Shehgarlynn Mini Mart

The following are the daily business transaction of Shehgarlynn Mini Mart:

January 1, 2013  bought $5,500 of merchandise on account, terms 3/10, 1/15, n/30, from Yosores Company,

Journal Entry

Merchandise Purchases                       $5,500.00
   Accounts Payable                                                       $5,500.00

January 5, 2013 Sales on credit to Gary Co. amounted to $2,500, terms 2/10, n/30.

Journal Entry

Accounts Receivable                           $2,500.00
   Sales                                                                              $2,500.00

January 10, 2013 Gary Co. return of $550.00 on goods sold on Jan. 5.

Journal Entry

Sales Returns and Allowances         $550.00
  Accounts Receivable                                           $550.00

January 14, 2013 Received a cash from Gary Co. in payment of the goods sold on Jan. 5.

Journal Entry

Cash                                          $1,911.00
Sales Discount                               39.00
  Accounts Receivable                                  1,950.00

Computation:
Cost of Goods Sold                             $2,500.00
Less: Sales Return and Allowances     550.00 
Total Sales ..................................$1,950.00
Discount Rate...............................      2%   
Sales Discount                                               39.00  

Sales                                    $1,950.00
Less: Sales Discount                39.00
Cash received                     $1,911.00

January 15, 2013 Sent a check # 025, amounting  to Yosores Co. in payment of purchase made on January 1,

Journal Entry

Accounts Payable                           $5,500.00
   Purchases Discount                                                     55.00
   Cash                                                                          $5,445.00

Computation:
Merchandise Purchases             $5,500.00
Discount Rate                                            1%   
Purchases Discount                               55.00

Merchandise Purchases             $5,500.00
Less:Purchases Discount                     55.00
Net Purchases                                   5,445.00

January 18, 2013 Purchased merchandise on credit to Shehlynn Co. for $7,500, terms 3/10, n/30.

Journal Entry

Merchandise Purchases                          $7,500.00
   Accounts Payable                                                          $7,500.00

January 20, 2013 Sales for the day amounted to $15,325.00

Journal Entry

Cash                                         $15,325.00
   Sales                                                                 $15,325.00

January 25, 2013 Some items purchased from Shehlyn Co. are returned amounted $1,750 in goods purchased on January 18.

Journal Entry

Accounts Payable                          $1,750.00
   Purchases Returns & Allowances                $1,750.00

January 29, 2013 Paid for freight charges on purchase of Jan. 1. amounting $150.

Journal Entry

Freight on Purchases                         $150.00
   Cash                                                                           $150.00

January 31, 2013 Paid to Shehlynn Co., the total amount in payment of purchase made on January 18.

Journal Entry

Accounts Payable                                $5,750.00
   Cash                                                                                $5,750.00

Computation

Merchandise Purchase                                $7,500.00
Less: Purchases Returns & Allowances    1,750.00
Net Purchases                                                  $5,750.00

Cost of Good Sold

The cost will be recognized as an expense.

Shehgarlynn Mini Mart

The following are the daily business transaction of Shehgarlynn Mini Mart:

January 1, 2013  bought $6,500 of merchandise on account, terms 3/10, 2/15, n/30, from Yosores Company,

January 3, 2013 Sales on credit to Gary Co. amounted to $3,750, terms 2/10, n/30.

January 10, 2013 Gary Co. return of $570.00 on goods sold on Jan. 3, 2013

January 14, 2013 Received a cash from Gary Co. in payment of the goods sold on Jan. 3.

January 15, 2013 Sent a check # 025, amounting  to Yosores Co. in payment of purchase made on January 1,

January 18, 2013 Purchased merchandise on credit to Shehlynn Co. for $8,500, terms 3/10, 2/15, n/30.
                                     
January 25, 2013 Some items purchased from Shehlynn Co. are returned amounted $950 in goods purchased on January 18.

January 29, 2013 Paid for freight charges on purchase of Jan. 1. amounting $250.
                                     
January 31, 2013 Paid to Shehlynn Co., the total amount in payment of purchase made on January 18.

Prepare the Net Income of Shehgarlynn Mini Mart

Cash Payment Journal

A journal that records all transactions involving the payment of cash regardless of the reason. Is used any time that there is an outlay of cash. Cash payments will automatically call for the use of this multicolumn special journal.

Purchases Returns and Allowances

A contra or negative account that offsets the merchandise purchases account. When goods previously purchased are returned, the entry for the return causes a credit to be recorded in this contra-account.

Purchases Returns and Allowances Journal

A journal used by the seller of goods to acknowledge the receipt of a credit memorandum from the seller authorizing the return of goods and the reduction or elimination of the buyer's obligation to the seller.

Prepaid Expense

An asset account --an item that normally is considered to be an expense but, because it is paid in advance, is classified as an asset. When the value of the asset has been used up, an adjusting entry will convert this prepaid expense (asset) to an actual expense.

Purchases Journal

A journal that records all purchases on credit. This special journal is a multicolumn journal.

Cash Receipts Journal

A journal that records all transactions involving the receipt of cash regardless of the source. These sales, as well as other transactions causing an inflow of cash.

Special Journal

A book of original entry in which all transactions of a similar nature, such as credit sales or credit purchases are recorded.

Sales Returns and Allowances Journal

A journal used by the seller of goods to record the issuance of a credit memorandum, which services as evidence of the return of merchandise to the seller, giving the buyer credit for the return.

