Dec. 20. NetSolutions paid $900 to Executive Supply Co Dec. 20 NetSolutions paid $900 to Executive Supply Co. on the $1,800 debt owed from the December 4 transaction. 20 13 14 15 16 Accounts Payable 21 900 00 Cash 11 900 00 Paid part of amount owed to Executive Supply Co.

Dec. 21 NetSolutions received $650 from customers in payment of their accounts. 18 19 20 21 Cash 11 650 00 Accounts Receivable 12 650 00 Received cash from customer on account.

Dec. 23 NetSolutions paid $1,450 for supplies. 22 23 24 25 Supplies 14 1 450 00 Cash 11 1 450 00 Purchased supplies.

Dec. 27 NetSolutions paid the receptionist and part-time assistant $1,200 for two weeks’ wages. 28 29 30 Wages Expense 51 1 200 00 Cash 11 1 200 00 Paid two weeks’ wages.

Dec. 31 NetSolutions paid its $310 telephone bill for the month. 32 33 34 Utilities Expense 54 310 00 Cash 11 310 00 Paid telephone bill.

Dec. 31 NetSolutions paid its $225 electric bill for the month. JOURNAL Date Description Debit Credit Page 4 Post. Ref. Dec. 31 2005 1 2 3 4 Utilities Expense 54 225 00 Cash 11 225 00 Paid utility bill.

Dec. 31 NetSolutions received $2,870 from fees earned for the second half of December. 5 6 7 8 Cash 11 2 870 00 Fees Earned 41 2 870 00 Received fees from customers.

Dec. 31 NetSolutions earned $1,120 on account for the second half of December. 9 10 11 12 Accounts Receivable 12 1 120 00 Fees Earned 41 1 120 00 Recorded fees earned on account.

Dec. 31 Chris Clark withdrew $2,000 for personal use. 14 15 16 17 Chris Clark, Drawing 32 2 000 00 Cash 11 2 000 00 Chris Clark withdrew cash for personal use.

Trial Balance

NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Chris Clark, Capital 25 000 00 Chris Clark, Drawing 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600 00

Balance Sheet Items NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Chris Clark, Capital 25 000 00 Chris Clark, Drawing 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600 00 Balance Sheet Items

Statement of Owner’s Equity Item NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Chris Clark, Capital 25 000 00 Chris Clark, Drawing 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600 00 Statement of Owner’s Equity Item

Income Statement Items NetSolutions Trial Balance December 31, 2005 Cash 2 065 00 Accounts Receivable 2 220 00 Supplies 2 000 00 Prepaid Insurance 2 400 00 Land 20 000 00 Office Equipment 1 800 00 Accounts Payable 900 00 Unearned Rent 360 00 Chris Clark, Capital 25 000 00 Chris Clark, Drawing 4 000 00 Fees Earned 16 340 00 Wages Expense 4 275 00 Rent Expense 1 600 00 Utilities Expense 985 00 Supplies Expense 800 00 Miscellaneous Expense 455 00 42 600 00 42 600 00 Income Statement Items

Errors

Errors that will not cause the trial balance to be unequal: 1. Failure to record a transaction or to post a transaction. 2. Recording the same erroneous amount for both the debit and the credit parts of a transaction. 3. Recording the same transaction more than once. 4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.

Correction of Errors Error Correction Procedure Error Correction Procedure 1. Journal entry is incorrect Draw a line through the error but not posted. and insert correct title or amount.

Correction of Errors Error Correction Procedure Error Correction Procedure 1. Journal entry is incorrect Draw a line through the error but not posted. and insert correct title or amount. 2. Journal entry is correct Draw a line through the but posted incorrectly. posted error and post correctly.

Correction of Errors Journal entry is incorrect Journalize and post a Error Correction Procedure Error Correction Procedure Journal entry is incorrect Journalize and post a and posted correcting entry.

Correcting Errors – An Example On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown. Journal – As recorded and posted Date Description Debit Credit May 5 Supplies 12,500 Accounts Payable 12,500 What would be the necessary correcting entry?

Correcting Errors – An Example On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown. Journal – As recorded and posted Date Description Debit Credit May 5 Supplies 12,500 Accounts Payable 12,500 Date Description Debit Credit May 5 Office Equipment 12,500

Correcting Errors – An Example On May 5, a purchase of office equipment on account was incorrectly journalized and posted as shown. Journal – As recorded and posted Date Description Debit Credit May 5 Supplies 12,500 Accounts Payable 12,500 Date Description Debit Credit May 5 Office Equipment 12,500 Supplies 12,500

Financial Analysis and Interpretation Comparing an item in a current statement with the same item in prior statements is called horizontal analysis.

Supplies expense 2,700 3,000 (300) (10.0)% J Holmes, Attorney-at-Law Income Statement For the Year Ended December 31, 2005 and 2006 Increase (Decrease) 2006 2005 Amount Percent Fees earned $187,500 $150,000 $37,500 25.0% Operating expenses: Wages expense $ 60,000 $ 45,000 $15,000 33.3% Rent expense 15,000 12,000 3,000 25.0% Utilities expense 12,500 9,000 3,500 38.9% Supplies expense 2,700 3,000 (300) (10.0)% Misc. expense 2,300 1,800 500 27.8% Total operating expenses $ 92,500 $ 70,800 $21,700 30.6% Net income $ 95,000 $ 79,200 $15,800 19.9%

Chapter 2 The End