ACC111 Chp 2
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ACC111 Chp 2

Course Number: ACC 111, Fall 2009

College/University: Chandler-Gilbert...

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wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 46 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: A Look Back A Look at This Chapter A Look Ahead Chapter 1 defined accounting and introduced financial statements. We described forms of organizations and identified users and uses of accounting. We defined the accounting equation and applied it to transaction analysis. This chapter focuses on the accounting process. We...

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07/25/2008 wiL79549_ch02_0046-0089 6:51 pm Page 46 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: A Look Back A Look at This Chapter A Look Ahead Chapter 1 defined accounting and introduced financial statements. We described forms of organizations and identified users and uses of accounting. We defined the accounting equation and applied it to transaction analysis. This chapter focuses on the accounting process. We describe transactions and source documents, and we explain the analysis and recording of transactions. The accounting equation, T-account, general ledger, trial balance, and debits and credits are key tools in the accounting process. Chapter 3 extends our focus on processing information. We explain the importance of adjusting accounts and the procedures in preparing financial statements. 2 Chapter Analyzing and Recording Transactions Learning Objectives CAP Conceptual Analytical Procedural in transactions journal C1 Explain the steps48) processing A1 Analyze the impact ofstatements. (p.on P1 Record transactions in a (p. 54) and transactions. (p. accounts and financial 57) post entries to a ledger. source the debt ratio and and explain C2 Describe (p. 48) documents and their A2 Compute analyzing financial describe P2 Prepare (p. 63) the use of a trial purpose. its use in balance. condition. (p. 66) C3 Describe an account and its use in P3 Prepare financial statements from recording transactions. (p. 49) business transactions. (p. 64) C4 Describe a(p.ledger and a chart of accounts. 52) explain C5 Define debits and credits and 53) double-entry accounting. (p. LP2 wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 47 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Decision Feature The Bottom Line It has been a dream come true Sara Blakely ATLANTAWorking as a sales trainer by day and Sara expanded sales and struggled to stay profitable. I had no performing stand-up comedy at night, I didn't know the money to advertise, so I hit the road, laughs Sara. For the entire first thing about the pantyhose industry, admits Sara first year, I did in-store rallies . . . staying all day introducing customers Blakely. Except, I dreaded wearing most pantyhose. One night Sara cut the feet out of her pantyhose to wear with white pants and open-toed to Spanx. In her first three months, Sara sold over 50,000 pairs of footless shoes, and at that moment, Sara knew she had a unique idea. Sara took pantyhose. Today, just seven short years from her launch, Sara reports $5,000 in savings and launched SPANX (Spanx.com), a manufacturer over $150 million in retail sales. We are still a small company of of footless pantyhose, slimming intimates, hosiery, and other womens women, claims Sara, obsessed with inventing and improving comfort- apparel. able undergarments. Sara continues to track and account for all To pursue her business ambitions, Sara studied business activities and learned the value of accounting information. She established recordkeeping processes, transaction analysis, inventory accounting, revenues and expenses. She maintains that success requires proper accounting for and analysis of the financial side. The bigger message of Spanx, says Sara, is promoting comfort and and financial statement reporting. I had to get a handle on my financial confidence for women. Insists Sara, We believe all women deserve situation, says Sara, as I wanted to remain self-funded. To this day, the opportunity to make the most of their assets! Sara remains self-funded and has a reliable accounting system to help her make good business decisions. I had to account for product costs, office expenses, supplier payments, patent fees, and other expenses, says Sara. At the same time, [Sources: SPANX Website, January 2009; Entrepreneur, May 2007; Smart Money, September 2002; TV Guide, July 2007; Financial Times, 2006; ABC Television, 2007] wiL79549_ch02_0046-0089 08/18/2008 9:55 am Page 48 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter Preview Financial statements report on the financial performance and condition of an organization. Knowledge of their preparation, organization, and analysis is important. A main goal of this chapter is to illustrate how transactions are recorded, how they are reflected in financial statements, and how they impact analysis of financial statements. Debits and credits are introduced and identified as a tool in helping analyze and process transactions. Analyzing and Recording Transactions Analyzing and Recording Process Source documents The account and its Analyzing and Processing Transactions analysis Types of accounts General ledger Double-entry accounting Journalizing and posting An illustration Trial Balance Trial balance preparation Search for and correction of errors Trial balance use Analyzing and Recording Process C1 Explain the steps in processing transactions. EXHIBIT 2.1 The Analyzing and Recording Process Services Contract Client Billing Note Payable Purchase Ticket Bank Statement The accounting process identifies business transactions and events, analyzes and records their effects, and summarizes and presents information in reports and financial statements. These reports and statements are used for making investing, lending, and other business decisions. The steps in the accounting process that focus on analyzing and recording transactions and events are shown in Exhibit 2.1. Journal Dec. 1 Cash 30,000 Taylor, Capital 30,000 Dec. 2 Supplies Cash TOTAL 2,500 2,500 30,00 Analyze each transaction and event from source documents Record relevant transactions and events in a journal Post journal information to ledger accounts Prepare and analyze the trial balance Business transactions and events are the starting points. Relying on source documents, the transactions and events are analyzed using the accounting equation to understand how they affect company performance and financial position. These effects are recorded in accounting records, informally referred to as the accounting books, or simply the books. Additional steps such as posting and then preparing a trial balance help summarize and classify the effects of transactions and events. Ultimately, the accounting process provides information in useful reports or financial statements to decision makers. Source Documents C2 Describe source documents and their purpose. Source documents identify and describe transactions and events entering the accounting process. They are the sources of accounting information and can be in either hard copy or electronic form. Examples are sales tickets, checks, purchase orders, bills from suppliers, wiL79549_ch02_0046-0089 08/18/2008 9:55 am Page 49 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions employee earnings records, and bank statements. To illustrate, when an item is purchased on credit, the seller usually prepares at least two copies of a sales invoice. One copy is given to the buyer. Another copy, often sent electronically, results in an entry in the sellers information system to record the sale. Sellers use invoices for recording sales and for control; buyers use them for recording purchases and for monitoring purchasing activity. Many cash registers record information for each sale on a tape or electronic file locked inside the register. This record can be used as a source document for recording sales in the accounting records. Source documents, especially if obtained from outside the organization, provide objective and reliable evidence about transactions and events and their amounts. 49 Point: To ensure that all sales are rung up on the register, most sellers require customers to have their receipts to exchange or return purchased items. Decision Ethics Cashier Your manager requires that you, as cashier, immediately enter each sale. Recently, lunch hour traffic has increased and the assistant manager asks you to avoid delays by taking customers cash and making change without entering sales. The assistant manager says she will add up cash and enter sales after lunch. She says that, in this way, the register will always match the cash amount when the manager arrives at three oclock. What do you do? [Answerp. 71] The Account and Its Analysis An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Information from an account is analyzed, summarized, and presented in reports and financial statements. The general ledger, or simply ledger, is a record containing all accounts used by a company. The ledger is often in electronic form. While most companies ledgers contain similar accounts, a company often uses one or more unique accounts because of its type of operations. Accounts are arranged into three general categories (based on the accounting equation), as shown in Exhibit 2.2. Cash Accounts Receivable Inventory Supplies Asset Accounts Accounts Payable Unearned Revenues Wages Payable Liability Accounts Owner, Capital Owner, Withdrawals Equity Accounts C3 Describe an account and its use in recording transactions. EXHIBIT 2.2 Accounts Organized by the Accounting Equation Asset Accounts Assets are resources owned or controlled by a company and that have expected future benefits. Most accounting systems include (at a minimum) separate accounts for the assets described here. A Cash account reflects a companys cash balance. All increases and decreases in cash are recorded in the Cash account. It includes money and any medium of exchange that a bank accepts for deposit (coins, checks, money orders, and checking account balances). Accounts receivable are held by a seller and refer to promises of payment from customers to sellers. These transactions are often called credit sales or sales on account (or on credit). Accounts receivable are increased by credit sales and are decreased by customer payments. A company needs a separate record for each customer, but for now, we use the simpler practice of recording all increases and decreases in receivables in a single account called Accounts Receivable. A note receivable, or promissory note, is a written promise of another entity to pay a definite sum of money on a specified future date to the holder of the note. A company holding a promissory note signed by another entity has an asset that is recorded in a Note (or Notes) Receivable account. Prepaid accounts (also called prepaid expenses) are assets that represent prepayments of future expenses (not current expenses). When the expenses are later incurred, the amounts in prepaid accounts are transferred to expense accounts. Common examples of prepaid accounts include prepaid insurance, prepaid rent, and prepaid services (such as club memberships). Prepaid accounts expire with the passage of time (such as with rent) or through use (such as with prepaid meal tickets). When financial statements are prepared, prepaid accounts are adjusted so that (1) all expired and used prepaid accounts are recorded as regular expenses and (2) all unexpired and unused prepaid accounts are recorded as assets (reflecting future use in Point: Customers and others who owe a company are called its debtors. Point: A college parking fee is a prepaid account from the students standpoint. At the beginning of the term, it represents an asset that entitles a student to park on or near campus. The benefits of the parking fee expire as the term progresses. At term-end, prepaid parking (asset) equals zero as it has been entirely recorded as parking expense. wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 50 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 50 Chapter 2 Analyzing and Recording Transactions Point: Prepaid accounts that apply to current and future periods are assets. These assets are adjusted at the end of each period to reflect only those amounts that have not yet expired, and to record as expenses those amounts that have expired. future periods). To illustrate, when an insurance fee, called a premium, is paid in advance, the cost is typically recorded in the asset account Prepaid Insurance. Over time, the expiring portion of the insurance cost is removed from this asset account and reported in expenses on the income statement. Any unexpired portion remains in Prepaid Insurance and is reported on the balance sheet as an asset. (An exception exists for prepaid accounts that will expire or be used before the end of the current accounting period when financial statements are prepared. In this case, the prepayments can be recorded immediately as expenses.) Supplies are assets until they are used. When they are used up, their costs are reported as expenses. The costs of unused supplies are recorded in a Supplies asset account. Supplies are often grouped by purposefor example, office supplies and store supplies. Office supplies include stationery, paper, toner, and pens. Store supplies include packaging materials, plastic and paper bags, gift boxes and cartons, and cleaning materials. The costs of these unused supplies can be recorded in an Office Supplies or a Store Supplies asset account. When supplies are used, their costs are transferred from the asset accounts to expense accounts. Equipment is an asset. When equipment is used and gets worn down, its cost is gradually reported as an expense (called depreciation). Equipment is often grouped by its purposefor example, office equipment and store equipment. Office equipment includes computers, printers, desks, chairs, and shelves. Costs incurred for these items are recorded in an Office Equipment asset account. The Store Equipment account includes the costs of assets used in a store, such as counters, showcases, ladders, hoists, and cash registers. Buildings such as stores, offices, warehouses, and factories are assets because they provide expected future benefits to those who control or own them. Their costs are recorded in a Buildings asset account. When several buildings are owned, separate accounts are sometimes kept for each of them. The cost of land owned by a business is recorded in a Land account. The cost of buildings located on the land is separately recorded in one or more building accounts. Point: Some assets are described as intangible because they do not have physical existence or their benefits are highly uncertain. A recent balance sheet for Coca-Cola Company shows nearly $1 billion in intangible assets. Decision Insight Women Entrepreneurs The Center for Womens Business Research reports that women-owned businesses, such as SPANX, are growing and that they Total approximately 11 million and employ nearly 20 million workers. Generate $2.5 trillion in annual sales and tend to embrace technology. Are philanthropic70% of owners volunteer at least once per month. Are more likely funded by individual investors (73%) than venture firms (15%). Liabilities are claims (by creditors) against assets, which means they are obligations to transfer assets or provide products or services to other entities. Creditors are individuals and organizations that own the right to receive payments from a company. If a company fails to pay its obligations, the law gives creditors a right to force the sale of that companys assets to obtain the money to meet creditors claims. When assets are sold under these conditions, creditors are paid first, but only up to the amount of their claims. Any remaining money, the residual, goes to the owners of the company. Creditors often use a balance sheet to help decide whether to loan money to a company. A loan is less risky if the borrowers liabilities are small in comparison to assets because this means there are more resources than claims on resources. Common liability accounts are described here. Accounts payable refer to oral or implied promises to pay later, which usually arise from purchases of merchandise. Payables can also arise from purchases of supplies, equipment, and services. Accounting systems keep separate records about each creditor. We describe these individual records in Chapter 5. A note payable refers to a formal promise, usually denoted by the signing of a promissory note, to pay a future amount. It is recorded in either a short-term Note Payable account or a long-term Note Payable account, depending on when it must be repaid. We explain details of short- and long-term classification in Chapter 3. Unearned Revenue refers to a liability that is settled in the future when a company delivers its products or services. When customers pay in advance for products or services (before revenue Liability Accounts Point: Accounts Payable are also called Trade Payables. wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 51 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 51 is earned), the revenue recognition principle requires that the seller consider this payment as unearned revenue. Examples of unearned revenue include magazine subscriptions collected in advance by a publisher, sales of gift certificates by stores, and season ticket sales by sports teams. The seller would record these in liability accounts such as Unearned Subscriptions, Unearned Store Sales, and Unearned Ticket Revenue. When products and services are later delivered, the earned portion of the unearned revenue is transferred to revenue accounts such as Subscription Fees, Store Sales, and Ticket Sales.1 Accrued liabilities are amounts owed that are not yet paid. Examples are wages payable, taxes payable, and interest payable. These are often recorded in separate liability accounts by the same title. If they are not large in amount, one or more ledger accounts can be added and reported as a single amount on the balance sheet. (Financial statements often have amounts reported that are a summation of several ledger accounts.) Point: If a subscription is canceled, the publisher is expected to refund the unused portion to the subscriber. Decision Insight Revenue Spread The Chicago Bears have Unearned Revenues of about $60 million in advance ticket sales. When the team plays its home games, it settles this liability to its ticket holders and then transfers the amount earned to Ticket Revenues. Equity Accounts The owners claim on a companys assets is called equity or owners equity. Equity is the owners residual interest in the assets of a business after deducting liabilities. Equity is impacted by four types of accounts: owners capital, owners withdrawals, revenues, and expenses. We show this visually in Exhibit 2.3 by expanding the accounting equation. Cash Accounts Receivable Inventory Supplies Asset Accounts Account Payable Unearned Revenues Wages Payable Liability Accounts EXHIBIT 2.3 Owner, Withdrawals Owner, Capital Expanded Accounting Equation Equity Accounts Owner, Capital Owners Capital Owner, Withdrawals Owners Withdrawals Revenues Revenues Expenses Expenses When an owner invests in a company, the invested amount is recorded in an account titled Owner, Capital (where the owners name is inserted in place of owner). The account titled C. Taylor, Capital is used for FastForward. Any further owner investments are recorded in this account. When an owner withdraws assets for personal use it decreases both company assets and total equity. Withdrawals are not expenses of the business; they are simply the opposite of owner investments. The Owner, Withdrawals account is used to record asset distributions to the owner. The account titled C. Taylor, Withdrawals is used for FastForward. (Owners of proprietorships cannot receive company salaries because they are not legally separate from their companies; and they cannot enter into company contracts with themselves.) Revenues and expenses also impact equity. Examples of revenue accounts are Sales, Commissions Earned, Professional Fees Earned, Rent Earned, and Interest Revenue. Revenues increase equity and result from products and services provided to customers. Examples of expense accounts are Advertising Expense, Store Supplies Expense, Office Salaries Expense, Office Supplies Expense, Rent