Accounting Homework Help!?
Question:
(Using the following transactions, calculate the following for the period. Use T Accounts.)
A. Business opened by issuing stock to investors, $40,000.
B. Billed customer for service performed, $3,000.
C. Paid for advertisements in advance, $1,400.
D. Received telephone bill, to be paid next month, $400.
E. Declared and paid dividend of $400.
F. Received $1,000 from customer billed in B above.
G. Paid half of the telephone bill, $200.
H. Received $2,000 in advance of performing service.
*Total assets?
*Total of trial balance?
*The ending balance of cash?
*Net income for the period?
I would appreciate ANY help and explanation! Thanks!
Answer:
I know what it's like not to have that text before the first assignment, so I don't mind helping you out. However, The best I can do on here is give you the journal entries, and then you go from there. Although it takes a little extra time, I begin with journal entries first so it's easier to transfer to t-accounts. You don't have to do that, and most people don't, but it simplifies things for myself. I'm assuming you've at least been introduced to the appearance of journals, t-accounts and trial balances, and you've learned the basic-basics.
+Dr.= Debit, Cr.= Credit
+Asset accounts have a normal DEBIT balance (increases in assets are debited. Decreases are credited)
+Liabilities and Equity accounts both have normal CREDIT balances (increases are credited; decreases, debited).
A. Dr. Cash; Cr. Common Stock
Reason: Investors bought into the business which increased cash and capital for the business. More than likely, you're dealing with a corporation. (*FYFI: Common Stock/Stockholder's Equity are used for corporations. Capital/Owner's Equity are used, generally, for sole proprietorships/partnerships. There one in the same however.)
B. Dr. Accounts Receivable (A/R); Cr. Revenue.
Reason: Although you have yet to receive cash, you performed the service and have EARNED your fees. A/R is used when there's a delay between the sale of goods/services and and actual payment).
C. Dr. Advertising Expense ($1,400); Cr. Cash ($1,400)
Reason: Pretty self explanatory, but a key rule of thumb: EXPENSE ACCOUNTS ARE ALWAYS DEBITED. You'll never see a credited expense account-- ever.
D. Dr. Telephone Expense ($400); Cr. Accounts Payable (A/P)($400)
Reason: This is similar to the above transaction in letter C. However, you did not pay cash for this particular transaction. You were billed, so you OWE the telephone company. When you owe someone, that is a liability to you, and A/P is a liability account.
E. Dr. Dividends ($400); Cr. Cash ($400)
Reason: Dividends are payments to the investors of your company. Dividends decrease common stock (stockholder's equity). Anytime there's a decrease in common stock, a debit occurs.
F. Dr. Cash ($1,000); Cr. A/R ($1,000)
Reason: You're receiving payment from the customer you billed in transaction B. Although two asset accounts are used in this example, one is increasing while the other decreases.
G. Dr. A/P; Cr. Cash
Reason: Whenever a liability (A/P) decreases, it's debited. Whenever an asset decreases, it's credited. You've paid off part of your liability, which decreases its balance. Plus, you paid with cash, which decreases the amount of cash you have left in your business.
H. Dr. Cash ($2,000); Cr. Unearned Revenue ($2,000)
Reason: You've been paid beforehand to perform a service, so that's money in the bank to you. HOWEVER, you've received UNEARNED REVENUE (which is NOT to be confused with Revenue) because you have a liability in performing that service. Let's put it like this: If I pay you beforehand to mow my lawn, I, as the customer, expect you to cut that grass. However, anything could happen in which you may not be able to perform the duty. It puts you at RISK (liability) of losing money as well as (potential) business. By then, I'll want my money back since you didn't perform the duty. lol
Remember that in the journal, your debits must equal your credits. To transfer to your t-accounts, simply set up each account (Cash, A/R, A/P, Unearned Revenue, Common Stock, Dividends, Revenue, Advertising Expense and Telephone Expense). For each transaction that occured, transfer from your journal to your t-account (debits on debit-sides; credit on credit-sides for each account).
Calculate each t-account's normal balance. Remember:
**Assets have a normal debit balance (DR side minus CR side).
**Liability and Equity accounts have normal credit balances (Cr side minus DR side).
Checkpoint figures to be transferred over to the Trial Balance(list in the following order):
Cash: 41,000
A/R: 2,000
A/P: 200
Unearned Revenue: 2000
Common Stock: 40,000
Dividends: 400
Revenue: 3000
Advertising Expense: 1400
Telephone Expense: 400
Properly place those totals in their respective sides. Assets (Cash and A/R), Dividends and Expenses go on the debit side. Liabilities (A/P and Unearned Rev.) and Revenue on the credit side. DEBITS MUST EQUAL CREDITS when you total everything on the Trial Balance.
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