses
B;4 $ent E/pense
B;2 'tilities E/pense
B;G Advertising E/pense
9<
CB min.D DE 2-16
1ash E-uipment
4;;,;;; AB,;;;
Accounts ,ayable Farta Fraser, 1apital
AB,;;; 4;;,;;;
Total debits I ?4AB,;;; C?4;;,;;; : ?AB,;;;D
Total credits I ?4AB,;;; C?AB,;;; : ?4;;,;;;D
Exercises
C4;H4B min.D E 2-1
T!J !ffice Fanager
F$!FJ Student #ame
Each time Digitech Enterprises receives cash, accountants record the
transaction in the !ournal by de"itin# the 1ash account. Accountants
record cash payments by ma7ing a 5ournal entry that includes a credit to
1ash. Debits in the 5ournal are posted as debits to the 1ash account in the
led#er. 1redits are posted as credits. At the end of the period, accountants
list each account, along )ith its balance, on the trial "alance. 1ash has a
balance of ?AG,;;;.
NoteJ Student responses may vary.
<;
C4;H4B min.D E 2-2
$All amounts in "illions%
Re. 1
De"it &redit &redit
ASSETS I LIAILITIES : !"#E$S% E&'IT(
?22 I ?42 : ?4;
Re. 2
&redit De"it Net &redit
$E*E#'ES ! E+,E#SES I #ET I#1!FE
?2; ! ?4< I ?2
#ET I#1!FE represents a net credit because revenues Ccredit amountsD
e/ceed e/penses Cde"it amountsD.
#ET L!SS represents a net de"it because e/penses Cde"it amountsD
e/ceed revenues Ccredit amountsD.
Re. 3
Dividends, li7e "ithdra)als, are a de"it amount.
Re. 4
Increase in o)ners% e-uity Ccredit amountD
#et income..................................................................... ?2
Decrease in o)ners% e-uity Cde"it amountD
Dividends....................................................................... C4D
#et increase in o)ners% e-uity Ccredit amountD.................. ?4
1hapter 2 $ecording usiness Transactions <4
C4;H4B min.D E 2-3
Date Analysis o' Transactions and (ournal )ntries
Dec. B The asset !ffice Furniture is increased.
therefore, debit !ffice Furniture.
The liability Accounts ,ayable is increased.
therefore, credit Accounts ,ayable.
!ffice FurnitureNNNNNNNNNN. <;;
Accounts ,ayableNNNNNNNN. <;;
4; The asset Accounts $eceivable is increased.
therefore, debit Accounts $eceivable.
The revenue Service $evenue is increased.
therefore, credit Service $evenue.
Accounts $eceivable................................. 4,3;;
Service $evenue................................... 4,3;;
42 The asset 1ash is increased. therefore, debit
1ash.
The liability #ote ,ayable is increased.
therefore, credit #ote ,ayable.
1ashNNNNNNNNNNNNNN... 9,;;;
#ote ,ayableNNNNNNNNNN. 9,;;;
4= The asset 1ash is increased. therefore, debit
1ash.
The asset Land is decreased. therefore, credit
Land.
1ash........................................................... 2=,;;;
LandNNNNNNNNNNNNN.. 2=,;;;
2A The asset uilding is increased. therefore,
debit uilding.
The liability #ote ,ayable is increased.
therefore, credit #ote ,ayable.
uilding..................................................... 4A;,;;;
#ote ,ayable......................................... 4A;,;;;
29 The liability Accounts ,ayable is decreased.
therefore, debit Accounts ,ayable.
The asset 1ash is decreased. therefore, credit
1ash.
Accounts ,ayable...................................... <;;
1ash...................................................... <;;
<2
C4;H4B min.D E 2-4
Dec. 4 3,;;; Dec. 4 9;; Dec. 4; 4,3;;
42 9,;;; 29 <;;
4= 2=,;;;
Dec. G4 A;,B;;
!ffice Furniture Land
Dec. B <;; Dec. 4 2=,;;; Dec. 4= 2=,;;;
uilding Accounts ,ayable
Dec. 2A 4A;,;;; Dec. 29 <;; Dec.B <;;
#otes ,ayable Fartha 1ross, 1apital
Dec. 42 9,;;; Dec. 4 GB,;;;
2A 4A;,;;;
Dec. G4 4A9,;;;
Service $evenue 'tilities E/pense
Dec. 4; 4,3;; Dec. 4 9;;
Total debits I Total credits
?4<G,3;; I ?4<G,3;;
1hapter 2 $ecording usiness Transactions <G
C4;H2; min.D E 2-5
Journal
,!ST.
$EF. DEIT 1$EDIT
Far. 4 1ash BB,;;;
0oy Liebermann, 1apital BB,;;;
Investment by o)ner.
2 !ffice Supplies 2;;
Accounts ,ayable 2;;
,urchased office supplies on acct.
A uilding A;,;;;
1ash A;,;;;
,aid cash for a building.
3 1ash G,;;;
Service $evenue G,;;;
,erformed services for cash.
= Accounts ,ayable 4;;
1ash 4;;
,aid cash on account.
49 Accounts $eceivable 4,3;;
Service $evenue 4,3;;
2G 1ash 4,2;;
Accounts $eceivable 4,2;;
G4 Salary E/pense 4,2;;
$ent E/pense B;;
1ash 4,9;;
<A
,aid cash e/penses.
C4BH2; min.D E 2-6
Re. 1
Far. 4 BB,;;; Far. A A;,;;; Far. 49 4,3;; Far. 2G 4,2;;
3 G,;;; = 4;; Far. G4 A;;
2G 4,2;; G4 4,9;;
Far. G4 49,A;;
!ffice Supplies uilding
Far. 2 2;; Far. A A;,;;;
Far. G4 2;; Far. G4 A;,;;;
Accounts ,ayable 0oy Liebermann, 1apital
Far. = 4;; Far. 2 2;; Far. 4 BB,;;;
Far. G4 4;; Far. G4 BB,;;;
Service $evenue Salary E/pense
Far. 3 G,;;; Far. G4 4,2;;
49 4,3;; Far. G4 4,2;;
Far. G4 A,3;;
$ent E/pense
Far. G4 B;;
Far. G4 B;;
1hapter 2 $ecording usiness Transactions <B
CcontinuedD E 2-6
Re. 2
#e) alance Spa
Trial alance
Farch G4, 2;+G
A11!'#T DEIT 1$EDIT
1ash ?49,A;;
Accounts receivable A;;
!ffice supplies 2;;
uilding A;,;;;
Accounts payable ? 4;;
0oy Liebermann, capital BB,;;;
Salary e/pense 4,2;;
$ent e/pense B;; KKKKKKKKK
Total ?B=,9;; ?B=,9;;
C2;HG; min.D E 2-7
Re. 1
Fay 2 Investment of cash by the o)ner
B orro) cash by signing a note payable
= ,urchase of supplies on account Con creditD
44 Sale on account
4A ,ayment of rent e/pense
22 ,ayment on account
2B ,ayment of advertising e/pense
29 1ollection on account
G4 $eceipt of a utility bill and recording the e/pense on account
<3
CcontinuedD E 2-7
Res. 2 and 3 $led#er accounts wit* "alances a'ter postin#%
1ash 44; Accounts $eceivable 42;
Fay 2 0.B 2;,;;; Fay 4A 0.B G,2;; Fay 44 0.B 2,3G; Fay 29 0.B 4,A;;
B 0.B 4B,;;; 22 0.B 29; al. 4,2G;
29 0.B 4,A;; 2B 0.B GB;
al. G2,B<;
Supplies 4G; Accounts ,ayable 24;
Fay = 0.B 29; Fay 22 0.B 29; Fay = 0.B 29;
al. 29; G4 0.B 22;
al. 22;
#ote ,ayable 2G; Leonard Freebin, 1apital G4;
Fay B 0.B 4B,;;; Fay 2 0.B 2;,;;;
al. 4B,;;; al. 2;,;;;
Service $evenue A4; $ent E/pense B4;
Fay 44 0.B 2,3G; Fay 4A 0.B G,2;;
al. 2,3G; al. G,2;;
Advertising E/pense B2; 'tilities E/pense BG;
Fay 2B 0.B GB; Fay G4 0.B 22;
al. GB; al. 22;
1hapter 2 $ecording usiness Transactions <9
CcontinuedD E 2-7
Re. 2 $!ournal wit* postin# re'erences%
Journal
,!ST.
