Chapter 4: The General Journal and the General Ledger

Chapter Opener: Thinking Critically Students should recognize that in order to grow, a business must broaden and diversify its product offerings. Caterpillar recognized quickly that no two jobs are alike and by offering a custom solution to their customers for each distinct job they were able to generate more sales and more revenue. Fast Facts Approximately half of all Caterpillar sales were to customers outside of the United States, maintaining Caterpillars position as a global supplier and leading U.S. exporter. Caterpillar products and components are manufactured in 50 U.S. facilities and in 65 other locations in 23 countries around the globe. Caterpillar invested nearly $670 million in research and technology in 2003. Worldwide, employees earned more than 3700 patents since 1997. In 1963 Caterpillar and Mitsubishi Heavy Industries Ltd. formed one of the first joint ventures in Japan to include partial U.S. ownership. Caterpillar Mitsubishi Ltd. started production in 1965 and is now the No. 2 maker of construction and mining equipment in Japan. Accounting on the Job: Thinking Critically Students responses will vary. Issues that would require attention might include: changes to travel agent commission policies public earnings conference calls changes to the corporations board of directors Accounting on the Job: Internet Application Students will find information on paralegal careers at The National Association of Legal Assistants Web site (www.nala.org). The U.S. Department of Labor, Bureau of Labor Statistics, Web site offers information about fire fighting careers at (stats.bls.gov/oco/cg/cg1007.htm) and on correctional officer careers at (stats.bls.gov/oco/ocos156.htm). Managerial Implications: Thinking Critically Answers will vary but may include the following. Research a payment to a vendor. (Vendor says no payment was received.) Research outstanding customer account. (Customer says account was paid.) Research customer billing. (Customer says no invoice was received.) Discussion Questions These questions are designed to check students understanding of the new terms, concepts, and procedures presented in the chapter. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Groups of accounts. Entry that includes more than a single debit and credittwo or more debits and/or credits. Helps establish audit trail. Record month, day, debited account/amount, credited account/amount, description. To record business transactions in chronological order. Steps performed to classify, record, and summarize financial data for a business. Before entry posted: cross out incorrect item, write correct data above it. After posted: journalize and post a correcting entry. Chain of references; prevents fraud and errors. Notations of the page number of the journal from which a figure comes; number of account to which the figure was posted; to provide cross-references. Assets, liabilities, and owners equity first, followed by revenue accounts, then expenses. They are in order of the financial statements. Transfer of data from a journal to a ledger.

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Chapter 4 35

Exercises
Exercise 4.1 1. 2. 3. 4. 5. Debit 401 517 111 131 202 Credit 101 101 401 101 101 6. 7. 8. 9. 10. Debit 101 101 101 121 511 Credit 401 111 301 202 101 Page 1 Post. Ref. 101 301 131 202 Debit 62,000 62,000 8,500 8,500 Credit

Exercise 4.2 GENERAL JOURNAL Date 2007 Sept. 1 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marilyn James, Capital . . . . . . . . . . . . . . . . . . . . . . . . Beginning Investment of owner Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased equipment on credit from Den, Inc. Invoice 9823, payable in 30 days Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased an automobile, Check 1001 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased supplies, Check 1002 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Returned damaged supplies and received cash refund Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid Den, Inc., on account for Invoice 9823, Check 1003 Marilyn James, Drawing . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner withdrew cash for personal use Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid October rent, Check 1004 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly telephone bill, Check 1005

16

141 101 121 101 101 121

22,500 22,500 420 420 120 120

20

23

30

202 101

5,600 5,600

2007 Sept. 30

302 101 511 101 101 401 517 101

2,000 2,000 1,200 1,200 1,700 1,700 207 207

30

30

30

36 Chapter 4

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Exercise 4.3 GENERAL LEDGER ACCOUNT Date 2007 Sept 1 16 20 23 30 30 30 30 30 ACCOUNT Date Accounts Receivable Description Post. Ref. Debit Credit Cash Description Post. Ref. J1 J1 J1 J1 J1 J2 J2 J2 J2 Debit 62,000 22,500 420 120 5,600 2,000 1,200 1,700 207 Credit ACCOUNT NO. 101

Balance Debit Credit 62,000 39,500 39,080 39,200 33,600 31,600 30,400 32,100 31,893 111

ACCOUNT NO.

Balance Debit Credit

ACCOUNT Date 2007 Sept. 20 23 ACCOUNT Date 2007 Sept. 4 ACCOUNT Date 2007 Sept. 16

Supplies Description Post. Ref. J1 J1 Equipment Description Post. Ref. J1 Automobile Description Post. Ref. J1 Debit 22,500 Credit Debit 8,500 Credit Debit 420 Credit

ACCOUNT NO.

121

Balance Debit Credit 420 300 131

120

ACCOUNT NO.

