Chapter 3 solutions

Chapter 3 solutions - Solutions to Questions and Multiple...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Solutions to Questions and Multiple Choice Questions: 1 2 3 4 5 6 7 8 9 10 11 12 Revenues increase Retained Earnings. Expenses decrease Retained Earnings. 13 14 The journal is a chronological listing of each transaction as it occurs. The transactions are then posted to individual accounts. The collection of these individual accounts is called the general ledger. The journal is a record of each transaction as it occurs. It is important to have a chronological record of transactions, which is provided by the journal. Also, several journals can be in use at one time in different areas of the business. A firm has only one general ledger. Posting is the process of transferring (copying) transaction data from the journal to the accounts in the general ledger. It is necessary to get all of the transactions that affect a specific account to one central location. An account is a record used to accumulate the monetary amount for each asset, liability, shareholders' equity, revenue and expense. A T-account represents a general ledger account, such as Cash or Sales Revenue. T- accounts are used as a simplified way of representing a page in the general ledger. The left side of a T-account is the debit side and the right side of a T-account is the credit side. Debit simply means left side, and credit simply means right side. Asset and expense accounts are increased with debits and decreased with credits. Liability, equity, and revenue accounts are increased with credits and decreased with debits. A trial balance is a listing of all the accounts in the general ledger and their respective debit or credit balances at a given date. The purpose of the trial balance is to prove that the debits and credits are equal. Assets and expense accounts have normal debit balances. For example, the Rent Expense account is debited when the company incurs the expense and the account should always have a debit balance. Liability, equity and revenue accounts have normal credit balances. For example, the Sales Revenue account is credited when revenue is earned and the account should always have a credit balance. Working Capital is defined as current assets minus current liabilities. It is an absolute measure of a company's liquidity. The quick ratio divides quick assets by current liabilities. The quick assets (cash, short- term investments and net accounts receivable) are those that are the most easily converted to cash. The quick ratio is a measure of the company's ability to pay short-term obligations. The first step in the accounting cycle is to analyze and record the transactions in the journal. This provides a chronological listing of the transactions. The second step in the accounting cycle is to post the journal entries to the general ledger. This reorganizes the transaction data by account. The third step is to prepare an unadjusted trial balance to prove the equality of the debits and credits in the ledger. The most common risks associated with the general ledger accounting system are errors
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 78

Chapter 3 solutions - Solutions to Questions and Multiple...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online