Journal Entries for a New Operation

This article discusses the journal entries for a new operation in the accounting cycle. It explains the ten steps involved, including identifying and analyzing transactions, preparing journal entries, posting in the ledger, and more. The content also includes examples of journal entries for a specific month.

JOURNAL ENTRIES FOR A NEW OPERATION
“GILES CLEANING and LAWN MOWING SERVICE”
Submitted To:
Dr Elvia Shauki
Course Coordinator
Submitted By:
Name: Tasnia Hasan
Student ID: 110251046
Course Name: Financial Accounting
Course ID: ACCT 5023

Accounting cycle Mind Map
Below is a graphical presentation of the accounting cycle prepared and extracted using mind
map software.
Diagram 1: Ten steps in the accounting cycle
1

Accounting cycle entails recording, processing and summarizing of financial information
from initialization of a transaction to preparation of reversing entry to close adjusting entries of
the accounting period. There are ten processes involved in the accounting cycle as outlined
below (Bragg, 2011, 7)
Identify and analyze a transaction
It involves careful examination of a sale to determine how to classify the transaction as per
the accounting tool. The accounting tool states that assets less liabilities should be equal to the
owner's equity. Therefore, the bookkeeper decides whether the transaction is a credit or a debit
(Needles and Crosson, 2014, pp 16).
Prepare Journal entries
Using the double entry or single entry, the bookkeeper details the company’s transactions
for the period under review, and the accounts affected by the transactions. Journal entries
manage transactions for easy decision-making (Juan, 2007, 37).
Posting in the ledger
Posting the journal entries in the ledger summarizes the information contained in the journal
entries by placing them in appropriate accounts depending on the nature of the transaction.
Ledger accounts help classify transactions for a better understanding of the financials (Ryan and
Collett, 2017, 98).
2

Unadjusted trial balance
It contains all the information captured in the ledger accounts. It involves the transfer of
financial information from the ledger accounts to the trial balance without passing any
adjustments.
Adjusting entries
Adjusting entries pass amendments to the revenue and expenses account to align them to
the accounting period incurred. The adjusting entries include depreciation expense, deferred
income, deferred expense, accrued expenses, and accrued revenue. According to the accrual
basis of accounting, recording of revenue and expenses is in the accounting period-incurred
(Gilbertson et al., 2014, pp5).
Adjusted trial balance
It involves incorporation of the adjusting entries to the unadjusted trial balance. It's an internal
document prepared by the bookkeeper for a clear understanding of effects the adjusting entries
have on the financial position of the company.
Financial statements
Financial statements entail summary of financial activities of the company to indicate an
accurate financial position for the business. The financial statements include profit and loss
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account, balance sheet, cash flow statements, statement of changes in equity, movement of
assets, and statement of retained earnings among others (Bragg, 2013, 41).
Closing entries
These journal entries prepared at the end of the accounting period, to transfer balances from
the temporary account to permanent accounts such as income statement and the balance sheet.
The process involves resetting of the temporary accounts at the end of the financial year. The
closing of the revenue and expenses accounts is through the income summary.
Post-closing trial balance
The post-closing trial balance account contains all permanent accounts with balances after
zeroing out of the temporary accountants by posting the closing entries. The trial balance
includes real reports after the closure of nominal accounts (Thomas et al., 2019, 42).
Reversing entries
These journal entries prepared at the beginning of an accounting period to cancel out
adjusting entries from the previous accounting period. The purpose of the reversing entries is to
ensure the accuracy of the financial records since the accruals would be settled in the current
accounting period (Warren et al., 2017, 56).
Journal entries for June 2019
Date Account name Debit Credit
June 1 Bank $360,000
4

Capital $360,000
Being own contribution to the business
Prepaid rent 23,500
cash 23,500
Being rent paid in advance
June 2 Equipment 120,960
Cash 25,500
Account payable 95,460
Being part of the payment for equipment purchase
Washing supplies 3,180
Cash 3,180
Being purchase of washing supplies
Oil and fuel supplies 5,220
Cash 5,220
Being purchase for oil and fuel supplies
June 3 Advertisement
expense
2,880
Cash 2,880
Being payment for advertisement expense
June 6 Cash 540
Unearned revenue 540
Being earned revenue from cleaning services
Cash 8,400
Lawn Mowing 8,400
5

