Brief Exercise 2-3 Transactions for the George Lynch Company for the month of Ju

Question

Brief Exercise 2-3

Transactions for the George Lynch Company for the month of June are presented below.

Journalize the transactions. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

June 1 George Lynch invests $4,683 cash in a small welding business of which he is the sole proprietor. 2 Purchases equipment on account for $1,830. 3 $821 cash is paid to landlord for June rent. 12 Sends a bill to M. Rodero for $418 for welding work performed on account.

Explanation / Answer

The problem has indicated some trasactions. you have to write Journal entry of each trasaction.

1. On June 1 sole proprietor has introduced $4,683 in his small welding business. Here proprietor owns the business. But in recording the transaction you have to consider the business entity cocept. A business is considered as separate from its owner. Thus money invested is treated as cash taken from proporietors fund. It is a liability of business to its owner. It is retrurnable on closure of the business. thus it is a liability. In the book it can be credited as capital. Note that as per golden rule all liabilities are credited. On repayment, it is reversed. Against this liability, business has received cash. It is asset. So it is classed under real account. As per golden rule allassets that comes in is debited. Thus Journal entry is-

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Purchased equipment on account. Equipment is a capital asset. All assets are coming under real account. Golden rule is all assets are debited. On their sale or trasfer the account will be credited. So Equipment account is debited. As the monery is due a liability has been incurred. All liabilities are credited.So accounts payable is credited.

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On June 3, $821 paid to Landlord as June Rent. It is an expense. So Rent is a nominal account. Golden rules state that all expenses are debited. Cash is paid. It is an asset. As it is going out, cash is credited.

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On June 12 When a bill is send for welding work, it is sales/ revenue. It is income. So it is credited as per golden rule. As the amount is not yet received, it is an asset. So accounts receivable is debited. Thus Journal entry is-

Dated Accounts and explanation Debit Credit June 1 Cash...........................................Dr $4,683     Capital..................................... $4,683 (Cash itroduced in welding business by sole proprietor)

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