COMPLETE PRACTICE QUESTION

GENERAL JOURNAL
LEDGER
UNADJUSTED TRIAL BALANCE
ADJUSTING ENTRIES
ADJUSTED TRIAL BALANCE
FINANCIAL STATEMENTS
Complete Problem on General Journal, Ledger and Trial balance
Transactions Worksheet for January 31, 2015
Transactions summary:
1 Jan . Issued share capital for $10,000 cash.
2 Jan . Assumed a bank loan for $4,000.
2 Jan . Purchased equipment for $3,000 cash.
3 Jan . Purchased a truck for $8,000; paid $1,000 cash and incurred a bank loan for $7,000.
5 Jan . Paid $2,400 for a comprehensive one-year insurance policy effective January 1.
10 Jan . Paid $2,000 cash to reduce the bank loan.
15 Jan. Received $400 as an advance payment for repair services to be provided over the next two months as follows:
$300 for February,
$100 for March.
31 Jan . Performed repairs for $7,500 cash and $2,500 to be paid by customers at a later date.
31 Jan Paid a total of $7,100 for operating expenses incurred during the month; also incurred an expense on account
for $700
31 Jan . Dividends of $200 were paid in cash to the only shareholder, Bob Baldwin.
Transaction 1
Jan. 1 – Big Dog Carworks Corp. issued 1,000 shares to Bob Baldwin, a shareholder, for a total of
$10,000 cash.
Debit: An asset account, Cash, is increased resulting in a debit.
Credit: Share Capital, a shareholders’ equity account, is increased resulting in a credit.
Big Dog Carworks Corp
General Journal
Transaction 2
Jan. 2 – Borrowed $4,000 from the bank.
Debit: An asset account, Cash, is increased resulting in a debit.
Credit: A liability account, Bank Loan, is increased resulting in a credit.

Big Dog Carworks Corp

General Journal
Date Account Title & Explanation Debit Credit
Transaction 3
Jan. 2 – Equipment was purchased for $3,000 cash. In this case, one asset is
acquired in exchange for another asset.
Debit: An asset account, Equipment, is increased resulting in a debit.
Credit: A liability account, Bank Loan, is increased resulting in a credit
Big Dog Carworks Corp
General Journal
Date Account Title & Explanation Debit Credit

Cash
Transaction 4
Jan. 3 – A truck was purchased for $8,000; Big Dog paid $1,000 cash and incurred a $7,000 bank
loan for the balance. This transaction involves one debit and two credits.
Debit: An asset account, Truck, is increased by a debit.
Credit: An asset account, Cash, is decreased by a credit.
Credit: A liability account, Bank Loan, is increased by a credit.
Big Dog Carworks Corp
General Journal
Date Account Title & Explanation Debit Credit
Transaction 5
Jan. 5 – Big Dog Carworks Corp. paid $2,400 cash for a one-year insurance policy, Because
the insurance provides future benefit, it is recorded as an asset until it is used.
Debit: An asset account, Prepaid Insurance, is increased by a debit.
Credit: An asset account, Cash, is decreased by a credit.

Big Dog Carworks Corp

General Journal
Date Account Title & Explanation Debit Credit
Transaction 6
Jan. 10 – The corporation paid $2,000 cash to reduce the bank loan.

Debit: A liability account, Bank Loan, is decreased by a debit.

Credit: An asset account, Cash, is decreased by a credit.
Big Dog Carworks Corp
General Journal
Date Account Title & Explanation Debit Credit
Transaction 7
Jan. 15 – The corporation received an advance payment of $400 for repair services to be
performed as follows: $300 in February and $100 in March. Since the revenue relating to this
cash receipt is not earned as of this date, a liability account, Unearned Repair Revenue, is
created.
Debit: An asset, Cash, is increased at the time the cash is received by a debit.
Credit: a liability account, Unearned Repair Revenue, is credited
Big Dog Carworks Corp
General Journal

