Chapter 1- Chapter 4
Account Cycle Illustrative Problem
For the past several years, Kareem Ismail has operated a part-time consulting
business from his home. As of October 1, 2010, Kareem decided to move to rented
quarters and to operate the business, which was to be known as Iron Mountain
Consulting, on a full-time basis. Iron Mountain Consulting entered into the following
transactions during October:
1. The following assets were received from Kareem Ismail: Cash, $18,000;
Account Receivable, $ 5,000; Supplies, $1,500; and Office Equipment,
1. Paid three months’ rent on a lease rental contract, $4,800.
2. Paid the premiums on property and casualty insurance policies, $2,700.
4. Received cash from clients as an advance payment for services to be provided
and recorded it as unearned fees, $3,150.
5. Purchased additional office equipment on account from Office Station Co.,
6. Received cash from clients on account, $2,000.
10. Paid cash for a newspaper advertisement, $325.
12. Paid Office Station Co. for part of the debt incurred on Oct 5, $750.
12. Recorded services provided on account for the period Oct 1-12, $5,750.
14. Paid part-time receptionist for two weeks’ salary, $900.
17. Recorded cash from cash clients for fees earned during the period Oct 1-17,
18. Paid cash for supplies, $600.
20. Recorded services provided on account for the period Oct 13-20, $4,100.
24. Recorded cash from cash clients for fees earned for the period Oct 17-24,
26. Received cash from cash client on account, $3,450.