Solutions-Ch03 - CHAPTER 3 The Accounting Information...

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Unformatted text preview: CHAPTER 3 The Accounting Information System Suggested Exercises 1. ANSWERS TO QUESTIONS 4. Revenue and expense accounts are referred to as temporary or nominal accounts because each period they are closed out to Income Summary in the closing process. Their balances are reduced to zero at the end of the accounting period; therefore, the term temporary or nominal is given to these accounts. 11. Adjusting entries are prepared prior to the preparation of financial statements in order to bring the accounts up to date and are necessary (1) to achieve a proper matching of revenues and expenses in measuring income and (2) to achieve an accurate presentation of assets, liabilities and stockholders equity. 12. Closing entries are prepared to transfer the balances of nominal accounts to capital (retained earnings) after the adjusting entries have been recorded and the financial statements prepared. Closing entries are necessary to reduce the balances in nominal accounts to zero in order to prepare the accounts for the next periods transactions. SOLUTIONS TO EXERCISES EXERCISE 3-1 (1520 minutes) Apr. 2 Cash.................................................................... 30,000 Equipment.......................................................... 14,000 Christine Ewing, Capital............................ 44,000 2 No entrynot a transaction. 3 Supplies.............................................................. 700 Accounts Payable...................................... 700 7 Rent Expense..................................................... 600 Cash............................................................. 600 11 Accounts Receivable......................................... 1,100 Service Revenue......................................... 1,100 12 Cash.................................................................... 3,200 Unearned Service Revenue....................... 3,200 1. 17 Cash.................................................................... 2,300 Service Revenue......................................... 2,300 21 Insurance Expense............................................ 110 Cash............................................................. 110 30 Salaries Expense...............................................Salaries Expense....
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This note was uploaded on 02/21/2011 for the course ACCT 3410 taught by Professor Vicky during the Spring '11 term at Aarhus Universitet, Aarhus.

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Solutions-Ch03 - CHAPTER 3 The Accounting Information...

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