Q2. ABC Ltd. completed the following transactions during April 2018, it’s first month of operation.
Apr. 1 Received $20,000 and issued common shares.
Apr. 2 Purchased $500 office supplies on account.
Apr. 8 Paid $10,000 cash for land used for business purpose.
Apr. 10 Performed service for customers and received cash for $6,000.
Apr. 15 Paid $500 on accounts payable.
Apr. 30 Paid the following expenses: Salary - $1,000; Rent - $800.
Required:
a. Following the proper transaction format, prepare the journal entries on the above transactions for ABC Ltd. Each entry must have the date, account name(s), amounts, and explanation.
To prepare the journal entries for the transactions of ABC Ltd., we need to analyze each transaction and identify the accounts affected, the amounts, and the explanation for each entry. Here are the journal entries for each transaction:
Apr. 1: Received $20,000 and issued common shares.
- Debit: Cash ($20,000)
- Credit: Common Shares ($20,000)
Explanation: This entry records the receipt of $20,000 in cash from the issuance of common shares, which represents the owner's equity invested in the company.
Apr. 2: Purchased $500 office supplies on account.
- Debit: Office Supplies ($500)
- Credit: Accounts Payable ($500)
Explanation: This entry records the purchase of office supplies on account, meaning the company acquired the supplies but did not make an immediate payment. Office supplies is debited to increase the asset account, while accounts payable is credited to record the liability owed for the purchase.
Apr. 8: Paid $10,000 cash for land used for business purpose.
- Debit: Land ($10,000)
- Credit: Cash ($10,000)
Explanation: This entry records the payment of $10,000 in cash for the acquisition of land for business use. Land is debited to increase the asset account, while cash is credited to record the decrease in the company's cash balance.
Apr. 10: Performed service for customers and received cash for $6,000.
- Debit: Cash ($6,000)
- Credit: Service Revenue ($6,000)
Explanation: This entry records the receipt of $6,000 in cash for services performed for customers. Cash is debited to increase the asset account, while service revenue is credited to record the revenue earned from the services provided.
Apr. 15: Paid $500 on accounts payable.
- Debit: Accounts Payable ($500)
- Credit: Cash ($500)
Explanation: This entry records the payment of $500 in cash to settle a portion of the accounts payable. Accounts payable is debited to decrease the liability owed, while cash is credited to record the decrease in the company's cash balance.
Apr. 30: Paid the following expenses: Salary - $1,000; Rent - $800.
- Debit: Salary Expense ($1,000), Rent Expense ($800)
- Credit: Cash ($1,800)
Explanation: This entry records the payment of expenses for salaries ($1,000) and rent ($800) in cash. Salary expense and rent expense are debited to increase the expense accounts, while cash is credited to record the decrease in the company's cash balance.
By following this format, you can prepare the journal entries for each transaction of ABC Ltd.