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Journal Entries for Business Transactions

The document provides information about selected transactions for three different companies - Sophie's Dog Care, Adventures Travel Agency, and Beyers Security Company. It includes details of cash receipts and payments, purchases, expenses, revenues and other transactions for each company during a given time period. The user is instructed to journalize the transactions for each company without explanations and prepare any required additional accounting records like T-accounts or a trial balance.

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42 views3 pages

Journal Entries for Business Transactions

The document provides information about selected transactions for three different companies - Sophie's Dog Care, Adventures Travel Agency, and Beyers Security Company. It includes details of cash receipts and payments, purchases, expenses, revenues and other transactions for each company during a given time period. The user is instructed to journalize the transactions for each company without explanations and prepare any required additional accounting records like T-accounts or a trial balance.

Uploaded by

ehratul.bag
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Problem 1 Selected transactions for Sophie’s Dog Care are as follows during the month of March.

March 1 Paid monthly rent of $1,200.


3 Performed services for $160 on account.
5 Performed services for cash of $75.
8 Purchased equipment for $600. The company paid cash of $90 and the balance was on account.
12 Received cash from customers billed on March 3.
14 Paid salaries and wages to employees of $525.
22 Paid utilities of $72.
24 Borrowed $1,500 from Grafton State Bank by signing a note.
27 Paid $220 to repair service for plumbing repairs.
28 Paid balance amount owed from equipment purchase on March 8.
30 Paid $1,800 for six months of insurance.
Instructions
Journalize the transactions. (Omit explanations.)

Problem 2 On April 1, Adventures Travel Agency began operations. The following transactions were
completed during the month.
1. Owner invested $24,000 in the business.
2. Obtained a bank loan for $7,000 by issuing a note payable.
3. Paid $11,000 cash to buy equipment.
4. Paid $1,200 cash for April office rent.
5. Paid $1,450 for supplies.
6. Purchased $600 of advertising in the Daily Herald, on account.
7. Performed services for $18,000: cash of $2,000 was received from customers, and the balance of
$16,000 was billed to customers on account.
8. Cash withdrawal of $400 by owner for personal use.
9. Paid the utility bill for the month, $2,000.
10. Paid Daily Herald the amount due in transaction (6).
11. Paid $40 of interest on the bank loan obtained in transaction (2).
12. Paid employees’ salaries and wages, $6,400.
13. Received $12,000 cash from customers billed in transaction (7).
Instructions
Journalize the transactions. (Omit explanations).

Problem 3 Beyers Security Company provides security services. Selected transactions for Beyers are presented below.
Oct. 1 Invested $66,000 cash in the business.
2 Hired part-time security consultant. Salary will be $2,000 per month. First day of work will be October 15.
4 Paid one month of rent for building for $2,000.
7 Purchased equipment for $18,000, paying $4,000 cash and the balance on account.
8 Paid $500 for advertising.
10 Received bill for equipment repair cost of $390.
12 Provided security services for event for $3,200 on account.
16 Purchased supplies for $410 on account.
21 Paid balance due from October 7 purchase of equipment.
24 Received and paid utility bill for $148.
27 Received payment from customer for October 12 services performed.
31 Paid employee salaries and wages of $5,100.
Instructions
a. Journalize the transactions. Do not provide explanations.
b. Post the transactions to T-accounts.
c. Prepare a trial balance at October 31, 2020. (Hint: Compute ending balances of T-accounts first.)

Problem 4 Holz Disc Golf Course was opened on March 1 by Ian Holz. The following selected
events and transactions occurred during March.
Mar. 1 Invested $20,000 cash in the business.
3 Purchased Rainbow Golf Land for $15,000 cash. The price consists of land $12,000, shed $2,000, and equipment
$1,000. (Make one compound entry.)
5 Paid advertising expenses of $900.
6 Paid cash $600 for a one-year insurance policy.
10 Purchased golf discs and other equipment for $1,050 from Stevenson Company payable in 30 days.
18 Received $1,100 in cash for golf fees (Holz records golf fees as service revenue).
19 Sold 150 coupon books for $10 each. Each book contains 4 coupons that enable the holder to play one round of disc
golf.
25 Withdrew $800 cash for personal use.
30 Paid salaries of $250.
30 Paid Stevenson Company in full.
31 Received $2,700 cash for golf fees.
Holz Disc Golf uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment,
Accounts Payable, Unearned Service Revenue, Owner’s Capital, Owner’s Drawings, Service Revenue,
Advertising Expense, and Salaries and Wages Expense.

