Chapter 4

The Accounting Cycle: Journals and Ledgers

learning OBJECTIVES
LO 1 Distinguish between debits and credits LO 5 Post journal entries to the general ledger

LO 2 Describe the accounting cycle LO 6 Prepare a trial balance
LO 3 Explain how to analyze a transaction LO 7  escribe ethics and internal controls relating to
D
recording and posting transactions
LO 4 Record transactions in the general journal


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Assessment Questions

AS-1 LO 1

What does the term debit refer to?

A debit is an entry on the left side of a T-account.

AS-2 LO 1

True or False: A credit will always be an increase to any account.

False. A credit is an entry on the right side of the T-account. It can increase or decrease the account, depending
on the type of account.

AS-3 LO 1

Which three types of accounts use the debit side of the T-account to increase their value?
Assets, owner’s withdrawals and expenses all use debits to increase their values.

AS-4 LO 1

Which three types of accounts use the credit side of the T-account to increase their value?
Liabilities, owner’s capital and revenue all use credits to increase their values.

AS-5 LO 1

What is the normal balance of an asset?

The normal balance of an asset is a debit. A debit causes an asset to increase.

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AS-6 LO 1

What is the normal balance of a liability?

The normal balance of a liability is a credit. A credit causes a liability to increase.

AS-7 LO 2

In the accounting cycle, what is the purpose of creating the general journal?
Representing one of the first two steps in the accounting cycle, the general journal lists all the transactions of
the business for the period in chronological order.

AS-8 LO 4

In the journal, what information is entered in the PR (posting reference) column?

The PR column in the journal is used to record the number of the account that is affected. The number is taken
from the chart of accounts. It is used as a check to easily detect which transactions have been already been
posted to the ledger.

AS-9 LO 5

Explain the purpose of a chart of accounts.

The chart of accounts lists all the accounts the company uses. The accounts are listed in a logical order and are
given numbers to identify each account.

AS-10 LO 2 5

In the accounting cycle, what is the purpose of the general ledger?

The general ledger groups the activities of each account together and records the updated balance of each
account.

AS-11 LO 5

What is the relationship between the closing balance and the opening balance for an asset?
The closing balance at the end of a period is the same as the opening balance at the beginning of the next
period.

AS-12 LO 2 6

In the accounting cycle, what is the purpose of the trial balance?

The trial balance takes the balances from the ledger and totals the debits and credits to determine if they are
equal. This ensures that the journal entries were created with a debit and a credit amount.

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AS-13 LO 6

What is meant by “balancing a trial balance”?

This is an important step in the accounting cycle, just before the preparation of financial statements. If the total
debits equals total credits, then the trial balance is balanced. The final check of the trial balance is considered
an important internal control.

AS-14 LO 6

If an error is found in a journal entry that has already been prepared and posted to the general ledger, how
should the error be corrected?
Correcting journal entries should be made by reversing the original transaction before preparing the correct
journal entry. These journal entries should then be posted to the appropriate general ledger accounts.

AS-15 LO 2 3 4 5 6

List and describe the first four steps of the accounting cycle.
Step 1: Analyze transactions—determine which accounts will be debited and credited
Step 2: Journalize transactions—record the transaction in the general journal
Step 3: Post to ledger accounts—post the transaction in the general ledger
Step 4: Prepare a trial balance—ensure that total debits equal total credits in the general ledger

AS-16 LO 7

Does using a computerized accounting information system automatically mean that accounting information is
reliable and accurate? Explain.
No, a computerized accounting information system does not guarantee reliable and accurate information. Even
though computerized calculations tend to be more accurate and efficient than manual calculations, there is still
ample opportunity for users to intentionally manipulate the books or unintentionally make mistakes by inputting
the wrong information into the computerized system. Therefore, internal controls must be in place to detect and
fix any mistakes that may arise.

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Application Questions Group A

AP-1A LO 1

For the following list of accounts, indicate which side of the T-account causes an increase or decrease. The first
account has been done for you.

Account Title Debit Credit

Cash Increase Decrease
Advertising Expense Increase Decrease
Service Revenue Decrease Increase
Unearned Revenue Decrease Increase
Accounts Receivable Increase Decrease
Accounts Payable Decrease Increase
Owner’s Capital Decrease Increase
Owner’s Withdrawals Increase Decrease
Prepaid Rent Increase Decrease
Rent Expense Increase Decrease

AP-2A LO 1

For each of the following accounts, identify whether the normal balance is a debit (DR) or a credit (CR).
a) Cash DR
b) Equipment DR
c) Unearned Revenue CR
d) Rent Expense DR
e) Bank Loan CR
f ) Prepaid Expenses DR
g) Service Revenue CR
h) Accounts Payable CR

AP-3A LO 1 3

Esteem Fitness provides fitness services for its customers. During June 2019, Esteem Fitness had the following
transactions.
Jun 1 Sold one-month memberships to customers for $4,500 on account
Jun 3 Received a telephone bill for $250, which will be paid next month
Jun 6 Paid an employee’s salary of $1,200
Jun 10 Received $3,000 cash from customers paying in advance for upcoming one-year memberships
Jun 15 Paid $6,000 cash in advance for six months of rent
Jun 20 Received a $10,000 loan from the bank
Jun 26 Purchased equipment with $8,000 cash

Complete the table to analyze each transaction.

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Account Name Category Increase or Decrease Debit or Credit

Accounts Receivable Asset Increase Debit
Jun 1
Service Revenue Revenue Increase Credit
Telephone Expense Expense Increase Debit
Jun 3
Accounts Payable Liability Increase Credit
Salary Expense Expense Increase Debit
Jun 6
Cash Asset Decrease Credit
Cash Asset Increase Debit
Jun 10
Unearned Revenue Liability Increase Credit
Prepaid Rent Asset Increase Debit
Jun 15
Cash Asset Decrease Credit
Cash Asset Increase Debit
Jun 20
Bank Loan Liability Increase Credit
Equipment Asset Increase Debit
Jun 26
Cash Asset Decrease Credit

AP-4A LO 1 3

Bendari Tutoring Services had the following transactions for the month of November 2019.
Nov 1 Purchased supplies for $100 on account
Nov 4 Received $4,200 cash from clients as payment for tutoring
Nov 9 Received a telephone bill in the mail for $150
Nov 16 Paid an employee’s salary of $3,500 in cash
Nov 25 Collected $500 from clients who owed money for previous services

Complete the table to analyze each transaction.

Account Name Category Increase or Decrease Debit or Credit

Supplies Expense Expense Increase Debit
Nov 1
Accounts Payable Liability Increase Credit
Cash Asset Increase Debit
Nov 4
Service Revenue Revenue Increase Credit
Telephone Expense Expense Increase Debit
Nov 9
Accounts Payable Liability Increase Credit
Salary Expense Expense Increase Debit
Nov 16
Cash Asset Decrease Credit
Cash Asset Increase Debit
Nov 25
Accounts Receivable Asset Decrease Credit

AP-5A LO 3 4

Kick-off Sports Training helps train children in various sporting activities. During May 2019, the following
transactions took place.

May 3 Received a maintenance bill for $500, which will be paid next month
May 3 Received $2,750 cash for training services provided
May 4 Borrowed $4,000 cash from the bank
May 4 Received $220 from a customer who owed money on training services already provided
May 10 Prepaid $1,200 cash for insurance for one year
May 10 Paid telephone expenses of $150 for the month with cash
May 11 Paid $700 cash to reduce the amount owed to a supplier
May 15 Paid $25 interest on the bank loan

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Prepare the journal entries for the transactions.

Date Account Title and Explanation PR Debit Credit

2019
May 3 Maintenance Expense 500
Accounts Payable 500
Received maintenance bill

May 3 Cash 2,750

Service Revenue 2,750
To record cash sale

May 4 Cash 4,000

Bank Loan 4,000
Borrowed funds from bank

May 4 Cash 220

Accounts Receivable 220
Received cash from customer

May 10 Prepaid Insurance 1,200

Cash 1,200
Prepaid annual insurance policy

May 10 Telephone Expense 150

Cash 150
Paid telephone bill

May 11 Accounts Payable 700

Cash 700
Paid suppliers

May 15 Interest Expense 25

Cash 25
Paid interest on bank loan

AP-6A LO 3 4

Rejuvenation Spa is a sole proprietorship owned by Claire Sawyer. During the month of July 2019, the following
transactions took place.

