CHAPTER 2

THE RECORDING PROCESS

Bob Sample opened the Campus Laundromat on September 1, 2012. During the
first month of operations, the following transactions occurred.
Sept. 1 Bob invested $20,000 cash in the business.
2 The company paid $1,000 cash for store rent for September.
3 Purchased washers and dryers for $25,000, paying $10,000 in
cash and signing a $15,000, 6-month, 12% note payable.
4 Paid $1,200 for a one-year accident insurance policy.
10 Received a bill from the Daily News for advertising the opening
of the Laundromat $200.
20 Bob withdrew $700 cash for personal use.
30 The company determined that cash receipts for laundry
services for the month were $6,200.

Instructions
(a) Journalize the September transactions. (Use J1 for the journal page number.)
(b) Open ledger accounts and post the September transactions.
(c) Prepare a trial balance at September 30, 2012.
SOLUTION:

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PROBLEM
For each of the following accounts indicate (a) the type of account (Asset, Liability, Owner's
Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal account balance.

Example
0. Cash a. Asset account
b. Debit increases, credit decreases
c. Normal balance - debit

Accounts
1. Accounts Payable 5. Service Revenue
2. Accounts Receivable 6. Insurance Expense
3. Jill Gray, Capital 7. Notes Payable
4. Jill Gray, Drawing 8. Equipment

Solution
1. a. Liability Account. 5. a. Revenue Account.
b. Debit decreases, credit increases. b. Debit decreases, credit increases.
c. Normal balance - credit. c. Normal balance - credit.

2. a. Asset Account. 6. a. Expense Account.

b. Debit increases, credit decreases. b. Debit increases, credit decreases.
c. Normal balance - debit. c. Normal balance - debit.

3. a. Owner's Equity Account. 7. a. Liability Account.

b. Debit decreases, credit increases. b. Debit decreases, credit increases.
c. Normal balance - credit. c. Normal balance - credit.

4. a. Owner's Equity Account. 8. a. Asset Account.

b. Debit increases, credit decreases. b. Debit increases, credit decreases.
c. Normal balance - debit. c. Normal balance - debit.
PROBLEM
Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transactions.
1. The owner, Nick Brown, invests $20,000 in cash in starting a real estate office operating as
a sole proprietorship.
2. Purchased $400 of office supplies on credit.
3. Purchased office equipment for $7,500, paying $2,500 in cash and signed a 30-day, $5,000,
note payable.
4. Real estate commissions billed to clients amount to $5,000.
5. Paid $700 in cash for the current month's rent.
6. Paid $200 cash on account for office supplies purchased in transaction 2.
7. Received a bill for $500 for advertising for the current month.
8. Paid $2,200 cash for office salaries.
9. Brown withdrew $1,200 from the business for living expenses.
10. Received a check for $4,000 from a client in payment on account for commissions billed in
transaction 4.

Solution
1. Cash .......................................................................................... 20,000
Brown, Capital ................................................................... 20,000

2. Office Supplies ........................................................................... 400

Accounts Payable ............................................................. 400

3. Office Equipment ....................................................................... 7,500

Cash .................................................................................. 2,500
Notes Payable ................................................................... 5,000
4. Accounts Receivable ................................................................. 5,000
Real Estate Commission Revenue ................................... 5,000

5. Rent Expense ............................................................................ 700

Cash .................................................................................. 700

6. Accounts Payable ...................................................................... 200

Cash .................................................................................. 200

7. Advertising Expense .................................................................. 500

Accounts Payable ............................................................. 500

8. Office Salaries Expense ............................................................ 2,200

Cash .................................................................................. 2,200

9. Brown, Drawing ......................................................................... 1,200

Cash .................................................................................. 1,200

10. Cash .......................................................................................... 4,000

Accounts Receivable ........................................................ 4,000
PROBLEM
The trial balance of Greer Company shown below does not balance.

GREER COMPANY
Trial Balance
June 30, 2002
_____________________________________________________________________________
Debit Credit
Cash ................................................................................................ $ 2,699
Accounts Receivable ....................................................................... 7,600
Supplies ........................................................................................... 600
Equipment ....................................................................................... 8,300
Accounts Payable ............................................................................ $ 9,766
Greer, Capital .................................................................................. 1,952
Greer, Drawing ................................................................................ 1,500
Service Revenue ............................................................................. 15,200
Wages Expense .............................................................................. 3,800
Repair Expense ............................................................................... 1,600
Totals ...................................................................................... $26,099 $26,918

An examination of the ledger and journal reveals the following errors:

1. Each of the above listed accounts has a normal balance per the general ledger.

2. Cash of $270 received from a customer on account was debited to Cash $720 and credited to
Accounts Receivable $720.

3. A withdrawal of $300 by the owner was posted as a credit to Greer, Drawing, $300 and credit
to Cash $300.

4. A debit of $300 was not posted to Wages Expense.

5. The purchase of equipment on account for $700 was recorded as a debit to Repair Expense
and a credit to Accounts Payable for $700.

6. Services were performed on account for a customer, $620, for which Accounts Receivable
was debited $620 and Service Revenue was credited $62.

7. A payment on account for $225 was credited to Cash for $225 and credited to Accounts
Payable for $252.

Instructions
Prepare a correct trial balance.
Solution
GREER COMPANY
Trial Balance
June 30, 2002
_____________________________________________________________________________
Debit Credit
Cash [2,699 – 450 (2)]...................................................................... $ 2,249 $
Accounts Receivable [7,600 + 450 (2)]............................................ 8,050
Supplies............................................................................................ 600
Equipment [8,300 + 700 (5)]............................................................. 9,000
Accounts Payable [9,766 – 477 (7)]................................................. 9,289
Greer Capital.................................................................................... 1,952
Greer, Drawings [1,500 + 300 + 300 (3)].......................................... 2,100
Service Revenue [15,200 + 558 (6)]................................................. 15,758
Wages Expense [3,800 + 300 (4)].................................................... 4,100
Repair Expense [1,600 – 700 (5)]..................................................... 900
Totals......................................................................................... $26,999 $26,999