Debits and Credits: Analyzing and Recording Business Transactions

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1 2 Debits and Credits: Analyzing and Recording Business Transactions ANSWERS TO DISCUSSION QUESTIONS AND CRITICAL THINKING/ETHICAL CASE 1. A ledger is a group of accounts that record in monetary value data from business transactions. 2. It is from the Latin word debere which means left side. 3. False. Accounts with one entry will not need footings. 4. The end product of the accounting process is preparing financial reports. 5. The transaction analysis chart is a teaching device that is not used in the regular accounting process. 6. Accounts affected, category,, rules, update of T accounts. 7. The analysis of transactions results in the total of debits being equal to total of credits. A double-entry system provides a system of checks and balances. 8. False. Informal report; does not have the same status as financial reports and is not shared with the public. 9. The financial reports are prepared from the ending balances of the accounts (debit or credit) in the ledger. These ending balances are then used in financial reports. The inside columns in financial reports are for subtotaling. 10. It is easier to prepare the reports from the trial balance, because a list of all accounts and their balances is provided. The columns for revenue, expenses, etc., on the expanded accounting equation do not list specific titles and their balances. 11. The question in this case is whether Audrey should be allowed to put fictitious figures into the trial balance. Although Audrey has good intentions, this type of behavior cannot be tolerated. Her actions are extremely unprofessional and go against all accounting standards (not to mention ethics!). Instead of putting in fictitious figures, Audrey should stay late and correct the trial balance (or perhaps engage an assistant to help her so she could catch the plane) Pearson Canada All Rights Reserved 2-1 M02_SLAT7156_12_ISM_C02.indd 1

2 SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES CDE1. Cash $17,200 Debit Balance C. Clark, Capital $11,000 Credit Balance CDE2. A. Liability Cr. Dr. Cr. B. Revenue Cr. Dr. Cr. C. Asset Dr. Cr. Dr. D. Capital Cr. Dr. Cr. E. Withdrawals Dr. Cr. Dr. F. Expense Dr. Cr. Dr. G. Expense Dr. Cr. Dr. CDE3. Cash Asset Dr. Accounts Receivable Asset Dr. Bookkeeping Services Revenue Cr. Cash 600 Accounts Receivable 1,900 Bookkeeping Fees 2,500 CDE4. Cash CDE5. A. BS Accounts Receivable B. BS Office Equipment C. BS Accounts Payable D. BS J. Joy, Capital E. OE/BS J. Joy, Withdrawals F. OE Hair Salon Fees Earned G. IS Advertising Expense H. IS Salary Expense I. IS Utility Expense J. IS K. IS Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 2

3 SOLUTIONS TO EXERCISES SET A E2-1A. Balance Sheet Accounts Assets 111 Cash 112 Accounts Receivable 121 Office Equipment Liabilities 211 Accounts Payable Owner s Equity 311 L. Jones, Capital 312 L. Jones, Withdrawals Income Statement Accounts Revenue 411 Legal Fees Expenses 511 Advertising Expense 512 Repair Expense 513 Salary Expense E2-2A Accounts Affected Category Rules T-Account Update Computer Equipment Asset Dr. Accounts Payable Liability Cr. Cash Asset Cr. Computer Equipment 19,000 Accounts Payable 16,000 Cash 3,000 E2-3A. ACCOUNT CATEGORY FINANCIAL Supplies Asset Dr. Cr. Balance Sheet Legal Fees Earned Revenue Cr. Dr. Income Statement P. Rey, Withdrawals Owner s Equity Dr. Cr. Statement of Owner s Equity (Withdrawals) Accounts Payable Liability Cr. Dr. Balance Sheet Salaries Expense Expense Dr. Cr. Income Statement Auto Asset Dr. Cr. Balance Sheet 2018 Pearson Canada All Rights Reserved 2-3 M02_SLAT7156_12_ISM_C02.indd 3

