ABC Company had the following transactions during the month of July. Journalize these transactions in a general journal. On July 1, the company received $10,000 cash from a customer as an advance for services to be provided. On July 5, the company purchased equipment for $5,000 in cash. On July 10, the company paid $2,000 for office rent. On July 15, the company provided services to a customer and received $3,000 in cash. On July 20, the company billed a customer $6,000 for services provided on credit. On July 25, the company paid $1,500 for office supplies. On July 30, the company received a bill for insurance amounting to $800, which will be paid next month. Provide the journal entries for each of these transactions.
The Correct Answer and Explanation is:
Journal Entries
| Date | Account Titles and Explanation | Debit | Credit |
|---|---|---|---|
| July 1 | Cash | 10,000 | |
| Unearned Revenue | 10,000 | ||
| (Received cash in advance for services to be provided) | |||
| July 5 | Equipment | 5,000 | |
| Cash | 5,000 | ||
| (Purchased equipment for cash) | |||
| July 10 | Rent Expense | 2,000 | |
| Cash | 2,000 | ||
| (Paid office rent) | |||
| July 15 | Cash | 3,000 | |
| Service Revenue | 3,000 | ||
| (Provided services for cash) | |||
| July 20 | Accounts Receivable | 6,000 | |
| Service Revenue | 6,000 | ||
| (Provided services on credit) | |||
| July 25 | Office Supplies | 1,500 | |
| Cash | 1,500 | ||
| (Paid for office supplies) | |||
| July 30 | Insurance Expense | 800 | |
| Accounts Payable | 800 | ||
| (Received insurance bill to be paid next month) |
Explanation
The journal entries above reflect the financial transactions of ABC Company for July using the accrual basis of accounting, which records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.
On July 1, the company received $10,000 in cash for future services. Since the service hasn’t been performed yet, it is considered unearned revenue, a liability.
On July 5, the purchase of equipment is a capital expenditure, which increases the asset Equipment and reduces Cash.
On July 10, the payment for rent is an operating expense. It is recorded as a Rent Expense, decreasing Cash.
On July 15, services were rendered and paid for immediately. This increases Cash and recognizes Service Revenue, reflecting earned income.
On July 20, services were provided on credit. This increases Accounts Receivable (an asset) and Service Revenue, even though the cash has not been received yet.
On July 25, the purchase of office supplies is recorded as an asset (Office Supplies), which will later be expensed as used. Cash is reduced accordingly.
On July 30, the company received a bill for insurance, creating an obligation to pay later. It is recorded as an Insurance Expense and an increase in Accounts Payable, reflecting the accrual of the liability.
These entries ensure the company’s financial records reflect economic activity accurately, supporting financial reporting and analysis.