Sales Journal

Sales Journal - A journal that records all sales of goods and/ or services may be made for cash or on credit.

Recording Business Transaction

The following are the daily business transaction of Shehgarlynn Mini Mart:

January 1, 2013  bought $5,500 of merchandise on account, terms 3/10, 1/15, n/30, from Yosores Company,

Journal Entry

Merchandise Purchases                       $5,500.00
   Accounts Payable                                                       $5,500.00

January 5, 2013 Sales on credit to Gary Co. amounted to $2,500, terms 2/10, n/30.

Journal Entry

Accounts Receivable                           $2,500.00
   Sales                                                                              $2,500.00

January 10, 2013 Gary Co. return of $550.00 on goods sold on Jan. 5.

Journal Entry

Sales Returns and Allowances         $550.00
  Accounts Receivable                                           $550.00

January 14, 2013 Received a cash form Gary Co. in payment of the goods sold on Jan. 5.

Journal Entry

Cash                                          $1,911.00
Sales Discount                               39.00
  Accounts Receivable                                  1,950.00

Computation:
Cost of Goods Sold                             $2,500.00
Less: Sales Return and Allowances     550.00 
Total Sales ..................................$1,950.00
Discount Rate...............................      2%   
Sales Discount                                               39.00  

Sales                                    $1,950.00
Less: Sales Discount                39.00
Cash received                     $1,911.00

January 15, 2013 Sent a check # 025, amounting  to Yosores Co. in payment of purchase made on January 1,

Journal Entry

Accounts Payable                           $5,500.00
   Purchases Discount                                                     55.00
   Cash                                                                          $5,445.00

Computation:
Merchandise Purchases             $5,500.00
Discount Rate                                            1%   
Purchases Discount                               55.00

Merchandise Purchases             $5,500.00
Less:Purchases Discount                     55.00
Net Purchases                                   5,445.00

January 18, 2013 Purchased merchandise on credit to Shehlynn Co. for $7,500, terms 3/10, n/30.

Journal Entry

Merchandise Purchases                          $7,500.00
   Accounts Payable                                                          $7,500.00

January 20, 2013 Sales for the day amounted to $15,325.00

Journal Entry

Cash                                         $15,325.00
   Sales                                                                 $15,325.00

January 25, 2013 Some items purchased from Shehlyn Co. are returned amounted $1,750 in goods purchased on January 18.

Journal Entry

Accounts Payable                          $1,750.00
   Purchases Returns & Allowances                $1,750.00

January 29, 2013 Paid for freight charges on purchase of Jan. 1. amounting $150.

Journal Entry

Freight on Purchases                         $150.00
   Cash                                                                           $150.00

January 31, 2013 Paid to Shehlynn Co., the total amount in payment of purchase made on January 18.

Journal Entry

Accounts Payable                                $5,750.00
   Cash                                                                                $5,750.00

Computation

Merchandise Purchase                                $7,500.00
Less: Purchases Returns & Allowances    1,750.00
Net Purchases                                                  $5,750.00

Sales Discount

Terms - "2/10, n/30" - Maybe be offered

2/10  mean 2% discount will be given if the obligation is paid within 10 days of the invoice date, on the entire amount.

n/30 = mean that the entire obligation, Net (n), is due the seller with in 30 days of the invoice.

The sales discount is offered but the seller, but it is the buyer who exercises the option of taking the cash discount or not.

Example:

January 2, 2013, Gary Company sales on credit amounted to $5,150 of merchandise to Shehgarlynn Supermarket, terms 5/10, n/30.  On January 9, 2013, Gary's Co. received a cash from Shehgarlynn Supermarket in payment of the account last Jan. 2, 2013.
Computation:

Cost of Merchandise          $5,150.00
Discount                                      5%     
Sales Discount                         257.50

Journal Entries: Books of the Seller

January 2, 2013  Accounts Receivable        $5,150.00
                                      Sales                                                            $5,150.00
                                   To record sales on credit, amounted $5,150, terms offered 5/10, n/30


January 9, 2013  Cash                                $4,892.50
                                    Sales Discount                   257.50
                                       Accounts Receivable                    $5,150.00
                                  To record the payment of Shehgarlynn account.        
                                                                                                                                     

Purchases Discount

Terms - "2/10, n/30" - Maybe be offered

2/10  mean 2% discount will be given if the obligation is paid within 10 days of the invoice date, on the entire amount.

n/30 = mean that the entire obligation, Net (n), is due the seller with in 30 days of the invoice.

The sales discount is offered but the seller, but it is the buyer who exercises the option of taking the cash discount or not.

Example:

January 2, 2013, Shehgarlynn Supermarket bought $5,150 of merchandise to Gary Company on credit, terms 5/10, n/30.  On January 9, 2013, Shehgarlynn paid cash for the goods.

Computation:

Cost of Merchandise          $5,150.00
Discount                                      5%     
Purchases Discount                 257.50


Journal Entries: Books of the Buyer

January 2, 2013  Merchandise Purchases        $5,150.00
                                      Accounts Payable - Gary Co.                         $5,150.00
                                   To record purchases of merchandise, terms offered 5/10, n/30


January 9, 2013  Accounts Payable - Gary Co.   $5,150.00
                                       Cash                                                                        $4,892.50
                                       Purchases discount                                                 257.50
                                   To record the payment of merchandise.

Sales Return and Allowances

When the customer returning goods to a seller, she has the right to do so. The accountant establish the title of this account as Sales return and allowances.

