Chapter Two T Accounts, Debits and Credits, Trial Balance, and Financial Statements Performance Objectives 1. Determine balances of T accounts having entries recorded on both sides of the accounts 2. Present the fundamental accounting equation with the T account form, and label the debit and credit sides 3. Record directly in T accounts a group of business transactions involving changes in asset, liability, owner’s equity, revenue, and expense accounts for a service business Accounting Is Fun! 2-2 Performance Objectives 4. Prepare a trial balance 5. Prepare: – Income statement – Statement of owner’s equity – Balance sheet 6. Recognize the effect of transpositions and slides on account balances Accounting Is Fun! 2-3 T Account Form • Shaped like the letter T • One side for increases (+) to the account • The other side for decreases (-) to the account • Normal Balance – The increase (plus) side of any T account. Accounting Is Fun! 34,120 2-4 Compare Account Column to T Account 34,120 Accounting Is Fun! 2-5 Debit & Credit • What does Debit mean? • What does Credit mean? – Forget what you know about debit cards! – Forget what you know about credit cards! Accounting Is Fun! 2-6 In Accounting • Debit = Left • Credit = Right • Debit = DR = Left • Credit = CR = Right Accounting Is Fun! 2-7 T Accounts • Assets – The plus side for assets is placed on the left, and the minus side is placed on the right Accounting Is Fun! Assets + DR CR 2-8 T Accounts • Liabilities and owner’s equity – Since these classifications are placed on the opposite side of the equals sign, the plus and minus signs are also placed on the opposite sides (switched around) Accounting Is Fun! Liabilities + DR CR Owner's Equity + DR CR 2-9 In Accounting Asset DR = CR Liabilities DR CR + Owner's Equity DR CR • Debit is Left • Credit is Right • DR is Left • CR is Right • For every account this is true! Accounting Is Fun! 2 - 10 T Accounts • Recall that we placed revenue and expenses under the umbrella of owner’s equity • Revenue increases owner’s equity • Expenses decrease owner’s equity Assets + DR = CR Liabilities + DR CR + DR - Expenses + DR CR + Revenues + DR CR - Drawing + Capital • Remember: – Drawing is placed under the umbrella of the Capital account Accounting Is Fun! Owner's Equity + CR + DR CR DR + CR 2 - 11 Present The Fundamental Accounting Equation With The T Account Form, And Label The Debit And Credit Sides As Well As The Plus And Minus Sides Assets + DR = CR Liabilities + DR CR + Owner's Equity + DR CR + Revenues + DR CR - Expenses + DR CR •We switch the plus and minus signs around on the other side of the equals sign so that we will be able to carry out double-entry accounting •Whenever there is a minus in front of the account, we must “switch the plus & minus around” Accounting Is Fun! 2 - 12 Debits Must Always Equal Credits DR = CR Assets + DR = CR Liabilities + DR CR + Owner's Equity + DR CR + Revenues + DR CR - Expenses + DR CR The critical rule to remember is that the amount placed on the debit side of one or more accounts MUST equal that amount placed on the credit side of another account or accounts. Accounting Is Fun! 2 - 13 Record Directly In T Accounts A Group Of Business Transactions Involving Changes In Asset, Liability, Owner’s Equity, Revenue, And Expense Accounts For A Service Business Step 1 Step 3 – Which accounts are involved? Step 2 – Are the accounts increased or decreased? Step 4 – How should you classify the accounts? • Asset • Liability • Capital • Revenue • Expenses Accounting Is Fun! – Which accounts are debited and which accounts are credited? Step 5 – Balance the equations: – DR = CR – A = L + OE 2 - 14 Recording Business Transactions for a Service Business We will be recording business transactions for a company with the following details: Owner name: L. P. Arch Business name: Arch Copy Co. Business type: Sole proprietorship (one-person business) Accounting Is Fun! 2 - 15 = Assets – Credit + Debit Cash + Debit a) Liabilities – Debit + Credit Accounts Payable – Credit – Debit + Credit + Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 70,000 + Credit a) + Revenue – Debit + Credit Income from Services – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 70,000 Rent Expense L.P. Arch, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit – Credit – Credit Transaction (a): Arch deposited $70,000 in a bank account in name of business. Accounting Is Fun! 2 - 16 = Assets – Credit + Debit Cash + Debit a) Liabilities – Debit + Credit Accounts Payable – Credit 70,000 b) – Debit + Credit + Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 33,000 + Credit a) + Revenue – Debit + Credit Income from Services – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 70,000 Rent Expense L.P. Arch, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) 33,000 – Credit – Credit Transaction (b): Bought equipment, paying cash, $33,000. Accounting Is Fun! 2 - 17 = Assets – Credit + Debit Cash + Debit a) + Liabilities – Debit + Credit Accounts Payable – Credit 70,000 b) 33,000 – Debit + Credit c) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 + Credit a) + Revenue – Debit + Credit Income from Services – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 70,000 Rent Expense L.P. Arch, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) 33,000 7,000 – Credit – Credit Transaction (c): Bought equipment on account from Melton Office Supply, $7,000. Accounting Is Fun! 2 - 18 = Assets – Credit + Debit – Debit Cash + Debit a) + Liabilities + Credit Accounts Payable – Credit 70,000 b) d) 33,000 2,000 – Debit d) + Credit 2,000 c) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 + Credit a) + Revenue – Debit + Credit Income from Services – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 70,000 Rent Expense L.P. Arch, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) 33,000 7,000 – Credit – Credit Transaction (d): Paid Melton Office Supply, a creditor, $2,000. Accounting Is Fun! 2 - 19 = Assets – Credit + Debit – Debit Cash + Debit a) + Liabilities + Credit Accounts Payable – Credit 70,000 b) d) 33,000 2,000 – Debit d) + Credit 2,000 c) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 + Credit a) e) + Revenue – Debit + Credit Income from Services – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 70,000 6,200 Rent Expense L.P. Arch, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 33,000 7,000 6,200 – Credit – Credit Transaction (e): Arch invested her personal computer equipment having a fair market value of $6,200 in Arch Copy Co. Accounting Is Fun! 2 - 20 = Assets – Credit + Debit – Debit Cash + Debit a) f) + Liabilities + Credit Accounts Payable – Credit 70,000 b) 2,520 d) 33,000 2,000 – Debit d) + Credit 2,000 c) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 + Credit a) e) 70,000 6,200 + – Revenue – Debit + Credit Income from Services – Debit + Credit f) Expenses + Debit – Credit Wages Expense + Debit – Credit 2,520 Rent Expense L.P. Arch, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 33,000 7,000 6,200 – Credit – Credit Transaction (f): Arch Copy Co. sold services for cash, $2,520. Accounting Is Fun! 2 - 21 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 70,000 b) 2,520 d) 33,000 2,000 g) 700 – Debit d) + Credit 2,000 c) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit + Debit Income from Services – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,520 Rent Expense + Debit L.P. Arch, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 33,000 7,000 6,200 – Credit – Credit Transaction (g): Paid rent for the month, $700. Accounting Is Fun! 2 - 22 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 70,000 b) 2,520 d) 33,000 2,000 g) 700 – Debit d) + Credit 2,000 c) h) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit + Debit Income from Services – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,520 Rent Expense + Debit L.P. Arch, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 33,000 7,000 6,200 – Credit – Credit Transaction (h): Bought supplies (toner and paper) on credit. These supplies are used immediately; therefore, they are recorded as an expense ($600). Accounting Is Fun! 2 - 23 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 70,000 b) 2,520 d) 33,000 2,000 g) 700 i) 360 – Debit d) + Credit 2,000 c) h) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit + Debit Income from Services – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,520 Rent Expense + Debit L.P. Arch, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Utilities Expense + Debit Prepaid Insurance + Debit i) – Credit 360 Equipment + Debit b) c) e) – Credit 33,000 7,000 6,200 – Credit Transaction (i): Arch Copy Co. paid $360 for a one-year liability insurance policy. Accounting Is Fun! 2 - 24 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 70,000 b) 2,520 d) 33,000 2,000 g) 700 i) 360 – Debit d) + Credit 2,000 c) h) 7,000 600 j) 200 Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit + Debit Income from Services – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,520 Rent Expense + Debit L.P. Arch, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit + Debit – Credit j) – Credit 200 Utilities Expense + Debit Prepaid Insurance + Debit i) – Credit 360 Equipment + Debit b) c) e) – Credit 33,000 7,000 6,200 – Credit Transaction (j): Received bill for newspaper advertising, $200. Accounting Is Fun! 2 - 25 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 70,000 b) 2,520 d) 33,000 2,000 g) 700 i) 360 – Debit d) + Credit 2,000 c) h) j) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit + Debit Income from Services – Debit Wages Expense + Credit f) k) – Credit + Debit – Credit 2,520 1,050 Rent Expense 200 + Debit L.P. Arch, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit k) + Debit – Credit j) – Credit 200 1,050 Utilities Expense + Debit Prepaid Insurance + Debit i) – Credit 360 Equipment + Debit b) c) e) – Credit 33,000 7,000 6,200 – Credit Transaction (k): Arch Copy Co. completed a printing job and billed Walker Company $1,050 for services performed. Accounting Is Fun! 2 - 26 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 70,000 b) 2,520 