Balance Debit Credit 8,500 ACCOUNT NO. 141

Balance Debit Credit 22,500

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Chapter 4 37

GENERAL LEDGER ACCOUNT Date 2007 Sept 4 30 ACCOUNT Date 2007 Sept 1 ACCOUNT Date 2007 Sept 30 ACCOUNT Date 2007 Sept. 30 ACCOUNT Date 2007 Sept. 30 ACCOUNT Date 2007 ACCOUNT Date 2007 Sept. 30 Telephone Expense Description Post. Ref. J2 Debit 207 Credit ACCOUNT NO. 517 Salaries Expense Description Post. Ref. Debit Credit Rent Expense Description Post. Ref. J2 Debit 1,200 Credit Fees Income Description Post. Ref. J2 Debit Credit 1,700 ACCOUNT NO. Marilyn James, Drawing Description Post. Ref. J1 Debit 2,000 Credit Marilyn James, Capital Description Post. Ref. J1 Debit Credit 62,000 ACCOUNT NO. Accounts Payable Description Post. Ref. J1 J1 Debit Credit 8,500 5,600 ACCOUNT NO. ACCOUNT NO. 202

Balance Debit Credit 8,500 2,900 301

Balance Debit Credit 62,000 302

Balance Debit Credit 2,000 ACCOUNT NO. 401

Balance Debit Credit 1,700 511

Balance Debit Credit 1,200 ACCOUNT NO. 514

Balance Debit Credit

Balance Debit Credit 207

38 Chapter 4

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Exercise 4.4 GENERAL JOURNAL Date 2007 Nov. 5 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for Talent Search receiving part of fees in cash with the remainder due in 60 days Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased graphing calculator and supplies, Check 1008 Automobile Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Received Invoice 1602 from Automotive Technicians Repair; issued Check 1009 for half the amount, balance due in 30 days Post. Ref. Debit 16,000 16,000 32,000 PAGE Credit

18

300 500 800

23

1,080 540 540

Exercise 4.5 GENERAL JOURNAL Date 2007 July 30 Description Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To correct July 9 error charging telephone bill to Utilities Expense Post. Ref. Debit 375 375 PAGE 000 Credit

Exercise 4.6 GENERAL JOURNAL Date 2007 Oct. 1 Description Repair Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . To correct September 16 error charging truck repairs to the Truck account Post. Ref. 450 450 Debit PAGE 000 Credit

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Chapter 4 39

Problems
Problem 4.1A GENERAL JOURNAL Date 2007 Sept. 1 Description Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid September rent, Check 1169 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on credit Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly telephone bill, Check 1170 Equipment Repair Expense . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for repairs, Check 1171 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . Received cash on account Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid semimonthly salaries, Checks 11721177 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for supplies, Check 1178 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased tennis rackets from The Tennis Supply Shop, Invoice 3108, payable in 30 days Post. Ref. Debit 1,400 1,400 2,500 2,500 2,175 2,175 150 150 210 210 800 800 4,200 4,200 500 500 2,250 2,250 PAGE 1 Credit

10

11

12

15

18

19

40 Chapter 4

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GENERAL JOURNAL Date 2007 Sept. 20 Description Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased nets, Check 1179 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . Received cash on account Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Returned damaged net for cash refund Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on account Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for supplies, Check 1180 Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly electric bill, Check 1181 Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid semimonthly salaries, Checks 11821187 Raul Hinojosa, Drawing . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner withdrew cash for personal use, Check 1188 Post. Ref. Debit 690

PAGE 2 Credit

690 850 850 212 212 3,260 3,260 4,810 4,810 460 460 575 575 4,200 4,200 1,000 1,000

21

21

22

23

26

28

30

30

Analyze: Check 1189 would be included in the journal entry description.

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Chapter 4 41

Problem 4.2A GENERAL JOURNAL Date 2007 Oct. 1 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linda Carter, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning investment of owner Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid October rent, Check 1001 Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased equipment from Office Furniture Mart, Inc., Invoice 6704, payable in 60 days Art Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased art equipment, Check 1002 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased supplies, Check 1003 Office Cleaning Expense . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for office cleaning, Check 1004 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash and on credit Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Returned damaged supplies for cash refund Post. Ref. 101 301 514 101 141 202 Debit 70,000 70,000 2,250 2,250 14,000 14,000 PAGE 1 Credit

151 101 121 101 511 101 101 111 401 101 121

4,350 4,350 1,070 1,070 425 425 3,200 2,800 6,000 300 300

10

12

15

42 Chapter 4

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GENERAL JOURNAL Date 2007 Oct. 18 Description Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased equipment from Office Furniture Mart, Inc., Invoice 7108; Check 1005; bal. due in 30 days Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid Office Furniture Mart, Inc., on account, Invoice 6704; Check 1006 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on credit Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly telephone bill, Check 1007 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . Received cash on account Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly utility bill, Check 1008 Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly salaries, Checks 10091011 Post. Ref. 141 101 202 Debit 2,050