Example:
Jerry return goods amounting of $300.

Journal Entry:

Sales Returns and Allowances            $300
  Cash                                                                          $300
To record the goods return and paid back cash $300

Recording Sales

On January 10, 2013 Shehgarlynn Mini Mart, total sales of merchandise amounting of $13,000; the cashier count the total cash receipt amounting of $10,500, and the rest of sales on account.

Journal Entry:

Jan. 10, 2013   Cash ...........................              $10,500
                               Accounts Receivable ......             2,500
                                   Sales .................................                    $13,000
                                To record the merchandise sold for the day.

                                                       Or


Jan. 10, 2013   Cash .............................     $10,500
                                  Sales ...................................             $10,500
                                To record the merchandise sold for cash

                              Account Receivable - Credit Card ........  $2,500
                                Sales ..................................................                  $2,500
                               To record the merchandise sold on credit.

Determining the Cost of Goods Available for Sale

Merchandise Inventory, Beg.                                                           $19,130
Purchases                                                                                  89,950
Less: Purchases Returns And Allowances    9,750
            Purchases Discount                                 11,300   21,050
Total                                                                                            68,900
Add: Freight on Purchases                                                    1,570
Net Purchases                                                                                           70,470
Cost of Goods Available for Sale                                89,600

Determining the Cost of Merchandise Sold

Cost of Merchandise Available for Sale ...................$89,600
Less: Merchandise Inventory, End ........................      13,750
Cost of Goods Sold .............................................        75,850

Determining Net Sales

Revenue

   Gross Sale ............................................................. $150,000
   Less: Sales Returns and Allowances ....... $5,155
              Sales Discount .......................             1,350               6,585
   Net Sales ...........................................................  ...$143,495

Determining Net Income

Net Sales - The results of subtracting sales returns and allowances and sales discounts from the sale account.

    Net Sales .......................................        $143,495
   Less: Cost of Goods Sold .............                 75,850
   Gross Profit ..................................             67,645
   Operating Expenses  .....................              45,750
   Net Income  ...................................         $21,895

Merchandise Purchases

Merchandise Purchases - The goods that a trading business purchases for the period of resale, or all goods bought exclusively for the purpose of resale. During the year this account is treated as an asset. However, its locations on the chart of accounts indicates that it is actually an expense, the assumption being that as the goods were bought for resale they represent expenses. Goods that were actually sold become part of the calculation of cost of goods sold, which is an expense category.

Service VS Trading

Service Businesses - Sell knowledge (ex. law firm, accounting firm, advertising agencies, and health care, perform services and the compensation received for those services is recorded in various accounts such as: income from services, income from fees, and commission income.)

Trading Businesses - Sell a particular product or group of products. First the organization acquire the product by purchasing or to make with in the organization and sell the products. In short buy and sell a product.

Test IV - Prepare a Post-Closing Trial Balance

Shehla Shehgarlynn operates a repair service, known as Shehgarlynn Repair Service.
The following are the accounts of Shehgarlynn for the month of December 2012 of operations:

Cash in Bank ...............$13,140
Supplies.............................500
Prepaid Rent ..................6,000
Prepaid Insurance...........1,200
Accounts Receivable..........250
Repair Equipment...........5,000
Shehla, Capital..............20,000
Shehla, Drawing.................120
Repair Fees Earned.......11,000
Accounts Payable...........1,000
Advertising Expense .........500
Salaries Expense............5,000

Shehgarlynn accounting records are kept on accrual basis. At the end of December prepare the following adjustment needed:

1. Insurance has been used from Jan. to Dec., $100 per month.
2. Rent of the office has been used from Jan. to Dec., $500 per month
3. $250 of supplies has been used from Jan. to Dec. 

After closing all temporary capital accounts prepare a Post-Closing Trial Balance.

Test II - Closing Entries

Shehla Shehgarlynn operates a repair service, known as Shehgarlynn Repair Service.
The following are the accounts of Shehgarlynn for the month of December 2012 of operations:

Cash in Bank ...............$13,140
Supplies.............................500
Prepaid Rent ..................6,000
Prepaid Insurance...........1,200
Accounts Receivable..........250
Repair Equipment...........5,000
Shehla, Capital..............20,000
Shehla, Drawing.................120
Repair Fees Earned.......11,000
Accounts Payable...........1,000
Advertising Expense .........500
Salaries Expense............5,000

Shehgarlynn accounting records are kept on accrual basis. At the end of December prepare the following adjustment needed:

1. Insurance has been used from Jan. to Dec., $100 per month.
2. Rent of the office has been used from Jan. to Dec., $500 per month
3. $250 of supplies has been used from Jan. to Dec. 

After preparing the adjusting entries, prepare trial balance, financial statement, and close all temporary capital accounts.

Test I - Adjusting Entries

Shehla Shehgarlynn operates a repair service, known as Shehgarlynn Repair Service.
The following are the accounts of Shehgarlynn for the month of December 2012 of operations:

Cash in Bank ...............$13,140
Supplies.............................500
Prepaid Rent ..................6,000
Prepaid Insurance...........1,200
Accounts Receivable..........250
Repair Equipment...........5,000
Shehla, Capital..............20,000
Shehla, Drawing.................120
Repair Fees Earned.......11,000
Accounts Payable...........1,000
Advertising Expense .........500
Salaries Expense............5,000

Shehgarlynn accounting records are kept on accrual basis. At the end of December prepare the following adjustment needed:

1. Insurance has been used from Jan. to Dec., $100 per month.
2. Rent of the office has been used from Jan. to Dec., $500 per month
3. $250 of supplies has been used from Jan. to Dec. 

