Class Notes for College Accounting: A Practical Approach, 14th Edition

Preview (31 of 256 Pages)

100%

Purchase to unlock

Loading page image...

College AccountingFourteenth EditionJeffrey SlaterMike DeschampsInstructor's Resource ManualforCollegeAccounting:ApracticalApproachBy Carolyn Strauch

Loading page image...

1-1Chapter1Accounting Concepts and ProceduresChapter OverviewThe chapter begins with an introduction to accounting and the organizational forms of business:soleproprietorships, partnerships, corporations, and limited liabilitycompanies. Learning Unit 1-1 has assets,liabilities, and equities defined and explained through examples and the accounting equation. LearningUnit 1-2 illustrates the steps necessary to prepare abalance sheet. Learning Unit 1-3 expands theaccounting equation to include revenues, expenses, and withdrawals. Each element of the equation isfurther defined. A variety of transactions are analyzed along with their impact on the accountingequation. Learning Unit 1-4 discusses the income statement, the statement of owner’s equity,and thebalance sheet.The accounting equation is used to illustrate how the income statement,statement ofowner’s equity,balance sheet are developed and interrelated. The net income from theincome statementis carried to thestatementofowner’s equity,and the ending capital is carried from thestatementofowner’s equityto thebalance sheet. The demonstration problem and the solution tips help studentsrecord the effect of transactions on the accounting equation andtoultimately prepare financial statements.LearningObjectivesAfter studying Chapter 1, your students should gain proficiency in the following:1.ExplainAccounting,Business, and theAccountingEquation.2.PrepareaBalanceSheet.3.RecordTransactions into theExpandedAccountingEquation.4.PreparetheThreeFinancialStatements.

Loading page image...

1-2Chapter 1 Assignment GridEstimatedLevelLearningTime inofAssignmentTopic(s)Unit(s)MinutesDifficultyDiscussion Questions and Critical Thinking/Ethical Case1Functions of Accounting15Easy2Types of Businesses15Medium3Business Classifications15Medium4Bookkeepingand technology15Easy5Accounting equation15Easy6Capital15Easy7Accounting equation15Easy8Balance sheet210Medium9Account categories35Easy10Account categories35Easy11Account categories35Easy12Expenses35Medium13Incomestatement45Easy14Statement ofowner’s equity45Easy15Ethical case45MediumConcept Checks1Classifying Accounts15Easy2TheAccounting Equation15Medium3Shift versus Increase in Assets15Medium4TheBalance Sheet25Easy5TheAccounting Equation Expanded35Easy6Identifying Assets25Easy7TheAccounting Equation Expanded35Medium8Preparing Financial Statements45Easy9Preparing Financial Statements45EasyExercises(Set A)1A-1Accounting Equation15Easy1A-2Accounting Equation15Easy1A-3Balance Sheet210Easy1A-4Accounting Equation–Expanded315Medium1A-5Financial Statements420MediumExercises(Set B)1B-1Accounting Equation15Easy1B-2Accounting Equation15Easy1B-3Balance Sheet210Easy1B-4Accounting Equation–Expanded315Medium1B-5Financial Statements420MediumProblems(Set A)1A-1Accounting Equation115Easy1A-2Balance Sheet215Medium1A-3Accounting Equation Expanded320Medium1A-4Financial Statements430Medium1A-5Financial Statements3, 445Hard

Loading page image...

