2

Analyzing Transactions

Student Version

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Describe the
characteristics of an
account and a chart of
accounts.

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The T Account

Title
Debit Credit
The left side of The right side of
the account is the account is
called the debit called the credit
side. side.

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Cash
(a) 25,000 (b) 20,000
(d) 7,500 (e) 3,650
(f) 950
(h) 2,000
Balance 5,900
Balance of the account

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Chart of Accounts
Assets are resources owned by the
business entity.
Liabilities are debts owed to
outsiders (creditors).
Owner’s equity is the owner’s right
to the assets of the business.

(continued)
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Chart of Accounts
Revenues are increases in owner’s
equity as a result of selling services
or products to customers.
Expenses are the results of using up
of assets or consuming services in the
process of generating revenues.

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Describe and illustrate

journalizing transactions
using the double-entry
accounting system.

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Transaction A
On November 1, Chris Clark opens a
new business and deposits $25,000 in a
bank account in the name of
NetSolutions.

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JOURNAL Page 1

Date Description P.R. Debit Credit

2009
Nov. 1 Cash 25,000
Chris Clark, Capital 25,000
Invested cash in NetSolutions.

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The effect of this entry is shown in the

accounts of NetSolutions as follows:
Cash Chris Clark, Capital
Nov. 1 25,000 Nov. 1 25,000

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Transaction B

On November 5, NetSolutions bought

land for $20,000, paying cash.

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Transaction C

On November 10, NetSolutions bought

supplies on account for $1,350.

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Transaction D

On November 18, NetSolutions received

fees of $7,500 from customers for services
rendered.

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Transaction E
Throughout the month, NetSolutions
incurred the following expenses: wages,
$2,125; rent, $800; utilities, $450; and
miscellaneous, $275.

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Transaction F

On November 30, NetSolutions paid

creditors on account, $950.

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Transaction G
Chris Clark determined that the cost
of supplies on hand on November 30
was $550.

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Transaction H
On November 30, Chris Clark
withdrew $2,000 from NetSolutions
for personal use.

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Describe and illustrate

the journalizing and
posting of transactions
to accounts.

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Dec. 1 NetSolutions paid a premium of

$2,400 for an insurance policy
for liability, theft and fire. The
policy covers a one-year period.

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Exhibit 4 Diagram of the Recording and
Posting of a Debit and a Credit

ep 3

Step 1

Step 2
Step 2

ep 3

to Cash

Step 1

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Exhibit 4 Diagram of the Recording and Posting
of a Debit and a Credit (continued)

ep 3

Step 1

Step 3 Step 2

ep 4

Step 1

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Dec. 1 NetSolutions paid rent for December,

$800. The company from which
NetSolutions is renting its store space
now requires the payment of rent on the
first of each month, rather than at the end
of the month.

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Dec. 1 NetSolutions received an offer from a

local retailer to rent the land purchased
on November 5. The retailer plans to
use the land as a parking lot for its
employees and customers.
NetSolutions agreed to rent the land to
the retailer for three months, with the
rent payable in advance.
(continued)
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Dec. 1 NetSolutions receives $360 for three

month’s rent for use of its land
beginning December 1.

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Dec. 4 NetSolutions purchased office

equipment on account from Executive
Supply Co. for $1,800.

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Dec. 6 NetSolutions paid $180 for a newspaper

advertisement.

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Dec. 11 NetSolutions paid creditors $400.

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Dec. 13 NetSolutions paid a receptionist and

part-time assistant $950 for two weeks’
wages.

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Dec. 16 NetSolutions received $3,100 from

fees earned for the first half of
December.

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Dec. 20 NetSolutions paid $900 to Executive

Supply Co. on the $1,800 debt owed
from the December 4 transaction.

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Dec. 21 NetSolutions received $650 from

customers in payment of their accounts.

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Dec. 23 NetSolutions paid $1,450 for supplies.

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Dec. 27 NetSolutions paid the receptionist and

part-time assistant $1,200 for two weeks’
wages.

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Dec. 31 NetSolutions paid its $310 telephone bill

for the month.

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Dec. 31 NetSolutions paid $225 for electric usage

for the month.

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Dec. 31 NetSolutions received $2,870 from fees

earned for the second half of December.

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Dec. 31 NetSolutions earned $1,120 on account

for the second half of December.

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Dec. 31 Chris Clark withdrew $2,000 for

personal use.

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Prepare an unadjusted
trial balance and explain
how it can be used to
discover errors.

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Exhibit 6 Trial Balance

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