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3. Discuss the means by which large business transactions are recorded.
4. Show the standardized rules of debit and credit
5. Discuss the difference between the general journal and a ledger.
182 ♦ Chapter 4
6. What is the purpose of a trial balance? If a trial balance does in fact balance, does that mean that
there are no errors? explain?
7. How do the trial balance, adjusted trial balance, and post-closing trial balance differ?
8. Discuss the basic elements of a financial reporting system.
9. What is the purpose of closing entries?
Accounting Information Systems ♦ 183
10. When doing closing entries, certain accounts are closed to retained earnings. Which accounts are
closed to retained earnings, and do these accounts increase or decrease retained earnings? In
addition, where does the resulting ending balance of retained earnings appear?
11. Summarize the basic steps in the accounting cycle for a double-entry accounting system.
12. What is EBITDA? How does it differ from cash flow from operations?.
184 ♦ Chapter 4
PROBLEM
1. Part A
These transactions are provided for Mac’s Mobile Wash. Record these entries in the following
general journal provided.
Sep.
2
Mac’s Mobile Wash began business in September of 2006, by depositing $58,000 in a
checking account in the name of Mac’s Mobile Wash, Inc. and issued capital stock.
3
Purchased equipment from Washers Wholesale, $26,200 in cash.
3
Purchased supplies costing $3,000 from Suds ‘n Stuff on account.
4
Paid one month’s rent for business space in U-STOR-IT, $1,000 (record this as an expense,
not as a prepaid asset).
4
Paid cash to purchase a 6-month insurance policy, $3,600.
5
Paid $4,200 for advertising to appear in the Pine Press newspaper during the next three
months.
8
Received $350 from customers who paid in advance for washing services for September and
October.
12
Services provided to customers during September totaled $19,200 in cash.
12
Paid employees for hours worked during the first two weeks of September, $1,500.
15
Paid $2,600 on account to Suds ‘n Stuff.
28
Paid wages for September 15 – 28, $1,500.
30
Services provided during September totaled $5,000 on account.
30
Received and paid the utility bill for electricity, $500.
30
Received but did not pay the telephone bill, $250.
30
Collections of accounts receivable in September, $2,800.
30
Declared and paid dividends to the stockholders, $2,000.
Accounting Information Systems ♦ 185
General Journal
Date
Description
Debit
Credit
186 ♦ Chapter 4
General Journal
Date
Description
Debit
Credit
Part B
Using the information from Part A, post the entries to the following ledger accounts. (Hint: Not all
of the accounts are used now. Some will be used for adjusting and closing entries).
General Ledger T-Accounts
CASH
ACCOUNTS RECEIVABLE
SUPPLIES
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PREPAID INSURANCE
PREPAID ADVERTISING
EQUIPMENT
ACCUMULATED DEPREC-EQUIP
ACCOUNTS PAYABLE
WAGES PAYABLE
UNEARNED WASHING REVENUE
CAPITAL STOCK
RETAINED EARNINGS
DIVIDENDS
WASHING REVENUE
WAGES EXPENSE
RENT EXPENSE
INSURANCE EXPENSE
SUPPLIES EXPENSE
UTILITIES EXPENSE
188 ♦ Chapter 4
ADVERTISING EXPENSE
INTEREST EXPENSE
DEPREC EXPENSE-EQUIP
INCOME TAX EXPENSE
Part C
Use the ending balances in the ledger accounts from Part B to prepare the following unadjusted
trial balance.
Mac’s Mobile Wash, Inc.
Unadjusted Trial Balance
September 30, 2006
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190 ♦ Chapter 4
Accounting Information Systems ♦ 191
192 ♦ Chapter 4
2. Mac’s Mobile Wash has recorded transactions in the general journal and posted these entries in the
ledger accounts. It is now the end of the accounting period. Record these adjusting journal entries
(A-G) in the following general journal (all are dated September 30).
(a)
Record depreciation expense for one month on the office equipment , $437.