Jul 3 Provided services to a customer on account worth $3,600

Jul 4 Borrowed $2,000 cash from the bank
Jul 6 Provided services to a customer and received $2,400 in cash
Jul 10 Received a telephone bill for $250, which will be paid later
Jul 11 Paid $600 cash to reduce the amount owed to a supplier
Jul 15 Collected $1,800 cash from customers owing on account
Jul 20 Paid the telephone bill from July 10
Jul 21 Paid a portion of the bank loan principal with $1,500 cash
Jul 31 Paid salaries for the month with $1,600 cash
Jul 31 Purchased equipment for $1,900, which will be paid later

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Prepare the journal entries for the above transactions.

Date Account Title and Explanation PR Debit Credit

2019
Jul 3 Accounts Receivable 3,600
Service Revenue 3,600
To record sales on account

Jul 4 Cash 2,000

Bank Loan 2,000
Borrowed funds from bank

Jul 6 Cash 2,400

Service Revenue 2,400
Received cash for services

Jul 10 Telephone Expense 250

Accounts Payable 250
Received telephone bill

Jul 11 Accounts Payable 600

Cash 600
Paid suppliers

Jul 15 Cash 1,800

Accounts Receivable 1,800
Collected cash on account

Jul 20 Accounts Payable 250

Cash 250
Paid telephone bill on account

Jul 21 Bank Loan 1,500

Cash 1,500
Repaid portion of bank loan principal

Jul 31 Salaries Expense 1,600

Cash 1,600
Paid salaries for the month

Jul 31 Equipment 1,900

Accounts Payable 1,900
Purchased equipment on account

AP-7A LO 3 4

Cherry Consulting Firm is owned by Ron Cherry and offers consulting services for small businesses. During June
2019, the following transactions occurred.

Jun 2 Received a deposit of $3,000 from a customer for services to be provided in the future
Jun 3 Paid a $495 utility bill that was received and recorded last month
Jun 8 Charged $1,400 in travel costs to a credit card
Jun 17 Paid $1,000 cash to reduce the bank loan; of that amount, $75 is interest and the remainder is principal
Jun 19 Ron withdrew $2,100 cash from the business for personal use
Jun 28 Paid $4,900 for salaries for the month
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Prepare the journal entries for the above transactions.

Date Account Title and Explanation PR Debit Credit

2019
Jun 2 Cash 3,000
Unearned Revenue 3,000
Received payment for future services

Jun 3 Accounts Payable 495

Cash 495
Paid utility bill

Jun 8 Travel Expense 1,400

Accounts Payable 1,400
Charged travel costs to credit card

Jun 17 Bank Loan 925

Interest Expense 75
Cash 1,000
Reduced bank loan principal

Jun 19 Cherry, Withdrawals 2,100

Cash 2,100
Owner withdrew cash from the business

Jun 28 Salaries Expense 4,900

Cash 4,900
Paid salary expense

AP-8A LO 3 4

Greg Carlin is the owner of Carlin Consulting. During the month of April 2019, he had the following transactions.

Apr 1 Greg invested $5,000 cash and equipment valued at $3,000 into the business
Apr 3 Provided consulting services to a customer; the customer paid $1,000 now and will pay
$1,500 later
Apr 6 Received a loan from the bank for $6,000
Apr 8 Paid $1,300 for utilities for the month
Apr 17 Purchased equipment with $4,000 cash
Apr 20 Paid employee salaries with $2,100 cash
Apr 22 Provided consulting services to a customer on account for $1,600
Apr 28 Received the balance owing from the customer on April 3

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Record the transactions in the journal.

Date Account Title and Explanation PR Debit Credit

2019
Apr 1 Cash 5,000
Equipment 3,000
Carlin, Capital 8,000
Owner invested in business

Apr 3 Cash 1,000

Accounts Receivable 1,500
Service Revenue 2,500
Provided services to a customer

Apr 6 Cash 6,000

Bank Loan 6,000
Received bank loan

Apr 8 Utilities Expense 1,300

Cash 1,300
Paid utilities expense

Apr 17 Equipment 4,000

Cash 4,000
Purchased equipment

Apr 20 Salaries Expense 2,100

Cash 2,100
Paid salaries

Apr 22 Accounts Receivable 1,600

Service Revenue 1,600
Provided services on account

Apr 28 Cash 1,500

Accounts Receivable 1,500
Received payment from customer

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AP-9A LO 1 6

Micro Company, owned by Steven Upton, showed these accounts and their corresponding normal balances on
May 31, 2019.

Account Title Balance

Upton, Capital $23,500
Insurance Expense 900
Accounts Payable 15,500
Service Revenue 8,900
Equipment 34,500
Supplies Expense 3,000
Cash 6,400
Salaries Expense 4,000
Rent Expense 3,000
Upton, Withdrawals 3,000
Utilities Expense 1,300
Bank Loan 10,200
Prepaid Insurance 2,000

Prepare Micro Company’s trial balance at May 31, 2019.

Micro Company
Trial Balance
May 31, 2019
Account Title DR CR
Cash $6,400
Prepaid Insurance 2,000
Equipment 34,500
Accounts Payable $15,500
Bank Loan 10,200
Upton, Capital 23,500
Upton, Withdrawals 3,000
Service Revenue 8,900
Insurance Expense 900
Rent Expense 3,000
Salaries Expense 4,000
Supplies Expense 3,000
Utilities Expense 1,300
Total $58,100 $58,100

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AP-10A LO 1 6

A part-time bookkeeper for Wombat Tours has created the trial balance at the end of the year and cannot get it
to balance.

Wombat Tours
Trial Balance
December 31, 2019
Account Title DR CR
Accounts Payable $3,150
Accounts Receivable 2,350
Advertising Expense $2,100
Bank Loan 5,200
Sharpe, Capital 6,170
Cash 6,200
Interest Expense 560
Maintenance Expense 240
Sharpe, Withdrawals 3,900
Prepaid Insurance 1,200
Equipment 13,500
Rent Expense 6,200
Salaries Expense 5,300
Service Revenue 25,800
Telephone Expense 450
Unearned Revenue 1,680
Total $40,830 $43,170

All the entries have been journalized and posted to the general ledger properly, and all the accounts should
have normal balances.

Recreate the trial balance for Wombat Tours so that the accounts are listed in the order they would typically
appear in a chart of accounts, and ensure that debits equal credits.

Wombat Tours
Trial Balance
December 31, 2019
Account Title DR CR
Cash $6,200
Accounts Receivable 2,350
Prepaid Insurance 1,200
Equipment 13,500
Accounts Payable $3,150
Unearned Revenue 1,680
Bank Loan 5,200
Sharpe, Capital 6,170
Sharpe, Withdrawals 3,900
Service Revenue 25,800
Advertising Expense 2,100
Interest Expense 560
Maintenance Expense 240
Rent Expense 6,200
Salaries Expense 5,300
Telephone Expense 450
Total $42,000 $42,000
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AP-11A LO 5 6

Glam Stars’ complete general ledger for March 2019 is shown below.

Account: Cash GL No: 101

Date Description PR DR CR Balance
Mar 1 Opening Balance 7,800 DR
Mar 1 J1 1,800 6,000 DR
Mar 2 J1 2,900 8,900 DR
Mar 3 J1 1,440 7,460 DR
Mar 10 J1 10 7,450 DR
Mar 10 J1 780 6,670 DR
Mar 20 J1 2,600 9,270 DR
Mar 22 J1 800 10,070 DR
Mar 24 J1 710 9,360 DR
Mar 31 J1 2,000 7,360 DR

Account: Accounts Receivable GL No: 105

Date Description PR DR CR Balance
Mar 1 Opening Balance 2,460 DR
Mar 22 J1 800 1,660 DR

Account: Prepaid Insurance GL No: 110

Date Description PR DR CR Balance
Mar 1 Opening Balance 0 DR
Mar 1 J1 1,800 1,800 DR

Account: Equipment GL No: 120

Date Description PR DR CR Balance
Mar 1 Opening Balance 11,140 DR
Mar 20 J1 2,350 8,790 DR

Account: Accounts Payable GL No: 200

Date Description PR DR CR Balance
Mar 1 Opening Balance 2,900 CR
Mar 4 J1 250 3,150 CR
Mar 24 J1 710 2,440 CR

Account: Unearned Revenue GL No: 210

Date Description PR DR CR Balance
Mar 1 Opening Balance 1,800 CR

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Account: Bank Loan GL No: 215

Date Description PR DR CR Balance
Mar 1 Opening Balance 5,100 CR
Mar 10 J1 780 4,320 CR

Account: Roberts, Capital GL No: 300

Date Description PR DR CR Balance
Mar 1 Opening Balance 11,600 CR

Account: Roberts, Withdrawals GL No: 310

Date Description PR DR CR Balance
Mar 31 J1 2,000 2,000 DR

Account: Service Revenue GL No: 400

Date Description PR DR CR Balance
Mar 2 J1 2,900 2,900 CR

Account: Interest Expense GL No: 530

Date Description PR DR CR Balance
Mar 10 J1 10 10 DR

Account: Rent Expense GL No: 540

Date Description PR DR CR Balance
Mar 3 J1 1,440 1,440 DR

Prepare a trial balance. Place the accounts in the order shown in the general ledger.