d) 33,000 2,000 g) 700 i) 360 l) 1,800 – Debit d) l) + Credit 2,000 c) 1,800 h) j) Owner's Equity – Debit + Credit L.P. Arch, Capital – Debit 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit + Debit Income from Services – Debit Wages Expense + Credit f) k) – Credit + Debit – Credit 2,520 1,050 Rent Expense 200 + Debit L.P. Arch, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit k) + Debit – Credit j) – Credit 200 1,050 Utilities Expense + Debit Prepaid Insurance + Debit i) – Credit 360 Equipment + Debit b) c) e) – Credit 33,000 7,000 6,200 – Credit Transaction (l): Arch Copy Co. paid $1,800 to Melton Office Supply, its creditor, as part payment on account. Accounting Is Fun! 2 - 27 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) 70,000 b) 2,520 d) 33,000 2,000 g) 700 i) 360 l) 1,800 m) + Liabilities d) l) + Credit Owner's Equity – Debit + Credit Accounts Payable L.P. Arch, Capital – Debit – Debit + Credit 2,000 c) 1,800 h) 7,000 600 j) 200 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) – Credit + Debit 2,520 1,050 Rent Expense + Debit Credit – Credit + Debit L.P. Arch, Drawing 160 – Credit + Debit g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) – Credit + Debit – Credit + Debit j) 200 1,050 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 – Credit Transaction (m): Arch Copy Co. received and paid electric bill, $160. Accounting Is Fun! 2 - 28 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) + Liabilities + Credit – Debit + Credit Accounts Payable L.P. Arch, Capital – Debit – Debit + Credit 70,000 b) 2,520 d) 33,000 2,000 d) l) 2,000 c) 1,800 h) 7,000 600 g) 700 n) 200 j) 200 i) 360 l) 1,800 m) n) Owner's Equity + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) – Credit + Debit 2,520 1,050 Rent Expense + Debit Credit – Credit + Debit L.P. Arch, Drawing 160 200 – Credit + Debit g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) – Credit + Debit – Credit + Debit j) 200 1,050 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 – Credit Transaction (n): Arch Copy Co. paid on account $200 to City News for advertising. Accounting Is Fun! 2 - 29 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) + Liabilities + Credit – Debit – Debit + Credit d) l) 2,000 c) 1,800 h) 7,000 600 g) 700 n) 200 j) 200 i) 360 l) 1,800 o) 2,130 + Credit L.P. Arch, Capital 33,000 2,000 160 200 – Debit Accounts Payable 70,000 b) 2,520 d) m) n) Owner's Equity + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) 2,520 1,050 – Credit + Debit – Credit + Debit o) 2,130 Rent Expense + Debit Credit – Credit + Debit L.P. Arch, Drawing g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) – Credit + Debit – Credit + Debit j) 200 1,050 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 – Credit Transaction (o): Arch Copy Co. paid wages of a part-time employee, $2,130. Accounting Is Fun! 2 - 30 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) + Credit – Debit + Credit 2,000 c) 1,800 h) g) 700 n) 200 j) i) 360 l) 1,800 2,130 p) 620 + Credit – Debit d) l) o) – Debit L.P. Arch, Capital 33,000 2,000 160 200 Owner's Equity Accounts Payable 70,000 b) 2,520 d) m) n) + Liabilities p) 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) 2,520 1,050 – Credit + Debit – Credit + Debit o) 2,130 Rent Expense 200 L.P. Arch, Drawing + Debit Credit – Credit + Debit 2,900 g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) – Credit + Debit – Credit + Debit j) 200 1,050 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 3,520 – Credit Transaction (p): Bought additional equipment from Melton Office Supply, $3,520, paying $620 down with the remaining $2,900 on account. Accounting Is Fun! 2 - 31 = Assets – Credit + Debit – Debit Cash – Credit + Debit + Liabilities + Credit – Debit – Debit + Credit 33,000 2,000 d) l) 2,000 c) 1,800 h) q) 850 g) 700 n) 200 j) 200 i) 360 p) 2,900 l) 1,800 o) 2,130 p) 620 + Credit L.P. Arch, Capital 70,000 b) 2,520 d) 160 200 – Debit Accounts Payable a) f) m) n) Owner's Equity 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) 2,520 1,050 – Credit + Debit – Credit + Debit o) 2,130 Rent Expense + Debit Credit – Credit + Debit L.P. Arch, Drawing g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) 1,050 q) – Credit + Debit – Credit + Debit j) 200 850 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 3,520 – Credit Transaction (q): Arch Copy Co. received $850 cash on account from a credit customer. Accounting Is Fun! 2 - 32 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) + Liabilities + Credit – Debit – Debit + Credit d) l) 2,000 c) 1,800 h) q) 850 g) 700 n) 200 j) 200 r) 4,220 i) 360 p) 2,900 l) 1,800 o) 2,130 p) 620 + Credit L.P. Arch, Capital 33,000 2,000 160 200 – Debit Accounts Payable 70,000 b) 2,520 d) m) n) Owner's Equity 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) 2,520 1,050 r) 4,220 Credit – Credit + Debit o) 2,130 Rent Expense – Credit + Debit L.P. Arch, Drawing + Debit – Credit + Debit g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) 1,050 q) – Credit + Debit – Credit + Debit j) 200 850 