chapter_1_accounting_in_action

chapter_1_accounting_in_action - ACCOUNTING IN ACTION...

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Unformatted text preview: ACCOUNTING IN ACTION Chapter 1 1—1 Understanding the basic accounting equation. a) What is the basic accounting equation? R5586 : kimlei'iiiwé + Owfltr‘fi COS/9+7 b) Describe the components of the basic accounting equation. Assetsz‘ arc, rt5outwcq angd fig. businegi ‘HALJi’ et’odvgkgi'qutiwrt 5’3:r’\/igg Paicfiiiq g”: ggogom¢ bggéij Liabilities: GLI’C, claim 0V ‘ Jr‘ Owner‘s c) Describe the transactions that change owner's equity. mag»: flfsofir¢\ 1451 , %g 5‘: 31.5% which Q 5; ‘HM Q05 Lind-L 3500b 0 WWW-Ls Louisa “it i m 4w, Procfifé of 91mm $3.034 remnwl V d) Describe the information that is computed by combining revenues and expenses. QLiIg)’=cy§gg fiddrhézjsz {:2 fig regiglfi c£ Q=Qm§¢fcwgzc ram d —___._____________________ Chapter 1 — Accountingin Action Page 1 1—2 Using the accounting equation. Compute the missing amounts in each of the following three lines. Owner’ 5 - Assets Liabilities Eguity Answers Company A $22,000 $16,000 7 £2 0 O Q Company B ? 47,000 $27,000 7L] Q Q g Compmw(: 78000 ?‘ 3a0m) 34 090 1-3 Preparing a tabular analysis of transactions (economic events). Connie Conte started her own business, Conte Computer Cabafia. The following transactions occurred during the month of December 2009. Conte invested $5,000 into her business. Purchased equipment for $3,000 cash. Purchased $600 of supplies-on account. Provided computer services to customers and received $2,000 cash. Received a bill for $300 from Gannett Newspaper for advertising. The bill will be paid at a later date. Provided $4,000 of services and received $1,500 cash. The balance of $2,500 was billed to customers’ accounts. ' Paid rent of $900 and salaries of $800. Paid the $600 it owes for supplies previously purchased in #3. . Received the $2,500 previously billed to customers in #6. 0. Connie Conte withdrew $1,200 in cash from the business for her personal use. .U'PP’N? F" ~©®N Page 2 Chapter 1 d— Accounting in Action a) Complete the table and show the ending balances as of December 31. OWNER’S ASSETS LIABILITIES EQUITY Transaction Accounts C. Come, 9 —7——A—A ' Cash + tReceivable + Sulies + Euiment Pa able + Caital 5006 ~' A. 6\ v D b O C . . 0.1 w; 0 C2 0 D . O ‘. ‘ | .— O 1 Av-l O i P U\ 0 Q l g u o o O to 0 b) Assets Liabilities + Owner's Equity M 50 o + '1 ado c) Prepare a balance sheet at December 31, 2009. D - c. Balance Shet Of. ' H 9 7.00 £- - I . 5 .- Dr 0‘ . I no mlLt‘cJ/a‘ ‘it'x. ov-OQL MH- ._J M ,. ' E '4‘ L i 00 !o D o . o Chapter 1 * Accounting in Action Page 3 1—4 Transaction analysis. Some transactions of Erica Company are summarized in the table below. The effect of each transaction upon the accounting equation is shown. 7' 2 OWNER’S V ASSETS ‘ _ V g LBILITIES _ V EQUITY if 77 Transaction Accounts Accounts Cash + Receivable + Euiment = Pa able Am Jones, Caital Exlanation 9 $5,000 $12,000 $20,000 $30,000 $7,000 -400 400 r —100 l —100 Drawings For each of the transactions listed above, write a sentence explaining the nature of the transaction. 1. Pa 'ch ‘JflbQ a: 0,649”qu ngtgblfi ' 2. ‘ (J dun. ck) QCCD A 3. am“: am R In” “laugh; 5 too ar Fgfla’aflal ukse, rc. CL.5C e or I CASE lab 1 Q 3‘ (nu. p l 5 TM < r c 44; g Lrtr‘lmi t C») "a #3 Caz/MS Page 4 Chapter 1 — Accounting in Action 1-5 Transaction analysis. Bill Fence is the owner of Microhard Software Company which opened on January 1, 2009. During January, the following transactions occurred. 1. Bill Fence invests $10,000 into the business. 2. Received $2,000 cash from customers for software programming services it provided. 3. Incurred $300 of advertising costs in the Global News on account. 4. Provided customers with programming services on account, $3,500. 