Glam Stars
Trial Balance
March 31, 2019
Account Title DR CR
Cash $7,360
Accounts Receivable 1,660
Prepaid Insurance 1,800
Equipment 8,790
Accounts Payable $2,440
Unearned Revenue 1,800
Bank Loan 4,320
Roberts, Capital 11,600
Roberts, Withdrawals 2,000
Service Revenue 2,900
Interest Expense 10
Rent Expense 1,440
Total $23,060 $23,060

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AP-12A LO 3 4 5 6

Thomas Topology provides surveying services to construction companies and municipalities. The company is
owned and operated by Thomas Edwards. The closing balances at the end of March 2019 and the chart of
accounts are shown below.

Thomas Topology
Balance Sheet
As at March 31, 2019
Assets Liabilities
Cash $22,000 Accounts Payable $10,500
Accounts Receivable 9,000 Unearned Revenue 4,500
Equipment 8,000 Bank Loan 6,000
Total Liabilities 21,000
Owner’s Equity
Edwards, Capital 18,000
Total Assets $39,000 Total Liabilities and Owner’s Equity $39,000

Account Description Account # Account Description Account #

ASSETS REVENUE
Cash 101 Service Revenue 400
Accounts Receivable 105
EXPENSES
Prepaid Insurance 110
Insurance Expense 515
Equipment 120
Interest Expense 520
LIABILITIES Rent Expense 540
Accounts Payable 200 Salaries Expense 545
Unearned Revenue 210 Telephone Expense 550
Bank Loan 215 Travel Expense 555
OWNER’S EQUITY
Edwards, Capital 300
Edwards, Withdrawals 310

During the month of April, Thomas Topology had the following transactions.

Apr 1 Purchased office equipment on account worth $7,000

Apr 2 Received $25,000 cash for services provided
Apr 3 Paid $1,000 cash for April's rent
Apr 4 Prepaid $1,200 for insurance for one year
Apr 10 Paid $200 cash to reduce the balance of accounts payable
Apr 14 Paid $8,000 cash for employee's salaries
Apr 22 Received a telephone bill for $250, which will be paid next month
Apr 24 Recorded travel expenses for $8,000 to be paid next month
Apr 30 Paid $4,550 to bank for the bank loan principal and interest; interest was $50 and the
remainder was principal

Required

a) Prepare the journal entries for the month of April.

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Date Account Title and Explanation PR Debit Credit

2019
Apr 1 Equipment 120 7,000
Accounts Payable 200 7,000
Purchased furniture on account

Apr 2 Cash 101 25,000

Service Revenue 400 25,000
Received cash for services

Apr 3 Rent Expense 540 1,000

Cash 101 1,000
Paid rent for the month of April

Apr 4 Prepaid Insurance 110 1,200

Cash 101 1,200
Prepaid annual insurance policy

Apr 10 Accounts Payable 200 200

Cash 101 200
Payment to reduce accounts payable

Apr 14 Salaries Expense 545 8,000

Cash 101 8,000
Paid payroll

Apr 22 Telephone Expense 550 250

Accounts Payable 200 250
Received telephone bill

Apr 24 Travel Expense 555 8,000

Accounts Payable 200 8,000
Record travel expenses

Apr 30 Bank Loan 215 4,500

Interest Expense 520 50
Cash 101 4,550
Paid down loan principal

b) Post the journal entries to the ledger accounts.

Account: Cash GL No: 101

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 22,000 DR
Apr 2 J1 25,000 47,000 DR
Apr 3 J1 1,000 46,000 DR
Apr 4 J1 1,200 44,800 DR
Apr 10 J1 200 44,600 DR
Apr 14 J1 8,000 36,600 DR
Apr 30 J1 4,550 32,050 DR

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Account: Accounts Receivable GL No: 105

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 9,000 DR

Account: Prepaid Insurance GL No: 110

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 0 DR
Apr 4 J1 1,200 1,200 DR

Account: Equipment GL No: 120

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 8,000 DR
Apr 1 J1 7,000 15,000 DR

Account: Accounts Payable GL No: 200

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 10,500 CR
Apr 1 J1 7,000 17,500 CR
Apr 10 J1 200 17,300 CR
Apr 22 J1 250 17,550 CR
Apr 24 J1 8,000 25,550 CR

Account: Unearned Revenue GL No: 210

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 4,500 CR

Account: Bank Loan GL No: 215

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 6,000 CR
Apr 30 J1 4,500 1,500 CR

Account: Edwards, Capital GL No: 300

Date Description PR DR CR Balance
2019
Apr 1 Opening Balance 18,000 CR

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Account: Edwards, Withdrawals GL No: 310

Date Description PR DR CR Balance

Account: Service Revenue GL No: 400

Date Description PR DR CR Balance
2019
Apr 2 J1 25,000 25,000 CR

Account: Insurance Expense GL No: 515

Date Description PR DR CR Balance

Account: Interest Expense GL No: 520

Date Description PR DR CR Balance
2019
Apr 30 J1 50 50 DR

Account: Rent Expense GL No: 540

Date Description PR DR CR Balance
2019
Apr 3 J1 1,000 1,000 DR

Account: Salaries Expense GL No: 545

Date Description PR DR CR Balance
2019
Apr 14 J1 8,000 8,000 DR

Account: Telephone Expense GL No: 550

Date Description PR DR CR Balance
2019
Apr 22 J1 250 250 DR

Account: Travel Expense GL No: 555

Date Description PR DR CR Balance
2019
Apr 24 J1 8,000 8,000 DR

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c) Prepare a trial balance at the end of April.

Thomas Topology
Trial Balance
April 30, 2019
Account Title DR CR
Cash $32,050
Accounts Receivable 9,000
Prepaid Insurance 1,200
Equipment 15,000
Accounts Payable $25,550
Unearned Revenue 4,500
Bank Loan 1,500
Edwards, Capital 18,000
Service Revenue 25,000
Interest Expense 50
Rent Expense 1,000
Salaries Expense 8,000
Telephone Expense 250
Travel Expense 8,000
Total $74,550 $74,550

AP-13A LO 3 4 5 6

High Flying Biplane provides sightseeing tours in vintage biplanes. The company is owned by Sky Singh. The
closing balances at the end of May 2019 and the chart of accounts are shown below.

High Flying Biplane

Balance Sheet
As at May 31, 2019
Assets Liabilities
Cash $8,000 Accounts Payable $8,200
Accounts Receivable 6,000 Unearned Revenue 3,200
Prepaid Insurance 1,200 Bank Loan 20,000
Equipment 60,000 Total Liabilities 31,400
Owner’s Equity
Singh, Capital 43,800
Total Assets $75,200 Total Liabilities and Owner’s Equity $75,200

Account Description Account # Account Description Account #

ASSETS REVENUE
Cash 101 Service Revenue 400
Accounts Receivable 105
EXPENSES
Prepaid Insurance 110
Advertising Expense 500
Equipment 120
Insurance Expense 515
LIABILITIES Interest Expense 520
Accounts Payable 200 Telephone Expense 550
Interest Payable 205
Unearned Revenue 210
Bank Loan 215

OWNER’S EQUITY
Singh, Capital 300
Singh, Withdrawals 310

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During the month of June, High Flying Biplane had the following transactions.
Jun 1 The owner invested $5,000 cash into the business
Jun 2 Received $1,500 cash for tours that will be provided in August
Jun 3 Received an advertising bill for $400, which will be paid next month
Jun 4 Paid the telephone bill with $200 cash
Jun 10 Provided tours worth $2,400 to a customer who will pay next month
Jun 14 Purchased equipment with $4,000 cash
Jun 20 Received payments totaling $1,600 from customers paying their accounts
Jun 22 Paid $900 toward accounts payable
Jun 24 Paid $1,000 toward the bank loan principal
Jun 30 The owner withdrew $1,200 cash for personal use

Required
a) Prepare the journal entries for the month of June.