Test II - Closing Entries

Indicate whether each of the following accounts should be closed at year-end by writing YES or NO in the answer column.
                                                                           Answer

1. Service Revenue                                _______
2. Shehla, Capital                                    _______
3. Shehla, Drawing                                 _______
4. Supplies Expense                              _______
5. Prepaid Expense                               _______
6. Accumulated Depreciation           _______
7. Accounts Payable                             _______
8. Wages Payable                                  _______
9. Wages and Salaries Expense        _______
10. Supplies                                                 _______
11. Prepaid Insurance                            _______
12. Accounts Receivable                       _______
13. Depreciation Expense                     _______
14. Unearned Revenue                          _______
15. Interest Income                                _______
16. Office Equipment                             _______
17. Computer                                            _______
18. Water and Power Payable           _______
19. Notes Payable                                   _______
20. Prepaid Rent                                      _______

Reversing Entries

An entries recorded at the very beginning of the new accounting period, each representing the exact opposite of the adjusting entry recorded at the end of the previous accounting period. A reversing entry is necessary any time an adjusting entry sets up an account that will not be closed at the end of the accounting period and that does not normally carry a balance on the books during the year.

Permanent Capital Account

The owner's equity in a business organization that is not expected to change other than as a result of an increase or a decrease in the owner's investment in the business.

Temporary Capital Account

Accounts that will be eliminated at the end of the accounting period. The temporary capital accounts for a sole proprietorship consists of revenue, expenses, and proprietor's drawing account.

Post-Closing Trial Balance

A trial balance prepared after closing the ledger. Temporary capital accounts, having no balances after the closing entries have been posted.

Closing Entries

A journal entries usually prepared at the end of the accounting period to eliminate the balances in the temporary capital account and to transfer these balances  to the income summary and eventually to the permanent capital account.

After the accountant prepared the income statement and balance sheet, a summary account variously known as Expense and Income Summary or Profit and Loss Summary is set up. In order to close all the temporary capital account.

Example: Temporary account

Revenue .................. $13,500
Rent Expense................1,500
Utilities Expense..............750
Salaries Expense...........2,500
Supplies Expense.............995
Shehla, Drawing ...........1,500

The closing entries are as follows:

1. Close out income accounts.
   Dec. 31 Revenue...............................$13,500
                      Expense and Income Summary .............$13,500
                        To close the revenue account

2. Close out expense accounts.
  Dec. 31 Expense and Income Summary...$7,245
                     Rent Expense.......................................1,500
                     Utilities Expense.....................................750
                     Salaries Expense..................................2,500
                     Supplies Expense....................................995
                       To close the expense accounts.

3. Close out the Expense and Income Summary account.
  Dec. 31 Expense and Income Summary.........$6,255
                    Shehla, Capital.............................................$6,255
                       To close the expense and income summary account.

Note: If the revenue is more than the expenses, it shows the profit to be added to the capital. If expenses is more than the revenue, then a loss has been sustained, and a credit is made to Expense and Income Summary and a debit to the capital account.

4. Close out the drawing account.
   Dec. 31 Shehla, Capital .....................$1,500
                      Shehla, Drawing ................................$1,500
                        To close Shehla, Drawing account.

Adjusting Entries

Are journal entries that are recorded in order to properly reflect the appropriate balances in the various ledger accounts for a specific accounting period. The entries are usually prepared at the end of the accounting period but may be prepared at any time that the accountant considers appropriate.

To adjust expense or income items that have already been recorded:

Example 1 Prepaid Rent

On January 1, 2013, Shehla paid $6,000 in advance for office rent, $500 a month.

 Recording in Journal Entry
2013
Jan. 1 Prepaid Rent .................$6,000
            Cash ......................................$6,000
               To record the payment of office rent in advance

Note: At the end of the month the accountant need to adjust the accrued expenses, which is below.

   Recording the Adjusting Entries
2013
Feb. 1 Rent Expense ..............$500
             Prepaid Rent......................$500
               To record the expense have been incurred

Accounting Cycle

Is a sequence of accounting procedures that are usually performed during an accounting period.

An accounting period - is the time period for which the income statement is prepared.

Calendar year - is from January 1 to December 31.

Fiscal year - is any twelve month period. A fiscal year could be a calendar year but does not have to be.

Interim reports - are statements that are usually prepared for a month or a quarter (a portion of the fiscal year)

Double-Entry Bookkeeping

An accounting system in which the recording of each transaction affects two or more accounts, and the total of the debit is equal to the total of the credit.

Account Number

The numbers assigned to accounts according to the chart of account. 

Source Documents

A business papers, such as checks, invoices, receipts, letters and memos, that furnish proof that a transaction has taken place.

What are Business Transaction?

A business transactions is any business activity that affects what a business owns and owes, as well as the ownership of the business. We learned in Part III to keep track of business transaction by using an expanded form of the accounting equations. Most business, however, are involved in daily business transactions.

Information to keep track of:

• When we added a business transaction to the accounting equation, we showed the change that took place in the specific record.
• This increase or decrease is an important part of our record, but we also want to keep track of the date that a particular transaction takes place.
• Some form of explanation is also helpful, especially if the specific item acquired may not be apparent from the title of the record we maintain for it.

