Question

Selected transactions for B. Madar SE, an interior decorating firm, in its first month of business, are shown below.

Jan. 2 3 9 11 16 20 23 28

Invested €15,000 cash in the business in exchange for ordinary shares. Purchased used car for €7,000 cash for use in the business.

Purchased supplies on account for €500.

€1,800 of services were performed and billed.

Paid €200 cash for advertising.

Received €700 cash from customers billed on January 11. Paid creditor €300 cash on balance owed.

Declared and paid a €1,000 cash dividend.

Instructions

For each transaction indicate the following.

(a) The basic type of account debited and credited (asset, liability, equity).

(b) The specific account debited and credited (cash, rent expense, service revenue, etc.). (c) Whether the specific account is increased or decreased.

(d) The normal balance of the specific account.

Use the following format, in which the January 2 transaction is given as an example.

Account Debited Account Credited

(a) (b) (c) (d) (a) (b) (c) (d) Basic Specific Normal Basic Specific Normal Date Type Account Effect Balance Type Account Effect Balance

Exercises 85

Jan. 2 Asset Cash Increase Debit Equity Share Increase Capital

E2-3 Data for B. Madar SE, interior decorating, are presented in E2-2. Instructions

Journalize the transactions using journal page J1. (You may omit explanations.) E2-4 Presented below is information related to Beijing Real Estate Agency Ltd.

Credit

Oct. 1

2 3 6

27 30

Lynn Robbins begins business as a real estate agent with a cash investment of ¥200,000 in exchange for ordinary shares.

Hires an administrative assistant.

Purchases office furniture for ¥19,000, on account.

Sells a house and lot for N. Fennig; bills N. Fennig ¥32,000 for realty services performed.

Pays ¥8,500 on the balance related to the transaction of October 3.

Pays the administrative assistant ¥25,000 in salary for October.

Journalize transactions.

(LO 4)

Analyze transactions and determine their effect on accounts.

(LO 2)

Journalize transactions.

(LO 4)

Analyze transactions and journalize.

(LO 2, 3, 4)

Analyze transactions and journalize.

(LO 2, 3, 4)

Analyze statements about the ledger.

(LO 5)

Instructions

Prepare the debit-credit analysis for each transaction as illustrated on pages 65–70.

Answer 1

Answer to Part-I (B. Madar SE)

Date	Particulars	Debit	Credit	Account Increased	Account Decreased	Type of Account
Jan. 2	Cash Account.......Dr.	15,000		Yes	-	Cash (Current Assets)
	To Capital Account		15,000	Yes	-	Equity (Owner's Capital)
	(Being Cash Invested into the business)
Jan. 3	Car Account .........Dr.	7,000		Yes	-	Asset (Fixed Assets)
	To Cash Account		7,000	-	Yes	Cash (Current Assets)
	(Being Car purchased)
Jan. 9	Purchases/Supplies Account .......Dr.	500		Yes	-	Expenses (Expenses on purchase)
	To Trade Creditors Account		500	Yes	-	Liability (Current Liability)
	(Being purchases of supply made on credit)
Jan. 11	Trade Receivable Account ...........Dr.	1,800		Yes	-	Asset (Current Assets)
	To Service Revenue Account		1,800	Yes	-	Service Revenue (Revenue)
	(Being Service rendered)
Jan. 16	Advertising Expenses Account ...........Dr.	200		Yes	-	Expenses
	To Cash Account		200	-	Yes	Cash (Current Assets)
	(Being advertising expenses paid)
Jan. 20	Cash Account.........Dr.	700		Yes	-	Cash (Current Assets)
	To Trade Receivebles Account		700	-	Yes	Assets (Current Assets)
	(Being money received for the services rendered on Jan. 11)
Jan. 23	Trade Payables Account.......Dr.	300		-	Yes	Liability (Current Liability)
	To Cash Account		300	-	Yes	Cash (Current Assets)
	(Being cash paid to creditors)
jan. 28	Retained Earnings Account........Dr.	1,000		-	Yes	Equity (A part of Profit)
	To Cash Account		1,000	-	Yes	Cash (Current Assets)
	(Being dividend paid out of retained earnings)

Answer to part-II (Beijing Real Estate Agency Ltd.)

Date	Particulars	Debit	Credit	Account Increased	Account Decreased	Type of Account
Oct. 1	Cash Account........Dr.	200,000		Yes	-	Cash (Current Assets)
	To Capital Account		200,000	Yes	-	Equity (Owner's Capital)
	(Being money invested in business)
Oct. 2	No Entry will be passed as no monetry transactions occur	-	-	-	-	-
Oct. 3	Furniture Account ...........Dr.	19,000		Yes	-	Assets (Fixed Assets)
	To Creditors Account		19,000	Yes	-	Liability (Current liability)
	(Being Furniture purchased on account)
Oct. 6	Cash Account ...........Dr.	32,000		Yes	-	Cash (Current Assets)
	To Realty Services		32,000	Yes	-	Revenue
	(Being house sold as realty service rendered)
Oct. 27	Creditors Account ......Dr.	8,500		-	Yes	Liability (Current Liability)
	To Cash Account		8,500	-	Yes	Cash (Current Assets)
	(Being Payment made in respect of transaction occured on oct. 3)
Oct. 30	Administrative Salary Account..........Dr.	25,000		Yes	-	Expenses (Employees Benefit Expenses)
	To Cash Account		25,000	-	Yes	Cash (Current Assets)
	(Being salary paid to Administrative)

Note :- Assume that the above listed amounts are in their respective currency.