Basic Accounting Equations: Recognition of normal balances
The following items appeared in the accounting records of Triguero’s, a retail music store that also sponsors concerts. Classify each of the items as an asset, liability, revenue, or expense from the company’s viewpoint. Also indicate the normal account balance of each item.

  1. The albums, tapes, and CDs held for sale to customers. These are regarded as stock. They are therefore classified as current assets. These items are to be recorded in the current assets account balance.
  2. A long-term loan owed to Citizens Bank. The long term loan is a liability. It is therefore to be recorded in the liabilities account as a long term loan balance.
  3. Promotional costs to publicize a concert. Promotional costs are to be treated as an expense. It is therefore to be recorded in the advertising expenses account.
  4. Daily sales of merchandise sold. This is to be recorded as revenue in the daily merchandise sales account balance.
  5. Amounts due from customers. This is revenue and it is to be recorded in the credit sales balance.
  6. Land held as an investment, this is an asset for the firm. It is therefore to be recorded in the recorded in the investments balance.
  7. A new fax machine purchased for office use. This is an asset for the company. It is therefore to be recorded in the in the balance for fixed assets account.
  8. Amounts to be paid in 10 days to suppliers. This is a liability for the business. It is therefore to be recorded in the creditors balance account.
  9. Amounts paid to a mall for rent. This is a liability on the part of the business. It is therefore to be recorded in the creditors account balance.

Basic journal entries
The following April transactions pertain to the Jennifer Royall Company:

Apr. 1 Jenni­fer Royall invested cash of $15,000 and land valued at $10,000into the business.
Apr.5 Provided $1,200 of services to Jason Ratchford, a client, on account.
Apr.9 Paid $250 of salaries to an employee.
Apr.14 Acquired a new computer for $3,200, on account.
Apr.20 Collected $800 from Jason Ratchford for services provided on April 5.
Apr.24 Borrowed $7,500 from BestBanc by securing a six-month loan.

Prepare journal entries (and explanations) to record the preceding transactions and events.
Journal Entries
Details                                       Dr                                   Cr
April 1 Cash                              $15,000
Land                               $10,000
Capital                                                         $25,000
(To record the commitment of capital by Jenifer Royall Company)
April 5 Debtors                         $1,200
Services                                                       $1,200
(To record provision of services to Jason Ratchford on account)
April 9 Salaries                          $250
Cash                                                                   $250
(To record payment of salaries to employees)
April 14 Computers                   $3,200
Liabilities                                                    $3,200
(To record acquisition of a new computer on account)
April 20 Cash                           $800
Debtors                                                             $800
(To record collection of cash for credit sales on services)
April 24 Liabilities                $7,500
Six month loan                                         $7,500
(To record a six month loan)

  1. Balance sheet preparation. The following data relate to Preston Company as of December 31, 20XX:

Building                                   $44,000                                   Accounts receivable    $24,000
Cash                                        17,000                         Loan payable                          30,000

  1. Preston, Capital 65,000 Land                                        21,000

Accounts payable                   ?
Prepare a balance sheet as of December 31, 20XX. (See Exhibit 1.1 and 1.4)
Preston Company
Balance Sheet as at December 31, 20XX
ASSETS                                                   LIABILITIES
Current Assets                                         Current Liabilities
Cash                                     $17,000        Accounts Payable  11,000
Accounts Receivable          $24,000        Long term liabilities
Loan Payable             $30,000
Property, Plant and Equipment            
Land                                      $21,000        J. Preston, Capital       $65,000
Building                                 $44,000
Total Assets                         106, 000   Total Liab. & Equity   $106, 000

  1. Basic transaction processing. On November 1 of the current year, Richard Parker established a sole proprietorship. The following transactions occurred during the month:

1: Parker invested $19,000 into the business for $19,000 in common stock.
2: Paid $9,000 to acquire a used minivan.
3: Purchased $1,800 of office furniture on account.
4: Performed $2,100 of consulting services on account.
5: Paid $300 of repair expenses.
6: Received $800 from clients who were previously billed in item 4.
7: Paid $500 on account to the supplier of office furniture in item 3.
8: Received a $150 electric bill, to be paid next month.
9: Parker withdrew $600 from the business.
10: Received $250 in cash from clients for consulting services rendered.