1-3EstimatedLevelLearningTime inofAssignmentTopic(s)Objective(s)MinutesDifficultyProblems(Set B)1B-1Accounting Equation115Easy1B-2Balance Sheet215Medium1B-3Accounting Equation Expanded320Medium1B-4Financial Statements430Medium1B-5Financial Statements3, 445HardFinancial Report ProblemReadingAmazon’sAnnualReport25EasyKeeping It RealSuarezComputer Center3, 445MediumLearning Unit 1-1: Accounting, Business, and the AccountingEquationSummary:Accounting is the language of business.Itprovidesfinancialinformation to users and helpsthe decision making process. The accountingprocess analyzes,records,classifies,summarizes, reports,and interpretsfinancial information for decisionmakers. Thefourmain categories of businessorganizations are (1) sole proprietorships, (2) partnerships,(3) corporations, and limited liabilitycompanies. Business organizations canalsobeclassifiedinto service, merchandise,or manufacturingbusinesses according to the need that they fulfill.Generally acceptedaccounting principlesare the set ofprocedures and guidelines developed to assure the consistent preparation and interpretation of theaccounting reports.The main difference between bookkeeping and accounting is the level of analysis andscope of duties.The basic accounting equation is presented as: Assets= Liabilities + Owner’s Equities. The assets areproperties (resources) of valuethat the firm or business owns. Examples are cash, land,supplies, officeequipment,buildings, and other properties of value. Liabilities are obligations that come due in the futureor claims of the creditorsto assets.An exampleisaccounts payable. The owner’s equity is therights orfinancialclaimsto the assetsofabusiness. The owner’s investmentofequity is called capital.A shift in assets indicates that the makeup of the assets has changed, but the sum total of the assetsremains the same. An increase of assets reflects an increase in the total amount of assets owned.Remember that the left-hand-side total of assets must always equal the right-hand-side total of liabilitiesand owner’s equity.KeyConcepts:Accounting,sole proprietorship, partnership, corporation,limited liability company,servicecompany, merchandise company, manufacturer, generally accepted accounting principles,International Financial Reporting Standards(IFRS),bookkeeping, assets, equities, liabilities, creditor,owner’s equity, basic accounting equation, capital, supplies, shift in assets, accounts payableLectureOutline:1)Accountingis the language of business. Itprovides information to managers, owners, investors,governmentagencies, and others inside and outside the organization.

Loading page image...

1-42)Businesses can be classified into one offourtypes of organizations:a)Sole Proprietorships are businesses that have one owner.i)Easy to formii)Owner can lose personal assets to meet obligations of businessiii)Ends with death of owner or closing of businessb)Partnerships are businesses that have at least two owners.i)Easy to formii)Partners could lose personal assets to meet obligations of partnershipiii)Endswith death of partner or closing of businessc)Corporations are businesses owned by stockholders.i)More difficult to formii)Limitedlimitedpersonal risk–stockholders’loss isusuallylimited to their stock investmentiii)Continues indefinitelyd)Limited LiabilityCompany (LLC)i)More difficult to formii)Limited liability or limited personal risk–members’loss is limited to their investmentin thecompanyiii)May end with death ofmember3)Businesses can be classified into service, merchandise, and manufacturing businesses.a)Servicecompany–Business that provides a serviceb)Merchandisecompany–Business thatmakes its own products orbuys a productfrom amanufacturing companyand sells it to its customersc)Manufacturer–Business that makes a product and sells it to its customers4)Accounting(also called the accounting process)is a system that measures the activities of a businessin financial terms, provides written reports and financial statements about those activities, andcommunicates these reports to decision makers and others. It does this by performing the followingfunctions:a)Analyzing: looking at what happenedin the pastand how the business was affectedb)Recording: Putting the information into the accounting systemc)Classifying: Grouping all the same activities (e.g. all purchases) togetherd)Summarizing:Totalingthe resultse)Reporting: Issuing the statements that tell the results of the previous functionsf)Interpreting: Examining the statements to determine how the various pieces of information theycontain relate to each otherg)Communication: Providing the reports and financial statements to people who are interested inthe information, such as the business’s decision makers, investors, creditors, and governmentagencies5)Difference between Bookkeeping and AccountingBookkeeping is the recording function of the accounting process. Accounting uses the bookkeepingprepared information to prepare the financial statementsused to analyze the company’s financialposition.An accountantpreparestax forms, preparesbudgets, andperformsfurtheranalysis offinancial information.6)The accounting equation illustrates the relationship between assets, liabilities, and equities.a)Assetsare properties(resources)of value owned by a firm: Assets = Liabilities + Owner’s Equityb)Equitiesare the rightsorfinancial claimof creditors (liabilities) and owners (owner’s equity)who supplythe assetsto the firm.c)Liabilitiesare obligations that come due in the future.7)Abusiness transactionis an event that affects the financial position of a businessandmay bereliably recorded.8)The accounting equation must balance after eachbusinesstransaction is recorded.

