Spiceland Chapter 2_Solutions

Spiceland Chapter 2_Solutions - Chapter 02 - The Accounting...

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Chapter 02 - The Accounting Information System External transactions are transactions between the company and a separate economic entity. Internal transactions do not include an exchange with a separate economic entity. Purchasing supplies from a local vendor is classified as an external transaction. 1. Use source documents to identify accounts affected by external transactions. 2. Analyze the impact of the transaction on the accounting equation. 3. Assess whether the transaction results in a debit or a credit to the account balance. 4. Record the transaction. 5. Post the transaction to the T-accounts in the general ledger. 6. Prepare a trial balance. 2-1 Chapter 2 – HOMEWORK SOLUTIONS The Accounting Information System REVIEW QUESTIONS Question 2-1 Question 2-2
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Chapter 02 - The Accounting Information System Dual effect refers to each transaction having at least two effects on the accounting equation. If an economic event increases (decreases) one side of the equation, then it also increases (decreases) the other side of the equation by the same amount. Assets = Liabilities + Stockholders’ equity (a) Increase = Increase + No change (b) Decrease = No change + Decrease (c) Increase = No change + Increase (d) No change * = No change + No change Jerry is not correct. While it is possible for a transaction to increase one account and decrease another, dual effect simply indicates that at least two accounts will always be affected. However, the accounting equation must always remain in balance. It is not possible for one side of the equation to increase while the other side decreases. 2-2 Question 2-3 Question 2-4 * One asset (equipment) increases while another asset (cash) decreases. Question 2-5
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Chapter 02 - The Accounting Information System Jenny is not correct. Any account can be debited or credited. Since an asset has a normal debit balance, it would be debited when it increases and credited when it decreases. Similarly, since a liability has a normal credit balance, it would be credited when it increases and debited when it decreases. 2-3 answers to Review Questions (continued) Question 2-6 Accounts Normal balance Assets Debit Liabilities Credit Stockholders’ equity Credit Revenues Credit Expenses Debit Question 2-7
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Chapter 02 - The Accounting Information System * Answers are opposite of those in Question 2-8 2-4 Question 2-8 Accounts Increase (a) Cash Debit (b) Salaries payable Credit (c) Utilities expense Debit (d) Service revenue Credit Question 2-9 Accounts Decrease* (a) Cash Credit (b) Salaries payable Debit (c) Utilities expense Credit (d) Service revenue Debit
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Chapter 02 - The Accounting Information System (a) Debit Credit Cash 1,200 Service Revenue 1,200 ( Receive cash from providing services ) (b ) Debit Credit Rent Expense 500 Cash 500 ( Pay rent for the current month ) (c) Debit Credit Building 10,000 Notes Payable 10,000 ( Purchase building with note payable ) 2-5 These statements are consistent. Retained earnings has three components – revenues, expenses, and dividends. Changing the balance of any of these components changes the balance of retained earnings. Since expenses are negative components of retained earnings, an increase to an expense
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This note was uploaded on 04/02/2012 for the course MKTG 300 taught by Professor Wong during the Spring '12 term at St. Xavier.

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Spiceland Chapter 2_Solutions - Chapter 02 - The Accounting...

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