a. On January 1, 2015, a payment in cash for $12,000 is made for prepaying rent

Question

a. On January 1, 2015, a payment in cash for $12,000 is made for prepaying rent for the entire year 2015. b. On January 4, 2015, accounting services are performed and payment is received in cash for the amount of $1,900. c. On January 9, 2015, a payment in cash for advertising is made in the amount of $850. d. On January 10, 2015, office supplies are purchased in the amount of $75 with cash. e. On January 14, 2015, accounting services are performed and payment is received in cash for the amount of $2,725. f. On January 20, 2015, the telephone bill for the amount of $660 is received and paid with cash. g. On January 20, 2015, the utilities bill for $2,925 is received. The bill won't be paid until it is due on February 15, 2015. h. On January 27, 2015, accounting services are performed on account in the amount of $3,750. i. On January 28, 2015, a payment in cash for $1.500 is made for a bill from an advertising agency

Explanation / Answer

Step:1 prepare journal entries for the transactions Transaction Date Account Titles and Explanation Debit Credit a. Jan 1. Prepaid rent 12000 Cash 12000 (Prepaying rent for the entire year) b. Jan 4. Cash 1900 Service revenue 1900 (Service revenue received in cash) c. Jan 9. Advertising expense 850 cash 850 (Payment for advertising made) d. Jan 10. Office supplies 75 Cash 75 (Office supplies are purchased) e. Jan 14. Cash 2725 Service revenue 2725 (Service revenue received in cash) f. Jan 20. Telephone expense 660 Cash 660 (Telephone bill paid) g. Jan 20. Utility expense 2925 Utility payable 2925 (Utilities bill due) h. Jan 27. Accounts receivable 3750 Service revenue 3750 (Service performed on account) i. Jan 28. Advertising expense 1500 Cash 1500 Step:2 prepare T-accounts: Ledgers Cash Date Explanation Ref Debit Credit Balance Jan 1. Bal. (assumed) 0 Jan 1. Prepaid rent a. 12000 -12000 Jan 4. Service revenue b. 1900 -10100 Jan 9. Advertising expense c. 850 -10950 Jan 10. Office supplies d. 75 -11025 Jan 14. Service revenue e. 2725 -8300 Jan 20. Telephone expense f. 660 -8960 Jan 28. Advertising expense i. 1500 -10460 Office Supplies Date Explanation Ref Credit Balance Jan 1. Balance (Assumed) 0 Jan 10. Cash d. 75 75 Prepaid Rent Date Explanation Ref Debit Credit Balance Jan 1. Balance (Assumed) 0 Jan 1. Cash a. 12000 12000 Accounts receivable Date Explanation Ref Debit Credit Balance Jan 1. Balance (Assumed) 0 Jan 27. Service revenue h. 3750 3750 Utility payable Date Explanation Ref Credit Balance Jan 1. Balance (Assumed) 0 Jan 20. Utilty expense g. 2925 2925 Service revenue Date Explanation Ref Debit Credit Balance Jan 4. Cash b. 1900 1900 Jan 14. Cash e. 2725 4625 Jan 27. Accounts receivable h. 3750 8375 Advertising expense Date Explanation Ref Debit Credit Balance Jan 9. Cash c. 850 850 Jan 28. Cash i. 1500 2350 Telephone expense Date Explanation Ref Debit Credit Balance Jan 20. Cash f. 660 660 Utilty expense Date Explanation Ref Debit Credit Balance Jan 20. Utlity payable g. 2925 2925 Step:3 Prepare Trial balance: Account titles Debit Credit Cash 10460 Office supplies 75 Prepaid Rent 12000 Accounts receivable 3750 Utility payable 2925 Service revenue 8375 Advertising expense 2350 Telephone expense 660 Utilty expense 2925 21760 21760 Step:4 Pass journal entries for adjusting entries Date Account Titles and Explanation Debit Credit Jan 31. Rent expense (12000/12)*1 1000 Prepaid rent 1000 (Prepaid rent adjusted for Jan month) Step:5 Update T-accounts based on adjusting entries Prepaid Rent Date Explanation Ref Debit Credit Balance Jan 1. Balance (Assumed) 0 Jan 1. Cash a. 12000 12000 Jan 31. Rent expense 1000 11000 Rent expense Date Explanation Ref Debit Credit Balance Jan 20. Prepaid Rent 1000 1000 Step:6 Prepare adjusted trial balance Account titles Debit Credit Cash 10460 Office supplies 75 Prepaid Rent 11000 Accounts receivable 3750 Utility payable 2925 Service revenue 8375 Advertising expense 2350 Telephone expense 660 Utilty expense 2925 Rent expense 1000 21760 21760 Step:7 Prepare income statement Income statement Revenue: Service revenue 8375 Expenses: Advertising expense 2350 Telephone expense 660 Utilty expense 2925 Rent expense 1000 6935 Net income 1440 Step:8 prepare statement of retained earnings Retained earning statement Beginning balance (Assumed) 0 Add: Net income 1440 Ending balance 1440 Step:9 Prepare closing entries Date Account Titles and Explanation Debit Credit Jan 31. Service revenue 8375 Income summary 8375 (Closed revenue accounts) Jan 31. Income summary 6935 Advertising expense 2350 Telephone expense 660 Utilty expense 2925 Rent expense 1000 (Closed exense accounts) Jan 31. Income summary 1440 Retained earnings 1440 (Balance in income summary transferred) Step:10 Prepare Post-closing trial balance Account titles Debit Credit Cash 10460 Office supplies 75 Prepaid Rent 11000 Accounts receivable 3750 Utility payable 2925 Retained earnings 1440 14825 14825

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