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Sample Problem

The document describes 15 transactions of Gray Electronic Repair Services. It provides sample journal entries to record the financial effects of starting the business, acquiring assets and supplies on credit, providing services, collecting cash from customers, paying expenses and liabilities, receiving additional investments, obtaining a bank loan, and paying salaries. The journal entries establish capital and revenue accounts and record increases and decreases to asset, liability, capital, expense, and revenue accounts.

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Nath Bongalon
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
286 views

Sample Problem

The document describes 15 transactions of Gray Electronic Repair Services. It provides sample journal entries to record the financial effects of starting the business, acquiring assets and supplies on credit, providing services, collecting cash from customers, paying expenses and liabilities, receiving additional investments, obtaining a bank loan, and paying salaries. The journal entries establish capital and revenue accounts and record increases and decreases to asset, liability, capital, expense, and revenue accounts.

Uploaded by

Nath Bongalon
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

The transactions in this lesson pertain to Gray Electronic Repair Services, our imaginary

small sole proprietorship business.


For account titles, we will be using the chart of accounts presented in an earlier lesson.
All transactions are assumed and simplified for illustration purposes.
Note: We will also be using this set of transactions and journal entries in later lessons when we
discuss the other steps of the accounting process.
Let's start.
Transaction #1: On December 1, 2017, Mr. Donald Gray started Gray Electronic Repair
Services by investing $10,000.
Transaction #2: On December 5, Gray Electronic Repair Services paid registration and
licensing fees for the business, $370.
Transaction #3: On December 6, the company acquired tables, chairs, shelves, and other
fixtures for a total of $3,000. The entire amount was paid in cash.
Transaction #4: On December 7, the company acquired service equipment for $16,000. The
company paid a 50% down payment and the balance will be paid after 60 days.
Transaction #5: Also on December 7, Gray Electronic Repair Services purchased service
supplies on account amounting to $1,500.
Transaction #6: On December 9, the company received $1,900 for services rendered.
Transaction #7: On December 12, the company rendered services on account, $4,250.00. As per
agreement with the customer, the amount is to be collected after 10 days.
Transaction #8: On December 14, Mr. Gray invested an additional $3,200.00 into the business.
Transaction #9: Rendered services to a big corporation on December 15. As per agreement, the
$3,400 amount due will be collected after 30 days.
Transaction #10: On December 22, the company collected from the customer in transaction #7.
Transaction #11: On December 23, the company paid some of its liability in transaction #5 by
issuing a check. The company paid $500 of the $1,500 payable.
Transaction #12: On December 25, the owner withdrew cash due to an emergency need. Mr.
Gray withdrew $7,000 from the company.
Transaction # 13: On December 29, the company paid rent for December, $ 1,500.
Transaction #14: On December 30, the company acquired a $12,000 short-term bank loan; the
entire amount plus a 10% interest is payable after 1 year.
Transaction #15: On December 31, the company paid salaries to its employees, $3,500.
Transaction 1 The journal entry should increase the company's Cash, and increase (establish)
the capital account of Mr. Gray; hence:

Date
Particulars Debit Credit
2017
Dec 1 Cash 10,000.00  
    Mr. Gray, Capital   10,000.00
Transaction 2 First, we will debit the expense (to increase an expense, you debit it); and
then, credit Cash to record the decrease in cash as a result of the payment.

  5 Taxes and Licenses 370.00  


    Cash   370.00

Transaction 3 There is an increase in an asset account (Furniture and Fixtures) in exchange for a
decrease in another asset (Cash).

  6 Furniture and Fixtures 3,000.00  


    Cash   3,000.00

Transaction 4 This will result in a compound journal entry. There is an increase in


an asset account (debitService Equipment, $16,000), a decrease in another asset (credit Cash,
$8,000, the amount paid), and an increase in a liability account (credit Accounts Payable,
$8,000, the balance to be paid after 60 days).

  7 Service Equipment 16,000.00  


    Cash   8,000.00
    Accounts Payable   8,000.00

Transaction 5 The company received supplies thus we will record a debit to increase supplies.
By the terms "on account", it means that the amount has not yet been paid; and so, it is recorded
as a liability of the company.

  7 Service Supplies 1,500.00  


    Accounts Payable   1,500.00

Transaction 6 We will then record an increase in cash (debit the cash account) and increase in
income (credit the income account).
  9 Cash 1,900.00  
    Service Revenue   1,900.00

Transaction 7 Under the accrual basis of accounting, income is recorded when earned.


In this transaction, the services have been fully rendered (meaning, we made an income; we just
haven't collected it yet.) Hence, we record an increase in income and an increase in a receivable
account.

  12 Accounts Receivable 4,250.00  


    Service Revenue   4,250.00

Transaction 8 The entry would be similar to what we did in transaction #1, i.e. increase cash
and increase the capital account of the owner.

  14 Cash 3,200.00  
    Mr. Gray, Capital   3,200.00

Transaction 9

  15 Accounts Receivable 3,400.00  


    Service Revenue   3,400.00

Transaction 10 We will record an increase in cash by debiting it. Then, we will credit accounts
receivable to decrease it. We are reducing the receivable since it has already been collected.
Actually, we simply transferred the amount from receivable to cash in the above entry.

  17 Cash 4,250.00  
    Accounts Receivable   4,250.00

Transaction 11 To record this transaction, we will debit Accounts Payable for $500 to decrease
it by the said amount. Then, we will credit cash to decrease it as a result of the payment. The
entry would be:
Accounts payable would now have a credit balance of $1,000 ($1,500 initial credit in transaction
#5 less $500 debit in the above transaction).

  20 Accounts Payable 500.00  


    Cash   500.00
Transaction 12 We will decrease Cash since the company paid Mr. Gray $7,000. And, we will
record withdrawals by debiting the withdrawal account – Mr. Gray, Drawings.

  25 Mr. Gray, Drawings 7,000.00  


    Cash   7,000.00

Transaction 13 Again, we will record the expense by debiting it and decrease cash by crediting
it.

  29 Rent Expense 1,500.00  


    Cash   1,500.00

Transaction 14 Again, the company received cash so we increase it by debiting Cash. The
company now has a liability. We will record it by crediting the liability account – Loans
Payable.

  30 Cash 12,000.00  
    Loans Payable   12,000.00

Transaction 15 For this transaction, we will record/increase the expense account by debiting it
and decrease cash by crediting it. (Note: This is a simplified entry to present the payment of
salaries. In actual practice, different payroll accounting methods are applied.)

  31 Salaries Expense 3,500.00  


    Cash   3,500.00

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