  1. Arrange the following asset, liability, and owner’s equity elements of the account­ing equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5)
Assets Liability Owner’s Equity
Accounts Receivable
Office furniture
Accounts Payable
Common Stock
  1. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items.

Cash A/C

Dr Cr
Common Stock                         $19,000
Accounts Receivable                     $800
Accounts Receivable                    $250
Total                                         $20,050
Balance   B/D                               $9,650
Minvan                                             $9,000
Repair expenses                                $300
Accounts payable                              $500
Drawings                                               $600
Balance C/D                                      $9,650
Total                                                   $ 20,050

Accounts Receivable A/C

Dr Cr
Revenues                                   $2,100
Total                                         $2,100
balance b/d                               $1,050
Cash                                                   $800
Cash                                                     $250
Balance C/D                                       $1,050
Total                                                $2,100

Van A/C

Dr Cr
Cash                                           $9,000
Total                                         $9,000
Balance b/d                                $9,000
Balance c/d                                       $9,000
Total                                                   $9,000

Office Furniture A/C

Dr Cr
Accounts payable                     $1,800 Balance c/d                                    $1,800

Revenues A/C

Dr Cr
Balance c/d                                 $2,100 Accounts Receivable                      $2,100

Accounts Payable A/C

Dr Cr
Cash                                           $500
Balance c/d                              $1450
Total                                         $1950
Office furniture                           $1,800
Expenses (electric bill)                     $150
Total                                                 $1950

Dividends A/C

Dr Cr
Cash                                        $600 Balance c/d                                     $600

Expenses A/C

Dr Cr
Cash                                                 $300
Accounts payable (electric bill)     $150
Total                                              $450
Balance c/d                                     $450
Total                                                 $450

Common Stock

Dr Cr
Balance c/d                                     $19,000
Total                                                 $19,000
Cash                                                 $19,000
Total                                                 $19,000
  1. Answer the following questions for Parker.

(1) How much does the company owe to its creditors at month-end?
By the end of the month, the company owed its creditors $1,450
On which financial statement(s) would this information be found?
This information is found in the Accounts payable account
(2) Did the company have a “good” month from an accounting viewpoint? Briefly explain.
On average, the company had a good month having provided services worth $2,100 and received cash payment for the same services valued at $1050. However, the withdrawal of $600 from the company was negatively impacted on the cash position of the company.

  1. Transaction analysis and statement preparation.

The transactions that follow relate to Burton Enterprises for March 20X1, the company’s first month of activity.
3/1: Joanne Burton, the owner invested $20,000 into the business for $20,000 of Common Stock. Increased owners equity
3/4: Performed $2,400 of services on account. Increased assets in terms of accounts receivable by $2,400 and increased revenues by a similar amount.
3/7: Acquired a small parcel of land by paying $6,000 cash. Increased asset land by $6,000 but reduced cash by the same amount.
3/12: Received $700 from a client, who was billed previously on March 4. Increased cash by $700 but reduced accounts receivable by an equal amount.
3/15: Paid $800 to the Journal Herald for advertising expense. The transaction reduced asset cash by $800.
3/18: Acquired $9,000 of equipment from Park Central Outfitters by paying
$7,000 down and agreeing to remit the balance owed within the next
2 weeks, (Accounts Payable). Increased fixed asset equipment by $9,000, reduced current asset cash by $7,000 and increased accounts payable by $2,000.
3/22: Received $300 cash from clients for services. The transaction increased asset cash by $300.
3/24: Paid $1,500 on account to Park Central Outfitters in partial settlement of the balance due from the transaction on March 18. The transaction increased liabilities in terms of accounts payable by $1,500.
3/28: Rented a car from United Car Rental for use on March 28. Total charges amounted to $75, with united billing Burton for the amount due. The transaction increased liabilities in terms of accounts payable by $75.
3/31: Paid $900 for March wages. The transaction reduced asset cash by $900.
3/31: Processed a $600 cash withdrawal (dividend) from the business for Joanne Burton. The transaction reduced asset cash by $600.