5. Paid the following expenses for January: salaries to employees $2,500, utilities $400f Bill Fence withdrew $1,500 cash for personal use. Collected $1,000 cash for services billed in transaction #4. Borrowed $5,000 from National Bank on a note payable. Paid the amount owed to Global News for advertising in transaction #3. ' ' pwsa 3) Prepare a tabular analysis of the transactions in the table below. If a transaction changes owner’s equity, write an explanation of the change. Liabilities Accounts Notes Accounts B. Fence, + Receivable = Payble Payable + Cai Ill? III - I. m m ._3 9. E. Chapter 1 — Accounting in Action Page 5 b) Prepare an income statement and an owner’s equity statement for the month of January. Microhard Software Co. Income Statement ‘ Revenues ‘7 u.‘ - " are») -1 I Net income ‘ Microhd Software Co. Owner’s Equity Statement For the Month Ended Jan i ()1 E3 Expenses v D _,J b D 'o s . _. Ii ZOO 2 cm £ Fun kt _ 9 i L ALL. HA1 HM acu- l Page 6 Chapter 1 — Accounting in Action 0) Prepare a balance sheet as of January 31. Microhard Software Co. ‘— Balance Sheet Janu 31,2009 I Assets 'I ‘ OH O. § a A s Q“; a t O ,l I) (a .4. II, 5 I.“ D ; 0 f 0 l Liabilities and Owner’s Equity ‘4 ’o 7 - O ; . \ . I l 1—6 Preparing an income statement. Presented below in alphabetical order are the income statement accounts for Child Company for the year ended December 31, 2009. Prepare the 2009 income statement for Child Company. Advertising expense 3% 300 Depreciation expense 500 Rent expense 1,000 Salaries expense 2,000 Services revenue 10,000 Utilities expense 900 a Chapter 1 — Accounting in Action Page 7 Child Company Income Statement For the Month Eanuar 31, 2009 1—7 Preparing an owner’s equity statement. Listed below are accounts for James Johnson, MD. Prepare an owner’s equity statement for James Johnson for the year ended December 31, 2009. James Johnson, Capital, January 1, 2009 $ 50,000 \/ ‘ Professional fees revenue 300,000 Total expense 220,000 ’° I 801000 Additional investments 25,000 V James Johnson, drawing ' 75,000 James Johnson, MD. Owner’s Equity Statement For the Year Ended December 31, 2009 L u D B m. ,___°_ .. -, s ‘ ‘ . ,_§_ 4 ‘ A l Page 8 ' Chapter 1 — Accounting in Action 1—8 Preparing a balance sheet. Arranged in alphabetical order are the balance sheet items for Starks Company at December 31, 2009. a) After each item, indicate the proper classification (asset, liability, owner’s equity) by placing a check in the appropriate column. A L Accounts payable $11,200 w 154 30 0 Accounts receivable 2,100 \/ _ arm) _ _7 __ Building 80 000 o "' Cash 11,800 / ~ 200 Equipment . 3 6,500 / (t 500 Land 20 000 Note payable 60,000 _C_po QDQ Supplies 700 \/ “we Walt Morrell, Capital 46,900 Ii; : QQQ b) Prepare a balance sheet at December 31, 2009. Starks Company Balance Sheet December 31, 2009 x x l I l l | Chapter 1 — Accounting in Action Page 9 1—9 Preparing a balance sheet. The accounts appearing in the balance sheet for Bryan Company at December 31, 2009 are listed below in random order. Land v’ $1 15,000 Cash / 2,100 Accounts receivable 1/ 26,200 Linda Bryan, Capital ? Office equipment/ 5,800 Accounts payablew 12,700 Note payable-V _\ 74,000 Prepare a balance sheet for Bryan Company at December 31, 2009. You must calculate the amount for Linda Bryan, Capital. (Hint: After each item, indicate the proper classification.) Bry Company Balance Sheet Deceber 31, 2009 _ _ — i l l i l l I ! Page 10 Chapter 1 ~ Accounting in Action 1—10 Group discussion: users of accounting information. Name three users of accounting information and briefly describe a decision they might make. 1' I93 a. . ‘ u .o., l‘ \ .. 0" CRANE Q «i ~‘ L . I -‘ . In -_ lvll Accounting terms and concepts. Listed below are several accounting terms and concepts. Match the letter of each with the appropriate phrase which states its meaning. )4 Accounting Monetary unit assumption )5.” Internal users Economic entity assumption 9/ External users \1/ Proprietorship Va? Financial accounting pi! Partnership )2.” Managerial accounting Corporation \f.’ Ethics 9/ Unlimited liability yg/. Generally accepted accounting principles ,9." Limited. liability Arr. Cost principle 9/ Financial Accounting Standards Board /i./ Securities and Exchange Commission 1/ Sarbanes-Oxley Act (SOX) % 1. Common standards that indicate how to report economic events. 2. The standards by which one’s actions are judged as right or wrong. Chapter 1 — Accounting in Action Page 11 10. 