Practice Exercises on Business Transactions and their Analysis and Posting to the Ledger

I. Journal Entries and Accounting Equation

A. Journal Entry:
1. Cash 600,000
Owner’s Capital 600,000
To record owner’s contribution to the business.

2. Cash 400,000
Notes Payable 400,000
To record loan obtained by the owner.

3. Inventory 200,000
Cash 200,000
To record purchase of inventory on cash basis.

4. Inventory 500,000
Accounts Payable 500,000
To record purchase of inventory on account.

5. Accounts Receivable 900,000

Sales 900,000
To record sales of inventory on account.

Cost of Sales 400,000

Inventory 400,000
To record cost of goods sold of inventory.

6. Accounts Payable 400,000

Cash 400,000
To record payment of accounts payable.

7. Cash 500,000
Accounts Receivable 500,000
To record collection of accounts receivable.

8. Equipment 480,000
Cash 480,000
To record purchase of equipment on cash basis.
 9. Owner’s Drawing 10,000
Cash 10,000
To record withdrawal of cash by owner.

10. Interest Expense 5,000

Cash 5,000
To record payment of interest.

B. Effect on Basic Accounting Equation

ASSETS = LIABILITIES + EQUITY

1. Cash 600,000 Owner’s Capital 600,000

2. Cash 400,000 Notes Payable 400,000

3. Inventory 200,000
Cash (200,000)

4. Inventory 500,000 Accounts Payable 500,000

5. Accounts Receivable Sales 900,000

900,000
Inventory (400,000) Cost of Sales (400,000)

6. Cash ( 400,000) Accounts Payable

(400,000)

7. Cash 500,000
Accounts
Receivable (500,000)

8. Equipment 480,000
Cash (480,000)

9. Cash (10,000) Owner’s Drawings

(10,000)

10. Cash ( 5,000) Interest Expense (5,000)

Totals P 1,585,000 = P 500,000 + P 1,085,000

II. Posting and Unadjusted Trial Balance

A. Journal Entries:
Date Particulars Debit Credit
March 1 Cash 20,000
 Owner’s Capital 20,000
To record initial investment of owner.

2 Equipment 10,000
Cash 10,000
To record acquisition of tools on cash basis.

4 Prepaid Supplies 2,000

Cash 2,000
To record purchase of supplies.

25 Cash 40,000
Service Fee 40,000
To record cash received for plumbing services rendered.

26 Accounts Receivable 20,000

Service Fee 20,000
To record income earned on account for plumbing services rendered.

31 Advertising Expense 2,000

Cash 2,000
To record payment on advertising.

B. Posting to the Ledger: ( T- accounts )

ASSETS

Cash Accounts Receivable

3/1 20,000 10,000 3/2 3/26 20,000
2,000 ¾
3/25 40,000 2,000 3/31
Bal. 46,000 Bal. 20,000

Prepaid Supplies Equipment

¾ 2,000 3/2 10,000

Bal. 2,000 Bal. 10,000

EQUITY

Owner’s Capital
20,000 3/1
 20,000 Bal.

INCOME

Service Fee
40,000 3/25
20,000 3/26
60,000 Bal.

EXPENSES

Advertising Expense
3/31 2,000

Bal. 2,000

C. Unadjusted Trial Balance:

The Good Plumber

Unadjusted Trial Balance
March 31, 20x1

Account Debit Credit

Cash P46,000
Accounts Receivable 20,000
Prepaid Supplies 2,000
Equipment 10,000
Owner’s Capital P20,000
Service Fee 60,000
Advertising Expense 2,000
Totals P80,000 P80,000