  1. Determine the impact of each of the preceding transactions on Burton’s assets, Liabilities, and owner’s equity. See exhibit 1.5. Use the following format:

Assets                                                                        = Liabilities                     + Owner’s Equity
Cash, Accounts Receivable, Land, Equipment       Accounts Payable       (+) Common Stock (+) Revenues (-) Dividends (-) Expenses

  1. Record each transaction on a separate line. Calculate balances only after the last transaction has been recorded.

Cash A/C

Dr Cr
Common stock                                     $20,000
Accounts Receivable                                   $700
Accounts Receivable                                 $300
Total                                                     $21,000
Balance b/d                                           $4,200
Land                             $6,000
Expenses (advertising)     $800
Equipment                    $7,000
Accounts payable           $1,500
Expenses (wages)             $900
Dividends (drawings)       $600
Balance c/d                     $4,200
Total                                 $21,000

Accounts Receivable A/C

Dr Cr
Revenues                              $2,400
Total                                     $2,400
Balance b/d                           $1,400
Cash                               $700
Cash                               $300
Balance c/d                   $1,400
Total                            $2.400

Land A/C
Equipment A/C

Dr Cr
Cash                                         $7,000
Accounts payable                   $2,000
Total                                       $9,000
Balance b/d                               $9,000
Balance c/d                                 $9,000
Total                                             $9,000

Accounts Payable A/C

Dr Cr
Cash                                     $1,500
Balance c/d                           $575
Total                                    $2,075
Equipment                       $2,000
Expenses (car rental)           $75
Total                                 $2,075
Balance b/d                     $575

Common Stock A/C

Dr Cr
Balance c/d                            $20,000 Cash                                   $20,000

Revenues A/C

Dr Cr
Balance c/d                       $2,400 Accounts receivable           $2,400

Dividends A/C

Dr Cr
Cash                                 $600 Balance c/d                      $600

Expenses A/C

Dr Cr
Cash                                          $900
Accounts payable                         $75
Cash                                             $800
Total                                         $1775
Balance b/d                                $1775
Balance c/d                     $1775
Total                               $1775

Land A/C

Dr Cr
Cash                                   $6,000 Balance c/d                     $6,000


  1. Prepare an income statement, a statement of retained earnings, and a balance sheet (See Exhibit 1.2, 1.3 and 1.4).

Burton Enterprises
Income statement for the month ended March 31st, 20X1
Gross profit                                                                                               $2,400
Operating expenses
Advertising                                                           $800
Wages                                                                   $900
Car rental                                                               $ 75                          ($1,700)
Net income                                                                                               $700
Burton Enterprises
Balance sheet as at March 31st, 20X1
ASSETS                                                                                    LIABILITIES
Current Assets                                                                        Current Liabilities
Cash                               $4,200                                               Accounts payable     $575
Accounts Receivable     $1,400
Property, Plant and Equipment
Land                              $6,000                                               Owner’s capital       $20,000
Equipment                       $9,000

  1. Entry and trial balance preparation. Lee Adkins is a portrait artist. The following schedule represents Lee’s combined chart of accounts and trial balance as of May 31.

Account number         Account name                                                 Debit                           Credit

110 Cash $ 2,700
120 Accounts Receivable 12,100
130 Equipment and Supplies 2,800
140 Studio 45,000
210 Accounts Payable $2,600
310 Lee Adkins, Capital 57,400
320 Lee Adkins, Drawing 30,000
410 Professional Fee Revenue 39,000
510 Advertising Expense 2,300
520 Salaries Expense 2,100
540 Utilities Expense 2,000  
$99,000 $99,000

The general ledger also revealed account no. 530, Legal and Accounting Expense. The following transactions occurred during June:

6/2: Collected $7,500 on account from customers.
6/7: Sold 25% of the equipment and supplies to a young artist for $700 for cash.
6/10: Received a $500 invoice from the accountant for preparing last quarter’s financial statements.
6/15: Paid $2,100 to creditors on account.
6/27: Adkins withdrew $1,000 cash for personal use.
6/30: Billed a customer $3,000 for a portrait painted this month.
  1. Record the necessary journal entries for June on page 2 of the company’s general journal (See Exhibit 2.6).