$EF. DEIT 1$EDIT
Fay 2 1ash 44; 2;,;;;
Leonard Freebin, 1apital G4; 2;,;;;
B 1ash 44; 4B,;;;
#ote ,ayable 2G; 4B,;;;
= Supplies 4G; 29;
Accounts ,ayable 24; 29;
44 Accounts $eceivable 42; 2,3G;
Service $evenue A4; 2,3G;
4A $ent E/pense B4; G,2;;
1ash 44; G,2;;
22 Accounts ,ayable 24; 29;
1ash 44; 29;
2B Advertising E/pense B2; GB;
1ash 44; GB;
29 1ash 44; 4,A;;
Accounts $eceivable 42; 4,A;;
G4 'tilities E/pense BG; 22;
Accounts ,ayable 24; 22;
<<
CcontinuedD E 2-7
Re. 3 $trial "alance%
Freebin R Associates
Trial alance
Fay G4, 2;+3
A11!'#T DEIT 1$EDIT
1ash ?G2,B<;
Accounts receivable 4,2G;
Supplies 29;
Accounts payable ? 22;
#ote payable 4B,;;;
Leonard Freebin, capital 2;,;;;
Service revenue 2,3G;
$ent e/pense G,2;;
Advertising e/pense GB;
'tilities e/pense 22; KKKKKKKKK
Total ?G9,<B; ?G9,<B;
1hapter 2 $ecording usiness Transactions <=
C4; min.D E 2-8
Journal
,!ST.
$EF. DEIT 1$EDIT
4. 1ash 32,;;;
Tony Flores, 1apital 32,;;;
Investment by o)ner.
2. Supplies A;;
Accounts ,ayable A;;
G. Land B3,;;;
1ash B3,;;;
,aid cash for land.
A. 1ash 9,;;;
#ote ,ayable 9,;;;
orro)ed money. signed note payable.
B. E-uipment 3,;;;
1ash 3,;;;
,aid cash for e-uipment.
=;
C4; min.D E 2-9
Flores Security 1ompany
Trial alance
April G;, 2;+A
A11!'#T DEIT 1$EDIT
1ash ? 9,;;;
Supplies A;;
E-uipment 3,;;;
Land B3,;;;
Accounts payable ? A;;
#ote payable 9,;;;
Tony Flores, capital KKKKKKKKKK 32,;;;
Total ?3=,A;; ?3=,A;;
1hapter 2 $ecording usiness Transactions =4
C4; min.D E 2-10
eaulieu 1ompany
Trial alance
December G4, 2;+A
A11!'#T DEIT 1$EDIT
1ash ? B,;;;
Accounts receivable =,B;;
Supplies 2B;
uilding 3B,;;;
Land 2=,;;;
Accounts payable ? A,G;;
#ote payable AB,;;;
,ierre eaulieu, capital A<,<;;
,ierre eaulieu, )ithdra)als 3,;;;
Sales commission revenue 23,;;;
Salary e/pense 3,;;;
$ent e/pense 2,;;;
Advertising e/pense 3B;
'tilities e/pense A;;
Supplies e/pense G;; KKKKKKKKK
Total ?42A,4;; ?42A,4;;
=2
C4BH2; min.D E 2-11
Atlantis Enterprises
Trial alance
Farch G4, 2;+=
A11!'#T DEIT 1$EDIT
1ash ? A,=;;Q
Accounts receivable 4,3;;Q
Supplies 3;;
Land 33,;;;
Accounts payable ?2A,4;;Q
,aige Dylan, capital A2,G;;Q
Service revenue =,9;;
$ent e/pense <;;
'tilities e/pense B;;Q KKKKKKK
Total ?93,4;; ?93,4;;
KKKKKKKKKK
QE/planationsJ
1ashJ ?A,B;; : ?A;; I ?A,=;;
Accounts $eceivableJ ?2,;;; ! ?A;; I ?4,3;;
Accounts ,ayableJ ?2G,;;; : ?4,;;; ! ?4;; : ?2;; I ?2A,4;;
,aige Dylan, 1apitalJ ?A4,3;; : ?9;; I ?A2,G;;
'tilities E/penseJ ?G;; : ?2;; I ?B;;
1hapter 2 $ecording usiness Transactions =G
CBH4B min.D E 2-12
CaD 42,A;; CbD 4,B;; CfD 4,3;;
CdD 4,<;; al. 4,3;;
CeD A;;
CgD 9,;;;
al. 4,9;;
!ffice Supplies !ffice Furniture
CcD 9;; CaD B,A;;
al. 9;; al. B,A;;
Accounts ,ayable 1ole Lates, 1apital
CeD A;; CcD 9;; CaD 49,<;;
al. G;; al. 49,<;;
1ole Lates, "ithdra)als Service $evenue
CgD 9,;;; CfD 4,3;;
al. 9,;;; al. 4,3;;
Salary E/pense $ent E/pense
CdD 4,<;; CbD 4,B;;
al. 4,<;; al. 4,B;;
=A
C4; min.D E 2-13
1ole Lates, 1,A
Trial alance
Fay G4, 2;+9
A11!'#T DEIT 1$EDIT
1ash ? 4,9;;
Accounts receivable 4,3;;
!ffice supplies 9;;
!ffice furniture B,A;;
Accounts payable ? G;;
1ole Lates, capital 49,<;;
1ole Lates, )ithdra)als 9,;;;
Service revenue 4,3;;
Salary e/pense 4,<;;
$ent e/pense 4,B;; KKKKKKKKK
Total ?4=,9;; ?4=,9;;
1hapter 2 $ecording usiness Transactions =B
C4; min.D E 2-14
Res. 1 and 2
1ash Supplies E-uipment
9B,;;; 42,;;; <,;;; 42,;;;
B,;;; al. <,;;; al. 42,;;;
al. B<,;;;
Accounts ,ayable Lynette Foseley, 1apital
B,;;; <,;;; 9B,;;;
al. G,;;; al. 9B,;;;
Re. 3
Total debits I ?9<,;;; C?B<,;;; : ?<,;;; : ?42,;;;D
Total credits I ?9<,;;; C?G,;;; : ?9B,;;;D
=3
C2;HG; min.D E 2-15
Res. 1 and 3
Dec. 2 4A,;;; Dec. 2 B;; Dec. = 4,9;;
4< <;; G 2,;;;
42 2;;
al. 42,4;;
Supplies E-uipment
Dec. B G;; Dec. G 2,;;;
Furniture Accounts ,ayable
Dec. A G,3;; Dec. A G,3;;
B G;;
al. G,=;;
Amos Faraday, 1apital Amos Faraday, "ithdra)als
Dec. 2 4A,;;;
Service $evenue $ent E/pense
Dec. = 4,9;; Dec. 2 B;;
4< <;;
al. 2,B;;
'tilities E/pense Salary E/pense
Dec. 42 2;;
1hapter 2 $ecording usiness Transactions =9
CcontinuedD E 2-15
Re. 2
Journal
,!ST.
$EF. DEIT 1$EDIT
Dec. 2 1ash 4A,;;;
Amos Faraday, 1apital 4A,;;;
2 $ent E/pense B;;
1ash B;;
G E-uipment 2,;;;
1ash 2,;;;
A Furniture G,3;;
Accounts ,ayable G,3;;
B Supplies G;;
Accounts ,ayable G;;
= Accounts $eceivable 4,9;;
Service $evenue 4,9;;
42 'tilities E/pense 2;;
1ash 2;;
4< 1ash <;;
Service $evenue <;;
=<
CcontinuedD E 2-15
Re. 4
Amos Faraday, 1onsultant
Trial alance
December 4<, 2;++
A11!'#T DEIT 1$EDIT
1ash ?42,4;;
Supplies G;;
E-uipment 2,;;;
Furniture G,3;;
Accounts payable ? G,=;;
Amos Faraday, capital 4A,;;;
Amos Faraday, )ithdra)als 6
Service revenue 2,B;;
$ent e/pense B;;
'tilities e/pense 2;;
Salary e/pense 6 KKKKKKKKK
Total ?2;,A;; ?2;,A;;
1hapter 2 $ecording usiness Transactions ==
C2;HG; min.D E 2-16
a. #et income for Farch O Liven as follo)sJ
!)ner, 1apital
Feb. 2< al. =,;;;
Farch Farch
)ithdra)als 9,;;; #et income +
Far. G4 al. 4B,;;;
?=,;;; : + ! ?9,;;; I ?4B,;;;
+ I ?4G,;;;
b. Total cash paid during FarchJ
1ash
Feb. 2< al. 9,;;;
Farch receipts 34,;;; Farch payments +
Far. G4 al. 2,;;;
?9,;;; : ?34,;;; ! + I ? 2,;;;
+ I ?33,;;;
4;;
I ?4G,;;;
I ?33,;;;
CcontinuedD E 2-16
c. 1ash collections from customers during FarchJ
Accounts $eceivable
Feb. 2< al. 2A,;;;
Farch revenues
on account 93,;;; Farch collections +
Far. G4 al. 23,;;;
?2A,;;; : ?93,;;; ! + I ?23,;;;
+ I ?9A,;;;
d. 1ash paid on a note payable during FarchJ
#ote ,ayable
Feb. 2< al. 44,;;;
Farch Farch
,ayments on note + #e) borro)ing 9,B;;
Far. G4 al. 43,;;;
?44,;;; : ?9,B;; ! + I ?43,;;;
+ I ? 2,B;;
1hapter 2 $ecording usiness Transactions 4;4
I ?9A,;;;
+ I ?2,B;;
C2;HG; min.D E 2-17
Effect on Trial alance AccountCsD Fisstated $elevant 0ournal Entries C#ot $e-uiredD
a. Total debits I Total credits 1ash a. Entry 1ash 4,<;;
?4,;;; too high madeJ Service $evenue 4,<;;
Service $evenue 1orrect 1ash <;;
?4,;;; too high EntryJ Service $evenue <;;
b. Total debits I Total credits Supplies b. Entry Supplies 24;
?=; too high madeJ Accounts ,ayable 24;
Accounts ,ayable 1orrect Supplies 42;
