CHAPTER 01 BASIC CONCEPT:

Accounting The information system that identifies, records, and communicates the
economic events of an
organization to interested users.
 
Assets Resources a business owns.
 
Balance sheet A financial statement that reports the assets, liabilities, and owner’s eq
a specific date.
 
Drawings Withdrawal of cash or other assets from an unincorporated business for the
personal use of the owner(s).
 
Economic entity assumption: An assumption that requires that the activities of the e
be kept separate and distinct from the activities of its owner and all other economic en
 
Expenses The cost of assets consumed or services used in the process of earning reve
 
Fair value principle: An accounting principle stating that assets and liabilities should
reported at fair value (the price received to sell an asset or settle a liability).
 
Generally accepted accounting principles (GAAP): Common standards that indica
to report economic events.
 
Historical cost principle: An accounting principle that states that companies should
assets at their cost.
 
Income statement A financial statement that presents the revenues and expenses and
resulting net income or net loss of a company for a specific period of time.
 
Monetary unit assumption: An assumption stating that companies include in the
accounting records only transaction data that can be expressed in terms of money.
 
Net income: The amount by which revenues exceed expenses.
 
Net loss: The amount by which expenses exceed revenues.
 
Owner’s equity: The ownership claim on total assets.
 
 
Net income: The amount by which revenues exceed expenses.
 
Net loss: The amount by which expenses exceed revenues.
 
Owner’s equity: The ownership claim on total assets.
 
Owner’s equity statement A financial statement that summarizes the changes in own
equity for a specific period of time.
Statement of cash flows: A financial statement that summarizes information about th
inflows (receipts) and cash outflows (payments) for a specific period of time.
 
 
 
 
 
 

P1-2A JUDI SALEM: ACCOUNTING PRINCIPLES BY

KEISO, 12TH EDITION, P1-2A, PAGE 40: Judi Salem opened
a law office on July 1, 2017. On July 31, the balance sheet A
showed Cash $5,000, Accounts Receivable $1,500, Supplies
$500, Equipment $6,000, Accounts Payable $4,200, and TRANS.
Owner’s Capital $8,800. During August, the following
transactions occurred. BAL.
1. Collected $1,200 of accounts receivable.
2. Paid $2,800 cash on accounts payable.
3. Recognized revenue of $7,500 of which $3,000 is collected in
cash and the balance is
showed Cash $5,000, Accounts Receivable $1,500, Supplies
$500, Equipment $6,000, Accounts Payable $4,200, and
Owner’s Capital $8,800. During August, the following
transactions occurred.
1. Collected $1,200 of accounts receivable. 1
2. Paid $2,800 cash on accounts payable. 2
3. Recognized revenue of $7,500 of which $3,000 is collected in
cash and the balance is 3
due in September. 4.
4. Purchased additional equipment for $2,000, paying $400 in
5.
cash and the balance on
account.
5. Paid salaries $2,500, rent for August $900, and advertising
expenses $400.
6.
6. Withdrew $700 in cash for personal use.
7. Received $2,000 from Standard Federal Bank—money 7.
borrowed on a note payable. 8.
8. Incurred utility expenses for month on account $270.
Instructions
(a) Prepare a tabular analysis of the August transactions
beginning with July 31 balances. The column headings should
be as follows: Cash + Accounts Receivable + Supplies +
Equipment = Notes Payable + Accounts Payable + Owner’s
Capital - Owner’s Drawings + Revenues - Expenses.

(b) Prepare an income statement for August, an owner’s equity

statement for August, and
a balance sheet at August 31.
 
 
 JOURNAL ENTRY
DATE ACCOUNT TITLE AND EXPLANATIONS REF DEBIT CREDIT
1-Mar Cash 20,000
Owner's Capital 20,000
(Investment by the Owner )

3-Mar Land 12000

Buildings 2000
Equipment 1000
Cash 15000
(Purchased Rainbow Golf Land )

5-Mar Advertising Expense 900

Cash 900
(Paid Cash for advertising)

6-Mar Prepaid Insurance 600

Cash 600
(Paid cash in advance for 1-year insurance)

10-Mar Equipment 1050

Accounts Payable 1050
(Purchased equipment on account)

18-Mar Cash 1100

Service Revenue 1100
(Received cash for services performed)

19-Mar Cash 1500

Unearned Service Revenue 1500
(Received cash from coupon Books)

25-Mar Owner's Drawings 800

Cash 800
(Cash withdrawal for personal use)

30-Mar Salaries and Wages Expense 250

Cash 250
(Paid salaries)

30-Mar Accounts Payable 1050

Cash 1050
 (Paid creditors on account)

31-Mar Cash 2700

Service Revenue 2700
(Received cash for services performed)

ACCOUNTING PRINCIPLES BY KEISO, 12TH EDITION,

P2-2A, PAGE 84: Emily Valley is a licensed dentist. During
the first
month of the operation of her business, the following events and
transactions occurred.
April 1 Invested $20,000 cash in her business.
1 Hired a secretary-receptionist at a salary of $700 per
week payable
monthly.
2 Paid office rent for the month $1,100.
3 Purchased dental supplies on account from Dazzle
Company $4,000.
10 Performed dental services and billed insurance
companies $5,100.
11 Received $1,000 cash advance from Leah Mataruka for
an implant.
20 Received $2,100 cash for services performed from
Michael Santos.
30 Paid secretary-receptionist for the month $2,800.
30 Paid $2,400 to Dazzle for accounts payable due.

