Entries Into T Accounts And Trial Balance

Entries Into T Accounts And Trial Balance Leila Durkin An Archite

Record the provided transactions directly into T accounts without journalizing, determine account balances, prepare an unadjusted trial balance as of May 31, 2012, and compute the net income or net loss for May.

Paper For Above instruction

In this analysis, we aim to demonstrate the systematic recording of business transactions into T accounts, followed by the preparation of an unadjusted trial balance and the calculation of net income or loss for the month of May 2012 for Leila Durkin, an architect. This process is fundamental in accounting for establishing financial clarity and ensuring accurate reporting of a company's financial position.

Introduction

Accounting is essential for any business to monitor its financial health, make informed decisions, and comply with regulatory requirements. The core process involves recording transactions, posting to T accounts, preparing trial balances, and ultimately determining net income or loss. For Leila Durkin’s architectural practice, accurately capturing her financial activities in May is critical to establishing a clear financial picture at month-end.

Recording Transactions into T Accounts

The first step involves directly entering each transaction into relevant T accounts, which visually represent increases and decreases in each account. Each account has a debit (left) and credit (right) side, and transactions are recorded based on the nature of each activity. For example, cash received or paid is recorded in the Cash account, while services performed on credit are entered into Accounts Receivable, and expenses are recorded in their respective expense accounts.

Below is an illustration of how transactions are allocated to specific T accounts:

  • Transaction a: Transferred cash from personal to business account. Enhanced Cash (Debit), Capital (Credit).
  • Transaction b: Paid rent. Rent Expense (Debit), Cash (Credit).
  • Transaction c: Purchased automobile. Automobile (Debit), Cash (Credit), Notes Payable (Credit).
  • Transaction d: Purchased equipment on account. Equipment (Debit), Accounts Payable (Credit).
  • Transaction e: Paid supplies. Supplies (Debit), Cash (Credit).
  • Transaction f: Paid insurance. Prepaid Insurance (Debit), Cash (Credit).
  • Transaction g: Received cash from client. Cash (Debit), Professional Fees (Credit).
  • Transaction h: Paid miscellaneous expenses. Miscellaneous Expense (Debit), Cash (Credit).
  • Transaction i: Paid creditors. Accounts Payable (Debit), Cash (Credit).
  • Transaction j: Paid installment on note. Notes Payable (Debit), Cash (Credit).
  • Transaction k: Incurred blueprint expense. Blueprint Expense (Debit), Accounts Payable (Credit).
  • Transaction l: Earned fees to be received. Accounts Receivable (Debit), Professional Fees (Credit).
  • Transaction m: Paid salary. Salary Expense (Debit), Cash (Credit).
  • Transaction n: Paid automobile expenses. Automobile Expense (Debit), Cash (Credit).

Once the entries are made in each relevant T account, compute the actual balances by totaling the debits and credits, then subtracting the smaller side from the larger, to determine the account balances, especially for asset, liability, and equity accounts.

Preparing the Unadjusted Trial Balance

The trial balance involves listing all accounts with their respective debit or credit balances. The total debits should equal total credits, confirming that entries are balanced. This trial balance provides a snapshot of the company's financial position at month-end before adjustments, if any, are made.

Calculating Net Income or Loss

To determine the net income or loss, sum all revenue and expense accounts from the trial balance. Revenue accounts include Professional Fees, while expenses include Rent Expense, Salary Expense, Supplies, Utilities, Blueprint Expenses, Miscellaneous Expenses, and Automobile Expenses. The difference between total revenues and total expenses indicates net income (if revenues exceed expenses) or net loss (if expenses exceed revenues).

Conclusion

This exercise reinforces the vital process of recording transactions in the accounting cycle, emphasizing accuracy in T account postings, careful balancing, and the importance of a trial balance in financial analysis. Proper application of these principles allows Leila Durkin’s architecture practice to maintain clear, accurate financial records, essential for informed decision-making and reporting.

References

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  • AICPA. (2022). Guide to Financial Statements and Disclosure. American Institute of CPAs.

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