Thus, every business transaction should contain three kinds of information:

1. The date of transaction.
2. An explanation of the transaction (where necessary).
3. The amount of the transaction and its result; whether it represents an increase or a decrease.

Posting

Is the process of transferring information from the journal to the ledger. Posting is the third critical step in the process of preparing financial reports.

The posting process consists of four steps:

1. Write the date of the transaction in the accounts sate column.
2. Write the amount of the transaction in the debit or credit column, and enter the new balance in the balance column under debit or credit.
3. Write the page number of the journal in the posting reference column of the ledger account.
4. Record the ledger account number in the posting preference column of the journal.

Test VII - Final Exam

Shehla Shehgarlynn operates a taxi company known as the Shehgarlynn's Taxi Co. The beginning balance of her accounts as of January 1, 2013 as follows:

Cash.....................................$76,500
Supplies .....................................800
Automobile ...........................15,000
Accounts Payable..................33,000
Capital...................................10,500

The transactions of the firm during the month of January appear below:

1. Paid balance owed to the creditor.
2. Income (cash) for the month, $8,500
3. Paid wages for the month, $2,100
4. Paid for advertising, $150
5. Purchased an additional used taxi for $7,500, terms half in cash and the balance on account.
6. Paid $475 for maintenance of automobiles.
7. Sold $150 of our supplies at cost as an accommodation.
8. Shehla withdrew $950 for personal use. 
9. Inventory of supplies at the end of the month was $425 (used).

Prepare the following:

1. Journal Entries
2. General Ledger
3. Trial Balance
4. Financial Statement

Test VI - Balance Sheet

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.

January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

After  preparing statement of owner's equity, prepare the Balance Sheet.

Test V - Statement of Owner's Equity

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.

January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

After  preparing the income statement, prepare the Statement of Owner's Equity

Test IV - Income Statement

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.

January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

After  preparing the trial balance, prepare the Income Statement.

Test III - Trial Balance

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.


January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.



After posting the account to each debit or credit ledger account. Prepare the Trial Balance.

Test II - Posting to the Ledger

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.


January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

After preparing the Journal entry, prepare the ledger or T-Account, post each account to each debit or credit ledger account.

Test I - Journalizing

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.

January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

Prepare the Journal Entry.

Trial Balance

A record prepared at any moment in time to prove the accuracy of the ledger. If the totals of the debit and credit balances in the individual ledger accounts agree, the ledger is said to be in balance.

In preparing trial balance, all the accounts from the ledger post to or consist of a listing of accounts balances in two columns labeled debit and credit. Make sure the debit account equal to credit account.

There are four steps to prepare a trial balance:

1. Determine the balance of each account in the ledger
2. List the accounts and their balances with the debit balances in one column and the credit balance in another.
3. Total the debit balances and then total the credit balances.
4. Compare the sums of the debit and credit balances to see if they are equal.

Ledger

A book of secondary or final entry, containing individual accounts. The term "ledger account" refers to an individual account in the ledger. A ledger may be bound book, a loose-leaf-type book, or  computer printout.

Chart of accounts - is the official list of the ledger accounts in which transactions of a business are to be recorded.

The accountants prepare the list of the chart of accounts, arrange according to the preparation of balance sheet accounts, statement of owners equity, followed by the income statements accounts.

Example below:

Balance Sheet Accounts

Assets  (100-199)
100 Cash
101 Bank of America Checking
111 Accounts Receivable
113 Supplies
114 Prepaid Insurance
121 Equipment

Liabilities (200-299)
201 Accounts Payable
202 Notes Payable

Statement of Owner's Equity Accounts

Owner's Equity 300-399)
311 Shehla, Capital
312 Shehla, Withdrawal

Income Statement Accounts

Revenue (400-499)
411 Income from Services

Expenses (500-599)
500 Wages Expense
502 Rent Expense
503 Advertising Expense
504 Utilities Expense

Example: The Journal Entry is

Date    Description                        Debit                Credit
2013
Jan. 1  Cash ................................$50,000
             Shehgarlynn, Capital...............................$50,000
               To record the original investment of Shehla.  

Posting to the ledger accounts using T-Accounts

     Cash                                    
Debit    Credit
$50,000

Total balance of $50,000 on debit side

Shehgarlynn, Capital
Debit             Credit
                    $50,000

Total balance of $50,000 on credit side.

Journal

A book of original or first entry. The basic two column journal provides for entering business transaction are recorded, and provision is made for adequate explanation.

Journalizing = The process of recording a business transaction in a journal.

Double-Entry Accounting

A method of accounting in which, for every debit entry, there must be a corresponding credit entry of the same amount. Every business transaction must be represented by at least two changes.

The Rule of Double-Entry Accounting:

• We have learned that every business transaction involves at least two changes. 
• The change must cause the accounting equation to maintain its equality.
• For every debit entry, there must be a corresponding credit entry of the same amount.

Accounts

Accounts - An individual record of specific items that a business owns (assets) and owe (liabilities), as well as a recognition of ownership (capital)

Where to Record Business Transaction

1. Accounts 
2. Double-Entry Accounting
3. Journal
4. Ledger
5. Trial Balance

In recording business transaction:

1. Analyze what account are involve.
2. Classify the account involve. (Accounting Equation)
3. Are the account increase or decrease
4. Record the transaction

To test your understanding of the recording procedure, describe the nature of the transactions that have taken place. (see the accounting equation)

Example:

Januanry 1, 2013, Shegarlynn's invest $50,000 cash in the business.