Emily uses the following chart of accounts: No. 101 Cash, No. 112
Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable,
No. 209 Unearned Service Revenue, No. 301Owner’s Capital, No.
400 Service Revenue, No. 726 Salaries and Wages Expense, and No.
729 Rent Expense.

Instructions

(a) Journalize the transactions.

(b) Post to the ledger accounts.
(c) Prepare a trial balance on April 30, 2017.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on April 30, 2017.

REQUIREMENT (a): JOURNAL ENTRY

DATE ACCOUNT TITLE AND EXPLANATIONS REF DEBIT CREDIT
1-Apr Cash 101 ###
Owner's Capital 301 ###
(Investment by the Owner )

1-Apr No Entry - No Monetary change took place

2-Apr Rent Expense 729 1100

Cash 101 1100
(Paid office Rent )
3-Apr Supplies 126 4000
Accounts Payable 201 4000
(Purchased supplies on account )

### Accounts Receivable 112 5100

Service Revenue 400 5100
(services performed and revenue recognized )

### Cash 101 1000

Unearned Service Revenue 209 1000
(Received cash in advance for the services to be
performed )
### Cash 101 2100
Service Revenue 400 2100
(cash received and service performed)
 ### Salaries and Wages Expense 726 2800
Cash 101 2800
(Paid salary for the month )

### Accounts Payable 201 2400

Cash 101 2400
(Paid Dazzle Company on account)

REQUIREMENT (b): LEDGER

CASH NO. 101

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
1-Apr J1 20000 20000
2-Apr J1 1100 18900
11-Apr J1 1000 19900
20-Apr J1 2100 22000
30-Apr J1 2800 19200
30-Apr J1 2400 16800

ACCOUNTS RECEVABLE NO. 112

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE REQUIREMEN
10-Apr J1 5100 5100

SUPPLIES NO. 126

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
3-Apr J1 4000 4000

ACCOUNTS PAYABLE NO. 201

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
3-Apr J1 4000 4000
30-Apr J1 2400 1600

UNEARNED SERVICE REVENUE NO.209

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
11-Apr J1 1000 1000
SERVICE REVENUE NO.400
DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
10-Apr J1 5100 5100
20-Apr J1 2100 7200

SALARIES AND WAGES EXPENSE NO.209

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
30-Apr J1 2800 2800

RENT EXPENSE NO.729

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
2-Apr J1 1100 1100

OWNER'S CAPITAL NO.209

DATE EXPLANATIONS REF DEBIT CREDIT BALANCE
1-Apr J1 20000 20000

REQUIREMENT (C): TRIAL BALANCE

EMILY VALLEY, DENTIST
TRIAL BALANCE
APRIL 30, 2017
DEBIT CREDIT
CASH 16800
SUPPLIES 4000
ACCOUNTS RECEIVABLE 5100
ACCOUNTS PAYABLE 1600
UNEARNED SERVICE REVENUE 1000
SERVICE REVENUE 7200
OWNER'S CAPITAL 20000
RENT EXPENSE 1100
SALARIES AND WAGES EXP 2800
29800 29800

ACCOUNTING PRINCIPLES BY KEISO, 12TH EDITION,

P2-3A, PAGE 84: Maquoketa Services was formed on May 1, 2017. The followi
transactions took place during the first month.

Transactions on May 1:
1. Jay Bradford invested $40,000 cash in the company, as its sole owner.
 ACCOUNTING PRINCIPLES BY KEISO, 12TH EDITION,
P2-3A, PAGE 84: Maquoketa Services was formed on May 1, 2017. The followi
transactions took place during the first month.

Transactions on May 1:
1. Jay Bradford invested $40,000 cash in the company, as its sole owner.
2. Hired two employees to work in the warehouse. They will each be paid a sala
$3,050 per month.
3. Signed a 2-year rental agreement on a warehouse; paid $24,000 cash in advan
the first year.
4. Purchased furniture and equipment costing $30,000. A cash payment of $10,0
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 equipm

Transactions during the remainder of the month:

6. Purchased basic office supplies for $420 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 $380, to be paid next month.
12. Paid the monthly salaries of the two employees, totaling $6,100.

Instructions
(a) Prepare journal entries to record each of the events listed. (Omit explanation
(b) Post the journal entries to T-accounts.
(c) Prepare a trial balance as of May 31, 2017.

