[Dooody]

WANDA LANDOESKA COMPANY
TRIAL BALANCE
APRIL 30, 2007

Cash (Dr) 4,800
Accounts Receivable (Dr) 2,570
Prepaid Insurance (Dr)700
Equipment (Cr) 8,000
Accounts Payable (Cr) 4,500
Property Tax Payable (Dr)560
Wanda , Capital (Cr) 11,200
Service Revenue (Dr) 6,960
Salaries Expense (Dr)4,200
Advertising Expense (Dr)1,100
Property Tax Expense (Cr) 800
Total (Dr)20,890 (Cr)24,500


The trial balance of Wenda Landowska Company does not balance. Your review of the ledger reveals the following:
1-Each account had a normal balance.
2-The debit footings in Prepaid Insurance, Accounts Payable, and Property Tax Expense were each understated $100.
3-A transpositions error was made in Accounts Receivable and Service Revenue; the correct balances for Accounts Receivable and Service Revenue are $2,750 and $6,690, respectively.
4-A debit posting to Advertising Expense of $300 was omitted.
5-A $1,500 cash drawing by the owner was debited to Wanda Landowska, Capital, and credited to Cash.
-Prepare a correct trial balance.
I didn't understand how to prepare a correct trial balance for this question. please help me

[pready]

You should use Excel if you have access to it. For a Trial Balance your Debits should equal your Credits.

You list all of your accounts with their balances in one of two columns; one for Debits and one for Credits. Then you add your debits and add your credits. They should Equal. If not there is an error somewhere.

1. Normal Account balances are: Assets & Expense Accounts - Normal Debit Balance; Revenues, Liabilities & Owner's Equity Accounts - Normal Credit Balance.
2. You need to add $100 toPrePaid Insurance and Property Tax Expense, and Deduct $100 from Accounts Payable.
3. Correct the error for these two accounts
4. Add $300 to this Account
5. Post this transaction.

When you do your trial balance your Debits and Credits should = 21,350

[Cynthia514]

I just wonder what happened to the drawing and Capital? Howcan you get 21,350. I got 24,350.

[pready]

I misread transaction #5
No 5 transaction should have been posted as:
Debit to the Owners Drawing Account and Credit to Cash

To correct this error you should Add to the Drawing Account 1,500 and add to the Capital Account 1,500.

See attached Excel file.

[Cynthia514]

I've got the answer for this one but I don't know why they debited Capital. ACtually, Drawings is considered as Dividends account, this must bring your capital down. Why you add it back to Capital?

[codyman144]

Because he is wrong, in his answer, and for doing your homework for you. Because he already gave you an answer I don't feel bad showing you the one place he went wrong.

[Cynthia514]

You reduce cash. But what I've learned was that we don't touch cash when we do the adjusting entries. For every businiess, the owner just draws money for personal purposes and simply credit cash and debit capital. This idea seems not really persuable. However, it made more sense with your answer than with the increase in drawings account and another increase in Capital.
I got the answer from the publisher because I took this course but still don't know why they did it (increased both drawings and capital by 1,500).
Still waiting for some more solutions.
By the way, thanks a lot!

[Cynthia514]

Please, have a look at this.

5-A $1,500 cash drawing by the owner was debited to Wanda Landowska, Capital, and
credited to Cash.
This transaction has been made before we hade the unbalanced trial balance, why should we credit cash and debit capital once again.
I think we just leave it because they did not do anything wrong to this one. Unless, they had a typo mistake in the question. For example: a debit to cash instead of a credit to cash.

[codyman144]

You reduce cash. But what I've learned was that we don't touch cash when we do the adjusting entries. For every businiess, the owner just draws money for personal purposes and simply credit cash and debit capital. This idea seems not really persuable. however, it made more sense with your answer than with the increase in drawings account and another increase in Capital.
I got the answer from the publisher because I took this course but still don't know why they did it (increased both drawings and capital by 1,500).
Still waiting for some more solutions.
btw, thanks a lot!

Okay I misread the question, text book questions are made to trip you up :rolleyes: I thought you were supposed to make the adjusting J/E's.

Anyway, you should debt the drawing account and credit the capital account. When they recorded the transaction the debited capital and credited cash. But they should have put the debt side of the entry to the drawing account - as it was a draw not a permanent reduction in the capital invested in the business.

[Cynthia514]

Sorry, I still don't get your point.
Long story short, can you explain to me why I should debit drawings while credit capital?

[codyman144]

Sorry, I still don't get your point.
Long story short, can you explain to me why I should debit drawings while credit capital?

Yeah sure,

So when they did the draw entry they did this:

Db Capital 1500
Cr Cash 1500

Because it was a draw (a temporary withdrawal of cash) they should have done this:

Db Draw 1500
Cr Cash 1500

So to correct this we would do this:

Db Draw 1500
Cr Capital 1500

Does that make sense now?

[Cynthia514]

Well, it makes senses now. Thanks a lot! But I still don't understand why your Capital does not decrease while it has to, for you draw money and we consider drawings is a dividends account. Or what kind of account is Drawings, I mean, liabilities or shareholders equity?
But, thank you very much for your answer.

[codyman144]

Well, it makes senses now. thanks alot! But I still don't understand why your Capital does not decrease while it has to, for you draw money and we consider drawings is a dividends account. Or what kind of account is Drawings, I mean, liabilities or shareholders equity?
but, thank you very much for your answer.

Not sure why you are saying drawings is a dividend account. Maybe this is an analogy your teacher is trying to use to explain the draw account. Dividends are something a corporation gives to its stockholders. We are talking about partnerships so there are no dividends. Some people might call them that but they are not

You don't decrease capital because you only do that for a permanent withdrawal of funds from the partnership. The partner drawing here has every intention of paying this back so we do not deduct from the capital account. If it is found later that he cannot or will not pay back we then deduct the draw from capital.

Think of the draw account as a contra-equity account. I am not sure what level of accounting you are studying now; this might be beyond the scope of your class.

FYI, a good way thank you would be for you to leave me some positive feedback.

Thanks, JC

[pready]

Because on transaction #5 the debit was to Owner's Capital. To fix the error you need to Credit the money back to Owner's Capital and Debit Owner's Drawing Account to get both accounts to the correct amount.

[codyman144]

Because on transaction #5 the debit was to Owner's Capital. To fix the error you need to Credit the money back to Owner's Capital and Debit Owner's Drawing Account to get both accounts to the correct amount.

I already said this you are adding nothing to the conversation.

[Mcnally kazondo]

Equal totals