E4-3 Recording Initial Transactions and Subsequent Adjustments [LO 4-1, LO 4-2] During the month of September, the Texas Go-Kart Company had the following business activities: On September 1, paid rent on the track facility for six months at a total cost of $7,800. On September 1, received $46,800 for season tickets for 12-month admission to the race track. On September 1, booked the race track for a private organization that will use the track one day per month for $1,900 each time, to be paid in the following month. The organization uses the track on September 30. On September 1, hired a new manager at a monthly salary of $2,400, to be paid the first Monday following the end of the month. Required: Prepare the journal entry, if any, required to record each of the initial business activities on September 1. Prepare the adjusting journal entries, if any, required on September 30.

Texas Go-Kart Company

1. Journal Entry on September 1:

Debit Prepaid Rent $7,800

Credit Cash Account $7,800

To record the prepayment of rent expenses for six months.

Debit Cash $46,800

Credit Deferred Service Revenue from Tickets $46,800

To record the receipt of cash for season tickets for 12 months.

September 30:

Debit Accounts Receivable $1,900

Credit Service Revenue $1,900

To record the provision of track services.

September 30:

Debit Salaries Expense $2,400

Credit Salaries Payable $2,400

To record the expense for the month.

Debit Rent Expense $5,200

Credit Prepaid Rent $5,200

To record the rent expense for 4 months.

Debit Deferred Service Revenue from Tickets $15,600

Credit Service Revenue from Tickets $15,600

To record the earned revenue from tickets for 4 months.

Explanation:

Journal entries have proved to be useful in record business transactions as they occur on a daily basis.  They show the accounts involved in each transaction and the ones to be debited and credited as the case may be.  Journal entries are also used to adjust entries at the end of the period.  These adjustments help to bring the accounting records to align with the accrual basis of accounting, ensuring that the matching principle is observed.

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