Being cash received for lawn mowing
June 8 Cash 19,200
Prepayment A/C 19,200
Being unearned revenue
June 13 Cash 9,600
Lawn Mowing 9,600
Being cash received for lawn mowing
June 14 Wages 4,620
Cash 4,620
Being payment of wages
June 17 Account payable 95,460
Cash 95,460
Being payment for the outstanding balance on the equipment purchase
June 21 Cash 3,900
Account receivable 900
Cleaning services 4,800
Being cash received for cleaning services and accrued revenue
Cash 8,370
Lawn Mowing 8,370
Being cash received for mowing services
June 28 Cash 5,280
Cleaning services 5,280
Being cash received for cleaning services
Cash 7,590
6

Lawn Mowing 7,590
Being cash received for lawn mowing services
Wages 5,010
Cash 5,010
Being payment for wages
June 30 Drawings 12,000
Cash 12,000
Being cash drawn from business for mortgage repayment
Depreciation expense 1,680
Accumulated
depreciation
1,680
Being depreciation on the washing equipment
Running balance ledger accounts
Cash ledger account
Account No.1
Date Description Ref Debit Credit balance
1 Prepaid rent 23,400 (23,400)
2 Cleaning equipment
purchase
25,500 (48,900)
Purchase of washing
supplies
3,180 (52,080)
Purchase of fuel and oil 5,220 (57,300)
7

3 Advertising expense 2,880 (60,180)
6 Receipt for unearned
revenue on cleaning
services
540 (59,640)
Receipt for lawn mowing
services
8,400 (51,240)
8 Prepayment for cleaning
services
19,200 (32,040)
13 Receipt for lawn mowing
services
9,000 (23,040)
14 Payment of wages 4,620 (27,660)
21 Receipt for cleaning
services
3,900 (23,760)
Receipt for lawn mowing
services
8,370 (15,390)
28 Receipt for cleaning
services
5,280 (10,110)
Receipt for lawn mowing
services
7,590 (2,520)
Payment of wages 5,010 (6,930)
30 Drawings to repay the loan 12,000 (18,930)
Payment for equipment 95,460 (114,990)
8

The cash ledger account gives a full picture of the cash position for the company for the
period under review. It helps the bookkeeper in decision making regarding the liquidity of the
business (Collis, 2016, 13).
Bank ledger account
Account No.2
Date Description Ref Debit Credit balance
1 Capital injection 360,000 360,000
30 Balance from the cash
account
114,990 245,010
The bank ledger account includes the summary of balance from the cash ledger account,
which in this case has a debit balance (Dyckman et al., 2017, 15).
Current assets ledger account
Account No.3
Date Description Ref Debit Credit balance
1 Rent paid in advance 23,500 23,500
The rent paid in advance unutilized. Therefore, it's an asset to the company until its
expensed (Fortes, 2011, 14).
Fixed asset ledger account
9

Account No.4
Date Description Ref Debit Credit balance
1 Acquisition of equipment 120,960 120,960
The acquisition of the equipment is on both cash and credit. The entry in the long term
assets is at the original price based on the accrual method of accounting.
Sales ledger account
Account No.5
Date Description Ref Debit Credit balance
6 Lawn Mowing 8,400 8,400
Cleaning services 540 8,940
13 Lawn Mowing 9,600 18,540
21 Lawn Mowing 8,370 26,910
Cleaning services 4,800 31,710
28 Lawn Mowing 7,590 39,300
Cleaning services 5,280 44,580
The core activity of the company is cleaning services and lawn mowing. Therefore, the
revenue stream is from the services offered as indicated in the sales ledger.
Purchases ledger
10

Account No.6
Date Description Ref Debit Credit balance
2 Washing supplies 3,180 3,180
Fuel and oil supplies 5,220 8,400
These are the materials required to offer revenue-generating services. The recording is at
cost.
Unearned revenue ledger
Account No.8
Date Description Ref Debit Credit balance
6 Prepaid cleaning services 540 540
Prepaid cleaning services 19,200 19,740
Unearned revenue is a liability to the company as the business receives payment whose
services is due. A reversing entry is passed on rendering the service. The recording of the
transaction is as per the accrual basis of accounting and the prudence principal (Weygandt, 2019,
89).
Capital ledger account
Account No.7
Date Description Ref Debit Credit balance
1 Capital injection 360,000 360,000
The capital was the owner's contribution to the business's bank account.
11

