Sky textile Ltd.

Transactions:
Transaction 1: Started Business with cash 50,000 in cash and 150,000
Machinery.
Journal Entry: Account Debit ($) Credit ($
----------------------------------------------------
Cash A/c 50,000
Machinery A/c 150,000
Capital A/c 200,000
Explainatioin: 1. Cash A/c is a real A/c, Machinery Account is a real A/c and Capital
account is a real A/c.
2. Cash A/c is debited because it Increases assets (Cash) due to the business
receiving cash.
3. Machinery A/c is debited because it Increases assets (Machinery) due to the
acquisition.
4. Capital A/c is Credited because it Represents the owner's investment, increases
equity.

Transaction 2: Purchased raw materials on credit from a supplier, 20,000.

Journal Entry: Account Debit ($) Credit ($)
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Raw Materials 20,000
Accounts Payable (Supplier) 20,000

Explaination: Raw Materials (Asset):

Type: Real
Debit: Increase in assets (Raw Materials) due to the purchase.
Accounts Payable (Liability):
Type: Personal
 Credit: Represents the obligation to pay, increases liability.

Transaction 3: Used 15,000 in cash to pay off a portion of the accounts payable.
Journal entry: Account Debit ($) Credit ($)
-----------------------------------------------------------------
Accounts Payable (Supplier) 15,000
Cash 15,000

Explaination: Accounts Payable (Liability):

Type: Personal
Debit: Represents the decrease in the liability.
Cash (Asset):
Type: Real
Credit: Represents the decrease in assets (Cash).

Transaction 4: Produced 5,000 units of finished goods. Direct labor cost incurred
was $10,000, and manufacturing overhead was $5,000 (paid in cash).
Journal Entry:
Explaination: Work-in-Progress Inventory (Asset):
Type: Real
Debit: Represents the increase in work-in-progress inventory.
Salaries and Wages Expense (Expense):
Type: Nominal
Debit: Represents the increase in expenses.
Cash (Asset):
Type: Real
Credit: Represents the decrease in assets (Cash).

Transaction 5: Sold 2,000 units of finished goods for $30,000 in cash.

Journal entry:
Journal entry: Date Account Debit ($) Credit ($)
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[Today] Cash 30,000
Sales Revenue 30,000

Explaination: Cash (Real, Asset):

Debit: cash comes into business. i.e debit what comes in.
Sales Revenue (Nominal, Revenue):
Credit: Represents the increase in revenue.
Transaction 6: Recognized the cost of goods sold for the units sold in transaction 5.

Journal Entry:

Date Account Debit ($) Credit ($)

-----------------------------------------------------------------
[Today] Cost of Goods Sold 15,000
Work-in-Progress Inventory 15,000
Explanation:

Cost of Goods Sold (Nominal, Expense):

Debit: Represents the increase in expenses.
Credit: Represents the decrease in work-in-progress inventory as costs are
transferred.

Transaction 7: Received a utility bill for $2,000 (to be paid later).

Date Account Debit ($) Credit ($)
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[Today] Utilities Expense 2,000
 Accounts Payable (Utility) 2,000
Explanation:
Utilities Expense (Nominal, Expense):
Debit: Represents the increase in expenses.
Credit: Represents the obligation to pay the utility bill later, increases
liability.
Accounts Payable (Personal, Liability):
Debit: Not applicable (Increases when liability decreases).
Credit: Represents the obligation to pay later, increases liability.

Transaction 8: Paid $8,000 in salaries and wages for the month.

Date Account Debit ($) Credit ($)
-[Today] Salaries and Wages Expense 8,000
Cash 8,000

Explanation:
Salaries and Wages Expense (Nominal, Expense):
Debit: Represents the increase in expenses.
Credit: Represents the decrease in assets (Cash) as payment is made.

Transaction 9: Borrowed $50,000 from a bank.

Date Account Debit ($) Credit ($)
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[Today] Cash 50,000
Notes Payable 50,000
Explanation:
Cash (Real, Asset):
Debit: Represents the increase in assets (Cash) from the loan.
Credit: Not applicable (No decrease in assets).
Notes Payable (Personal, Liability):
Debit: Not applicable (Increases when liability decreases).
Credit: Represents the increase in the liability, indicating the amount
borrowed.
Transaction 10: Purchased additional machinery for $35,000 in cash.
Date Account Debit ($) Credit ($)
----------------------------------------------------------------
[Today] Machinery 35,000
Cash 35,000

Explanation:
Machinery (Real, Asset):
Debit: Represents the increase in assets (Machinery) from the purchase.
Credit: Represents the decrease in assets (Cash) as payment is made.