(b)
Record the supplies expense of $2,400.
(c)
Record insurance expired for one month of $600.
(d)
Washing services of $420 for September have been performed, but have not yet been billed.
(e)
Wages of $430 are owed to employees for hours they worked September 29-30. The business
fluctuates, so this is for the hours worked, not necessarily for a weekly payroll.
(f)
One month of the unearned revenue from the customer who paid in advance for washing services has
been earned , $175
(g)
Record advertising expired for the month of September, $1,400.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Prepaid Advertising
Equipment
Accounts Payable
Unearned Washing Revenue
Common Stock
Washing Revenue
Wages expense
Rent expense
Utilities expense
Accounting Information Systems ♦ 193
General Journal
Date
Description
Debit
Credit
194 ♦ Chapter 4
3. Part A
From the following General Journal T-accounts, prepare the adjusted trial balance for Mac’s
Mobile Wash.
CASH
ACCOUNTS RECEIVABLE
9/2
58,000
9/3
26,200
9/30
2,800
9/4
1,000
9/30
5,000
9/8
350
9/4
3,600
Bal.
2,200
9/12
19,200
9/5
4,200
9/30
420
9/30
2,800
9/12
1,500
Bal.
2,620
9/15
2,600
9/28
1,500
SUPPLIES
9/30
500
9/3
3,000
9/30
2,400
9/30
2,000
Bal.
600
Bal.
37,250
PREPAID INSURANCE
PREPAID ADVERTISING
9/4
3,600
9/30
600
9/5
4,200
9/30
1,400
Bal.
3,000
Bal.
2,800
2004
Sep 30
Depreciation expense – equipment
Accumulated Depreciation – equipment
Sep 30
Supplies expense
Supplies
Sep 30
Insurance expense
Prepaid Insurance
Sep 30
Accounts Receivable
Washing Revenue
Sep 30
Wages expense
Wages Payable
Sep 30
Unearned Washing Revenue
Washing Revenue
Sep 30
Advertising expense
Prepaid Advertising
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EQUIPMENT
ACCUMULATED DEPREC-EQUIP
9/3
26,200
9/30
437
ACCOUNTS PAYABLE
WAGES PAYABLE
9/15
2,600
9/3
3,000
9/30
430
9/30
250
Bal
430
Bal.
650
UNEARNED WASHING REVENUE
CAPITAL STOCK
9/30
175
9/8
350
9/30
58,000
Bal.
175
Bal
58,000430
RETAINED EARNINGS
DIVIDENDS
9/30
2,000
WASHING REVENUE
WAGES EXPENSE
9/12
19,200
9/12
1,500
9/30
5,000
9/28
1,500
Bal.
24,200
Bal.
3,000
9/30
420
9/30
430
9/30
175
Bal.
3,430
Bal.
24,795
RENT EXPENSE
INSURANCE EXPENSE
9/4
1,000
9/30
600
0
Bal.
1,000
Bal.
600
SUPPLIES EXPENSE
UTILITIES EXPENSE
9/30
2,400
9/30
500
Bal.
2,400
9/30
250
Bal.
750
.
ADVERTISING EXPENSE
DEPREC EXPENSE-EQUIP
9/30
1,400
9/30
437
60
Bal.
1,400
Bal.
437
196 ♦ Chapter 4
Mac’s Mobile Wash, Inc.
Adjusted Trial Balance
Accounting Information Systems ♦ 197
Part B
Using the ending balances from the adjusted trial balance, prepare the Income Statement, Retained
Earnings Statement, and Balance Sheet for Mac’s Mobile Wash, Inc.
Mac’s Mobile Wash, Inc
Income Statement
for the month ended September 30, 2006
Mac’s Mobile Wash, Inc
Retained Earnings Statement
for the month ended September 30, 2006
198 ♦ Chapter 4
Mac’s Mobile Wash, Inc
Balance Sheet
for the month ended September 30, 2006
Accounting Information Systems ♦ 199
200 ♦ Chapter 4