Expense, Utilities Expense, and Insurance Expense. Expenses decrease equity and result from assets and services used in a companys operations. The variety of revenues and expenses can be seen by looking at the chart of accounts that follows the index 1 Point: Equity is also called net assets. In practice, account titles vary. As one example, Subscription Fees is sometimes called Subscription Fees Revenue, Subscription Fees Earned, or Earned Subscription Fees. As another example, Rent Earned is sometimes called Rent Revenue, Rental Revenue, or Earned Rent Revenue. We must use good judgment when reading financial statements because titles can differ even within the same industry. For example, product sales are called revenue at Best Buy, but net sales and operating revenues at Circuit City. Generally, the term revenues or fees is more commonly used with service businesses, and net sales or sales with product businesses. Point: The Owners Withdrawals account is a contra equity account because it reduces the normal balance of equity. Point: The withdrawal of assets by the owners of a corporation is called a dividend. wiL79549_ch02_0046-0089 08/18/2008 10:13 am Page 52 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 52 at the back of this book. (Different companies sometimes use different account titles than those in this books chart of accounts. For example, some might use Interest Revenue instead of Interest Earned, or Rental Expense instead of Rent Expense. It is important only that an account title describe the item it represents.) Decision Insight Sporting Accounts The San Antonio Spurs have the following major revenue and expense accounts: Revenues Expenses Basketball ticket sales TV & radio broadcast fees Advertising revenues Basketball playoff receipts Team salaries Game costs NBA franchise costs Promotional costs Analyzing and Processing Transactions This section explains several tools and processes that comprise an accounting system. These include a ledger, T-account, debits and credits, double-entry accounting, journalizing, and posting. Ledger and Chart of Accounts C4 Describe a ledger and a chart of accounts. The collection of all accounts for an information system is called a ledger (or general ledger). If accounts are in files on a hard drive, the sum of those files is the ledger. If the accounts are pages in a file, that file is the ledger. A companys size and diversity of operations affect the number of accounts needed. A small company can get by with as few as 20 or 30 accounts; a large company can require several thousand. The chart of accounts is a list of all accounts a company uses and includes an identification number assigned to each account. A small business might use the following numbering system for its accounts: 101199 201299 301399 401499 501699 Asset accounts Liability accounts Equity accounts Revenue accounts Expense accounts These numbers provide a three-digit code that is useful in recordkeeping. In this case, the first digit assigned to asset accounts is a 1, the first digit assigned to liability accounts is a 2, and so on. The second and third digits relate to the accounts subcategories. Exhibit 2.4 shows a partial chart of accounts for FastForward, the focus company of Chapter 1. (Please review the more complete chart of accounts that follows the index at the back of this book.) EXHIBIT 2.4 Partial Chart of Accounts for FastForward Account Number Account Name Account Number Account Name 101 106 126 128 167 201 236 Cash Accounts receivable Supplies Prepaid insurance Equipment Accounts payable Unearned consulting revenue 301 302 403 406 622 637 640 652 690 C. Taylor, Capital C. Taylor, Withdrawals Consulting revenue Rental revenue Salaries expense Insurance expense Rent expense Supplies expense Utilities expense wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 53 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 53 Debits and Credits A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. Its name comes from its shape like the letter T. The layout of a T-account, shown in Exhibit 2.5, is (1) the account title on top, (2) a left, or debit side, and (3) a right, or credit, side. The left side of an account is called the Account Title debit side, often abbreviated Dr. The right side (Left side) (Right side) is called the credit side, abbreviated Cr.2 To Debit Credit enter amounts on the left side of an account is to debit the account. To enter amounts on the right side is to credit the account. Do not make the error of thinking that the terms debit and credit mean increase or decrease. Whether a debit or a credit is an increase or decrease depends on the account. For an account where a debit is an increase, the credit is a decrease; for an account where a debit is a decrease, the credit is an increase. The difference between total debits and total credits for an account, including any beginning balance, is the account balance. When the sum of debits exceeds the sum of credits, the account has a debit balance. It has a credit balance when the sum of credits exceeds the sum of debits. When the sum of debits equals the sum of credits, the account has a zero balance. C5 Define debits and credits and explain double-entry accounting. EXHIBIT 2.5 The T-Account Point: Think of debit and credit as accounting directions for left and right. Double-Entry Accounting Double-entry accounting requires that each transaction affect, and be recorded in, at least two accounts. It also means the total amount debited must equal the total amount credited for each transaction. Thus, the sum of the debits for all entries must equal the sum of the credits for all entries, and the sum of debit account balances in the ledger must equal the sum of credit account balances. The system for recording debits and credits follows from the usual accounting equation see Exhibit 2.6. Two points are important here. First, like any simple mathematical relation, net increases or decreases on one side have equal net effects on the other side. For example, a net increase in assets must be accompanied by an identical net increase on the liabilities and Total debits equal total credits for each entry. EXHIBIT 2.6 Assets Debit for increases Credit for decreases Liabilities Debit for decreases Credit for increases Equity Debit for decreases Credit for increases equity side. Recall that some transactions affect only one side of the equation, meaning that two or more accounts on one side are affected, but their net effect on this one side is zero. Second, the left side is the normal balance side for assets, and the right side is the normal balance side for liabilities and equity. This matches their layout in the accounting equation where assets are on the left side of this equation, and liabilities and equity are on the right. Recall that equity increases from revenues and owner investments and it decreases from expenses and owner withdrawals. These important equity relations are conveyed by expanding the accounting equation to include debits and credits in double-entry form as shown in Exhibit 2.7. Increases (credits) to owners capital and revenues increase equity; increases (debits) to withdrawals and expenses decrease equity. The normal balance of each account (asset, liability, capital, withdrawals, revenue, or expense) refers to the left or right (debit or credit) side where increases are recorded. Understanding these diagrams and rules is required to prepare, analyze, and interpret financial statements. 2 These abbreviations are remnants of 18th-century English recordkeeping practices where the terms debitor and creditor were used instead of debit and credit. The abbreviations use the first and last letters of these terms, just as we still do for Saint (St.) and Doctor (Dr.). Debits and Credits in the Accounting Equation Point: Debits and credits do not mean favorable or unfavorable. A debit to an asset increases it, as does a debit to an expense. A credit to a liability increases it, as does a credit to a revenue. wiL79549_ch02_0046-0089 08/18/2008 9:55 am Page 54 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 54 EXHIBIT 2.7 Debit and Credit Effects for Component Accounts Equity Assets Dr. for Cr. for increases decreases Liabilities Owner, Capital Dr. for Cr. for decreases increases Normal Dr. for decreases Normal Owner, Withdrawals Cr. for increases Dr. for increases Normal Cr. for decreases Revenues Dr. for Cr. for decreases increases Normal Normal Expenses Dr. for Cr. for increases decreases Normal The T-account for FastForwards Cash account, reflecting its first 11 transactions (from Exhibit 1.9), is shown in Exhibit 2.8. The total increases in its Cash account are $36,100, the total decreases are $31,300, and the accounts debit balance is $4,800. (We illustrate use of T-accounts later in this chapter.) EXHIBIT 2.8 Computing the Balance for a T-Account Cash Investment by owner Consulting services revenue earned Collection of account receivable 30,000 4,200 1,900 Purchase of supplies Purchase of equipment Payment of rent Payment of salary Payment of account payable 2,500 26,000 1,000 700 900 Withdrawal by owner Point: The ending balance is on the side with the larger dollar amount. Balance 200 4,800 Quick Check Answersp. 72 1. Identify examples of accounting source documents. 2. Explain the importance of source documents. 3. Identify each of the following as either an asset, a liability, or equity: (a) Prepaid Rent, (b) Unearned Fees, (c) Building, (d ) Wages Payable, and (e ) Office Supplies. 4. What is an account? What is a ledger? 5. What determines the number and types of accounts a company uses? 6. Does debit always mean increase and credit always mean decrease? 7. Describe a chart of accounts. Journalizing and Posting Transactions P1 Record transactions in a journal and post entries to a ledger. Processing transactions is a crucial part of accounting. The four usual steps of this process are depicted in Exhibit 2.9. Steps 1 and 2involving transaction analysis and double-entry accountingwere introduced in prior sections. This section extends that discussion and focuses on steps 3 and 4 of the accounting process. Step 3 is to record each transaction in a journal. A journal gives a complete record of each transaction in one place. It also shows debits and credits for each transaction. The process of recording transactions in a journal is called journalizing. Step 4 is to transfer (or post) entries from the journal to the ledger. The process of transferring journal entry information to the ledger is called posting. The process of journalizing transactions requires an understanding of a journal. While companies can use various journals, every company uses a general journal. It can be used to record any transaction and includes the following information about each transaction: (1) date of transaction, (2) titles of affected accounts, (3) dollar amount of each Journalizing Transactions wiL79549_ch02_0046-0089 08/18/2008 9:55 am Page 55 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions Step 1: Analyze transactions and source documents. 55 EXHIBIT 2.9 Step 2: Apply double-entry accounting. Steps in Processing Transactions Services Contract Client Billing Note Payable Purchase Ticket Bank Statement 30,000 1 Deposit Equity s Liabilitie Assets Debit for increases h Cas Credit for es decreas Debit for es decreas Debit for es Credit for increases decreas Credit for increases Asset s = Lia bil ities + Equity TOTAL Step 3: Record journal entry. Step 4: Post entry to ledger. General Journal Dec. 1 Cash 30,000 Taylor, Capital 30,000 Dec. 2 Supplies Cash nal General Jour Ledger 2,500 2,500 debit and credit, and (4) explanation of the transaction. Exhibit 2.10 shows how the first two transactions of FastForward are recorded in a general journal. This process is similar for manual and computerized systems. Computerized journals are often designed to look like a manual journal page, and also include error-checking routines that ensure debits equal credits for each entry. Shortcuts allow recordkeepers to select account names and numbers from pull-down menus. EXHIBIT 2.10 Date Account Titles and Explanation PR Debit Page 1 Credit 2009 Dec. 1 Cash 30,000 30,000 C. Taylor, Capital Investment by owner. Dec. 2 Supplies Cash Purchased supplies for cash. Partial General Journal for FastForward 2,500 2,500 To record entries in a general journal, apply these steps; refer to the entries in Exhibit 2.10 when reviewing these steps. 1 Date the transaction: Enter the year at the top of the first column and the month and day on the first line of each journal entry. 2 Enter titles of accounts debited and then enter amounts in the Debit column on the same line. Account titles are taken from the chart of accounts and are aligned with the left margin of the Account Titles and Explanation column. 3 Enter titles of accounts credited and then enter amounts in the Credit column on the same line. Account titles are from the chart of accounts and are indented from the left margin of the Account Titles and Explanation column to distinguish them from debited accounts. 4 Enter a brief explanation of the transaction on the line below the entry (it often references a source document). This explanation is indented about half as far as the credited account titles to avoid confusing it with accounts, and it is italicized. Decision Insight IFRSs IFRSs require that companies report the following four financial statements with explanatory notes: Balance sheet Statement of changes in equity (or statement of recognized revenue and expense) Income statement Statement of cash flows IFRSs do not prescribe specific formats; and comparative information is required for the preceding period only. Point: There are no exact rules for writing journal entry explanations. An explanation should be short yet describe why an entry is made. wiL79549_ch02_0046-0089 07/26/2008 1:35 am Page 56 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 56 Chapter 2 Analyzing and Recording Transactions A blank line is left between each journal entry for clarity. When a transaction is first recorded, the posting reference (PR) column is left blank (in a manual system). Later, when posting entries to the ledger, the identification numbers of the individual ledger accounts are entered in the PR column. Balance Column Account T-accounts are simple and direct means to show how the accounting process works. However, actual accounting systems need more structure and therefore use balance column accounts, such as that in Exhibit 2.11. EXHIBIT 2.11 Cash Account in Balance Column Format Point: Explanations are typically included in ledger accounts only for unusual transactions or events. Explanation Cash PR Debit Account No. 101 Credit Balance G1 G1 G1 G1 Date 2,500 26,000 2009 Dec. 1 Dec. 2 Dec. 3 Dec. 10 30,000 30,000 27,500 1,500 5,700 4,200 The balance column account format is similar to a T-account in having columns for debits and credits. It is different in including transaction date and explanation columns. It also has a column with the balance of the account after each entry is recorded. To illustrate, FastForwards Cash account in Exhibit 2.11 is debited on December 1 for the $30,000 owner investment, yielding a $30,000 debit balance. The account is credited on December 2 for $2,500, yielding a $27,500 debit balance. On December 3, it is credited again, this time for $26,000, and its debit balance is reduced to $1,500. The Cash account is debited for $4,200 on December 10, and its debit balance increases to $5,700; and so on. The heading of the Balance column does not show whether it is a debit or credit balance. Instead, an account is assumed to have a normal balance. Unusual events can sometimes EXHIBIT 2.12 Posting an Entry to the Ledger GENERAL JOURNAL 2009 Dec. 1 101 301 Cash C. Taylor, Capital Investment by owner 1 30,000 30,000 2 LEDGER 3 2009 Dec. 1 G1 30,000 30,000 4 C. Taylor, Capital 301 2009 Dec. 1 Point: The fundamental concepts of a manual (pencil-and-paper) system are identical to those of a computerized information system. Key: 1 2 3 4 G1 30,000 30,000 Identify debit account in Ledger: enter date, journal page, amount, and balance. Enter the debit account number from the Ledger in the PR column of the journal. Identify credit account in Ledger: enter date, journal page, amount, and balance. Enter the credit account number from the Ledger in the PR column of the journal. wiL79549_ch02_0046-0089 08/18/2008 9:55 am Page 57 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 57 temporarily give an account an abnormal balance. An abnormal balance refers to a balance on the side where decreases are recorded. For example, a customer might mistakenly overpay a bill. This gives that customers account receivable an abnormal (credit) balance. An abnormal balance is often identified by circling it or by entering it in red or some other unusual color. A zero balance for an account is usually shown by writing zeros or a dash in the Balance column to avoid confusion between a zero balance and one omitted in error. Posting Journal Entries Step 4 of processing transactions is to post journal entries to ledger accounts (see Exhibit 2.9). To ensure that the ledger is up-to-date, entries are posted as soon as possible. This might be daily, weekly, or when time permits. All entries must be posted to the ledger before financial statements are prepared to ensure that account balances are upto-date. When entries are posted to the ledger, the debits in journal entries are transferred into ledger accounts as debits, and credits are transferred into ledger accounts as credits. Exhibit 2.12 shows the four steps to post a journal entry. First, identify the ledger account that is debited in the entry; then, in the ledger, enter the entry date, the journal and page in its PR column, the debit amount, and the new balance of the ledger account. (The letter G shows it came from the General Journal.) Second, enter the ledger account number in the PR column of the journal. Steps 3 and 4 repeat the first two steps for credit entries and amounts. The posting process creates a link between the ledger and the journal entry. This link is a useful crossreference for tracing an amount from one record to another. Point: Computerized systems often provide a code beside a balance such as dr. or cr. to identify its balance. Posting is automatic and immediate with accounting software. Point: A journal is often referred to as the book of original entry. The ledger is referred to as the book of final entry because financial statements are prepared from it. Analyzing TransactionsAn Illustration We return to the activities of FastForward to show how double-entry accounting is useful in analyzing and processing transactions. Analysis of each transaction follows the four steps of Exhibit 2.9. First, we review the transaction and any source documents. Second, we analyze the transaction using the accounting equation. Third, we use double-entry accounting to record the transaction in journal entry form. Fourth, the entry is posted (for simplicity, we use T-accounts to represent ledger accounts). Study each transaction thoroughly before proceeding to the next. The first 11 transactions are from Chapter 1, and we analyze five additional December transactions of FastForward (numbered 12 through 16) that were omitted earlier. 1. Investment by Owner 1 IDENTIFY 2 ANALYZE Chuck Taylor invests $30,000 cash in FastForward. Assets 0 C.Taylor, Capital 30,000 Cash 30,000 3 RECORD (1) Cash Equity Cash C.Taylor, Capital 101 301 (1) 101 30,000 C.Taylor, Capital 301 (1) 30,000 Supplies 126 30,000 30,000 2. Purchase Supplies for Cash 1 IDENTIFY FastForward pays $2,500 cash for supplies. 2 ANALYZE Assets Liabilities Equity Cash 2,500 Supplies 2,500 4 POST (2) 0 2,500 (1) 30,000 0 Changes the composition of assets but not the total. 3 RECORD (2) Supplies Cash 126 101 2,500 2,500 Analyze the impact of transactions on accounts and financial statements. FAST Forward 4 POST Liabilities A1 Cash (2) 101 2,500 wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 58 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 58 Chapter 2 Analyzing and Recording Transactions 3. Purchase Equipment for Cash 1 IDENTIFY 2 ANALYZE FastForward pays $26,000 cash for equipment. Assets Liabilities 0 4 POST Equipment Equity 0 (3) Cash Equipment 26,000 26,000 26,000 Changes the composition of assets but not the total. 