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Chapter 2: Problem 16

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.

Short Answer

Expert verified
The missing cash balance is \(-984,350\).

Step by step solution

01

Understand the Trial Balance

A trial balance is a worksheet that lists all the accounts in the ledger with their balances and helps ensure that total debits equal total credits.
02

Sort Accounts Into Order

Accounts appear in a trial balance in the order of: assets, liabilities, equity, revenues, and expenses.
03

Summarize Asset Accounts

Assets consist of Cash (unknown), Accounts Receivable: \(56,250\), Prepaid Insurance: \(4,500\), Supplies: \(3,150\), and Land: \(13,350\). Total assets are: \(? + 56,250 + 4,500 + 3,150 + 13,350 = ?\).
04

Summarize Liability Accounts

Liabilities are Accounts Payable: \(28,000\), Notes Payable: \(60,000\), and Unearned Rent: \(13,500\). Total liabilities are \(28,000 + 60,000 + 13,500 = 101,500\).
05

Summarize Equity Accounts

Equity consists of Ellen Kubota, Capital: \(30,000\) and Ellen Kubota, Drawing: \(465,000\) (treated as a negative). Net equity is \(30,000 - 465,000 = -435,000\).
06

Summarize Revenue Accounts

Revenue consists of Fees Earned: \(9,000\).
07

Summarize Expense Accounts

Expenses include Rent Expense: \(90,000\), Supplies Expense: \(11,850\), Utilities Expense: \(62,250\), Insurance Expense: \(127,500\), and Wages Expense: \(262,500\). Total expenses are \(90,000 + 11,850 + 62,250 + 127,500 + 262,500 = 554,100\).
08

Calculate Debit and Credit Totals

Total debits equal the sum of asset, drawing, and expense accounts. Total credits equal the sum of liabilities, capital, and revenue accounts.
09

Compare Totals and Solve for Cash

Assets (\(?\) + other assets) plus all debits: \(? + 77,250 + 3,150 + 13,350 + 465,000 + 554,100 = ?\). Credits equal liabilities (101,500) plus capital (\(-435,000\)) plus revenue (\(9,000\)). Total credits are \(101,500 - 435,000 + 9,000 = -324,500\). Set these totals equal to determine cash: \(? + 659,850 = -324,500\), solve for cash.

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Key Concepts

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

Accounts Classification
In accounting, every transaction affects at least two accounts, which must be categorized properly for accurate record keeping. This process is referred to as "accounts classification." The main categories or types of accounts are identified as follows:
  • Assets: 91影视 owned by a company which are expected to provide future economic benefits. Examples include cash, accounts receivable, and equipment.
  • Liabilities: Obligations the company owes to external parties. Common types are loans, accounts payable, and unearned revenue.
  • Equity: Represents the owner's claim after all liabilities have been deducted from assets. This includes capital contributed by owners and retained earnings.
  • Revenues: Income the business earns from its activities. Examples are sales revenue and service fees.
  • Expenses: Costs incurred during the operation of the business, such as rent, wages, and utilities.
Correctly categorizing accounts helps maintain an accurate financial picture and enables effective decision-making.
Assets vs. Liabilities
The concept of assets versus liabilities is critical in accounting as it provides insight into the equity of a business. Assets and liabilities are two sides of the financial coin, depicting what the company owns versus what it owes. Assets
  • Assets are vital as they are resources that are expected to bring future economic benefits.
  • Cash, supplies, and land are a few examples of assets listed in a trial balance of a company.
Liabilities
  • Conversely, liabilities represent obligations that need to be settled in the future, often by surrendering assets or rendering services.
  • Common liabilities include accounts payable and notes payable.
In a balance equation, assets are juxtaposed against liabilities, and the difference gives a measure of the business's equity.
Equity and Drawing Accounts
Equity in a business represents the ownership value after liabilities are satisfied. It is sometimes referred to as net assets or net worth. In the context of a sole proprietorship, equity is influenced by owner's capital and drawing accounts.
  • Capital Account: This shows the amount of money the owner has invested in the business. Increase in the capital account reflects more investment by the owner into the business.
  • Drawing Account: This account records any withdrawals of business resources by the owner for personal use. It's essentially a reduction in equity, as it decreases the net worth of the business.
Understanding equity dynamics is critical, as it directly impacts the financial stability and valuation of a business.
Calculating Totals in Accounting
In accounting, calculating totals accurately is crucial for ensuring the financial statements are balanced and transparent. Here's how the totals are calculated in a trial balance:
  • Total debits and credits are calculated by summing up the balances of each account categorized under assets, liabilities, equity, revenues, and expenses.
  • Debits typically include assets and expenses, while credits include liabilities, revenue, and equity figures.
  • This method helps verify the arithmetic accuracy of the ledger balances; ideally, the total debits should equal total credits.
Often in accounting, precise calculation ensures that the financial position of the business is clearly defined, which aids in effective business planning and analysis.