Nigel Giles cleaning and lawn mowing services
Adjusted Trial balance
As of 30th June 2019
Particulars Dr Cr
Bank 245,010
Prepaid rent 23,400
Prepaid advertising 2,640
Accounts receivable 900
Equipment 120,960
Purchases 8,400
Unearned revenue 19,740
Sales 44,580
Capital 360,000
Drawings 12,000
Wages Expense 9,610
Advertising expense 240
Depreciation 1,680
Adjusting entry 520
424,840 424,840
Adjusting journal entries
12

Particulars Dr Cr
Wages Expense 1,860
Wages payable 1,860
Being accrued wage
Closing stock-
washing supplies
780
Trading account 780
Being closing stock for washing supplies
Closing stock-oil and
fuel supplies
2,250
Trading account 2,250
Being closing stock for oil and fuel supplies
Account receivable 1,650
Service revenue 1,650
Being accrued revenues
Cash 540
Earned revenue 405
Unearned revenue 135
Being earned revenue from the prepayment
Rent expense 7,800
Prepaid rent 7,800
Being the utilization of prepaid rent for one month
13

The adjusting entries entail transactions either done during the accounting period and nor
recorded or after the closure of the accounting period but relating to the accounting period under
review.
Running balance adjusted ledger accounts
Prepayments ledger account
Date Description Ref Debit Credit balance
30 Prepaid rent 23,400 23,400
Rent expense 7,800 15,600
At the end of the month, the company expenses part of the prepaid rent for June 2018,
hence the prepaid amount reduces by the monthly rent amount.
Sales ledger account
Account No.3
Date Description Ref Debit Credit balance
6 Lawn Mowing 8,400 8,400
Cleaning services 540 8,940
13 Lawn Mowing 9,600 18,540
21 Lawn Mowing 8,370 26,910
Cleaning services 4,800 31,710
28 Lawn Mowing 7,590 39,300
Cleaning services 5,280 44,580
14

30 Cleaning services 1650 46,230
Account payable ledger account
Account No.9
Date Description Ref Debit Credit balance
30 Wages payable 1,860 1,860
Unearned revenue ledger
Account No.8
Date Description Ref Debit Credit balance
6 Prepaid cleaning services 540 540
Prepaid cleaning services 19,200 19,740
Earned revenue 405 19,335
Nigel Giles cleaning and lawn mowing services
Adjusted Trial balance
As of 30th June 2019
Particulars Dr Cr
Bank 245,010
15

Prepaid rent 15,600
Prepaid advertising 2,640
Accounts receivable 2,550
Equipment 120,960
Purchases 8,400
Account payable 1,860
Unearned revenue 19,335
Sales 46,230
Capital 360,000
Drawings 12,000
Wages Expense 11,470
Advertising expense 240
Depreciation 1,680
Rent expense 7,800
Adjusting entry 925
428,350 428.350
Closing journal entries
These journal entries which summarize and transfer balances from temporary accounts
such as income summary to permanent accounts such as income statement and balance sheet
(Andrews,2011, pp 3).
Particulars Dr Cr
Sales 46,230
16

Income summary 46,230
Being transfer of revenue to income summary
Income summary 8,400
Purchase 8,400
Being transfer of purchases to income summary
Income summary 11,470
Wages Expense 11,470
Being transfer of wages expense to income summary
Income summary 240
Advertising expense 240
Being transfer of advertising expense to income summary
Income summary 1,680
Depreciation 1,680
Being transfer of depreciation to income summary
Income summary 7,800
Rent expense 7,800
Closing entries
Close revenue account to income summary
Date Particulars Dr Cr
30 Income summary 40,860
Sales 46,230
17

Purchases 8,400
Closing stock 3,030
Close expenses account to income summary
Date Particulars Dr Cr
30 Income summary 21,190
Wages Expense 11,470
Advertising expense 240
Depreciation 1,680
Rent expense 7,800
Close income summary to retained earnings
Date Particulars Dr Cr
30 Gross income 40,860
Expenses 21,190
Income summary 19,670
18

Nigel Giles cleaning and lawn mowing services
Post-closing Trial balance
As of 30th June 2019
Particulars Dr Cr
Bank 245,010
Prepaid rent 15,600
Prepaid advertising 2,640
Accounts receivable 2,550
Equipment 120,960
Account payable 1,860
Unearned revenue 19,335
Capital 360,000
Drawings 12,000
Adjusting entry 2,105
Retained earnings 19,670
400,865 400,865
Nigel Giles cleaning and lawn mowing services
Profit and loss account
For the period ended 30th June 2019
Particulars Dr Cr
Sales 46,230
Purchases 8,400
19

