On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances:

Accounts Debit Credit
Cash $24,100
Accounts Receivable 5,500
Supplies 3,400
Land 53,000
Accounts Payable $3,500
Common Stock 68,000
Retained Earnings 14,500
Totals $86,000 $86,000

During January 2021, the following transactions occur:

January 2 Purchase rental space for one year in advance, $6,900 ($575/month).
January 9 Purchase additional supplies on account, $3,800.
January 13 Provide services to customers on account, $25,800.
January 17 Receive cash in advance from customers for services to be provided in the future, $4,000.
January 20 Pay cash for salaries, $11,800.
January 22 Receive cash on accounts receivable, $24,400.
January 29 Pay cash on accounts payable, $4,300.

Record each of the transactions listed above in the 'General Journal' tab. Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances.
a. Record the adjusting entries in the 'General Journal' tab.
b. Rent for the month of January has expired.
c. Supplies remaining at the end of January total $3,500.
d. By the end of January, $3,725 of services has been provided to customers who paid in advance on January 17.

Dynamite Fireworks

a) Journal Entries:

January 2:

Debit Rent Prepaid with $6,900

Credit Cash with $6,900

To record rent prepaid at $575/month.

January 9:

Debit Supplies Account with $3,800

Credit Accounts Payable with $3,800

To record purchase of supplies on account.

January 13:

Debit Accounts Receivable with $25,800

Credit Service Revenue with $25,800

To record services provided to customers on account.

January 17:

Debit Cash Account with $4,000

Credit Deferred Service Revenue with $4,000

To record cash received in advance from customers.

January 20:

Debit Salaries Account with $11,800

Credit Cash Account with $11,800

To record payment of salaries for the month.

January 22:

Debit Cash Account with $24,400

Credit Accounts Receivable with $24,400

To record receipt from customers on account.

January 29:

Debit Accounts Payable with $4,300

Credit Cash Account with $4,300

To record payment to suppliers on account.

b) Effect of the transactions on the account balances in the General Ledger:

1. Cash Account:

Jan. 1: Debit balance = $24,100

Jan. 2: Rent = ($6,900)

Jan. 17: Deferred Service Revenue = $4,000

Jan. 20: Salaries = ($11,800)

Jan. 22: Accounts Receivable = $24,400

Jan. 29: Accounts Payable = ($4,300)

Jan. 31: Balance = $29,500

2. Accounts Receivable

Jan. 1: Debit Balance = $5,500

Jan. 13: Service Revenue - $25,800

Jan. 22: Cash = ($24,400)

Jan. 31: Debit Balance = $6,900

3. Supplies

Jan. 1: Debit Balance = $3,400

Jan. 9: Accounts Payable = $3,800

Jan. 31: Total = $7,200

Adjustment:

Jan. 31: Cost of Service = $3,700 (3,400 + 3,800 - 3,500)

Jan. 31: Debit Balance = $3,500

4. Land

Jan. 1: Debit Balance = $53,000

5. Accounts Payable

Jan. 1: Credit Balance = $3,500

Jan. 9: Supplies = $3,800

Jan. 29: Cash = ($4,300)

Jan. 31: Credit Balance = $3,000

6. Common Stock

Jan. 1: Credit Balance = $68,000

7. Retained Earnings

Jan. 1: Credit Balance = $14,500

8. Rent Prepaid

Jan. 2: Cash = $6,900

Adjustment

Jan. 31: Rent = $575

Jan. 31: Debit Balance = $6,325 (6,900 - 575)

9. Service Revenue

Jan. 13: Accounts Receivable = $25,800

Adjustment:

Jan. 31: Deferred Revenue = $3,725

Total = $29,525

10. Deferred Service Revenue

Jan. 17: Cash = $4,000

Adjustment:

Jan. 31: Service Revenue = $3,725

Jan. 31 Balance = $275

11. Salaries

Jan. 20: Cash = $11,800

c) Effect of Transactions on the Trial Balance

Accounts Debit:

Cash $29,500

Accounts Receivable 6,900

Supplies 7,200

Land  53,000

Rent Repaid 6,900

Salaries 11,800

Total $115,300

Accounts Credit:

Accounts Payable $3,000

Common Stock 68,000

Retained Earnings 14,500

Service Revenue 25,800

Deferred Service Revenue 4,000

Total $115,300

d) Adjusting entries in the general journal:

i) Debit Rent with $575

Credit Rent Prepaid with $575

To record rent for the month.

ii) Debit Cost of Supplied used with $3,700

Credit Supplies with $3,700

To record cost of Supplies used and bring the balance to $3,500.

iii) Debit Deferred Service Revenue with $3,725

Credit Service Revenue with $3,725

To record services provided to customers.

Explanation:

1. Recording transactions in the general journal involves debiting the account that receives value and crediting the account that supplies value.

2. A review of the general ledger and the trial balance tabs showed the effects of the transactions on the account balances and the new accounts created with the new transactions.

3. Adjusting entries for:

a) Rent: This accrued the rent for the month of January.  The amount reduced the Rent Prepaid account.

b) Supplies: The cost of supplies used was determined as the difference between the sum of opening supplies and purchases less the closing supplies.  The cost of supplies reduces the Supplies account to the closing balance of $3,500.

c) Deferred Revenue was reduced by the amount of services already provided.  This is in accordance with the accrual concept and matching principles of Generally Accepted Accounting Principles.

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