2
Analyzing Transactions
Student Version 1
1
Describe the characteristics of an account and a chart of accounts.
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1 The T Account
Title Debit
The left side of the account is called the debit side.
Credit
The right side of the account is called the credit side.
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Cash
(a) (d) 25,000 (b) 7,500 (e) (f) (h)
5,900
20,000 3,650 950 2,000
Balance
Balance of the account
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4
Chart of Accounts
Assets are resources owned by the business entity. Liabilities are debts owed to outsiders (creditors). Owners equity is the owners right to the assets of the business.
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5
Chart of Accounts
Revenues are increases in owners equity as a result of selling services or products to customers. Expenses are the results of using up of assets or consuming services in the process of generating revenues.
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2
Describe and illustrate journalizing transactions using the double-entry accounting system.
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Transaction A
On November 1, Chris Clark opens a new business and deposits $25,000 in a bank account in the name of NetSolutions.
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JOURNAL Date Nov.
2009
Page 1 P.R.
Description
1 Cash Chris Clark, Capital
Debit
25,000
Credit
25,000
Invested cash in NetSolutions.
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The effect of this entry is shown in the accounts of NetSolutions as follows:
Cash
Nov. 1 25,000
Chris Clark, Capital
Nov. 1 25,000
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10
Transaction B
On November 5, NetSolutions bought land for $20,000, paying cash.
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11
Transaction C
On November 10, NetSolutions bought supplies on account for $1,350.
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12
Transaction D
On November 18, NetSolutions received fees of $7,500 from customers for services rendered.
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13
Transaction E
Throughout the month, NetSolutions incurred the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
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14
Transaction F
On November 30, NetSolutions paid creditors on account, $950.
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15
Transaction G
Chris Clark determined that the cost of supplies on hand on November 30 was $550.
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16
Transaction H
On November 30, Chris Clark withdrew $2,000 from NetSolutions for personal use.
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17
3
Describe and illustrate the journalizing and posting of transactions to accounts.
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18
Dec. 1 NetSolutions paid a premium of $2,400 for an insurance policy for liability, theft and fire. The policy covers a one-year period.
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19
3
Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit
ep 3
Step 1
Step 2 Step 2 ep 3
to Cash Step 1
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(continued)
20
3
Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit (continued)
ep 3
Step 1
Step 3
Step 2
ep 4
Step 1
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Step 3
21
Dec. 1 NetSolutions paid rent for December, $800. The company from which NetSolutions is renting its store space now requires the payment of rent on the first of each month, rather than at the end of the month.
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22
Dec. 1 NetSolutions received an offer from a local retailer to rent the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. NetSolutions agreed to rent the land to the retailer for three months, with the rent payable in advance.
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23
Dec. 1 NetSolutions receives $360 for three months rent for use of its land beginning December 1.
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24
Dec. 4 NetSolutions purchased office equipment on account from Executive Supply Co. for $1,800.
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25
Dec. 6 NetSolutions paid $180 for a newspaper advertisement.
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26
Dec. 11 NetSolutions paid creditors $400.
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27
Dec. 13 NetSolutions paid a receptionist and part-time assistant $950 for two weeks wages.
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28
Dec. 16 NetSolutions received $3,100 from fees earned for the first half of December.
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29
Dec. 20 NetSolutions paid $900 to Executive Supply Co. on the $1,800 debt owed from the December 4 transaction.
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30
Dec. 21 NetSolutions received $650 from customers in payment of their accounts.
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31
Dec. 23 NetSolutions paid $1,450 for supplies.
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32
Dec. 27 NetSolutions paid the receptionist and part-time assistant $1,200 for two weeks wages.
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Dec. 31 NetSolutions paid its $310 telephone bill for the month.
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34
Dec. 31 NetSolutions paid $225 for electric usage for the month.
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35
Dec. 31 NetSolutions received $2,870 from fees earned for the second half of December.
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36
Dec. 31 NetSolutions earned $1,120 on account for the second half of December.
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37
Dec. 31 Chris Clark withdrew $2,000 for personal use.
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4
Prepare an unadjusted trial balance and explain how it can be used to discover errors.
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39
4
Exhibit 6
Trial Balance
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40
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