Note: The account involve are investment of Shehgarlynn $50,000, which is cash.

Accounting Equation
Assets = Liabilities + Owner's Equity

Assets = Cash  (Increase)
Owner's Equity = Shehgarlynn, Capital (Increase)

The Journal Entry of the above example:

Date    Description                        Debit                Credit
2013
Jan. 1  Cash ................................$50,000
             Shehgarlynn, Capital...............................$50,000
               To record the original investment of Shehla.                      

Note: Remember always record the date first, the description, debit part, and credit part of the entry.

Trial Balance

The following are the account of Shehgarlynn Law firm for the first quarter of business operation:

Cash ....................................$1,000
Checking Account................24,150
Supplies.....................................650
Prepaid Rent...........................4,800
Office Furniture......................3,500
Office Equipment...................4,000
Accounts Payable....................1,950
Unearned Revenue...............10,000
Shehgarlynn, Capital.............21,500
Shehgarlynn, Drawing............... 800
Consulting Fees ......................8,900
Rent Expense............................400
Advertising Expense..................200
Supplies Expense ...................2,100
Utilities Expense.......................400
Miscellaneous Expense..............350

Prepare the following:

1. Trial Balance
2. Income Statement
3. Statement of Owner's Equity
4. Balance Sheet (Report Form)

Test I - Types of Assets

A. Prepare a list of (10) ten assets that a business organization would own.

1. ____________________
2. ____________________
3. ____________________
4. ____________________
5. ____________________
6. ____________________
7. ____________________
8. ____________________
9. ____________________
10. ____________________

B. Test your ability to assign specific assets to various categories.Below are (20) twenty specific assets:

1. Adding Machine                                    2. Truck

3. Petty Cash                                               4. Desk

5. Cash in Bank                                           6. Chairs

7. Typing Paper                                         8. Computer

9. Automobile                                          10. Pencils

11.Traveler's Check                               12. Pens

13. Currency                                             14. Light Bulbs

15. USB                                                       16. Typewriter

17 Printer Ink                                           18. Printer

19. Ribbon of the typewriter              20. Fax Machine

Place each of these assets under appropriate specific asset category heading in the following form:

Cash         Furniture & Fixture   Delivery Equipt     Office Supplies   Office Equipt
_______   ___________   ___________     ____________  _____________
_______   ___________    ___________    ____________  _____________
_______   ___________   ____________   ____________  _____________
_______   ___________   ____________   ____________  _____________
_______   ___________   ____________   ____________  _____________
_______   ___________   ____________   ____________  _____________

Tangible Assets

Tangible assets - Is one that can be readily seen, and possibly touched.

Example are:

1. Current assets
2. Investments
3. Property, Plant, and Equipment
4. Furniture and Fixture
5. Office Equipment

Intangible Assets

Are usually of a long-term nature and have no physical qualities, but has a value based on rights or privileges belonging to the owners of the organization.

Example of these assets are:

1. Patents
2. Goodwill
3. Trademark
4. Copyrights, and
5. Franchises

Property, Plant, and Equipment

Assets that have a useful life of more than 1 year and are used in the continuing operations of the organization.

Property - Any assets, including cash, title to which is ordinarily transferable between persons.

Plant Assets - Tangible non-current assets that are used in the operation of the business.
Examples are:

1. Land
2. Building
3. Machinery 
4. Employee parking lot

Equipment - A fixed-assets units, usually movable, accessory or supplemental to such larger items as buildings and structures; Examples are:

1. Lighting fixture
2. Lockers
3. Communication devices
4. Air conditioners.

Machinery and fixtures - Are not generally classified as equipment, although they fall under the definition. Example are:

1. Delivery equipment
2. Office equipment
3. Factory equipment

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Investments

• An expenditure to acquire property - real or personal, tangible or intangible--yielding income or services.
• Are generally of a long-term nature, are not used in the normal operations of the organization and are not expected to be converted to cash within the year.

Example of investment are:

1. Stocks
2. Bonds
3. Deposit Certificate

Classifying Liabilities

Liabilities are classified in a similar manner.

Liabilities are considered to be current liabilities if the obligation is to be settled within 1 year or with in the current accounting period.

These debts are usually settled with the payment of current assets.
Examples of current liabilities are the following:

1. Accounts Payable
2. Taxes Payable
3. Salaries Payable
4. Water and Power Payable
5. Notes Payable (if the obligation is due with in 1 year)

Following current liabilities on the balance sheet are long-term liabilities, which are usually payable in more than a year.

Examples of long-term liabilities are:

1. Bonds Payable
2. Mortgages Payable

In the year in which a long-term liability becomes payable, it is usually converted to a current liability ( appearing under the current liability heading of the balance sheet).

Classifying Assets

Assets as we discussed before, may be further grouped according to the degree of liquidity or the expected conversion to cash or the time it takes to use up the asset. For analytical purposes, assets are classified as follows:

1. Current Assets
2. Investments
3. Property, Plant, and Equipment
4. Intangible Assets.

Balance Sheet

The balance sheet shows the financial position of a business on a specific date. It represents a detailed presentation of the accounting equation.

