Question

P4.5A  

(LO 1, 2) AP Lee Chang opened Lee's Window Washing on July 1, 2021. In July, the following transactions were completed:

July  1	Invested $20,000 cash in the business.
1	Purchased a used truck for $25,000, paying $5,000 cash and signing a note payable for the balance.
1	Paid $2,800 on a one-year insurance policy, effective July 1.
5	Billed customers $3,300 for cleaning services.
12	Purchased supplies for $2,100 on account.
18	Paid $3,000 for employee salaries.
25	Billed customers $8,900 for cleaning services.
28	Collected $3,300 from customers billed on July 5.
31	Paid $550 for repairs on the truck.
31	Withdrew $2,600 cash for personal use.

Instructions

a.  

Journalize and post the July transactions to the general ledger.

b.  

Prepare a trial balance at July 31.

c.  

Journalize and post the following July 31 adjustments:

• 1.Services of $1,500 were provided but remained unbilled and uncollected at July 31.
• 2.The truck has an estimated useful life of five years.
• 3.One twelfth of the insurance expired.
• 4.An inventory count shows $700 of supplies on hand at July 31.
• 5.Accrued but unpaid employee salaries were $800.
• 6.The note payable has a 5.5% annual interest rate.

d.  

Prepare an adjusted trial balance.

e.  

Prepare the income statement and statement of owner's equity for July, and a classified balance sheet at July 31, 2021. Of the note payable, $5,000 must be paid by June 30, 2022.

f.  

Journalize and post the closing entries.

g.  

Prepare a post-closing trial balance at July 31.

Taking It Further

Do companies need to make adjusting and closing entries at the end of every month?

Answer 1

Lee's Window Washing Journal Entry Date Particulars 1.7.2021 Cash a/c Dr. To Lee Chang, Capital (Capital Invested) Debit in $ Credit in 20000 20000 Dr. 25000 1.7.2021 Truck a/c To Cash To Note Payable (Truck purchased) 5000 20000 2800 1.7.2021 Prepaid Insurance a/c Dr. To Cash (one year insurance paid) 2800 3300 5.7.2021 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) 3300 2100 12.7.2021 Supplies a/c Dr. To Accounts Payable (Supplies on account) 2100 Dr. 3000 18.7.2021 Salaries Expense a/c To Cash (Salaries paid) 3000 8900 25.7.2021 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) 8900 3300 28.7.2021 Cash a/c Dr. To Accounts Receivable (Cash from debtors) 3300 Dr. 550 31.7.2021 Repairs expense a/c To Cash (Expense paid) 550 2600 31.7.2021 Lee Chang, Withdrawals a/c Dr. To Cash (Cash drawn for personal use) 2600

Date Adjusting Enteries Particulars 31.7.2021 Accounts Receivable a/c Dr. To Service Revenue (Services provided on account) Debit in $ Credit in $ 1500 1500 31.7.2021 Depreciation a/c Dr. 417 To accumulated depreciation 417 (Being Depreciation on equipment charged to Equip.) 25000/(5 x12) Dr. 233 31.7.2021 Insurance Expense a/c To Prepaid Insurance (Insurance expense expiered) 233 Dr. 1400 31.7.2021 Supplies Expense a/c To Supplies (Supplies expensed) 2100 - 700 1400 Dr. 800 31.7.2021 Salaries Expense a/c To Salaries Payable (Salary accrued) 800 92 92 31.7.2021 Interest Expense a/c Dr. To Interest Payable (Being Interest accrued on Note Payable) 20000 x 5.5% x 1/12

Worksheet For the period ending 31.7.2021 Unadjusted Debit in $ Credit in $ 9350 8900 2100 2800 Adjustments Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 9350 9350 1500 10400 10400 1400 700 700 233 2567 2567 25000 25000 417 417 417 2100 2100 800 800 800 92 92 92 25000 2100 Particulars Cash Accounts Receivable Supplies Prepaid Insurance Truck Accumulated depreciation Accounts Payable Salaries Payable Interest Payable Note Payable Lee Chang, Capital Lee Chang, Withdrawals Service Revenue Salaries Expense Repairs expense Depreciation Insurance Expense Supplies Expense Interest Expense Totals 20000 20000 20000 20000 20000 24608 2600 2600 12200 1500 13700 800 3800 3000 550 550 417 417 233 233 1400 1400 92 92 54300 54300 4442 4442 57108 57108 48017 48017 13700 Statement of Income For the period ending 31.7.2021 Service Revenue Less: Salaries Expense Repairs expense Depreciation Insurance Expense Supplies Expense Interest Expense Net Income 3800 550 417 233 1400 92 6492 7208 Statement of Owner's Equity For the period ending 31.7.2021 Lee Chang, Capital Net Income 20000 7208 27208 -2600 Lee Chang , Withdrawals 24608

Amounts in $ Amounts in $ Balance sheet As at 28.2.2021 Assets Current Assets Cash Accounts Receivable Supplies Prepaid Insurance Amounts in $ Amounts in $ Liabilities Current Liabilities 9350 Accounts Payable 10400 Salaries Payable 700 Interest Payable 2567 23017 Note Payable 2100 800 92 5000 7992 Non Current Assets Truck Accumulated deprecia 25000 15000 -417 Non Current Liabilities Note Payable 24583 Owner's Equity Lee Chang, Capital 47600 Total Liabilities & Equity 24608 Total Assets 47600

Debit in $ Credit in 6492 3800 550 Closing Enteries Date Particulars 31.7.2021 Income Summary Salaries Expense Repairs expense Depreciation Insurance Expense Supplies Expense Interest Expense (Expense accounts closed) 417 233 1400 92 13700 31.7.2021 Service Revenue Income Summary (Revenue accounts closed) 13700 7208 31.7.2021 Income Summary Lee Chang, Capital (Profits transferred) 7208 2600 31.7.2021 Lee Chang, Capital Lee Chang , Withdrawals (Withdrawal account closed) 2600