3 RECORD (3) 167 Equipment Cash 167 26,000 101 26,000 Cash (1) 30,000 101 (2) (3) 2,500 26,000 Supplies 126 4. Purchase Supplies on Credit 1 IDENTIFY 4 POST FastForward purchases $7,100 of supplies on credit from a supplier. Assets Liabilities Equity Supplies 2 ANALYZE Accounts Payable 7,100 0 7,100 3 RECORD (4) Supplies Accounts Payable 126 201 (2) (4) 2,500 7,100 Accounts Payable 7,100 (4) 7,100 201 7,100 5. Provide Services for Cash 1 IDENTIFY 2 ANALYZE Assets Equity 0 Consulting Revenue 4,200 4,200 (5) Cash Liabilities Cash 3 RECORD 4 POST FastForward provides consulting services and immediately collects $4,200 cash. Cash Consulting Revenue 101 403 (1) (5) 30,000 4,200 (2) (3) 101 2,500 26,000 Consulting Revenue 403 (5) 4,200 4,200 4,200 6. Payment of Expense in Cash 1 IDENTIFY 2 ANALYZE FastForward pays $1,000 cash for December rent. Assets Liabilities Cash 1,000 3 RECORD (6) 0 Rent Expense Cash 640 101 4 POST Rent Expense Equity Rent Expense 1,000 1,000 1,000 (6) 1,000 (1) (5) 30,000 4,200 640 Cash (2) (3) (6) 101 2,500 26,000 1,000 7. Payment of Expense in Cash Point: Salary usually refers to compensation for an employee who receives a fixed amount for a given time period, whereas wages usually refers to compensation based on time worked. 1 IDENTIFY FastForward pays $700 cash for employee salary. 4 POST Salaries Expense 2 ANALYZE Assets Liabilities Equity 0 Salaries Expense 700 Cash 700 3 RECORD (7) Salaries Expense Cash 622 101 700 700 (1) (5) 700 (7) 30,000 4,200 622 Cash (2) (3) (6) (7) 101 2,500 26,000 1,000 700 wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 59 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 59 8. Provide Consulting and Rental Services on Credit 1 IDENTIFY FastForward provides consulting services of $1,600 and rents its test facilities for $300. The customer is billed $1,900 for these services. 2 ANALYZE Assets Liabilities (8) (8) 1,900 Consulting Rental Revenue Revenue 1,600 300 Accounts Receivable 1,900 3 RECORD Accounts Receivable 106 Equity 0 4 POST Accounts Receivable Consulting Revenue Rental Revenue 106 403 406 Consulting Revenue 403 (5) (8) 1,900 Rental Revenue 1,600 300 (8) 4,200 1,600 406 Point: Transaction 8 is a compound journal entry, which affects three or more accounts. 300 9. Receipt of Cash on Account 1 IDENTIFY FastForward receives $1,900 cash from the client billed in transaction 8. 2 ANALYZE Assets Cash 1,900 3 RECORD (9) Liabilities Equity 0 4 POST Cash (1) (5) (9) 30,000 4,200 1,900 0 Accounts Receivable 1,900 Cash Accounts Receivable 101 106 1,900 (2) (3) (6) (7) 101 2,500 26,000 1,000 700 Accounts Receivable 106 1,900 (8) 1,900 (9) 1,900 10. Partial Payment of Accounts Payable 1 IDENTIFY 2 ANALYZE 4 POST FastForward pays CalTech Supply $900 cash toward the payable of transaction 4. Accounts Payable Liabilities Equity Cash 900 3 RECORD Assets Accounts Payable 900 (10) 0 (10) Accounts Payable Cash 201 101 900 900 900 (4) Cash (1) (5) (9) 30,000 4,200 1,900 (2) (3) (6) (7) (10) 201 7,100 101 2,500 26,000 1,000 700 900 11. Withdrawal of Cash by Owner 1 IDENTIFY 2 ANALYZE Assets 200 C.Taylor, Withdrawals 302 Liabilities Equity 0 C.Taylor, Withdrawals 200 Cash 3 RECORD 4 POST Chuck Taylor withdraws $200 cash from FastForward for personal use. (11) C.Taylor,Withdrawals Cash 302 101 200 200 (11) 200 Cash (1) (5) (9) 30,000 4,200 1,900 (2) (3) (6) (7) (10) (11) 101 2,500 26,000 1,000 700 900 200 Point: The revenue recognition principle requires revenue to be recognized when earned, which is when the company provides products and services to a customer. This is not necessarily the same time that the customer pays. A customer can pay before or after products or services are provided. wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 60 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 60 Chapter 2 Analyzing and Recording Transactions 12. Receipt of Cash for Future Services 1 IDENTIFY FastForward receives $3,000 cash in advance of providing consulting services to a customer. Assets Liabilities Equity Cash 3,000 2 ANALYZE Unearned Consulting Revenue 3,000 0 4 POST Cash (1) (5) (9) (12) 30,000 4,200 1,900 3,000 Accepting $3,000 cash obligates FastForward to perform future services and is a liability. No revenue is earned until services are provided. Point: Luca Pacioli, a 15th-century monk, is considered a pioneer in accounting and the first to devise double-entry accounting. 3 RECORD (12) Cash Unearned Consulting Revenue 101 101 2,500 26,000 1,000 700 900 200 Unearned Consulting Revenue 236 3,000 236 (2) (3) (6) (7) (10) (11) (12) 3,000 3,000 13. Pay Cash for Future Insurance Coverage 1 IDENTIFY FastForward pays $2,400 cash (insurance premium) for a 24-month insurance policy. Coverage begins on December 1. Assets 2 ANALYZE Cash 2,400 Liabilities (13) Prepaid Insurance (13) Equity 0 Prepaid Insurance Cash 128 101 128 2,400 Cash Prepaid Insurance 2,400 0 Changes the composition of assets from cash to prepaid insurance. Expense is incurred as insurance coverage expires. 3 RECORD 4 POST (1) (5) (9) (12) 30,000 4,200 1,900 3,000 2,400 2,400 (2) (3) (6) (7) (10) (11) (13) 101 2,500 26,000 1,000 700 900 200 2,400 14. Purchase Supplies for Cash 1 IDENTIFY Assets 2 ANALYZE Cash 120 3 RECORD 4 POST FastForward pays $120 cash for supplies. (14) Supplies 120 Supplies Cash Liabilities Equity 0 0 126 101 Supplies (2) (4) (14) 2,500 7,100 120 (1) (5) (9) (12) 30,000 4,200 1,900 3,000 126 120 Cash 120 (2) (3) (6) (7) (10) (11) (13) (14) 101 2,500 26,000 1,000 700 900 200 2,400 120 wiL79549_ch02_0046-0089 07/25/2008 6:51 pm Page 61 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 61 15. Payment of Expense in Cash 1 IDENTIFY 2 ANALYZE FastForward pays $230 cash for December utilities expense. Assets 3 RECORD (15) Utilities Expense Cash Equity 0 Cash 230 Liabilities Utilities Expense 230 690 101 230 230 4 POST Utilities Expense (15) 690 230 Cash (1) (5) (9) (12) 30,000 4,200 1,900 3,000 (2) (3) (6) (7) (10) (11) (13) (14) (15) 101 2,500 26,000 1,000 700 900 200 2,400 120 230 16. Payment of Expense in Cash 1 IDENTIFY 2 ANALYZE FastForward pays $700 cash in employee salary for work performed in the latter part of December. Assets Liabilities Equity 0 Salaries Expense 700 Cash 700 3 RECORD (16) Salaries Expense Cash 622 101 700 700 4 POST Salaries Expense (7) (16) Point: We could merge transactions 15 and 16 into one compound entry. 700 700 Cash (1) (5) (9) (12) 622 30,000 4,200 1,900 3,000 (2) (3) (6) (7) (10) (11) (13) (14) (15) (16) 101 2,500 26,000 1,000 700 900 200 2,400 120 230 700 Debit and Credit Rules Accounts Increase (normal bal.) Decrease Asset . . . . . . . . . . . . Debit Credit Liability . . . . . . . . . . Credit Debit Capital . . . . . . . . . . . Credit Debit Withdrawals . . . . . . . Debit Credit Revenue . . . . . . . . . . Credit Debit Expense . . . . . . . . . . Debit Credit Accounting Equation Analysis Exhibit 2.13 shows the ledger accounts (in T-account form) of FastForward after all 16 transactions are recorded and posted and the balances computed. The accounts are grouped into three major columns corresponding to the accounting equation: assets, liabilities, and equity. Note several important points. First, as with each transaction, the totals for the three columns must obey the accounting equation. Specifically, assets equal $42,470 1 $4,350 $0 $9,720 $2,400 $26,000 2 ; liabilities equal $9,200 1 $6,200 $3,000 2 ; and equity equals $33,270 1 $30,000 $200 $5,800 $300 $1,400 $1,000 $230 2 . These numbers prove the accounting equation: Assets of $42,470 Liabilities of $9,200 Equity of $33,270. Second, the capital, withdrawals, revenue, and expense accounts reflect the transactions that change equity. These account categories underlie the statement of owners equity. Third, the revenue and expense account balances will be summarized and reported in the income statement. Fourth, increases and decreases in the cash account make up the elements reported in the statement of cash flows. Point: Technology does not provide the judgment required to analyze most business transactions. Analysis requires the expertise of skilled and ethical professionals. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 62 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 62 EXHIBIT 2.13 Ledger for FastForward (in T-Account Form) Assets Cash (1) (5) (9) (12) 30,000 4,200 1,900 3,000 (2) (3) (6) (7) (10) (11) (13) (14) (15) (16) Liabilities Accounts Payable 101 2,500 26,000 1,000 700 900 200 2,400 120 230 700 Equity (10) 900 (4) Balance 201 C.Taylor, Capital 7,100 6,200 (1) C.Taylor, Withdrawals Unearned Consulting Revenue 236 (12) (11) 301 30,000 302 200 3,000 Consulting Revenue 403 1,900 0 (9) Supplies (2) (4) (14) Balance 406 4,350 Accounts Receivable (8) Balance 4,200 1,600 5,800 Rental Revenue Balance (5) (8) Balance 106 (8) Salaries Expense (7) (16) Balance (13) (3) 128 Utilities Expense 26,000 Equipment 1,000 Rent Expense 2,400 622 700 700 1,400 (6) 126 2,500 7,100 120 9,720 Prepaid Insurance 300 1,900 (15) 640 690 230 167 Accounts in this white area reflect those reported on the income statement. $42,470 $9,200 $33,270 Quick Check Answersp. 72 8. What types of transactions increase equity? What types decrease equity? 9. Why are accounting systems called double-entry? 10. For each transaction, double-entry accounting requires which of the following? (a) Debits to asset accounts must create credits to liability or equity accounts, (b) a debit to a liability account must create a credit to an asset account, or (c) total debits must equal total credits. 11. An owner invests $15,000 cash along with equipment having a market value of $23,000 in a company. Prepare the necessary journal entry. 12. Explain what a compound journal entry is. 13. Why are posting reference numbers entered in the journal when entries are posted to ledger accounts? wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 63 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 63 Trial Balance Double-entry accounting requires the sum of debit account balances to equal the sum of credit account balances. A trial balance is used to verify this. A trial balance is a list of accounts and their balances at a point in time. Account balances are reported in the appropriate debit or credit column of a trial balance. Exhibit 2.14 shows the trial balance for FastForward after its 16 entries have been posted to the ledger. (This is an unadjusted trial balanceChapter 3 explains the necessary adjustments.) Video2.1 EXHIBIT 2.14 Trial Balance (Unadjusted) FASTFORWARD Trial Balance December 31, 2009 Credit Debit Cash $ 4,350 0 Accounts receivable 9,720 Supplies 2,400 Prepaid insurance 26,000 Equipment $ Accounts payable 6,200 3,000 Unearned consulting revenue 30,000 C. Taylor, Capital C. Taylor, Withdrawals 200 5,800 Consulting revenue 300 Rental revenue Salaries expense 1,400 Rent expense 1,000 230 Utilities expense Totals $ 45,300 $ 45,300 Point: The ordering of accounts in a trial balance typically follows their identification number from the chart of accounts. Preparing a Trial Balance Preparing a trial balance involves three steps: 1. List each account title and its amount (from ledger) in the trial balance. If an account has a zero balance, list it with a zero in its normal balance column (or omit it entirely). 2. Compute the total of debit balances and the total of credit balances. 3. Verify ( prove) total debit balances equal total credit balances. The total of debit balances equals the total of credit balances for the trial balance in Exhibit 2.14. Equality of these two totals does not guarantee that no errors were made. For example, the column totals still will be equal when a debit or credit of a correct amount is made to a wrong account. Another error that does not cause unequal column totals is when equal debits and credits of an incorrect amount are entered. If the trial balance does not balance (when its columns are not equal), the error (or errors) must be found and corrected. An efficient Searching for and Correcting Errors P2 Prepare and explain the use of a trial balance. Point: A trial balance is not a financial statement but a mechanism for checking equality of debits and credits in the ledger. Financial statements do not have debit and credit columns. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 64 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 64 Chapter 2 Analyzing and Recording Transactions Example: If a credit to Unearned Revenue was incorrectly posted from the journal as a credit to the Revenue ledger account, would the ledger still balance? Would the financial statements be correct? Answers: The ledger would balance, but liabilities would be understated, equity would be overstated, and income would be overstated (all because of overstated revenues). way to search for an error is to check the journalizing, posting, and trial balance preparation in reverse order. Step 1 is to verify that the trial balance columns are correctly added. If step 1 fails to find the error, step 2 is to verify that account balances are accurately entered from the ledger. Step 3 is to see whether a debit (or credit) balance is mistakenly listed in the trial balance as a credit (or debit). A clue to this error is when the difference between total debits and total credits equals twice the amount of the incorrect account balance. If the error is still undiscovered, Step 4 is to recompute each account balance in the ledger. Step 5 is to verify that each journal entry is properly posted. Step 6 is to verify that the original journal entry has equal debits and credits. At this point, the errors should be uncovered.3 If an error in a journal entry is discovered before the error is posted, it can be corrected in a manual system by drawing a line through the incorrect information. The correct information is written above it to create a record of change for the auditor. Many computerized systems allow the operator to replace the incorrect information directly. If an error in a journal entry is not discovered until after it is posted, we do not strike through both erroneous entries in the journal and ledger. Instead, we correct this error by creating a correcting entry that removes the amount from the wrong account and records it to the correct account. As an example, suppose a $100 purchase of supplies is journalized with an incorrect debit to Equipment, and then this incorrect entry is posted to the ledger. The Supplies ledger account balance is understated by $100, and the Equipment ledger account balance is overstated by $100. The correcting entry is: debit Supplies and credit Equipment (both for $100). Point: The IRS requires companies to keep records that can be audited. Using a Trial Balance to Prepare Financial Statements P3 Prepare financial statements from business transactions. EXHIBIT 2.15 Links between Financial Statements across Time This section shows how to prepare financial statements from the trial balance in Exhibit 2.14 and from information on the December transactions of FastForward. These statements differ from those in Chapter 1 because of several additional transactions. These statements are also more precisely called unadjusted statements because we need to make some further accounting adjustments (described in Chapter 3). Income statement How financial statements are linked in time is illustrated in Exhibit 2.15. A balance sheet reports on an organizations Statement Beginning Ending of financial position at a point in time. The balance balance owners sheet sheet income statement, statement of owners equity equity, and statement of cash flows report on financial performance over a Statement of cash period of time. The three statements in flows the middle column of Exhibit 2.15 link balance sheets from the beginning to the end of a reporting period. They explain how financial position changes from one Point in time Period of time Point in time point to another. 3 Transposition occurs when two digits are switched, or transposed, within a number. If transposition is the only error, it yields a difference between the two trial balance totals that is evenly divisible by 9. For example, assume that a $691 debit in an entry is incorrectly posted to the ledger as $619. Total credits in the trial balance are then larger than total debits by $72 ($691 $619). The $72 error is evenly divisible by 9 (72 9 8). The first digit of the quotient (in our example it is 8) equals the difference between the digits of the two transposed numbers (the 9 and the 1). The number of digits in the quotient also tells the location of the transposition, starting from the right. The quotient in our example had only one digit (8), so it tells us the transposition is in the first digit. Consider another example where a transposition error involves posting $961 instead of the correct $691. The difference in these numbers is $270, and its quotient is 30 (270 9). The quotient has two digits, so it tells us to check the second digit from the right for a transposition of two numbers that have a difference of 3. wiL79549_ch02_0046-0089 08/18/2008 9:55 am Page 65 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions Preparers and users (including regulatory agencies) determine the length of the reporting period. A one-year, or annual, reporting period is common, as are semiannual, quarterly, and monthly periods. The one-year reporting period is known as the accounting, or fiscal, year. Businesses whose accounting year begins on January 1 and ends on December 31 are known as calendar-year companies. Many companies choose a fiscal year ending on a date other than December 31. Best Buy is a noncalendar-year company as reflected in the headings of its March 3 year-end financial statements in Appendix A near the end of the book. 65 Point: A statements heading lists the 3 Ws: Whoname of organization, Whatname of statement, When statements point in time or period of time. Income Statement An income statement reports the revenues earned less the expenses incurred by a business over a period of time. FastForwards income statement for December is shown at the top of Exhibit 2.16. Information about revenues and expenses is conveniently taken from the trial balance in Exhibit 2.14. Net income of $3,470 is reported at the bottom of the statement. Owner investments and withdrawals are not part of income. The statement of owners equity reports information about how equity changes over the reporting period. FastForwards statement of owners Statement of Owners Equity EXHIBIT 2.16 FASTFORWARD Income Statement For Month Ended December 31, 2009 Revenues Consulting revenue Rental revenue . . . Total revenues . . . Expenses Rent expense . . . . Salaries expense . . Utilities expense . Total expenses . . . Net income . . . . . . . ($4,200 $1,600) . . . . . . . ...................... ...................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Their Links $ 5,800 300 $ 6,100 1,000 1,400 230 2,630 $ 3,470 Point: Arrow lines show how the statements are linked. FASTFORWARD Statement of Owners Equity For Month Ended December 31, 2009 C. Taylor, Capital, December 1, 2009 . . . . . . . . . . . Plus: Investments by owner . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . $ $30,000 3,470 Less: Withdrawals by owner . . . . . . . . . . . . . . . . C. Taylor, Capital, December 31, 2009 . . . . . . . . . . 0 33,470 33,470 200 $33,270 FASTFORWARD Balance Sheet December 31, 2009 Assets Cash . . . . . . . . . . . Supplies . . . . . . . . . Prepaid insurance . . Equipment . . . . . . . $ 4,350 9,720 2,400 26,000 Total assets . . . . . . $42,470 Liabilities Accounts payable . . . . . . Unearned revenue . . . . . Total liabilities . . . . . . . . Equity C. Taylor, Capital . . . . . . . Total liabilities and equity . . . $ 6,200 3,000 9,200 . . 33,270 $ 42,470 Point: To foot a column of numbers is to add them. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 66 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 66 equity is the second report in Exhibit 2.16. It shows the $30,000 owner investment, the $3,470 of net income, the $200 withdrawal, and the $33,270 end-of-period (capital) balance. (The beginning balance in the statement of owners equity is rarely zero; an exception is for the first period of operations. The beginning capital balance in January 2010 is $33,270, which is Decembers ending balance.) Point: An income statement is also called an earnings statement, a statement of operations, or a P&L (profit and loss) statement. A balance sheet is also called a statement of financial position. Point: While revenues increase equity, and expenses decrease equity, the amounts are not reported in detail in the statement of owners equity. Instead, their effects are reflected through net income. The balance sheet reports the financial position of a company at a point in time, usually at the end of a month, quarter, or year. FastForwards balance sheet is the third report in Exhibit 2.16. This statement refers to financial condition at the close of business on December 31. The left side of the balance sheet lists its assets: cash, supplies, prepaid insurance, and equipment. The upper right side of the balance sheet shows that it owes $6,200 to creditors and $3,000 in services to customers who paid in advance. The equity section shows an ending balance of $33,270. Note the link between the ending balance of the statement of owners equity and the capital balance here. (Recall that this presentation of the balance sheet is called the account form: assets on the left and liabilities and equity on the right. Another presentation is the report form: assets on top, followed by liabilities and then equity. Either presentation is acceptable.) Balance Sheet Decision Maker Entrepreneur You open a wholesale business selling entertainment equipment to retail outlets.You find that most of your customers demand to buy on credit. How can you use the balance sheets of these customers to decide which ones to extend credit to? [Answerp. 71] Point: Knowing how financial statements are prepared improves our analysis of them. Dollar signs are not used in journals and ledgers. They do appear in financial statements and other reports such as trial balances. The usual practice is to put dollar signs beside only the first and last numbers in a column. Best Buys financial statements in Appendix A show this. When amounts are entered in a journal, ledger, or trial balance, commas are optional to indicate thousands, millions, and so forth. However, commas are always used in financial statements. Companies also commonly round amounts in reports to the nearest dollar, or even to a higher level. Best Buy is typical of many companies in that it rounds its financial statement amounts to the nearest million. This decision is based on the perceived impact of rounding for users business decisions. Presentation Issues Quick Check Answersp. 72 14. Where are dollar signs typically entered in financial statements? 15. If a $4,000 debit to Equipment in a journal entry is incorrectly posted to the ledger as a $4,000 credit, and the ledger account has a resulting debit balance of $20,000, what is the effect of this error on the Trial Balance column totals? 16. Describe the link between the income statement and the statement of owners equity. 17. Explain the link between the balance sheet and the statement of owners equity. 18. Define and describe revenues and expenses. 19. Define and describe assets, liabilities, and equity. Decision Analysis A2 Compute the debt ratio and describe its use in analyzing financial condition. Debt Ratio An important business objective is gathering information to help assess a companys risk of failing to pay its debts. Companies finance their assets with either liabilities or equity. A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage. Higher financial leverage involves greater risk because liabilities must be repaid and often require wiL79549_ch02_0046-0089 8/25/08 11:24PM Page 67 ntt 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 67 regular interest payments (equity financing does not). The risk that a company might not be able to meet such required payments is higher if it has more liabilities (is more highly leveraged). One way to assess the risk associated with a companys use of liabilities is to compute the debt ratio as in Exhibit 2.17. Debt ratio EXHIBIT 2.17 Total liabilities Total assets Debt Ratio To see how to apply the debt ratio, lets look at Skecherss liabilities and assets. The company designs, markets, and sells footwear for men, women, and children under the Skechers brand. Exhibit 2.18 computes and reports its debt ratio at the end of each year from 2002 to 2006. $ in millions 2006 2005 2004 2003 2002 Total liabilities . . . . . . . . . . Total assets . . . . . . . . . . . . Debt ratio . . . . . . . . . . . Industry debt ratio . . . . . . . $288 $737 0.39 0.48 $238 $582 0.41 0.47 $224 $519 0.43 0.48 $211 $467 0.45 0.46 $224 $483 0.46 0.45 Skecherss debt ratio ranges from a low of 0.39 to a high of 0.46also, see graph in margin. Its ratio is slightly lower, and has been declining, compared with the industry ratio. This analysis implies a low risk from its financial leverage. Is financial leverage good or bad for Skechers? To answer that question we need to compare the companys return on the borrowed money to the rate it is paying creditors. If the companys return is higher, it is successfully borrowing money to make more money. A companys success with making money from borrowed money can quickly turn unprofitable if its own return drops below the rate it is paying creditors. Point: Compare the equity amount to the liability amount to assess the extent of owner versus nonowner financing. EXHIBIT 2.18 Computation and Analysis of Debt Ratio Millions Ratio $800 $700 $600 $500 $400 $300 $200 $100 $0 50% 42% 34% 0.0% 2006 Skechers: 2005 2004 Liabilities($) 2003 Assets($) Decision Maker Investor You consider buying stock in Converse. As part of your analysis, you compute its debt ratio for 2006, 2007, and 2008 as: 0.35, 0.74, and 0.94, respectively. Based on the debt ratio, is Converse a lowrisk investment? Has the risk of buying Converse stock changed over this period? (The industry debt ratio averages 0.40.) [Answerp. 71] Demonstration Problem (This problem extends the demonstration problem of Chapter 1.) After several months of planning, Jasmine Worthy started a haircutting business called Expressions. The following events occurred during its first month. a. b. c. d. e. f. g. h. i. j. k. On August 1, Worthy invested $3,000 cash and $15,000 of equipment in Expressions. On August 2, Expressions paid $600 cash for furniture for the shop. On August 3, Expressions paid $500 cash to rent space in a strip mall for August. On August 4, it purchased $1,200 of equipment on credit for the shop (using a long-term note payable). On August 5, Expressions opened for business. Cash received from haircutting services in the first week and a half of business (ended August 15) was $825. On August 15, it provided $100 of haircutting services on account. On August 17, it received a $100 check for services previously rendered on account. On August 17, it paid $125 to an assistant for hours worked during the grand opening. Cash received from services provided during the second half of August was $930. On August 31, it paid a $400 installment toward principal on the note payable entered into on August 4. On August 31, Worthy withdrew $900 cash for personal use. DP2 2002 Debt ratio(%) wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 68 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 68 Chapter 2 Analyzing and Recording Transactions Required 1. Open the following ledger accounts in balance column format (account numbers are in parentheses): 2. 3. 4. 5. 6. 7. Cash (101); Accounts Receivable (102); Furniture (161); Store Equipment (165); Note Payable (240); J. Worthy, Capital (301); J. Worthy, Withdrawals (302); Haircutting Services Revenue (403); Wages Expense (623); and Rent Expense (640). Prepare general journal entries for the transactions. Post the journal entries from (1) to the ledger accounts. Prepare a trial balance as of August 31. Prepare an income statement for August. Prepare a statement of owners equity for August. Prepare a balance sheet as of August 31. Determine the debt ratio as of August 31. Extended Analysis 8. In the coming months, Expressions will experience a greater variety of business transactions. Identify which accounts are debited and which are credited for the following transactions. (Hint: We must use some accounts not opened in part 1.) a. Purchase supplies with cash. b. Pay cash for future insurance coverage. c. Receive cash for services to be provided in the future. d. Purchase supplies on account. Planning the Solution Analyze each transaction and use the debit and credit rules to prepare a journal entry for each. Post each debit and each credit from journal entries to their ledger accounts and cross-reference each amount in the posting reference (PR) columns of the journal and ledger. Calculate each account balance and list the accounts with their balances on a trial balance. Verify that total debits in the trial balance equal total credits. To prepare the income statement, identify revenues and expenses. List those items on the statement, compute the difference, and label the result as net income or net loss. Use information in the ledger to prepare the statement of owners equity. Use information in the ledger to prepare the balance sheet. Calculate the debt ratio by dividing total liabilities by total assets. Analyze the future transactions to identify the accounts affected and apply debit and credit rules. Solution to Demonstration Problem 1. General journal entries: Aug. 1 2 3 4 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Store Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J. Worthy, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . Owners investment. Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased furniture for cash. Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid rent for August. Store Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchased additional equipment on credit. [continued on next page] .. .. .. 101 165 301 3,000 15,000 .. .. 161 101 600 .. .. 640 101 500 .. .. 165 240 1,200 18,000 600 500 1,200 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 69 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions [continued from previous page] 15 15 17 17 31 31 31 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haircutting Services Revenue . . . . . . . . . . . . . . . . . Cash receipts from first half of August. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Haircutting Services Revenue . . . . . . . . . . . . . . . . . To record revenue for services provided on account. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . To record cash received as payment on account. Wages Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid wages to assistant. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haircutting Services Revenue . . . . . . . . . . . . . . . . . Cash receipts from second half of August. Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid an installment on the note payable. J. Worthy, Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash withdrawal by owner. .. .. 101 403 825 .. .. 102 403 100 .. .. 101 102 100 .. .. 623 101 125 .. .. 101 403 930 .. .. 240 101 400 .. .. 302 101 900 825 100 100 125 930 400 900 2. Post journal entries from part 1 to the ledger accounts: General Ledger Cash Account No. 101 Date PR Debit Aug. 1 2 3 15 17 17 31 31 31 G1 G1 G1 G1 G1 G1 G1 G1 G1 Credit 3,000 600 500 825 100 125 930 400 900 Accounts Receivable Date PR Debit Aug. 15 17 G1 G1 Date PR Debit 3,000 2,400 1,900 2,725 2,825 2,700 3,630 3,230 2,330 Aug. 4 31 G1 G1 400 Credit Balance 100 Furniture 100 0 Account No. 161 Date PR Debit Aug. 2 G1 600 Store Equipment Credit Balance 600 Account No. 165 Date PR Debit Aug. 1 4 G1 G1 15,000 1,200 Credit Account No. 240 Balance Account No. 102 100 Note Payable Balance 15,000 16,200 Date PR Aug. 1 Balance 1,200 J. Worthy, Capital Credit 1,200 800 Account No. 301 Debit G1 Date PR Debit Aug. 31 G1 Balance 18,000 J. Worthy, Withdrawals Credit 18,000 Account No. 302 Credit 900 Balance 900 Haircutting Services Revenue Account No. 403 Date PR Aug. 15 15 31 Debit G1 G1 G1 Balance 825 100 930 Wages Expense Credit 825 925 1,855 Account No. 623 Date PR Debit Aug. 17 G1 125 Rent Expense Credit Balance 125 Account No. 640 Date PR Debit Aug. 3 G1 500 Credit Balance 500 69 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 70 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 70 Chapter 2 Analyzing and Recording Transactions 3. Prepare a trial balance from the ledger: EXPRESSIONS Trial Balance August 31 Cash . . . . . . . . . . . . . . . . Accounts receivable . . . . . . Furniture . . . . . . . . . . . . . Store equipment . . . . . . . . Note payable . . . . . . . . . . J. Worthy, Capital . . . . . . . . J. Worthy, Withdrawals . . . . Haircutting services revenue Wages expense . . . . . . . . . Rent expense . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debit $ 2,330 0 600 16,200 . . . . . . . . . . . Credit $ 800 18,000 900 1,855 125 500 $20,655 $20,655 4. EXPRESSIONS Income Statement For Month Ended August 31 Revenues Haircutting services revenue Operating expenses Rent expense . . . . . . . . . . Wages expense . . . . . . . . . Total operating expenses . . Net income . . . . . . . . . . . . . ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,855 $500 125 625 $1,230 5. EXPRESSIONS Statement of Owners Equity For Month Ended August 31 J. Worthy, Capital, August 1 . . . . . . . . . . Plus: Investments by owner . . . . . . . . Net income . . . . . . . . . . . . . . . . Less: Withdrawals by owner . . . . . . . . J. Worthy, Capital, August 31 . . . . . . . . . $ $18,000 1,230 0 19,230 19,230 900 $18,330 6. EXPRESSIONS Balance Sheet August 31 Assets Cash . . . . . . . . Furniture . . . . . Store equipment Total assets . . . ... ... .. ... . . . . . . . . . . . . . . . . . . . . $ 2,330 600 16,200 $19,130 Liabilities Note payable . . . . . . . . . . . . . . . . Equity J. Worthy, Capital . . . . . . . . . . . . . Total liabilities and equity . . . . . . . $ 800 18,330 $19,130 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 71 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 7. Debt ratio Total liabilities Total assets $800 $19,130 71 4.18 % 8a. Supplies debited 8c. Cash debited Cash credited 8b. Prepaid Insurance debited Cash credited Unearned Services Revenue credited 8d. Supplies debited Accounts Payable credited Summary C1 Explain the steps in processing transactions. The accounting process identifies business transactions and events, analyzes and records their effects, and summarizes and prepares information useful in making decisions. Transactions and events are the starting points in the accounting process. Source documents help in their analysis. The effects of transactions and events are recorded in journals. Posting along with a trial balance helps summarize and classify these effects. C2 Describe source documents and their purpose. Source documents identify and describe transactions and events. Examples are sales tickets, checks, purchase orders, bills, and bank statements. Source documents provide objective and reliable evidence, making information more useful. C3 Describe an account and its use in recording transactions. An account is a detailed record of increases and decreases in a specific asset, liability, equity, revenue, or expense. Information from accounts is analyzed, summarized, and presented in reports and financial statements for decision makers. C4 Describe a ledger and a chart of accounts. The ledger (or general ledger) is a record containing all accounts used by a company and their balances. It is referred to as the books. The chart of accounts is a list of all accounts and usually includes an identification number assigned to each account. C5 Define debits and credits and explain double-entry accounting. Debit refers to left, and credit refers to right. Debits increase assets, expenses, and withdrawals while credits decrease them. Credits increase liabilities, owner capital, and revenues; debits decrease them. Double-entry accounting means each transaction affects at least two accounts and has at least one debit and one credit. The system for recording debits and credits follows from the accounting equation. The left side of an account is the normal balance for assets, withdrawals, and expenses, and the right side is the normal balance for liabilities, capital, and revenues. Analyze the impact of transactions on accounts and financial statements. We analyze transactions using concepts of double-entry accounting. This analysis is performed by determining a transactions effects on accounts. These effects are recorded in journals and posted to ledgers. Compute the debt ratio and describe its use in analyzing financial condition. A companys debt ratio is computed as total liabilities divided by total assets. It reveals how much of the assets are financed by creditor (nonowner) financing. The higher this ratio, the more risk a company faces because liabilities must be repaid at specific dates. Record transactions in a journal and post entries to a ledger. Transactions are recorded in a journal. Each entry in a journal is posted to the accounts in the ledger. This provides information that is used to produce financial statements. Balance column accounts are widely used and include columns for debits, credits, and the account balance. Prepare and explain the use of a trial balance. A trial balance is a list of accounts from the ledger showing their debit or credit balances in separate columns. The trial balance is a summary of the ledgers contents and is useful in preparing financial statements and in revealing recordkeeping errors. Prepare financial statements from business transactions. The balance sheet, the statement of owners equity, the income statement, and the statement of cash flows use data from the trial balance (and other financial statements) for their preparation. A1 A2 P1 P2 P3 Guidance Answers to Decision Maker and Decision Ethics The advantages to the process proposed by the assistant manager include improved customer service, fewer delays, and less work for you. However, you should have serious concerns about internal control and the potential for fraud. In particular, the assistant manager could steal cash and simply enter fewer sales to match the remaining cash. You should reject her suggestion without the managers approval. Moreover, you should have an ethical concern about the assistant managers suggestion to ignore store policy. Cashier We can use the accounting equation (Assets Equity) to help us identify risky customers to whom we Entrepreneur Liabilities would likely not want to extend credit. A balance sheet provides amounts for each of these key components. The lower a customers equity is relative to liabilities, the less likely you would extend credit. A low equity means the business has little value that does not already have creditor claims to it. Investor The debt ratio suggests the stock of Converse is of higher risk than normal and that this risk is rising. The average industry ratio of 0.40 further supports this conclusion. The 2008 debt ratio for Converse is twice the industry norm. Also, a debt ratio approaching 1.0 indicates little to no equity. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 72 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 72 Guidance Answers to Quick Checks 1. Examples of source documents are sales tickets, checks, purchase 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. orders, charges to customers, bills from suppliers, employee earnings records, and bank statements. Source documents serve many purposes, including recordkeeping and internal control. Source documents, especially if obtained from outside the organization, provide objective and reliable evidence about transactions and their amounts. Equity Assets Liabilities a,c,e b,d An account is a record in an accounting system that records and stores the increases and decreases in a specific asset, liability, equity, revenue, or expense. The ledger is a collection of all the accounts of a company. A companys size and diversity affect the number of accounts in its accounting system. The types of accounts depend on information the company needs to both effectively operate and report its activities in financial statements. No. Debit and credit both can mean increase or decrease. The particular meaning in a circumstance depends on the type of account. For example, a debit increases the balance of asset, withdrawals, and expense accounts, but it decreases the balance of liability, capital, and revenue accounts. A chart of accounts is a list of all of a companys accounts and their identification numbers. Equity is increased by revenues and by owner investments. Equity is decreased by expenses and owner withdrawals. The name double-entry is used because all transactions affect at least two accounts. There must be at least one debit in one account and at least one credit in another account. The answer is (c). Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . Owner, Capital . . . . . . . . . . . . . . . . . . . Investment by owner of cash and equipment. 12. A compound journal entry affects three or more accounts. 13. Posting reference numbers are entered in the journal when post- 14. 15. 16. 17. 18. 19. ing to the ledger as a cross-reference that allows the recordkeeper or auditor to trace debits and credits from one record to another. At a minimum, dollar signs are placed beside the first and last numbers in a column. It is also common to place dollar signs beside any amount that appears after a ruled line to indicate that an addition or subtraction has occurred. The Equipment account balance is incorrectly reported at $20,000it should be $28,000. The effect of this error understates the trial balances Debit column total by $8,000. This results in an $8,000 difference between the column totals. An income statement reports a companys revenues and expenses along with the resulting net income or loss. A statement of owners equity reports changes in equity, including that from net income or loss. Both statements report transactions occurring over a period of time. The balance sheet describes a companys financial position (assets, liabilities, and equity) at a point in time. The capital amount in the balance sheet is obtained from the statement of owners equity. Revenues are inflows of assets in exchange for products or services provided to customers as part of the main operations of a business. Expenses are outflows or the using up of assets that result from providing products or services to customers. Assets are the resources a business owns or controls that carry expected future benefits. Liabilities are the obligations of a business, representing the claims of others against the assets of a business. Equity reflects the owners claims on the assets of the business after deducting liabilities. 15,000 23,000 38,000 mhhe.com/wildFAP19e Key Terms Key Terms are available at the books Website for learning and testing in an online Flashcard Format. Account (p. 49) Account balance (p. 53) Balance column account (p. 56) Chart of accounts (p. 52) Compound journal entry (p. 59) Credit (p. 53) Creditors (p. 50) Debit (p. 53) Debtors (p. 49) Debt ratio (p. 67) Double-entry accounting (p. 53) General journal (p. 54) General ledger (p. 49) Journal (p. 54) Journalizing (p. 54) Ledger (p. 49) Posting (p. 54) Posting reference (PR) column (p. 56) Source documents (p. 48) T-account (p. 53) Trial balance (p. 63) Unearned revenue (p. 50) wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 73 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions Multiple Choice Quiz Answers on p. 89 73 mhhe.com/wildFAP19e Additional Quiz Questions are available at the books Website. d. L. Shue, Capital . . . 750,000 1. Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its journal entry to record this transaction includes a a. Credit to Utility Expense for $700. b. Debit to Utility Expense for $700. c. Debit to Accounts Payable for $700. d. Debit to Cash for $700. e. Credit to capital for $700. 2. On May 1, Mattingly Lawn Service collected $2,500 cash from a customer in advance of five months of lawn service. Mattinglys journal entry to record this transaction includes a a. Credit to Unearned Lawn Service Fees for $2,500. b. Debit to Lawn Service Fees Earned for $2,500. c. Credit to Cash for $2,500. d. Debit to Unearned Lawn Service Fees for $2,500. e. Credit to capital for $2,500. 3. Liang Shue contributed $250,000 cash and land worth $500,000 to open his new business, Shue Consulting. Which of the following journal entries does Shue Consulting make to record this transaction? a. Cash Assets . . . . . . . . . . 750,000 L. Shue, Capital . . . . . 750,000 b. L. Shue, Capital . . . . . . . 750,000 Assets . . . . . . . . . . . . 750,000 c. Cash . . . . . . . . . . . . . . . 250,000 Land . . . . . . . . . . . . . . . 500,000 L. Shue, Capital . . . . . 750,000 Quiz2 Cash . . . . . . . . . 250,000 Land . . . . . . . . . 500,000 4. A trial balance prepared at year-end shows total credits exceed total debits by $765. This discrepancy could have been caused by a. An error in the general journal where a $765 increase in Accounts Payable was recorded as a $765 decrease in Accounts Payable. b. The ledger balance for Accounts Payable of $7,650 being entered in the trial balance as $765. c. A general journal error where a $765 increase in Accounts Receivable was recorded as a $765 increase in Cash. d. The ledger balance of $850 in Accounts Receivable was entered in the trial balance as $85. e. An error in recording a $765 increase in Cash as a credit. 5. Bonaventure Company has total assets of $1,000,000, liabilities of $400,000, and equity of $600,000. What is its debt ratio (rounded to a whole percent)? a. 250% b. 167% c. 67% d. 150% e. 40% Discussion Questions 1. Provide the names of two (a) asset accounts, (b) liability 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. accounts, and (c) equity accounts. What is the difference between a note payable and an account payable? Discuss the steps in processing business transactions. What kinds of transactions can be recorded in a general journal? Are debits or credits typically listed first in general journal entries? Are the debits or the credits indented? If assets are valuable resources and asset accounts have debit balances, why do expense accounts also have debit balances? Should a transaction be recorded first in a journal or the ledger? Why? Why does the recordkeeper prepare a trial balance? If an incorrect amount is journalized and posted to the accounts, how should the error be corrected? Identify the four financial statements of a business. What information is reported in an income statement? 12. 13. 14. 15. 16. 17. 18. 19. Why does the user of an income statement need to know the time period that it covers? What information is reported in a balance sheet? Define (a) assets, (b) liabilities, (c) equity, and (d ) net assets. Which financial statement is sometimes called the statement of financial position? Review the Best Buy balance sheet in Appendix A. Identify three accounts on its balance sheet that carry debit balances and three accounts on its balance sheet that carry credit balances. Refer to Circuit Citys balance sheet in Appendix A. What does Circuit City title its current liability for the purchase of merchandise? Review the RadioShack balance sheet in Appendix A. Identify an asset with the word receivable in its account title and a liability with the word payable in its account title. Locate Apples income statement in Appendix A. What is the title of its revenue account? Denotes Discussion Questions that involve decision making. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 74 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 74 Chapter 2 Analyzing and Recording Transactions QUICK STUDY Identify the items from a. Trial balance b. Telephone bill c. Sales ticket Available with McGraw-Hills Homework Manager QS 2-1 Identifying source documents the following list that are likely to serve as source documents. d. Income statement g. Prepaid insurance e. Company revenue account h. Bank statement f. Invoice from supplier i. Balance sheet C2 QS 2-2 Identifying financial statement items C3 P3 QS 2-3 Identifying normal balance C5 QS 2-4 Linking debit or credit with normal balance C5 QS 2-5 Analyzing debit or credit by account C5 A1 QS 2-6 Preparing journal entries P1 QS 2-7 Identifying a posting error P2 Identify the financial statement(s) where each of the following items appears. Use I for income statement, E for statement of owners equity, and B for balance sheet. a. Service fees earned d. Accounts payable g. Office supplies b. Cash withdrawal by owner e. Cash h. Prepaid rent c. Office equipment f. Utilities expenses i. Unearned fees Identify the normal balance (debit or credit) for each of the following accounts. a. Office supplies d. Wages Expense g. Wages Payable b. Owner Withdrawals e. Cash h. Building c. Fees Earned f. Prepaid Insurance i. Owner Capital Indicate whether a debit or credit a. Repair Services Revenue b. Interest Payable c. Accounts Receivable d. Salaries Expense decreases the normal balance of each of the following accounts. e. Owner Capital i. Owner Withdrawals f. Prepaid Insurance j. Unearned Revenue g. Buildings k. Accounts Payable h. Interest Revenue l. Office Supplies Identify whether a debit or credit yields a. To increase Land b. To decrease Cash c. To increase Utilities Expense d. To increase Fees Earned e. To decrease Unearned Revenue the indicated change for each of the following accounts. f. To decrease Prepaid Insurance g. To increase Notes Payable h. To decrease Accounts Receivable i. To increase Owner Capital j. To increase Store Equipment Prepare journal entries for each of the following selected transactions. a. On January 13, DeShawn Tyler opens a landscaping company called Elegant Lawns by investing $80,000 cash along with equipment having a $30,000 value. b. On January 21, Elegant Lawns purchases office supplies on credit for $820. c. On January 29, Elegant Lawns receives $8,700 cash for performing landscaping services. d. On January 30, Elegant Lawns receives $4,000 cash in advance of providing landscaping services to a customer. A trial balance has total debits of $20,000 and total credits of $24,500. Which one of the following errors would create this imbalance? Explain. a. A $2,250 credit to Consulting Fees Earned in a journal entry is incorrectly posted to the ledger as a $2,250 debit, leaving the Consulting Fees Earned account with a $6,300 credit balance. b. A $4,500 debit to Salaries Expense in a journal entry is incorrectly posted to the ledger as a $4,500 credit, leaving the Salaries Expense account with a $750 debit balance. c. A $2,250 debit to Rent Expense in a journal entry is incorrectly posted to the ledger as a $2,250 credit, leaving the Rent Expense account with a $3,000 debit balance. d. A $2,250 debit posting to Accounts Receivable was posted mistakenly to Cash. e. A $4,500 debit posting to Equipment was posted mistakenly to Supplies. f. An entry debiting Cash and crediting Notes Payable for $4,500 was mistakenly not posted. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 75 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions Indicate the financial statement on which each of the following items appears. Use I for income statement, E for statement of owners equity, and B for balance sheet. a. Rental Revenue e. Accounts Receivable i. Buildings b. Insurance Expense f. Salaries Expense j. Interest Revenue c. Services Revenue g. Equipment k. Owner Withdrawals d. Interest Payable h. Prepaid Insurance l. Office Supplies 75 QS 2-8 Classifying accounts in financial statements P3 Available with McGraw-Hills Homework Manager For each of the following (1) identify the type of account as an asset, liability, equity, revenue, or expense, (2) enter debit (Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance, and (3) identify the normal balance of the account. a. Owner Capital e. Equipment i. Accounts Payable b. Accounts Receivable f. Fees Earned j. Postage Expense c. Owner Withdrawals g. Wages Expense k. Prepaid Insurance d. Cash h. Unearned Revenue l. Land EXERCISES Use the information in each of the following separate cases to calculate the unknown amount. a. During October, Alcorn Company had $104,750 of cash receipts and $101,607 of cash disbursements. The October 31 Cash balance was $17,069. Determine how much cash the company had at the close of business on September 30. b. On September 30, Mordish Co. had a $83,250 balance in Accounts Receivable. During October, the company collected $75,924 from its credit customers. The October 31 balance in Accounts Receivable was $85,830. Determine the amount of sales on account that occurred in October. c. Strong Co. had $148,000 of accounts payable on September 30 and $137,492 on October 31. Total purchases on account during October were $271,876. Determine how much cash was paid on accounts payable during October. Exercise 2-2 Nology Co. bills a client $65,000 for services provided and agrees to accept the following three items in full payment: (1) $12,000 cash, (2) computer equipment worth $90,000, and (3) to assume responsibility for a $37,000 note payable related to the computer equipment. The entry Nology makes to record this transaction includes which one or more of the following? a. $37,000 increase in a liability account d. $65,000 increase in an asset account b. $12,000 increase in the Cash account e. $65,000 increase in a revenue account c. $12,000 increase in a revenue account f. $37,000 increase in an equity account Exercise 2-3 Prepare general journal entries for the following transactions of a new company called Special Pics. Exercise 2-4 Aug. 1 Preparing general journal entries 2 5 20 31 Madison Harris, the owner, invested $14,250 cash and $61,275 of photography equipment in the company. The company paid $3,300 cash for an insurance policy covering the next 24 months. The company purchased office supplies for $2,707 cash. The company received $3,250 cash in photography fees earned. The company paid $871 cash for August utilities. Use the information in Exercise 2-4 to prepare an August 31 trial balance for Special Pics. Begin by opening these T-accounts: Cash; Office Supplies; Prepaid Insurance; Photography Equipment; M. Harris, Capital; Photography Fees Earned; and Utilities Expense. Then, post the general journal entries to these T-accounts (which will serve as the ledger), and prepare the trial balance. Exercise 2-1 Identifying type and normal balances of accounts C3 C5 Analyzing account entries and balances A1 Analyzing effects of transactions on accounts A1 A1 P1 Exercise 2-5 Preparing T-accounts (ledger) and a trial balance C3 P2 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 76 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 76 Chapter 2 Analyzing and Recording Transactions Exercise 2-6 Record the transactions below for Amena Company by recording the debit and credit entries directly in the following T-accounts: Cash; Accounts Receivable; Office Supplies; Office Equipment; Accounts Payable; S. Amena, Capital; S. Amena, Withdrawals; Fees Earned; and Rent Expense. Use the letters beside each transaction to identify entries. Determine the ending balance of each T-account. a. Sergey Amena, owner, invested $14,000 cash in the company. b. The company purchased office supplies for $406 cash. c. The company purchased $7,742 of office equipment on credit. d. The company received $1,652 cash as fees for services provided to a customer. e. The company paid $7,742 cash to settle the payable for the office equipment purchased in transaction c. f. The company billed a customer $2,968 as fees for services provided. g. The company paid $510 cash for the monthly rent. h. The company collected $1,246 cash as partial payment for the account receivable created in transaction f. i. S. Amena withdrew $1,200 cash from the company for personal use. Recording effects of transactions in T-accounts C5 A1 Check Cash ending balance, $7,040 Exercise 2-7 Preparing a trial balance P2 Exercise 2-8 After recording the transactions of Exercise 2-6 in T-accounts and calculating the balance of each account, prepare a trial balance. Use May 31, 2009, as its report date. Examine the following transactions and identify those that create expenses for Thomas Services. Prepare general journal entries to record those expense transactions and explain why the other transactions did not create expenses. a. The company paid $12,200 cash for office supplies that were purchased more than 1 year ago. b. The company paid $1,233 cash for the just completed two-week salary of the receptionist. c. The company paid $39,200 cash for equipment purchased. d. The company paid $870 cash for this months utilities. e. Owner (Thomas) withdrew $4,500 cash from the company for personal use. Analyzing and journalizing expense transactions A1 P1 Exercise 2-9 Examine the following transactions and identify those that create revenues for Thomas Services, a company owned by Brina Thomas. Prepare general journal entries to record those revenue transactions and explain why the other transactions did not create revenues. a. Brina Thomas invests $39,350 cash in the company. b. The company provided $2,300 of services on credit. c. The company provided services to a client and immediately received $875 cash. d. The company received $10,200 cash from a client in payment for services to be provided next year. e. The company received $3,500 cash from a client in partial payment of an account receivable. f. The company borrowed $120,000 cash from the bank by signing a promissory note. Analyzing and journalizing revenue transactions A1 P1 Exercise 2-10 On October 1, Diondre Shabazz organized a new consulting firm called Tech Talk. On October 31, the companys records show the following accounts and amounts. Use this information to prepare an October income statement for the business. Preparing an income statement C4 P3 Cash . . . . . . . . . . . Accounts receivable Office supplies . . . . Land . . . . . . . . . . . . Office equipment . . Accounts payable . . D. Shabazz, Capital . . Check Net income, $5,516 Exercise 2-11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,614 25,648 4,903 69,388 27,147 12,070 124,114 D. Shabazz, Withdrawals Consulting fees earned . Rent expense . . . . . . . Salaries expense . . . . . Telephone expense . . . Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 25,620 6,859 12,405 560 280 Use the information in Exercise 2-10 to prepare an October statement of owners equity for Tech Talk. (The owner invested $124,114 to launch the company.) Preparing a statement of owners equity P3 Exercise 2-12 Preparing a balance sheet . . . . . . . P3 Use the information in Exercise 2-10 (if completed, you can also use your solution to Exercise 2-11) to prepare an October 31 balance sheet for Tech Talk. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 77 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 77 Exercise 2-13 A company had the following assets and liabilities at the beginning and end of a recent year. Computing net income Assets $131,000 180,000 Beginning of the year . . . . . . . . End of the year . . . . . . . . . . . . Liabilities $56,159 72,900 A1 P3 Determine the net income earned or net loss incurred by the business during the year for each of the following separate cases: a. Owner made no investments in the business and no withdrawals were made during the year. b. Owner made no investments in the business but withdrew $650 cash per month for personal use. c. No withdrawals were made during the year but the owner invested an additional $45,000 cash. d. Withdrew $650 cash per month for personal use and the owner invested an additional $25,000 cash. Exercise 2-14 Compute the missing amount in each of the following separate companies a through d. Analyzing changes in a companys equity (a) 1 2 3 4 5 6 Equity, December 31, 2008 Owner investments during the year Owner withdrawals during the year Net income (loss) for the year Equity, December 31, 2009 $ (b) (c) (d) C5 P3 0$ 0 0$ 0$ 201,871 ? 85,347 112,500 (51,000) (8,000) (53,000) ? (6,000) ? 78,000 27,000 ? 