Question

10. Expenses incurred but not yet paid or recorded are called a. prepaid expenses. accrued expenses. c. interim expenses. d. unearned expenses PROBLEM 1 (20 PTS.) Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transactions. 1. The owner, P. West, invests $40,000 in cash in starting a real estate office operating as a sole proprietorship. 2. Purchased supplies for $1,000 cash. 3. Purchased equipment for $15,000, paying $5,000 in cash and signed a 6-month, $10,000 note payable. 4. Real estate commissions billed to clients amount to $15,000. 5. Paid $1,500 in cash for the current month's rent. 6. Paid $300 cash on account for supplies purchased in transaction 2. 7. Received a bill for $600 for advertising for the current month. 8. Paid $2,500 cash for office salaries and wages. 9. West withdrew $1,800 from the business for living expenses. 10. Received a check for $5,000 from a client in payment on account for commissions billed in • transaction 4.

Answer 1

10)

The correct answer is b) Accrued Expense.

Supporting explanations:

Accrued expenses are the expenses which are incurred but the same is not paid yet. When accrued expenses are incurred, those expenses are debited and a corresponding current liability account is credited. When the same is paid, the corresponding current liability account is debited and cash account is credited. The same is shown in the below example - Salary expenses are incurred for $10,000 then Salaries Expense account is debited with $10,000 and Salaries Payable account is credited and when the same is paid, the salaries payable account is debited and cash account is credited.

Therefore, the correct answer is Accrued Expense.

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Journal entries:

Date	Account Titles and Explanation	Debit	Credit
1)	Cash	$40,000
	Capital Stock		$40,000
	(To record the amount of cash invested into the business)
2)	Supplies	$1,000
	Cash		$1,000
	(To record the purchase of supplies by cash)
3)	Equipment	$15,000
	Cash		$5,000
	Note payable		$10,000
	(To record the purchase of equipment by cash and on account)
4)	Accounts Receivable	$15,000
	Service Revenue		$15,000
	(To record the commission revenue for the services provided on account)
5)	Rent Expense	$1,500
	Cash		$1,500
	(To record the payment of current month's rent)
6)	Accounts Payable	$300
	Cash		$300
	(To record the payment for accounts payable due)
7)	Advertising Expense	$600
	Accounts Payable		$600
	(To record the advertising expense incurred)
8)	Office salaries and wage expense	$2,500
	Cash		$2,500
	(To record the payment of office salaries and wages)
9)	Drawings	$1,800
	Cash		$1,800
	(To record the withdrawel of cash for personal use)
10)	Cash	$5,000
	Accounts Receivable		$5,000
	(To record the collection of amount for amount due)