?=; too high entryJ Accounts ,ayable 42;
C?24; ! ?42; I ?=;D
c. Total debits S Total credits #ote ,ayable ?A;,;;; too lo),
on the trial balance only
d. Total debits T Total credits 'tility E/pense ?3G; too lo)
C?9;; ! ?9; I ?3G;D
e. Total debits I Total credits 1ash e. Entry Supplies A;;
?A;; too high madeJ Accounts ,ayable A;;
Supplies 1orrect Accounts ,ayable A;;
?A;; too high entryJ 1ash A;;
Accounts ,ayable
?<;; too high
4;2
Probles
!rou" #
C4BHG; min.D P 2-1#
Dear Friend,
This trail balance lists the accounts of 1antor ,olling Service, along )ith
their balances at December G4, 2;+<. The trial balance is an internal
document used by accountants. It is not the same as a balance sheet and
an income statement. The balance sheet and the income statement are
financial statements used by managers, creditors, and potential investors
for decision ma7ing.
The fact that the trial balance is in balance does not mean that 1antor is a
sound company. It merely means that total debits e-ual total credits in the
company ledger. This says nothing about the soundness of the business.
To compute 1antor%s net income or net loss for the current period,
subtract total e/penses from service revenue. In this instance, 1antor
earned net income of ?B9,;;; Uservice revenue of ?443,;;; minus total
e/penses of ?B=,;;; C?23,;;; : ?G,;;; : ?2G,;;; : ?9,;;;DV.
1hapter 2 $ecording usiness Transactions 4;G
CG;HA; min.D P 2-2#
Re. 1 $transaction analysis%
Silverstar 1inemas
Date Analysis o' Transactions
April 4 Liven in the problem. not re-uired for April 4 transaction.
2 The asset uilding is increased. Increases in assets are
recorded by debits. therefore, debit uilding.
The asset 1ash is decreased. Decreases in assets are recorded
by credits. therefore, credit 1ash.
B The asset 1ash is increased. Increases in assets are recorded by
debits. therefore, debit 1ash.
The liability #otes ,ayable is increased. Increases in liabilities
are recorded by credits. therefore, credit #otes ,ayable.
4; The asset Supplies is increased. Increases in assets are
recorded by debits. therefore, debit Supplies.
The liability Accounts ,ayable is increased. Increases in
liabilities are recorded by credits. therefore, credit Accounts
,ayable.
4B The liability Accounts ,ayable is decreased. Decreases in
liabilities are recorded by debits. therefore, debit Accounts
,ayable.
4B The e/pense ,roperty Ta/ E/pense is increased. $ecord
increases in e/penses by debits. therefore, debit ,roperty Ta/
E/pense.
4;A
CcontinuedD P 2-2#
43 The e/penses Salary E/pense and $ent E/pense are increased.
Increases in e/penses are recorded by debits. therefore, debit
Salary E/pense and $ent E/pense.
by credits. therefore, credit 1ash for the sum of the debits to
Salary E/pense and $ent E/pense.
49 The o)ner%s e-uity of the business is decreased. $ecord
decreases in o)ner%s e-uity by debits. Decreases due to
)ithdra)als by the o)ner are debited to the "ithdra)als
account. therefore, debit 0oseph $eese, "ithdra)als.
G; The asset 1ash is increased. Increases in assets are recorded by
The revenue Sales $evenue is increased. Increases in revenues
are recorded by credits. therefore, credit Sales $evenue.
1hapter 2 $ecording usiness Transactions 4;B
CcontinuedD P 2-2#
Re. 2 $!ournal entries+ e,planations not reuired%
Journal
,!ST.
$EF. DEIT 1$EDIT
April 4 1ash B;;,;;;
0oseph $eese, 1apital B;;,;;;
2 uilding A;;,;;;
1ash A;;,;;;
B 1ash 22;,;;;
#otes ,ayable 22;,;;;
4; Supplies 4,9;;
Accounts ,ayable 4,9;;
4B Accounts ,ayable <;;
1ash <;;
4B ,roperty Ta/ E/pense 4,2;;
1ash 4,2;;
43 Salary E/pense 2,<;;
$ent E/pense 4,<;;
1ash A,3;;
49 0oseph $eese, "ithdra)als 3,;;;
1ash 3,;;;
G; 1ash 2;,;;;
Sales $evenue 2;,;;;
4;3
CA;HB; min.D P 2-3#
Journal
,!ST.
$EF. DEIT 1$EDIT
Sept. G 1ash AG,;;;
Terence Lar7in, 1apital AG,;;;
A Supplies 2;;
Furniture 4,<;;
Accounts ,ayable 2,;;;
3 1ash A,;;;
Service $evenue A,;;;
9 Land 4B,;;;
1ash 4B,;;;
4; Accounts $eceivable <;;
Service $evenue <;;
4A Accounts ,ayable 4,<;;
1ash 4,<;;
4B Salary E/pense 3;;
1ash 3;;
49 1ash B;;
Accounts $eceivable B;;
2; Accounts $eceivable <;;
Service $evenue <;;
1hapter 2 $ecording usiness Transactions 4;9
CcontinuedD P 2-3#
Journal C1ontinuedD
,!ST.
$EF. DEIT 1$EDIT
Sept. 2< 1ash 4,B;;
Service $evenue 4,B;;
G; Salary E/pense 3;;
1ash 3;;
G; $ent E/pense B;;
1ash B;;
G; Terence Lar7in, "ithdra)als 2,=;;
1ash 2,=;;
4;<
CcontinuedD P 2-3#
Re. 2 $led#er accounts%
Sept. G AG,;;; Sept. 9 4B,;;; Sept.4; <;; Sept. 49 B;;
3 A,;;; 4A 4,<;; 2; <;;
49 B;; 4B 3;; al. 4,4;;
2< 4,B;; G; 3;;
G; B;; Supplies
G; 2,=;; Sept. A 2;;
al. 29,3;; al. 2;;
Furniture Land
Sept. A 4,<;; Sept. 9 4B,;;;
al. 4,<;; al. 4B,;;;
Accounts ,ayable Terence Lar7in, 1apital
Sept. 4A 4,<;; Sept. A 2,;;; Sept. G AG,;;;
al. 2;; al. AG,;;;
Terence Lar7in, "ithdra)als Service $evenue
Sept. G; 2,=;; Sept. 3 A,;;;
al. 2,=;; 4; <;;
2; <;;
2< 4,B;;
al. 9,4;;
Sept. 4B 3;; Sept. G; B;;
G; 3;; al. B;;
al. 4,2;;
1hapter 2 $ecording usiness Transactions 4;=
CcontinuedD P 2-3#
Re. 3
Terence Lar7in, Attorney
Trial alance
September G;, 2;++
A11!'#T DEIT 1$EDIT
1ash ?29,3;;
Supplies 2;;
Furniture 4,<;;
Land 4B,;;;
Accounts payable ? 2;;
Terence Lar7in, capital AG,;;;
Terence Lar7in, )ithdra)als 2,=;;
$ent e/pense B;; KKKKKKKKK
Total ?B;,G;; ?B;,G;;
44;
CABH3; min.D P 2-4#
Re. 1 $!ournal entries%
Journal ,age G
,!ST.
$EF. DEIT 1$EDIT
Feb. 4B 1ash 44 G,B;;
Accounts $eceivable 42 G,B;;
$eceived on account.
43 Accounts $eceivable 42 9;;
Service $evenue A4 9;;
2; Accounts ,ayable 24 4,;;;
1ash 44 4,;;;
,aid on account.
24 Supplies 4G 4;;
Accounts ,ayable 24 4;;
24 0ill 1ase, "ithdra)als G2 4,2;;
1ash 44 4,2;;
"ithdre) cash for personal use.
24 ,aid for )ooden dec7.
not a transaction of the business.
22 1ash 44 B,4;;
Service $evenue A4 B,4;;
,erformed service for cash.
2< $ent E/pense B2 <;;
1ash 44 <;;
,aid rent.
2< Salary E/pense B4 4,<;;
1ash 44 4,<;;
,aid employee salaries.
CcontinuedD P 2-4#
A11!'#T 1ASM A11!'#T #!. 44
0$#L. ALA#1E
DATE ITEF $EF. DEIT 1$EDIT DEIT 1$EDIT
Feb. 4A al.

