Week 6:

A Comprehensive
Illustration
Iron Mountain Consulting
 For the past several years, Kareem
Ismail has operated a part-time
consulting business from his home.
 As of 1 October 2010, Kareem decided
to move to rented quarters and to
operate the business, which was to be
known as Iron Mountain Consulting, on
a full-time basis.
 Iron Mountain Consulting entered into
the following transactions during
October:
October Transactions
Date
Oct 1 The following assets were received from Kareem Ismail:
Cash, $18,000
Accounts receivable, $5,000
Supplies, $1,500
Office equipment, $10,750.
There were no liabilities received.
Oct 1 Paid 3 months’ rent on a lease rental contract, $4,800.
Oct 2 Paid the premiums on property and casualty insurance
policies, $2,700.
Oct 4 Received cash from clients as an advance payment for
services to be provided and recorded it as unearned fees,
$3,150.
Oct 5 Purchased additional office equipment on account from
Office Station Co., $1,250.
Oct 6 Received cash from clients on account, $2,000.
October Transactions (Contd.)
Date
Oct 10 Paid cash for a newspaper advertisement, $325.
Oct 12 Paid Office Station Co. for part of the debt incurred on
Oct 5, $750.
Oct 12 Recorded services provided on account for the period
Oct 1-12, $5,750.
Oct 14 Paid part-time receptionist for 2 weeks’ salary, $900.
Oct 17 Recorded cash from cash clients for fees earned for
the period Oct 1-17, $9,250.
Oct 18 Paid cash for supplies, $600.
Oct 20 Recorded services provided on account for the period
Oct 13-20, $4,100.
Oct 24 Recorded cash from cash clients for fees earned during
the period Oct 17-24, $4,850.
October Transactions (Contd.)
Date
Oct 26 Received cash from clients on account, $3,450.
Oct 27 Paid part-time receptionist for 2 weeks’ salary,
$900.
Oct 29 Paid telephone bill for October, $250.
Oct 31 Paid electricity bill for October, $300.
Oct 31 Recorded cash from cash clients for fees
earned for the period Oct 25-31, $3,975.
Oct 31 Recorded services provided on account for the
remainder of October, $2,500.
Oct 31 Kareem withdrew $7,500 for personal use.
Instructions
• Journalise each transaction.
Journal entries
Oct 1:
The following assets were received from Kareem
Ismail:
Cash, $18,000
Accounts receivable, $5,000
Supplies, $1,500
Office equipment, $10,750.
There were no liabilities received.

Journal entry
DR Cash 18,000
DR Accounts Receivable 5,000
DR Supplies 1,500
DR Office Equipment 10,750
CR Kareem Ismail, Capital 35,250
Journal entries
Oct 1:
Paid 3 months’ rent on a lease rental
contract, $4,800.

Journal entry
DR Prepaid Rent 4,800
CR Cash 4,800
Journal entries
Oct 2:
Paid the premiums on property and
casualty insurance policies, $2,700.

Journal entry
DR Prepaid Insurance 2,700
CR Cash 2,700
Journal entries
Oct 4:
Received cash from clients as an advance
payment for services to be provided and
recorded it as unearned fees, $3,150.

Journal entry
DR Cash 3,150
CR Unearned fees
3,150
Journal entries
Oct 5:
Purchased additional office equipment on
account from Office Station Co., $1,250.

Journal entry
DR Office equipment 1,250
CR Accounts payable 1,250
Journal entries
Oct 6:
Received cash from clients on account,
$2,000.

Journal entry
DR Cash 2,000
CR Accounts receivables 2,000
Journal entries
Oct 10:
Paid cash for a newspaper advertisement,
$325.

Journal entry
DR Miscellaneous expense 325
CR Cash
325
Journal entries
Oct 12:
Paid Office Station Co. for part of the debt
incurred on Oct 5, $750.

Journal entry
DR Accounts payable 750
CR Cash
750
Journal entries
Oct 12:
Recorded services provided on account for
the period Oct 1-12, $5,750.

Journal entry
DR Accounts receivable 5,750
CR Fees earned 5,750
Journal entries
Oct 14:
Paid part-time receptionist for 2 weeks’
salary, $900.

