Question

Blaine Air Transport Service, Inc., providing air delivery service for businesses, has been in operation for three years. The following transactions occurred in February:

February 1 Paid $310 for rent of hangar space in February.
February 2 Purchased fuel costing $490 on account for the next flight to Dallas.
February 4 Received customer payment of $850 to ship several items to Philadelphia next month.
February 7 Flew cargo from Denver to Dallas; the customer paid $870 for the air transport.
February 10 Paid $130 for an advertisement in the local paper to run on February 19.
February 14 Paid pilot $2,500 in wages for flying in January (recorded as expense in January).
February 18 Flew cargo for two customers from Dallas to Albuquerque for $4,700; one customer paid $1,100 cash and the other asked to be billed.
February 25 Purchased on account $2,540 in spare parts for the planes.
February 27 Declared a $220 cash dividend to be paid in March.

Required:
Prepare journal entries for each transaction.

Answer 1

February 1

Debit : Rent expense $310

Credit : Cash $310

February 2

Debit : Fuel expense $490

Credit : Accounts Payable

February 4

Debit : Cash $850

Credit : Deferred Revenue $850

February 7

Debit : Cash $870

Credit : Service Revenue $870

February 10

Debit : Advertising expense $130

Credit : Cash $130

February 14

Debit : Wages Payable $2,500

Credit : Cash $2,500

February 18

Debit : Cash $1,100

Debit : Accounts Receivable $3,600

Credit : Service Revenue $4,700

February 25

Debit : Spare parts $2,540

Credit : Cash $2,540

February 27

Debit : Dividends $220

Credit : Shareholders for dividends $220

Step-by-step explanation:

For expenses, if there is immediate payment of cash for expenses incurred, recognize cash out flow and otherwise recognize a liability accounts payable.

For revenue, if there is immediate payment of cash for services recognize cash inflow, otherwise recognize an asset accounts receivable.

Remember to recognize revenue as and when transfer of goods or services are made to customer, otherwise raise a liability - deferred revenue.