Date Account Title and Explanation PR Debit Credit

2019
Jun 1 Cash 101 5,000
Singh, Capital 300 5,000
Owner invested cash

Jun 2 Cash 101 1,500

Unearned Revenue 210 1,500
Received deposit for future services

Jun 3 Advertising Expense 500 400

Accounts Payable 200 400
Received advertising bill

Jun 4 Telephone Expense 550 200

Cash 101 200
Paid telephone bill

Jun 10 Accounts Receivable 105 2,400

Service Revenue 400 2,400
Provided service on account

Jun 14 Equipment 120 4,000

Cash 101 4,000
Purchased equipment

Jun 20 Cash 101 1,600

Accounts Receivable 105 1,600
Received payment from customers

Jun 22 Accounts Payable 200 900

Cash 101 900
Paid accounts payable

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Date Account Title and Explanation PR Debit Credit

Jun 24 Bank Loan 215 1,000
Cash 101 1,000
Paid bank loan

Jun 30 Singh, Withdrawals 310 1,200

Cash 101 1,200
Owner withdrew cash for personal use

b) Post the journal entries to the ledger accounts.

Account: Cash GL No: 101

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 8,000 DR
Jun 1 J1 5,000 13,000 DR
Jun 2 J1 1,500 14,500 DR
Jun 4 J1 200 14,300 DR
Jun 14 J1 4,000 10,300 DR
Jun 20 J1 1,600 11,900 DR
Jun 22 J1 900 11,000 DR
Jun 24 J1 1,000 10,000 DR
Jun 30 J1 1,200 8,800 DR

Account: Accounts Receivable GL No: 105

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 6,000 DR
Jun 10 J1 2,400 8,400 DR
Jun 20 J1 1,600 6,800 DR

Account: Prepaid Insurance GL No: 110

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 1,200 DR

Account: Equipment GL No: 120

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 60,000 DR
Jun 14 J1 4,000 64,000 DR

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Account: Accounts Payable GL No: 200

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 8,200 CR
Jun 3 J1 400 8,600 CR
Jun 22 J1 900 7,700 CR

Account: Interest Payable GL No: 205

Date Description PR DR CR Balance

Account: Unearned Revenue GL No: 210

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 3,200 CR
Jun 2 J1 1,500 4,700 CR

Account: Bank Loan GL No: 215

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 20,000 CR
Jun 24 J1 1,000 19,000 CR

Account: Singh, Capital GL No: 300

Date Description PR DR CR Balance
2019
Jun 1 Opening Balance 43,800 CR
Jun 1 J1 5,000 48,800 CR

Account: Singh, Withdrawals GL No: 310

Date Description PR DR CR Balance
2019
Jun 30 J1 1,200 1,200 DR

Account: Service Revenue GL No: 400

Date Description PR DR CR Balance
2019
Jun 10 J1 2,400 2,400 CR

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Account: Advertising Expense GL No: 500

Date Description PR DR CR Balance
2019
Jun 3 J1 400 400 DR

Account: Insurance Expense GL No: 515

Date Description PR DR CR Balance

Account: Interest Expense GL No: 520

Date Description PR DR CR Balance

Account: Telephone Expense GL No: 550

Date Description PR DR CR Balance
2019
Jun 4 J1 200 200 DR

c) Prepare a trial balance at the end of June.

High Flying Biplane

Trial Balance
June 30, 2019
Account Title DR CR
Cash $8,800
Accounts Receivable 6,800
Prepaid Insurance 1,200
Equipment 64,000
Accounts Payable $7,700
Unearned Revenue 4,700
Bank Loan 19,000
Singh, Capital 48,800
Singh, Withdrawals 1,200
Service Revenue 2,400
Advertising Expense 400
Telephone Expense 200
Total $82,600 $82,600

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AP-14A LO 7

Xavier works as an accountant for O’Hara Travel Services. He prepared the trial balance at the end of the period
and discovered that it did not balance. The total debit balance was significantly larger than the total credit
balance. Xavier believes that Mrs. O’Hara, the company’s owner, would be happy if the net income figure was
higher so that she can show higher profitability to the lender. Therefore, Xavier decides to balance the debit and
credit sides by increasing the service revenue account balance and therefore increasing the credit side of the
trial balance. Did Xavier behave in an ethical manner? Explain.
Xavier’s behaviour was unethical. The fact that the debit and credit sides of the trial balance are unequal indicates
that there is an error somewhere in the accounts. For example, Xavier might have made a transposition error
or other error. Once Xavier realizes that an error has been made, the ethical course of action
is to locate by and fix the error by preparing correcting entries. Concealing the error by plugging the difference
into the revenue account is considered manipulation and accounting fraud. It makes the accounting information
biased and unreliable. Specifically, the company’s financial position would be misstated because revenue and
profits would be overstated.

AP-15A LO 3 4 7

On June 23, 2019, the bookkeeper for Henson Company discovered an error in the journal entries. On June
2, equipment was purchased on account for $9,000; however, it was recorded in the journals and ledgers for
$90,000. Prepare the entries to correct this error.

Date Account Title and Explanation PR Debit Credit

2019
Jun 23 Accounts Payable 90,000
Equipment 90,000
To reverse incorrect entry

Jun 23 Equipment 9,000

Accounts Payable 9,000
To record correct amount for equipment

AP-16A LO 3 4 7

On November 22, 2019, the bookkeeper for Fraggle Company discovered an error in the journal entries. On
November 16, an entry was made for the cash purchase of small parts inventory for $550 that incorrectly
debited equipment. Prepare the entries to correct this error.

Date Account Title and Explanation PR Debit Credit

2019
Nov 22 Cash 550
Equipment 550
To reverse incorrect entry

Nov 22 Small Parts Inventory 550

Cash 550
To record purchase of small parts inventory

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Application Questions Group B

AP-1B LO 1

For the accounts listed below, determine if the normal balance is a debit or a credit. Also, indicate if a debit or a
credit will decrease the account balance.

Normal Balance Decrease

Cash Debit Credit
Accounts Receivable Debit Credit
Accounts Payable Credit Debit
Bank Loan Credit Debit
Owner’s Capital Credit Debit
Service Revenue Credit Debit
Insurance Expense Debit Credit
Prepaid Insurance Debit Credit
Equipment Debit Credit
Unearned Revenue Credit Debit
Owner's Withdrawals Debit Credit
Salaries Expense Debit Credit

AP-2B LO 1

Indicate whether increases and decreases in the following groups of accounts correspond to debits or credits.

Increase Decrease
Liabilities Credit Debit
Owner's Equity Credit Debit
Expenses Debit Credit
Owner's Withdrawals Debit Credit
Revenues Credit Debit
Assets Debit Credit

Analysis
What is a normal balance? Provide an example.

A normal balance is the positive, increasing side of an account. For example, liabilities increase with a credit
entry and have a credit as a normal balance. Assets increase with a debit entry and have a debit as a normal
balance.

AP-3B LO 1 3

Perfect Party is owned by Candace Rodriguez and provides party planning services. During April 2019, Perfect
Party had the following transactions.
Apr 1 The owner invested $5,800 cash into the business
Apr 4 Planned a party for a customer for $740; the customer will pay later
Apr 6 Paid $600 cash for rent for the month
Apr 8 Received a $370 telephone bill, which will be paid later
Apr 15 Paid $300 toward the bank loan principal
Apr 19 Received cash from a customer who owed $840
Apr 27 Paid the telephone bill received earlier

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Complete the table to analyze each transaction.

Account Name Category Increase or Decrease Debit or Credit

Cash Asset Increase Debit
Apr 1
Rodriguez, Capital Equity Increase Credit
Accounts Receivable Asset Increase Debit
Apr 4
Service Revenue Revenue Increase Credit
Rent Expense Expense Increase Debit
Apr 6
Cash Asset Decrease Credit
Telephone Expense Expense Increase Debit
Apr 8
Accounts Payable Liability Increase Credit
Bank Loan Liability Decrease Debit
Apr 15
Cash Asset Decrease Credit
Cash Asset Increase Debit
Apr 19
Accounts Receivable Asset Decrease Credit
Accounts Payable Liability Decrease Debit
Apr 27
Cash Asset Decrease Credit

AP-4B LO 1 3

Have-a-Bash, owned by Finn Tymes, provides party planning services. During October 2019, Have-a-Bash had the
following transactions.

Oct 1 Finn invested $5,000 cash into the business

Oct 2 Planned a party for a customer and received $900 cash
Oct 4 Received a $500 utilities bill, which will be paid later
Oct 10 Paid $200 cash for maintenance for the month
Oct 12 Paid $400 toward the bank loan principal
Oct 18 Received cash from a customer who owed $1,100
Oct 22 Paid the utilities bill received on October 4
Oct 28 Paid $3,000 cash in advance for office rent

Complete the table to analyze each transaction.