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 3,520 – Credit Transaction (r): Arch Copy Co. received revenue from cash customers for the rest of the month, $4,220. Accounting Is Fun! 2 - 33 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) + Liabilities L.P. Arch, Capital – Debit – Debit + Credit d) l) 2,000 c) 1,800 h) q) 850 g) 700 n) 200 j) 200 r) 4,220 i) 360 p) 2,900 l) 1,800 o) 2,130 p) s) 620 2,500 + Credit Accounts Payable 33,000 2,000 160 200 – Debit + Credit 70,000 b) 2,520 d) m) n) Owner's Equity 7,000 600 + Credit a) e) 70,000 6,200 + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit f) k) 2,520 1,050 r) 4,220 s) Credit – Credit + Debit o) 2,130 Rent Expense – Credit + Debit L.P. Arch, Drawing + Debit – Credit + Debit g) 700 Supplies Expense 2,500 – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) 1,050 q) – Credit + Debit – Credit + Debit j) 200 850 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 33,000 7,000 6,200 3,520 – Credit Transaction (s): Arch withdrew $2,500 in cash from the business for her personal use. Accounting Is Fun! 2 - 34 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) 70,000 b) 2,520 d) 33,000 2,000 d) l) q) 850 g) 700 n) r) 4,220 i) 360 77,590 l) 1,800 m) n) 160 200 o) 2,130 p) s) 620 2,500 43,470 + Liabilities Owner's Equity – Debit + Credit + Credit Accounts Payable L.P. Arch, Capital – Debit – Debit + Credit 2,000 c) 1,800 h) 7,000 600 200 j) 200 4,000 p) 2,900 + Credit a) e) + – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit 70,000 6,200 f) k) 2,520 1,050 76,200 r) 4,220 o) 2,130 Rent Expense s) Credit – Credit + Debit L.P. Arch, Drawing + Debit – Credit + Debit 7,790 10,700 – Credit + Debit g) 700 Supplies Expense 2,500 – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) 1,050 q) – Credit + Debit – Credit + Debit j) 200 850 Utilities Expense – Credit + Debit i) m) 160 360 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance – Credit Footing 33,000 7,000 6,200 3,520 49,720 Accounting Is Fun! 2 - 35 = Assets – Credit + Debit – Debit Cash – Credit + Debit a) f) 70,000 b) 2,520 d) 33,000 2,000 d) l) q) 850 g) 700 n) r) 4,220 i) 360 77,590 l) 1,800 Bal. m) n) 160 200 o) 2,130 p) s) 620 2,500 43,470 34,120 + Liabilities Owner's Equity – Debit + Credit + Credit Accounts Payable L.P. Arch, Capital – Debit – Debit + Credit 2,000 c) 1,800 h) 7,000 600 200 j) 200 4,000 p) 2,900 – Revenue – Debit Expenses + Credit Income from Services – Debit Wages Expense + Credit a) e) 70,000 6,200 f) k) 2,520 1,050 Bal. 76,200 r) 4,220 Bal. 7,790 + Debit 6,700 s) Credit – Credit + Debit – Credit + Debit o) 2,130 Rent Expense – Credit + Debit L.P. Arch, Drawing 10,700 Bal. + Credit + g) 700 Supplies Expense 2,500 – Credit + Debit h) 600 Advertising Expense Accounts Receivable k) 1,050 q) Bal. j) Utilities Expense – Credit m) 160 360 Equipment + Debit b) c) e) p) Bal. – Credit + Debit Prepaid Insurance i) 200 850 200 + Debit – Credit + Debit – Credit + Debit – Credit Balances 33,000 7,000 6,200 3,520 49,720 Accounting Is Fun! 2 - 36 Performance Objective 5 Prepare a trial balance Accounting Is Fun! 2 - 37 Prepare a Trial Balance • List the account balances in two columns – Left column = Debits – Right column = Credits • List the accounts in the same order as the chart of accounts – First the balance sheet accounts – Then the income statement accounts Accounting Is Fun! 2 - 38 Trial Balance • A trial run to prove that DR = CR • If DR = CR, then A = L + OE Accounting Is Fun! 2 - 39 Trial Balance • Not a financial statement • Don’t use dollar signs • Use a single underline under the list of figures to be added • Use a double underline under column totals Accounting Is Fun! 2 - 40 Accounting Process of: Summarizing means • Analyzing preparing financial • Classifying statements • Recording • Summarizing • Interpreting business transactions Accounting Is Fun! 2 - 41 Performance Objective 6 Prepare – Income statement – Statement of owner’s equity – Balance sheet Accounting Is Fun! 2 - 42 All Financial Statements • Summarize useful financial information for users of accounting information: – Owners/investors – Managers – Creditors – Government agencies Accounting Is Fun! 2 - 43 All Financial Statements • Have a three-line title – Who: Name of the company (or owner) – What: Title of financial statement – When: Period of time or a single date Income Statement Or Statement of OE Accounting Is Fun! Balance Sheet 2 - 44 Income Statement Total Revenue – Total Expenses = Net Income (or Net Loss) Accounting Is Fun! 2 - 45 Income Statement • Answers the questions – How profitable was the company over the past period? – How much net income did the entity earn? Accounting Is Fun! Revenues – Expenses Net Income 2 - 46 What the Income Statement Tells Us • Is the business profitable? • What is the net income? – Revenue > Expenses • What is the net loss? – Expenses > Revenue Accounting Is Fun! 2 - 47 Income Statement • Income Statement—Also Known As – Statement of income and expenses – Profit and loss statement – Results of operations • Net Income—Also Known As – Profit – Earnings Accounting