Lecture # 8

Fundamentals of Financial Accounting

Topics to Cover:
• Balance carried down(c/d) and brought down(b/d)
• Practice questions related to journal entries, ledger & trial balance
• Revenue earned & Un-earned revenue
Balance brought down & carried down:

Balance brought down is the opening balance of a ledger account that is

brought into the books from a previous accounting period. Balance carried
down is the closing balance of a ledger account that is carried forward to the
next accounting period.
Question 3:
Herrold consulting incorporated on February 1, 2009. The company engaged in the
following transactions during its first month of operations:
• Feb. 1: Issued capital stock in exchange for Rs. 750000 cash.
• Feb. 5: Borrowed Rs. 50000 from the bank by issuing a note payable.
• Feb. 8: Purchased land, building, and office equipment for Rs. 600000. The value of
the land was Rs. 100000, the value of the building was Rs. 450000, and the value of
the office equipment was Rs. 50000. The company paid Rs. 300000 cash and issued a
note payable for the balance.
• Feb. 11: Purchased office supplies for Rs. 600 on account. The supplies will last for
several months.
• Feb. 14: Paid the local newspaper Rs. 400 for a full-page advertisement. The ad will
appear in print on February 18.
• Feb. 20: Several of the inkjet printer cartridges that Herrold purchased on February 11
were defective. The cartridges were returned and the office supply store reduced
Herrold’s outstanding balance by Rs. 100.
• Feb. 22: Performed consulting services for Rs. 6000 cash
• Feb 24: Billed clients Rs. 9000
• Feb. 25: Paid salaries of Rs. 5000
• Feb. 28: Paid the entire outstanding balance owed for office supplies purchased on
Feb. 11.
Required: Prepare journal entries, ledger and trial balance.
Revenue Earned vs Un-earned Revenue:

Unearned revenue is a customer payment for which no goods or services have

yet been provided. Unearned revenue is treated as a liability.
Earned revenue is when goods and services are already provided for which
money is received or will be received in future. Revenue earned is treated as
income(revenue) for company.
Question: In June 2009, Wendy Winger organized a corporation to provide aerial
photography services. The company, called Aerial Views, began operations
immediately. Transactions during the month of June were as follows:
• June 1: The corporation issued 60000 shares of capital stock to Wendy Winger in
exchange for Rs. 60000 cash.
• June 2: Purchased a plane from utility Aircraft for Rs. 220000. Made a Rs. 40000
cash down payment and issued a note payable for the remaining balance.
• June 4: Paid Woodrow Airport Rs. 2500 to rent office and hanger space for the
month.
• June 15: Billed customers Rs. 8320 for aerial photographs taken during the first
half of June.
• June 18: Paid Hannigan’s Hanger Rs. 1890 for maintenance and repairs service on
the company plane.
• June 25: Collected Rs. 4910 of the amounts billed to customers on June 15.
• June 30: Billed customers Rs. 16450 for aerial photographs taken during second
half of the month.
• June 30: Paid Rs. 6000 in salaries earned by employees during the second half of
the month.
• June 30: Received Rs. 2510 bill from Peatree Petroleum for the aircraft fuel
purchased in June. Entire amount is due July 10.
• June 30: Declared a Rs. 2000 dividend which is payable on July 2000.

Required: Prepare journal entries, ledger and trial balance.

Question 4:
Glenn Grimes is the founder and president of Heartland construction, a real estate
development venture. The business transactions during February while the
company was being organized are listed below:

• Feb 1. Grimes and several others invested Rs. 500000 cash in the business in
exchange for 25000 shares of capital stock.
• Feb. 10: The company purchased office facilities for Rs. 300000 of which Rs.
100000 was applicable to land, Rs. 200000 to the building. A cash payment of
Rs. 60000 was made and a note payable was issued for the remaining.
• Feb. 16: Computer equipment was purchased from PC World for Rs. 12000 cash.
• Feb. 18: Office furnishings were purchased from Hi-way furnishings at a cost of
Rs. 9000. A Rs. 1000 cash payment was made at the time of purchase and an
agreement was made to pay the remaining balance in two equal installments
due at March 1 and April 1.
• Feb. 22: Office Supplies were purchased from Office World for Rs. 300 cash.
• Feb. 23: Heartland discovered that it paid too much for a computer printer
purchased on Feb. 16. The unit should have costed only Rs. 359 but Heartland
was charged Rs. 395. PC World promised to refund the difference within 7
days.
• Feb. 27: Paid Hi-Way furnishings first installment due on the account payable
for office furnishings purchased on February 18.
• Feb. 28: Received Rs. 36 from PC World in full installment of the account
receivable created on February 23.

Required: Prepare journal entries only