Question

On June 1, 2019, Kris Storey established an interior decorating business, Eco-Centric Designs.

During the month, Kris completed the following transactions related to the business:

June 1. Kris transferred cash from a personal bank account to an account to be used

for the business, $35,000.

1. Paid rent for period of June 1 to end of month, $4,750.

6. Purchased office equipment on account, $14,100.

8. Purchased a van for $28,500 paying $4,500 cash and giving a note payable for

the remainder.

10. Purchased supplies for cash, $2,380.

12. Received cash for job completed, $12,200.

15. Paid annual premiums on property and casualty insurance, $3,600.

23. Recorded jobs completed on account and sent invoices to customers, $11,900.

24. Received an invoice for van expenses, to be paid in June, $1,500.

June 29. Paid utilities expense, $3,100.

29. Paid miscellaneous expenses, $950.

30. Received cash from customers on account, $7,330.

30. Paid wages of employees, $5,070.

30. Paid creditor a portion of the amount owed for equipment purchased on June 6, $6,825.

30. Withdrew cash for personal use, $1,600.

Instructions

1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Explanations may be omitted.

11 Cash………………………………….31 Kris Storey, Capital

12 Accounts Receivable…………………32 Kris Storey, Drawing

13 Supplies………………………………41 Fees Earned

14 Prepaid Insurance…………………….51 Wages Expense

16 Equipment……………………………53 Rent Expense

18 Van…………………………………...54 Utilities Expense

21 Notes Payable………………………...55 Van Expense

22 Accounts Payable…………………….59 Miscellaneous Expense

2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.

3. Prepare an unadjusted trial balance for Eco-Centric Designs as of June 30, 2019.

4. Determine the excess of revenues over expenses for June.

5. Can you think of any reason why the amount determined in (4) might not be the net income for June?

Answer 1

Journal Entries

Bank A/C Dr $35000

To Capital $35000

(Being capital introduced in business)

Rent A/C Dr $4750

To Bank $4750

(Being rent paid)

Equipment A/C Dr $14100

To creditor $14100

(Being office equipment purchased)

Van A/C Dr $28500

To Cash $4500

To creditor $24000

(Being van purchased partly in cash and partly in credit)

Inventory A/C Dr $2380

To Cash $2380

(Being supplies purchased in cash)

Cash A/C Dr $12200

To sales $12200

(Being cash received for job completion)

Insurance A/C Dr $3600

To cash $3600

(Being insurance premium paid)

Utility A/C Dr $3100

To cash $3100

(Being utility expenses paid)

Miscellaneous Expenses Dr $950

To cash $950

(Being Miscellaneous expenses paid)

Bank A/C Dr $7330

To customer $7330

(Being amount received from customer)

Wages A/C Dr $5070

To cash $5070

(Being wages paid to employee)

Creditor A/C Dr $6825

To Bank $6825

(Being amount paid to creditor)

Capital A/C Dr $1600

To drawing $1600

(Being amount withdrawn for personal use)

Trial Balance

Particulars DR CR

(Amount in $) (Amount in $)

Capital 35000

Rent Paid 4750

Equipment 14100

Van 28500

Inventory 2380

Sale 12200

Insurance expenses 3600

Utility Expenses 3100

Miscellaneous Expenses 950

Cash Received 7330

Wages Expenses 5070

Creditor 6825

Cash Withdrawl 1600

Unadjusted Bal (Bal Fig) 17585

Computation of excess revenue over expenses":

Sales $12200

Expenses Paid:

Insurance premium (3600/12) 300

Rent (4750/12) 396

Utility 3100

Mis Expenses (950/12) 79 ( $3875)

(Assumed all expenses are for 12 month but utility is for 1 month as it is specifically mentioned0

Inventory ( $2380 )   

Hence surplus over expenses is $5945