4 SOLUTIONS TO EXERCISES SET A Cont. E2-4A. Dr. Cr. A. 8 1 B. 6 1 C. 9 4 D. 1 7 E F. 3 5 G. 2 7 H. 1 2 I. 3 4 E2-5A. HUGO S CLEANERS INCOME STATEMENT FOR THE MONTH ENDED JULY 31, 2019 Revenue: Cleaning Fees $ Operating Expenses: Salaries Expense $ Utilities Expense Total Operating Expenses Net Income $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 4

5 SOLUTIONS TO EXERCISES SET A Cont. HUGO S CLEANERS STATEMENT OF OWNER S EQUITY FOR THE MONTH ENDED JULY 31, 2019 J. Hugo, Capital, July 1, 2019 $ Net Income for July $ Less: Withdrawals for July Decrease in Capital J. Hugo Capital, July 31, 2019 $ HUGO S CLEANERS BALANCE SHEET JULY 31, 2019 ASSETS LIABILITIES AND OWNER S EQUITY Cash $ Liabilities: Equipment Accounts Payable $ Owner s Equity J. Hugo Capital Total Liabilities and Total Assets $ Owner s Equity $ Pearson Canada All Rights Reserved 2-5 M02_SLAT7156_12_ISM_C02.indd 5

6 SOLUTIONS TO EXERCISES SET B E2-1B. Balance Sheet Accounts Assets 111 Cash 112 Accounts Receivable 121 Office Equipment Liabilities 211 Accounts Payable Owner s Equity 311 L. Jones, Capital 312 L. Jones, Withdrawals Income Statement Accounts Revenue 411 Legal Fees Expenses 511 Cleaning Expense 512 Office Assistance Expense 513 Rent Expense E2-2B Accounts Affected Category Rules T-Account Update Computer Equipment Computer Equipment Asset Dr. 21,000 Cash Cash Asset Cr. 5,000 Accounts Payable Accounts Payable Liability Cr. 16,000 E2-3B. ACCOUNT CATEGORY FINANCIAL Supplies Asset Dr. Cr. Balance Sheet Legal Fees Earned Revenue Cr. Dr. Income Statement P. Rey, Withdrawals Owner s Equity Dr. Cr. Statement of Owner s Equity (Withdrawals) Cash Asset Dr. Cr. Balance Sheet Accounts Receivable Asset Dr. Cr. Balance Sheet Rent Expense Expense Dr. Cr. Income Statement Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 6

7 SOLUTIONS TO EXERCISES SET B Cont. E2-4B. Dr. Cr. A. 8 1 B. 6 1 C. 9 4 D. 1 7 E F. 3 5 G. 2 7 H. 1 2 I. 3 4 E2-5B. HALL S CLEANERS INCOME STATEMENT FOR THE MONTH ENDED JULY 31, 2019 Revenue: Cleaning Fees $ Operating Expenses: Salaries Expense $ Utilities Expense Total Operating Expenses Net Income $ Pearson Canada All Rights Reserved 2-7 M02_SLAT7156_12_ISM_C02.indd 7

8 SOLUTIONS TO EXERCISES SET B Cont. HALL S CLEANERS STATEMENT OF OWNER S EQUITY FOR THE MONTH ENDED JULY 31, 2019 J. Hall, Capital, July 1, 2019 $ Net Income for July $ Less: Withdrawals for July Increase in Capital J. Hall, Capital, July 31, 2019 $ HALL S CLEANERS BALANCE SHEET JULY 31, 2019 ASSETS LIABILITIES AND OWNER S EQUITY Cash $ Liabilities: Equipment Accounts Payable $ Owner s Equity J. Hall, Capital Total Liabilities and Total Assets $ Owner s Equity $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 8

