ch03[1]

ch03[1] - CHAPTER 3 The Accounting Information System 1....

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Unformatted text preview: CHAPTER 3 The Accounting Information System 1. ANSWERS TO QUESTIONS 2. Transactions (a), (b), (d) are considered business transactions and are recorded in the accounting records because a change in assets, liabilities, or owners/stockholders equity has been effected as a result of a transfer of values from one party to another. Transactions (c) and (e) are not business transactions because a transfer of values has not resulted, nor can the event be considered financial in nature and capable of being expressed in terms of money. 3. Transaction (a): Accounts Receivable (debit), Service Revenue (credit). Transaction (b): Cash (debit), Accounts Receivable (credit). Transaction (c): Office Supplies (debit), Accounts Payable (credit). Transaction (d): Delivery Expense (debit), Cash (credit). 7. (a) Real account; balance sheet. (b) Real account; balance sheet. (c) Merchandise inventory is generally considered a real account appearing on the balance sheet. It has the elements of a nominal account when the periodic inventory system is used. It may appear on the income statement when the multiple-step format is used under a periodic inventory system. (d) Real account; balance sheet. (e) Real account; balance sheet. (f) Nominal account; income statement. (g) Nominal account; income statement. (h) Real account; balance sheet. 8. At December 31, the three days wages due to the employees represent a current liability. The related expense must be recorded in this period to properly reflect the expense incurred. 10. (a) No change. (b) Before closing, balances exist in these accounts; after closing, no balances exist. (c) Before closing, balances exist in these accounts; after closing, no balances exist. (d) Before closing, a balance exists in this account exclusive of any dividends or the net income or net loss for the period; after closing, the balance is increased or decreased by the amount of net income or net loss, and decreased by dividends declared. (e) No change. 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. 14. December 31 Interest Receivable............................................................................................. 10,000 Interest Revenue......................................................................................... 10,000 (To record accrued interest revenue on loan) Accrued expenses result from the same causes as accrued revenues. In fact, an accrued expense on the books of one company is an accrued revenue to another company....
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This note was uploaded on 03/30/2011 for the course ACT 3391 taught by Professor Daniel during the Fall '08 term at Troy.

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ch03[1] - CHAPTER 3 The Accounting Information System 1....

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