Account Name Category Increase or Decrease Debit or Credit

Cash Asset Increase Debit
Oct 1
Tymes, Capital Equity Increase Credit
Cash Asset Increase Debit
Oct 2
Service Revenue Revenue Increase Credit
Utilities Expense Expense Increase Debit
Oct 4
Accounts Payable Liability Increase Credit
Maintenance Expense Expense Increase Debit
Oct 10
Cash Asset Decrease Credit
Bank Loan Liability Decrease Debit
Oct 12
Cash Asset Decrease Credit
Cash Asset Increase Debit
Oct 18
Accounts Receivable Asset Decrease Credit
Accounts Payable Liability Decrease Debit
Oct 22
Cash Asset Decrease Credit
Prepaid Rent Asset Increase Debit
Oct 28
Cash Asset Decrease Credit

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AP-5B LO 3 4

HomeStyle provides interior design solutions for residential and commercial spaces. During the month of July
2019, the following transactions took place.

Jul 3 Provided services to a customer and received $3,100 cash

Jul 4 Borrowed $2,500 from the bank
Jul 6 Provided services worth $2,800 to a customer on account
Jul 10 Received the utilities bill for $240, which will be paid later
Jul 11 Paid $690 cash to reduce the balance of accounts payable
Jul 15 Collected $1,900 cash from customers owing on account
Jul 20 Paid $2,600 toward the bank loan principal
Jul 21 Paid the amount owing from July 10
Jul 27 Paid salaries of $1,700 for the month with cash
Jul 31 Purchased equipment worth $3,100, which will be paid later
Prepare the journal entries for the above transactions.

Date Account Title and Explanation PR Debit Credit

2019
Jul 3 Cash 3,100
Service Revenue 3,100
Completed work for client

Jul 4 Cash 2,500

Bank Loan 2,500
Received a loan from the bank

Jul 6 Accounts Receivable 2,800

Service Revenue 2,800
To record sales on account

Jul 10 Utilities Expense 240

Accounts Payable 240
Received utilities bill

Jul 11 Accounts Payable 690

Cash 690
Made payment to suppliers

Jul 15 Cash 1,900

Accounts Receivable 1,900
Collected cash on account

Jul 20 Bank Loan 2,600

Cash 2,600
Repaid portion of bank loan

Jul 21 Accounts Payable 240

Cash 240
Paid amount owing

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Date Account Title and Explanation PR Debit Credit

Jul 27 Salaries Expense 1,700
Cash 1,700
Paid salaries for the month

Jul 31 Equipment 3,100

Accounts Payable 3,100
Purchased equipment on account

AP-6B LO 3 4

Tracts of Land provides surveying services to construction companies and municipalities. During the month of
February 2019, Tracts of Land had the following transactions.

Feb 1 Purchased equipment worth $8,200, which will be paid later

Feb 2 Provided services worth $20,200 to a customer on account
Feb 3 Paid $1,900 cash for February's utilities
Feb 4 Paid $1,600 for four months of insurance coverage
Feb 10 Paid $2,000 cash to reduce the balance of accounts payable
Feb 14 Paid $6,600 cash for a monthly maintenance contract
Feb 22 Received a bill for $5,800 in travel expenses to be paid next month
Feb 24 Received an advertising bill for $400, which will be paid next month
Feb 28 Paid $2,730 to the bank to reduce the bank loan; interest was $30 and the remainder was
principal
Prepare the journal entries for the transactions.
Date Account Title and Explanation PR Debit Credit
2019
Feb 1 Equipment 8,200
Accounts Payable 8,200
Purchased equipment on account

Feb 2 Accounts Receivable 20,200

Service Revenue 20,200
Completed work on account

Feb 3 Utilities Expense 1,900

Cash 1,900
Paid for utilities

Feb 4 Prepaid Insurance 1,600

Cash 1,600
Prepaid four-month insurance policy

Feb 10 Accounts Payable 2,000

Cash 2,000
Paid to reduce accounts payable

Feb 14 Maintenance Expense 6,600

Cash 6,600
Paid maintenance expense

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Date Account Title and Explanation PR Debit Credit

Feb 22 Travel Expense 5,800
Accounts Payable 5,800
Record travel expenses

Feb 24 Advertising Expense 400

Accounts Payable 400
Record advertising expense

Feb 28 Bank Loan 2,700

Interest Expense 30
Cash 2,730
Paid down bank loan principal

AP-7B LO 3 4

Noel Dy opened an automobile repair shop. The following transactions occurred during the month of March
2019.
Mar 1 Noel Dy invested $10,000 cash and $8,000 worth of equipment in the business
Mar 3 Paid $1,000 cash to rent the shop space
Mar 5 Purchased $1,200 worth of shop tools using cash
Mar 7 Received $2,000 cash for repair work done for MJ Gonzales
Mar 8 Purchased $1,000 worth of shop tools from Adrian Cruz on account
Mar 15 Paid half of the amount due to Adrian Cruz with cash
Mar 18 Paid $200 cash to a local publication for advertising
Mar 19 Paid salaries with $1,000 in cash
Mar 20 Noel Dy withdrew $1,500 cash for personal use
Mar 29 Bought $1,000 worth of chairs and tables for the shop on account
Mar 31 Noel Dy personally invested additional equipment worth $5,000 for business use
Mar 31 Received $3,000 cash from various customers for repairs done on their automobiles

Prepare journal entries for the above transactions.

Date Account Title and Explanation PR Debit Credit

2019
Mar 1 Cash 10,000
Equipment 8,000
Dy, Capital 18,000
To record owner's initial investment

Mar 3 Rent Expense 1,000

Cash 1,000
Paid rent for month of March

Mar 5 Shop Tools 1,200

Cash 1,200
Purchased shop tools

Mar 7 Cash 2,000

Service Revenue 2,000
Received cash for services

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Date Account Title and Explanation PR Debit Credit

Mar 8 Shop Tools 1,000
Accounts Payable 1,000
Purchased shop tools on account

Mar 15 Accounts Payable 500

Cash 500
Made payment to Adrian Cruz

Mar 18 Advertising Expense 200

Cash 200
Paid for advertising

Mar 19 Salaries Expense 1,000

Cash 1,000
Paid salaries to staff

Mar 20 Dy, Withdrawals 1,500

Cash 1,500
Owner took cash for personal use

Mar 29 Equipment 1,000

Accounts Payable 1,000
Purchased tables and chairs on account

Mar 31 Equipment 5,000

Dy, Capital 5,000
Owner made additional investment

Mar 31 Cash 3,000

Service Revenue 3,000
Received cash for services

AP-8B LO 3 4

Helen Long owns and operates Long Landscaping, which provides landscaping and gardening services. During the
month of August 2019, she had the following transactions.

Aug 1 Provided services to a customer who paid $800 cash

Aug 3 Paid $1,000 to the bank to repay a bank loan; of that amount, $100 was interest
Aug 6 Received a maintenance bill for $500, which will be paid later
Aug 8 Paid $1,600 for a one-year insurance policy
Aug 17 Paid $2,200 for rent for the month
Aug 20 Provided services to a customer for $1,300 and the customer will pay later
Aug 22 Paid the maintenance bill received on August 6
Aug 28 Received payment from the customer from August 20
Record the transactions in the journal.

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Date Account Title and Explanation PR Debit Credit

2019
Aug 1 Cash 800
Service Revenue 800
Provided services to a customer

Aug 3 Bank Loan 900

Interest Expense 100
Cash 1,000
Paid bank loan and interest

Aug 6 Maintenance Expense 500

Accounts Payable 500
Received maintenance bill

Aug 8 Prepaid Insurance 1,600

Cash 1,600
Paid for insurance policy

Aug 17 Rent Expense 2,200

Cash 2,200
Paid rent for the month of August

Aug 20 Accounts Receivable 1,300

Service Revenue 1,300
Provided services on account

Aug 22 Accounts Payable 500

Cash 500
Paid maintenance bill

Aug 28 Cash 1,300

Accounts Receivable 1,300
Received payment from customer

AP-9B LO 1 6

The following are the accounts of DRAM Company and their corresponding normal balances on October 31, 2019.

Account Balance
David, Capital $20,400
Accounts Payable 13,200
Insurance Expense 1,000
Service Revenue 6,800
Equipment 30,500
Supplies Expense 2,900
Cash 5,700
Salaries Expense 4,100
David, Withdrawals 3,100
Rent Expense 2,200
Telephone Expense 1,200
Bank Loan 11,700
Prepaid Rent 1,400

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Prepare DRAM Company’s trial balance for the month ended October 31, 2019.

