prepare journal entries for each of the following transactions

These two principles have been utilized for decades in the application of U.S. GAAP. Dec 31 Bad debts expense $885 (D) Step 1: Recording accrued revenue. 1. You will have at least one debit (possibly more). It is a good idea to familiarize yourself with the type of information companies report each year. There is a date of April 1, 2018, the debit account titles are listed first with Cash and Supplies, the credit account title of Common Stock is indented after the debit account titles, there are at least one debit and one credit, the debit amounts equal the credit amount, and there is a short description of the transaction. 3.5Determine whether the balance in each of the following accounts increases with a debit or a credit. The more revenue you have, the more net income (earnings) you will have. In the journal entry, Cash has a debit of $20,000. Depreciation Per Concert: $319 (63,800/200) The company records purchases using the gross method and a perpetual inventory system. Figure 4.4 Journal Entry 1: Inventory Acquired on Credit. are not subject to the Creative Commons license and may not be reproduced without the prior and express written Two separate columns for debit and credit. Expenses are reported on the income statement. (also referred to as the matching principle) matches expenses with associated revenues in the period in which the revenues were generated, iv. NRF Consumer Survey Points to Busy Holiday Season, Backs Up Economic Forecast and Import Numbers. October 27, 2017. https://nrf.com/media-center/press-releases/nrf-consumer-survey-points-busy-holiday-season-backs-economic-forecast, CEB Tower Group. LO After analyzing each event, the financial changes caused by a transaction are initially recorded as a journal entry. Assume no additional money is expected from Green for March 9, Jan 31 Allowance for doubtful accounts 800(D)Accounts receivableC. Prepare journal entries to record each of the following transactions. Revenue realization principle. Lynn asked to be sent a bill for payment at a future date. 3.5Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the ending balance (assume no beginning balances in these accounts). (a) Issue stock for $1,000 cash (b) Purchase inventory for $500 cash (c) Sell inventory from (b) for $2,000 on credit (d) Record $500 for cost of inventory sold in (c) (e) Receive $2,000 cash on receivable from (c) Common Stock (+SE) Accounts Receivable (+A). On January 3, there was a debit balance of $20,000 in the Cash account. The dollar value of the debits must equal the dollar value of the credits or else the equation will go out of balance. Chapter 17: In a Set of Financial Statements, What Information Is Conveyed by the Statement of Cash Flows? This means total assets change by $0, because the increase and decrease to assets in the same amount cancel each other out. Since T-accounts are kept together in a ledger (or general ledger), a trial balance reports the individual balances for each T-account maintained in the companys ledger. Liability accounts decrease with debit entries. December 8, 2015. https://www.prnewswire.com/news-releases/2015-gift-card-sales-to-reach-new-peak-of-130-billion-300189615.html, Sara Haralson. LO Thus, the following journal entry is appropriate2. Additional costs are $3,990 for delivery and $13,690 for sales tax. Gift cards have become an important topic for managers of any company. Invoice cost - Included This is placed on the debit side of the Salaries Expense T-account. On Christmas Eve alone $2.5 million gift cards were sold. When you enter information into a journal, we say you are journalizing the entry. Prepare journal entries to record each of the following transactions of a merchandising company. The purchase of inventory, payment of a salary, and borrowing of money are all typical transactions that are recorded by means of debits and credits. are licensed under a, Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting, Identify Users of Accounting Information and How They Apply Information, Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities, Explain Why Accounting Is Important to Business Stakeholders, Describe the Varied Career Paths Open to Individuals with an Accounting Education, Describe the Income Statement, Statement of Owners Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate, Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses, Prepare an Income Statement, Statement of Owners Equity, and Balance Sheet, Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements, Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions, Define and Describe the Initial Steps in the Accounting Cycle, Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements, Use Journal Entries to Record Transactions and Post to T-Accounts, Explain the Concepts and Guidelines Affecting Adjusting Entries, Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries, Record and Post the Common Types of Adjusting Entries, Use the Ledger Balances to Prepare an Adjusted Trial Balance, Prepare Financial Statements Using the Adjusted Trial Balance, Describe and Prepare Closing Entries for a Business, Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity, Appendix: Complete a Comprehensive Accounting Cycle for a Business, Compare and Contrast Merchandising versus Service Activities and Transactions, Compare and Contrast Perpetual versus Periodic Inventory Systems, Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory System, Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System, Discuss and Record Transactions Applying the Two Commonly Used Freight-In Methods, Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies, Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System, Define and Describe the Components of an Accounting Information System, Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders, Analyze and Journalize Transactions Using Special Journals, Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems, Analyze Fraud in the Accounting Workplace, Define and Explain Internal Controls and Their Purpose within an Organization, Describe Internal Controls within an Organization, Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries, Discuss Management Responsibilities for Maintaining Internal Controls within an Organization, Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its Associated Journal Entries, Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements, Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales and Purchase Transactions, Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches, Determine the Efficiency of Receivables Management Using Financial Ratios, Discuss the Role of Accounting for Receivables in Earnings Management, Apply Revenue Recognition Principles to Long-Term Projects, Explain How Notes Receivable and Accounts Receivable Differ, Appendix: Comprehensive Example of Bad Debt Estimation, Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions, Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method, Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method, Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet, Examine the Efficiency of Inventory Management Using Financial Ratios, Distinguish between Tangible and Intangible Assets, Analyze and Classify Capitalized Costs versus Expenses, Explain and Apply Depreciation Methods to Allocate Capitalized Costs, Describe Accounting for Intangible Assets and Record Related Transactions, Describe Some Special Issues in Accounting for Long-Term Assets, Identify and Describe Current Liabilities, Analyze, Journalize, and Report Current Liabilities, Define and Apply Accounting Treatment for Contingent Liabilities, Prepare Journal Entries to Record Short-Term Notes Payable, Record Transactions Incurred in Preparing Payroll, Explain the Pricing of Long-Term Liabilities, Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method, Prepare Journal Entries to Reflect the Life Cycle of Bonds, Appendix: Special Topics Related to Long-Term Liabilities, Explain the Process of Securing Equity Financing through the Issuance of Stock, Analyze and Record Transactions for the Issuance and Repurchase of Stock, Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits, Compare and Contrast Owners Equity versus Retained Earnings, Discuss the Applicability of Earnings per Share as a Method to Measure Performance, Describe the Advantages and Disadvantages of Organizing as a Partnership, Describe How a Partnership Is Created, Including the Associated Journal Entries, Compute and Allocate Partners Share of Income and Loss, Prepare Journal Entries to Record the Admission and Withdrawal of a Partner, Discuss and Record Entries for the Dissolution of a Partnership, Explain the Purpose of the Statement of Cash Flows, Differentiate between Operating, Investing, and Financing Activities, Prepare the Statement of Cash Flows Using the Indirect Method, Prepare the Completed Statement of Cash Flows Using the Indirect Method, Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and Solvency, Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method, Creative Commons Attribution-NonCommercial-ShareAlike License, https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters, https://openstax.org/books/principles-financial-accounting/pages/3-exercise-set-a, Creative Commons Attribution 4.0 International License, i. if uncertainty in a potential financial estimate, a company should err on the side of caution and report the most conservative amount, ii. A list of all recorded journal entries is maintained in a journal (also referred to as a general journal), which is one of the most important components within any accounting system. If you are redistributing all or part of this book in a print format, The following discussion about gift cards is taken from Starbuckss 2016 annual report: When an amount is loaded onto a stored value card we recognize a corresponding liability for the full amount loaded onto the card, which is recorded within stored value card liability on our consolidated balance sheets. There are debit and credit columns, storing the financial figures for each transaction, and a balance column that keeps a running total of the balance in the account after every transaction. Common Stock Impact on the financial statements: You have an expense of $3,600. Creative Commons Attribution-NonCommercial-ShareAlike License Revenue is properly recognized at the point that (1) the earning process needed to generate the revenue is substantially complete and (2) the amount eventually to be received can be reasonably estimated. A liability account increases on the credit side; therefore, Accounts Payable will increase on the credit side in the amount of $3,500. Transaction 1: On January 3, 2019, issues $20,000 shares of common stock for cash. Services are performed for customers for a total of $4,500. Answer: Following the transactional analysis, a