a. Prepare journal entries for each of the transaction (1) through (9). b. Set u

Question

a. Prepare journal entries for each of the transaction (1) through (9).

b. Set up T-accounts for each of the accounts used in part a. and post the journal entries to the appropriate line in the correct T-accounts. (The T-accounts will not have opening balances.)
After all transactions are recorded, compute the balance for each account in the appropriate column.

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In journal entries, debits increase assets and expenses and decrease liabilities, equity and revenues. Credits increase liabilities, equity and revenues and decrease assets and expenses. For each entry, the debits must equal the credits.

(1) Receive €50,000 in exchange for common stock. (2) Borrow €10,000 from bank. (3) Purchase €2,000 of supplies inventory on credit. (4) Receive €15,000 cash from customers for services provided. (5) Pay €2,000 cash to supplier in transaction 3. (6) Receive order for future services with €3,500 advance payment. (7) Pay €5,000 cash dividend to shareholders. (8) Pay employees €6,000 cash for compensation earned. (9) Pay €500 cash for interest on loan in transaction 2.

Explanation / Answer

Dear the Following Journal entries shall be passed .

1. Cash Account ..........Dr 50000

To Common Stock Account 50000

(Being Common stock exchanged)

2. Cash Account ..........Dr 10000

To Bank Loan Account 10000

(Being Bank Loan Taken)

3.Purchase Account /Inventory Accounts ..........Dr 2000

To Supplier Account /Accounts Payable 2000

( Being Inventorty purchased from supplier on credit)

4. Cash Account ......Dr 15000

To Revenue Account 15000

(Being received on account of services rendered)

5. Supplier Account / Accounts Payable Account ...Dr 2000

To Cash Account 2000

6. Cash Account ..Dr 3500

To Unearned Revenue 3500

( Being cash received in advance for services to be rendered)

7. Retained Earning Account. ......... Dr 5000

To Cash Account 5000

( Being Paid as dividend)

8. Wages Expenses Account .......Dr 6000

To cash Account 6000

( Being paid to employees on accounts of compensation)

9. Interest Payable Account ........ Dr 500

To cash Account 500

( Being Interest Paid on Bank Loan)

Balance Sheet Transaction Cash Asset + Non Cash Asset = Liabilities + Capital Contribution Earned Income 1 Receive €50,000 in exchange for common stock. 50000 50000 2 Borrow €10,000 from bank. 10000 10000 3 Purchase €2,000 of supplies inventory on credit. 2000 2000 4 Receive €15,000 cash from customers for services provided 15000 15000 5 Pay €2,000 cash to supplier in transaction 3 -2000 -2000 6 Receive order for future services with €3,500 advance payment 3500 3500 7 Pay €5,000 cash dividend to shareholders -5000 -5000 8 Pay employees €6,000 cash for compensation earned -6000 -6000 9 Pay €500 cash for interest on loan in transaction 2 -500 -500 Total 67000 13500 38500 15000 Income Statement Transaction Revenue - Expenses = Income 1 Receive €50,000 in exchange for common stock. 2 Borrow €10,000 from bank. 3 Purchase €2,000 of supplies inventory on credit. 4 Receive €15,000 cash from customers for services provided 15000 15000 5 Pay €2,000 cash to supplier in transaction 3 6 Receive order for future services with €3,500 advance payment 7 Pay €5,000 cash dividend to shareholders 8 Pay employees €6,000 cash for compensation earned 6000 -6000 9 Pay €500 cash for interest on loan in transaction 2 500 -500 Toal 15000 6500 8500

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