PAGE 2 Credit

1,025 1,025

20

202 101

7,000 7,000

26

111 401 520 101 101 111 523 101 517 101

3,875 3,875 250 250 3,200 3,200 592 592 7,550 7,550

27

30

30

30

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Chapter 4 43

GENERAL LEDGER ACCOUNT Date 2007 Oct. 1 2 6 7 10 12 15 18 20 27 30 30 30 ACCOUNT Date 2007 Oct. 12 26 30 ACCOUNT Date 2007 Oct. 7 15 ACCOUNT Date 2007 Oct. 5 18 Office Equipment Description Post. Ref. J1 J2 Debit 14,000 2,050 Credit Supplies Description Post. Ref. J1 J1 Debit 1,070 300 Credit Accounts Receivable Description Post. Ref. J1 J2 J2 Debit 2,800 3,875 3,200 Credit Cash Description Post. Ref. J1 J1 J1 J1 J1 J1 J1 J2 J2 J2 J2 J2 J2 Debit 70,000 2,250 4,350 1,070 425 3,200 300 1,025 7,000 250 3,200 592 7,550 Credit ACCOUNT NO. 101

Balance Debit Credit 70,000 67,750 63,400 62,330 61,905 65,105 65,405 64,380 57,380 57,130 60,330 59,738 52,188 111

ACCOUNT NO.

Balance Debit Credit 2,800 6,675 3,475 121

ACCOUNT NO.

Balance Debit Credit 1,070 770 141

ACCOUNT NO.

Balance Debit Credit 14,000 16,050

44 Chapter 4

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GENERAL LEDGER ACCOUNT Date 2007 Oct. 6 ACCOUNT Date 2007 Oct. 5 18 20 ACCOUNT Date 2007 Oct. 1 ACCOUNT Date Linda Carter, Drawing Description Post. Ref. Debit Credit Linda Carter, Capital Description Post. Ref. J1 Debit Credit 70,000 ACCOUNT NO. Accounts Payable Description Post. Ref. J1 J2 J2 Debit Credit 14,000 1,025 7,000 ACCOUNT NO. Art Equipment Description Post. Ref. J1 Debit 4,350 Credit ACCOUNT NO. 151

Balance Debit Credit 4,350 ACCOUNT NO. 202

Balance Debit Credit 14,000 15,025 8,025 301

Balance Debit Credit 70,000 302

Balance Debit Credit

ACCOUNT Date 2007 Oct. 12 26

Fees Income Description Post. Ref. J1 J2 Debit Credit

ACCOUNT NO.

401

Balance Debit Credit 6,000 9,875

6,000 3,875

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Chapter 4 45

GENERAL LEDGER ACCOUNT Date 2007 Oct. 10 ACCOUNT Date 2007 Oct. 2 ACCOUNT Date 2007 Oct. 30 ACCOUNT Date 2007 Oct. 27 ACCOUNT Date 2007 Oct. 30 Utilities Expense Description Post. Ref. J2 Debit 592 Credit Telephone Expense Description Post. Ref. J2 Debit 250 Credit Salaries Expense Description Post. Ref. J2 Debit 7,550 Credit Rent Expense Description Post. Ref. J1 Debit 2,250 Credit Office Cleaning Expense Description Post. Ref. Debit 425 Credit ACCOUNT NO. 511

Balance Debit Credit 425 ACCOUNT NO. 514

Balance Debit Credit 2,250 ACCOUNT NO. 517

Balance Debit Credit 7,550 ACCOUNT NO. 520

Balance Debit Credit 250 ACCOUNT NO. 523

Balance Debit Credit 592

Analyze: General ledger account 202 has a $8,025 credit balance.

46 Chapter 4

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Problem 4.3A April 1: The debit should be to Accounts Receivable, not Accounts Payable. April 2: The debit and credit accounts are reversed. Telephone Expense should be debited and Cash should be credited. April 3: The two debit amounts and the credit amount in the entry are not equal because of a math error. The credit for Cash should be $4,000. Analyze: After correcting the three entries, the assets are increased by $5,900. Problem 4.4A GENERAL JOURNAL Date 2007 Nov. 1 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sandra Altman, Capital . . . . . . . . . . . . . . . . . . . . . . . . Beginning investment of owner Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased equipment and office supplies from Office Depot, Invoice 501; issued Check 100 for a down payment, balance payable in 30 days Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services for cash and credit Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased machinery from Carson Machinery, Inc., Invoice 709; issued Check 101 for a down payment, balance due in 30 days Post. Ref. 101 131 301 151 121 101 202 Debit 22,500 500 23,000 975 225 300 900 PAGE 1 Credit