Journal entry
DR Salary expense 900
CR Cash
900
Journal entries
Oct 17:
Recorded cash from cash clients for fees
earned for the period Oct 1-17, $9,250.

Journal entry
DR Cash 9,250
CR Fees earned 9,250
Journal entries
Oct 18:
Paid cash for supplies, $600.

Journal entry
DR Supplies 600
CR Cash
600
Journal entries
Oct 20:
Recorded services provided on account for
the period Oct 13-20, $4,100.

Journal entry
DR Accounts receivable 4,100
CR Fees earned 4,100
Journal entries
Oct 24:
Recorded cash from cash clients for fees
earned for the period Oct 17-24, $4,850.

Journal entry
DR Cash 4,850
CR Fees earned 4,850
Journal entries
Oct 26:
Received cash from clients on account,
$3,450.

Journal entry
DR Cash 3,450
CR Accounts receivable
3,450
Journal entries
Oct 27:
Paid part-time receptionist for 2 weeks’
salary, $900.

Journal entry
DR Salary expense 900
CR Cash
900
Journal entries
Oct 29:
Paid telephone bill for October, $250.

Journal entry
DR Miscellaneous expense 250
CR Cash
250
Journal entries
Oct 31:
Paid electricity bill for October, $300.

Journal entry
DR Miscellaneous expense 300
CR Cash
300
Journal entries
Oct 31:
Recorded cash from cash clients for fees
earned for the period Oct 25-31, $3,975.

Journal entry
DR Cash 3,975
CR Fees earned 3,975
Journal entries
Oct 31:
Recorded services provided on account for
the remainder of October, $2,500.

Journal entry
DR Accounts receivable 2,500
CR Fees earned 2,500
Journal entries
Oct 31:
Kareem withdrew $7,500 for personal use.

Journal entry
DR Kareem Ismail, Drawing 7,500
CR Cash
7,500
Instructions
• Post the journal to individual
ledgers.
 Posting journal entries to ledger
Cash accounts Debit Credit
Oct 1 18,000
1 4,800
2 2,700
4 3,150
6 2,000
10 325
12 750
14 900
17 9,250
18 600
24 4,850
26 3,450
27 900
29 250
31 300
31 3,975
31 7,500
Bal c/f 25,650
44,675 44,675
Bal b/f 25,650
 Posting journal entries to ledger
accounts
Accounts receivable Debit Credit
Oct 1 5,000
6 2,000
12 5,750
20 4,100
26 3,450
31 2,500
Bal c/f 11,900
17,35
0 17,350
11,90
Bal b/f 0
 Posting journal entries to ledger
accounts
Supplies Debit Credit
Oct 1 1,500
18 600
Bal c/f 2,100
2,100 2,100
Bal b/f 2,100
 Posting journal entries to ledger
accounts
Prepaid rent Debit Credit
Oct 1 4,800
Bal c/f 4,800
4,800 4,800
Bal b/f 4,800
 Posting journal entries to ledger
accounts
Prepaid insurance Debit Credit
Oct 2 2,700
Bal c/f 2,700
2,700 2,700
Bal b/f 2,700
 Posting journal entries to ledger
accounts
Office equipment Debit Credit
10,75
Oct 1 0
5 1,250
Bal c/f 12,000
12,00
0 12,000
12,00
Bal b/f 0
 Posting journal entries to ledger
accounts
Accounts payable Debit Credit
Oct 5 1,250
12 750
Bal c/f 500
1,250 1,250
Bal b/f 500
 Posting journal entries to ledger
accounts
Unearned fees Debit Credit
Oct 4 3,150
Bal c/f 3,150
3,150 3,150
Bal b/f 3,150
 Posting journal entries to ledger
accounts
Kareem Ismail, Capital Debit Credit
Oct 1 35,250
35,25
Bal c/f 0
35,25
0 35,250
Bal b/f 35,250
 Posting journal entries to ledger
accounts
Kareem Ismail, Drawing Debit Credit
Oct 31 7,500
Bal c/f 7,500
7,500 7,500
Bal b/f 7,500
 Posting journal entries to ledger
accounts
Fees earned Debit Credit
Oct 12 5,750
17 9,250
20 4,100
24 4,850
31 3,975
31 2,500
30,42
Bal c/f 5
30,42
5 30,425
Bal b/f 30,425
 Posting journal entries to ledger
accounts
Salary expense Debit Credit
Oct 14 900
27 900
Bal c/f 1,800
1,800 1,800
Bal b/f 1,800
 Posting journal entries to ledger
accounts
Miscellaneous expense Debit Credit
Oct 10 325
29 250
31 300
Bal c/f 875
875 875
Bal b/f 875
Instructions
• Prepare an unadjusted trial
balance.
 Unadjusted Trial
Accounts balance
Debit Credit
Cash 25,650
Accounts receivable 11,900
Supplies 2,100
Prepaid rent 4,800
Prepaid insurance 2,700
Office equipment 12,000
Accumulated depreciation – office
equipment 0
Accounts payable 500
Salary payable 0
Unearned fees 3,150
Kareem Ismail, capital 35,250
Kareem Ismail, drawing 7,500
 Unadjusted
Accounts Trial balance
Debit Credit
Fees earned 30,425
Salary expense 1,800
Rent expense 0
Supplies expense 0
Depreciation expense 0
Insurance expense 0
Miscellaneous expense 875
69,325 69,325
Adjustments
At the end of October, the following adjustment
data were assembled:

1.Insurance expired during October is $225.

2.Supplies on hand on Oct 31 are $875.
3.Depreciation of office equipment for October is
$400.
4.Accrued receptionist salary on Oct 31 is $200.
5.Rent expired during October is $1,600.
6.Unearned fees on Oct 31 are $1,150.
Journalise the adjusting entries &
post them to the relevant ledger
accounts.

1.Insurance expired during

October is $225.

Journal entry:
Cr Prepaid insurance $225
Dr Insurance Expense $225
Posting adjusting entries to ledger
accounts
Prepaid insurance Debit Credit
Oct 2 2,700
31 Adjusting 225
Posting adjusting entries to ledger
accounts
Insurance expense Debit Credit
31 Adjusting 225
2. Supplies on hand on Oct 31 are $875.

Supplies per unadjusted TB: $2,100

Actual balance at year end: $875
Therefore, the balance needs to be adjusted
by: $2,100 - $875 = $1,225.

Journal entry:
Cr Supplies $1,225
Dr Supplies Expense $1,225
Posting adjusting entries to ledger
accounts
Supplies Debit Credit
Oct 1 1,500
18 600
31 Adjusting 1,225
Posting adjusting entries to ledger
accounts
Supplies expense Debit Credit
31 Adjusting 1,225
3. Depreciation of office equipment for
October is $400.

Journal entry:
Cr Accumulated depreciation $400
Dr Depreciation Expense $400
Posting adjusting entries to ledger
accounts
Accumulated depreciation Debit Credit
31 Adjusting 400
Posting adjusting entries to ledger
accounts
Depreciation expense Debit Credit
31 Adjusting 400
4.Accrued receptionist salary on
Oct 31 is $200.

Journal entry:
Cr Salaries payable $200
Dr Salary expense $200
Posting adjusting entries to ledger
accounts
Salaries payable Debit Credit
Oct 31 Adjusting 200
Posting adjusting entries to ledger
accounts
Salary expense Debit Credit
Oct 14 900
27 900
31 Adjusting 200
5. Rent expired during October is
$1,600.

Journal entry:
Cr Prepaid rent $1,600
Dr Rent Expense $1,600
Posting adjusting entries to ledger
accounts
Prepaid rent Debit Credit
Oct 1 4,800
31 Adjusting 1,600
Posting adjusting entries to ledger
accounts
Rent expense Debit Credit
31 Adjusting 1,600
6. Unearned fees on Oct 31 are $1,150.

Unearned service revenue per unadjusted

TB: $3,150
Actual balance at year end: $1,150
Therefore, the balance needs to be adjusted
by: $3,150 - $1,150 = $2,000.