Loading page image...

1-5TeachingTips/Strategy:The instructor maybegin by discussingthe accountinggoalsand therelationship with the business activities.In addition, the instructor can presentthe accounting function andhow it helps business organizations identify key activities and help on the decision making process. Toaid studentsinunderstandingaccounting, provide an exampleof howaccounting can help in the decisionmaking process.To explain business classification concepts, the instructor may use a group-based activitythat consistsof listing familiar business names and indicate classification, category,and type of eachbusiness organization. This group-based interaction will aid in evaluating the level of understanding ofthis topic. Utilize as reference Tables1.1and 1.2 for the students as examplesof categories andclassifications. Table 1.1 illustrates the business organizations and characteristicsof each organization,and Table 1.2 illustratesexamples of Service, Merchandise, and Manufacturing Businesses.TeachingTips/Strategy:Utilize a group-based activity to aid in explaining the accounting equationelements.Presentfamiliar business organizations and identify what assets and liabilitiesthey arelikely tohave.Concept Checks #1 and #2 can be used to assess the student’s knowledge of the accountingequation elements and account classification. ConceptCheck#3 can aid in understanding the shift inassets versus the increase in assets. Exercises 1-A1 and 1-A2 areexcellentas additional practice and/orhomework assignment to evaluate the basic accounting equation understanding.Use the “Ten-Minute Quiz” questions #1, #2, #3, #4 and #5 to reinforce Learning Unit 1-1 Concepts.Learning Unit 1-2: The Balance SheetSummary:Thebalance sheet or statement offinancial position shows the financial position of a businessas of a particular date. The balance sheet figures represent the basic accounting equation. The assetsappear on the left-hand side of the statement while liabilities and owner’s equity appearon the right-handsideKey Concepts:Balance sheetLectureOutline:Thebalancesheetis a statement, as of a particular date, that shows the amount of assets owned by abusiness as well as the amount of claims (liabilitiesand owner’sequity) against these assets.Statement offinancialpositionisanother name for a balance sheet. The proper form for thebalancesheetcontains:a)Heading: the company name, the statement name, the statement dateb)Shows assets, liabilities, and equity amountsc)Dollar signs appearto the left of each column’s top figure and to the left of the column’s totald)A single underline appears above a total and a double underline appears beneath ite)It is importantto align numbersf)Providesa look at the financial position of the businessTeachingTips/Strategy:TheExercise1A-3is an excellent exercisetopresent andprepare a step-by-stepbalancesheet duringlecture.Use the Figure 1-7as reference for the proper presentation.As theexercise is finalized, commentonthe variousdetailsof how the balance sheet has been presented(monetary unit/dollar signs, single and double underlines,and the alignment) and why theseparticulardetailsareessentialto the reader.Students can comment or present their opinions/commentson thefinancial situationof the business for which the balance sheet was prepared. Thisactivitywill enhance

Loading page image...