10

101 111 401 141 101 202

250 700 950 1,500 500 1,000

20

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Chapter 4 47

GENERAL LEDGER ACCOUNT Date 2007 Nov. 1 2 10 20 ACCOUNT Date 2007 Nov. 10 ACCOUNT Date 2007 Nov. 2 ACCOUNT Date 2007 Nov. 1 ACCOUNT Date 2007 Nov. 20 Machinery Description Post. Ref. J1 Debit 1,500 Credit Tools Description Post. Ref. J1 Debit 500 Credit Office Supplies Description Post. Ref. J1 Debit 225 Credit Accounts Receivable Description Post. Ref. J1 Debit 700 Credit Cash Description Post. Ref. J1 J1 J1 J1 Debit 22,500 300 250 500 Credit ACCOUNT NO. 101

Balance Debit Credit 22,500 22,200 22,450 21,950 111

ACCOUNT NO.

Balance Debit Credit 700 ACCOUNT NO. 121

Balance Debit Credit 225 ACCOUNT NO. 131

Balance Debit Credit 500 ACCOUNT NO. 141

Balance Debit Credit 1,500

48 Chapter 4

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GENERAL LEDGER ACCOUNT Date 2007 Nov. 2 ACCOUNT Date 2007 Nov. 2 20 ACCOUNT Date 2007 Nov. 1 ACCOUNT Date 2007 Nov. 10 Fees Income Description Post. Ref. J1 Debit Credit 950 Sandra Altman, Capital Description Post. Ref. J1 Debit Credit 23,000 ACCOUNT NO. Accounts Payable Description Post. Ref. J1 J1 Debit Credit 900 1,000 ACCOUNT NO. Equipment Description Post. Ref. J1 Debit 975 Credit ACCOUNT NO. 151

Balance Debit Credit 975 ACCOUNT NO. 202

Balance Debit Credit 900 1,900 301

Balance Debit Credit 23,000 401

Balance Debit Credit 950

Analyze: The business owes $1,900 as of November 30.

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Chapter 4 49

Problem 4.1B GENERAL JOURNAL Date 2007 Sept. 1 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fred Wu, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning investment of owner Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid rent for September, Check 1000 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on credit Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid telephone bill, Check 1001 Equipment Repair Expense . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for equipment repairs, Check 1002 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . Received cash on account Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid semimonthly salaries to employees, Checks 10031004 Cleaning Supplies Expense . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for cleaning supplies, Check 1005 Post. Ref. Debit 25,000 25,000 2,800 2,800 1,800 1,800 3,600 3,600 400 400 230 230 975 975 9,000 9,000 PAGE 1 Credit

10

12

14

18

700 700

50 Chapter 4

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GENERAL JOURNAL Date 2007 Sept. 19 Description Office Supplies Expense . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for office supplies, Check 1006 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase from Ramons Equipment, Inc., Invoice 1012; issued Check 1007 for down payment, balance due in 30 days Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid utility bill, Check 1008 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on account Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid semimonthly salaries, Checks 10091010 Fred Wu, Drawing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner withdrew cash for personal use, Check 1011 Post. Ref. Debit 600

PAGE 2 Credit

600 6,000 2,000 4,000

20

22

4,950 4,950 425 425 3,600 3,600 9,000 9,000 3,000 3,000

24

26

30

30

Analyze: Eight transactions affected expense accounts.

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Chapter 4 51

Problem 4.2B GENERAL JOURNAL Date 2007 June 1 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Richard Harris, Capital . . . . . . . . . . . . . . . . . . . . . . . . Beginning investment of owner Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid rent for June, Check 1001 Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased office equipment from Brown, Inc., Invoice 5312, payable in 60 days Photographic Equipment . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased photo equipment, Check 1002 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased supplies, Check 1003 Office Cleaning Expense . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for office cleaning, Check 1004 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash and credit Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Returned damaged supplies for cash Post. Ref. 101 301 514 101 141 202 Debit 32,000 32,000 1,800 1,800 7,500 7,500 PAGE 1 Credit

151 101 121 101 511 101 101 111 401 101 121

1,900 1,900 475 475 400 400 1,200 1,300 2,500 100 100

10

12

15

52 Chapter 4

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GENERAL JOURNAL Date 2007 June 18 Description Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase from Craft Office Supply, Invoice 304; issued Check 1005 for down payment, balance payable in 30 days Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid Brown, Inc., on account, Invoice 5312, Check 1006 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on credit Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly phone bill, Check 1007 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . Received cash on account Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly utility bill, Check 1008 Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid monthly salaries to employees, Checks 10091011 Post. Ref. 141 101 202 Debit 2,050

