Cintu is a large marketer and distributor of food service products serving restaurants, hotels,...

Question:

Cintu is a large marketer and distributor of food service products serving restaurants, hotels, schools, hospitals, and other institutions. The following transactions are typical of those that occurred in a recent year, but the amounts are simplified.

Borrowed $125,500 from a bank, signing a short-term note payable.

Provided $111,600 in service to customers, with $104,800 on account and the rest received in cash.

Purchased equipment for $145,000 in cash.

Incurred and paid employee wages of $1,300.

Received $415 on account from a customer.

Incurred and paid $4,150 cash for travel costs during the year.

Paid $9,850 cash on accounts payable.

Incurred $25,100 in utility expenses during the year, of which $19,700 was paid in cash and the rest owed on account.

For each of the above transactions, prepare accrual basis journal entries.

Calculate the company's preliminary net income.

Accrual Journal Entry And Income Statement

An Accrual Journal Entry is a journal entry which is used to record revenues and expenses incurred during a particular financial period irrespective of whether cash is received or paid. In this way, there is less manipulation of profits and income statements produced are thus useful for decision making.

Answer and Explanation:

1. Journal Entry for Bank Borrowings

Dr Cash/Bank 125500
Cr Short term notes Payable 125500

2. Journal Entry for sales made to customers on account as well as in cash

Dr Cash 6800
Dr Accounts Receivable/Debtors 104800
Cr Sales/Consulting Services provided 111600

3. Journal Entry for Purchase of Equipment with cash.

Dr Equipment 145000
Cr Cash 145000

4. Journal Entry for wages paid in cash.

Dr Wages Expense 1300
Cr Cash 1300

5. Journal Entry for money received from Debtors.

Dr Cash/Bank 415
Cr Accounts recievable 415

6.Journal Entry for travel expenses incurred during the year

Dr Travel Expenses 4150
Cr Cash 4150

7.Journal Entry for payment of Accounts payable.

Dr Accounts Payable 9850
Cr Cash 9850

8. Journal Entry for Utility Expenses paid partly in cash and rest on account.

Dr Utility Expenses 25100
Cr Cash 19700
Cr Accounts Payable 5400

Preliminary Income Statement

Consulting Revenue/Sales 111600
Less: Wages Paid 1300
Less: Travel Expense 4150
Less:Utility Expense 25100 30550
Net Income 81050


Learn more about this topic:

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How to Make an Income Statement: Example & Analysis

from Accounting 201: Intermediate Accounting I

Chapter 5 / Lesson 6
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