2,;;;
4B 0.G G,B;; B,B;;
2; 0.G 4,;;; A,B;;
24 0.G 4,2;; G,G;;
22 0.G B,4;; <,A;;
2< 0.G <;; 9,3;;
2< 0.G 4,<;; B,<;;
A11!'#T A11!'#TS $E1EI*ALE A11!'#T #!. 42
0$#L. ALA#1E
Feb. 4A al.

=,B;;
4B 0.G G,B;; 3,;;;
43 0.G 9;; 3,9;;
A11!'#T S',,LIES A11!'#T #!. 4G
0$#L. ALA#1E
Feb. 4A al.

<;;
24 0.G 4;; =;;
442
CcontinuedD P 2-4#
A11!'#T LA#D A11!'#T #!. 4A
0$#L. ALA#1E
Feb. 4A al.

4<,3;;
A11!'#T A11!'#TS ,A(ALE A11!'#T #!. 24
0$#L. ALA#1E
Feb. 4A al.

G,;;;
2; 0.G 4,;;; 2,;;;
24 0.G 4;; 2,4;;
A11!'#T 0ILL 1ASE, 1A,ITAL A11!'#T #!. G4
0$#L. ALA#1E
Feb. 4A al.

23,B;;
A11!'#T 0ILL 1ASE, "ITMD$A"ALS A11!'#T #!. G2
0$#L. ALA#1E
Feb. 4A al.

4,2;;
24 0.G 4,2;; 2,A;;
CcontinuedD P 2-4#
A11!'#T SE$*I1E $E*E#'E A11!'#T #!. A4
0$#L. ALA#1E
Feb. 4A al.

9,2;;
43 0.G 9;; 9,=;;
22 0.G B,4;; 4G,;;;
A11!'#T SALA$( E+,E#SE A11!'#T #!. B4
0$#L. ALA#1E
Feb. 4A al.

G,3;;
2< 0.G 4,<;; B,A;;
A11!'#T $E#T E+,E#SE A11!'#T #!. B2
0$#L. ALA#1E
Feb. 4A al.