1-6theirunderstandingof the basicelements of anaccounting equationand help develop criticalthinkingandanalytical skills.Exercise1B-3isagood assignmentto evaluate the student’s basic knowledge of thebalance sheetstatement and its proper presentation.Use the “Ten-MinuteQuiz” questions#7 and #10 to reinforce Learning Unit 1-2 Concepts.Learning Unit 1-3: The Accounting Equation Expanded: Revenue,Expenses, and WithdrawalsSummary:As apart of doing business,all organizations earnrevenueandincur expenses.A service company earnsrevenuewhen it provides services to its clients. When revenue is earned, theowner’s equity is increased. In effect, revenue is asubdivisionof owner’s equity.A business’sexpensesare the costs the company incurs in carryingout necessaryoperations inits effort togeneraterevenue.Expenses are also asubdivisionof owner’s equity.Whenexpenses are incurred, theydecreaseowner’sequity. Expenses can be paid for in cashor they can be charged.When revenue totals more than expenses,the result is callednet income.Whenexpensestotal more than revenue,the result isnet loss.Whenownersneed to withdraw cash orother assets from the businessto pay living or other personal expensesthat do not relateto the business, the transaction will be recordedin an account calledwithdrawalsorowner’s drawing account.The withdrawalsaccountis asubdivisionof owner’sequity that recordspersonal expenses not related to the business.Hence, withdrawalsresult in adecreasein theowner’sequity (see Figure 1.3).It is important to remember the difference between expenses and withdrawals.Expenses relate to business operations.Withdrawalsare the result of personal needsoutside the normaloperations of the business.All business transactions are recorded in theexpanded accounting equationthat include withdrawals, revenues, and expenses.KeyConcepts:Cash basis, accrual basis,revenue,accounts receivable, expense,net income, net loss,withdrawals,expanded accounting equationLectureOutline:1)The accounting equation expands to include revenue, expenses, and withdrawals: Assets = Liabilities+ Capital-Withdrawals + Revenue-Expenses.a)Revenueis earned by a company when it provides servicesforits clientsor sells goods to itscustomers.b)Expensesare the costs the company incurs in carrying on operations in its effort to createrevenue.c)Net Incomeoccurs when total revenues are greater than expenses.Net Lossoccurs when totalexpenses are greater than revenues.d)Withdrawalsarethe recording of the owner’s withdrawing cash or other assets from the businessto pay living or other personal expenses that do not relate to the business.2)The owner’s equity portion of the accounting equation expands to illustrate beginning capital plusadditional investment from owners, plus revenues, less expenses, and less withdrawals.3)Various transactions are used to illustrate the transactional effects on the accounting equation.TeachingTips/Strategy:Use as a lecture demonstration the“SuccessCoach”LU1-3Do It Right NowCheckup” (end of the chapter) to reinforce the LearningUnit1-3 concepts.

Loading page image...

1-7Learning Unit 1-4: The Three Financial StatementsSummary:The financial statements present howwell the business has performed over a specific periodof time. Anincome statementis an accounting statement that shows business results in terms of revenueand expenses. If revenues are greater than expenses, the report shows net income. If expenses are greaterthan revenues, the report shows net loss. An income statement typically covers 1, 3, 6, or 12 months.Thestatement shows the result of all revenues and expenses throughout the entireperiod and not just as of aspecific date.An exampleincome statement forJess Bora’s Computer Consulting businessis shown inFigure 1.4.Thesecond statement, thestatement ofowner’sequity,showsfor a certain period of timewhat changesoccurred inthecapitalaccount.Examplesof thestatement of owner’s equityareshown inFigure 1.5 and Figure 1.6.Thethird statement, thebalance sheet, utilizes theexpanded accountingequation (see Figure 1.7)to presentthe asset accounts (cash, accounts receivable,andcomputerequipment) appear on the left side of the balance sheet,and the accounts payable andcapitalaccountsappear on the right side. Theending balance of capitalcan be calculated within the accountingequation or can befound onthe statement of owner’s equityas the ending capital amount.KeyConcepts:Income statement,statementof owner’s equity, ending capitalLecture Outline:1)The accounting equation maintains totals for each component of the equation.2)TheIncome Statementis an accounting statement that shows business results in terms of revenueand expenses for a specific time period. The proper form for theincome statement:a)Cannot cover more than one yearb)Heading–the company name, the statement name, the period covered by the statementc)Shows revenue, expenses, and net income ornetlossd)Revenue is listed firste)Expenses are listed in alphabetical order, from largest amount to smallest, or a pattern establishedby the accountantf)Net income or net loss is the difference between revenue and expenses3)TheStatement of Owner’s Equityshows changes in capital. Proper form for thestatementofowner’s equityincludes:a)Heading–the company name, the statement name, the period covered by the statementb)Shows the beginning equity balance, investments by owner, net income ornetloss, withdrawalsby owner, and the ending equity balance4)TheBalance Sheetillustrates the balance in the accounting equation: assets equal liabilities plusowner’s equity. This statement was addressed earlier in the chapter.TeachingTips/Strategy:Use theExercise1A-5 as aclassroomdemonstrationto reinforce the properform and procedures while completing financial statements.Explain the relationship between thestatementswith an example such asan“AmazingRace” or “a scavenger hunt”game. The cluesfromthestatement are needed to complete the rest of the statements.Thenet income (income statement) is neededfor thestatementof owner’s equity ending balance. The ending balance of the capital (statementofowner’s equity) is needed to complete the equity section of thebalance sheet.TheExercise1B-5is an excellentwayto complete ateam-basedactivitytoreinforcethis objective.Use the “Ten-MinuteQuiz” questions#7,#8, #9 and #10 to reinforce Learning Unit 1-4 Concepts.