Is Fun! 2 - 48 Net Income • Use the net income figure on the income statement to complete the statement of owner’s equity Accounting Is Fun! 2 - 49 Statement of Owner’s Equity • Prepared after you finish the income statement • Answers the questions – How did the owner’s equity change over the last period? – How and why did the Capital account change? • Provides ending Capital amount for use on the balance sheet 00 Accounting Is Fun! 2 - 50 Additional Investment in the Company • Can you invest assets other than cash? – Tools? – Trucks? – Equipment? • Yes! – They must be recorded at their fair market value (what they would be sold for on the open market) Accounting Is Fun! 2 - 51 Balance Sheet Accounting Is Fun! 2 - 52 Balance Sheet • Answers the questions – What is the entity’s financial position on the last day of the period? – What assets, liabilities, and equities does the entity have on the last day of the period? • Uses the ending capital figure shown on the statement of owner’s equity • Resembles a snapshot—shows a point in time • Be careful of the date! Accounting Is Fun! 2 - 53 Balance Sheet • List accounts in the same order as the chart of accounts • Why? – Listed in order of liquidity – Liquidity: How quickly it can be turned into cash • Report Form – Balance Sheet presentation where Assets are above Liabilities and Owner’s Equity Accounting Is Fun! 2 - 54 Errors Exposed by the Trial Balance • DR ≠ CR? • Arithmetic error – Trial balance columns added correctly? – Accounts added correctly? • Half an entry – DR without a CR? – Example: If Trial Balance is off by $100, did you record the DR without the CR? Accounting Is Fun! • DR ≠ CR? • Both sides of an entry on one side (two DRs) – Example: If the Trial Balance is off by $200, divide by 2 to get $100 and look for transactions for the amount $100 ($100 DR to Cash and $100 DR to Revenue) • Recording amounts incorrectly – Look back to original receipt, source document, or problem 2 - 55 Errors Exposed by the Trial Balance When DR = CR, there can still be an error if you: – Forgot to record a transaction – Recorded the transaction twice – Recorded the transaction for an incorrect amount – Recorded the amount in the incorrect account Accounting Is Fun! 2 - 56 How Do You Find the Errors? • Pay careful attention as you record transactions. • Look to see if a normal balance was placed in the wrong column. • Re-add the columns. • Check to see if account totals were transferred correctly. • Recalculate the footings and balances in the accounts. Accounting Is Fun! 2 - 57 Performance Objective 7 Recognize the effect of transpositions and slides on account balances Accounting Is Fun! 2 - 58 Transpositions and Slides • Transposition error – Digits have been transposed (switched around) • Slide error – The decimal point in an amount has been misplaced – “Slide the decimal place” Error Type DR or CR written as: n 96 t io i 549 os p s 197 an r 513 T 27430 e d 230 i Sl 44 430 th o B 64390 Accounting Is Fun! The other DR or CR written as: 69 945 791 315 2743 23 440 34 9436 Difference after subtracting the DR and CR side of the Trial Balance 27 -396 -594 198 24687 207 -396 396 54954 If evenly divided by 9, then you have a Transposition, Slide, Both 3 -44 -66 22 2743 23 -44 44 6106 2 - 59 Transpositions and Slides • Finding an error – Divide the difference between two trial balance totals by 2, or multiply by 2. See if the result matches a transaction amount. – Errors divisible by 9: If an error exists and the amount of difference between the totals of the trial balance is evenly divisible by 9, the error consists of either a transposition or a slide or both. Accounting Is Fun! 2 - 60 Demonstration Problem We will be recording business transactions for a company with the following details: Owner name: R. P. Nelson Business name: WindSport Boomerang & Kite Demos Business type: Sole proprietorship (one-person business) Accounting Is Fun! 2 - 61 = Assets – Credit + Debit Cash + Debit a) Liabilities – Debit + Credit Accounts Payable – Credit – Debit + Credit + Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 43,000 + Credit a) + Revenue – Debit + Credit Income from Demos – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 43,000 Rent Expense R. P. Nelson, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit – Credit – Credit Transaction (a): Nelson deposited $43,000 in a bank account in the name of business. Accounting Is Fun! 2 - 62 = Assets – Credit + Debit Cash + Debit a) Liabilities – Debit + Credit Accounts Payable – Credit 43,000 b) – Debit + Credit + Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 23,000 + Credit a) + Revenue – Debit + Credit Income from Demos – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 43,000 Rent Expense R. P. Nelson, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) – Credit – Credit Transaction (b): Bought truck, paying cash, $23,000. 