Ask Me Help Desk - T-account for trial balance

Joe Gaskins and Matthew Perry began operations of their furniture repair shop (New Again Furniture, Inc.)
On January 1, 2009. The annual reporting period ends December 31. The trial balance on January 1, 2009, was as follows:

Account Titles
Debit
Cash 5,000
Accounts receivable 4,000
Supplies 2,000
Small tools 6,000
Other assets 9,000
Credit
Accounts payable 7,000
Common stock (15,000 shares) 15,000
Retained earnings 4,000

Totals 26,000

There is more to this problem like transactions during the year and data for adjusting entries but I want to focus on the first step.

1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.

My question is on the T-account: I know what the debt account should state but not the credit. I've worked a T-account for a word problem (e.g, Paid cash for common stock)

Cash... $
CS... $
No problem but the trial balance states cash as debit but credit is blank, since this is an unadjusted trial balance, I assume it must be adjusted first and then I do my T-account. To do a T-account on the trial balance above make no sense to me. Am I on the right track? Thanks

Would the 5,000 cash be as equity under credit in the T-account?

Quote:

Originally Posted by numerion

Joe Gaskins and Matthew Perry began operations of their furniture repair shop (New Again Furniture, Inc.)
on January 1, 2009. The annual reporting period ends December 31. The trial balance on January 1, 2009, was as follows:

Account Titles
Debit
Cash 5,000
Accounts receivable 4,000
Supplies 2,000
Small tools 6,000
Other assets 9,000
Credit
Accounts payable 7,000
Common stock (15,000 shares) 15,000
Retained earnings 4,000

Totals 26,000

There is more to this problem like transactions during the year and data for adjusting entries but I want to focus on the first step.

1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.

My question is on the T-account: I know what the debt account should state but not the credit. I've worked a T-account for a word problem (e.g,. paid cash for common stock)

cash..........$
CS........$
No problem but the trial balance states cash as debit but credit is blank, since this is an unadjusted trial balance, I assume it must be adjusted first and then I do my T-account. To do a T-account on the trial balance above make no sense to me. Am I on the right track? Thanks

Can someone check the debit and credit below please. Thanks

Transactions during 2009 follows:
(a) Borrowed $20,000 cash on July 1, 2009, signing a one-year 10 percent note payable.
(b) Purchased equipment for $18,000 cash on July 1, 2009.
( c) Sold 5,000 additional shares of common stock for cash at $1 market value per share.
(d) Earned revenues for 2009, $65,000, including $9,000 on credit.
(e) Recognized remaining expenses for 2009, $35,000, including $7,000 on credit.
(f) Purchased additional small tools, $3,000 cash.
(g) Collected accounts receivable, $8,000.
(h) Paid accounts payable, $11,000.
(I) Purchased $10,000 of supplies on account.
(j) Received a $3,000 deposit on work to start January 15, 2010.
(k) Declared and paid a cash dividend, $10,000.

Debit
Cash in bank 20,000
Cash Received 3,000
Purchases 18,000
Purchases 3,000
Purchases 10,000
A/P 11,000
Dividends Paid 10,000
Expense 35,000
Credit
Common Stock 5,000
E/R 65,000
A/R 8,000

You need to straighten out the difference between transactions and balances.

The trial balance is not unadjusted. It's the ending balances from the month before carried over into the new month. Notice it's dated at the beginning of the month. So you make all the t accounts and simply enter the beginning balances, before your start working on the transactions. If you started with 5000 in cash, you need to get that balance in the account before you can post anything to that account. (That $5000 didn't just disappear before you started January's stuff.) It's only on the debit side because it's the balance. Cash has a normal debit balance.

The balance is not the same thing as doing the transactions. The transactions can add to or subtract from that balance, and therefore can end up on either side. But the balance is still going to be on the normal balance side. (i.e. cash will always balance on the debit side) So, no, the balanced carried forward from the prior month is only on the debit side.

To set up all your t accounts, just copy the balances in on the correct side. It'll only be on one side. That is your first step. Then you can deal with the transactions. You're trying to get ahead of yourself.

That makes so much sense now. I created the T-accounts but basically all the debits are on the left side and credits on the right, with titles at the top. I got that. The next step states:
Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.

I did the journal entries which are:
Dr accounts and Cr accounts, the Cr account is on the line below (with an indention) the Dr account. I would do this for all transactions. My question is for d and e, ($ on credit), I didn't know whether to create a third entry for this since it isn't cash. I know I can't create a journal entry called credit so I'm stumped as to using two entries or three? I have my transactions in a journal, but I don't know how to put them on the T-accounts. Dr and Cr must equal right, so if I post 20,000 borrowed cash to the cash account wouldn't it be 25,000 on the left side of the T-account? 20,000 + 5,000 beginning balance?

Okay, I assume the credits on d and e are account receivables and should be recorded as such on the account balance?

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My question is for d and e, ($ on credit), I didn't know whether to create a third entry for this since it isn't cash. I know I can't create a journal entry called credit so I'm stumped as to using two entries or three?

More vocabulary to straighten up, just to make sure I know what you're talking about. Any given event is a transaction and you make an "entry" for the entire transaction. i.e. paying a utility bill with cash is a transaction and you would make an entry involving both cash and utilities expense. That entry contains two "accounts" - cash and utilities expense. I'm suspecting that when you're questioning using two or three "entries" that you're meaning two or three accounts in the entry?

Since all entries have to balance, you must have at least two accounts involved so that you can have at least one each debit and credit. But you can have more than one of either or both, as long as they still balance. That's called a compound entry. So a $600 debit can balance with a $400 and a $200 credit, for a total of 3 accounts used.

D & e are both compound entries. For d you have $65,000 of revenue to record, and $9000 of that was on account, meaning the rest was received immediately in cash ($56,000). So you've got 2 debits, one for A/R and one for cash. E is similar, except it's expenses, so the amount on credit is payables and the balance was paid in cash.

Quote:

I have my transactions in a journal, but I don't know how to put them on the T-accounts. Dr and Cr must equal right,

They must equal in the journal entries. Once you have the entries done, putting them into the t accounts is just transferring all the amounts, on whatever side they're on in the journal entry. That's supposed to be the easy part cause you're just copying - the hard part of doing the entries is already done. (You may be confused from problems that had you just enter all entries directly into t accounts, but that isn't realistic, but rather a shortcut. We journalize everything first.)

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so if I post 20,000 borrowed cash to the cash account wouldn't it be 25,000 on the left side of the T-account? 20,000 + 5,000 beginning balance?

Yes, after posting just the cash from the first entry. You'll have more to post though and you do not need to balance a t account after each entry. Just enter the 20,000 debit, post the next entry involving cash, etc. Balance the account after you get done.