PAGE 2 Credit

1,000 1,050

20

202 101

4,200 4,200

26

111 401 520 101 101 111 523 101 517 101

2,000 2,000 145 145 2,100 2,100 550 550 5,600 5,600

27

30

30

30

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Chapter 4 53

GENERAL LEDGER ACCOUNT Date 2007 June 1 2 6 7 10 12 15 18 20 27 30 30 30 ACCOUNT Date 2007 June 12 26 30 ACCOUNT Date 2007 June 7 15 ACCOUNT Date 2007 June 5 18 Office Equipment Description Post. Ref. J1 J2 Debit 7,500 2,050 Credit Supplies Description Post. Ref. J1 J1 Debit 475 100 Credit Accounts Receivable Description Post. Ref. J1 J2 J2 Debit 1,300 2,000 2,100 Credit Cash Description Post. Ref. J1 J1 J1 J1 J1 J1 J1 J2 J2 J2 J2 J2 J2 Debit 32,000 1,800 1,900 475 400 1,200 100 1,000 4,200 145 2,100 550 5,600 Credit ACCOUNT NO. 101

Balance Debit Credit 32,000 30,200 28,300 27,825 27,425 28,625 28,725 27,725 23,525 23,380 25,480 24,930 19,330 111

ACCOUNT NO.

Balance Debit Credit 1,300 3,300 1,200 121

ACCOUNT NO.

Balance Debit Credit 475 375 141

ACCOUNT NO.

Balance Debit Credit 7,500 9,550

54 Chapter 4

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GENERAL LEDGER ACCOUNT Date 2007 June 6 ACCOUNT Date 2007 June 5 18 20 ACCOUNT Date 2007 June 1 ACCOUNT Date Richard Harris, Drawing Description Post. Ref. Debit Credit Richard Harris, Capital Description Post. Ref. J1 Debit Credit 32,000 ACCOUNT NO. Accounts Payable Description Post. Ref. J1 J2 J2 Debit Credit 7,500 1,050 4,200 ACCOUNT NO. Photographic Equipment Description Post. Ref. J1 Debit 1,900 Credit ACCOUNT NO. 151

Balance Debit Credit 1,900 ACCOUNT NO. 202

Balance Debit Credit 7,500 8,550 4,350 301

Balance Debit Credit 32,000 302

Balance Debit Credit

ACCOUNT Date 2007 June 12 26 ACCOUNT Date 2007 June 10

Fees Income Description Post. Ref. J1 J2 Office Cleaning Expense Description Post. Ref. J1 Debit 400 Credit Debit Credit

ACCOUNT NO.

401

Balance Debit Credit 2,500 4,500 511

2,500 2,000 ACCOUNT NO.

Balance Debit Credit 400

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Chapter 4 55

GENERAL LEDGER ACCOUNT Date 2007 June 2 ACCOUNT Date 2007 June 30 ACCOUNT Date 2007 June 27 ACCOUNT Date 2007 June 30 Utilities Expense Description Post. Ref. J2 Debit 550 Credit Telephone Expense Description Post. Ref. J2 Debit 145 Credit Salaries Expense Description Post. Ref. J2 Debit 5,600 Credit Rent Expense Description Post. Ref. J1 Debit 1,800 Credit ACCOUNT NO. 514

Balance Debit Credit 1,800 ACCOUNT NO. 517

Balance Debit Credit 5,600 ACCOUNT NO. 520

Balance Debit Credit 145 ACCOUNT NO. 523

Balance Debit Credit 550

Analyze: The Cash account balance after the June 20 transaction was $23,525.

56 Chapter 4

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Problem 4.3B January 1: The debit should be to Accounts Receivable, not Accounts Payable. January 2: The debit and credit accounts are reversed. Telephone Expense should be debited, and Cash should be credited. January 3: The two debit amounts and the credit amount in the entry are not equal because of a mathematical error. The credit shown for Cash should be $940. Analyze: The assets increased by $610. Problem 4.4B GENERAL JOURNAL Date 2007 Dec. 3 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia Richey, Capital . . . . . . . . . . . . . . . . . . . . . . . . Beginning investment of owner Computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid cash for computer Furniture & Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased office furniture on credit Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid cash for equipment Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rendered services on account Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid cash for supplies Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid invoice for furniture purchased on December 5 Post. Ref. 101 301 131 101 151 202 141 101 111 401 121 101 202 101 Debit 30,000 30,000 2,400 2,400 8,000 8,000 2,190 2,190 2,575 2,575 900 900 8,000 8,000 PAGE 1 Credit

10

11

15

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Chapter 4 57

GENERAL LEDGER ACCOUNT Date 2007 Dec. 3 4 6 11 15 ACCOUNT Date 2007 Dec. 10 ACCOUNT Date 2007 Dec. 11 ACCOUNT Date 2007 Dec. 4 ACCOUNT Date 2007 Dec. 6 Office Equipment Description Post. Ref. J1 Debit 2,190 Credit Computers Description Post. Ref. J1 Debit 2,400 Credit Office Supplies Description Post. Ref. J1 Debit 900 Credit Accounts Receivable Description Post. Ref. J1 Debit 2,575 Credit Cash Description Post. Ref. J1 J1 J1 J1 J1 Debit 30,000 2,400 2,190 900 8,000 Credit ACCOUNT NO. 101

Balance Debit Credit 30,000 27,600 25,410 24,510 16,510 111

ACCOUNT NO.