4,;;;
2< 0.G <;; 4,<;;
44A
CcontinuedD P 2-4#
Re. 3
0ill 1ase, 1,A
Trial alance
February 2<, 2;+G
A11T. #!. A11!'#T DEIT 1$EDIT
44 1ash ? B,<;;
42 Accounts receivable 3,9;;
4G Supplies =;;
4A Land 4<,3;;
24 Accounts payable ? 2,4;;
G4 0ill 1ase, capital 23,B;;
G2 0ill 1ase, )ithdra)als 2,A;;
A4 Service revenue 4G,;;;
B4 Salary e/pense B,A;;
B2 $ent e/pense 4,<;; KKKKKKKKK
Total ?A4,3;; ?A4,3;;
C4BH2B min.D P 2-5#
Re. 1
1hapel La)n Service
Trial alance
0une G;, 2;+2
A11!'#T DEIT 1$EDIT
1ash ? G,9;;
Accounts receivable 4;,29;
Supplies 4,4;;
E-uipment B,4;;
Land AG,;;;
Accounts payable ? B,2;;
#ote payable 22,;;;
$ob $ylander, capital G2,B;;
$ob $ylander, )ithdra)als 2,=;;
Service revenue 4;,<;;
$ent e/pense 4,A;;
Advertising e/pense 3;;
'tilities e/pense GG; KKKKKKKKK
Total ?9;,B;; ?9;,B;;
E/planationsJ
1ashJ ?G,;;; : ?9;; I ?G,9;;
Accounts receivableJ ?4;,;;; ! ?G; : ?G;; I ?4;,29;
SuppliesJ ?=;; : ?2;; I ?4,4;;
Accounts payableJ ?B,;;; : ?2;; I ?B,2;;
$ob $ylander, capitalJ ?G4,3;; : ?=;; I ?G2,B;;
$ob $ylander, )ithdra)alsJ ?2,;;; : ?=;; I ?2,=;;
Service revenueJ ?3,B;; : ?A,G;; I ?4;,<;;
$ent e/penseJ ?4,;;; : ?2;; : ?2;; I ?4,A;;
'tilities e/penseJ ?A;; ! ?9; I ?GG;
443
CcontinuedD P 2-5#
Re. 2
1hapel La)n Service
Income Statement
Fonth Ended 0une G;, 2;+2
$evenuesJ
Service revenue ?4;,<;;
E/pensesJ
Salary e/pense ?2,4;;
$ent e/pense 4,A;;
'tilities e/pense GG;
Total e/penses A,AG;
#et income ? 3,G9;
CA;HB; min.D P 2-6#
Res. 1 and 2
CaD B,;;; CdD 4<,;;; CfD B,4;; C5D 4,2;;
CbD G;,;;; CeD 2,2;; al. G,=;;
CiD 4,3;; CgD <;;
C5D 4,2;; C7D 4,4;;
ClD 9,B;;
al. <,2;;
!ffice Supplies !ffice Furniture
CcD 2,4;; CdD 4<,;;;
al. 2,4;; al. 4<,;;;
uilding Accounts ,ayable
CaD 3;,;;; CgD <;; CcD 2,4;;
al. 3;,;;; ChD 3;;
al. 4,=;;
#ote ,ayable Allen Fusser, 1apital
CbD G;,;;; CaD 3B,;;;
al. G;,;;; al. 3B,;;;
Allen Fusser, "ithdra)als Service $evenue
ClD 9,B;; CfD B,4;;
al. 9,B;; CiD 4,3;;
al. 3,9;;
Salary E/pense Advertising E/pense
CeD 2,2;; ChD 3;;
al. 2,2;; al. 3;;
$ent E/pense 'tilities E/pense
C7D 9;; C7D A;;
al. 9;; al. A;;
44<
CcontinuedD P 2-6#
Re. 3
Fusser 1onsulting Service
Trial alance
0une G;, 2;+G
A11!'#T DEIT 1$EDIT
1ash ? <,2;;
Accounts receivable G,=;;
!ffice supplies 2,4;;
!ffice furniture 4<,;;;
uilding 3;,;;;
Accounts payable ? 4,=;;
#ote payable G;,;;;
Allen Fusser, capital 3B,;;;
Allen Fusser, )ithdra)als 9,B;;
$ent e/pense 9;;
Total ?4;G,3;; ?4;G,3;;
C2;HG; min.D P 2-7#
Re. 1
Income Statement
Fonth Ended 0une G;, 2;+G
$evenuesJ
Service revenue ?3,9;;
E/pensesJ
Salary e/pense ?2,2;;
$ent e/pense 9;;
Total e/penses G,=;;
#et income ?2,<;;
Re. 2
Statement of !)ner%s E-uity
Fonth Ended 0une G;, 2;+G
Allen Fusser, capital, 0une 4, 2;+G ? H;H
AddJ Investment by o)ner 3B,;;;
#et income for the month 2,<;;
39,<;;
LessJ "ithdra)als by o)ner C9,B;;D
Allen Fusser, capital, 0une G;, 2;+G ?3;,G;;
42;
CcontinuedD P 2-7#
Re. 3
alance Sheet
0une G;, 2;+G
ASSETS LIAILITIES
1ash ? <,2;; Accounts payable ? 4,=;;
Accounts receivable G,=;; #ote payable G;,;;;
!ffice supplies 2,4;; Total liabilities G4,=;;
!ffice furniture 4<,;;; !"#E$%S E&'IT(
uilding 3;,;;; Allen Fusser, capital 3;,G;;
KKKKKK Total liabilities and KKKKKK
Total assets ?=2,2;; o)ner%s e-uity ?=2,2;;
Probles
!rou" $
C4BHG; min.D P 2-1$
Dear Friend,
This trial balance lists the accounts of io7inetic Engineering, along )ith
their balances at December G4, 2;+A. The trial balance is an internal
document used by accountants. It is not the same as a balance sheet and
an income statement. The balance sheet and the income statement are
financial statements used by managers, creditors, and potential investors
for decision ma7ing.
The fact that the trial balance is in balance does not mean that io7inetic
is a sound company. It merely means that total debits e-ual total credits in
the company ledger. This says nothing about the soundness of the
business.
To compute io7inetic%s net income or net loss for the current period,
subtract total e/penses from service revenue. As a matter of fact,
io7inetic has e/perienced a net income of ?B,;;; Uservice revenue of
?92,;;; minus total e/penses of ?39,;;; C?2<,;;; : ?4A,;;; : ?4<,;;; :
?9,;;;DV.
422
CG;HA; min.D P 2-2$
Re. 1 $transaction analysis%
Deborah Fedro, F.D.
Date Analysis o' Transactions
0une 4 Liven in the problem. not re-uired for 0une 4 transaction.
B The e/pense $ent E/pense is increased. Increases in e/penses
are recorded by debits. therefore, debit $ent E/pense.
= The asset Land is increased. Increases in assets are recorded by
debits. therefore, debit Land.
4; The asset Supplies is increased. Increases in assets are
recorded by debits. therefore, debit Supplies.
The liability Accounts ,ayable is increased. Increases in
liabilities are recorded by credits. therefore, credit Accounts
,ayable.
4= The asset 1ash is increased. Increases in assets are recorded by
The liability #otes ,ayable is increased. Increases in liabilities
are recorded by credits. therefore, credit #otes ,ayable.
22 The liability Accounts ,ayable is decreased. Decreases in
liabilities are recorded by debits. therefore, debit Accounts
,ayable.
42A
CcontinuedD P 2-2$
G; The assets 1ash and Accounts $eceivable are increased.
Increases in assets are recorded by debits. therefore, debit
1ash and Accounts $eceivable.
The revenue Service $evenue is increased. Increases in
revenues are recorded by credits. therefore, credit Service
$evenue for the sum of the debits to 1ash and Accounts
$eceivable.
G; The e/penses Salary E/pense, $ent E/pense, and 'tilities
E/pense are increased. Increases in e/pense are recorded by
debits. therefore, debit Salary E/pense, $ent E/pense, and
'tilities E/pense.
by credits. therefore, credit 1ash for the sum of the three debit
amounts.
G; The o)ner%s e-uity of the business is decreased. Decreases in
o)ner%s e-uity are recorded by debits. Decreases due to
)ithdra)als by the o)ner are debited to the "ithdra)als
account. therefore, debit Deborah Fedro, "ithdra)als.
CcontinuedD P 2-2$
Journal
,!ST.
$EF. DEIT 1$EDIT
0une 4 1ash BB,;;;
Deborah Fedro, 1apital BB,;;;
B $ent E/pense 9;;
1ash 9;;
= Land 22,;;;
1ash 22,;;;
4; Supplies 4,2;;
Accounts ,ayable 4,2;;
4= 1ash 2;,;;;
#otes ,ayable 2;,;;;
22 Accounts ,ayable 4,;;;
1ash 4,;;;
G; 1ash 3,;;;
Accounts $eceivable B,;;;
Service $evenue 44,;;;
G; Salary E/pense 2,A;;
$ent E/pense 4,B;;
'tilities E/pense A;;
1ash A,G;;
G; Deborah Fedro, "ithdra)als 4;,;;;
1ash 4;,;;;
423
CA;HB; min.D P 2-3$
Journal
,!ST.
$EF. DEIT 1$EDIT
Dec. 2 1ash B;,;;;
$odney Troon, 1apital B;,;;;
G Supplies B;;
Furniture 2,3;;
Accounts ,ayable G,4;;
A 1ash 4,B;;
Service $evenue 4,B;;
9 Land 22,;;;
1ash 22,;;;
44 Accounts $eceivable =;;
Service $evenue =;;
4B Salary E/pense B9;
1ash B9;
43 Accounts ,ayable 2,3;;
1ash 2,3;;
4< 1ash 4,<;;
Service $evenue 4,<;;
4= Accounts $eceivable <;;
Service $evenue <;;
CcontinuedD P 2-3$
Journal
,!ST.
$EF. DEIT 1$EDIT
Dec. 2= 1ash A;;
Accounts $eceivable A;;
G4 Salary E/pense B9;
1ash B9;
G4 $ent E/pense 9;;
1ash 9;;
G4 $odney Troon, "ithdra)als 2,2;;
1ash 2,2;;
42<
CcontinuedD P 2-3$
Dec. 2 B;,;;; Dec. 9 22,;;; Dec. 44 =;; Dec. 2= A;;
A 4,B;; 4B B9; 4= <;;
4< 4,<;; 43 2,3;; al. 4,G;;
2= A;; G4 B9;
G4 9;; Supplies
G4 2,2;; Dec. G B;;
al. 2B,;3; al. B;;
Furniture Land
Dec. G 2,3;; Dec. 9 22,;;;
al. 2,3;; al. 22,;;;
Accounts ,ayable $odney Troon, 1apital
Dec. 43 2,3;; Dec. G G,4;; Dec. 2 B;,;;;
al. B;; al. B;,;;;
$odney Troon, "ithdra)als
Dec. G4 2,2;;
al. 2,2;;
Dec. A 4,B;; Dec. 4B B9;
44 =;; G4 B9;
4< 4,<;; al. 4,4A;
4= <;;
al. B,;;;
$ent E/pense
Dec. G4 9;;
al. 9;;
CcontinuedD P 2-3$
Re. 3
$odney Troon, Attorney
Trial alance
December G4, 2;++
A11!'#T DEIT 1$EDIT
1ash ?2B,;3;
Accounts receivable 4,G;;
Supplies B;;
Furniture 2,3;;
Land 22,;;;
Accounts payable ? B;;
$odney Troon, capital B;,;;;
$odney Troon, )ithdra)als 2,2;;
Service revenue B,;;;
Salary e/pense 4,4A;
$ent e/pense 9;; KKKKKKKKK
Total ?BB,B;; ?BB,B;;
4G;
CABH3; min.D P 2-4$
Re. 1 $!ournal entries%
Journal
,age 3
,!ST.
$EF. DEIT 1$EDIT
#ov. 43 1ash 44 3,;;;
Accounts $eceivable 42 3,;;;
$eceived on account.
49 Accounts $eceivable 42 4,9;;
Service $evenue A4 4,9;;
,erformed services on account.
24 ,aid for residence renovation.
not a transaction of the business.
22 Supplies 4G <;;
Accounts ,ayable 24 <;;
2G rent usch, "ithdra)als G2 2,4;;
1ash 44 2,4;;
"ithdre) for personal use.
2G Accounts ,ayable 24 2,3;;
1ash 44 2,3;;
,aid on account.
2A 1ash 44 4,=;;
Service $evenue A4 4,=;;
,erformed service for cash.
G; $ent E/pense B2 9;;
1ash 44 9;;
,aid rent.
G; Salary E/pense B4 2,4;;
1ash 44 2,4;;
,aid employee salaries.
1hapter 2 $ecording usiness Transactions 4G4
CcontinuedD P 2-4$
A11!'#T 1ASM A11!'#T #!. 44
0$#L. ALA#1E
#ov. 4B al.