101,871 91,665 94,500 7 Assume the following T-accounts reflect Belle Co.s general ledger and that seven transactions a through g are posted to them. Provide a short description of each transaction. Include the amounts in your descriptions. Cash (a) (e) 12,000 9,000 (b) (c) (f ) (g) Automobiles 4,800 2,000 4,600 820 (a) Interpreting and describing transactions from T-accounts C1 A1 24,000 Accounts Payable (f ) Office Supplies (c) (d) Exercise 2-15 4,600 (d) 10,000 D. Belle, Capital 2,000 300 (a) 51,200 Delivery Services Revenue Prepaid Insurance (b) (e) 9,000 4,800 Gas and Oil Expense Equipment (a) (d) (g) 820 15,200 9,700 Use information from the T-accounts in Exercise 2-15 to prepare general journal entries for each of the seven transactions a through g. Exercise 2-16 Several posting errors are identified in the following table. In column (1), enter the amount of the difference between the two trial balance columns (debit and credit) due to the error. In column (2), identify the trial balance column (debit or credit) with the larger amount if they are not equal. In column (3), identify the account(s) affected by the error. In column (4), indicate the amount by which the account(s) in column (3) is under- or overstated. Item (a) is completed as an example. Exercise 2-17 Preparing general journal entries A1 P1 Identifying effects of posting errors on the trial balance A1 P2 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 78 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 78 Description of Posting Error a. b. c. d. e. f. g. (1) Difference between Debit and Credit Columns (2) Column with the Larger Total (3) Identify Account(s) Incorrectly Stated (4) Amount that Account(s) is Over- or Understated $90 Credit Rent Expense Rent Expense understated $90 $1,870 debit to Rent Expense is posted as a $1,780 debit. $3,560 credit to Cash is posted twice as two credits to Cash. $7,120 debit to the Withdrawals account is debited to Owners Capital. $1,630 debit to Prepaid Insurance is posted as a debit to Insurance Expense. $31,150 debit to Machinery is posted as a debit to Accounts Payable. $4,460 credit to Services Revenue is posted as a $446 credit. $820 debit to Store Supplies is not posted. Exercise 2-18 Analyzing a trial balance error A1 P2 Exercise 2-19 You are told the column totals in a trial balance are not equal. After careful analysis, you discover only one error. Specifically, a correctly journalized credit purchase of a computer for $11,250 is posted from the journal to the ledger with a $11,250 debit to Office Equipment and another $11,250 debit to Accounts Payable. The Office Equipment account has a debit balance of $26,663 on the trial balance. Answer each of the following questions and compute the dollar amount of any misstatement. a. Is the debit column total of the trial balance overstated, understated, or correctly stated? b. Is the credit column total of the trial balance overstated, understated, or correctly stated? c. Is the Office Equipment account balance overstated, understated, or correctly stated in the trial balance? d. Is the Accounts Payable account balance overstated, understated, or correctly stated in the trial balance? e. If the debit column total of the trial balance is $236,250 before correcting the error, what is the total of the credit column before correction? a. Calculate the debt ratio and the return on assets using the year-end information for each of the fol- lowing six separate companies ($ thousands). Interpreting the debt ratio and return on assets A2 Case Company 3 Company 5 Company 6 Company 1 Company 4 Company 2 b. c. d. e. f. $ Assets 90,500 $ 64,000 32,500 147,000 92,000 104,500 Liabilities Average Assets Net Income 20,000 100,000 $ 12,000 $ 3,800 40,000 47,000 660 50,000 26,500 21,000 200,000 56,000 7,500 40,000 31,000 12,000 70,000 51,500 Of the six companies, which business relies most heavily on creditor financing? Of the six companies, which business relies most heavily on equity financing? Which two companies indicate the greatest risk? Which two companies earn the highest return on assets? Which one company would investors likely prefer based on the riskreturn relation? wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 79 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 79 Available with McGraw-Hills Homework Manager Lancet Engineering completed the following transactions in the month of June. a. Jenna Lancet, the owner, invested $195,000 cash, office equipment with a value of $8,200, and $80,000 of drafting equipment to launch the company. b. The company purchased land worth $52,000 for an office by paying $8,900 cash and signing a longterm note payable for $43,100. c. The company purchased a portable building with $55,000 cash and moved it onto the land acquired in b. d. The company paid $2,300 cash for the premium on an 18-month insurance policy. e. The company completed and delivered a set of plans for a client and collected $6,600 cash. f. The company purchased $24,000 of additional drafting equipment by paying $9,600 cash and signing a long-term note payable for $14,400. g. The company completed $14,500 of engineering services for a client. This amount is to be received in 30 days. h. The company purchased $1,100 of additional office equipment on credit. i. The company completed engineering services for $23,000 on credit. j. The company received a bill for rent of equipment that was used on a recently completed job. The $1,410 rent cost must be paid within 30 days. k. The company collected $8,000 cash in partial payment from the client described in transaction g. l. The company paid $2,500 cash for wages to a drafting assistant. m. The company paid $1,100 cash to settle the account payable created in transaction h. n. The company paid $970 cash for minor maintenance of its drafting equipment. o. J. Lancet withdrew $10,450 cash from the company for personal use. p. The company paid $2,000 cash for wages to a drafting assistant. q. The company paid $2,400 cash for advertisements in the local newspaper during June. PROBLEM SET A Problem 2-1A Preparing and posting journal entries; preparing a trial balance C4 C5 A1 P1 P2 Required 1. Prepare general journal entries to record these transactions (use the account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Prepaid Insurance (108); Office Equipment (163); Drafting Equipment (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); J. Lancet, Capital (301); J. Lancet, Withdrawals (302); Engineering Fees Earned (402); Wages Expense (601); Equipment Rental Expense (602); Advertising Expense (603); and Repairs Expense (604). Post the journal entries from part 1 to the accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of June. Denzel Brooks opens a Web consulting business called Venture Consultants and completes the following transactions in March. March 1 Brooks invested $180,000 cash along with $30,000 of office equipment in the company. 2 The company prepaid $8,000 cash for six months rent for an office. (Hint: Debit Prepaid Rent for $8,000.) 3 The company made credit purchases of office equipment for $3,300 and office supplies for $1,400. Payment is due within 10 days. 6 The company completed services for a client and immediately received $6,000 cash. 9 The company completed a $9,200 project for a client, who must pay within 30 days. 12 The company paid $4,700 cash to settle the account payable created on March 3. 19 The company paid $7,500 cash for the premium on a 12-month insurance policy. 22 The company received $4,300 cash as partial payment for the work completed on March 9. 25 The company completed work for another client for $3,590 on credit. 29 Brooks withdrew $4,900 cash from the company for personal use. 30 The company purchased $1,700 of additional office supplies on credit. 31 The company paid $500 cash for this months utility bill. Check (2) Ending balances: Cash, $114,380; Accounts Receivable, $29,500; Accounts Payable, $1,410 (3) Trial balance totals, $386,210 Problem 2-2A Preparing and posting journal entries; preparing a trial balance C4 C5 A1 P1 P2 x e cel mhhe.com/wildFAP19e wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 80 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 80 Required Check (2) Ending balances: Cash, $164,700; Accounts Receivable, $8,490; Accounts Payable, $1,700 (3) Total debits, $230,490 Problem 2-3A Preparing and posting journal entries; preparing a trial balance C4 C5 A1 P1 P2 1. Prepare general journal entries to record these transactions (use the account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); D. Brooks, Capital (301); D. Brooks, Withdrawals (302); Services Revenue (403); and Utilities Expense (690). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of March. Jayden Lanelle opens a computer consulting business called Viva Consultants and completes the following transactions in its first month of operations. April 1 Lanelle invests $95,000 cash along with office equipment valued at $22,800 in the company. 2 The company prepaid $7,200 cash for twelve months rent for office space. (Hint: Debit Prepaid Rent for $7,200.) 3 The company made credit purchases for $11,400 in office equipment and $2,280 in office supplies. Payment is due within 10 days. 6 The company completed services for a client and immediately received $2,000 cash. 9 The company completed a $7,600 project for a client, who must pay within 30 days. 13 The company paid $13,680 cash to settle the account payable created on April 3. 19 The company paid $6,000 cash for the premium on a 12-month insurance policy. (Hint: Debit Prepaid Insurance for $6,000.) 22 The company received $6,080 cash as partial payment for the work completed on April 9. 25 The company completed work for another client for $2,640 on credit. 28 Lanelle withdrew $6,200 cash from the company for personal use. 29 The company purchased $760 of additional office supplies on credit. 30 The company paid $700 cash for this months utility bill. Required Check (2) Ending balances: Cash, $69,300; Accounts Receivable, $4,160; Accounts Payable, $760 (3) Total debits, $130,800 Problem 2-4A Computing net income from equity analysis, preparing a balance sheet, and computing the debt ratio C3 A1 A2 P3 x e cel mhhe.com/wildFAP19e 1. Prepare general journal entries to record these transactions (use account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); J. Lanelle, Capital (301); J. Lanelle, Withdrawals (302); Services Revenue (403); and Utilities Expense (690). Post journal entries from part 1 to the ledger accounts and enter the balance after each posting. 3. Prepare a trial balance as of April 30. The accounting records of Faviana Shipping show the following assets and liabilities as of December 31, 2008 and 2009. December 31 Cash . . . . . . . . . . Accounts receivable Office supplies . . . Office equipment . Trucks . . . . . . . . . Building . . . . . . . . Land . . . . . . . . . . . Accounts payable . Note payable . . . . 2008 .. . .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 $ 47,867 25,983 4,098 125,816 49,236 0 0 68,310 0 $ 8,154 20,370 3,002 134,018 58,236 164,124 40,956 33,879 85,080 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 81 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 81 Late in December 2009, the business purchased a small office building and land for $205,080. It paid $120,000 cash toward the purchase and an $85,080 note payable was signed for the balance. Ms. Faviana had to invest $34,000 cash in the business to enable it to pay the $120,000 cash. The owner withdraws $2,400 cash per month for personal use. Required 1. Prepare balance sheets for the business as of December 31, 2008 and 2009. (Hint: Report only total equity on the balance sheet and remember that total equity equals the difference between assets and liabilities.) 2. By comparing equity amounts from the balance sheets and using the additional information presented in this problem, prepare a calculation to show how much net income was earned by the business during 2009. 3. Compute the 2009 year-end debt ratio for the business. Yi Min started an engineering firm called Min Engineering. He began operations and completed seven transactions in May, which included his initial investment of $18,000 cash. After those seven transactions, the ledger included the following accounts with normal balances. Cash . . . . . . . . . . . . . Office supplies . . . . . . Prepaid insurance . . . . Office equipment . . . . Accounts payable . . . . Y. Min, Capital . . . . . . Y. Min, Withdrawals . . . Engineering fees earned Rent expense . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,132 1,090 4,700 11,200 11,200 18,000 4,328 44,000 7,750 Check (2) Net income, $120,011 (3) Debt ratio, 27.7% Problem 2-5A Analyzing account balances and reconstructing transactions C1 C4 A1 P2 Required 1. Prepare a trial balance for this business as of the end of May. Check (1) Trial balance totals, $73,200 Analysis Components 2. Analyze the accounts and their balances and prepare a list that describes each of the seven most likely transactions and their amounts. 3. Prepare a report of cash received and cash paid showing how the seven transactions in part 2 yield the $44,132 ending Cash balance. Business transactions completed by Alanna Emitt during the month of September are as follows. a. Emitt invested $82,000 cash along with office equipment valued at $22,000 in a new company named AE Consulting. b. The company purchased land valued at $40,000 and a building valued at $165,000. The purchase is paid with $25,000 cash and a long-term note payable for $180,000. c. The company purchased $1,700 of office supplies on credit. d. Emitt invested her personal automobile in the company. The automobile has a value of $16,800 and is to be used exclusively in the business. e. The company purchased $5,900 of additional office equipment on credit. f. The company paid $1,500 cash salary to an assistant. g. The company provided services to a client and collected $7,600 cash. h. The company paid $630 cash for this months utilities. i. The company paid $1,700 cash to settle the account payable created in transaction c. (3) Cash paid, $17,868 Problem 2-6A Recording transactions; posting to ledger; preparing a trial balance C4 A1 P1 P2 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 82 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 82 j. k. l. m. n. The company purchased $20,200 of new office equipment by paying $20,200 cash. The company completed $6,750 of services for a client, who must pay within 30 days. The company paid $2,000 cash salary to an assistant. The company received $4,000 cash in partial payment on the receivable created in transaction k. Emitt withdrew $2,900 cash from the company for personal use. Required Check (2) Ending balances: Cash, $39,670; Office Equipment, $48,100 (3) Trial balance totals, $321,050 PROBLEM SET B Problem 2-1B Preparing and posting journal entries; preparing a trial balance C4 C5 A1 P1 P2 1. Prepare general journal entries to record these transactions (use account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Office Supplies (108); Office Equipment (163); Automobiles (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); A. Emitt, Capital (301); A. Emitt, Withdrawals (302); Fees Earned (402); Salaries Expense (601); and Utilities Expense (602). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of September. At the beginning of April, Vanessa Wende launched a custom computer solutions company called Softworks. The company had the following transactions during April. a. Vanessa Wende invested $155,000 cash, office equipment with a value of $5,100, and $78,000 of computer equipment in the company. b. The company purchased land worth $55,000 for an office by paying $8,700 cash and signing a longterm note payable for $46,300. c. The company purchased a portable building with $59,000 cash and moved it onto the land acquired in b. d. The company paid $3,500 cash for the premium on a two-year insurance policy. e. The company provided services to a client and immediately collected $7,000 cash. f. The company purchased $26,000 of additional computer equipment by paying $11,800 cash and signing a long-term note payable for $14,200. g. The company completed $16,500 of services for a client. This amount is to be received within 30 days. h. The company purchased $1,800 of additional office equipment on credit. i. The company completed client services for $28,000 on credit. j. The company received a bill for rent of a computer testing device that was used on a recently completed job. The $1,685 rent cost must be paid within 30 days. k. The company collected $10,000 cash in partial payment from the client described in transaction i. l. The company paid $1,300 cash for wages to an assistant. m. The company paid $1,800 cash to settle the payable created in transaction h. n. The company paid $985 cash for minor maintenance of the companys computer equipment. o. V. Wende withdrew $10,230 cash from the company for personal use. p. The company paid $1,300 cash for wages to an assistant. q. The company paid $4,300 cash for advertisements in the local newspaper during April. Required Check (2) Ending balances: Cash, $69,085; Accounts Receivable, $34,500; Accounts Payable, $1,685 (3) Trial balance totals, $351,785 1. Prepare general journal entries to record these transactions (use account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Prepaid Insurance (108); Office Equipment (163); Computer Equipment (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); V. Wende, Capital (301); V. Wende, Withdrawals (302); Fees Earned (402); Wages Expense (601); Computer Rental Expense (602); Advertising Expense (603); and Repairs Expense (604). Post the journal entries from part 1 to the accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of April. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 83 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions Kylan Management Services opens for business and completes these transactions in November. Nov. 1 Rollie Kylan, the owner, invested $190,000 cash along with $29,000 of office equipment in the company. 2 The company prepaid $10,000 cash for six months rent for an office. (Hint: Debit Prepaid Rent for $10,000.) 4 The company made credit purchases of office equipment for $4,300 and of office supplies for $2,100. Payment is due within 10 days. 8 The company completed work for a client and immediately received $7,000 cash. 12 The company completed a $9,200 project for a client, who must pay within 30 days. 13 The company paid $6,400 cash to settle the payable created on November 4. 19 The company paid $4,100 cash for the premium on a 24-month insurance policy. 22 The company received $3,700 cash as partial payment for the work completed on November 12. 24 The company completed work for another client for $4,010 on credit. 28 R. Kylan withdrew $6,300 cash from the company for personal use. 29 The company purchased $1,200 of additional office supplies on credit. 30 The company paid $1,100 cash for this months utility bill. 83 Problem 2-2B Preparing and posting journal entries; preparing a trial balance C4 C5 A1 P1 P2 Required 1. Prepare general journal entries to record these transactions (use account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); R. Kylan, Capital (301); R. Kylan, Withdrawals (302); Services Revenue (403); and Utilities Expense (690). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of November. Hassan Management Services opens for business and completes these transactions in September. Sept. 1 Jamal Hassan, the owner, invests $130,000 cash along with office equipment valued at $31,200 in the company. 2 The company prepaid $7,200 cash for 12 months rent for office space. (Hint: Debit Prepaid Rent for $7,200.) 4 The company made credit purchases for $15,600 in office equipment and $3,120 in office supplies. Payment is due within 10 days. 8 The company completed work for a client and immediately received $2,000 cash. 12 The company completed a $10,400 project for a client, who must pay within 30 days. 13 The company paid $18,720 cash to settle the payable created on September 4. 19 The company paid $6,000 cash for the premium on an 18-month insurance policy. (Hint: Debit Prepaid Insurance for $6,000.) 22 The company received $8,320 cash as partial payment for the work completed on September 12. 24 The company completed work for another client for $2,640 on credit. 28 J. Hassan withdrew $6,200 cash from the company for personal use. 29 The company purchased $1,040 of additional office supplies on credit. 30 The company paid $700 cash for this months utility bill. Check (2) Ending balances: Cash, $172,800; Accounts Receivable, $9,510; Accounts Payable, $1,200 (3) Total debits, $240,410 Problem 2-3B Preparing and posting journal entries; preparing a trial balance C4 C5 A1 P1 P2 Required 1. Prepare general journal entries to record these transactions (use account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Office Supplies (124); Prepaid Insurance (128); Prepaid Rent (131); Office Equipment (163); Accounts Payable (201); J. Hassan, Capital (301); J. Hassan, Withdrawals (302); Service Fees Earned (401); and Utilities Expense (690). Post journal entries from part 1 to the ledger accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of September. Check (2) Ending balances: Cash, $101,500; Accounts Receivable, $4,720; Accounts Payable, $1,040 (3) Total debits, $177,280 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 84 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 84 Chapter 2 Analyzing and Recording Transactions Problem 2-4B The accounting records of Trinity Co. show the following assets and liabilities as of December 31, 2008 and 2009. Computing net income from equity analysis, preparing a balance sheet, and computing the debt ratio December 31 C3 A1 A2 P3 Cash . . . . . . . . . . Accounts receivable Office supplies . . . Office equipment . Machinery . . . . . . . Building . . . . . . . . Land . . . . . . . . . . . Accounts payable . Note payable . . . . 