Transaction 11: Repaid $15,000 of the bank loan.

Date Account Debit ($) Credit ($)
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[Today] Notes Payable 15,000
Cash 15,000

Explanation:
Notes Payable (Personal, Liability):
Debit: Represents the decrease in the liability as a portion of the loan is
repaid.
Credit: Represents the decrease in assets (Cash) as payment is made.
Transaction 12: Declared and paid a cash dividend of $7,000.
Date Account Debit ($) Credit ($)
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[Today] Dividends 7,000
Cash 7,000

Explanation:
 Dividends (Nominal, Owner's Equity):
Debit: Represents the increase in expenses (distribution of profits to
owners).
Credit: Represents the decrease in assets (Cash) as dividends are paid.
Transaction 13: Received a customer prepayment of $10,000 for an order to be
delivered next month.
Date Account Debit ($) Credit ($)
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[Today] Cash 10,000
Unearned Revenue 10,000

Explanation:
Cash (Real, Asset):
Debit: Represents the increase in assets (Cash) as payment is received.
Credit: Not applicable (No decrease in assets).
Unearned Revenue (Liability):
Debit: Not applicable (No decrease in liabilities).
Credit: Represents the obligation to deliver goods or services in the future,
increases liability.

Transaction 14: Purchased office supplies on credit for $3,000.

Date Account Debit ($) Credit ($)
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[Today] Office Supplies 3,000
Accounts Payable (Supplier) 3,000
Explanation:
Office Supplies (Real, Asset):
Debit: Represents the increase in assets (Office Supplies) due to the
purchase.
Credit: Not applicable (No decrease in assets).
Accounts Payable (Personal, Liability):
Debit: Not applicable (Increases when liability decreases).
 Credit: Represents the obligation to pay later, increases liability.

Transaction 15: Used $2,500 worth of office supplies.

Date Account Debit ($) Credit ($)
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[Today] Office Supplies Expense 2,500
Office Supplies 2,500

Explanation:
Office Supplies Expense (Nominal, Expense):
Debit: Represents the increase in expenses as supplies are used.
Credit: Represents the decrease in assets (Office Supplies) as they are
consumed.

Transaction 16: Accrued $4,000 in interest on the bank loan.

Date Account Debit ($) Credit ($)
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[Today] Interest Expense 4,000
Interest Payable 4,000
Explanation:
Interest Expense (Nominal, Expense):
Debit: Represents the increase in expenses as interest accrues.
Credit: Not applicable (No decrease in expenses).
Interest Payable (Liability):
Debit: Not applicable (No decrease in liabilities).
Credit: Represents the obligation to pay interest in the future, increases
liability.

Transaction 17: Sold another 3,000 units of finished goods on credit for $50,000.
Date Account Debit ($) Credit ($)
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[Today] Accounts Receivable 50,000
Sales Revenue 50,000
Explanation:
Accounts Receivable (Personal, Asset):
Debit: Represents the increase in assets (Accounts Receivable) due to credit
sale.
Credit: Not applicable (No decrease in assets).
Sales Revenue (Nominal, Revenue):
Debit: Not applicable (Increases revenue).
Credit: Represents the increase in revenue.

Transaction 18: Received payment for the credit sale in transaction 17.
Date Account Debit ($) Credit ($)
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[Today] Cash 50,000
Accounts Receivable 50,000

Explanation:
Cash (Real, Asset):
Debit: Represents the increase in assets (Cash) as payment is received.
Credit: Not applicable (No decrease in assets).
Accounts Receivable (Personal, Asset):
Debit: Not applicable (Decreases when payment is received).
Credit: Represents the decrease in assets (Accounts Receivable).

Transaction 19: Adjusted the unearned revenue account for the amount earned.
Date Account Debit ($) Credit ($)
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[Today] Unearned Revenue 10,000
Sales Revenue 10,000
Explanation:
Unearned Revenue (Liability):
Debit: Represents the decrease in the liability as revenue is recognized.
Credit: Not applicable (No decrease in liabilities).
Sales Revenue (Nominal, Revenue):
Debit: Not applicable (Increases revenue).
Credit: Represents the increase in revenue.

Transaction 20: Purchased office furniture on credit for $8,000.

Date Account Debit ($) Credit ($)
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[Today] Office Furniture 8,000
Accounts Payable (Furniture Supplier) 8,000
Explanation:
Office Furniture (Real, Asset):
Debit: Represents the increase in assets (Office Furniture) due to the
purchase.
Credit: Not applicable (No decrease in assets).
Accounts Payable (Personal, Liability):
Debit: Not applicable (Increases when liability decreases).
Credit: Represents the obligation to pay for the office furniture later,
increases liability.