Narmadha Narayan distributes electronic parts. Most transactions with customers are immediately paid with cash or check. But, Narayan has five major customers that have established accounts. These approved customers routinely buy on credit. The terms of the credit agreement provide that payment must occur within 30 days, and each customer has a maximum credit limit of $10,000.
Following is information for May regarding each of the credit customers:
Customer #1 Beginning balance, $1,403. Purchases on account on May 5, $7,237.
Payment on account on May 17, $1,403.
Customer #2 Beginning balance, $5,275. Purchase on account on May 15, $2,275.
Payment on account on May 26, $4,275.
Customer #3 Beginning balance, $0. Purchase on account on May 9, $9,550.
Customer #4 Beginning balance, $7,557. Purchase on account on May 7, $2,100.
Purchase on account on May 22, $9,444. Payment on account on May 11, $7,557.
Customer #5 Beginning balance, $2,990. Payment on account on May 18, $2,990.
(a) Prepare a subsidiary accounts receivable ledger account for each of Narayan’s customers.
(b) Prepare the general ledger Accounts Receivable control account. Be sure the total in this account reconciles to the sum of the individual balances in the subsidiary ledgers.
(c) What is the purpose of a subsidiary ledger? What other control accounts might be supported by subsidiary ledgers?
(d) Review Narayan’s subsidiary ledgers and identify which customer should be put on credit watch for being delinquent, and which customer has exceeded their credit limit.
Involved
Tom Pryor formed a management consulting firm specializing in cost management systems. Below are the transactions that occurred during the initial month of operation.
June 2 Tom Pryor invested $25,000 cash in the capital stock of the newly formed corporation.
June 3 Hired an administrative assistant, to be paid $3,000 per month. Leased office space at the rate of $1,000 per month. Signed a contract with Pomero to deliver consulting services valued at $7,500.
June 8 Purchased (and immediately used) office supplies on account for $750.
June 9 Received $2,500 from Pomero for work performed to date.
June 15 Paid $1,200 for travel costs associated with consultation work.
June 16 Provided services on account to Arpy for $3,000.
June 17 Paid $1,500 to administrative assistant for salary.
June 23 Billed Farris for $4,000 consulting engagement performed.
June 25 The company paid Tom Pryor a $1,000 dividend.
June 26 Collected 50% of the amount due for the billing on June 23.
June 27 Purchased computer furniture for $4,000, paying $1,000 down.
June 27 Paid $750 on the open account relating to the June 8 purchase.
June 28 Completed the Pomero job and billed the remaining amount.
June 30 Paid $1,500 to administrative assistant for salary.
June 30 Paid rent for June, $1,000.
Pryor consulting uses the following accounts:
Cash
Accounts Receivable
Equipment
Accounts Payable
Capital Stock
Revenues
Salary Expense
Rent Expense
Travel Expense
Supplies Expense
Dividends
(a) Journalize the listed transactions.
(b) Post the transactions to the appropriate general ledger accounts.
(c) Prepare a trial balance as of June 30.