Loading page image...

1-8Teaching Tips/Strategy: Each chapter contains a Try It! at the end of each Learning Unit. The Try its!are intended as practice for students and/or as checking of student understanding. There is also aDemonstration Summary Problem with each chapter to provide an overview of all the chapter concepts.Students can study and reviewtheseproblemsto view how all the chapter concepts fit together.

Loading page image...

1-9NameDateSectionCHAPTER 1TEN-MINUTE QUIZCircle the letter of the best response.1.Select the accounts affected by the following transaction: TJ Rex invests $50,000 to open a musicstore.a.Assets and Owner’s Equityb.Assets and Liabilitiesc.Liabilities and Owner’s Equityd.Capital and Owner’s Equity2.Select the accounts affected by the following transaction: TJ Rex uses credit to buy musicalinstruments to sell in the store.a.Assets and Owner’s Equityb.Assets and Liabilitiesc.Liabilities and Owner’s Equityd.Capital and Owner’s Equity3.Select the accounts affected by the following transaction: TJ Rex provides guitar lessons for $25cash.a.Cash and Accounts Payableb.Cash and Revenuec.Accounts Receivable and Revenued.Cash and Expenses4.Select the accounts affected by the following transaction: TJ Rex receives $100 for previouslessons provided on account.a.Cash and Accounts Receivableb.Cash and Revenuec.Accounts Receivable and Revenued.Cash and Expenses5.Select the accounts affected by the following transaction: TJ Rex receives the utility bill but willwait and pay it next month.a.Cash and Accounts Receivableb.Cash and Revenuec.Accounts Receivable and Revenued.Accounts Payable and Expenses6.Which of the following is not an asset?a.Cashb.Landc.Mortgage Payabled.Patents

Loading page image...

1-107.Which of the following is reported on the balance sheet?a.Accounts Payableb.Fees Earnedc.Depreciation Expensed.Withdrawals8.Which of the following is represented on the incomestatement?a.Cash received from sale of equipmentb.Accounts Payablec.Office Equipmentd.Net loss9.Which of the following will not appear on the statement of owner’s equity?a.Net incomeb.Withdrawalsc.Capitald.Fees Earned10.Which financial statement illustrates the accounting equation?a.Statement of Owner’s Equityb.Income Statementc.Balance Sheetd.Statement of Cash FlowsAnswerKey to Chapter 1 Quiz1.a2.b3.b4.a5.d6.c7.a8.d9.d10. c

Loading page image...