DRAM Company
Trial Balance
October 31, 2019
Account Title DR CR
Cash $5,700
Prepaid Rent 1,400
Equipment 30,500
Accounts Payable $13,200
Bank Loan 11,700
David, Capital 20,400
David, Withdrawals 3,100
Service Revenue 6,800
Insurance Expense 1,000
Supplies Expense 2,900
Salaries Expense 4,100
Rent Expense 2,200
Telephone Expense 1,200
Total $52,100 $52,100

AP-10B LO 1 6

A part-time bookkeeper for Bright Lights has created the trial balance at the end of the year and cannot get it
to balance.

Bright Lights
Trial Balance
December 31, 2019
Account Title DR CR
Accounts Payable $2,500
Accounts Receivable 6,000
Advertising Expense $1,500
Bank Loan 5,000
Bright, Capital 20,600
Bright, Withdrawals 10,000
Cash 7,600
Interest Expense 750
Maintenance Expense 1,500
Office Supplies Expense 1,200
Rent Expense 12,000
Salaries Expense 15,000
Service Revenue 30,000
Telephone Expense 5,000
Unearned Revenue 2,950
Utilities Expense 500
Total $60,050 $62,050

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All the entries have been journalized and posted to the general ledger properly, and all the accounts should
have normal balance. Recreate the trial balance for Bright Lights so that the accounts are listed in the order they
would typically appear in a chart of accounts, and ensure that debits equal credits.

Bright Lights
Trial Balance
December 31, 2019
Account Title DR CR
Cash $7,600
Accounts Receivable 6,000
Accounts Payable $2,500
Unearned Revenue 2,950
Bank Loan 5,000
Bright, Capital 20,600
Bright, Withdrawals 10,000
Service Revenue 30,000
Telephone Expense 5,000
Advertising Expense 1,500
Interest Expense 750
Maintenance Expense 1,500
Office Supplies Expense 1,200
Rent Expense 12,000
Salaries Expense 15,000
Utilities Expense 500
Total $61,050 $61,050

Analysis
The accountant at Bright Lights was worried that he may have recorded some entries incorrectly in the journal,
but upon seeing that the trial balance is in balance, he assumed that he must have done everything correctly. Is
his assumption correct? Explain.
A trial balance that is in balance does not necessarily mean that all entries were recorded correctly in the
journal. For example, he may have debited rent expense when he was supposed to debit salaries expense. This
error would still result in a balanced trial balance. He also could have recorded a journal entry in the wrong
amount for both the credit and the debit.

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AP-11B LO 5 6

Winter Sports is owned by Robert Blue and provides winter sport equipment and apparel. The complete general
ledger for November 2019 is shown below.

Account: Cash GL No: 101

Date Description PR DR CR Balance
Nov 1 Opening Balance 15,600 DR
Nov 1 J1 3,600 12,000 DR
Nov 2 J1 5,800 17,800 DR
Nov 3 J1 2,880 14,920 DR
Nov 10 J1 20 14,900 DR
Nov 10 J1 1,560 13,340 DR
Nov 20 J1 5,200 18,540 DR
Nov 22 J1 1,600 20,140 DR
Nov 24 J1 1,420 18,720 DR
Nov 30 J1 4,000 14,720 DR

Account: Accounts Receivable GL No: 105

Date Description PR DR CR Balance
Nov 1 Opening Balance 4,920 DR
Nov 22 J1 1,600 3,320 DR

Account: Prepaid Insurance GL No: 110

Date Description PR DR CR Balance
Nov 1 Opening Balance 0 DR
Nov 1 J1 3,600 3,600 DR

Account: Equipment GL No: 120

Date Description PR DR CR Balance
Nov 1 Opening Balance 22,280 DR
Nov 20 J1 5,200 17,080 DR

Account: Accounts Payable GL No: 200

Date Description PR DR CR Balance
Nov 1 Opening Balance 5,800 CR
Nov 4 J1 500 6,300 CR
Nov 24 J1 1,420 4,880 CR

Account: Unearned Revenue GL No: 210

Date Description PR DR CR Balance
Nov 1 Opening Balance 3,600 CR

Account: Bank Loan GL No: 215

Date Description PR DR CR Balance
Nov 1 Opening Balance 10,200 CR
Nov 10 J1 1,560 8,640 CR

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Account: Blue, Capital GL No: 300

Date Description PR DR CR Balance
Nov 1 Opening Balance 23,200 CR

Account: Blue, Withdrawals GL No: 310

Date Description PR DR CR Balance
Nov 30 JI 4,000 4,000 DR

Account: Service Revenue GL No: 400

Date Description PR DR CR Balance
Nov 2 J1 5,800 5,800 CR

Account: Interest Expense GL No: 520

Date Description PR DR CR Balance
Nov 10 J1 20 20 DR

Account: Maintenance Expense GL No: 530

Date Description PR DR CR Balance
Nov 4 J1 500 500 DR

Account: Rent Expense GL No: 540

Date Description PR DR CR Balance
Nov 3 J1 2,880 2,880 DR

Prepare a trial balance. Place the accounts in the order shown in the general ledger.

Winter Sports
Trial Balance
November 30, 2019
Account Title DR CR
Cash $14,720
Accounts Receivable 3,320
Prepaid Insurance 3,600
Equipment 17,080
Accounts Payable $4,880
Unearned Revenue 3,600
Bank Loan 8,640
Blue, Capital 23,200
Blue, Withdrawals 4,000
Service Revenue 5,800
Interest Expense 20
Maintenance Expense 500 5,800
Rent Expense 2,880
Total $46,120 $46,120

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AP-12B LO 3 4 5 6

Lowe Consulting provides advice and resources to entrepreneurs starting their own businesses. The company is
a sole proprietorship owned by Leslie Lowe. The closing balances at the end of August 2019 and the chart of
accounts are shown below.

Lowe Consulting
Balance Sheet
As at August 31, 2019
Assets Liabilities
Cash $7,200 Accounts Payable $3,400
Accounts Receivable 2,300 Unearned Revenue 1,400
Prepaid Insurance 850 Bank Loan 5,600
Equipment 11,500 Total Liabilities 10,400
Owner’s Equity
Lowe, Capital 11,450
Total Assets $21,850 Total Liabilities and Owner’s Equity $21,850

Account Description Account # Account Description Account #

ASSETS REVENUE
Cash 101 Service Revenue 400
Accounts Receivable 105
EXPENSES
Prepaid Insurance 110
Insurance Expense 515
Equipment 120
Interest Expense 520
LIABILITIES Office Supplies Expense 530
Accounts Payable 200 Rent Expense 540
Unearned Revenue 210
Bank Loan 215

OWNER’S EQUITY
Lowe, Capital 300
Lowe, Withdrawals 310

During the month of September, Lowe Consulting had the following transactions.

Sep 1 Paid $1,800 cash in advance for a one-year insurance policy

Sep 2 Received $1,900 cash for services provided
Sep 3 Paid $1,350 cash for September's rent
Sep 4 Purchased office supplies on account worth $250
Sep 10 Paid $960 toward the bank loan principal and $40 of interest on the loan
Sep 20 Received $2,200 cash from a customer booking consulting services in advance
Sep 22 Collected $850 from a customer paying their account
Sep 24 Paid $600 toward accounts payable
Sep 30 The owner withdrew $1,600 cash for personal use

Required

a) Prepare the journal entries for the month of September.

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Date Account Title and Explanation PR Debit Credit

2019
Sep 1 Prepaid Insurance 110 1,800
Cash 101 1,800
Paid for a one-year insurance policy

Sep 2 Cash 101 1,900

Service Revenue 400 1,900
Received cash for services

Sep 3 Rent Expense 540 1,350

Cash 101 1,350
Paid for rent

Sep 4 Office Supplies Expense 115 250

Accounts Payable 200 250
Purchased office supplies on account

Sep 10 Bank Loan 215 960

Interest Expense 520 40
Cash 101 1,000
Paid bank loan

Sep 20 Cash 101 2,200

Unearned Revenue 210 2,200
Customer paid deposit

Sep 22 Cash 101 850

Accounts Receivable 105 850
Customers paid their account

Sep 24 Accounts Payable 200 600

Cash 101 600
Paid accounts payable

Sep 30 Lowe, Withdrawals 310 1,600

Cash 101 1,600
Owner withdrew cash for personal use

b) Post the journal entries to the ledger accounts.