Basic Accounting Equation: 

                  Assets  =  Liabilities  + Owner's Equity (Capital)

Expanded Accounting Equation

      Assets = Liabilities  +  (Capital - Withdrawal) + (Revenue  -  Expenses)

Note: You should Remember the following:

• The balance sheet, which consists of a detailed listing of the various assets, liabilities, and proprietor's capital on a specific date, shows the financial position and conditions of the organization at that moment in time.
• The balance sheet relies on the preparation of the statement of capital  for the determination of the new proprietor's capital balance.
• The statement of capital in turn relies on the income statement preparation for the determination of the change in capital for the particular period.
• Because of these relationships, the order of preparation of the financial statements never change.

There are two forms that the balance sheet takes:

1. Report form
2. Account form

Although both forms provide identical information their appearance differs according to the use to be made of the forms by the accountant.

Test VI Effects of Debits and Credits in Transactions

On the lines provided, indicate with a " + " (for Increase) or a " - "  (for Decrease), the effect the debit or credit has on each account.

Example: The business received cash from a customer paying on their account.
Answer:     Account                                                          Debit             Credit
           Cash............................................................  +      
               Account Receivable....................................................     -   

1). The owner paid cash for some supplies.
          Supplies ......................................................_____
             Cash ........................................................................._____

2). The owner returned some equipment for credit.
          Accounts Payable ....................................._____
              Equipment ............................................................  _____

3). The owner invested some personal cash in the business.
          Cash ..................................................... _____
              Capital ................................................................._____

4). The owner withdrew cash from the business for personal use.
          Drawing ..............................................   _____
              Cash .................................................................    _____

5). The owner performed services for a customer, payment to be received next month.
          Accounts Receivable ............................   _____
              Fees Earned ....................................................    _____

6). The owner pays salary for the staff.
          Salaries Expense  ...................................  _____
              Cash .............................................................       _____

7). The owner makes cash withdrawal.
          Withdrawal .........................................   _____
              Cash  ..............................................................     _____

8). The owner paid the telephone bill.
          Telephone or utilities Expense................. _____
              Cash ...............................................................      _____

9). The owner paid to a creditor.
          Accounts Payable  .................................  _____
              Cash  ...........................................................        _____

10. The owner pays rent for office space.
          Rent Expense .........................................  _____
              Cash  ...........................................................         _____

Test V Analyzing the Transaction

Analyze the following transactions to determine which accounts are involved, whether they will be increased or decreased, and in which account group they will belong, use the expanded accounting equation:
Assets = Liabilities + Owner's Equity - Drawing + Revenue - Expenses

Note: Use a (+) for increase and a (-) for decrease.

Example: The owner invested in his business.

Answer : + Assets (Cash)                + Owner's Equity (Capital)

1. Bought new equipment on account.
2. Received cash for services rendered.
3. The business performed services on account.
4. Withdrew cash for personal use.
5. Paid secretary salary.
6. Paid for supplies purchased.
7. Billed customers for services rendered.
8. Received payment from a customer paying on his account.
9. The supplies were used up. Record them as an expense now.
10. Borrowed money from the bank
11. Purchased on account (charged) some office equipment.
12. Paid for utilities expense.
13. Paid the bank the money we previously borrowed.
14. Paid the telephone bill that just came in.
15. Made a partial payment to a creditor.
16. Took cash out of the business to pay for a personal bill.
17. Recorded revenue earned, but not collected yet.
18. Recorded expenses incurred, but not collected yet.
19.Received cash for the return of same equipment that was defective.
20. Received payment from an Account Receivable.

Test IV Classify the Normal balance, Decrease, and Increase account.

 Fill in the blank enter D = Debit  or  C = Credit 
A. What is the Normal Balance for the following accounts?
_____ 1. Rent Expense                          _____ 11. Land
_____ 2. Capital                                       _____ 12. Drawing
_____ 3. Interest Payable                    _____ 13. Property Taxes Payable
_____ 4. Fees Earned                            _____ 14. Interest Receivable
_____ 5. Notes Payable                        _____ 15. Accounts Payable
_____ 6. Unearned Income                 _____ 16. Equipment
_____ 7. Office Furniture                     _____ 17. Prepaid Insurance
_____ 8. Advertising Expense            _____ 18. Utilities Expense
_____ 9. Wages Payable                       _____ 19. Admissions Income
_____10. Film Rental Expense          _____ 20. Additional Investment

B. What would it take to Decrease the following accounts?

_____ 21. Cash                                        _____ 26. Capital
_____ 22. Wages Payable                   _____ 27. Subscription Revenue
_____ 23. Building                                 _____ 28. Interest Income
_____ 24. Drawing                                _____ 29. Accounts Receivable
_____ 25. Office Equipment              _____ 30. Office Supplies Expense  

C. What would it take to Increase the following accounts?

_____ 31. Capital                                  _____ 36. Supplies
_____ 32. Petty Cash                           _____ 37. Drawing
_____ 33. Salaries Payable                _____ 38. Rent Expense
_____ 34. Rent Income                      _____ 39. Office Equipment
_____ 35. Taxes Payable                   _____ 40. Notes Payable

Test VII Classify the Account

Classify each of the following as element of the accounting equation using the following abbreviations:
A = Assets; L = Liabilities; OE = Owner's Equity; R = Revenue; E = Expenses
Example:    R     Income (form services). answer - Revenue