Closing stock (3,030)
Cost of goods sold 5,370
Gross profit 40,860
Less:
Wages Expense 11,470
Advertising expense 240
Depreciation 1,680
Rent expense 7,800
Net profit 19,670
Income statement indicates the financial position for a certain period usually a financial
year. The company transfers the net profit realized to the balance sheet as a retained earnings.
Nigel Giles cleaning and lawn mowing services
Statement for the changes in equity
For the period ended 30th June 2019
Share capital Retained earnings Revaluation surplus Total equity
Capital 360,000 360,000
20

Income for the year 19,670 0 19,670
Restated balance 360,000 19,670 0 379,670
Statement for the changes in equity, details how owners capital changes during the
accounting period. The changes could be as a result of retaining earnings in the business instead
of distributing as profits to the shareholders.
Nigel Giles cleaning and lawn mowing services
Balance sheet
As of 30th June 2019
Particulars Dr Cr
Current assets: 46,230
Bank 245,010
Inventory 3,030
Accounts receivable 2,550
Prepaid rent 15,600
Prepaid advertising 2,640
Total current assets: 268,830
Long term assets:
Equipment 120,960
Total assets 389,790
21

Current liabilities:
Accounts payable 1,860
Unearned revenue
Total current liabilities 21,195
Net assets 368,595
Financed by:
Capital 360,000
Retained earnings 19,670
Less: drawings (12,000)
Total equity 367,670
A balance sheet indicates the financial position of the business as at a particular time in
the financial year. In the case of Nigel Giles Company, the financial position is as of 30th June
2019.
Reversing entries
These journal entries passed in the following accounting period to cancel out the
adjusting journal entries for the previous accounting period. The purpose of the reversing entries
is to ensure accuracy in bookkeeping by the company.
Particulars Dr Cr
Accrued expenses 1,860
22

Wages Expense 1,860
To reverse previous year’s accrual
Trading account 780
Closing stock 780
To record opening stock for the current accounting period
Trading account 2,250
Closing stock-oil 2,250
To record opening stock for the current accounting period
Cash 1,650
Accounts receivable 1,650
To reverse previous year’s accrued revenue
Earned revenue 19,335
Cleaning services 19,335
To reverse previous year’s unearned revenue
Rent expense 15,600
Prepaid rent 15,600
To reverse the previous year’s prepaid rent
Advertising expense 2,640
Prepayment 2,640
To reverse prepayment of advertising in the previous year
Cash 900
Accounts receivable 900
To reverse previous year’s accrued revenue
23

Account payable ledger account
Account No.9
Date Description Ref Debit Credit balance
30 June Wages payable 1,860 1,860
1 July Wages Expense 1,860 0.00
Closing stock ledger account
Account No.11
Date Description Ref Debit Credit balance
30 June Closing stock
-washing supplies
780 780
Closing stock
-oil
2,250 3,030
1 July Opening inventory 3,030 0.00
Accounts receivable ledger account
Account No.12
24

Date Description Ref Debit Credit balance
30 Accounts receivable 2,550 2,550
1 July Cash 2,550 0.00
Unearned revenue ledger
Account No.8
Date Description Ref Debit Credit balance
6 June Prepaid cleaning services 135 135
Prepaid cleaning services 19,200 19,335
1 July Earned revenue 19,335 0.00
Prepayments ledger account
Account No.13
Date Description Ref Debit Credit balance
30 Junes Prepaid rent 23,400` 23,400
Rent expense 7,800 15,600
Advertising prepayment 2,640 18,240
1 July Rent expense 15,600 2,640
1 July Advertising expense 2,640 0.00
Conclusion
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Accounting rules and regulations should be maintained by the accountants and the
auditors in every steps of accounting cycle (Ahmed, 2008, 15). Detailed processes need to be
portrayed by the accountants to the stakeholders. The company should adhere to the accounting
cycle for the accuracy of the financial information contained in the books of accounts. By
following the steps, the accountants will provide a true reflection of a company’s financial
statement. The true and fair representation of the financial statements is the main objective of
any organization.
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