Sm_02 21e - CHAPTER 2 ANALYZING TRANSACTIONS CLASS DISCUSSION QUESTIONS 1 An account is a form designed to record changes in a particular asset

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CHAPTER 2 ANALYZING TRANSACTIONS CLASS DISCUSSION QUESTIONS 1. An account is a form designed to record changes in a particular asset, liability, own- er's equity, revenue, or expense. A ledger is a group of related accounts. 2. The terms debit and credit may signify either an increase or decrease, depending upon the nature of the account. For ex- ample, debits signify an increase in asset and expense accounts but a decrease in li- ability, owner's capital, and revenue ac- counts. 3. Liabilities and owner's equity both have rights or claims to assets as indicated by the accounting equation, Assets = Liabilit- ies + Owner's Equity. Therefore, the same rules of debit and credit apply to both liabil- ities and owner's equity. 4. a. Decrease in owner's equity b. Increase in expense 5. a. Increase in owner's equity b. Increase in revenue 6. a . Assuming no errors have occurred, the credit balance in the cash account res- ulted from drawing checks for $3,000 in excess of the amount of cash on de- posit. b. The $3,000 credit balance in the cash account as of August 31 is a liability owed to the bank. It is usually referred to as an "overdraft" and should be clas- sified on the balance sheet as a liabil- ity. 7. a. The revenue was earned in May. b. (1) Debit Accounts Receivable and credit Fees Earned or another ap- propriately titled revenue account in May. (2) Debit Cash and credit Accounts Re- ceivable in June. 8. The trial balance is a proof of the equality of the debits and the credits in the ledger. 9. No. Errors may have been made that had the same erroneous effect on both debits and credits, such as failure to record and/or post a transaction, recording the same transaction more than once, and posting a transaction correctly but to the wrong ac- count. 10. The listing of $18,590 is a transposition; the listing of $720 is a slide. 11. a. No. Because the same error occurred on both the debit side and the credit side of the trial balance, the trial bal- ance would not be out of balance. b. Yes. The trial balance would not bal- ance. The error would cause the credit total of the trial balance to exceed the debit total by $270. 12. a. The equality of the trial balance would not be affected. b. On the income statement, total operat- ing expenses (salary expense) would be overstated by $7,500, and net in- come would be understated by $7,500. On the statement of owner’s equity, the beginning and ending capital would be correct. However, net income and with- drawals would be understated by $7,500. These understatements offset one another, and, thus, ending owner’s equity is correct. The balance sheet is not affected by the error. 13. a. The equality of the trial balance would not be affected.
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This note was uploaded on 01/15/2012 for the course ACC 305 taught by Professor Williams during the Spring '11 term at University of Phoenix.

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Sm_02 21e - CHAPTER 2 ANALYZING TRANSACTIONS CLASS DISCUSSION QUESTIONS 1 An account is a form designed to record changes in a particular asset

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