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Brief Exercises

BE2 – 1
For each of the following accounts indicate the effects of (a) a debit and (b) a credit on the accounts and
(c) the normal balance of the account.
1. Accounts Payable.
2. Advertising Expense.
3. Service Revenue.
4. Accounts Receivable.
5. B.C. King, Capital.
6. B.C. King, Drawing.

Solution:-
Effect of the accounts

(a) (b) (c)


No. Account
Debit Effect Credit Effect Normal Balance
1. Account payable Decrease Increase Credit
2. Advertising Expense Increase Decrease Debit
3. Service Revenue Decrease Increase Credit
4. Account Receivable Increase Decrease Debit
5. B. C. King, Capital. Decrease Increase Credit
6. B. C. King, Drawing. Increase Decrease Debit

BE2-2
Transactions for the Kaustav Sen Company for the month of June are presented below. Identify the
accounts to be debited and credited for each transaction.
June 1 Kaustav Sen invests Tk 4,000 cash in a small welding business of which he is the sole
proprietor.
2 Purchases equipment on account for Tk900
3 Tk800 cash is paid to landlord for June rent.
12 Bills J .Kronsnoble Tk300 for welding work done on account

Solution:-

June Account Debited Account Credited


1 Cash Kaustav Sen, Capital
2 Equipment Account payable
3 Rent expense Cash
12 Account Receivable Service Revenue
BE2-3
Using the data in BE2-2, journalize the transactions.(You may omit explanations.)
Solution:-

Date Account Titles and Explanations Ref. Debit Credit


Cash 4000
1 4000
Kaustav Sen, Capital
Equipment 900
2
Account payable 900
Rent Expenses 800
3 800
Cash
Account Receivable 300
12
Service Revenue 300

BE2-4
Tem Weber, a fellow student, is unclear about the basic steps in the recording process. Identify and briefly
explain the steps in the order in which they occur.

Solution:-
The basic steps in the recording process are:-
Step 1:- To analyze each transaction. N this step, business documents are examined to determine the
effects of the transaction on the accounts.
Step 2:- To enter each transaction in a journal .this step is called journalizing and its results in making
a chronological record of the transactions.
Step 3:- To transfer journal information to ledger accounts. This step is called posting. Posting makes it
possible to accumulate the effect of journalized transactions on individual accounts.

BE2-5

J. A. Motzek has the following transactions during August of the current year. Indicate (a) the effect on the
accounting equation and (b) the debit-credit analysis illustrated on pages 58–62 of the text.
Aug. 1 Opens an office as a financial advisor, investing Tk5,000 in cash.
4 Pays insurance in advance for 6 months,Tk1,800 cash.
16 Receives Tk800 from clients for services provided.
27 Pays secretary Tk1,000 salary.
Solution:-

Effect and Debit- Credit Analyses

(a)Effect on Accounting Equation (b) Debit- Credit Analysis


The assets cash is increased, Debits increase assets:
The owner’s equity account Debit cash Tk 5000
Aug 1
J.A. Motezek, capital is Credits increase owner’s equity;
increased Credit J.A. Motezek, Capital Tk5000
Debits increase assets:
The assets Prepaid Insurance Debit prepaid insurance Tk 1800
Aug 4
Is increased: ,the asset cash is decreased Credits decrease assets:
Credit cash Tk 1800

The assets cash is increased: the revenue Debits increase assets:


Aug16 Service revenue is decreased. Debit cash Tk 800
Credits increase revenue:
Credit service revenue Tk 800
Debits increase expense:
The expense salaries Expense is increase: Debit salaries expenses Tk 1000
Aug 27
The assets cash is decease. Credit decrease assets:
Credit cash Tk 1000

BE2-6
Using the data in BE2-5, Journalize the transactions.(You may omit explanations.)

Solution:-
Journal

Date Account Titles and Explanations Ref. Debit Credit


Cash 5000
1
J.A. Motezek, Capital 5000
Prepaid Insurance 1800
4 1800
Cash
Cash 800
16
Service Revenue 800
Salaries Expense 1000
27 1000
Cash
BE2-7

Selected transactions for the Finney Company are presented in journal form below. Post the transactions
to T accounts. Make one T account for each item and determine each account’s ending balance.

Date Account Titles and Explanation Ref. Debit Credit


May 5 Accounts Receivable 5,000
Service Revenue 5,000
(Billed for services provided)
12 Cash 2,400
Accounts Receivable 2,400
(Received cash in payment of account)
15 Cash 3,000
Service Revenue 3,000
(Received cash for services provided)

Solution:-

Gilles Company
T- Accounts
Dr. Service revenue Cr.
May 5, 6000
May 15, 3000
Balance = 9000

Dr .Cash Cr.
May 5, 2400
May 15, 3000
Balance = 5400

BE2-8
Selected journal entries for the Gilles Company are presented in BE2-7. Post the transactions using the
standard form of account.
Solution:-
Gilles Company
Standard Form of Account
General Ledger
Debit Account Receivable Account
Credit
Date Particulars Ref. Tk Date Particulars Ref. Tk
May 5 Account 6000
Receivable May12 2400

Account Tk 3600
Receivable
Balance

Debit Service Revenue Account


Credit
Date Particulars Ref. Tk Date Particulars Ref. Tk
May 5 Service 6000
15 Revenue 3000

Service Tk 9000
Revenue
Balance

Debit Cash Account


Credit
Date Particulars Ref. Tk Date Particulars Ref. Tk
May12 Account 2400
15 Receivable 3000

Tk 5400
Cash Balance

BE2-9

From the ledger balances given below, prepare a trial balance for the P.J. Farve Company at June
30,2005. List the accounts in the order shown on page 57 of the text. All account balances are normal.
Accounts Payable Tk9,000,Cash Tk6,800, P.J. Farve, Capital Tk20,000; P.J. Farve,DrawingTk1,200;
Equipment Tk17, 000, Service Revenue Tk6, 000, Accounts Receivable Tk3, 000, Salaries Expense
Tk6, 000, and Rent Expense Tk1, 000.

Solution:-

P.J. Company
Trial Balance June 30, 2005

Account Debit (Tk) Credit (Tk)


Cash Tk 6800
Account Receivable 3000
Equipment 17000
Accounts Payable Tk 9000
P.J. Farve , Capital 20000
P. J. Farve Drawing 1200
Service Revenue 6000
Salaries Expense 6000
Rent Expense 1000
Total Tk 35000 Tk 35000
BE2-10
An inexperienced bookkeeper prepared the following trial balance. Prepare a correct trial balance,
assuming all account balances are normal.

CHENG COMPANY
Trial Balance
June 30, 2005

Debit Credit

Cash Tk16,800
Prepaid Insurance Tk3,500
Accounts Payable 3,000
Unearned Revenue 4,200
P.Cheng,Capital 13,000
P.Cheng,Drawing 4,500
Service Revenue 25,600
Salaries Expense 18,600
Rent Expense 2,400
Balance Tk39,600 Tk52,000

Solution:-

P.J. Company
Trial Balance June 30, 2005

Account Debit (Tk) Credit (Tk)


Cash Tk16800
Prepaid Insurance 3500
Accounts Payable Tk3000
Unearned Revenue 4200
P.J. Farve , Capital 13000
P. J. Farve Drawing 4500
Service Revenue 25600
Salaries Expense 18600
Rent Expense 2400
Total Tk 45800 Tk 45800