Question

Thoro Clean, a firm providing house-cleaning services, began business on April 1. The following accounts in its general ledger are needed to record the transactions for April: Cash; Accounts Receivable; Supplies; Prepaid Van Lease; Equipment; Accounts Payable; Notes Payable Common Stock; Retained Earnings; Dividends; Cleaning Fees Earned; Wage Expense; Advertising Expense; and Fuel Expense.
a. Using the accounting equation, record each of the transactions in columnar format.
b. Use journal entries to record the following transactions for April in the general journal.
April
1 Randy Storm invested $11,500 cash to begin the business; he received common stock for his investment.
2 Paid six months' lease on a van, $2,850.
3 Borrowed $10,000 from a bank and signed a note payable agreeing to repay the $10,000 in one year plus 10 percent interest.
3 Purchased $5,500 of cleaning equipment; paid $3,500 down with the remainder due within 30 days.
4 Purchased cleaning supplies for $4,300 cash.
7 Paid $350 for newspaper advertisements to run during April.
21 Billed customers for services, $3,500.
23 Paid $1,500 on account to cleaning equipment firm (see April 3 transaction).
28 Collected $2,300 from customers on account.
29 Randy Storm received a $1,000 cash dividend.
30 Paid wages for April, $1,750.
30 Paid service station for gasoline used during April, $255.
DATE DESCRIPTION DEBIT CREDIT

Cash + Accounts Receivable + Supplies + Prepaid Van Lease + Equipment = Accounts Payable + Notes Payable + Common Stock + Retained Earnings

Answer 1

Answer:

Thoro Clean

a. Using the accounting equation, record each of the transactions in columnar format:

April 1    

Cash $11,500 + Accounts Receivable + Supplies + Prepaid Van Lease  + Equipment = Accounts Payable + Notes Payable + Common Stock $11,500 + Retained Earnings

April 2

Cash $11,500 - $2,850+ Accounts Receivable + Supplies + Prepaid Van Lease $2,850 + Equipment = Accounts Payable + Notes Payable + Common Stock $11,500 + Retained Earnings

April 3

Cash $11,500 - $2,850 + $10,000 + Accounts Receivable + Supplies + Prepaid Van Lease $2,850 + Equipment = Accounts Payable + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings

April 3

Cash $11,500 - $2,850 + $10,000 - $3,500 + Accounts Receivable + Supplies + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings

April 4

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 + Accounts Receivable + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings

April 7

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 - $350 + Accounts Receivable + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings - Advertising Expense $350

April 21

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 - $350 + Accounts Receivable $3,500 + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings - Advertising Expense $350 + Cleaning Fees Earned $3,500

April 23

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 - $350 - $1,500 + Accounts Receivable $3,500 + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 - $1,500 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings - Advertising Expense $350 + Cleaning Fees Earned $3,500

April 28

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 - $350 - $1,500 + $2,300 + Accounts Receivable $3,500 - $2,300 + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 - $1,500 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings - Advertising Expense $350 + Cleaning Fees Earned $3,500

April 29

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 - $350 - $1,500 + $2,300 + $1,000 + Accounts Receivable $3,500 - $2,300 + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 - $1,500 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings - Advertising Expense $350 + Cleaning Fees Earned $3,500 + Dividends $1,000

April 30

Cash $11,500 - $2,850 + $10,000 - $3,500 - $4,300 - $350 - $1,500 + $2,300 - $1,750  - $255 + Accounts Receivable $3,500 - $2,300 + Supplies $4,300 + Prepaid Van Lease $2,850 + Equipment $5,500 = Accounts Payable $2,000 - $1,500 + Notes Payable $10,000 + Common Stock $11,500 + Retained Earnings - Advertising Expense $350 + Cleaning Fees Earned $3,500 + Dividends $1,000 - Wages $1,750 - Gasoline $255

b. Use Journal entries to record the transactions:

DATE    DESCRIPTION                 DEBIT     CREDIT

April 1    Cash Account                $11,500

             Common Stock                              $11,500

To record Randy Storm's investment of cash

April 2  Prepaid Van Lease        $2,850

            Cash Account                                $2,850

To record payment for six months' lease on a van.

April 3  Cash Account             $10,000

            Notes Payable                              $10,000

To record the borrowing of $10,000 from a bank.

April 3   Cleaning Equipment  $5,500

             Cash Account                              $3,500

             Accounts Payable                       $2,000

To record purchase of cleaning equipment.

April 4  Cleaning Supplies      $4,300

            Cash Account                              $4,300

To record the purchase of cleaning supplies.

April 7  Advertising Expense    $350

            Cash Account                                $350

To record the payment for advertisements.

April 21 Accounts Receivable      $3,500

            Cleaning Fee Earned                     $3,500

To record the cleaning fees earned.

April 23 Accounts Payable        $1,500

             Cash Account                               $1,500

To record the payment on account.

April 28 Cash Account           $2,300

              Accounts Receivable                 $2,300

To record the receipt from customers on account.

April 29 Cash Account         $1,000

             Dividends                                   $1,000

To record the receipt of dividends.

April 30 Wages Expense        $1,750

             Cash Account                            $1,750

To record the payment of wages for April.

April 30 Gasoline Expense    $255

              Cash Account                         $255

To record the payment for gasoline used during April.

Explanation:

The accounting equation is given as Assets = Liabilities + Equity.  This equation is always in balance with each transaction affecting at least one or two accounts in either side of the equation.  This equation explains that the assets owned by a company are made up of either owings to creditors or owners of the business.