9 P2-1A. Accounts Affected Category Inc. Dec. Rules T-Account Update A. Cash Asset Dr. Bill O Brien, Bill O Brien, Capital Owner s Equity Cr. Cash Capital 21,000 21,000 B. Delivery Trucks Asset Dr. Delivery Trucks Accounts Payable 9,000 9,000 Accounts Payable Liability Cr. C. Rent Expense Expense Dr. Rent Expense Accounts Payable Accounts Payable Liability Cr D. Cash Asset Dr. Cash Fees Earned 21,000 1,400 Fees Earned Revenue Cr. 1,400 E. Accounts Receivable Asset Dr. Accounts Receivable Fees Earned 150 1,400 Fees Earned Revenue Cr. 150 F. Bill O Brien, Owner s Equity Dr. Bill O Brien, Withdrawals (Withdrawals) Withdrawals Cash , Cash Asset Cr. 1,400 P2-2A. Cash 111 Bernie Pillows, Withdrawals 312 (A) 20, (D) (D) 90 (C) (E) 1,000 (G) Office Equipment 121 Consulting Fees Earned 411 (B) 5, (C) Accounts Payable 211 Advertising Expense 511 (G) 1,000 5,000 (B) (E) 400 1,400 (F) Bernie Pillows, Capital 311 Rent Expense ,000 (A) (F) 1, Pearson Canada All Rights Reserved 2-9 M02_SLAT7156_12_ISM_C02.indd 9

10 P2-3A. (a) Cash 111 Accounts Payable 211 Fees Earned 411 (A) 7, (D) (D) 200 1,300 (C) 8,000 (B) (G) 3, (E) 1, (F) 200 (H) 10, (I) 1,900 8,600 Accounts Receivable 112 Barry Joy, Capital 311 Rent Expense 511 (B) 8,000 3,500 (G) 7,000 (A) (F) 400 4,500 Office Equipment 121 Barry Joy, Withdrawals 312 Utilities Expense 512 (C) 1,300 (I) 900 (E) 200 (H) 200 1,500 (b) BARRY S CLEANING SERVICE TRIAL BALANCE MAY 31, 2019 Dr. Cr. Cash Accounts Receivable Office Equipment Accounts Payable Barry Joy, Capital Barry Joy, Withdrawals Fees Earned Rent Expense Utilities Expense Totals Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 10

11 P2-4A. (a) GRACE LANTZ, BARRISTER AND SOLICITOR INCOME STATEMENT FOR THE MONTH ENDED MAY 31, 2019 Revenue: Revenue from Legal Fees $ Operating Expenses: Utilities Expense $ Rent Expense Salaries Expense Total Operating Expenses Net Income $ (b) GRACE LANTZ BARRISTER AND SOLICITOR STATEMENT OF OWNER S EQUITY FOR THE MONTH ENDED MAY 31, 2019 Grace Lantz, Capital, May 1, 2019 $ Net Income for May $ Less: Withdrawals for May Increase in Capital Grace Lantz, Capital, May 31, 2019 $ Pearson Canada All Rights Reserved 2-11 M02_SLAT7156_12_ISM_C02.indd 11

12 P2-4A., Cont. (c) GRACE LANTZ, BARRISTER AND SOLICITOR BALANCE SHEET MAY 31, 2019 ASSETS LIABILITIES AND OWNER S EQUITY Assets: Liabilities: Cash $ Accounts Payable $ Accounts Receivable Salaries Payable Office Equipment Total Liabilities $ Owner s Equity Grace Lantz, Capital Total Liabilities and Total Assets $ Owner s Equity $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 12

13 P2-5A Cash 111 Accounts Payable 211 Advertising Expense 511 (A) 30,000 1,500 (C) 14,000 (B) (D) 500 (E) 2, (D) 100 (I) (J) (F) 14,100 1,100 (G) 250 (K) G. Adler, Capital 311 Gas Expense ,000 4,250 30,000 (A) (G) 1,100 28,750 Accounts Receivable 112 (H) (J) 300 T. Adler, Withdrawals 312 Salaries Expense 513 (K) 250 (F) 900 Office Equipment 121 (C) 1,500 Delivery Fees Earned 411 Telephone Expense 514 2,400 (E) (I) (H) Delivery Trucks 122 3,300 (B) 14,000 (3) ADLER S DELIVERY SERVICE TRIAL BALANCE JULY 31, 2020 Dr. Cr. Cash Accounts Receivable Office Equipment Delivery Trucks Accounts Payable G. Adler, Capital G. Adler, Withdrawals Delivery Fees Earned Advertising Expense Gas Expense Salaries Expense Telephone Expense Totals Pearson Canada All Rights Reserved 2-13 M02_SLAT7156_12_ISM_C02.indd 13

