Accounting Tutoring - COB 241, James Madison University

Account Classification Topic 3

What type of account is increased with a debit but is a decrease to retained earnings?

Liability
Asset
Revenue
Expense

Journal Entry - Inventory Topic 3

Prepare the journal entry for the following transaction:

Purchased $16,000 of inventory, paid $12,000 in cash and the rest remained on account.

Journal Entry 1
Inventory		16,000
	Cash		12,000
	Accounts Payable		4,000

Journal Entry - Sales Topic 3

Prepare the journal entry for the following transaction:

Sold $90,000 of goods to customers, receiving $65,000 in cash and the remained on account.

Journal Entry 2
Cash		65,000
Accounts Receivable		25,000
	Revenue		90,000

Land Purchased With Cash Topic 3

Determine the effect on a company’s Assets and Net Income from the following transaction: land is purchased with cash.

	Assets	Net Income
A	Decreased	Decreased
B	Decreased	No effect
C	Increased	No effect
D	Increased	Increased
E	None of the above

T/F: Liabilities and Equity Topic 3

The payment of a liability in cash will decrease stockholders’ equity.

True / False

False

T/F: T-Account Logic Topic 3

A T-account shows total debits of $26,000 and total credits of $20,000; therefore, it has a $6,000 debit balance.

True / False?

True

Normal Balances Topic 3

For each account listed below, mark whether it has a debit or credit normal balance.

Account	Debit	Credit
Revenues Correct Incorrect Revenues increase Income. An increase in Income increases Retained Earnings. An increase in Retained Earnings is a credit. Therefore Revenues are credits.
Assets Correct Incorrect Assets live on the left side of the accounting equation and are therefore normal debit accounts. They are also the A in the DEAD acronym.
Retained Earnings Correct Incorrect Retained Earnings lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.
Inventory Correct Incorrect Inventory is an asset, and assets are debited
Prepaid Insurance Correct Incorrect Prepaid Insurance is an asset, and assets are debited
Prepaid Rent Correct Incorrect Prepaid Rent is an asset, and assets are debited
Prepaid Expenses Correct Incorrect Prepaid Expenses is an asset, and assets are debited
Accounts Receivable Correct Incorrect Accounts Receivable is an asset, and assets are debited
Expenses Correct Incorrect Expenses decrease Income. A decrease in Income decreases Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Expenses are debits. Also, Expenses are in the E in the DEAD acronym.
Insurance Expense Correct Incorrect Insurance Expense is an Expense, and Expenses are debited
Accounts Payable Correct Incorrect Accounts Payable are Liabilities and Liabilities are credited.
Cost of Goods Sold Correct Incorrect Cost of Goods Sold is an Expense, and Expenses are debited
Dividends Correct Incorrect Dividends decrease Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Dividends are debits. Also, Dividends are in the D in the DEAD acronym.
Land Correct Incorrect Land is an asset, and assets are debited
Liabilities Correct Incorrect Liabilities live on the right side of the accounting equation and are therefore normal credit accounts. They are also the opposite of Assets, if that helps you remember.
Cash Correct Incorrect Cash is an asset, and assets are debited
Notes Payable Correct Incorrect Notes Payable are Liabilities and Liabilities are credited.
Rent Expense Correct Incorrect Rent Expense is an Expense, and Expenses are debited
Capital Stock Correct Incorrect Capital Stock lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.

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The Effect of Journal Entries Topic 3

For each of the following transactions listed below, select the two effects it will have:

	Transaction	Effect 1	Effect 2
1	Provided services and received cash Correct Incorrect
2	Provided services on account Correct Incorrect
3	Received payment from customers on account Correct Incorrect
4	Received payment in advance from customers Correct Incorrect
5	Paid wages earned this week Correct Incorrect
6	Paid 6 month’s rent in advance Correct Incorrect
7	Borrowed cash from the bank and signed a note Correct Incorrect
8	Loaned cash to employee who signed a note Correct Incorrect
9	Purchased equipment with cash Correct Incorrect
10	Purchases supplies on account Correct Incorrect
11	Received cash and issued stock Correct Incorrect
12	Paid for supplies bought earlier on account Correct Incorrect
13	Paid dividends to stockholders Correct Incorrect

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	Transaction	Effect 1	Effect 2
14	Provided services and received cash	Increase an Asset	Increase Revenue
15	Provided services on account	Increase an Asset	Increase Revenue
16	Received payment from customers on account	Increase an Asset	Decrease an Asset
17	Received payment in advance from customers	Increase an Asset	Increase a Liability
18	Paid wages earned this week	Increase an Expense	Decrease an Asset
19	Paid 6 month’s rent in advance	Increase an Asset	Decrease an Asset
20	Borrowed cash from the bank and signed a note	Increase an Asset	Increase a Liability
21	Loaned cash to employee who signed a note	Increase an Asset	Decrease an Asset
22	Purchased equipment with cash	Increase an Asset	Decrease an Asset
23	Purchases supplies on account	Increase an Asset	Increase a Liability
24	Received cash and issued stock	Increase an Asset	Increase Stockholders' Equity
25	Paid for supplies bought earlier on account	Decrease an Asset	Decrease a Liability
26	Paid dividends to stockholders	Decrease an Asset	Decrease Stockholders' Equity

What Should Be Journaled Topic 3

A company experienced the following financial events on Sept. 29, Year 1. How many of these economic events would require a journal entry on that day?

The company signed a new contract with an employees’ union that requires a $2.00 per hour increase in wages and a longer lunch break, effective 10/1/Y1.
The company president is retiring and will be replaced by the vice president of finance who will be paid $50,000 more per year.
The company purchased a fire insurance policy for $5,000 that will pay $1,000,000 if the facility is destroyed. The policy insures the company from 11/1/Y1 - 10/31/Y2

One
Two
Three
None