Fin. | Chapter 2 - 2 RECORDING BUSINESS TRANSACTIONS ANSWERS TO QUESTIONS 1 The company enters into a business transaction The business transaction is

Fin. | Chapter 2 - 2 RECORDING BUSINESS TRANSACTIONS...

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Solutions Manual, Chapter 2 23 2 RECORDING BUSINESS TRANSACTIONS ANSWERS TO QUESTIONS 1. The company enters into a business transaction. The business transaction is evidenced by a source document. The source document serves as the basis for preparing a journal entry. The journal entry is posted to accounts in the ledger. 2. Source documents include items such as bills (invoices) received from suppliers for goods and services received, bills sent to customers for goods sold or services performed, and cash register tapes. Many other examples could be given. 3. An account is an element in an accounting system that is used to classify and summarize money measurements of business activity of a similar nature, such as cash or accounts receivable. The two basic forms of accounts that were illustrated in the chapter are the T- account and the three-column ledger account. 4. The double-entry procedure, or duality, means that the effects of each business transaction must be recorded in a journal entry that has equal dollar amounts of debits and credits. 5. The balance of a T-account is determined by totaling the debit side and the credit side, deducting the smaller total from the larger total, and then recording the difference as the balance on the side that is larger. 6. The word debit refers to the left side of any account. “Debit side" means left side. “Debit entry" means an entry on the left side. “Debit balance" means a balance on the left side. To “debit" means to record an entry on the left side. Credit refers to the right side of any account. “Credit side" means the right side. “Credit entry" means an entry on the right side. “Credit balance" means a balance on the right side. To ”credit" means to record an entry on the right side. a. Asset, expense, and Dividends accounts. b. Liabilities, stockholders' equity, and revenue accounts. c. Same as (b). d. Same as (a). As to whether or not the system makes sense, all types of responses can be expected. The reason for asking the question is to get students to consider how they would record changes if they were the ones devising the system. They can then realize that there must be some general rules to follow if it is going to be possible for one accountant to understand another accountant's financial records. The students will probably conclude that the system described in the text is as logical and reasonable as any they can devise. 7. The first three steps are performed throughout the accounting period. These steps are: a. Analyze transactions by examining source documents. b. Journalize transactions in the journal. c. Post journal entries to the accounts in the ledger. 8. The last five steps are performed only at the end of the accounting period. These steps are: a. Prepare a trial balance of the accounts and prepare a work sheet.
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