Balance Debit Credit 2,575 ACCOUNT NO. 121

Balance Debit Credit 900 ACCOUNT NO. 131

Balance Debit Credit 2,400 ACCOUNT NO. 141

Balance Debit Credit 2,190

58 Chapter 4

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GENERAL LEDGER ACCOUNT Date 2007 Dec. 5 ACCOUNT Date 2007 Dec. 5 15 ACCOUNT Date 2007 Dec. 3 ACCOUNT Date 2007 Dec. 10 Fees Income Description Post. Ref. J1 Debit Credit 2,575 Virginia Richey, Capital Description Post. Ref. J1 Debit Credit 30,000 ACCOUNT NO. Accounts Payable Description Post. Ref. J1 J1 Debit Credit 8,000 8,000 ACCOUNT NO. Furniture & Fixtures Description Post. Ref. J1 Debit 8,000 Credit ACCOUNT NO. 151

Balance Debit Credit 8,000 ACCOUNT NO. 202

Balance Debit Credit 8,000 -0301

Balance Debit Credit 30,000 401

Balance Debit Credit 2,575

Analyze: Two postings were recorded, one debit and one credit.

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Chapter 4 59

Challenge Problem GENERAL JOURNAL Date 2007 June 1 Description Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nelson Sullivan, Capital . . . . . . . . . . . . . . . . . . . . . . . Beginning investment of owner Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid rent for June, Check 201 Office Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased furniture from Davis Office Supply, Invoice 5103; issued Check 202, balance due in 30 days Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased supplies, Check 203 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid for advertising, Check 204 Recording Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased equipment from Rhythms and Moves, Inc., Invoice 2122; issued check 205, balance due in 30 days Post. Ref. 101 301 514 101 141 101 202 Debit 30,000 30,000 1,800 1,800 12,000 4,000 8,000 PAGE 1 Credit

121 101 101 401 511 101 151 101 202

1,600 1,600 6,000 6,000 2,000 2,000 15,000 5,000 10,000

60 Chapter 4

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GENERAL JOURNAL Date 2007 June 10 Description Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services on account Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid Davis Office Supply on account for Invoice 5103, Check 206 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performed services for cash Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid semimonthly salary, Check 207 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . Received payment on account Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid Rhythms and Moves, Inc., on account, Invoice 2122, Check 208 Telephone Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid telephone bill, Check 209 Utilities Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid utility bill, Check 210 Post. Ref. 111 401 202 101 Debit 4,900

PAGE 2 Credit

4,900 3,000 3,000

11

12

101 401 517 101 101 111 202 101

9,000 9,000 5,000 5,000 4,000 4,000 6,000 6,000

15

18

20

25

520 101 523 101

350 350 800 800

27

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Chapter 4 61

GENERAL JOURNAL Date 2007 June 28 Description Nelson Sullivan, Drawing . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owner withdrew cash for personal use, Check 211 Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid semimonthly salary, Check 212 GENERAL LEDGER ACCOUNT Date 2007 June 1 2 3 4 6 7 8 11 12 15 18 20 25 27 28 30 Cash Description Post. Ref. J1 J1 J1 J1 J1 J1 J1 J2 J2 J2 J2 J2 J2 J2 J3 J3 Debit 30,000 1,800 4,000 1,600 6,000 2,000 5,000 3,000 9,000 5,000 4,000 6,000 350 800 4,000 5,000 Credit ACCOUNT NO. Post. Ref. 302 101 Debit 4,000

PAGE 3 Credit

4,000

30

517 101

5,000 5,000

101

Balance Debit Credit 30,000 28,200 24,200 22,600 28,600 26,600 21,600 18,600 27,600 22,600 26,600 20,600 20,250 19,450 15,450 10,450

62 Chapter 4

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GENERAL LEDGER ACCOUNT Date 2007 June 10 18 ACCOUNT Date 2007 June 4 ACCOUNT Date 2007 June 3 ACCOUNT Date 2007 June 8 ACCOUNT Date 2007 June 3 8 11 20 Accounts Payable Description Post. Ref. J1 J1 J2 J2 Debit Credit 8,000 10,000 3,000 6,000 Recording Equipment Description Post. Ref. J1 Debit 15,000 Credit Office Furniture Description Post. Ref. J1 Debit 12,000 Credit Supplies Description Post. Ref. J1 Debit 1,600 Credit Accounts Receivable Description Post. Ref. J2 J2 Debit 4,900 4,000 Credit ACCOUNT NO. 111

Balance Debit Credit 4,900 900 121

ACCOUNT NO.

