1. 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
Cash
Paid part of amount owed to
Executive Supply Co.

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

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

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

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

6. 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
Cash
Paid utility bill.

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

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

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

10. Trial Balance

11. NetSolutions
Trial Balance
December 31, 2005
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense

12. Balance Sheet Items NetSolutions Trial Balance December 31, 2005
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Balance Sheet Items

13. Statement of Owner’s Equity Item
NetSolutions
Trial Balance
December 31, 2005
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Statement of Owner’s Equity Item

14. Income Statement Items
NetSolutions
Trial Balance
December 31, 2005
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accounts Payable
Unearned Rent
Chris Clark, Capital
Chris Clark, Drawing
Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Supplies Expense
Miscellaneous Expense
Income Statement Items

15. Errors

16. 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.

17. 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.

18. 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.

19. 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.

20. 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?

21. 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

22. 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

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

24. 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)
Amount Percent
Fees earned $187,500 $150,000 $37, %
Operating expenses:
Wages expense $ 60,000 $ 45,000 $15, %
Rent expense 15,000 12,000 3, %
Utilities expense 12,500 9,000 3, %
Supplies expense 2,700 3,000 (300) (10.0)%
Misc. expense , , %
Total operating
expenses $ 92,500 $ 70,800 $21, %
Net income $ 95,000 $ 79,200 $15, %

25. Chapter 2
The End