14 P2-5A, Cont. (4a) ADLER S DELIVERY SERVICE INCOME STATEMENT FOR THE MONTH ENDED JULY 31, 2020 Revenue: Delivery Fees Earned $ Operating Expenses: Advertising Expense $ Gas Expense Salaries Expense Telephone Expense Total Operating Exenses Net Income $ (4b) ADLER S DELIVERY SERVICE STATEMENT OF OWNER S EQUITY FOR THE MONTH ENDED JULY 31, 2020 G. Adler, Capital, July 1, 2020 $ 0 0 Investment in July Total investment for July Net Income for July $ Less: Withdrawals for July Increase in Capital G. Adler, Capital, July 31, 2020 $ (4c) ASSETS ADLER S DELIVERY SERVICE BALANCE SHEET JULY 31, 2020 LIABILITIES AND OWNER S EQUITY Liabilities Cash $ Accounts Payable $ Accounts Receivable Office Equipment Owner s Equity Delivery Trucks A. Adler, Capital Total Liabilities and Total Assets $ Owner s Equity $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 14

15 P2-1B. Accounts Affected Category Inc. Dec. Rules T-Account Update A. Cash Asset Dr. L. Saunders, Cash Capital L. Saunders, Capital Capital Cr. (A) 25,000 25,000 (A) B. Delivery Trucks Asset Dr. Delivery Trucks Accounts Payable (B) 12,000 12,000 (B) Accounts Payable Liability Cr. C. Rent Expense Expense Dr. Rent Expense Accounts Payable (C) 1,100 12,000 (B) Accounts Payable Liability Cr. 1,100 (C) D. Cash Asset Dr. Cash Delivery Fees Earned (A) 25,000 1,500 (D) Delivery Fees Earned Revenue Cr. (D) 1,500 E. Accounts Receivable Asset Dr. Accounts Receivable Delivery Fees Earned (E) 600 1,500 (D) Delivery Fees Earned Revenue Cr. 600 (E) F. L. Saunders, Withdrawals Dr. L. Saunders, Withdrawals Withdrawals Cash (F) 700 (A)25, (F) Cash Asset Cr. (D) 1,500 P2-2B. BAUMAN S CONSTRUCTION REPAIR SHOP BALANCE SHEET APRIL 30, 2020 Assets Liabilities and Equity Cash Accounts payable $ Accounts receivable Loan Payable Construction Supplies Total Liabilites Equipment R. Bauman, Capital Total Assets $ Total Liabilities and Equity $ Pearson Canada All Rights Reserved 2-15 M02_SLAT7156_12_ISM_C02.indd 15

16 P2-3B. (a) Cash 111 Accounts Payable 211 Fees Earned 411 (A) 10,000 4,000 (C) 2,000 (B) 4,000 (F) (F) 4, (D) 4,000 (G) (G) 2, (E) 8, (H) 16,000 4,960 11,040 Accounts Receivable 112 Barry Joy, Capital 311 Rent Expense 511 (G) 2,000 10,000 (A) (D) 310 Office Equipment 121 Barry Joy, Withdrawals 312 Utilities Expense 512 (B) 2,000 (H) 600 (E) 50 (C) 4,000 6,000 (b) BARRY S CLEANING SERVICE TRIAL BALANCE MAY 31, 2019 Dr. Cr. Cash Accounts Receivable Office Equipment Accounts Payable Barry Joy, Capital Barry Joy, Withdrawals Fees Earned Rent Expense Utilities Expense Totals Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 16