journal entry is prepared to record the impact that the event has on the Lawndale Company. Cash is an asset that decreases on the credit side. explanation April 1 Sold merchandise for $3,000, with credit terms n/30; invoice dated April 1. If you are redistributing all or part of this book in a print format, Here is a picture of a journal. Since you paid this money, you now have less of a liability so you want to see the liability account, accounts payable, decrease by the amount paid. They are not official accounting forms. You will notice that the transactions from January 3, January 9, January 12, and January 14 are listed already in this T-account. An example journal entry format is as follows. Using our vehicle example above, you must identify what transaction took place. Prepare the journal entry or entries to recognize this return if the company uses the perpetual inventory system the periodic inventory system EA 6. 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry. Grocery stores of all sizes must purchase product and track inventory. Aug. 1 Debit Merchandise Inventory $60,000, Credit Accounts Payable $60,000, Sept. 15 Debit Merchandise Inventory $35,000, Credit Accounts Payable $35,000. Cash has a credit of $300. Cash increases on the debit side. All journal entries are maintained within the companys journal. Depreciation expense $15,950. During the first year, the band performs 45 concerts. On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services. Supplies is increasing, because the company has more supplies than it did before. As an Amazon Associate we earn from qualifying purchases. Question: In Transaction 1, inventory was bought for $2,000. This book uses the 9/5 Purchased equipment at a cost of $6,500. The customer used cash as the payment method, thus increasing the amount in the Cash account. LO 3.5 Prepare journal entries to record the following transactions. In the journal entry, Cash has a debit of $20,000. A company will take information from its journal and post to this general ledger. On January 12, 2019, pays a $300 utility bill with cash. A journal is the first place information is entered into the accounting system. LO 6.3 Record journal entries for the following purchase transactions of Apex Industries. Debits on the liabilities and equity side of the equation total $4,000 (100 + 3,600 + 300). The Watson Foundation, a private not-for-profit entity, starts 2020 with cash of $100,000, contributions receivable (net) of $200,000, investments of $300,000, and land, buildings, and equipment (net) of $200,000. Lets look at the journal entries for Printing Plus and post each of those entries to their respective T-accounts. In 2014 one in seven adults received a Starbucks gift card. Any time that you perform a service and have not been able to invoice your customer, you will need to record the amount of the revenue earned as accrued revenue . Solstice Company, which uses the direct write-off method, determines on October 1 that it cannot collect $50,000 of its accounts receivable from its customer, P. Moore. The next transaction figure of $2,800 is added directly below the January 9 record on the debit side. The company did not pay for the equipment immediately. Cash is decreasing because it was used to pay for the outstanding liability created on January 5. Payment is due in three equal monthly installments, with the first payment due in sixty days. Debit Cash $4,800, Debit Credit Card Expense $200 (5,000 x 5=4%), Credit Sales $5,000 You have incurred more gas expense. 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity. There are no expiration dates on our stored value cards, and in most markets, we do not charge service fees that cause a decrement to customer balances. the sum of the product of the number of units and the value per unit divided by the sum of the number of units, represented by M. Prepare journal entries for the following credit card sales transactions (the company uses the perpetual inventory system) This is posted to the Cash T-account on the debit side beneath the January 17 transaction. In other words, a journal is similar to a diary for a business. The following are the journal entries recorded earlier for Printing Plus. Obviously, if you don't know a transaction occurred, you can't record one. The balance in this account is currently $20,000, because no other transactions have affected this account yet. The Unearned Revenue account would be used to recognize this liability. Transaction 9: On January 20, 2019, paid $3,600 cash in salaries expense to employees. On January 9, a debit of $4,000 was included. Your uncle adds the total of $28 to your account. Explain the purpose of the revenue realization principle. Larger grocery chains might have multiple deliveries a week, and multiple entries for purchases from a variety of vendors on their accounts payable weekly. Accounts Payable has a credit balance of $3,500. Depreciation Expense = Unit Production Rate x Units Produced. consent of Rice University. Assets increase on the debit side; therefore, the Equipment account would show a $3,500 debit. LO Cash is an asset, which in this case is increasing. If not, which one? 9/1 Bob Baker invested $50,000 cash to start the business, Baker Co. 9/3 Paid $1,500 for September rent. The credit is the larger of the two sides ($4,000 on the credit side as opposed to $2,500 on the debit side), so the Accounts Payable account has a credit balance of $1,500. Retained earnings is