BA 264 Ch 2 Sol - CHAPTER 2 QUESTIONS 1 The accounting...

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Unformatted text preview: CHAPTER 2 QUESTIONS 1. The accounting system generates a vari- ety of reports for use by various decision makers. Among the most common are general-purpose financial statements, management reports, tax returns, and oth- er reports prepared for government agen- cies such as the SEC. 2. A manual and an automated accounting system are similar in that both are de- signed to serve the same informa- tion-gathering and processing functions. Both systems also use the same underly- ing accounting concepts and principles. The differences between a manual and an automated accounting system involve some mechanical aspects, time require- ments, and the appearance of records and reports. Due to advanced technology and reduced prices, today almost all success- ful businesses of any size use computers to assist in the various accounting func- tions. 3. The accounting process involves certain procedures used by businesses to pro- duce financial statement data. The record- ing phase of the accounting process con- sists of those procedures used in the con- tinuing activity of analyzing, recording, and classifying business transactions in the various books of record (journals and ledgers) during the fiscal period. The re- porting phase of the accounting process consists of those procedures used at the end of the fiscal period to update and summarize data collected during the re- cording phase. Financial statements are prepared from the updated and summar- ized 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 ana- lyzed 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 pre- paration 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 necessary to record all accounting in- formation that has not yet been recor- ded and to properly recognize all rev- enues and expenses on an accrual basis. If a spreadsheet is used (an op- tional step in the cycle), adjustments may be journalized and posted any time prior to closing. If statements are prepared directly from ledger bal- ances, however, adjustments must be...
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This note was uploaded on 12/14/2011 for the course BA 264 taught by Professor Vandrgt during the Spring '11 term at Grand Rapids Community College.

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BA 264 Ch 2 Sol - CHAPTER 2 QUESTIONS 1 The accounting...

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