17 P2-4B. (a) GRETCHEN LYMAN, BARRISTER AND SOLICITOR INCOME STATEMENT FOR THE MONTH ENDED MAY 31, 2020 Revenue: Revenue from Legal Fees Operating Expenses: Utilities Expense $ Rent Expense Salaries Expense Total Operating Expenses Net Income (b) GRETCHEN LYMAN BARRISTER AND SOLICITOR STATEMENT OF OWNER S EQUITY FOR THE MONTH ENDED MAY 31, 2020 Gretchen Lyman, Capital, May 1, Net Income for May $ Less: Withdrawals for May Increase in Capital Gretchen Lyman, Capital, May 31, Pearson Canada All Rights Reserved 2-17 M02_SLAT7156_12_ISM_C02.indd 17

18 P2-4B., Cont. (c) GRETCHEN LYMAN BARRISTER AND SOLICITOR BALANCE SHEET MAY 31, 2020 ASSETS LIABILITIES AND OWNER S EQUITY Assets: Liabilities: Cash Accounts Payable Accounts Receivable Salaries Payable Office Equipment Total Liabilities Owner s Equity Gretchen Lyman, Capital Total Liabilities and Total Assets Owner s Equity Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 18

19 P2-5B. 1., 2., 3. Cash 111 Accounts Payable 211 Advertising Expense 511 (A) 40,000 2,500 (D) 25,000 (B) (C) 800 (E) 13,000 1,850 (F) 800 (C) (J) 1, (G) 25, (I) 88 (K) Alice Angel, Capital 311 Gas Expense ,600 5,588 40,000 (A) (G) ,012 Accounts Receivable 112 (H) 5,500 1,600 (J) 3,900 Alice Angel, Withdrawals 312 Salaries Expense 513 (K) 88 (F) 1,850 Office Equipment 121 (C) 2,500 Delivery Fees Earned 411 Telephone Expense ,000 (E) (I) 400 5,500 (H) Delivery Trucks ,500 (B) 25, ANGEL S DELIVERY SERVICE TRIAL BALANCE MARCH 31, 2019 Dr. Cr. Cash Accounts Receivable Office Equipment Delivery Trucks Accounts Payable Alice Angel, Capital Alice Angel, Withdrawals Delivery Fees Earned Advertising Expense Gas Expense Salaries Expense Telephone Expense Totals Pearson Canada All Rights Reserved 2-19 M02_SLAT7156_12_ISM_C02.indd 19 3/9/17 1:57 PM

20 P2-5B., Cont. 5.(a) ANGEL S DELIVERY SERVICE INCOME STATEMENT FOR THE MONTH ENDED MARCH 31, 2019 Revenue: Delivery Fees Earned $ Operating Expenses: Advertising Expense $ Gas Expense Salaries Expense Telephone Expense Total Operating Exenses Net Income $ (b) ANGEL S DELIVERY SERVICE STATEMENT OF OWNER S EQUITY FOR THE MONTH ENDED MARCH 31, 2019 A. Angel, Capital, March 1, 2019 $ Net Income for March $ Less: Withdrawals for March Increase in Capital A. Angel, Capital, March 31, 2019 $ (c) ANGEL S DELIVERY SERVICE BALANCE SHEET MARCH 31, 2019 ASSETS LIABILITIES AND OWNER S EQUITY Assets: Liabilities: Cash $ Accounts Payable $ Accounts Receivable Office Equipment Owner s Equity: Delivery Trucks A. Angel, Capital Total Liabilities and Total Assets $ Owner s Equity $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 20