Date Account Title & Explanation Debit Credit

Transaction 8
Jan. 31 – A total of $10,000 of automotive repair services is performed for a customer who paid
$7,500 cash. The remaining $2,500 will be paid in 30 days. Two debits are required in this case.
Debit: An asset, Cash, is increased by a debit. 7,500
Debit: Another asset, Accounts Receivable, is increased by a debit.
Credit: A shareholders’ equity account, Repair Revenue, is increased by a credit.
Big Dog Carworks Corp
General Journal
Date Account Title & Explanation Debit Credit
Transaction 9
Jan. 31 – Operating expenses of $7,100 were paid in cash: Rent expense, $1,600; salaries expense, $4,000; and
supplies expense of $1,500. $700 for truck operating expenses (e.g., oil, gas) was incurred on credit. This transaction
increases four separate expense accounts and two separate balance sheet accounts.
Debit: An expense account, Salaries Expense is increased by a debit.
Debit: An expense account, Supplies Expense is increased by a debit.
Debit: An expense account, Truck Operating Expense is increased by a debit.
Credit: An asset, Cash, is decreased by a credit. 7,100
Credit: A liability, Accounts Payable, is increased by a credit.
Big Dog Carworks Corp
General Journal
Date Account Title & Explanation Debit Credit
Transaction 10
Jan. 31 – Dividends of $200 were paid in cash to the shareholder, Bob Baldwin. Dividends are a
distribution of net income, and reduce shareholders’ equity.
Debit: The Dividends account is increased by a debit.
Credit: An asset, Cash, is decreased by a credit
Big Dog Carworks Corp
General Journal
Date Account Title & Explanation Debit Credit
Big Dog Carworks Corp
Ledger
Deferred Expense or Prepaid Expense
Payment has been made in advance but expense will be occurred later.
5 Jan . Paid $2,400 for a comprehensive one-year insurance policy effective January 1.
Adjusting Entry for transaction 5
Deferred Revenue or Unearned Liability Accounts
15 Jan. Received $400 as an advance payment for repair services to be provided over the next two months.
Deferred Revenue or Unearned Liability Accounts
Adjusting Entry for transaction 7
 Adjusting Plant and Equipment Accounts
• The truck and equipment purchased by Big Dog Carworks Corp. in January are examples of assets that provide
economic benefits for more than one accounting period.
• Their costs also must be spread over the same time period, or useful life. Useful life is an estimate of how long
the asset will be used to produce benefits for the business. This is done to satisfy the matching principle
• The process of allocating the cost of a long-lived asset over the period of time it is expected to be used is called
depreciation
 Adjusting Plant and Equipment Accounts

Notice that the credit side of the entry is not made to the Equipment account. Rather, a contra
account called “Accumulated Depreciation – Equipment” is used. A contra account is a general
ledger account that is related to another account (in this case, Equipment).
Adjusting Plant and Equipment Accounts
At January 31, one month of the truck cost has expired. Depreciation is calculated as:
Adjusting for Plant and Equipment
 Adjusting for Accrued Revenues and Expenses
• Accrued revenues are revenues that have been earned but not yet collected or
recorded.
• Assume that BDCC has rented out part of the building in which it operates to another business
(this is often called a sublet) as of January 1, 2015. The rent is $400 per month. If the rent by
January 31, and an accrued revenue amount needs to be recorded, as follows:
When the adjusting entry is posted, the accounts appear as follows:
Another example of accrued revenue is interest receivable. Assume that cash on deposit with the bank pays interest
every three months and that the interest revenue earned on the account is $25 at January 31. An accrued revenue
amount needs to be recorded at January 31, as follows:

When the adjusting entry is posted, the accounts appear as follows:

Accrued Expense
• Accrued expenses are expenses that have been incurred but not yet paid or
recorded.
• For Big Dog Carworks Corp., the January 31, 2015 unadjusted trial balance
shows a $9,000 bank loan balance. Recall that this consists of a $4,000 loan on
January 2 (Transaction 2), an additional $7,000 loan on January 3 (Transaction
3), and a repayment of $2,000 on January 10 (Transaction 6). No interest has
been paid on this loan as of January 31 However, interest has been accruing on
the loans since they were received. The interest needs to be recorded by means
of adjusting entry. Assume that interest expense amounts to $18. BDCC’s
adjusting entry to accrue this expense on January 31 is:
Ledger for Accrued Expense
Accrued Salaries Expense
• Transaction 9 included a $4,000 cash payment for salaries expense. (“Wages” are similar expenses, paid to hourly
workers.) Let’s assume that the payments were for work performed by staff only until January 28. There are four
days of salary that have not been paid to January 31. Assume this amounts to $150. This additional accrued expense
for work done on January 28, 29, 30, and 31 needs to be recorded to appropriately match the salaries expense to the
month of January. This is the adjusting entry:
Accrued Income Taxes Expense
• Corporate income taxes expense also needs to be accrued for BDCC. Assume BDCC’s income tax
expense for January 2015 is $500 and that this amount will be paid after the company’s year-end,
December 31. The adjusting entry for January is:
Adjusted Trial balance
• Adjusted Trial balance is prepared after adjusting entries in order record the
transactions and their effect properly.
• An adjusted trial balance reports account balances after adjusting entries have
been recorded and posted.
Using the Adjusted Trial Balance to Prepare Financial Statements
Preparation of balance sheet