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Chapter 2: Problem 12

a. During July, \(\$ 90,300\) was paid to creditors on account, and purchases on account were \(\$ 115,150\). Assuming the July 31 balance of Accounts Payable was \(\$ 39,000\), determine the account balance on July \(1 .\) b. On May 1 , the accounts receivable account balance was \(\$ 36,200\). During May, \(\$ 315,000\) was collected from customers on account. Assuming the May 31 balance was \(\$ 41,600\), determine the fees billed to customers on account during May. c. On April 1, the cash account balance was \(\$ 18,275\). During April, cash receipts totaled \(\$ 279,100\) and the April 30 balance was \(\$ 13,200\). Determine the cash payments made during April.

Short Answer

Expert verified
a) $14,150, b) $320,400, c) $284,175.

Step by step solution

01

Understand Accounts Payable

Accounts payable refers to the amount a company owes to its suppliers. To find the balance on July 1, use the equation: \( \text{Opening Balance} + \text{Purchases} - \text{Payments} = \text{Closing Balance} \).
02

Solve for July 1 Balance

Substitute the given values into the equation: \( x + 115,150 - 90,300 = 39,000 \). Simplifying this gives: \( x = 39,000 + 90,300 - 115,150 \), and further simplify to find \( x = 14,150 \).
03

Understand Accounts Receivable

Accounts receivable is the amount owed to the company by its customers. To find the fees billed, use the equation: \( \text{Opening Balance} + \text{Fees Billed} - \text{Collections} = \text{Closing Balance} \).
04

Solve for Fees Billed

Substitute the given values into the equation: \( 36,200 + y - 315,000 = 41,600 \). Simplifying this gives: \( y = 41,600 + 315,000 - 36,200 \), and further simplify to find \( y = 320,400 \).
05

Understand Cash Account

The cash account tracks the cash inflow and outflow. To find cash payments, use the equation: \( \text{Opening Balance} + \text{Receipts} - \text{Payments} = \text{Closing Balance} \).
06

Solve for Cash Payments

Substitute the given values into the equation: \( 18,275 + 279,100 - z = 13,200 \). Simplifying this gives: \( z = 18,275 + 279,100 - 13,200 \), and further simplify to find \( z = 284,175 \).

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Accounts Payable
Accounts payable is a crucial component in understanding a business's financial obligations. It refers to the outstanding amount that a company owes to its suppliers for goods or services received. Essentially, when a company makes a purchase on credit, this amount gets recorded as accounts payable until it is settled.

Managing accounts payable effectively is vital for maintaining good supplier relationships and ensuring smooth business operations. Companies usually follow a structured process:
  • Tracking due dates to avoid late payments, which may incur penalties.
  • Scheduling payments efficiently to take advantage of any early payment discounts.
  • Regularly reconciling accounts to ensure all obligations are accurately recorded.
In our exercise, the formula used was:\[\text{Opening Balance} + \text{Purchases} - \text{Payments} = \text{Closing Balance}\]By substituting the values, we found the opening balance for accounts payable, revealing vital insights into the company's financial activities at the beginning of the period.
Accounts Receivable
Accounts receivable represents the amount of money owed to a company by its customers after goods or services have been delivered but not yet paid for. This account is essential in understanding the company鈥檚 revenue cycle and cash flow situation.

Businesses typically have a set of procedures to manage accounts receivable efficiently:
  • Issuing timely and accurate invoices to customers.
  • Following up on overdue accounts to improve collections.
  • Offering payment terms that encourage prompt payment.
The formula we use to find out how much was billed to customers during the specified period is:\[\text{Opening Balance} + \text{Fees Billed} - \text{Collections} = \text{Closing Balance}\]In the exercise, plugging in the given amounts allowed us to solve for the fees billed, making it clear how much new revenue was generated on account throughout the month.
Cash Account Management
Cash account management involves monitoring and controlling the cash inflows and outflows to ensure a company can meet its short-term liabilities. The cash account ideally reflects the liquid state of the company's finances.