Dr                                                         Cr
6/2 Cash              $7,500
Accounts Receivable                                                 $7,500
General Journal

Date and description Dr Cr
6/2 Cash
6/7 Equipment and Supplies
6/10Accounts Receivable
6/15 Accounts Payable
6/27 Drawings
6/30 Accounts Receivable
  1. Open running balance ledger “T” accounts by entering account titles, account num­bers, and May 31 balances (See exhibit 2.3 and 2.4).
                                                                      Dr                                                                      Cr
A/C No. 110 Cash                                 $2,700
A/C No. 120 Accounts Receivable      $12,100
A/C No. 130 Equipment and Supplies $2,800
A/C No. 140 Studio                             $45,000
A/C No. 320 Lee Adkins Drawing       $30,000
A/C No. 510 Advertising expense         $2,300
A/C No. 520 Salaries Expense               $2,100
A/C No. 540 Utilities Expense               $2,000
A/C No. 210 Accounts payable           $2,600
A/C No. 310 Lee Adkins, Capital      $57,400
A/C No. 410 Professional fee revenue $39,000


  1. Post the journal entries to the “T” accounts.
                                                                              Dr                                                                              Cr
Cash                                                   $7,500
Equipment and Supplies
Accounts Receivable                     $500
Accounts Payable
Drawings                                           $1,000
Accounts Receivable                     $3,000
  1. Prepare a trial balance as of June 30 (See exhibit 2.9).

Trial Balance
As at June 30

Dr Cr
Cash                                   $2,700
Accounts Receivable       $12,100
Equipment and Supplies   $2,800
Studio                             $45,000
Lee Adkins Drawing       $30,000
Advertising expense         $2,300
Salaries Expense               $2,100
Utilities Expense               $2,000
Accounts payable           $2,600
Lee Adkins, Capital       $57,400
Professional fee revenue $39,000


  1. Journal entry preparation.

On January 1 of the current year, Peter Houston invested $100,000 cash into his company MuniServ. The cash was obtained from an owner investment by Peter Houston of $70,000 and a $30,000 notes payable. Shortly thereafter, the company ac­quired selected assets of a bankrupt competitor. The acquisition included land ($15,000), a building ($40,000), and vehicles ($10,000). MuniServ paid $45,000 at the time of the transaction and agreed to remit the remaining balance due of $20,000 (an account payable) by February 15.
During January, the company had additional cash outlays for the follow­ing items:

Purchases of store equipment $4,600
Note payment 500
Salaries expense 2,300
Advertising expense 700

The January utility bill of $200 was received on January 31 and will be paid next month. MuniServ rendered services to clients on account amounting to $9,400. All customers have been billed; by month end, $3,700 had been received in settlement of account balances.

  1. Present journal entries that reflect MuniServ’s January transactions, including the $100,000 raised from the owner investment and loan (See exhibit 2.6).

Cash A/C

Dr Cr
Notes Payable                       $30,000
Investment                             $70,000
Accounts receivable               $3,700
Total                                      $103,700
Balance b/d                         $50,600
Land                                $15,000
Buildings                         $30,000
Equipment                        $4600
Notes payable                       500
Expenses (salaries)             2,300
Expenses (advertising)         700
Balance c/d                         $50,600
Total                                   $103,700

Notes Payable A/C

Dr Cr
Cash                                              $500 Cash                         $30,000

Investment A/C

Dr Cr
Cash                         $70, 000

Land A/C

Dr Cr
Cash                                             $15,000

Buildings A/C

Dr Cr
Cash                                               $30,000
Accounts payable                         $10,000

Motor vehicles A/C

Dr Cr
Accounts Payable                     $10,000

Accounts Payable

Dr Cr
Buildings                             $10,000
Motor Vehicles                     $10,000
Expenses (utility bill)                 200

Expenses A/C

Dr Cr
Cash   (salaries)                                     $2300
Cash (advertising)                               $700

Equipment A/C

Dr Cr
Cash                                  $4600

Accounts Receivable A/C

Dr Cr
Revenues                       $9,400 Cash                             $3,700

Revenues A/C

Dr Cr
Accounts receivable         $9,400


  1. Compute the total debits, total credits, and ending balance that would befound in the company’s Cash account (Post to “T” Accounts, see exhibit 2.3 and 2.4).

Cash A/C

Dr Cr
Notes Payable                       $30,000
Investment                            $70,000
Accounts receivable               $3,700
Total                                      $103,700
Balance b/d                         $50,600
Land                                $15,000
Buildings                         $30,000
Equipment                          $4600
Notes payable                       500
Expenses (salaries)             2,300
Expenses (advertising)         700
Balance c/d                         $50,600
Total                                   $103,700


  1. Prepare a trail balance as of January 31 (See exhibit 2.9).

Trial balance as at January 31

     Account Title Dr ($) Cr ($)
Share capital