2-1Chapter2Debits and Credits: Analyzing and Recording Business TransactionsChapter OverviewThis chapter transitionsfrom analyzing transactionsandlisting each account in a potentially longaccounting equation to double entry accounting.There are five steps used to analyze a transaction: 1)determining which accounts are affected;2) determining which categories the accounts belong to (assets,liabilities, capital, withdrawals, revenue, or expenses);3) determining whether the accounts increase ordecrease;4)using the debit and credit rules to determineif the result of steps2 and3results in ajournalentrydebit orcredit;and 5) computing the balance in theTaccount.T accounts are used to illustrate debitsand creditsand howto evaluate each account’s balance.A T account is a simpler way to illustrate anaccount.It has a debit and credit side and can be used to compute the balance in that account. Severalexamples are used to illustrate transaction analysis and the resulting journal entry and T account balance.Next,how to use the balances in the T accounts to prepare a trial balanceis illustrated.A trial balance is alisting of a company’s accounts and its resulting debit or credit balance in the proper debit or credit column.The information from the trial balance is used to preparefinancial statements. Finally,the interrelationshipbetween the financial statements is emphasized. The income or loss from the income statement is carried tothe statement ofowner’s’equity. The ending balance in the statement ofowner’sequity is carried to thebalance sheet.Learning ObjectivesAfter studying Chapter 2, your students should gain proficiency in the following:1.Explain T Accounts andHow to Foot and Balance.2.Use a Chart of Accounts to Record Transactions in T Accounts According to the Rules of Debits andCredits.3.PrepareaTrial Balance and the Financial Statements.

Loading page image...

2-2Chapter 2 Assignment GridEstimatedLevelLearningTime inofAssignmentTopic(s)Objective(s)MinutesDifficultyDiscussion Questions and Critical Thinking/Ethical Case1Define ledger15Easy2Debit15Easy3Footings15Easy4Accounting cycle25Easy5Transaction Analysis Chart25Easy6Transaction Analysis Chart25Easy7Double Entry bookkeeping25Easy8Trial Balance35Easy9Financial Statements35Easy10Financial Statements35Easy11Trial Balance35MediumConcept Checks1TheT account15Easy2Transaction Analysis25Easy3Transaction Analysis25Easy4Trial Balance35Easy5Trial Balance/ Financial Statements310EasyExercises (Set A)2A-1Chart of accounts210Easy2A-2Transaction analysis25Easy2A-3Transaction analysis25Easy2A-4Account analysis220Medium2A-5Financial Statements320MediumExercises(Set B)2B-1Chart of accounts210Easy2B-2Transaction analysis25Easy2B-3Transaction analysis25Easy2B-4Account analysis220Medium2B-5Financial Statements320MediumProblems(Set A)2A-1Transaction Analysis220Medium2A-2Transaction Analysis220Medium2A-3Trial Balance1,320Medium2A-4Financial Statements340Hard2A-5Transactions, Trial Balance, & Financial Prep2, 360HardProblems(Set B)2B-1Transaction Analysis220Medium2B-2Transaction Analysis220Medium2B-3Trial Balance1,320Medium2B-4Financial Statements340Hard2B-5Transactions, Trial Balance, & Financial Prep2, 360Hard

Loading page image...

2-3EstimatedLevelLearningTime inofAssignmentTopic(s)Objective(s)MinutesDifficultyFinancial Report ProblemReadingAmazon’sAnnual Report25EasyKeeping It RealSuarezComputer Center1,2, 360MediumLearning Unit 2-1: The T Account and How to Foot and BalanceSummary:The T accountis a tool to demonstrate the increasesand decreases in each account. The Taccount is askeleton version of a standard account. Astandard accountform is the formal structurerequired for each account. All Taccounts have three parts: account title,debit(left) andcredit(right). TheTaccounts are footed to determine the balance or ending balance for the specific account. Foot is to (sum)add all debitsandadd (sum) all credits,andfootingis totalingeach individual column. The columnbalances are subtracted to compute the final total or ending balance for each account. The ending balance isalways presented on the bigger ornormal side.To record transactions, the accountant determines whichaccounts are credited or debited utilizing the debit and credit rules. The double-entry bookkeeping is anaccounting system in which the recording of each transaction affects two or more accounts.Youmustinclude at least one debit and one credit per transaction, and the total amount of debits is equal to the totalamount of credits.Key Concepts:account, standard account, ledger, T account, debit, credit, footings, ending balanceLecture Outline:1)Each transaction is recorded in the accounting equation under specific accounts: assets, liabilities,capital, withdrawals, revenue, expenses, and so on.2)Accounts are used to record increases and decreases of business transactions relating to individualelements of the accounting equation:a)assets,b)liabilities,c)capital,d)withdrawals,e)revenue,f)and expenses.3)The subdivisions or account categories (account classification) are:a)asset accounts,b)liability accounts,c)owner’s equity accounts,d)revenue accounts,e)and expense accounts.4)The standard account form includes:a)columns for date,b)explanation,c)posting reference,d)debit,e)credit,

Loading page image...

