prepare journal entry and adjusting journal entry on these transactions:
end of fiscal year is Nov 30,2004
Transactions:
A theatre rents out their space from time to time to community groups to earn extra revenue. A local rock band pays $400 per month to use the theatre for practice on Monday nights. They sent a cheque for November rent for only $40 in error. The theatre clerk deposited it to the bank on November 4 and credited rent revenue. On December 4 the theatre received a cheque for the $760 covering the balance from November plus December rent.
To prepare the journal entries for these transactions, we need to identify the accounts involved and the impact on those accounts.
1. Rent revenue for November (initial incorrect payment) and December:
- Debit: Accounts Receivable
- Credit: Rent Revenue
Explanation: Since the theatre received a cheque for only $40 in November instead of the full amount, the remaining balance is recorded as accounts receivable. The revenue is credited for the correct amount.
2. Bank deposit for the November rent payment:
- Debit: Bank
- Credit: Rent Revenue
Explanation: When the theatre clerk deposited the cheque to the bank, the amount credited as revenue needs to be adjusted since only a partial payment was received.
Now, let's prepare the journal entries.
Journal Entry 1: Correction for November rent payment
Date: November 30, 2004
Debit: Accounts Receivable $760
Credit: Rent Revenue $760
Explanation: The $760 is recorded as accounts receivable to account for the partial payment. The revenue is credited in the correct amount.
Journal Entry 2: December rent payment
Date: December 4, 2004
Debit: Bank $760
Credit: Rent Revenue $760
Explanation: The full payment of $760 is correctly recorded as revenue, and the bank account is credited.
Adjusting Journal Entry: Recognition of December Rent Revenue
Date: November 30, 2004
Debit: Rent Revenue $760
Credit: Unearned Rent Revenue $760
Explanation: Since the December rent covers the period after the end of the fiscal year (November 30), it is considered unearned as of that date. This entry defers the recognition of revenue until the period in which it is actually earned.
By following these steps, you will accurately prepare the journal entry and adjusting journal entry for the given transactions.