Solution Manual Chapter 2

Solution Manual Chapter 2 - CHAPTER 2 QUESTIONS 1. The...

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CHAPTER 2 QUESTIONS 1. The accounting system generates a variety of reports for use by various decision makers. Among the most common are gen- eral-purpose financial statements, manage- ment reports, tax returns, and other reports prepared for government agencies such as the SEC. 2. A manual and an automated accounting system are similar in that both are de- signed to serve the same information-gath- ering and processing functions. Both sys- tems also use the same underlying ac- counting concepts and principles. The dif- ferences between a manual and an auto- mated accounting system involve some mechanical aspects, time requirements, and the appearance of records and reports. Due to advanced technology and reduced prices, today almost all successful busi- nesses of any size use computers to assist in the various accounting functions. 3. The accounting process involves certain procedures used by businesses to produce financial statement data. The recording phase of the accounting process consists of those procedures used in the continuing activity of analyzing, recording, and classi- fying business transactions in the various books of record (journals and ledgers) dur- ing the fiscal period. The reporting phase of the accounting process consists of those procedures used at the end of the fiscal period to update and summarize data col- lected during the recording phase. Finan- cial statements are prepared from the up- dated and summarized data. 4. The accounting process includes the fol- lowing steps: (1) Business documents are analyzed. Business documents provide detailed information concerning each transac- tion and establish support for the data recorded in the books of original entry. (2) Transactions are recorded in chronolo- gical order in books of original entry the journals. Transactions are analyzed in terms of their effects on the various asset, liability, owners’ equity, revenue, and expense accounts of the business unit. (3) Transactions are posted to the appro- priate accounts in the general and sub- sidiary ledgers. The ledger accounts classify and summarize the full effect of all transactions recorded in the journals and can be used in the preparation of financial statements. (4) A trial balance may be prepared show- ing the account balances in the general ledger and reconciling subsidiary ledger balances with respective control account balances. The trial balance provides a summary of the information as classified and summarized in the ledgers as well as a verification of the accuracy of recording and posting. (5) Adjustments are made to bring the ac- counts up to date. Adjustments are ne- cessary to record all accounting inform- ation that has not yet been recorded and to properly recognize all revenues and expenses on an accrual basis. If a work sheet is used (an optional step in the cycle), adjustments may be journal- ized and posted any time prior to clos- ing. If statements are prepared directly from ledger balances, however, adjust- ments must be recorded at this point.
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This note was uploaded on 04/12/2011 for the course ACCT 2310 taught by Professor Santoshattar during the Fall '08 term at Cuyahoga CC.

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Solution Manual Chapter 2 - CHAPTER 2 QUESTIONS 1. The...

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