Account: Cash GL No: 101

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 7,200 DR
Sep 1 J1 1,800 5,400 DR
Sep 2 J1 1,900 7,300 DR
Sep 3 J1 1,350 5,950 DR
Sep 10 J1 1,000 4,950 DR
Sep 20 J1 2,200 7,150 DR
Sep 22 J1 850 8,000 DR
Sep 24 J1 600 7,400 DR
Sep 30 J1 1,600 5,800 DR

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Account: Accounts Receivable GL No: 105

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 2,300 DR
Sep 22 J1 850 1,450 DR

Account: Prepaid Insurance GL No: 110

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 850 DR
Sep 1 J1 1,800 2,650 DR

Account: Equipment GL No: 120

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 11,500 DR

Account: Accounts Payable GL No: 200

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 3,400 CR
Sep 4 J1 250 3,650 CR
Sep 24 J1 600 3,050 CR

Account: Unearned Revenue GL No: 210

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 1,400 CR
Sep 20 J1 2,200 3,600 CR

Account: Bank Loan GL No: 215

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 5,600 CR
Sep 10 J1 960 4,640 CR

Account: Lowe, Capital GL No: 300

Date Description PR DR CR Balance
2019
Sep 1 Opening Balance 11,450 CR

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Account: Lowe, Withdrawals GL No: 310

Date Description PR DR CR Balance
2019
Sep 30 J1 1,600 1,600 DR

Account: Service Revenue GL No: 400

Date Description PR DR CR Balance
2019
Sep 2 J1 1,900 1,900 CR

Account: Insurance Expense GL No: 515

Date Description PR DR CR Balance

Account: Interest Expense GL No: 520

Date Description PR DR CR Balance
2019
Sep 10 J1 40 40 DR

Account: Office Supplies Expense GL No: 530

Date Description PR DR CR Balance
2019
Sep 4 J1 250 250 DR

Account: Rent Expense GL No: 540

Date Description PR DR CR Balance
2019
Sep 3 J1 1,350 1,350 DR

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c) Prepare a trial balance at the end of September.

Lowe Consulting
Trial Balance
September 30, 2019
Account Title DR CR
Cash $5,800
Accounts Receivable 1,450
Prepaid Insurance 2,650
Equipment 11,500
Accounts Payable $3,050
Unearned Revenue 3,600
Bank Loan 4,640
Lowe, Capital 11,450
Lowe, Withdrawals 1,600
Service Revenue 1,900
Interest Expense 40
Office Supplies Expense 250
Rent Expense 1,350
Total $24,640 $24,640

AP-13B LO 3 4 5 6

Sokatoa, owned by Hiromi Nakata, had the following transactions for the month of July 2019.

Jul 1 Purchased a new machine with $12,000 cash

Jul 5 Provided services worth $10,000 to clients who will pay later
Jul 12 Hiromi withdrew $5,000 cash from the business
Jul 19 Received a maintenance bill for $1,100, which will be paid later
Jul 31 Got a loan from the bank for $25,000

Required
a) Prepare the journal entries for the month of July.
Date Account Title and Explanation PR Debit Credit
2019
Jul 1 Machine 120 12,000
Cash 101 12,000
Purchased new machine

Jul 5 Accounts Receivable 105 10,000

Sales Revenue 400 10,000
Made sales on credit

Jul 12 Nakata, Withdrawals 310 5,000

Cash 101 5,000
Owner withdrew cash from the business

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Date Account Title and Explanation PR Debit Credit

Jul 19 Maintenance Expense 520 1,100
Accounts Payable 200 1,100
Paid for maintenance on credit

Jul 31 Cash 101 25,000

Bank Loan 215 25,000
Took out a bank loan

b) Post the journal entries to the ledger accounts.

Account: Cash GL No: 101

Date Description PR DR CR Balance
2019
Opening Balance 31,800 DR
Jul 1 J1 12,000 19,800 DR
Jul 12 J1 5,000 14,800 DR
Jul 31 J1 25,000 39,800 DR

Account: Accounts Receivable GL No: 105

Date Description PR DR CR Balance
2019
Opening Balance 5,000 DR
Jul 5 J1 10,000 15,000 DR

Account: Machine GL No: 120

Date Description PR DR CR Balance
2019
Opening Balance 6,000 DR
Jul 1 J1 12,000 18,000 DR

Account: Accounts Payable GL No: 200

Date Description PR DR CR Balance
2019
Opening Balance 3,500 CR
Jul 19 J1 1,100 4,600 CR

Account: Bank Loan GL No: 215

Date Description PR DR CR Balance
2019
Opening Balance 0 CR
Jul 31 J1 25,000 25,000 CR

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Account: Nakata, Capital GL No: 300

Date Description PR DR CR Balance
2019
Opening Balance 39,300 CR

Account: Nakata, Withdrawals GL No: 310

Date Description PR DR CR Balance
2019
Jul 12 J1 5,000 5,000 DR

Account: Sales Revenue GL No: 400

Date Description PR DR CR Balance
2019
Jul 5 J1 10,000 10,000 CR

Account: Maintenance Expense GL No: 520

Date Description PR DR CR Balance
2019
Jul 19 J1 1,100 1,100 DR

Account: Salaries Expense GL No: 540

Date Description PR DR CR Balance

c) Prepare a trial balance at the end of July.

Sokatoa
Trial Balance
July 31, 2019
Account Title DR CR
Cash $39,800
Accounts Receivable 15,000
Machine 18,000
Accounts Payable $4,600
Bank Loan 25,000
Nakata, Capital 39,300
Nakata, Withdrawals 5,000
Sales Revenue 10,000
Maintenance Expense 1,100
Salaries Expense 0
Total $78,900 $78,900

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Analysis
Explain how the general ledger is similar to the T-accounts used in earlier chapters.

Each general ledger account can be thought of as one T-account. Each one records every increase and
decrease relating to a specific account and keeps a running balance. Account balances can be taken
from the general ledger accounts (or T-accounts) to prepare financial statements, such as trial balances
and balance sheets.

AP-14B LO 7

Sassy Salon is a small hair salon with only three employees—two hairdressers, and an accountant who also
acts as the receptionist and cashier, and who performs other miscellaneous tasks to keep the salon operational.
Sassy Salon uses a computerized accounting system, where the accountant is supposed to enter each credit card
and cash receipt transaction as soon as a customer pays. Based on the accountant’s input, the computerized
accounting system automatically prepares journal entries, posts the entries to ledgers and prepares a trial
balance at the end of the period. Sometimes, the amount of cash on hand at the end of the period is not the
same as the cash balance reported by the computerized accounting system. This is mostly due to the accountant
forgetting to input a transaction or making other mistakes, especially when the salon is busy and the amount
of work is overwhelming. When there is a discrepancy, the accountant always has a difficult time locating the
error and explaining the discrepancy to the business owner. Therefore, the accountant proposes to the owner
that rather than inputting each sales transaction separately, she will wait until the end of the period to count
the amount of cash on hand and enter sales transactions based on that amount. By doing so, there will never
be a discrepancy. It also reduces the amount of work for the accountant, which allows her to focus on servicing
customers. Should the owner approve the accountant’s proposed change? Why or why not?
There are advantages and disadvantages of the new procedure proposed by the accountant. The advantages
include better customer service and the accountant’s higher job satisfaction. The disadvantages include
internal control deficiencies and potential fraud. Specifically, the new procedure would enable the accountant
to embezzle money from the business by reporting fewer sales without the owner’s knowledge. Because the
disadvantages outweigh the advantages, the owner should not approve the accountant’s proposed change.

AP-15B LO 3 4 7

On August 16, 2019, the bookkeeper for Reliable Administration discovered that an entry was made on August 9
to pay for a one-year insurance policy for $1,800; however, accounts payable was used instead of cash. Prepare
the entries to correct this error.

Date Account Title and Explanation PR Debit Credit

2019
Aug 16 Accounts Payable 1,800
Prepaid Insurance 1,800
To reverse incorrect entry

Aug 16 Prepaid Insurance 1,800

Cash 1,800
To record payment for insurance

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AP-16B LO 3 4 7

On February 21, 2019, the bookkeeper for Balsdon Consulting discovered that an entry was made on February
6 to pay for repairs expense with $800 cash; however, rent expense was debited. Prepare the entries to correct
this error.