11. 12. 13. 101- t l t t F—“ibr 1°" M 14. ‘3 Me 1‘ 15. 16. 17. 18. An unincorporated business owned by one person. The information system that identifies, records, and communicates the economic events of an organization to interested users. The employees of a business who need financial information to plan, organize, and run a business. An accounting principle that states that assets should be recorded at their cost. The legal concept that owners are not personally liable for the debts of a corporation. The field of accounting that provides economic and financial information for investors, creditors, and other external users. An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. A business organized under state laws as a separate legal entity from its owners and having ownership divided into transferable shares. The field of accounting that provides economic and financial information for manager and other internal users. The legal concept that the owners of a business are personally liable for all the debts of the business. An assumption stating that only transaction data that can be expressed in terms of money be included in the accounting records. Individuals or organizations outside the business that require financial information to make decisions about an entity. An association of two or more persons to carry on as co-owners of a business for profit. A government agency that requires companies to file periodic financial reports in accordance with generally accepted accounting principles. A private organization that establishes generally accepted accounting principles. A law passed by Congress in 2002 intended to reduce unethical corporate behavior. Page 12 Chapter 1 — Accounting in Action r 1-12 Accounting terms and concepts. Listed below are several accounting terms and concepts. Match the letter of each with the appropriate phrase which states its meaning. fi.’ Basic accounting equation External transactions (11/ Assets Internal transactions / Liabilities X Accounts receivable 11/ Owner’s equity 1217' Account payable /e./ Revenues Income statement . Expenses _ )3.» Owner’s equity statement 3/ Investments by owners pf Balance sheet )2/ Drawings ,q." Statement of cash flows ,i/ Transactions . .r.’ Net income 1. A financial statement that reports the assets, liabilities, and owner’s equity at a specific date. 2. An economic event between the company and some outside enterprise. 3. The value of goods or services sold to customers and results in increasing owner’s equity. Assets must equal the sum of liabilities and owner’s equity. *le It 5. This amount is the result of revenues being greater than expenses. 6. The assets the owner puts into the business. 7. The amounts owed to the business by customers on account that result from the sale of goods or services. 8. The amount of assets an Owner withdraws for personal use. A financial statement that summarizes information about the cash inflows and cash outflows for a specific period of time. 10. Resources owned by a business. 11. The economic events of an enterprise that are recorded by accountants. 12. A financial statement that summarizes the change in owner’s equity for a specific period of time. 13. A specific debt of a business that results from purchases of goods or services. lng H'lr Mr We 14. The ownership claim on total assets. Chapter 1 — Accounting in Action Page 13 The cost of assets consumed or services used in the process of earning revenues. The creditor’s claims against the assets as a result of borrowing money or making purchases. A financial statement that presents the revenues and expenses of a company for a specific period of time. Economic events that occur entirely within one company. § 15. C/ 16. kl 17. _K_ 18. Page 14 Chapter 1 — Accounting in Action ...
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This note was uploaded on 05/20/2008 for the course ACCOUNTING ACC102 taught by Professor Murphy during the Spring '07 term at Monroe CC.

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chapter_1_accounting_in_action - ACCOUNTING IN ACTION...

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