Book 1 - Chapter 22

21-3, continued

b. Montgomery Enterprises receives a $200 electric bill. The bill is not paid immediately.

Analysis:
The expense Utility Expense increases by $200. The liability Accounts Payable increases by $200.

Apply the rule:
Expenses are increased with debits: debit Utility Expense $200.
Liabilities are increased with credits: credit Accounts Payable $200.

Record in T account:

Utility Expense
200

Accounts Payable
	200

c. Prince Georges Company finishes consulting services for a client and sends the client a bill
for $5,000.

Analysis:
The asset Accounts Receivable increases by $5,000. The revenue Fees Earned (or similar name, such as Service Revenue, etc.) increases by $5,000.

Apply the rule:
Assets are increased with debits: debit Accounts Receivable $5,000.
Revenues are increased with credits: credit Fees Earned $5,000.

Record in T account:

Accounts Receivable
5,000

Fees Earned
	5,000

d. Cecil Company prepays six months of fire insurance for $2,500.

Analysis:
The asset Prepaid Insurance increases by $2,500. The asset Cash decreases by $2,500.

Apply the rule:
Assets are increased with debits: debit Prepaid Insurance $2,500.
Assets are decreased with credits: credit Cash $2,500.

Record in T account:

Prepaid Insurance
2,500

Cash
	2,500

Learning Goal 22, continued

SOLUTIONS

Section V · Using a Basic Accounting System

Home

Home || Book Publications || Professor’s Office || Student Info & Resources || Useful Links

Worthy & James Publishing is a provider of basic accounting books covering fundamental accounting principles, business accounting, and business math. Topics in financial accounting and business accounting covered include the balance sheet, the income statement, financial ratios, and bank reconciliation.