Effective cash management strategies include:
  • Regularly reviewing cash flow forecasts to predict future cash positions.
  • Maintaining a sufficient cash reserve to cover unexpected expenses.
  • Utilizing cash to capitalize on investment opportunities when appropriate.
To determine the cash payments made during a period, the following equation is used:\[\text{Opening Balance} + \text{Receipts} - \text{Payments} = \text{Closing Balance}\]In our scenario, by substituting the known values, we could accurately calculate the total cash expenditures during the month. This helps the company ensure that its cash outflow remains in balance with its cash inflow, avoiding potential liquidity issues.

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Most popular questions from this chapter

The following errors occurred in posting from a two-column journal: 1\. A credit of \(\$ 6,150\) to Accounts Payable was not posted. 2\. A debit of \(\$ 1,500\) to Cash was posted to Miscellaneous Expense. 3\. A credit of \(\$ 270\) to Cash was posted as \(\$ 720\). 4\. A debit of \(\$ 4,520\) to Wages Expense was posted as \(\$ 4,250\). 5\. An entry debiting Accounts Receivable and crediting Fees Earned for \(\$ 11,000\) was not posted. 6\. A debit of \(\$ 900\) to Accounts Payable was posted as a credit. 7\. A debit of \(\$ 1,150\) to Supplies was posted twice. Considering each case individually (i.e., assuming that no other errors had occurred), indicate: (a) by "yes" or "no" whether the trial balance would be out of balance; (b) if answer to (a) is "yes," the amount by which the trial balance totals would differ; and (c) whether the Debit or Credit column of the trial balance would have the larger total. Answers should be presented in the following form, with error (1) given as an example:

The following errors took place in journalizing and posting transactions: a. Rent of \(\$ 6,000\) paid for the current month was recorded as a debit to Rent Expense and a credit to Prepaid Rent. b. A withdrawal of \(\$ 18,000\) by Juanita Jacobsen, owner of the business, was recorded as a debit to Wages Expense and a credit to Cash. Journalize the entries to correct the errors. Omit explanations.

During the month, Racoon Co. received \(\$ 319,750\) in cash and paid out \(\$ 269,900\) in cash. a. Do the data indicate that Racoon Co. earned \(\$ 49,850\) during the month? Explain. b. If the balance of the cash account is \(\$ 72,350\) at the end of the month, what was the cash balance at the beginning of the month?

The following selected transactions were completed during February of the current year: 1\. Billed customers for fees earned, \(\$ 41,730\). 2\. Purchased supplies on account, \(\$ 1,800\). 3\. Received cash from customers on account, \(\$ 39,150\). 4\. Paid creditors on account, \(\$ 1,100\). a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted. b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.

The accounts in the ledger of Aznar Co. as of October 31, 2010, are listed in alphabetical order as follows. All accounts have normal balances. The balance of the cash account has been intentionally omitted. \(\begin{array}{lrlrr} & & & \\ \text { Accounts Payable } & \$ 28,000 & \text { Notes Payable } & \$ 60,000 \\ \text { Accounts Receivable } & 56,250 & \text { Prepaid Insurance } & 4,500 \\ & ? & \text { Rent Expense } & 90,000 \\\ & 129,850 & \text { Supplies } & 3,150 \\ \text { Ellen Kubota, Capital } & 30,000 & \text { Supplies Expense } & 11,850 \\ \text { Ellen Kubota, Drawing } & 465,000 & \text { Unearned Rent } & 13,500 \\ \text { Fees Eamed } & 9,000 & \text { Utilities Expense } & 62,250 \\ \text { Insurance Expense } & 127,500 & \text { Wages Expense } & 262,500 \\ \text { Land } & 13,350 & & \end{array}\) Prepare an unadjusted trial balance, listing the accounts in their proper order and inserting the missing figure for cash.
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