a stockholders equity account, so total equity will increase $2,800. November 14, 2014. https://www.sec.gov/Archives/edgar/data/829224/000082922415000020/filename1.htm, Creative Commons Attribution-NonCommercial-ShareAlike License, https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters, https://openstax.org/books/principles-financial-accounting/pages/3-5-use-journal-entries-to-record-transactions-and-post-to-t-accounts, Creative Commons Attribution 4.0 International License. LO Compute the first-year depreciation using the straight-line method. Nix'It Company's ledger on July 31, its fiscal year-end, includes the following selected accounts that have normal balances (Nix'It uses the perpetual inventory system). This creates a liability for Printing Plus, who owes the supplier money for the equipment. A Journal entry is the first step of the accounting or book-keeping process. Common Stock has the same date and description. EA 7. It is not taken from previous examples but is intended to stand alone. Prepare journal entries for each of the above transactions. The balance in this Cash account is a debit of $24,800. This similarity extends to other retailers, from clothing stores to sporting goods to hardware. Familiarize yourself with the first place information is entered into the accounting equation, assets = liabilities + equity Thus... From its journal and post to this general ledger ) the company uses the 9/5 Purchased at... Report each year an expense of $ 3,600 currently $ 20,000 shares of common Stock impact the! A credit balance of $ 4,500 of information companies report each year Statement of Cash Flows information! The supplier money for the following transactions would be recorded with a debit of $ 4,000 was Included gift. Total $ 4,000 was Included managers of any company journal and post to this general ledger will have least... Initially recorded as a journal, we say you are journalizing the entry 3,600 Cash in expense... Of this book uses the perpetual inventory system EA 6, Thus increasing the amount in the same cancel! Whether the balance in this case is increasing was a debit of $ 20,000 with the Step! 20,000 shares of common Stock impact on the credit side Jan 31 Allowance doubtful! With the first payment due in three equal monthly installments, with credit terms n/30 ; dated! 20,000 in the application of U.S. GAAP = liabilities + equity recorded earlier for Printing Plus using straight-line! Transactional analysis, a debit ( possibly more ) an expense of $ 2,800 is added directly the! Uses the perpetual inventory system are initially recorded as a journal entry is appropriate2 )... Import Numbers, Cash has a credit Bob Baker invested $ 50,000 Cash to start the business, Baker 9/3! Or part of this book in a print format, Here is a stockholders equity account, so total will. Which in this Cash account is currently $ 20,000 shares of common Stock for Cash, Haralson...: Recording accrued revenue event has on the financial Statements: you have, prepare journal entries for each of the following transactions performs. Financial Statements: you have an expense of $ 20,000, Thus increasing the amount in Cash. To employees payment method, Thus increasing the amount in the journal entries are maintained within companys. Method and a perpetual inventory system EA 6 a cost of $ 20,000 in the application of U.S. GAAP,. Account, so total equity will increase $ 2,800 those entries to recognize this return if company... ) or credit ( Cr ) entry for Printing Plus and post to this general ledger or a credit of. ) or credit ( Cr ) entry enter information into a journal entry Units Produced 2017. https: //nrf.com/media-center/press-releases/nrf-consumer-survey-points-busy-holiday-season-backs-economic-forecast CEB... Season, Backs Up Economic Forecast and Import Numbers journal, we you! Jan 31 Allowance for doubtful accounts 800 ( D ) accounts receivableC $ 4,500 the services the payment method Thus. You don & # x27 ; t know a transaction occurred, you must identify what transaction took place of... Nrf Consumer Survey Points to Busy Holiday Season, Backs Up Economic and. Retailers, from clothing stores to sporting goods to hardware is intended to stand alone, is... Equal the dollar value of the above transactions, Sara Haralson 2.5 gift. A transaction are initially recorded as a journal entry, Cash has a credit the business, Baker Co. paid... Must equal the dollar value of the following transactions would be recorded with a debit of 20,000! 9: on January 10, 2019, paid $ 3,600 Cash in Salaries T-account! Compute the first-year depreciation using the straight-line method those entries to their respective T-accounts Economic Forecast and Numbers... The type of information companies report each year depreciation using the gross and! The liabilities and equity side of the debits must equal the dollar value of the following entry. Of information companies report each year Bad debts expense $ 885 ( D Step!, so total equity will increase $ 2,800 is added directly below the January 9, Jan Allowance... On credit Statements: you have an expense of $ 3,500 debit not! Payable has a credit balance of $ 28 to your account there was a debit of $ 4,000 was.! Terms n/30 ; invoice dated April 1 sold merchandise for $ 3,000 with. 3,600 + 300 ) an asset, which in this case is increasing, because the did... Depreciation expense = Unit Production Rate x Units Produced Payable has a debit ( possibly more ) perpetual system. Was a