Balance Debit Credit 1,600 ACCOUNT NO. 141

Balance Debit Credit 12,000 ACCOUNT NO. 151

Balance Debit Credit 15,000 ACCOUNT NO. 202

Balance Debit Credit 8,000 18,000 15,000 9,000

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Chapter 4 63

GENERAL LEDGER ACCOUNT Date 2007 June 1 ACCOUNT Date 2007 June 28 ACCOUNT Date 2007 June 6 10 12 ACCOUNT Date 2007 June 7 ACCOUNT Date 2007 June 2 Rent Expense Description Post. Ref. J1 Debit 1,800 Credit Advertising Expense Description Post. Ref. J1 Debit 2,000 Credit Fees Income Description Post. Ref. J1 J2 J2 Debit Credit 6,000 4,900 9,000 ACCOUNT NO. Nelson Sullivan, Drawing Description Post. Ref. J3 Debit 4,000 Credit Nelson Sullivan, Capital Description Post. Ref. J1 Debit Credit 30,000 ACCOUNT NO. ACCOUNT NO. 301

Balance Debit Credit 30,000 302

Balance Debit Credit 4,000 ACCOUNT NO. 401

Balance Debit Credit 6,000 10,900 19,900 511

Balance Debit Credit 2,000 ACCOUNT NO. 514

Balance Debit Credit 1,800

64 Chapter 4

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GENERAL LEDGER ACCOUNT Date 2007 June 15 30 ACCOUNT Date 2007 June 25 ACCOUNT Date 2007 June 27 Utilities Expense Description Post. Ref. J2 MOVES AND SOUNDS TALENT AGENCY Trial Balance June 30, 2007 Account Name Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . Office Furniture . . . . . . . . . . . . . . . . . . . . . . Recording Equipment . . . . . . . . . . . . . . . . . Accounts Payable . . . . . . . . . . . . . . . . . . . . Nelson Sullivan, Capital . . . . . . . . . . . . . . . Nelson Sullivan, Drawing . . . . . . . . . . . . . . Fees Income . . . . . . . . . . . . . . . . . . . . . . . . Advertising Expense . . . . . . . . . . . . . . . . . . Rent Expense . . . . . . . . . . . . . . . . . . . . . . . Salaries Expense . . . . . . . . . . . . . . . . . . . . Telephone Expense . . . . . . . . . . . . . . . . . . Utilities Expense . . . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debit 10,450 900 1,600 12,000 15,000 9,000 30,000 4,000 19,900 2,000 1,800 10,000 350 800 58,900 58,900 Credit Debit 800 Credit Telephone Expense Description Post. Ref. J2 Debit 350 Credit Salaries Expense Description Post. Ref. J2 J2 Debit 5,000 5,000 Credit ACCOUNT NO. 517

Balance Debit Credit 5,000 10,000 ACCOUNT NO. 520

Balance Debit Credit 350 ACCOUNT NO. 523

Balance Debit Credit 800

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Chapter 4 65

MOVES AND SOUNDS TALENT AGENCY Income Statement Month Ended June 30, 2007 Revenue Fees Income . . . . . . . . . . . . . . . . . . . . . . Expenses Advertising Expense . . . . . . . . . . . . . . . . Rent Expense . . . . . . . . . . . . . . . . . . . . . Salaries Expense . . . . . . . . . . . . . . . . . . Telephone Expense . . . . . . . . . . . . . . . . Utilities Expense . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . MOVES AND SOUNDS TALENT AGENCY Statement of Owners Equity Month Ended June 30, 2007 Nelson Sullivan, Capital, June 1, 2007 . . . . Net Income for Month . . . . . . . . . . . . . . . . . Less Withdrawals for June . . . . . . . . . . . . . Decrease in Owners Equity . . . . . . . . . . . . Nelson Sullivan, Capital, June 30, 2007 . . . 30,000 4,950 4,000 950 30,950 19,900 2,000 1,800 10,000 350 800 14,950 4,950

MOVES AND SOUNDS TALENT AGENCY Balance Sheet June 30, 2007 Assets Liabilities Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 10,450 Accounts Payable . . . . . . . . . . . . . . . . 9,000 Accounts Receivable . . . . . . . . . . . . . 900 Supplies . . . . . . . . . . . . . . . . . . . . . . . 1,600 Office Furniture . . . . . . . . . . . . . . . . . 12,000 Owners Equity Recording Equipment . . . . . . . . . . . . 15,000 Nelson Sullivan, Capital . . . . . . . . . . . . 30,950 Total Assets . . . . . . . . . . . . . . . . . . . . 39,950 Total Liabilities and Owners Equity . . . 39,950

Analyze: There were 16 postings in the Cash account.