23,000 Accounting Is Fun! 2 - 63 = Assets – Credit + Debit Cash + Debit a) + Liabilities – Debit + Credit Accounts Payable – Credit 43,000 b) – Debit 23,000 + Credit c) Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 + Credit a) + Revenue – Debit + Credit Income from Demos – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 43,000 Rent Expense R. P. Nelson, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) – Credit – Credit Transaction (c): Bought camper shell for truck on account from Louie's Trucks & Campers, $2,500. 23,000 2,500 Accounting Is Fun! 2 - 64 = Assets – Credit + Debit – Debit Cash + Debit a) + Liabilities + Credit Accounts Payable – Credit 43,000 b) d) 23,000 1,500 – Debit d) 1,500 c) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 + Credit a) + Revenue – Debit + Credit Income from Demos – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 43,000 Rent Expense R. P. Nelson, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) – Credit – Credit Transaction (d): Paid Louie's Trucks & Campers, a creditor, $1,500. 23,000 2,500 Accounting Is Fun! 2 - 65 = Assets – Credit + Debit – Debit Cash + Debit a) + Liabilities + Credit Accounts Payable – Credit 43,000 b) d) 23,000 1,500 – Debit d) 1,500 c) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 + Credit a) e) + Revenue – Debit + Credit Income from Demos – Debit + Credit – Expenses + Debit – Credit Wages Expense + Debit – Credit 43,000 3,400 Rent Expense R. P. Nelson, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 23,000 2,500 3,400 – Credit – Credit Transaction (e): Nelson invested his own personal computer equipment, having a fair market value of $3,400, in WindSport Boomerang & Kite Demos. Accounting Is Fun! 2 - 66 = Assets – Credit + Debit – Debit Cash + Debit a) f) + Liabilities + Credit Accounts Payable – Credit 43,000 b) 2,500 d) 23,000 1,500 – Debit d) 1,500 c) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 + Credit a) e) 43,000 3,400 + – Revenue – Debit + Credit Income from Demos – Debit + Credit f) Expenses + Debit – Credit Wages Expense + Debit – Credit 2,500 Rent Expense R. P. Nelson, Drawing + Debit + Debit – Credit Credit Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 23,000 2,500 3,400 – Credit – Credit Transaction (f): Nelson and employee performed boomerang & kite demo for Girl Scouts and received cash, $2,500. Accounting Is Fun! 2 - 67 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities – Debit 43,000 b) 2,500 d) 23,000 1,500 g) 700 d) 1,500 c) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit + Debit Income from Demos – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,500 Rent Expense + Debit R. P. Nelson, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit – Credit Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) – Credit – Credit Transaction (g): Paid rent for the month, $700. 23,000 2,500 3,400 Accounting Is Fun! 2 - 68 = Assets – Credit + Debit – Debit Cash + Debit a) f) + Liabilities + Credit Accounts Payable – Credit 43,000 b) 2,500 d) g) 23,000 1,500 700 – Debit d) 1,500 c) h) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit + Debit Income from Demos – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,500.0 Rent Expense + Debit R. P. Nelson, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit – Credit Equipment + Debit b) c) e) 23,000 2,500 3,400 – Credit – Credit Transaction (h): WindSport B&K Demos bought supplies (toner and paper) on credit. These supplies are used immediately so they are recorded as an expense ($600). Accounting Is Fun! 2 - 69 = Assets – Credit + Debit – Debit Cash + Debit a) f) + Liabilities + Credit Accounts Payable – Credit 43,000 b) 2,500 d) g) i) 23,000 1,500 700 2,000 – Debit d) 1,500 c) h) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit + Debit Income from Demos – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,500 Rent Expense + Debit R. P. Nelson, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit + Debit – Credit – Credit Traveling Expense + Debit Prepaid Insurance + Debit i) – Credit 2,000 Equipment + Debit b) c) e) – Credit – Credit Transaction (i): WindSport B & K Demos paid $2,000 for a one-year liability insurance policy. 23,000 2,500 3,400 Accounting Is Fun! 2 - 70 = Assets – Debit Cash + Debit a) f) + Liabilities – Credit + Debit + Credit Accounts Payable – Credit 43,000 b) 2,500 d) g) i) 23,000 1,500 700 2,000 – Debit d) 1,500 c) h) j) + Credit Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 600 200 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit + Debit Income from Demos – Debit Wages Expense + Credit f) – Credit + Debit – Credit 2,500 Rent Expense + Debit R. P. Nelson, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit + Debit – Credit j) – Credit 200 Traveling Expense + Debit Prepaid Insurance + Debit i) – Credit 2,000 Equipment + Debit b) c) e) – Credit 23,000 2,500 3,400 – Credit Transaction (j): WindSport B & K Demos received an advertising bill from City News for advertising, $200. Accounting Is Fun! 2 - 71 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit 23,000 1,500 g) d) 1,500 c) h) 700 i) + Credit j) Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit + Debit Income from Demos – Debit Wages Expense + Credit f) k) – Credit + Debit – Credit 