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P2-3B Slowhand Services was formed on May 1, 2010. The following transactions took place during the first month. Transactions on May 1: 1. Eric Clapton invested $50,000 cash in the company, as its sole owner. 2. Hired two employees to work in the warehouse. They will each be paid a salary of $2,800 per month. 3. Signed a 2-year rental agreement on a warehouse; paid $24,000 cash in advance for the first year. 4. Purchased furniture and equipment costing $30,000. A cash payment of $10,000 was made immediately; the remainder will be paid in 6 months. 5. Paid $1,800 cash for a one-year insurance policy on the furniture and equipment. Transactions during the remainder of the month: 6. Purchased basic office supplies for $500 cash. 7. Purchased more office supplies for $1,500 on account. 8. Total revenues earned were $20,000—$8,000 cash and $12,000 on account. 9. Paid $400 to suppliers for accounts payable due. 10. Received $3,000 from customers in payment of accounts receivable. 11. Received utility bills in the amount of $200, to be paid next month. 12. Paid the monthly salaries of the two employees, totalling $5,600. Instructions Prepare journal entries to record each of the events listed
Slowhand Services Journal entries Date 2010 May 1
Particulars 1.Cash Capital (Eric Clapton invested cash in her own firm) 2. Hiring employees has no financial effect on business, so there will be no entry 3.Prepaid Rent Cash (Paid prepaid rent in cash for 1 year) 4. Furniture and equipment Cash Accounts Payable (Purchased Furniture and equipment in cash and on account) 5. Prepaid Insurance Cash (Paid insurance on the furniture and
Ref.
Debit
Credit
50000 50000
24000 24000 30000 10000 20000
1800 1800
equipment for 1 year in advance) 6. Supplies Cash (Purchased office supplies in cash) 7. Supplies Accounts payable (Purchased office supplies on account) 8. Cash Accounts receivable Service Revenue (Earned service revenue in cash and on account) 9. Accounts payable Cash (Paid Supplier for accounts payable due) 10.Cash Accounts receivable (Received cash from customers in payment of accounts receivable) 11. Utility expense Accounts payable (Received utility bills to be paid next month) 12.Salary expense Cash (Paid salary expenses in cash)
500 500 1500 1500 8000 12000 20000
4000 4000
3000 3000
200 200
5600 5600
In the book of Slowhand Services Ledger accounts Cash Date 2010 May 1
Particulars 1.Capital
Prepaid Rent 4. Furniture and equipment 5. Prepaid Insurance 6. Supplies 8. Service Revenue 9. Accounts payable 10. Accounts receivable 12. Salary expense
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Debit 50000
Credit 24000 10000 1800 500
3.
8000 4000 3000 5600
Balance 50000 26000 16000 14200 13700 21700 17700 20700 15100
Capial Date 2010 May 1
Particulars
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Debit
Credit 50000
Balance (50000)
Debit 24000
Credit
Balance 24000
Credit
Balance 10000 30000
Credit 20000 1500
Balance (20000) (21500) (17500) (17700)
1. Cash
Prepaid Rent Date 2010 May 1
Particulars
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3. Cash
Furniture and equipment Date 2010 May 1
Particulars
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4.Cash Accounts Payable
Debit 10000 20000
Accounts Payable Date 2010 May 1
Particulars 4. Furniture and equipment 7. Supplies 9. Cash 11. Utility expense
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Debit
4000 200
Prepaid Insurance Date 2010 May 1
Particulars 5. Cash
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Debit 1800
Credit
Balance 1800
Supplies Date 2010 May 1
Particulars
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Debit 500 1500
6. Cash 7. Accounts payable
Credit
Balance 500 2000
Credit 3000
Balance 12000 9000
Debit
Credit 8000 12000
Balance (8000) (20000)
Debit 200
Credit
Balance 200
Debit 5600
Credit
Balance 5600
Accounts receivable Date 2010 May 1
Particulars 8. Service Revenue 10. Cash
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Debit 12000
Service Revenue Date 2010 May 1
Particulars
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8. Cash Accounts receivable
Utility expense Date 2010 May 1
Particulars 11. Accounts payable
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Salary expense Date 2010 May 1
Particulars 12. Cash
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Date
Particulars
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Debit
Credit
Balance