Journal entry:
Dr Unearned fees $2,000
Cr Fees earned $2,000
Posting adjusting entries to ledger
accounts
Unearned fees Debit Credit
Oct 4 3,150
31 Adjusting 2,000
Posting adjusting entries to ledger
accounts
Fees earned Debit Credit
Oct 12 5,750
17 9,250
20 4,100
24 4,850
31 3,975
31 2,500
31 Adjusting 2,000
Instructions
• Prepare an adjusted trial
balance, using an end-of-
period worksheet.
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6
Cash 50
11,9
Accounts receivable 00
2,10
Supplies 0
4,80
Prepaid rent 0
2,70
Prepaid insurance 0 225
12,0
Office equipment 00
Accumulated depreciation – office equipment 0
Accounts payable 500
Salary payable 0
3,15
Unearned fees 0
35,2
Kareem Ismail, capital 50
7,50
Kareem Ismail, drawing 0
30,4
Fees earned 25
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6
Cash 50
11,9
Accounts receivable 00
2,10 1,22
Supplies 0 5
4,80
Prepaid rent 0
2,70
Prepaid insurance 0 225
12,0
Office equipment 00
Accumulated depreciation – office equipment 0
Accounts payable 500
Salary payable 0
3,15
Unearned fees 0
35,2
Kareem Ismail, capital 50
7,50
Kareem Ismail, drawing 0
30,4
Fees earned 25
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6
Cash 50
11,9
Accounts receivable 00
2,10
Supplies 0 1,225
4,80
Prepaid rent 0
2,70
Prepaid insurance 0 225
12,0
Office equipment 00
Accumulated depreciation – office equipment 0 400
Accounts payable 500
Salary payable 0
3,15
Unearned fees 0
35,2
Kareem Ismail, capital 50
7,50
Kareem Ismail, drawing 0
30,4
Fees earned 25
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6
Cash 50
11,9
Accounts receivable 00
2,10
Supplies 0 1,225
4,80
Prepaid rent 0
2,70
Prepaid insurance 0 225
12,0
Office equipment 00
Accumulated depreciation – office equipment 0 400
Accounts payable 500
Salary payable 0 200
3,15
Unearned fees 0
35,2
Kareem Ismail, capital 50
7,50
Kareem Ismail, drawing 0
30,4
Fees earned 25
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6
Cash 50
11,9
Accounts receivable 00
2,10
Supplies 0 1,225
4,80 1,60
Prepaid rent 0 0
2,70
Prepaid insurance 0 225
12,0
Office equipment 00
Accumulated depreciation – office equipment 0 400
Accounts payable 500
Salary payable 0 200
3,15
Unearned fees 0
35,2
Kareem Ismail, capital 50
7,50
Kareem Ismail, drawing 0
30,4
Fees earned 25
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6
Cash 50
11,9
Accounts receivable 00
2,10
Supplies 0 1,225
4,80
Prepaid rent 0 1,600
2,70
Prepaid insurance 0 225
12,0
Office equipment 00
Accumulated depreciation – office equipment 0 400
Accounts payable 500
Salary payable 0 200
3,15 2,00
Unearned fees 0 0
35,2
Kareem Ismail, capital 50
7,50
Kareem Ismail, drawing 0
30,4 2,00
Fees earned 25 0
Accounts Trial balance Adjustments Adj’d TB
Debit Credit Debit Credit Debit Credit
25,6 25,65
Cash 50 0
11,9 11,90
Accounts receivable 00 0
2,10
Supplies 0 1,225 875
4,80
Prepaid rent 0 1,600 3,200
2,70
Prepaid insurance 0 225 2,475
12,0 12,00
Office equipment 00 0
Accumulated depreciation – office equipment 0 400 400
Accounts payable 500 500
Salary payable 0 200 200
3,15 2,00
Unearned fees 0 0 1,150
35,2 35,25
Kareem Ismail, capital 50 0
7,50
Kareem Ismail, drawing 0 7,500
30,4 2,00 32,42
Fees earned 25 0 5
Instructions
• Prepare an income statement,
a statement of owner’s equity
and a balance sheet.
 Income Statement
For the month ended 31 October
2010
Fees
earned ........................................................................
$ 32,425
Expenses:
Salary expense ............................................... $2,000
Rent expense .................................................. 1,600
Supplies expense ............................................. 1,225
Depreciation expense ..................................... 400
Insurance expense ............................................. 225
Miscellaneous expense ..................................... 875
Total expenses ...................................................
6,325
Net
income ........................................................................
.. $ 26,100
 Statement of Owner’s Equity
For the month ended 31 Oct 2010
Kareem Ismail, capital, October 1,
2010 ........................... $ 0
Additional investments during the
month ....................... 35,250
Total ...........................................................................
....... $ 35,250
Net income for the month ..............................$ 26,100
Less withdrawals ................................................
(7,500)
Increase in owner’s
equity ................................................ 18,600
Kareem Ismail, capital, October 31, 2010 .....................
$ 53,850
 Balance Sheet
31 Oct 2010
Assets Liabilities
Current assets: Current liabilities:
Cash 25,650 Accounts payable 500
Accounts receivable 11,900 Salaries payable 200
Supplies 875 Unearned fees 1,150
Prepaid rent 3,200 Total liabilities 1,850
Prepaid insurance 2,475
Total current assets 44,100
Property, plant & Owner’s equity
equipment:
Office equipment 12,000 Kareem Ismail, capital 53,850
Less: Acc. Depreciation (400)
11,600
Total assets 55,700 Total liabilities & 55,700
Instructions
• Prepare & post the closing entries.
 Closing entries