21 P2-1C. Balance Sheet Income Statement Total Assets Total Liab. Equity Net Income 1 Owner invests cash Pay wages with cash... 3 Perform services on credit Buy store equipment for cash... +/ 5 Borrow cash with note payable Perform services for cash Perform services on credit Pay rent with cash... 9 Owner withdraws cash Collect receivable from (7)... +/ P2-2C. ASSETS JORDAN S DELVERY SERVICE BALANCE SHEET DECEMBER 31, 2018 LIABILITIES Cash $ Accounts payable $ Accounts receivable Office supplies Computer equipment Equity Delivery equip J. Good, capital Total assets $ Total liabilities and equity $ ASSETS JORDAN S DELVERY SERVICE BALANCE SHEET DECEMBER 31, 2019 LIABILITIES Cash $ Accounts payable $ Accounts receivable Loan payable Office supplies Total liabilities Computer equipment Delivery equip Building Equity J. Good, capital Total assets $ Total liabilities and equity $ Pearson Canada All Rights Reserved 2-21 M02_SLAT7156_12_ISM_C02.indd 21 3/10/17 1:12 PM

22 Calculations: 1. $279,000 $10,000 = $269,000 (calculation of unknown capital amount) 2. $936,000 $550,000 = $386,000 (calculation of unknown capital amount) Part 2 Calculation of net income for 2019: J. Good, Capital December 31, 2018 $269,000 + Owner investment 50,000 + Net income (loss)? Owner withdrawals 24,000 = J. Good, capital December 31, 2019 $386,000 OR $269,000 + $50,000 +? $24,000 = $386,000;? = $91,000 P2-3C. (a) Cash 111 Accounts Receivable 112 Equipment 121 (A) 6,000 4,000 (B) (G) 1,000 (B) 4,000 (F) 3, (D) (C) 500 (G) 3, (E) 4, (H) 12,500 5,090 7,410 Accounts Payable 211 Linda Miyagawa, Capital 311 Linda Miyagawa Withdrawals (C) 6,000 (A) (H) 600 Fees Eearned 411 Rent Expense 511 Utilities Expense 512 3,500 (F) (D) 340 (E) 150 4,000 (G) 7, Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 22

23 (b) LINDA S CONSULTING SERVICE TRIAL BALANCE OCTOBER 31, 2020 Dr. Cr. Cash Accounts Receivable Equipment Accounts Payable Linda Miyagawa, Capital Linda Miyagawa, Withdrawals Fees Earned Rent Expense Utilities Expense Totals Pearson Canada All Rights Reserved 2-23 M02_SLAT7156_12_ISM_C02.indd 23

24 P2-4C. HOLLY S ACCOUNTING SERVICES INCOME STATEMENT FOR THE MONTH ENDED JULY 31, 2020 Revenue: Accounting Fees Earned $ Expenses: Salaries Expense $ Rent Expense Total Expenses ($ ) 0 0 Net Loss ($ 2 0 0) 0 0 HOLLY S ACCOUNTING SERVICE STATEMENT OF OWNERS EQUITY FOR THE MONTH ENDED JULY 31, 2020 Beg. Capital Balance, H. Good $ Less: Net Loss $ Withdrawls ( ) 0 0 End Capital Balance, H. Good $ HOLLY S ACCOUNTING SERVICE BALANCE SHEET JULY 31, 2020 Assets Liabilities & Equity Cash $ Accounts Payable $ Accounts Receivable Loan Payable Prepaid Insurance Total Liabilites Office Equipment H. Good, Capital Total Assets $ Total Liabilities & Equity $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 24