2008 .. . .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,773 29,731 4,689 $143,968 56,339 0 0 78,165 0 . . . . . . . . . 2009 $ 10,629 23,309 3,435 153,353 65,339 187,802 46,864 38,767 114,666 Late in December 2009, the business purchased a small office building and land for $234,666. It paid $120,000 cash toward the purchase and a $114,666 note payable was signed for the balance. Ms. Trinity, the owner, had to invest an additional $35,000 cash to enable it to pay the $120,000 cash toward the purchase. The owner withdraws $4,000 cash per month for personal use. Required 1. Prepare balance sheets for the business as of December 31, 2008 and 2009. (Hint: Report only total Check (2) Net income, $138,963 (3) Debt ratio, 31.3% Problem 2-5B Analyzing account balances and reconstructing transactions equity on the balance sheet and remember that total equity equals the difference between assets and liabilities.) 2. By comparing equity amounts from the balance sheets and using the additional information presented in the problem, prepare a calculation to show how much net income was earned by the business during 2009. 3. Calculate the December 31, 2009, debt ratio for the business. Roshaun Gould started a Web consulting firm called Gould Solutions. He began operations and completed seven transactions in April that resulted in the following accounts, which all have normal balances. Cash . . . . . . . . . . . . . Office supplies . . . . . . Prepaid rent . . . . . . . Office equipment . . . . Accounts payable . . . . R. Gould, Capital . . . . R. Gould, Withdrawals Consulting fees earned Operating expenses . . C1 C4 A1 P2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,518 850 4,700 11,300 11,300 22,500 4,172 43,000 9,260 Required Check (1) Trial balance total, $76,800 1. Prepare a trial balance for this business as of the end of April. Analysis Component 2. Analyze the accounts and their balances and prepare a list that describes each of the seven most likely (3) Cash paid, $18,982 transactions and their amounts. 3. Prepare a report of cash received and cash paid showing how the seven transactions in part 2 yield the $46,518 ending Cash balance. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 85 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions Witter Consulting completed the following transactions during June. a. D. Witter, the owner, invested $82,000 cash along with office equipment valued at $23,000 in the new company. b. The company purchased land valued at $50,000 and a building valued at $165,000. The purchase is paid with $30,000 cash and a long-term note payable for $185,000. c. The company purchased $2,200 of office supplies on credit. d. D. Witter invested his personal automobile in the company. The automobile has a value of $16,800 and is to be used exclusively in the business. e. The company purchased $5,100 of additional office equipment on credit. f. The company paid $1,500 cash salary to an assistant. g. The company provided services to a client and collected $8,000 cash. h. The company paid $630 cash for this months utilities. i. The company paid $2,200 cash to settle the payable created in transaction c. j. The company purchased $20,400 of new office equipment by paying $20,400 cash. k. The company completed $6,500 of services for a client, who must pay within 30 days. l. The company paid $2,000 cash salary to an assistant. m. The company received $4,000 cash in partial payment on the receivable created in transaction k. n. D. Witter withdrew $2,700 cash from the company for personal use. 85 Problem 2-6B Recording transactions; posting to ledger; preparing a trial balance C4 A1 P1 P2 Required 1. Prepare general journal entries to record these transactions (use account titles listed in part 2). 2. Open the following ledger accountstheir account numbers are in parentheses (use the balance col- umn format): Cash (101); Accounts Receivable (106); Office Supplies (108); Office Equipment (163); Automobiles (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); D. Witter, Capital (301); D. Witter, Withdrawals (302); Fees Earned (402); Salaries Expense (601); and Utilities Expense (602). Post the journal entries from part 1 to the ledger accounts and enter the balance after each posting. 3. Prepare a trial balance as of the end of June. (This serial problem started in Chapter 1 and continues through most of the chapters. If the Chapter 1 segment was not completed, the problem can begin at this point. It is helpful, but not necessary, to use the Working Papers that accompany this book.) SP 2 On October 1, 2009, Adriana Lopez launched a computer services company called Success Systems, which provides consulting services, computer system installations, and custom program development. Lopez adopts the calendar year for reporting purposes and expects to prepare the companys first set of financial statements on December 31, 2009. The companys initial chart of accounts follows. Account Cash . . . . . . . . . . . . Accounts Receivable Computer Supplies . Prepaid Insurance . . Prepaid Rent . . . . . . Office Equipment . . . Computer Equipment Accounts Payable . . . No. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Account 101 106 126 128 131 163 167 201 A. Lopez, Capital . . . . . . . . . A. Lopez, Withdrawals . . . . . Computer Services Revenue Wages Expense . . . . . . . . . Advertising Expense . . . . . . Mileage Expense . . . . . . . . . Miscellaneous Expenses . . . . Repairs ExpenseComputer No. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 302 403 623 655 676 677 684 Check (2) Ending balances: Cash, $34,570; Office Equipment, $48,500 (3) Trial balance totals, $326,400 SERIAL PROBLEM Success Systems A1 P1 P2 wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 86 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions 86 Required 1. Prepare journal entries to record each of the following transactions for Success Systems. Oct. 1 2 3 5 6 8 10 12 15 17 20 22 28 31 31 Nov. 1 2 5 8 13 18 22 24 25 28 30 30 Check (2) Cash, Nov. 30 bal., $48,052 (3) Trial bal. totals, $108,659 Lopez invested $55,000 cash, a $20,000 computer system, and $8,000 of office equipment in the company. The company paid $3,300 cash for four months rent. (Hint: Debit Prepaid Rent for $3,300.) The company purchased $1,420 of computer supplies on credit from Harris Office Products. The company paid $2,220 cash for one years premium on a property and liability insurance policy. (Hint: Debit Prepaid Insurance for $2,220.) The company billed Easy Leasing $4,800 for services performed in installing a new Web server. The company paid $1,420 cash for the computer supplies purchased from Harris Office Products on October 3. The company hired Lyn Addie as a part-time assistant for $125 per day, as needed. The company billed Easy Leasing another $1,400 for services performed. The company received $4,800 cash from Easy Leasing as partial payment on its account. The company paid $805 cash to repair computer equipment that was damaged when moving it. The company paid $1,940 cash for an advertisement in the local newspaper. The company received $1,400 cash from Easy Leasing on its account. The company billed IFM Company $5,208 for services performed. The company paid $875 cash for Lyn Addies wages for seven days work. A. Lopez withdrew $3,600 cash from the company for personal use. The company reimbursed Lopez in cash for business automobile mileage allowance (Lopez logged 1,000 miles at $0.32 per mile). The company received $4,633 cash from Liu Corporation for computer services performed. The company purchased computer supplies for $1,125 cash from Harris Office Products. The company billed Gomez Co. $5,668 for services performed. The company received notification from Alexs Engineering Co. that Success Systems bid of $3,950 for an upcoming project is accepted. The company received $2,208 cash from IFM Company as partial payment of the October 28 bill. The company donated $250 cash to the United Way in the companys name. The company completed work for Alexs Engineering Co. and sent it a bill for $3,950. The company sent another bill to IFM Company for the past-due amount of $3,000. The company reimbursed Lopez in cash for business automobile mileage (1,200 miles at $0.32 per mile). The company paid $1,750 cash for Lyn Addies wages for 14 days work. A. Lopez withdrew $2,000 cash from the company for personal use. 2. Open ledger accounts (in balance column format) and post the journal entries from part 1 to them. 3. Prepare a trial balance as of the end of November. BEYOND THE NUMBERS REPORTING IN ACTION A1 A2 BTN 2-1 Refer to Best Buys financial statements in Appendix A for the following questions. Required 1. What amount of total liabilities does it report for each of the fiscal years ended February 25, 2006, and March 3, 2007? 2. What amount of total assets does it report for each of the fiscal years ended February 25, 2006, and March 3, 2007? 3. Compute its debt ratio for each of the fiscal years ended February 25, 2006, and March 3, 2007. 4. In which fiscal year did it employ more financial leverage (February 25, 2006, or March 3, 2007)? Explain. Fast Forward 5. Access its financial statements (10-K report) for a fiscal year ending after March 3, 2007, from its Website (BestBuy.com) or the SECs EDGAR database (www.SEC.gov). Recompute its debt ratio for any subsequent years data and compare it with the February 25, 2006, debt ratio. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 87 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions BTN 2-2 ($ millions) Total liabilities . . . . . . . . . Total assets . . . . . . . . . . . 1. 2. 3. 4. COMPARATIVE ANALYSIS Key comparative figures for Best Buy, Circuit City, and RadioShack follow. Best Buy Circuit City 87 RadioShack Current Year Prior Year Current Year Prior Year Current Year Prior Year $ 7,369 13,570 $ 6,607 11,864 $2,216 4,007 $2,114 4,069 $1,416 2,070 A1 A2 $1,616 2,205 What is the debt ratio for Best Buy in the current year and for the prior year? What is the debt ratio for Circuit City in the current year and for the prior year? What is the debt ratio for RadioShack in the current year and for the prior year? Which of the three companies has the highest degree of financial leverage? What does this imply? BTN 2-3 Review the Decision Ethics case from the first part of this chapter involving the cashier. The guidance answer suggests that you should not comply with the assistant managers request. ETHICS CHALLENGE Required C1 C2 Propose and evaluate two other courses of action you might consider, and explain why. BTN 2-4 Mora Stanley is an aspiring entrepreneur and your friend. She is having difficulty understanding the purposes of financial statements and how they fit together across time. COMMUNICATING IN PRACTICE Required C1 C3 A1 P3 Write a one-page memorandum to Stanley explaining the purposes of the four financial statements and how they are linked across time. BTN 2-5 Access EDGAR online (www.SEC.gov) and locate the 2006 year 10-K report of Amazon.com (ticker AMZN) filed on February 16, 2007. Review its financial statements reported for years ended 2006, 2005, and 2004 to answer the following questions. TAKING IT TO THE NET A1 Required 1. What are the amounts of its net income or net loss reported for each of these three years? 2. Do Amazons operations provide cash or use cash for each of these three years? 3. If Amazon has a 2005 net income, how is it possible that its cash balance at December 31, 2005, shows a decrease relative to its balance at December 31, 2004? BTN 2-6 The expanded accounting equation consists of assets, liabilities, capital, withdrawals, revenues, and expenses. It can be used to reveal insights into changes in a companys financial position. TEAMWORK IN ACTION Required C1 C3 C5 A1 1. Form learning teams of six (or more) members. Each team member must select one of the six com- ponents and each team must have at least one expert on each component: (a) assets, (b) liabilities, (c) capital, (d ) withdrawals, (e) revenues, and ( f ) expenses. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 88 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: 88 Chapter 2 Analyzing and Recording Transactions 2. Form expert teams of individuals who selected the same component in part 1. Expert teams are to draft a report that each expert will present to his or her learning team addressing the following: a. Identify for its component the (i) increase and decrease side of the account and (ii) normal balance side of the account. b. Describe a transaction, with amounts, that increases its component. c. Using the transaction and amounts in (b), verify the equality of the accounting equation and then explain any effects on the income statement and statement of cash flows. d. Describe a transaction, with amounts, that decreases its component. e. Using the transaction and amounts in (d ), verify the equality of the accounting equation and then explain any effects on the income statement and statement of cash flows. 3. Each expert should return to his/her learning team. In rotation, each member presents his/her expert teams report to the learning team. Team discussion is encouraged. ENTREPRENEURIAL DECISION A1 A2 P3 BTN 2-7 Angel Fender is a young entrepreneur who operates Fender Music Services, offering singing lessons and instruction on musical instruments. Fender wishes to expand but needs a $30,000 loan. The bank requests Fender to prepare a balance sheet and key financial ratios. Fender has not kept formal records but is able to provide the following accounts and their amounts as of December 31, 2009. Cash . . . . . . . . . . Prepaid Rent . . . . Accounts Payable . Annual net income .... .... .... .... $ 3,600 9,400 2,200 40,000 Accounts Receivable . . . Store Supplies . . . . . . . . Unearned Lesson Fees . . $ 9,600 6,600 15,600 Prepaid Insurance . . . . . Equipment . . . . . . . . . . Total Equity* . . . . . . . . . $ 1,500 50,000 62,900 * The total equity amount reflects all owner investments, withdrawals, revenues, and expenses as of December 31, 2009. Required 1. Prepare a balance sheet as of December 31, 2009, for Fender Music Services. (Report only the total equity amount on the balance sheet.) 2. Compute Fenders debt ratio and its return on assets (the latter ratio is defined in Chapter 1). Assume average assets equal its ending balance. 3. Do you believe the prospects of a $30,000 bank loan are good? Why or why not? A1 A2 P3 BTN 2-8 Assume Sara Blakely of SPANX plans on expanding her business to accommodate more product lines. She is considering financing her expansion in one of two ways: (1) contributing more of her own funds to the business or (2) borrowing the funds from a bank. Required Identify the issues that Blakely should consider when trying to decide on the method for financing her expansion. HITTING THE ROAD C1 BTN 2-9 Obtain a recent copy of the most prominent newspaper distributed in your area. Research the classified section and prepare a report answering the following questions (attach relevant classified clippings to your report). Alternatively, you may want to search the Web for the required information. One suitable Website is CareerOneStop (www.CareerOneStop.org). For documentation, you should print copies of Websites accessed. 1. Identify the number of listings for accounting positions and the various accounting job titles. 2. Identify the number of listings for other job titles, with examples, that require or prefer accounting knowledge/experience but are not specifically accounting positions. 3. Specify the salary range for the accounting and accounting-related positions if provided. 4. Indicate the job that appeals to you, the reason for its appeal, and its requirements. wiL79549_ch02_0046-0089 07/25/2008 6:52 pm Page 89 pinnacle 201:MHBR055:mhwiL19:wiL19ch02: Chapter 2 Analyzing and Recording Transactions BTN 2-10 DSG international plc (www.DSGiplc.com) competes with several companies, including Best Buy and RadioShack. Key financial ratios for the current fiscal year follow. Key Figure DSG Best Buy 5.2% 67.2% 10.8% 54.3% GLOBAL DECISION A2 RadioShack Return on assets . . . . . . . . Debt ratio . . . . . . . . . . . . 89 3.4% 68.4% Required 1. Which company is most profitable according to its return on assets? 2. Which company is most risky according to the debt ratio? 3. Which company deserves increased investment based on a joint analysis of return on assets and the debt ratio? Explain. ANSWERS TO MULTIPLE CHOICE QUIZ 1. b; debit Utility Expense for $700, and credit Cash for $700. 2. a; debit Cash for $2,500, and credit Unearned Lawn Service Fees for $2,500. 3. c; debit Cash for $250,000, debit Land for $500,000, and credit L. Shue, Capital for $750,000. 4. d 5. e; Debt ratio $400,000 $1,000,000 40%

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Chandler-Gilbert Community College - ACC - 111
wiL79549_ch03_0090-0133 07/30/2008 5:36 pm Page 90 pinnacle 201:MHBR055:mhwiL19:wiL19ch03:A Look BackA Look at This ChapterA Look AheadChapter 2 explained the analysisand recording of transactions. Weshowed how to apply and interpret company account
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wiL79549_ch04_0134-0175 07/26/2008 4:10 pm Page 134 pinnacle 201:MHBR055:mhwiL19:wiL19ch04:A Look BackA Look at This ChapterA Look AheadChapter 3 explained the timing ofreports. We described why adjusting accounts is key for recognizingrevenues and
Chandler-Gilbert Community College - ACC - 111
ACCOUNTING IN BUSINESSChapter 1 2009 The McGraw-Hill Companies, Inc.,All Rights ReservedC1IMPORTANCE OF ACCOUNTINGAccountingIdentifyingSelect transactions and eventsRecordingInput, measure and classifyCommunicatingPrepare, analyze and interpre
Chandler-Gilbert Community College - ACC - 111
ANALYZING AND RECORDINGTRANSACTIONSChapter 2 2009 The M cGraw-Hill Companies, I nc.,All Rights ReservedANALYZING AND RECORDINGPROCESSC1Analyze each transaction andevent from source documentsPrepare and analyzethe trial balanceMcGraw-Hill/Irwin
Chandler-Gilbert Community College - ACC - 111
ADJUSTING ACCOUNTS ANDPREPARING FINANCIAL STATEMENTSChapter 3 2009 The M cGraw-Hill Companies, I nc.,All Rights ReservedC1THE ACCOUNTING PERIODAnnually12Semiannually1234Quarterly1Jan234FebMarApr567May Jun Jul810Aug Sep OctMo
Chandler-Gilbert Community College - ACC - 111
COMPLETING THEACCOUNTING CYCLEChapter 4 2009 T he M cGr aw -H ill Companies,I nc.,P1BENEFITS OF A WORK SHEETAids t hepr epar at ion off inancialst at ement s.Reducespossibilit y ofer r or s.L inksaccount s andt heiradjust ment s.McGrM c
Chandler-Gilbert Community College - ACC - 111
ACCOUNTING FORMERCHANDISING OPERATIONSChapter 5 2009 The McGraw-Hill Companies, Inc.,All Rights ReservedSERVICE COMPANIESService organizations sell time ttoService organizations sell time oearn revenue.earn revenue.Examples:Accountingfirms,lawfi
Chandler-Gilbert Community College - ACC - 111
CASH ANDINTERNAL CONTROLSChapter 8 2009 The M cGraw-Hill Companies, I nc.,All Rights ReservedPURPOSE OF INTERNALCONTROLC1Policies and procedures managers use to: Protect assets. Ensure reliable accounting. Promote efficient operations. Urge ad
Chandler-Gilbert Community College - ACC - 111
ACCOUNTING FOR RECEIVABLESChapter 9 2009 The McGraw-Hill Companies, Inc.,All Rights ReservedC1ACCOUNTS RECEIVABLEAmounts due from customersfor credit sales. Credit sales require: Maintaining a separateaccount receivable for eachcustomer. Accou
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PLANT ASSETS, NATURALRESOURCES, AND INTANGIBLESChapter 10 2009 The McGraw-Hill Companies, Inc.,All Rights ReservedC1PLANT ASSETSTangible in NatureActively Used in OperationsExpected to Benefit Future PeriodsCalled Property, Plant, & EquipmentMc
Chandler-Gilbert Community College - ACC - 111
CURRENT LIABILITIES ANDPAYROLL ACCOUNTINGChapter 11 2009 The McGraw-Hill Companies, Inc.,All Rights ReservedDEFINING LIABILITIESC1Because of apast event . . .PastMcGraw-Hill/IrwinMcGraw-Hill/IrwinThecompanyhas apresentobligationPresent.