Credi
Oct Debit t
32,42
1. 31 Fees earned 5
32,42
Income summary 5
2. 31 Income summary 6,325
Salary expense 2,000
Rent expense 1,600
Supplies expense 1,225
Depreciation expense 400
Insurance expense 225
Miscellaneous
 Closing entries

Oc Credi
t Debit t
26,10
3. 31 Income summary 0
26,10
Kareem Ismail, capital 0
4. 31 Kareem Ismail, capital 7,500
Kareem Ismail,
drawing 7,500
 Posting closing entries to ledger
accounts
Kareem Ismail, Capital Debit Credit
Oct 1 35,250
Oct 31 Closing (Ref 3) 26,100
Oct 31 Closing (Ref 4) 7,500
Balance c/f 53,850
 Posting journal entries to ledger
accounts
Kareem Ismail, Drawing Debit Credit
Oct 31 7,500
Closing (Ref 4) 7,500
Balance c/f 0
Posting closing entries to ledger
accounts
Income Summary Debit Credit
Oct 31 Closing (Ref 1) 32,425
Closing (Ref 2) 6,325
Closing (Ref 3) 26,100
Balance c/f 0
Posting closing entries to ledger
accounts
Fees earned Debit Credit
Oct 31 Adjusted balance 32,425
Closing (Ref 1) 32,425
Balance c/f 0

Salary expense
Oct 31 Adjusted balance 2,000
Closing (Ref 2) 2,000
Balance c/f 0

Rent expense
Oct 31 Adjusted balance 1,600
Closing (Ref 2) 1,600
Balance c/f 0
Posting closing entries to ledger
accounts Debit Credit
Supplies expense
Oct 31 Adjusted balance 855
Closing (Ref 2) 855
Balance c/f 0

Depreciation expense
Oct 31 Adjusted balance 400
Closing (Ref 2) 400
Balance c/f 0
Posting closing entries to ledger
accounts Debit Credit
Insurance expense
Oct 31 Adjusted balance 225
Closing (Ref 2) 225
Balance c/f 0

Miscellaneous expense
Oct 31 Adjusted balance 875
Closing (Ref 2) 875
Balance c/f 0
Instructions
• Prepare a post-closing trial
balance.
Accounts Post closing TB
Debit Credit
25,65
Cash 0
11,90
Accounts receivable 0
Supplies 875
Prepaid rent 3,200
Prepaid insurance 2,475
12,00
Office equipment 0
Accumulated depreciation – office equipment 400
Accounts payable 500
Salary payable 200
Unearned fees 1,150