2-4f)and total columns.5)The ledger has all the individual accounts, and all transactions affecting an account are recorded on theform.a)A ledger is a book of accounts that records data from business transactions.b)Prepared manually in a traditional accounting format.c)Ledger accounts in a computerized system are updated automatically by software.6)For simplicity sake, use the T account form for demonstration purposes. T account simple formincludes:a)the title, which expresses the name of the accountb)debit (left) side or Dr.c)credit (right) side or Cr.7)Footing: (the totals for each column)a)process of adding all items on the debit side,b)adding all items on the credit sidec)calculate the T account ending balance.d)Balance the difference between the amounts on each side of the T account.i)Total the debits (Dr.)ii)Total the credits (Cr.)iii)Subtract the debits and creditsiv)The ending balance will be on the side that hasthe greater number.Teaching Tips/Strategy:Use the“SuccessCoach”LU 2-1 to assess the understanding of the followingconcepts: T account, rules of debit and credit, and the account normal balance. Explain the basic accountingequation elements (Assets= Liabilities+Equity) and how the debit and credits are presented. For example:items to the left of the equal sign are assets. Normally the assets will increase by the left or debit. Items tothe right of the equal sign,such asliabilities and equity, increase by the right. The subdivisions of equity(revenue, expenses, capital and withdrawals) will increase or decrease based on their relationship to equity.The revenue or capital accounts, will increase the equity.Therefore, the account increases by the right orcredit. If the account is an expense or a withdrawal, it decreases equity. The account increases by left ordebit.For lecture practice, utilize the Concept Check #1 to use T accounts to foot and balance each account.Use the “Ten-Minute Quiz” question #2to reinforceT accounting concepts.LearningUnit2-2:TheChart of Accounts: Recording Transactionsin T Accounts According to Rules of Debits and Credits.Summary:The accounting recording process starts with a business transaction,an exchangebetween twoor more parties, sharingitems of equal value.The double-entry analysis of transactions presentstwo ormore accountsthat areaffected and the total of debits and creditsthat areequal.This double-entry systemhelps in checking the recording of business transactions.All business transactions are recorded in accounts.Anaccountis a tool used to recordand summarize the effectsofthe organization’stransactions. The basicaccountingequationcontains the following account categories:assets,liabilities, capital, withdrawals,revenues and expenses.The chart of accounts is asystem of accountsthatsummarizesincreases anddecreases ofallindividual accounts.Thisnumbering system of accounts allows accounts to be locatedquickly.Forexample, 100s are assets, 200s are liabilities,300s are equity, 400s are revenues and 500s areexpenses(SeeTable 2.2).Acompound entryis atransaction that involves more than one debit or morethan one credit.

Loading page image...