Date Account Title and Explanation PR Debit Credit

2019
Feb 21 Cash 800
Rent Expense 800
To reverse incorrect entry

Feb 21 Repairs Expense 800

Cash 800
To record payment for repairs

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Case Study
CS-1 LO 1 2 3 4 5 6 7

Renu Mawani has been operating her own interior design business called Mawani Interiors for a couple of years.
The following transactions occurred in March 2019.
Mar 2 Paid $2,000 cash for March’s office rental
Mar 3 Renu invested $7,000 cash into the business
Mar 4 Purchased equipment on account for $8,000
Mar 6 Received $2,800 cash from a client that owed the company for last month’s services
Mar 8 Purchased office supplies using $370 cash
Mar 10 Paid $6,900 cash for a consulting invoice received and recorded last month
Mar 13 Completed work for a client and the client paid $2,900 cash
Mar 15 Prepaid $1,800 cash for a one-year insurance policy
Mar 16 Completed work for a client, who will pay $3,200 next month
Mar 20 Discovered that an error was made on the transaction recorded on March 4; the equipment cost
$8,800, not $8,000
Mar 23 Received a $6,000 cash deposit from a client for work to be completed in the next few months
Mar 29 Received utility bills for $410 to be paid next month
Mar 29 Obtained a bank loan of $12,000
Mar 30 Renu withdrew $3,000 cash for personal use
Mar 31 Paid $18,000 cash for employee salaries

Required
a) Below is the list of account names that the company uses and their respective opening account balances as
at the beginning of March. For each of the accounts, identify the account category (assets, liabilities, owner’s
capital, owner’s withdrawals, revenue or expenses) and input the opening account balance in the debit or
credit column based on the side of its normal balance. The answers have been filled in for the accounts
payable account as an example. Be sure to total both the debit and credit sides. (Hint: If all your answers are
correct, the total debit will be equal to the total credit.)

Account Name Balance Account Category Debit Credit

Accounts Payable $6,900 Liabilities $6,900
Accounts Receivable 5,400 Assets $5,400
Cash 2,400 Assets 2,400
Equipment 11,600 Assets 11,600
Mawani, Capital 12,500 Owner’s Capital 12,500
Mawani, Withdrawals 0 Owner's Withdrawals 0
Bank Loan 0 Liabilities 0
Prepaid Insurance 0 Assets 0
Insurance Expense 0 Expenses 0
Office Supplies Expense 0 Expenses 0
Rent Expense 0 Expenses 0
Salaries Expense 0 Expenses 0
Service Revenue 0 Revenue 0
Unearned Revenue 0 Liabilities 0
Utilities Expense 0 Expenses 0
Total $19,400 $19,400

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b) Identify the steps in the accounting cycle that need to be done repeatedly during the accounting period
before the trial balance can be prepared at the end of the accounting period.

The three steps are as follows.

1. Analyze transactions
2. Journalize the transactions
3. Post to ledger accounts

c) Record all of March’s transactions in the journal and post them to the ledger. The account number can be
found on the top right corner of each account’s ledger.

Date Account Title and Explanation PR Debit Credit

2019
Mar 2 Rent Expense 520 2,000
Cash 110 2,000
Paid for rent

Mar 3 Cash 110 7,000

Mawani, Capital 310 7,000
Owner invested cash

Mar 4 Equipment 150 8,000

Accounts Payable 210 8,000
Purchased equipment on account

Mar 6 Cash 110 2,800

Accounts Receivable 120 2,800
Received cash on account

Mar 8 Office Supplies Expense 500 370

Cash 110 370
Purchased office supplies

Mar 10 Accounts Payable 210 6,900

Cash 110 6,900
Paid consultant

Mar 13 Cash 110 2,900

Service Revenue 410 2,900
Completed work for client

Mar 15 Prepaid Insurance 130 1,800

Cash 110 1,800
Prepaid annual insurance policy

Mar 16 Accounts Receivable 120 3,200

Service Revenue 410 3,200
Completed work on account

Mar 20 Accounts Payable 210 8,000

Equipment 150 8,000
Reversed incorrect entry

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Date Account Title and Explanation PR Debit Credit

Mar 20 Equipment 150 8,800
Accounts Payable 210 8,800
Correctly recorded equipment purchase

Mar 23 Cash 110 6,000

Unearned Revenue 220 6,000
Received customer deposit

Mar 29 Utilities Expense 540 410

Accounts Payable 210 410
Received utility bills

Mar 29 Cash 110 12,000

Bank Loan 230 12,000
Borrowed cash from the bank

Mar 30 Mawani, Withdrawals 320 3,000

Cash 110 3,000
Owner withdrew cash for personal use

Mar 31 Salaries Expense 510 18,000

Cash 110 18,000
Paid employee salaries

Account: Cash GL No: 110

Date Description PR DR CR Balance
2019
Mar 1 Opening Balance 2,400 DR
Mar 2 J1 2,000 400 DR
Mar 3 J1 7,000 7,400 DR
Mar 6 J1 2,800 10,200 DR
Mar 8 J1 370 9,830 DR
Mar 10 J1 6,900 2,930 DR
Mar 13 J1 2,900 5,830 DR
Mar 15 J1 1,800 4,030 DR
Mar 23 J1 6,000 10,030 DR
Mar 29 J1 12,000 22,030 DR
Mar 30 J1 3,000 19,030 DR
Mar 31 J1 18,000 1,030 DR

Account: Accounts Receivable GL No: 120

Date Description PR DR CR Balance
2019
Mar 1 Opening Balance 5,400 DR
Mar 6 J1 2,800 2,600 DR
Mar 16 J1 3,200 5,800 DR

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Account: Prepaid Insurance GL No: 130

Date Description PR DR CR Balance
2019
Mar 15 J1 1,800 1,800 DR

Account: Equipment GL No: 150

Date Description PR DR CR Balance
2019
Mar 1 Opening Balance 11,600 DR
Mar 4 J1 8,000 19,600 DR
Mar 20 J1 8,000 11,600 DR
Mar 20 J1 8,800 20,400 DR

Account: Accounts Payable GL No: 210

Date Description PR DR CR Balance
2019
Mar 1 Opening Balance 6,900 CR
Mar 4 J1 8,000 14,900 CR
Mar 10 J1 6,900 8,000 CR
Mar 20 J1 8,000 0 CR
Mar 20 J1 8,800 8,800 CR
Mar 29 J1 410 9,210 CR

Account: Unearned Revenue GL No: 220

Date Description PR DR CR Balance
2019
Mar 23 J1 6,000 6,000 CR

Account: Bank Loan GL No: 230

Date Description PR DR CR Balance
2019
Mar 29 J1 12,000 12,000 CR

Account: Mawani, Capital GL No: 310

Date Description PR DR CR Balance
2019
Mar 1 Opening Balance 12,500 CR
Mar 3 J1 7,000 19,500 CR

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Account: Mawani, Withdrawals GL No: 320

Date Description PR DR CR Balance
2019
Mar 30 J1 3,000 3,000 DR

Account: Service Revenue GL No: 410

Date Description PR DR CR Balance
2019
Mar 13 J1 2,900 2,900 CR
Mar 16 J1 3,200 6,100 CR

Account: Office Supplies Expense GL No: 500

Date Description PR DR CR Balance
2019
Mar 1 Opening Balance 0 DR
Mar 8 J1 370 370 DR

Account: Salaries Expense GL No: 510

Date Description PR DR CR Balance
2019
Mar 31 J1 18,000 18,000 DR

Account: Rent Expense GL No: 520

Date Description PR DR CR Balance
2019
Mar 2 J1 2,000 2,000 DR

Account: Insurance Expense GL No: 530

Date Description PR DR CR Balance

Account: Utilities Expense GL No: 540

Date Description PR DR CR Balance
2019
Mar 29 J1 410 410 DR

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d) Prepare the trial balance.

Mawani Interiors
Trial Balance
March 31, 2019
Account Title DR CR
Cash $1,030
Accounts Receivable 5,800
Prepaid Insurance 1,800
Equipment 20,400
Accounts Payable $9,210
Unearned Revenue 6,000
Bank Loan 12,000
Mawani, Capital 19,500
Mawani, Withdrawals 3,000
Service Revenue 6,100
Office Supplies Expense 370
Salaries Expense 18,000
Rent Expense 2,000
Utilities Expense 410
Total $52,810 $52,810

e) In order to improve the efficiency of the accounting process, Renu is considering recording transactions
directly to the ledger and eliminating the use of a journal. Would it be ethical to do so? Explain.

A journal is a good tool for accuracy verification. It is easier to check on the journal than on the ledger
whether the debit and credit sides of each transaction are equal. If a transaction is recorded only in the
ledger, it is possible to make an error by recording only one side (i.e. only the debit side or only the credit
side) of the transaction and forgetting to record the other side. Another possible error is recording two
different numbers in the ledger, with one number on the debit side of one account, and a different number
on the credit side of another account. If errors are made, the accountant may find out at the end of the
period that the trial balance does not balance. By the time the errors are discovered, it can be very difficult
to locate the specific transactions that contain the errors based on the ledger alone. The accountant may
then be tempted to manipulate the numbers to balance the debit and credit sides.

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Notes

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