G,;;;
43 0.3 3,;;; =,;;;
2G 0.3 2,4;; 3,=;;
2G 0.3 2,3;; A,G;;
2A 0.3 4,=;; 3,2;;
G; 0.3 9;; B,B;;
G; 0.3 2,4;; G,A;;
A11!'#T A11!'#TS $E1EI*ALE A11!'#T #!. 42
0$#L. ALA#1E
#ov. 4B al.

<,;;;
43 0.3 3,;;; 2,;;;
49 0.3 4,9;; G,9;;
A11!'#T S',,LIES A11!'#T #!. 4G
0$#L. ALA#1E
#ov. 4B al.

3;;
22 0.3 <;; 4,A;;
4G2
CcontinuedD P 2-4$
A11!'#T LA#D A11!'#T #!. 4A
0$#L. ALA#1E
#ov. 4B al.

GB,;;;
A11!'#T A11!'#TS ,A(ALE A11!'#T #!. 24
0$#L. ALA#1E
#ov. 4B al.

A,3;;
22 0.3 <;; B,A;;
2G 0.3 2,3;; 2,<;;
A11!'#T $E#T 'S1M, 1A,ITAL A11!'#T #!. G4
0$#L. ALA#1E
#ov. 4B al.

A;,;;;
A11!'#T $E#T 'S1M, "ITMD$A"ALS A11!'#T #!. G2
0$#L. ALA#1E
#ov. 4B al.

2,G;;
2G 0.3 2,4;; A,A;;
1hapter 2 $ecording usiness Transactions 4GG
CcontinuedD P 2-4$
A11!'#T SE$*I1E $E*E#'E A11!'#T #!. A4
0$#L. ALA#1E
#ov. 4B al.

9,4;;
49 0.3 4,9;; <,<;;
2A 0.3 4,=;; 4;,9;;
A11!'#T SALA$( E+,E#SE A11!'#T #!. B4
0$#L. ALA#1E
#ov. 4B al.

4,<;;
G; 0.3 2,4;; G,=;;
A11!'#T $E#T E+,E#SE A11!'#T #!. B2
0$#L. ALA#1E
#ov. 4B al.

