1 2 Analyzing Transactions Student Version

Describe the characteristics of an account and a chart of accounts

The left side of the account is called the debit side. Title Debit 1 The T Account The right side of the account is called the credit side.

Cash (a)25,000(b)20,000 (d)7,500(e)3,650 (f)950 (h)2,000 Balance5,900 Balance of the account 1

Chart of Accounts Assets are resources owned by the business entity. Liabilities are debts owed to outsiders (creditors). Stockholders’ equity is the stockholders’ rights to the assets of the business. (continued)

Revenues are increases in owner’s equity as a result of selling services or products to customers. Fees earned Commission revenue Rent revenue 1 Chart of Accounts

Describe and illustrate journalizing transactions using the double-entry accounting system

On November 1, Chris Clark deposited $25,000 in a bank account in the name of NetSolutions in exchange for capital stock. Transaction A 2

Journalizing

The effect of this entry is shown in the accounts of NetSolutions as follows: Cash Nov. 125,000 Capital Stock 2

On November 5, NetSolutions bought land for $20,000, paying cash. Transaction B 2

On November 10, NetSolutions bought supplies on account for $1,350. Transaction C 2

On November 18, NetSolutions received fees of $7,500 from customers for services rendered. Transaction D 2

Throughout the month, NetSolutions incurred the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Transaction E 2

On November 30, NetSolutions paid creditors on account, $950. Transaction F 2

Chris Clark determined that the cost of supplies on hand on November 30 was $550. Transaction G 2

On November 30, NetSolutions paid $2,000 of dividends to stockholders. Transaction H 2

Describe and illustrate the journalizing and posting of transactions to accounts

Dec. 1NetSolutions paid a premium of $2,400 for an insurance policy for liability, theft and fire. The policy covers a one-year period. 3

to Cash Step 1 ep 3 Step 1 Step 2 ep 3 (continued) Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit

Step 1 Step 2 Step 1 ep 4 Step 3 Exhibit 4 Diagram of the Recording and Posting of a Debit and a Credit (continued) ep 3

Dec. 1NetSolutions paid rent for December, $800. The company from which NetSolutions is renting its store space now requires the payment of rent on the first of each month, rather than at the end of the month. 3

Dec. 1 NetSolutions received an offer from a local retailer to rent the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. NetSolutions agreed to rent the land to the retailer for three months, with the rent payable in advance. (continued) 3

Dec. 1NetSolutions receives $360 for three month’s rent for use of its land beginning December 1. 3

Dec. 4NetSolutions purchased office equipment on account from Executive Supply Co. for $1,800. 3

Dec. 6NetSolutions paid $180 for a newspaper advertisement. 3

Dec. 11NetSolutions paid creditors $400. 3

Dec. 13NetSolutions paid a receptionist and part-time assistant $950 for two weeks’ wages. 3

Dec. 16NetSolutions received $3,100 from fees earned for the first half of December. 3

Dec. 20NetSolutions paid $900 to Executive Supply Co. on the $1,800 debt owed from the December 4 transaction. 3

Dec. 21NetSolutions received $650 from customers in payment of their accounts. 3

Dec. 23NetSolutions paid $1,450 for supplies. 3

Dec. 27NetSolutions paid the receptionist and part-time assistant $1,200 for two weeks’ wages. 3

Dec. 31NetSolutions paid its $310 telephone bill for the month. 3

Dec. 31NetSolutions paid $225 for electric usage for the month. 3

Dec. 31NetSolutions received $2,870 from fees earned for the second half of December. 3

Dec. 31NetSolutions earned $1,120 on account for the second half of December. 3

Dec. 31NetSolutions paid $2,000 of dividends to stockholders. 3

Prepare an unadjusted trial balance and explain how it can be used to discover errors

Exhibit 6 Trial Balance Capital Stock Dividends