Analyzing the Effects of Transactions Using T-Accounts

Analyzing the Effects of Transactions Using T-Accounts and Preparing an Unadjusted Trial Balance

Margaret Foster established Body and Soul in Cortland, New York, on March 1, 2010. The company provides massage therapy and other spa services. You have been hired as the new business manager. The following transactions for March 2010 are provided for your review.

a. Received from Margaret Foster $50,000 in cash to establish the business as a sole proprietorship.

b. Paid $18,000 to rent store space for the business from March 1 to September 1 (six months).

c. Purchased massage tables, towels, and other necessary equipment; paid $8,000 in cash and owed $12,000 on account.

d. Provided spa services to customers for $20,000 cash.

e. Received $2,400 from customers as gift certificates for future spa services (recorded as unearned revenue).

f. Purchased spa supplies on account for $3,000.

g. Borrowed $10,000 from a local bank to renovate additional space in the store.

h. Paid $6,000 for a two-year insurance policy with coverage beginning on April 1, 2010.

i. Paid $1,200 on accounts payable for previous purchases.

j. Provided $600 in spa services to customers on account.

k. Ordered $2,500 in spa supplies for delivery in April.

l. Received an electric and gas utility bill for $1,500 for usage in March; the bill will be paid next month.

m. Paid $12,000 in wages to employees who worked during the month.

n. Margaret Foster withdrew $7,000 cash from the business.


1. Set up appropriate T-accounts. All accounts begin with zero balances.

2. Record in the T-accounts the effects of each transaction for Body and Soul in March, referencing each transaction in the accounts with the transaction letter. Show the unadjusted ending balances in the T-accounts.

3. Prepare an unadjusted trial balance as of March 31, 2010.

4. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this information, write a short memo to Margaret Foster offering your opinion on the results of operations during the first month of business.


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