Financial Act Demonstration Problem #2

1 2 3 transaction paying down a liability that was

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Unformatted text preview: 3. Transaction: Paying down a liability that was incurred in January. This is NOT an expense for February. The liability is decreasing and cash is also decreasing. Rules: To decrease a liability account, you must debit it. To decrease an asset account you credit it. Journal entry: Debit to Accounts Payable and Credit to Cash Feb 1 Accounts Payable Cash 4. Dr. 750 Cr. 750 Post to the general ledger: Cash BB 7,800 2/1 750 2/1 2,500 Accounts Payable 2/1 750 750 BB Jennifer Cainas ACG 2021 February 3: Customer meets with J. Cainas to discuss estate tax issues, and pays Cainas Company $300 in advance for preparing estate tax return. Estate tax return should be completed by 2/10 and will be mailed to the client. 5. 6. 7. Transaction: Client paid for service in advance, so amount received from the customer is a debt that is owed until the revenue has been earned (by preparing the tax return). Assets are going up with receipt of cash, but Cainas Company must record a liability for the amount owed to the client. Rules: Increases t...
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