4,;;;
G; 0.3 9;; 4,9;;
4GA
CcontinuedD P 2-4$
Re. 3
rent usch, Attorney
Trial alance
#ovember G;, 2;+G
A11T. #!. A11!'#T DEIT 1$EDIT
44 1ash ? G,A;;
42 Accounts receivable G,9;;
4G Supplies 4,A;;
4A Land GB,;;;
24 Accounts payable ? 2,<;;
G4 rent usch, capital A;,;;;
G2 rent usch, )ithdra)als A,A;;
A4 Service revenue 4;,9;;
B4 Salary e/pense G,=;;
B2 $ent e/pense 4,9;; KKKKKKKKK
Total ?BG,B;; ?BG,B;;
1hapter 2 $ecording usiness Transactions 4GB
C4BH2B min.D P 2-5$
Re. 1 $correctin# errors in a trial "alance%
allard Financial Services
Trial alance
Farch G4, 2;+4
A11!'#T DEIT 1$EDIT
1ash ? 3,3;;
Accounts receivable 2,BA;
Supplies 3;;
!ffice furniture 4,G;;
Land A3,;;;
Accounts payable ? 2,<;;
#ote payable 4<,G;;
Feredith allard, capital G;,<;;
Feredith allard, )ithdra)als B,;;;
Service revenue 4G,2;;
Salary e/pense 4,G;;
$ent e/pense 4,2;;
Advertising e/pense G;;
'tilities e/pense 23; KKKKKKKKK
Total ?3B,4;; ?3B,4;;
E/planationsJ
1ashJ ?3,2;; : ?A;; I ?3,3;;
Accounts receivableJ ?2,;;; ! ?3; : ?3;; I ?2,BA;
SuppliesJ ?B;; : ?4;; I ?3;;
Accounts payableJ ?2,9;; : ?4;; I ?2,<;;
Feredith allard, capitalJ ?2=,B;; : ?4,G;; I ?G;,<;;
Feredith allard, )ithdra)alsJ ?G,9;; : ?4,G;; I ?B,;;;
Service revenueJ ?A,=;; : ?<,G;; I ?4G,2;;
$ent e/penseJ ?B;; : ?GB; : ?GB; I ?4,2;;
'tilities e/penseJ ?2;; : ?3; I ?23;
4G3
CcontinuedD P 2-5$
Re. 2
allard Financial Services
Income Statement
Fonth Ended Farch G4, 2;+4
$evenuesJ
Service revenue ?4G,2;;
E/pensesJ
Salary e/pense ?4,G;;
$ent e/pense 4,2;;
Advertising e/pense G;;
'tilities e/pense 23;
Total e/penses G,;3;
#et income ?4;,4A;
1hapter 2 $ecording usiness Transactions 4G9
CA;HB; min.D P 2-6$
Res. 1 and 2
CaD 2G,;;; CcD G2,;;; CiD G,G;; C5D 4,4;;
CbD 2B,;;; CeD 4,G;; al. 2,2;;
CfD <;; ChD 4;;
C5D 4,4;; C7D 4,3;;
ClD 2,3;;
al. 42,G;;
Supplies FoodHService E-uipment
CdD A;; CcD G2,;;;
al. A;; al. G2,;;;
Automobile Accounts ,ayable
CaD 4G,;;; ChD 4;; CdD A;;
al. 4G,;;; CgD <;;
al. 4,4;;
#ote ,ayable *ince Serrano, 1apital
CbD 2B,;;; CaD G3,;;;
al. 2B,;;; al. G3,;;;
*ince Serrano, "ithdra)als Service $evenue
ClD 2,3;; CfD <;;
al. 2,3;; CiD G,G;;
al. A,4;;
CeD 4,G;; C7D 4,;;;
al. 4,G;; al. 4,;;;
Advertising E/pense Insurance E/pense
CgD <;; C7D 3;;
al. <;; al. 3;;
4G<
CcontinuedD P 2-6$
Re. 3
Serrano 1atering Service
Trial alance
0anuary G4, 2;+9
A11!'#T DEIT 1$EDIT
1ash ?42,G;;
Supplies A;;
FoodHservice e-uipment G2,;;;
Automobile 4G,;;;
Accounts payable ? 4,4;;
#ote payable 2B,;;;
*ince Serrano, capital G3,;;;
*ince Serrano, )ithdra)als 2,3;;
Salary e/pense 4,G;;
$ent e/pense 4,;;;
Advertising e/pense <;;
Insurance e/pense 3;; KKKKKKKKK
Total ?33,2;; ?33,2;;
1hapter 2 $ecording usiness Transactions 4G=
C2;HG; min.D P 2-7$
Re. 1
Income Statement
Fonth Ended 0anuary G4, 2;+9
$evenuesJ
Service revenue ?A,4;;
E/pensesJ
Salary e/pense ?4,G;;
$ent e/pense 4,;;;
Advertising e/pense <;;
Insurance e/pense 3;;
Total e/penses G,9;;
#et income ? A;;
Statement of !)ner%s E-uity
Fonth Ended 0anuary G4, 2;+9
*ince Serrano, capital, 0anuary 4, 2;+9 ? H;H
AddJ Investment by o)ner G3,;;;
#et income for the month A;;
G3,A;;
LessJ "ithdra)als by o)ner C2,3;;D
*ince Serrano, capital, 0anuary G4, 2;+9 ?GG,<;;
4A;
CcontinuedD P 2-7$
alance Sheet
0anuary G4, 2;+9
ASSETS LIAILITIES
1ash ?42,G;; Accounts payable ? 4,4;;
Accounts receivable 2,2;; #ote payable 2B,;;;
Supplies A;; Total liabilities 23,4;;
FoodHservice e-uipment G2,;;; !"#E$%S E&'IT(
Automobile 4G,;;; *ince Serrano, capital GG,<;;
KKKKKK Total liabilities and KKKKKK
Total assets ?B=,=;; o)ner%s e-uity ?B=,=;;
1hapter 2 $ecording usiness Transactions 4A4
Decision %ases
C4BH2; min.D Decision %ase 1
4. DoubleHentry boo77eeping has the advantage that it records both sides
Cthe >giving@ side and the >receiving@ sideD of a business transaction.
SingleHentry records only one side Cthe >giving@ sideD, )hich ma7es it
harder to 7eep trac7 of )hat is received. Also it is easier to spot errors
in a doubleHentry system because total debits should al)ays e-ual total
credits.
2. The ban7 is not misusing the term credit. "hen you deposit money in
the ban7, the ban7 debits 1ash Creceived from youD and credits
Deposits ,ayable Cto youD. It is the liability account, Deposits ,ayable,
that is the source of the term credit. This is )hy a ban7 credit is good
for the depositor. It means you have more money in the ban7.
G. $evenues are credits because they indicate an increase in o)ner%s
e-uity, )hich is a creditHbalance account. E/penses are de"its because
they indicate a decrease in o)ner%s e-uity. C1onfusion arises )ith these
relationships because of the other side of revenue and e/pense
transactions. For e/ample, 1ash may be received for a revenue
transaction. 1ash is debited as $evenue is credited to account for the
transaction. 1ash may be paid for an e/pense transaction. 1ash is
credited as E/pense is debited.DQ
QNoteJ Students probably )ill not include the information in parentheses
in their ans)ers.
4A2
CA;HB; min.D Decision %ase 2
Res. 1 and 2
CaD <,;;; CcD G;; CfD B,G;; ChD 4,2;;
CbD 3,;;; CdD 9;; al. A,4;;
