General Journal
What is the primary purpose of the General Journal?
To record business transactions in chronological order.
What is the primary purpose of the General Ledger?
To organize and summarize transactions by individual account.
Which side of a T-account represents a debit?
The left side.
Why do businesses prepare adjusting entries at the end of an accounting period?
To ensure revenues and expenses are recognized in the correct accounting period and account balances are accurate.
What is the main purpose of closing entries?
To reset temporary accounts to zero and transfer the period's net income or loss and drawings to owner's capital.
What is the accounting term for recording transactions in the General Journal?
Journalizing.
What is the process of transferring information from the General Journal to the General Ledger called?
Posting.
Which three types of accounts normally increase with a debit?
Assets, expenses, and owner's drawings.
A business pays $1,200 for a 12-month insurance policy and records it as Prepaid Insurance. How much insurance expense should be recognized after one month?
$100.
Which accounts are closed at the end of an accounting period: Cash, Service Revenue, Rent Expense, and Accounts Payable?
Service Revenue and Rent Expense.
The owner invests $15,000 cash into the business. What journal entry records this transaction?
Debit Cash $15,000; credit Owner's Capital $15,000.
The Cash account has a beginning debit balance of $8,000. The business receives another $3,000 cash. What is the new Cash balance?
$11,000 debit balance.
A business purchases equipment for $5,000 cash. Which account is debited and which is credited?
Debit Equipment $5,000; credit Cash $5,000.
The Supplies account has a balance of $2,000, but a physical count shows only $500 remaining. What adjusting entry is required?
Debit Supplies Expense $1,500; credit Supplies $1,500.
Service Revenue has a credit balance of $20,000. What journal entry closes this account?
Debit Service Revenue $20,000; credit Income Summary $20,000.
A business purchases $2,500 of supplies on account. What journal entry records the purchase?
Debit Supplies $2,500; credit Accounts Payable $2,500.
Accounts Payable has a credit balance of $6,000. The business pays $2,500 toward the amount owed. What is the new balance?
$3,500 credit balance.
A business performs $2,000 of services on account. Which two accounts are affected, and how?
Debit Accounts Receivable $2,000; credit Service Revenue $2,000.
Employees have earned $1,500 in wages that will not be paid until next month. What adjusting entry should be recorded?
Debit Wages Expense $1,500; credit Wages Payable $1,500.
A business has $15,000 in revenue and $9,000 in expenses. What is its net income, and how is Income Summary closed?
Net income is $6,000. Debit Income Summary $6,000; credit Owner's Capital $6,000.
A business receives $4,000 cash from a customer for services to be performed next month.
Debit Cash $4,000; credit Unearned Revenue $4,000.
The Cash account has a beginning balance of $10,000. During the month, the business receives $5,000 from customers, pays $3,000 for expenses, and purchases equipment for $4,000 cash. What is the ending Cash balance?
$8,000 debit balance.
A business receives $3,000 cash from a customer who previously purchased services on account. Which accounts are debited and credited?
Debit Cash $3,000; credit Accounts Receivable $3,000.
A business receives $6,000 in advance for six months of services and records it as Unearned Revenue. At month-end, two months of services have been completed. What adjusting entry is required?
Debit Unearned Revenue $2,000; credit Service Revenue $2,000.
A business has $25,000 in revenue, $18,000 in expenses, and $3,000 in owner's drawings. What is the net change in Owner's Capital after closing entries?
Owner's Capital increases by $4,000: $7,000 net income minus $3,000 drawings.