Chandler-Gilbert Community College - ACC - 111
ACC 111: Accounting Principles (30953)Prof. Jessica JonesGroup ProjectGroup Members: Jennifer K LemleyAaron NewJoshua CaliHistory of LANstarLANstar was first started in 2000 by Joel and July Ray as a partnership LLC.They are a computer networking
Chandler-Gilbert Community College - ACC - 111
Aaron NewACC 111 (30953) Staff meeting 5Prof. Jessica JonesDec. 1, 2009The Importance of Accountants in Payroll ActivitiesAny business that has a staff of employees relies on accurate payrollaccounting in order to ensure theproper imbursement of the
Chandler-Gilbert Community College - ACC - 111
ITzona sriAn A usineslBSmal e 2000sincHistoryStarted business out of garage6 months hired first employeePartnership Company10 Employees1 Office Manager1 Bookkeeper1 Cable Technician6 Engineers1 Parts Runner70% Client base is Medical Field
Chandler-Gilbert Community College - ACC - 111
AnzonAria ITallSmsineBussnc esiClick icontoadd pictureHistory Started businessout of garage 6 months hiredfirst employee PartnershipCompany 10 Employees 1 OfficeManager 1 Bookkeeper 1 CableTechnicianAccounting Documents are kep
Chandler-Gilbert Community College - CHM - 151
10/27/2009Chemistry, The Central Science, 10th editionTheodore L. Brown; H. Eugene LeMay, Jr.; and Bruce E. BurstenDevelopment of Periodic TableChapter 7Periodic Propertiesof the Elements Elements in thesame groupgenerally havesimilar chemicalp
Chandler-Gilbert Community College - CHM - 151
11/4/2009Chemistry, The Central Science, 10th editionTheodore L. Brown; H. Eugene LeMay, Jr.; and Bruce E. BurstenChapter 8Concepts of ChemicalBondingChemical Bonds Three basic types ofbonds:Ionic Electrostatic attractionbetween ionsCovalent
Chandler-Gilbert Community College - CHM - 151
11/4/2009Lewis StructuresLewis structures are representations ofmolecules showing all electrons, bonding andnonbonding.Writing Lewis StructuresPCl35 + 3(7) = 26Note: We only need to represent the VALENCE electrons.Writing Lewis Structures1. Find
Chandler-Gilbert Community College - CHM - 151
Molecular ShapesMolecular ShapesIn order to predict molecular shape, we assume thevalence electrons repel each other. Therefore, themolecule adopts whichever 3D geometry minimized thisrepulsion.We call this process Valence Shell Electron Paircall t
Chandler-Gilbert Community College - CHM - 151
Chemistry, The Central Science, 11th editionTheodore L. Brown; H. Eugene LeMay, Jr.;and Bruce E. BurstenStates of MatterChapter 11Intermolecular Forces,ForcesLiquids, and SolidsThe fundamental difference between states ofmatter is the distance be
Chandler-Gilbert Community College - CHM - 151
9/21/2009Solvent: waterSolute: the chemicaldissolved in waterH2O is a bent polarmolecule, thus manysolute particles exist in theionic states when they aredissolvedDissociationElectrolyte Strong Electrolyte NaClWeak ElectrolyteHC2H3O2 When an
Chandler-Gilbert Community College - CHM - 151
9/29/2009Energy The ability to do work or transfer heat.Chapter 5ThermochemistryWork: Energy used to cause an object thathas mass to move.Heat: Energy used to cause thetemperature of an object to rise.ThermochemistryThermochemistryPotential Ene
Chandler-Gilbert Community College - CHM - 151
9/29/2009WorkE = Efinal - EinitialE = q + wq: heat, w: workunit: joule (J), calorie (cal)1 cal = 4.184 JcalkJ, kcalSigns (table 5.1)q+++-w=++-E+dependsdepends-Another form of the eq,Esystem = q + wEsurroundings = (-q) + (-w)Esyst
Chandler-Gilbert Community College - CHM - 151
9/29/2009Hesss LawHesss LawH is well known for many reactions,and it is inconvenient to measure Hfor every reaction in which we areinterested. However, we can estimate H usingH values that are published and theproperties of enthalpy.Hesss law st
Chandler-Gilbert Community College - CHM - 151
- The wave natureFig 6.3, 6.41) WaveFig 7.1.Chapter 6Electronic Structure ofAtomsVariables are:WavelengthFrequencyAmplitude (Intensity)Modern atomic theory arose out ofstudies of the interaction of radiationwith matter.- The wave nature2)
Chandler-Gilbert Community College - CHM - 151
Characteristics of GasesChapter 10Gases Unlike liquids and solids, theyExpand to fill their containers.Are highly compressible.highly compressible.Have extremely low densities.GasesGasesPressureUnits of Pressure Pressure is theamount of force
Chandler-Gilbert Community College - CHM - 151
Chemistry, The Central Science, 11th editionTheodore L. Brown, H. Eugene LeMay, Jr.,and Bruce E. BurstenLaw of Conservation of MassChapter 3Stoichiometry:Calculations with ChemicalFormulas and EquationsWe may lay it down as anincontestable axiom
Chandler-Gilbert Community College - CHM - 151
Chemistry, The Central Science, 11th editionTheodore L. Brown; H. Eugene LeMay, Jr.;Bruce E. Bursten and Catherine J. MurphyChemistry:Chapter 1Introduction:Matter and MeasurementThe study of matterand the changes itundergoes.Instructional Materi
Chandler-Gilbert Community College - CHM - 151
Atomic Theory of MatterChapter 2:Atoms, Molecules and IonsThe theory that atomsare the fundamentalbuilding blocks ofmatter reemerged inthe early 19th century,championed by JohnDalton.Atoms,Molecules,and IonsAtoms,Molecules,and IonsLaw of C
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Name:Aaron NewThe Determination of a Chemical FormulaData Tablea. Dehydration viaOvenMass ofWatch GlassMass of Watch Glass andhydrate sampleMass ofhydrate sampleMass of watch glass anddehydrated sampleMass of dehydrated sampleMass ofwater
Chandler-Gilbert Community College - CHM - 151
Via ovenMass of watch glassMass with hydrated sampleMass of hydrated sampleMass of watch glass and dehydrated sampleMass of dehydrated sampleMass of water evolvedMass of 2nd empty watch glassMass of 2nd watch glass and copperMass of copper64.087
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Project 1: The Identification of an Unknown Alkali CarbonateIntroductionThe purpose of this experiment is to identify the unknown cation metal from an unknownalkali carbonate given through empirical and molar calculation.Summary of experimental method
Chandler-Gilbert Community College - CHM - 151
Project 1: The Identification of an Unknown Alkali CarbonateIntroductionThe purpose of this experiment is to identify the unknown cation metal from an unknownalkali carbonate given through empirical and molar calculation.Summary of experimental method
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 1 page essay on causal essayInstructor: Prof. Valerie Bandura Finn (32073)Dec 7th 2009Causal essay on not being able to find the right topicIt has always been a bother to not be able to find the right topic to write on. Also, not
Chandler-Gilbert Community College - ENG - 101
Name: Aaron NewClass: English 101 Draft of definition essayDate: November 2nd 2009Instructor: Prof. Valerie Bandura Finn (32073)WealthToday, to many people in the world, wealth is a representation of the measure ofmonetary assets and the degree of f
Chandler-Gilbert Community College - ENG - 101
Name: Aaron NewClass: English 101 Assignment 3Date: Oct-28th-09EducationMy friends and i have different views on the purpose of education. My view ofeducation is to broaden my perspective, learn new things, sharpen my mind, increase myknowledge thro
Chandler-Gilbert Community College - ENG - 101
Name: Aaron NewClass: English 101 Response Assignment 1Date: Oct-21st 09I understood the message the chapter wanted to deliver. The chapter is saying that,everything has at least 2 sides. Different person can have a totally different perspective inlo
Chandler-Gilbert Community College - ENG - 101
Name: Aaron NewClass: English 101 Response Assignment 2Date: Oct-26th-09The two essays wrote on two totally issues and they represented two different style ofwriting. The first essay that is on The Offbeat Allure of Cult Films had a broaderperspectiv
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 Response (Examples of evaluation essay concept)Instructor: Prof. Valerie Bandura Finn (32073)Nov-09th-09Before reading this article, I had a question in my mind. What is the differencebetween definition essay and evaluation essay
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 Response 4Instructor: Prof. Valerie Bandura Finn (32073)Nov-16-09After reading the evaluative essay on Why I Hate Britney, I felt that this essay is notvery convincing. The writer, Nisey Williams focused mainly on one aspect for
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 Response 5Instructor: Prof. Valerie Bandura Finn (32073)Nov-30-09I personally find causal essay to be very interesting. It is a development of a claimthat comes from either a claim or from the effect of an event. It is interestin
Chandler-Gilbert Community College - ENG - 101
Aaron NewProf. Valerie Bandura Finn (32073)English 101 Response 6Dec 2nd, 2009The first piece of essay uses a lot of citations and I feel that the writer is smooth in thetransition from one of her arguments to her next. She wrote mainly on the geneti
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 1 page essay on evaluationInstructor: Prof. Valerie Bandura Finn (32073)Nov18-09Evaluation of Nokia 6600 slideI have been using Nokia 6600 slide for about 2 years now and I like my phone. Nokia hasbeen one of my favorite brands
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 Causal EssayInstructor: Prof. Valerie Bandura Finn (32073)Dec-11-09Fast Food Commercials on Television Affects Eating HabitsThe big juicy burger, the cold bubbling drink, the golden brown fries all of this usuallycomes with a ho
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 Draft on causal essayInstructor: Prof. Valerie Bandura Finn (32073)Dec 9th 2009Media influences on culturesMedia plays a significant role in our society today. It is all around us, from the shows wewatch on television, the music
Chandler-Gilbert Community College - ENG - 101
Aaron NewEnglish 101 1 page essay on causal essayInstructor: Prof. Valerie Bandura Finn (32073)Dec 7th 2009Popularity of fast food in AmericaFast food has always been the first image I think of when I think of American food. Astechnology advances, f
Chandler-Gilbert Community College - ACC - 240
Hi Guys,Im going to take the lead in answering this 1st chaptersdiscussion questions. I have addressed many of the questions inmy lecture. Please follow along. You can keep this for review.Read the question and then look at the answers below.Remember
Chandler-Gilbert Community College - ACC - 240
Chapter15LectureGoodmorning/afternoon/eveningeveryone,Welcometomyfirstlecture.AsIexplainedinmyopeningcomments,wewilldothings whenwedesire.SoIdidnotwaituntilthe1 stdayofclasstodomylecturenotes.This particularlecturewaspreparedwhilerelaxingonthebeach.My
Chandler-Gilbert Community College - ACC - 240
E 1815 Personal Budgeting1. Monthly Budget:Salary (monthly) . $4,500Withholdings:Income taxes (federal and state). $1,125FICA taxes (7.65%) . 344Net take-home pay.(1,469)$ 3,031Fixed expenses:Boat payment expense . $ 425Rent expense. 600Car p
Chandler-Gilbert Community College - ACC - 240
Accounting 240Semester ProjectChapter 18 LectureGoodmorning/afternoon/eveningeveryone,Chapter18isaneasybutverypracticalchapter.Youaregoingtogetsomeverygoodexperienceatbudget preparation.Butnotthetypesofbudgetstheyconcentrateon,(manufacturingcompanies
Chandler-Gilbert Community College - ACC - 240
Chapter 19 LectureGood Morning everyone,You have made it to my final lecture. Congratulations! Not everyone was able to putup with me this long. Anyway, follow along as I discuss ch 19. This is an appropriatechapter to end the semester with. We should
Chandler-Gilbert Community College - ACC - 240
CHAPTER 23EXERCISESNowthatwehaveworkedPVFVproblemsbothforwardsandbackwards,theseproblemsshouldbe fairlyeasy.EXERCISE 23-151.Althoughthisexerciseiswordeddifferentlythansomeoftheoneswehavedone;itisbasicallyaPVproblem.Weshouldbewillingtopaynomorethant
Chandler-Gilbert Community College - ACC - 240
ACCOUNTING 240EXAM 1 Ch 1-3Practice TestName _Section IVersion AFill in the Blanks1. _ costs never involve an outlay of cash.2. _ costs, often referred to as manufacturing costs, are all costsnecessary to create finished goods.3. _ costs remain
Chandler-Gilbert Community College - ACC - 240
CGCCACCOUNTING 240EXAM #2 REVIEWCH 18,22,231. BudgetsPurposes of personal budgeting.o See first and second purposes pg 874. To develop a plan tomeet a goal, and to allow ongoing comparisons between actualresults and the plan.o See 3rd paragraph p
Chandler-Gilbert Community College - ACC - 240
CGCCACCOUNTING 240USES OF ACCOUNTING INFORMATION IISYLLABUS AND FACT SHEETFall 2010INSTRUCTOR:OFFICE:Sidney E. Ford, CPAE133 Phone 480-221-6250E-mailsidney.ford@yahoo.comOFFICE HOURS:by appointmentREQUIRED MATERIALS:TEXT: Accounting: Concept
Chandler-Gilbert Community College - ACC - 240
Aaron NewACC 240 33858Extra Credit Assignment talk by guest speakerDecember 6, 2010Extra Credit AssignmentThe talk that was given by the guest speaker, Mr. Kent was really beneficial. It providedme with me with new insight towards my career goal and
Chandler-Gilbert Community College - ACC - 240
17-24 QUIZ Answer KeyP 1724 (LO2)Identifying Overhead Cost Activities1. Employee training: Employees need special training to work witheach of the companys different products.Product LineBecause the employee training is specific to each individual p
Chandler-Gilbert Community College - ACC - 240
ACC240 Ch. 23 Answer KeysPV-FV QUIZ ANSWERS1.$5,000 X 5.5256 = $27,628+$10,000 X 1.2763 = $12,763$40,3912.$3,000,000/20 = $150,000$150,000 X 13.5903 = $2,038,5453.$2,600 X 30.8402 = $80,1844a.$2,600 X 259.0565 = $673,5464b.$5,200 X 45.7620 =
Chandler-Gilbert Community College - ACC - 240
Chapter 17 Answer Key.PRACTICE EXERCISESPE 171 (LO1) Overhead Allocation Problem for Lily Ice Cream CompanyThe correct answer is C. The problem at Lily Ice Cream Company was oneof improper manufacturing overhead allocation.PE 172 (LO1) Characteristic
Chandler-Gilbert Community College - ACC - 240
Chapter 22 Answer Key.PRACTICE EXERCISESPE 221 (LO1)Differential Costs, Sunk Costs, and Opportunity CostsThe correct answer is D. A sunk cost is one that cannot be avoided.PE 222 (LO1)Sunk CostsThe correct answer is C.E 2216 (LO2) Special Order Pr
Chandler-Gilbert Community College - ACC - 240
Aaron NewACC 240 Section 33858Aug 29, 2010Chapter 15 assignmentPE 15-2: Which one of the following is correct?e. Management accounting evolves from the best practices of managers working within theircompanies.PE 15-3: Which one of the following is