25 P2-5C RANCH COMPANY TRIAL BALANCE JUNE 30, 2020 Dr. Cr. Cash Accounts Receivable Office Equipment Accounts Payable Wages Payable H. Clo, Capital H. Clo, Withdrawals Professional Fees Rent Expense Advertising Expense Totals Note: 1. The Cash account subtraction error means the amount in Cash is overstated. 2. The normal balance of Accounts Receivable is a debit. Therefore, the $635 should have been on the debit side. ($15 from the $635 = $620.) Accounts Receivable would be severely understated if not corrected. 3. The normal balance of Accounts Payable, Wages Payable and Capital (H. Clo, Capital) is a credit. All understated. 4. Before recording the office equipment on account, Assets and money owed (Accounts Payable) would be understated. 5. Revenue being understated would mean net income would be lower than actual. 6. Expense accounts are normally debit accounts. Therefore, Rent Expense would be understated. To avoid this problem, Ranch Co. might insist that Andy take a course in accounting at a local college. He obviously needs more experience/training before he can be trusted to handle the company s books. Better supervision may help somewhat, but the real solution is in getting a bookkeeper who is accurate and well trained. P2-6C Situation Totals of Trial Balance Effect on Accounts 1 Will balance, but be understated by $765. Cash overstated by $765 and equipment understated by $ Will not balance. Cash overstated by $ Will balance but be overstated by $ Will balance but be overstated by $ Trial Balance will balance with the correct amount. Capital and Accounts Receivable overstated by $400. Accounts Payable overstated by $360 and Cash overstated by $400. Supplies understated by $40. Supplies overstated and Equipment understated by $ Trial Balance will not balance. Cash overstated by $36. Mistakes can be avoided in the future by carefully checking entries Pearson Canada All Rights Reserved 2-25 M02_SLAT7156_12_ISM_C02.indd 25

26 CONTINUING PROBLEM 1., 2., 3. Cash 1000 Accounts Payable 2000 Advertising Expense , (l) (m) (n) 1,400 (p) (m) (q) (k) 1,400 (n) 200 (s) Rent Expense (q) (r) 405 4,750 1,885 2,865 T. Freedman, Capital 3000 Utilities Expense 5030 Accounts Receivable , (o) 850 T. Freedman, Withdrawals 3010 Phone Expense 5040 Supplies (k) (s) 200 Supplies Expense Service Revenue ,650 Computer Shop Equipment (o) 1, (p) Insurance Expense 5060 (l) 150 3,400 Office Equipment 1090 Postage Expense (r) PRECISION COMPUTER CENTRE TRIAL BALANCE JUNE 30, 2019 Cash Accounts Receivable Supplies Computer Shop Equipment Office Equipment Accounts Payable T. Freedman, Capital T. Freedman, Withdrawals Service Revenue Advertising Expense Rent Expense Utilities Expense Phone Expense Insurance Expense Postage Expense Total Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 26

27 CONTINUING PROBLEM, Cont. 5. PRECISION COMPUTER CENTRE INCOME STATEMENT FOR THE TWO MONTHS ENDED JUNE 30, 2019 Revenue: Service Revenue $ Operating Expenses: Advertising Expense $ Insurance Expense Phone Expense Postage Expense Rent Expense Utilities Expense Total Operating Expenses Net Income $ PRECISION COMPUTER CENTRE STATEMENT OF OWNER S EQUITY FOR THE TWO MONTHS ENDED JUNE 30, 2019 T. Freedman, Capital Contributed, May 1, 2019 $ Net Income for the two months $ Less: Withdrawals Increase in Capital T. Freedman, Capital, June 30, 2019 $ Pearson Canada All Rights Reserved 2-27 M02_SLAT7156_12_ISM_C02.indd 27

28 PRECISION COMPUTER CENTRE BALANCE SHEET JUNE 30, 2019 ASSETS LIABILITIES AND OWNER S EQUITY Assets: Liabilities: Cash $ Accounts Payable $ Accounts Receivable Supplies Owner s Equity: Computer Shop Equipment T. Freedman, Capital Office Equipment Total Liabilities and Total Assets $ Owner s Equity $ Pearson Canada All Rights Reserved M02_SLAT7156_12_ISM_C02.indd 28

Debits and Credits: Analyzing and Recording Business Transactions

2 Debits and Credits: Analyzing and Recording Business Transactions ANSWERS TO DISCUSSION QUESTIONS AND CRITICAL THINKING/ETHICAL CASE 1. A ledger is a group of accounts that records in monetary value