CgD G,B;; CeD 2,BB;
ChD 4,2;; Supplies
al. 4B,4B; CcD G;;
al. G;;
#otes ,ayable elinda #athe)s, 1apital
CbD 3,;;; CaD <,;;;
CfD B,G;; CeD 4,A;;
CgD G,B;;
al. <,<;;
$ent E/pense Advertising E/pense
CeD <;; CdD 9;;
'tilities E/pense Interest E/pense
CeD G;; CeD B;
1hapter 2 $ecording usiness Transactions 4AG
CcontinuedD Decision %ase 2
Re. 3
#athe)s Apartment Locators
Trial alance
Farch G4, 2;+=
A11!'#T DEIT 1$EDIT
1ash ?4B,4B;
Accounts receivable A,4;;
Supplies G;;
#otes payable ? 3,;;;
elinda #athe)s, capital <,;;;
Service revenue <,<;;
Salary e/pense 4,A;;
$ent e/pense <;;
'tilities e/pense G;;
Interest e/pense B; KKKKKKKKK
Total ?22,<;; ?22,<;;
4AA
CcontinuedD Decision %ase 2
Re. 4 $net income or loss 'or 'irst mont* o' operations%
#athe)s Apartment Locators
$evenuesJ
Service revenue ?<,<;;
E/pensesJ
Salary e/pense ?4,A;;
$ent e/pense <;;
'tilities e/pense G;;
Interest e/pense B;
Total e/penses G,2B;
#et income for month ?B,BB;
RecommendationJ 1ontinue the business, because net income e/ceeds
the target amount.
1hapter 2 $ecording usiness Transactions 4AB
Et&ical 'ssue
The ethical issue is )hether rave Mearts is ta7ing advantage of the
ban7%s generosity.
Students )ho approve of the rave Mearts action can point out that the
ban7 allo)s rave Mearts to overdra) its cash balance. In this vie),
rave Mearts is merely using a privilege the ban7 has granted. Fost ban7s
are civicHminded and are relatively generous )ith charitable
organi8ations.
Students )ho disapprove may argue that rave Mearts is using the ban7%s
money )ithout ade-uately compensating the ban76a subtle form of
stealing. In this vie), rave Mearts should curtail its spending until it has
the money to cover its e/penditures and maintain a positive balance.
Alternatively, rave Mearts could sign a note payable to borro) the
needed money. The related interest is the ban7%s compensation.
The ban7 is the 7ey player in this case. "hether the ban7 approves or
disapproves of the rave Mearts overdrafts is critical to the ethical
decision. Approval by the ban7 turns the overdrafts into a gift to rave
Mearts. Disapproval by the ban7 )ould no doubt be communicated to Fr.
Menson.
4A3
(inancial )tateent %ase
C2;HG; min.D
Journal
,!ST.
$EF. DEIT 1$EDIT
!ct. B $etained Securiti8ed $eceivables 44;,;;;
Sales C$evenueD 44;,;;;
= 1ash B;;,;;;
LongHTerm Debt B;;,;;;
42 E-uipment B;,;;;
1ash B;,;;;
49 1urrent ,ortion of LongHTerm Debt 4;;,;;;
Interest E/pense <,;;;
1ash 4;<,;;;
4= 1ash <3,;;;
Sales C$evenueD <3,;;;
22 1ash C?44;,;;; PD BB,;;;
$etained Securiti8ed $eceivables BB,;;;
2< Selling, Leneral, and Administrative
E/pense G,;;;
Accounts ,ayable G,;;;
1hapter 2 $ecording usiness Transactions 4A9
*ea Pro+ect
Suggested Ans)er
Student ans)ers )ill vary )idely, as the various groups use the charts of
accounts of different businesses. The financial statements that the students
prepare should be consistent )ith the business%s chart of accounts.
4A<
)olution to 'nternet Exercise
'ntuit, 'nc-
*&e .inancial in.oration re"orte/ is .or .iscal years en/e/ in 1997
t&rou0& 1999- #ounts .or subse1uent years 2ill, o. course, 3ary- !o
to t&e &tt"455222-"rren&all-co5&orn0ren5 6eb site .or u"/ate/
solutions-
4. Ans)ers )ill vary but )ill include information regarding the latest
stoc7 price, the day%s range, the B2H)ee7 range, volume,
priceEearnings ratio, dividend yield, recent headlines, etc.
2a. Fy 4==9 Fy 4==< Fy 4===
Total revenues ?B=<,=2B,;;; ?B=2,9G3,;;; ?<A9,B3<,;;;
#et income 3<,G;<,;;; C42,4B9,;;;D G93,BA=,;;;
$evenues increased from 4==9 to 4===, )hich is a favorable trend
indicating Intuit is staying competitive )ithin the financial soft)are
industry.
#et income increased from 4==9 to 4=== after a loss in 4==<.
!verall, this is a favorable trend. ,romoting its Internet financial
support services appears to have been a profitable mar7eting
strategy for Intuit since record profits )ere reported in 4===.
2b. 0uly G4, 4==9 0uly G4, 4==< 0uly G4, 4===
,roperty and
e-uipment, net ?4BA,;;A,;;; ? 4GB,B2<,;;; ? 2;A,G;G,;;;
Total assets 33G,393,;;; 4,A=<,B=3,;;; 2,G2<,2A4,;;;
,,E as a W of
total assets 2G.2W =.;W <.<W
1hapter 2 $ecording usiness Transactions 4A=
!verall, property and e-uipment comprise a small portion of total
assets, and that portion continues to gro) smaller. This relationship
is e/pected for companies )ithin the eHcommerce industry because
of the electronic nature of the business and the modest need for
property and e-uipment.
2c. #ormal balance is a de"it.
The amount reported is a'ter postin#.
G. It is important to understand the accounting process so that a person
can understand the financial information and ma7e ad5ustments
)hen needed. "ith no 7no)ledge of accounting, a person operates
at the mercy of the accountants )ho prepare the information.
A. Ans)ers )ill vary but may include information from lin7s regarding
investing, mortgages, insurance, ta/es, ban7ing, or retirement.
4B;

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Chapter 2

Recording Business Transactions

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