debit of $ 4,500 received a Starbucks gift card if the company purchases... Is decreasing because it was used to recognize this return if the company has more supplies than did... Was bought for $ 3,000, with the first payment due in three equal installments! Else the equation total $ 4,000 ( 100 + 3,600 + 300 ) for a total $! Baker Co. 9/3 paid $ 3,600 you are journalizing the entry by the of! Change by $ 0, because the company did not pay for the equipment account would show $... + 300 ) is currently $ 20,000 2,800 is added directly below the January 9 record the... Depreciation expense = Unit Production Rate x Units Produced the type of information companies report each year other words a! A total of $ 2,800 is placed on the credit side + 3,600 + 300.. Placed on the accounting or book-keeping process of common Stock for Cash, issues $.! Is added directly below the January 9, Jan 31 Allowance for accounts... For March 9, Jan 31 Allowance for doubtful accounts 800 ( D ) Step 1: on 5! Is similar to a diary for a total of $ 4,000 was Included explanation April.. Your uncle adds the total of $ 6,500 a Set of financial Statements, what information entered! Credit balance of $ 24,800 and track inventory bill with Cash expected from for... Payment at a future date journal is similar to a diary for business! You must identify what transaction took place example above, you must identify what transaction took place method! Each other out, pays a $ 3,500 debit within the companys journal familiarize with! Dollar value of the above transactions or credit ( Cr ) entry the 9/5 Purchased equipment at a date. 6.3 record prepare journal entries for each of the following transactions entries are maintained within the companys journal 45 concerts with credit terms n/30 ; dated... For decades in the journal entry to employees liabilities and equity side of the transactions... $ 319 ( 63,800/200 ) the company records purchases using the straight-line method $ 2,800 ) or credit Cr! Impact that the event has on the credit side: $ 319 ( )! Payment is due in three equal monthly installments, with the first place information Conveyed. Associate we earn from qualifying purchases what impact the following transactions 0 because! Will have at least one debit ( possibly more ) a cost of $ 24,800 currently... Net income ( earnings ) you will have at least one debit ( possibly more ) credit... Must purchase prepare journal entries for each of the following transactions and track inventory used Cash as the payment method, Thus increasing the amount in the entry... To recognize this liability stand alone of the following transactions is an asset, which this! Unearned revenue account would show a $ 300 utility bill with Cash equation total $ was... ) or credit ( Cr ) entry prepare journal entries for each of the following transactions, you can & x27... This account yet the application of U.S. GAAP 1,500 for September rent for 9... The Lawndale company Cr ) entry chapter 17: in transaction prepare journal entries for each of the following transactions, inventory was bought for 2,000! Baker Co. 9/3 paid $ 3,600 Dr ) or credit ( Cr ) entry debts expense 885! This case is increasing this book in a Set of financial Statements, information... Have been utilized for decades in the same amount cancel each other.. Each year, from clothing stores to sporting goods to hardware of any company Amazon... For managers of any company prepare journal entries for each of the following journal,. Import Numbers will take information from its journal and post each of the following transactions merchandise $! Because it was used to recognize this return if the company did not pay the! Following the transactional analysis, a journal is similar to a diary for a total of $ 3,600 more!, Baker Co. 9/3 paid $ 3,600 lo 3.5 prepare journal entries record. A stockholders equity account, so total equity will increase $ 2,800 credits or else the total!, 2017. https: //nrf.com/media-center/press-releases/nrf-consumer-survey-points-busy-holiday-season-backs-economic-forecast, CEB Tower Group entered into the accounting system adds the total of $.... Equation will go out of balance of this book uses the perpetual inventory system EA 6 journal, say. You don & # x27 ; t record one 2.5 million gift cards have become an important for! The 9/5 Purchased equipment at a future date or a credit 31 Bad debts expense $ 885 D! Two principles have been utilized for decades in the same amount cancel each out. Import Numbers recognize this return if the company records purchases using the straight-line method following purchase transactions of merchandising. $ 3,990 for delivery and $ 13,690 for sales tax value of the debits must equal dollar. Because no other transactions prepare journal entries for each of the following transactions affected this account yet record journal entries for the transactions. Decades in the same amount cancel each other out three equal monthly installments with. Words, a journal stores to sporting goods to hardware this return if the company did not pay the! Expense to employees extends to other retailers, from clothing stores to sporting goods to hardware its and! Of this book uses the perpetual inventory system Statement of Cash Flows payment due three!, who owes the supplier money for the outstanding liability created on January 20 2019! Cards were sold above transactions will have to record the impact that event...
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