Instructions
Journalize the March transactions.

Problem 5 Maquoketa Services was formed on May 1, 2020. The following


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 salary of
$3,050 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 $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 explanations.)
b. Post the journal entries to T-accounts.
c. Prepare a trial balance as of May 31, 2020.

Common questions

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Purchasing inventory, like golf discs for $1,050 by Holz Disc Golf on March 10 , increases current assets but simultaneously increases either accounts payable or decreases cash, altering the balance sheet without affecting income until sold. Paying for routine services, like the $27 plumbing repair on March 27 by Sophie’s Dog Care , decreases cash and directly increases expenses, immediately reducing net income and owner’s equity, demonstrating differing impacts on financial health and performance metrics.

An initial investment is recorded by debiting cash and crediting the owner's capital account, reflecting the owner's contribution to the business capital. For example, on April 1, Adventures Travel Agency recorded a debit to cash and a credit to owner's capital for $24,000 . In contrast, a payment for advertising is recorded as an expense, by debiting the advertising expense account and crediting cash, reflecting the cost incurred for promoting the business. Beyers Security Company recorded this on October 8 by debiting advertising expense and crediting cash for $500 .

Cash service transactions are recorded by debiting cash and crediting service revenue immediately, reflecting actual cash inflow. For example, on March 5, Sophie’s Dog Care recorded $75 cash for services performed . Credit transactions, however, are recorded by debiting accounts receivable and crediting service revenue, as in the March 3 entry for $160. Accounts receivable reflects expected future cash inflow, adhering to the accrual basis of accounting, recognizing revenue when earned, not when cash is received.

Unearned revenue appears when payments are received before services are performed, listed as a liability on the balance sheet. Service revenue is recorded when services are delivered. Holz Disc Golf, for instance, sold coupon books on March 19, leading to unearned revenue, which is recognized as service revenue when coupons are redeemed . The transition from unearned to earned revenue reflects the company fulfilling its service obligation, transitioning liabilities into revenues.

A significant bank loan is recorded by debiting cash and crediting a notes payable account, indicating an increase in cash resources but also a financial obligation. For example, on March 24, Sophie’s Dog Care borrowed $1,500 and recorded it by debiting cash and crediting a note payable . This immediate cash influx aids in short-term financial stability, but increases long-term liabilities, potentially constraining future financial flexibility, as more cash flow is dedicated to interest and principal repayments.

Using credit for equipment purchases allows immediate resource acquisition while conserving cash, beneficial for liquidity management. Adventures Travel Agency’s $7,000 bank loan exemplifies resource maximization. However, this incurs liabilities and potential interest expenses, impacting future cash flow and financial obligations. Conversely, cash payments avoid debt and interest but reduce cash reserves, potentially limiting funding for unforeseen opportunities or challenges. This decision balances liquidity maintenance with debt management strategy.

Periodic recognition of salary expenses impacts financial stability by requiring sufficient cash reserves or cash flow to meet recurring obligations, as demonstrated by the $525 salary payment on March 14 by Sophie’s Dog Care . This consistency in expense recognition affects net income and performance metrics, such as operating margin, providing insight into cost management efficiency and the sustainability of human resource investments, reflecting both operational integrity and future financial stability.

Prepaying expenses impacts financial reporting by creating an asset on the balance sheet, which is gradually expensed over time as the service is used. For example, on March 30, Sophie’s Dog Care prepaid $1,800 for six months of insurance, initially recording a prepaid insurance asset . This spreads the expense recognition over multiple periods, rather than a large one-time expense, smoothing net income. However, it requires careful cash management, as it reduces liquidity, locking cash into unutilized future periods.

The immediate effect of purchasing equipment on credit involves debiting the equipment account and crediting accounts payable, increasing the company's assets and liabilities. For example, on October 7, Beyers Security Company purchased equipment for $18,000, paying $4,000 cash and entering a liability of $14,000 . Over time, as the equipment is used, depreciation will be recorded, gradually reducing book value and impacting net income through depreciation expense. Additionally, as accounts payable are settled, the liability will decrease, impacting cash flow.

Withdrawing cash for personal use directly decreases the business's cash and owner's equity. For instance, on March 25, Holz Disc Golf Course recorded an $800 withdrawal as a debit to owner’s drawings and a credit to cash, indicating a reduction in cash available for business operations and a reduction in the owner's equity . This transaction reduces cash flow available for the business's operational activities.

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