_____ 1. Accounts Receivable               _____ 11. Supplies
_____ 2. Capital                                           _____ 12. Accounts Payable
_____ 3. Salaries Payable                        _____ 13. Drawing
_____ 4. Prepaid Rent                              _____ 14. Building
_____ 5. Cash                                               _____ 15. Notes Payable
_____ 6. Equipment                                  _____ 16. Interest Payable
_____ 7. Unearned Revenue                 _____ 17. Taxes Payable
_____ 8. Land                                              _____ 18. Rent Income
_____ 9. Rent Expense                            _____ 19. Telephone Bills
_____10. Salaries Expense                    _____ 20. Interest Receivable    

The Statement of Owner's Equity (Capital Statement)

• The proprietorship's capital account represents his or her ownership in the assets of the business.
• Part of the earlier discussion centered around the fact that whatever net income the business earns also belongs to the owner.
• The owner has the right either to withdraw the profits that the business earns or to reinvest the income in the business.
• Because some information used in the statement of capital is prepared after the income statement.
• Ask three question (same income statement)

     Example: Statement of Owners Equity

                                                        Shehgarlynn Laundry

                                                Statement of Owner's Equity

                                           For the Year Ended December  31, 2007

Shehgarlynn, Beginning Capital... Jan. 1, 200.........................................25,300

Add: Invesment........................................35,750

           Net Income .....................................45,490         81,240

Less: Shehgarlynn, Withdrawal.................                       10,650 

        Net Increase in Capital..................................................................... 70,590

Shehgarlynn, (Ending) Capital, Dec. 31, 2007....................................  $95,890

Note: Changes in the proprietor's capital from the beginning of the accounting period to end  of that periods.

1. A permanent increase in the proprietor's investment in the business. (addition to capital). 
2. A permanent decrease in the proprietor's investment in the business, (subtraction from capital.)
3. The proprietor's withdrawal of assets from the business, usually in anticipation of profits (subtraction from capital).
4. The recognition of net income for the period (addition to capital).
5. The recognition of a net loss for the period (subtraction from capital)

Accounting Desk Book 2012 By Plank, Lois Ruffner/ Morris, Donald/ Plan (Google Affiliate Ad)

What is Income Statement?

Income Statement - Is a report that present revenue, expenses, and net income or net loss for a business for a period of time.

It is divided into two parts.

1. Heading 
2. Body

1. Heading - Asks three questions.

1. WHOSE business is it?
2. WHAT statement is being prepared?
3. WHEN is it being prepared?

2. Body - Lists revenue and expenses.

A comparison of these two items will show either net income or net loss. 

When total revenue exceeds total expenses, the excess represents the income. 

When the total expenses exceed the total revenue, the difference represents a net loss.

Note: The income statement compares the revenue earned for as period of time with the expenses incurred for the same period.

You should remember 

• If the revenue exceeds the expenses, the excess is known as net income.
• If total expenses are greater than revenue, the resulting difference is known as a net loss.

Example: Income Statement

                                           Shehgarlynn Laundry

                                             Income Statement

                                  For the year Ended December 31, 2007

Revenue:

    Income from services......................................................................................$74,000

Expenses:

   Repair expenses.............................................$2,350

   Salaries .........................................................14,500

   Dept. Water and Power...................................5,350

   Gas Company................................................. 2,750

   Miscellaneous Expense ...................................3,560

Total Expenses.....................................................................................................28,510

Net Income .........................................................................................                $45,490

Two Types Of Recording The Business

1. Accrual Accounting - Expenses are recorded when incurred and revenue is recorded when earned. Date of receipt or date of payment of cash does not determine the period in which revenue or expense shall be recorded under the accrual method of accounting.
2. Cash Accounting - Some small business use a cash basis for keeping their books. This means that expenses are recorded when paid and revenue is recorded when received.

Adjusting Entries - Are made to update ledger accounts at the end of a fiscal period. They are usually recorded first on the accountant's worksheet and later recorded in the journal

      Before closing the books for the period

• Any expenses have been recorded but not yet incurred.
• Any expenses were incurred but not yet recorded
• Any revenues have been recorded but were not yet earned (Unearned Revenue)
• Any revenues were earned but not yet recorded.

Note: If any of the above four conditions is found, you will make an adjusting entry to record (accrue) unrecognized revenues and expenses that belong in later periods. 

Adjusting Entries

1. Depreciation
2. Daily payroll accrual of salaries
3. Rental Income received but not yet earned
4. Supplies recognized as an expense that has not been used up.

Test III Types of Assets

From the following list of items, indicate by checking the appropriate box which items are or not assets, and write what type of assets are they?

      Item                                             Yes         No                            Types of Assets

Examples
Log book                                                  /            ______                       Office Supplies

1. Automobile                          _____          _____                      ______________
2. Apartment (rented)           _____         _____                     ______________
3. Table                                      _____         _____                      ______________
4. Typewriter                          _____         _____                      ______________
5. Shopping list                       _____         _____                      ______________
6. Money                                   _____         _____                      ______________
7. Cash in Bank                          ____         _____                       ______________
8. Pens                                       _____        _____                       _______________
9. Truck                                     _____        _____                       _______________
10. Computer                             _____       _____                       _______________
11. Stationery                             _____       _____                       _______________
12. Coins                                      _____       _____                        _______________
13. Light bulbs                            ____       _____                        _______________
14. Adding Machine                 ____        _____                       _______________
15. Software Program              _____       _____                      _______________
16. Pencils                                     _____      _____                      _______________
17. Petty Cash                                _____     _____                      _______________
18. Car                                           _____     ______                      _______________
19. Building  (office)                   _____     ______                      _______________
20. Printer                                     ______    ______                       _______________