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Most popular questions from this chapter

Derby Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Terri Burell, Capital; Terri Burell, Drawing; Fees Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense. Journalize the following selected transactions for March 2009 in a two-column journal. Journal entry explanations may be omitted. Mar. 1. Paid rent for the month, \(\$ 3,000\). 2\. Paid advertising expense, \(\$ 1,800\). 5\. Paid cash for supplies, \(\$ 900\). 6\. Purchased office equipment on account, \(\$ 12,300\). 10\. Received cash from customers on account, \(\$ 4,100\). 15\. Paid creditor on account, \(\$ 1,200\). 27\. Paid cash for repairs to office equipment, \(\$ 500\). 30\. Paid telephone bill for the month, \(\$ 180\). 31\. Fees earned and billed to customers for the month, \(\$ 26,800\). 31\. Paid electricity bill for the month, \(\$ 315 .\) 31\. Withdrew cash for personal use, \(\$ 2,000\).

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 following accounts appeared in recent financial statements of Continental Airlines: \(\begin{array}{ll}\text { Accounts Payable } & \text { Flight Equipment } \\\ \text { Air Traffic Liability } & \text { Landing Fees } \\ \text { Aircraft Fuel Expense } & \text { Passenger Revenue } \\ \text { Cargo and Mail Revenue } & \text { Purchase Deposits for Flight Equipment } \\ \text { Commissions } & \text { Spare Parts and Supplies }\end{array}\) Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner's equity. For each income statement account, identify it as a revenue or an expense.

Indicate which of the following errors, each considered individually, would cause the trial balance totals to be unequal: a. A payment of \(\$ 2,150\) to a creditor was posted as a debit of \(\$ 2,150\) to Accounts Payable and a debit of \(\$ 2,150\) to Cash. b. A fee of \(\$ 4,600\) earned and due from a client was not debited to Accounts Receivable or credited to a revenue account, because the cash had not been received. c. A receipt of \(\$ 3,100\) from an account receivable was journalized and posted as a debit of \(\$ 3,100\) to Cash and a credit of \(\$ 3,100\) to Fees Earned. d. A payment of \(\$ 10,000\) for equipment purchased was posted as a debit of \(\$ 1,000\) to Equipment and a credit of \(\$ 1,000\) to Cash. e. Payment of a cash withdrawal of \(\$ 15,000\) was journalized and posted as a debit of \(\$ 5,000\) to Salary Expense and a credit of \(\$ 15,000\) to Cash.

The following data were adapted from the financial statements of Kmart Corporation, prior to its filing for bankruptcy: \begin{tabular}{lrrr} & \multicolumn{2}{c}{ In millions } \\ \cline { 2 - 4 } For years ending January 31 & \(\mathbf{2 0 0 0}\) & \multicolumn{1}{c}{\(\mathbf{1 9 9 9}\)} \\ \hline Sales & \(\$ 37,028\) & \(\$ 35,925\) \\ Cost of sales (expense) & \((29,658)\) & \((28,111)\) \\ Selling, general, and administrative expenses & \((7,415)\) & \((6,514)\) \\ Operating income (loss) & \(\$(45)\) & $\$$ & 1,300 \\ \hline \end{tabular} a. Prepare a horizontal analysis for the income statement showing the amount and percent of change in each of the following: 1\. Sales 2\. Cost of sales 3\. Selling, general, and administative expenses 4\. Operating income (loss) b. Comment on the results of your horizontal analysis in part (a).
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