2,500 2,500 Rent Expense 200 + Debit 2,000 R. P. Nelson, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit k) + Debit – Credit j) – Credit 200 2,500 Traveling Expense + Debit Prepaid Insurance + Debit i) – Credit 2,000 Equipment + Debit b) c) e) – Credit 23,000 2,500 3,400 – Credit Transaction (k): Nelson and employee performed boomerang & kite demo for Boy Scouts and earned income on account ("sold services on account"), $2,500. Accounting Is Fun! 2 - 72 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit 23,000 1,500 g) d) l) 1,500 c) 1,000 h) 700 i) 2,000 l) 1,000 + Credit j) Owner's Equity – Debit + Credit R. P. Nelson, Capital – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit + Debit Income from Demos – Debit Wages Expense + Credit f) k) – Credit + Debit – Credit 2,500 2,500 Rent Expense 200 + Debit R. P. Nelson, Drawing + Debit Credit g) – Credit 700 Supplies Expense + Debit h) – Credit 600 Advertising Expense Accounts Receivable + Debit k) + Debit – Credit j) – Credit 200 2,500 Traveling Expense + Debit Prepaid Insurance + Debit i) – Credit 2,000 Equipment + Debit b) c) e) – Credit 23,000 2,500 3,400 – Credit Transaction (l): WindSport B & K Demos paid $1,000 to Louie's Trucks & Campers, its creditor, as final payment on account. Accounting Is Fun! 2 - 73 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit 23,000 1,500 g) 700 i) 2,000 l) 1,000 m) d) l) Owner's Equity – Debit + Credit R. P. Nelson, Capital + Credit 1,500 c) 1,000 h) 2,500 600 j) 200 – Debit + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) – Credit + Debit 2,500 2,500 Rent Expense + Debit Credit – Credit + Debit R. P. Nelson, Drawing 160 – Credit + Debit g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) – Credit + Debit – Credit j) 200 2,500 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) – Credit + Debit Prepaid Insurance – Credit Transaction (m): WindSport B & K Demos received and paid the gas card bill, $160 (Traveling Expense). 23,000 2,500 3,400 Accounting Is Fun! 2 - 74 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit – Debit + Credit R. P. Nelson, Capital + Credit 23,000 1,500 d) l) 1,500 c) 1,000 h) 2,500 600 g) 700 n) 200 j) 200 i) 2,000 l) 1,000 m) n) Owner's Equity – Debit + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) – Credit + Debit 2,500 2,500 Rent Expense + Debit Credit – Credit + Debit R. P. Nelson, Drawing 160 200 – Credit + Debit g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) – Credit + Debit – Credit j) 200 2,500 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) – Credit + Debit Prepaid Insurance – Credit Transaction (n): WindSport B & K Demos pays $200 on account to City News for advertising. 23,000 2,500 3,400 Accounting Is Fun! 2 - 75 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit + Credit d) l) 1,500 c) 1,000 h) 2,500 600 g) 700 n) 200 j) 200 i) 2,000 l) 1,000 160 200 o) 1,030 – Debit + Credit R. P. Nelson, Capital 23,000 1,500 m) n) Owner's Equity – Debit + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) 2,500 2,500 – Credit + Debit – Credit + Debit o) 1,030 Rent Expense + Debit Credit – Credit + Debit R. P. Nelson, Drawing g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) – Credit + Debit – Credit j) 200 2,500 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) – Credit + Debit Prepaid Insurance – Credit Transaction (o): WindSport B & K Demos pays wages for a part-time employee, $1,030. 23,000 2,500 3,400 Accounting Is Fun! 2 - 76 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit d) l) 1,500 c) 1,000 h) g) 700 n) 200 j) i) 2,000 l) 1,000 m) n) 160 200 o) 1,030 p) 620 p) – Debit + Credit R. P. Nelson, Capital + Credit 23,000 1,500 Owner's Equity – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) 2,500 2,500 – Credit + Debit – Credit + Debit o) 1,030 Rent Expense 200 R. P. Nelson, Drawing + Debit Credit – Credit + Debit 1,500 g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) – Credit + Debit – Credit j) 200 2,500 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 23,000 2,500 3,400 2,120 – Credit Transaction (p): WindSport B&K Demos buys a trailer from Louie's Trucks & Campers for $2,120, paying $620 down with the remaining $1,500 on account (Equipment, A/P, and Cash accounts). Accounting Is Fun! 2 - 77 = Assets – Credit + Debit – Debit Cash a) f) 43,000 b) 2,500 d) q) + Credit Accounts Payable – Credit + Debit + Liabilities – Debit + Credit d) l) 1,500 c) 1,000 h) 850 g) 700 n) 200 j) 200 i) 2,000 p) 1,500 l) 1,000 160 200 o) 1,030 p) 620 – Debit + Credit R. P. Nelson, Capital 23,000 1,500 m) n) Owner's Equity – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) 2,500 2,500 – Credit + Debit – Credit + Debit o) 1,030 Rent Expense + Debit Credit – Credit + Debit R. P. Nelson, Drawing g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) 2,500 q) – Credit + Debit – Credit j) 200 850 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance – Credit Transaction (q): WindSport B & K Demos receives $850 cash on account from a credit customer. 