REQUIREMENT (a): JOURNAL ENTRY

TRANS.ACCOUNT TITLE AND EXPLANATIONS DEBIT CREDIT
1. Cash 40,000
Owner's Capital 40,000

2. No Entry - No a transaction

3. Prepaid Rent 24000

Cash 24000

4. Equipment 30000
Cash 10000
Accounts Payable 20000
 5 Prepaid Insurance 1800
Cash 1800

6. Supplies 420
Cash 420

7. Supplies 1500
Accounts Payable 1500

8. Cash 8000
Accounts Receivable 12000
Service Revenue 20000

9. Accounts Payable 400

Cash 400

10. Cash 3000

Accounts Receivable 3000

11. Utilities Expense 380

Accounts Payable 380

12. Salaries and Wages Expense 6100

Cash 6100

REQUIREMENT (b): LEDGER

CASH EQUIPMENT
(1) 40,000 (4) 30,000
(3) 24,000
(4) 10,000 30,000
(5) 1,800
(6) 420
(8) 8,000
(9) 400 ACCOUTNS PAYABLE
(10) 3,000 (4) 20,000
(12) 6,100 (7) 1,500
8,280 (9) 400
(11) 380
21,480
ACCOUTNS RECEIVABLE
(8) 12,000
(10) 3,000
9,000 SERVICE REVENUE
(8) 20,000

SUPPLIES 20,000
(6) 420
(7) 1,500
(8) 12,000
(10) 3,000
9,000 SERVICE REVENUE
(8) 20,000

SUPPLIES 20,000
(6) 420
(7) 1,500
1,920
OWNER'S CAPITAL
(1) 40,000

PREPAID INSURANCE 40,000

(5) 1,800

1,800
UTILITIES EXPENSE
(11) 380

380
PREPAID RENT
(3) 24,000

24,000 SALARIES AND WAGES EXPENSE

(12) 6,100

6,100

REQUIREMENT (C): TRIAL BALANCE

MAQUOKETA SERVICES
TRIAL BALANCE
MAY 31, 2017
DEBIT CREDIT
CASH 8280
SUPPLIES 1920
ACCOUNTS RECEIVABLE 9000
PREPAID INSURANCE 1800
EQUIPMENT 30000
PREPAID RENT 24000
SERVICE REVENUE 20000
ACCOUNTS PAYABLE 21480
OWNER'S CAPITAL 40000
UTILITIES EXPENSE 380
SALARIES AND WAGES EXPENSE 6100
81480 81480
ommunicates the

ies, and owner’s equity at

ted business for the

e activities of the entity

l other economic entities.

cess of earning revenue.

nd liabilities should be
liability).

andards that indicate how

companies should record

s and expenses and

of time.

es include in the
erms of money.
the changes in owner’s

nformation about the cash

od of time.

JUDI SALEM, ATTORNEY AT LAW

ASSETS LIABILITIES + OWNER'S EQUITY
ACCOUNTS NOTES ACC OWNER'S OWNER'S
CASH + RECEIVABLE + SUPPLIES +EQUIPMENT= PAYABLE + PAYABLE + CAPITAL - DRAWINGS + REVENUES-
$5,000 1500 500 $6,000 $4,200 $8,800
+1200 -1200
-2800 -2800
+3000 +4500 +7500
-400 +2000 1600
-3800

-700 -700
+2000 +2000
+270

3500 + 4800 + 500 + 8000 = 2000 + 3270 + 8800 - 700 + 7500 -

16800 16800
 first
nts and

0 per

zzle

ruka for

om

00.
.

No. 112
Payable,
al, No.
, and No.
REQUIREMENT (C): TRIAL BALANCE
1, 2017. The following

its sole owner.

 1, 2017. The following

its sole owner.

will each be paid a salary of

$24,000 cash in advance for

cash payment of $10,000 was

s.
furniture and equipment.

$12,000 on account.

nts receivable.
next month.
ng $6,100.

ed. (Omit explanations.)

 JUDI SALEM, ATTORNEY A
ER'S EQUITY Income Statement
For the Month Ended August
EXPENSE Revenues
Service Revenue
 Expense
Salaries and wages expense
SERVICE REVENUE Rent Expense
Advertising Expense
-2500 SALARIES EXPENSE Utilities Expense
-900 RENT EXPENSE Total Expense
-400 ADVERT. EXPENSE Net Income
DRAWINGS

-270 UTILITIES EXPENSE JUDI SALEM, ATTORNEY A

Owner's Equity Stateme
4070 For the Month Ended August
Owner's Capital, August 01
Add: Net Income

less: Drawings
Owner's Capital, August 31

JUDI SALEM, ATTORNEY A

Balance Sheet
August 31, 2017
Assets
Cash
Accounts Receivable
Supplies
Equipment
 Total Assets
Liabilities and Owner's Equity
Libilities
Notes Payable
Accounts Payable
Owners Equity
Owner's Capital
Total Liabilities and Owner's
ATTORNEY AT LAW
e Statement
Ended August 31, 2017

7500
 $2,500
900
400
270
$4,070
$3,430 DOUBLE UNDERLINED

ATTORNEY AT LAW
quity Statement
Ended August 31, 2017
$8,800
3,430
$12,230
700
$11,530

ATTORNEY AT LAW
nce Sheet
st 31, 2017

$3,500
4,800
500
8000
 $16,800
Equity

$2,000
$3,270

$11,530
s and Owner's Equity $16,800