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Unformatted text preview: CHAPTER 3 COVERAGE OF LEARNING OBJECTIVES LEARNING OBJECTIVES QUESTIONS EXERCISES PROBLEMS OTHER LO1: Use double-entry accounting. 1,2,3 18,19,20,21 53 LO2: Describe the five steps in the recording process. 4,5,14 22 LO3: Analyze and journalize transactions and post journal entries to the ledgers. 6,7,8,15,16 23,24,25,26, 27,28 34,35.37,39, 40,41,42,43, 44,46,48,49, 50,51 54,55 LO4: Prepare and use a trial balance. 9,10 29 34,35,36,37, 38,38,40,41, 42,43 LO5: Close revenue and expense accounts and update retained earnings. 11 30,31 38,40,42,45 LO6: Correct erroneous journal entries and describe how errors affect accounts. 12 32,33 47 56 LO7: Explain how computers have transformed processing of accounting data. 13,17 Chapter 3 Recording Transactions 65 CHAPTER 3 3-1 No. Double-entry refers to the fact that each transaction recorded in the journal affects at least two accounts in the ledger. Also the total debits must equal the total credits for each transaction. 3-2 No. Increases in Cash are shown on the left side of the account. 3-3 Verb: To debit an account. Adjective: The account has a debit balance. Noun: A debit is made to cash. 3-4 Source documents include sales slips, time cards, checks, and purchase invoices. 3-5 No. The journal, not the ledger, is usually called a book of original entry. The two are equally important. The journal documents the analysis of the transaction and is an important step in creating the ledger. The ledger provides a continuous record of the balances of the accounts that are used to prepare financial reports. 3-6 Revenue and expense accounts show the details of most increases and decreases in retained earnings, which is a component of stockholders’ equity. 3-7 Two synonyms for book value, historical cost minus accumulated depreciation, are carrying amount and net book value . 3-8 No. Accumulated depreciation is the cumulative depreciation charged to expense since acquisition of the asset. 3-9 No. A trial balance is used to test for certain types of errors and to facilitate compiling financial statements. 3-10 No. A trial balance shows whether the total debits equal the total credits, nothing more. Only certain types of errors are detected by the trial balance. 3-11 The Income Summary account is a temporary account that gathers all income statement information—revenue and expenses. From it one can prepare the income statement. The final step in closing the books is to transfer the balance from Income Summary to Retained Earnings. 3-12 No. Most errors are not self-correcting. Some, such as recording prepaid rent as rent expense, leave the books only temporarily inaccurate. Others, such as recording the incorrect amount, have a long-lasting impact. Double-entry systems can help identify some types of errors, but accountants must make correcting entries to correct the errors....
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This note was uploaded on 04/05/2012 for the course STERN C10.0001.0 taught by Professor Hipscher during the Spring '11 term at NYU.
- Spring '11