23,000 2,500 3,400 2,120 Accounting Is Fun! 2 - 78 = Assets – Credit + Debit – Debit Cash a) f) + Credit Accounts Payable – Credit + Debit + Liabilities 43,000 b) 2,500 d) – Debit + Credit d) l) 1,500 c) 1,000 h) n) 200 j) 200 p) 1,500 850 g) 700 r) 4,220 i) 2,000 l) 1,000 m) n) 160 200 o) 1,030 p) 620 – Debit + Credit R. P. Nelson, Capital 23,000 1,500 q) Owner's Equity – Debit 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) 2,500 2,500 r) 4,220 Credit – Credit + Debit o) 1,030 Rent Expense – Credit + Debit R. P. Nelson, Drawing + Debit – Credit + Debit g) 700 Supplies Expense – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) 2,500 q) – Credit + Debit – Credit j) 200 850 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 23,000 2,500 3,400 2,120 – Credit Transaction (r): WindSport B & K Demos receives revenue from cash customers for the rest of the month, $4,220. Accounting Is Fun! 2 - 79 = Assets – Credit + Debit – Debit Cash a) f) 43,000 b) 2,500 d) – Debit 1,500 c) 1,000 h) n) 200 j) 200 p) 1,500 850 g) 700 4,220 i) 2,000 l) 1,000 m) n) 160 200 o) 1,030 p) s) 620 2,500 + Credit – Debit + Credit d) l) r) – Debit R. P. Nelson, Capital 23,000 1,500 q) Owner's Equity + Credit Accounts Payable – Credit + Debit + Liabilities 2,500 600 + Credit a) e) 43,000 3,400 + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit f) k) 2,500 2,500 r) 4,220 s) Credit – Credit + Debit o) 1,030 Rent Expense – Credit + Debit R. P. Nelson, Drawing + Debit – Credit + Debit g) 700 Supplies Expense 2,500 – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) 2,500 q) – Credit + Debit – Credit j) 200 850 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance 23,000 2,500 3,400 2,120 – Credit Transaction (s): Nelson withdraws $2,500 in cash from the business for his personal living costs. Accounting Is Fun! 2 - 80 = Assets – Credit + Debit – Debit Cash a) f) 43,000 b) 2,500 d) – Debit 23,000 1,500 d) l) n) q) 850 g) 700 r) 4,220 i) 2,000 50,570 l) 1,000 m) n) 160 200 o) 1,030 p) s) 620 2,500 32,710 Owner's Equity – Debit + Credit Accounts Payable – Credit + Debit + Liabilities R. P. Nelson, Capital – Debit + Credit 1,500 c) 1,000 h) + Credit 2,500 600 200 j) 200 2,700 p) 1,500 4,800 + Credit a) e) + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit 43,000 3,400 f) k) 2,500 2,500 46,400 r) 4,220 o) 1,030 Rent Expense s) – Credit + Debit R. P. Nelson, Drawing Credit – Credit + Debit 9,220 + Debit – Credit + Debit g) 700 Supplies Expense 2,500 – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) 2,500 q) – Credit + Debit – Credit j) 200 850 Traveling Expense + Debit i) – Credit m) 160 2,000 Equipment + Debit b) c) e) p) – Credit + Debit Prepaid Insurance – Credit Footing 23,000 2,500 3,400 2,120 31,020 Accounting Is Fun! 2 - 81 = Assets – Credit + Debit – Debit Cash a) f) – Debit + Credit 43,000 b) 2,500 d) – Debit 23,000 1,500 d) l) n) q) 850 g) 700 r) 4,220 i) 2,000 50,570 l) 1,000 Bal. Owner's Equity Accounts Payable – Credit + Debit + Liabilities m) n) 160 200 o) 1,030 p) s) 620 2,500 32,710 17,860 R. P. Nelson, Capital – Debit + Credit 1,500 c) 1,000 h) 2,500 600 200 j) 200 2,700 p) 1,500 4,800 Bal. + Credit + Credit + – Revenue – Debit Expenses + Credit Income from Demos – Debit Wages Expense + Credit a) e) 43,000 3,400 f) k) 2,500 2,500 Bal. 46,400 r) 4,220 Bal. 9,220 + Debit s) Credit – Credit + Debit o) 1,030 Rent Expense – Credit + Debit R. P. Nelson, Drawing 2,100 – Credit + Debit g) 700 Supplies Expense 2,500 – Credit + Debit h) 600 Advertising Expense Accounts Receivable + Debit k) 2,500 q) Bal. 1,650 j) i) Traveling Expense – Credit + Debit – Credit m) 160 2,000 Equipment + Debit b) c) e) p) Bal. 200 850 Prepaid Insurance + Debit – Credit + Debit – Credit – Credit Balances 23,000 2,500 3,400 2,120 31,020 Accounting Is Fun! 2 - 82 Trial Balance WindSport Boomerang & Kite Demos Trial Balance June 30, 2003 Cash Accounts Receivable Prepaid Insurance Equipment Accounts Payable R. P. Nelson, Capital R. P. Nelson, Drawing Income from Demos Wages Expense Rent Expense Supplies Expense Advertising Expense Traveling Expense Accounting Is Fun! 17,860 1,650 2,000 31,020 2,100 46,400 2,500 9,220 1,030 700 600 200 160 57,720 57,720 2 - 83 Income Statement WindSport Boomerang & Kite Demos Income Statement For Month Ended June 30, 2003 Revenues: Income from Demos Expenses: Wages Expense Rent Expense Supplies Expense Advertising Expense Traveling Expense Accounting Is Fun! $ $ 9,220 $ 2,690 6,530 1,030 700 600 200 160 2 - 84 Statement of Owner’s Equity WindSport Boomerang & Kite Demos Statement of Owner's Equity For Month Ended June 30, 2003 R. P. Nelson, Capital, June 1, 2003 Net Income for June Less Withdrawals for June Increase in Capital R. P. Nelson, Capital, June 30, 2003 Accounting Is Fun! $ $ 46,400 $ 4,030 50,430 6,530 2,500 2 - 85 Balance Sheet WindSport Boomerang & Kite Demos Balance Sheet June 30, 2003 Assets Cash Accounts Receivable Prepaid Insurance Equipment $ 17,860 1,650 2,000 31,020 $ 52,530 $ 2,100 $ 50,430 52,530 Liabilities Accounts Payable Owner's Equity R. P. Nelson, Capital Total Liabilities and Owner's Equity Accounting Is Fun! 2 - 86