Question

On August 1, 2016, Rafael Masey established Planet Realty, which completed the following transactions during the month of August. It's first month of operations:

A) August 1, 2016, Rafael Masey transferred cash from a personal bank account to an account to be used for the business, $77,500.

B) August 1 purchased land for $20,000

C) August 1, 2016, purchased three months of liability insurance for $1,200.

D) August 2, 2016, purchased truck for $32,500, paying 15,000 in cash and the rest as a loan.

E) August 3, 2016, purchased supplies on account, $2,300.

F) August 7 rented out land for three months to Acme Company, who will use it for temporary parking for their staff. Received 475 for the three-month rental.

G) August 10, 2016, earned sales commissions, receiving cash, $13,300.

H) August 15, paid creditor on account, $1,150

I) August 20, 2016, withdrew cash for personal use, $1,800.

J) August 30, 2016, paid office salaries, $2,800.

Prepare the journal entries for transactions a through g above and enter description for "adjusting" and "closing" entries.

Answer 1

S.No.	Date	Particulars	DEBIT ($)	CREDIT ($)
A.)	August 1, 2016	Bank A/C                                             Dr. Capital A/C          (On being cash transferred from personal bank account to business bank account.)	77,500	77,500
B.)	August 1, 2016	Land A/C                                              Dr.                 To Bank A/C (On being land purchased.)	20,000	20,000
C.)	August 1, 2016	Liability Insurance paid A/C    Dr.              To Bank A/C (On being three months of liability insurance purchased.)	1,200	1,200
	August 31, 2016	Advance Liability Insurance A/C     Dr.            Liability Insurance paid A/C (On being two months of liability insurance paid transferred to Advance Liability Insurance.)	800	800
	August 31, 2016	Liability Insurance Expenses A/C     Dr.             Liability Insurance paid A/C (On being liability insurance expenses booked for the month of August.)	400	400
D.)	August 2, 2016	Truck A/C                                   Dr.           To Bank A/C           To truck’s loan A/C (On being truck purchased on part cash payment and part loan.)	32,500	15,000 17,500
E.)	August 3, 2016	Purchases A/C                           Dr.             To Sundry Suppliers A/C (On being purchases made on account.)	2,300	2,300
F.)	August 7, 2016	Bank A/C                              Dr.                To Rent received A/C (On being rent received from Acme Company for three months.)	475	475
	August 31, 3016	Rent received A/C                  Dr.                    To Advance rent A/C (On being balance rent received from Acme Company transferred to Advance rent A/C.)	346	346
	August 31, 3016	Rent received A/C                  Dr.                    To rental income A/C (On being rental income from Acme Company booked for the month of August.)	129	129
G.)	August 10, 2016	Bank A/C                           Dr.           To Sales commission Income A/C (On being sales commission income earned.)	13,300	13,300

In point C.)

Three months insurance is paid on August 1. So for the complete month of August, expense is booked at the end of the month, i.e., 1/3 of 1,200 = $ 400.

And the balance is transferred to Advance expenses paid account, i.e., Advance Liability Insurance A/C

= 1200 – 400 = $ 800.

In point F.)

On August 7, 3 months of rental income is received.

So the rental income of August will be booked in August for 25 days (7^th August to 31^st August) in proportionate to 92 days (7^th August to 6^th November).

Rental income to be be booked = 25/92 of 475 = $ 129.

Balance rent received to transferred to advance rent received account = 475 – 129 = $ 346.