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Critical Thinking Problem Income Statement Errors: 1. The third line of the heading is incorrect; this line must indicate the time period covered by the income statement. 2. Drawing is not an expense but a reduction of owners equity and is included in the calculation of ending owners equity, not on the income statement. 3. Arithmetic errors were made in adding column of expenses and in subtracting total expenses from revenue. Balance Sheet Errors: 1. The third line of the heading is incorrect; the balance sheet is identified by the last day of the accounting period. 2. Accounts Payable and Accounts Receivable are classified incorrectly; they should be interchanged. Accounts Payable is a liability and Accounts Receivable is an asset. 3. The assets are not listed in the correct order. 4. The amount for Owners Equity on the balance sheet should be the ending owners equity, not the beginning owners equity. A statement of owners equity should be prepared to compute ending owners equity. KIRVEN CHEMICAL SUPPLY Income Statement Month Ended April 30, 2007 Revenue Fees Income . . . . . . . . . . . . . . . . . . . . . . 18,300 Expenses Salaries Expense . . . . . . . . . . . . . . . . . . 4,500 Rent Expense . . . . . . . . . . . . . . . . . . . . . 900 Repair Expense . . . . . . . . . . . . . . . . . . . 150 Utilities Expense . . . . . . . . . . . . . . . . . . . 850 Total Expenses . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . KIRVEN CHEMICAL SUPPLY Statement of Owners Equity Month Ended April 30, 2007 Joe Kirven, Capital, April 1, 2007 . . . . . . . . Net Income for April . . . . . . . . . . . . . . . . . . Less Withdrawals for April . . . . . . . . . . . . . Increase in Capital . . . . . . . . . . . . . . . . . . . Joe Kirven, Capital, April 30, 2007 . . . . . . . 24,600 11,900 2,000 9,900 34,500 6,400 11,900

KIRVEN CHEMICAL SUPPLY Balance Sheet April 30, 2007 Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 Accounts Receivable . . . . . . . . . . . . . 3,500 Land . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Building . . . . . . . . . . . . . . . . . . . . . . . 20,000 Total Assets . . . . . . . . . . . . . . . . . . . . 37,000 Liabilities Accounts Payable . . . . . . . . . . . . . . . . 2,500

Owners Equity Joe Kirven, Capital . . . . . . . . . . . . . . . 34,500 Total Liabilities and Owners Equity . . . 37,000

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Business Connections
Managerial Focus 1. Journal: detailed chronological record. Ledger: permanent, classified record of all financial events. 2. To assure accuracy and safeguards against fraud. 3. For prompt and accurate journalizing of all transactions. 4. Inefficient flow of information; errors and insufficient information. Ethical Dilemma You must check to see if the cash account is going down because of her actions. Is Louisa keeping the cash from the reversed sales because she has made so many errors? Is this something she does each month? It is unethical to accept a dinner for fixing her error. Streetwise 1. 1,295,185,000 customer transactions. Accounts Receivable and Sales. 2. a) Selling and Store Operating/Cash, b) Selling and Store Operating/Cash, c) Cash/Accounts Receivable. Financial Statement Analysis 1. Debit Transportation Equipment account, credit Accounts Payable. 2. Invoice from the supplier. 3. Dates for equipment purchases, posting reference, purchase amount, account balance ($1,269 million at January 31, 2004). Analyze Online: Answers will vary depending on the year. Extending the Thought Answers will vary. Students may list organizers such as a diary, a calendar, an address book, a day-timer, or electronic devices such as a Visor or Palm Pilot. These records and devices help keep track of appointments, contact names and numbers, schedules, and daily events. Business Communication The step-by-step guides created will vary. Students guides should offer steps that prompt the new accounting clerk to record the month and day of the transaction, the debited account name, the debit amount, the credited account name, the credit amount, and the description for the entry. Ideally, the step-bystep guide will include the appropriate indents and order that entries should be made. Team Work Journal Entry to General Ledger to Trial Balance to Financial Statement Internet Connection Sites that might be displayed are: www.careerbank.com, www.careersinaccounting.com, www.account.com. Suggested experience would require 5 years or more, with an AA degree. Skills would include good communication skills, detailed and multi-task oriented.

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Practice Test Answer Key

Part A 1. i 2. h 3. d 4. e 5. c 6. g 7. a 8. f 9. b 10. j Matching

Part B Completion 1. debit 2. year 3. chronological or date 4. assets or balance sheet accounts 5. posted 6. ledger 7. posting references 8. brief or concise 9. credit 10. debit

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Chapter 4 69