Question

a) Fill in the blanks with either “debit” or “credit”

	What increases the account?	What decreases the account?	What is the normal balance?
Assets
Liabilities
Equity
Revenue
Gains
Expenses
Losses

b) Based on the following information, prepare a balance sheet.

Current Assets = $50,000; Property, Plant & Equipment = $125,000;

Accumulated Depreciation = $25,000; Accounts Payable = $10,000;

Notes Payable = $15,000; Total Liabilities = $50,000

c) Prepare “Adjusting Journal Entries” for the following monthly transactions that occurred during the month of June 2010: (a) payment of $40,000 in employee salaries; (b) $70,000 in “cash” sales; (c) $30,000 in “credit” sales; (d) $5,000 depreciation expense on equipment.

Answer 1

1 a)

ASSETS DEBIT

LIABILITIES CREDIT

EQUITY CREDIT

REVENUE CREDIT

GAINS CREDIT

EXPENSES DEBIT

LOSSES DEBIT

An increase to an asset is Debit and an increase to liability is a credit.

A decrease to an assset is credit and a decrease to a liability is debit

Everything on the left side (debit side) increases with a debit and has a normal debit balance

everything on the right side (credit side) increases with a credit and has a normal credit balance

b)

Balance Sheet

Particulars   $

I Equity & Liabilities

1. Share holder's Equity 100000

2. Non Current liabilities

Long term borrowings     25000   

3. Current Liabilities

Accounts Payable 10000

Notes Payable 15000

Total 150000

II Assets

Non Current Assets

Property Plant & Equipment 125000

less Accumulated Depreciation 25000 100000

Current Assets 50000

Total 150000

Note- Balance sheet has been completed based on Asset side and Equity has been assumed based on Asset total and balance liabilities assumed.

c) Journal Entries DR CR

June,2010 Salary Payable A/c      40000

To Cash/Bank A/c   40000

    Cash A/c 70000

To sales A/c   70000

. Debtor A/c 30000

To Sales A/c 30000

Depreciation A/c 5000

To Equipment A/c        5000