Section_3 - Homework Section 3 Solutions The Accrual Basis...

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Homework – Section 3 Solutions The Accrual Basis of Accounting 1. When does the accrual basis of accounting record revenues and expenses? When revenues are earned and expenses are incurred. 2. XYZ Inc. is a service-oriented company which uses the accrual basis of accounting. The following is XYZ’s chart of accounts: Assets Liabilities Owner’s Equity Cash Notes payable Capital Stock Service Revenue Accounts Receivable Unearned Revenue Salaries Expense Supplies Accounts Payable Retained Earnings Insurance Expense Prepaid Insurance Supplies Expense Automobiles Rent Expense Dividends For each of the transactions listed below, indicate the specific asset, liability, or owner’s equity account that should be increased or decreased. In addition, if retained earnings (RE) is one of the accounts being increased or decreased, further detail out the revenue, expense, or dividend account that is causing it to increase or decrease. A. Purchases a one-year insurance policy. Asset = Liability + Owners’ Equity (Detail if RE is affected) Cash decreases Prepaid Ins increases B. Performs services for customers on account. Asset = Liability + Owners’ Equity (Detail if RE is affected) AR increases RE increases Service revenue A. Receives cash from customers for services previously provided on account. Asset = Liability + Owners’ Equity (Detail if RE is affected) Cash increases AR decreases B. Purchased supplies on account. Asset = Liability + Owners’ Equity (Detail if RE is affected) Supplies increases AP increases
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C. Paid for supplies previously purchased on account. Asset = Liability + Owners’ Equity (Detail if RE is affected) Cash decreases AP decreases D. Borrows cash by issuing a note payable. Asset = Liability + Owners’ Equity (Detail if RE is affected) Cash increases NP increases E. Repays the entire amount of principal on the note payable plus interest . Asset = Liability + Owners’ Equity (Detail if RE is affected) Cash decreases NP decreases RE decreases Interest Expense F. Receives a bill for utilities. The bill will be paid next month. Asset = Liability + Owners’ Equity (Detail if RE is affected) AP increases RE decreases Utilities Expense G. Pays the utility bill received in “H” above. Asset =
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This note was uploaded on 01/11/2011 for the course ACC 200 taught by Professor Buckless during the Winter '08 term at N.C. State.

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Section_3 - Homework Section 3 Solutions The Accrual Basis...

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