2-5The debit and credit rules are: all assets increase by debit side (left) and decrease by credit side (right),liabilities increase by credit side (right) and decrease by debit side (left), and equity accounts increasebycredit side (right) and decrease by debit side (left). The equity subdivisions or categories will use the debitand credit rules to present the effect on the organization’s equity. The equity subdivision rules are:1.Revenues increase the organization’s equity in the business. Revenue accounts increase by creditand decrease by debit (same as the equity).2.The expenses decrease the organization’s equity. Therefore, all expense accounts will increase bydebit and decrease by credit. (Note that any item that decreases the equity, the behavior is oppositeto the main equity account.)3.Capital accounts increase the organization’s equity. Therefore, any capital transaction will increaseby credit and decrease by debit. Withdrawals by owner decrease the organization’s equity.Therefore, any withdrawal increases are recorded on the debit side.KeyConcepts:normal balance of an account,chart ofaccounts,compound entry,double-entrybookkeepingLecture Outline:1)Refer to Table 2.1 for the rules of debit and creditusing T accountsaffecting the accounting equation.a)For assets increases areon the debit (left) side.b)For liabilities increases are on the credit (right) side.c)For capital increases are on the credit (right) side.d)For revenue increases are on the credit sidewhich isthe same as for capital.e)For withdrawals and expenses increasesare on the debit side which is the opposite of how capitalincreases are.f)A normal balance of an account is the side that increases by the rules of debit and credit.g)The accounting equation balance must be maintained when transactions occur.2)A chart of accounts is a numbered list of all of a business’s accounts.a)Assets use 100s (as an example).b)Liabilities use 200s.c)Owner’s Equity uses 300s.d)Revenues use 400s.e)Expenses use 500s.3)Transaction analysis:five steps:a)Determine which accounts are affected.b)Determine which categories the accounts belong to: assets, liabilities, capital, withdrawals, revenue,or expenses.c)Determine whether the accounts increase or decrease.d)What do the rules of debit and credit say?e)What does the T account look like?4)Compound entry is a transaction involving more than one debit or credit.5)Double-entry bookkeeping refers to an accounting system in which the recording of each transactionaffects two or more accounts,and the total of the debits is equal to the total of credits.Teaching Tips/Strategy: Usethe“SuccessCoach” LU2-2 (end of the chapter) to reviewthe debit andcreditrules. After reviewing the concepts, complete the Concept Checks#2 and #3to check the debit andcredit rules. Exercises2A-1, 2A-2, 2A-3, and 2A-4are excellent classroom practice to reinforce theobjective #2concepts.Use the “Ten-Minute Quiz” questions#1-#5to reinforce theLearningObjective #2.

Loading page image...

2-6Learning Unit 2-3:TheTrial Balance andPreparation ofFinancialStatementsSummary:Thetrial balanceis a list of all accounts with their balances in the same order as they appear inthe chart of accounts. A trial balance is not a financial statement although it is used to prepare financialstatements. A trial balance is a listing of each account with each account balance listed in its proper debit orcredit column. Balances on the trial balance are taken directly from footings and ending balances on the Taccounts. The total of the debit column should equal the total of the credit column.The financial statementsinclude: income statement, statement of owner’s equity, and the balance sheet. Allfinancial statements have two columns. The columns are used for subtotals and NOT for debit and creditformat. There are no debits and credits on the financial statements. The income statement summarizestherevenues and expenses to calculate the net incomeor net loss. The statement of owner’s equityupdatestheendingcapital balance for the period. Itincludes the beginning and ending balances of capital accounts, thenet income or net loss,and the withdrawals account. The balance sheet is the representation of theaccounting equation as the last day of the period or as a “snapshot”. Thebalance sheet includes all assets,liabilities,and the ending balance of equity.Key Concepts:Trial balanceLectureOutline:2)The trial balance:a)is a list of all accounts with their balances,b)theorderof accounts isthe sameas they appear in the chart of accounts,c)is not a financial statement but is a tool used toprepare financial statements,d)is a list of ending balances from the ledger,e)and the total of the debit column should equal the total of the credit column.6)Preparing financial statements:a)All financial statements are related:i)the net incomeor net lossfrom the income statement flows to the statements of owner’s equity,ii)theendingbalance of capitalonthe owner’s equity statement flowsto the balance sheet.b)The dollar sign or currency sign is used at the top of each column and on the final total amounts.c)One underline represents a list to subtotald)Two underlines represent the end of the statement or the final “bottom line” number.7)TheIncomeStatement: (is generally prepared first)f)includes revenues and expensesg)includes gains or lossesh)Net Income–revenuesaregreaterthan expenses. (Revenues–Expenses)i)Net Loss–expensesaregreaterthan revenues. (Expenses–Revenues)j)The net income or net lossiscarried to thestatementofowner’sequity.8)TheStatement of Owner’s Equity:a)Start with the capital balance as of the beginning of the periodb)Add: Net income (from the income statement)c)Add: additional investments from the ownersd)Deduct:Net Loss (fromtheincome statement)e)Deduct:any withdrawalsf)Calculate the new ending balance for the capital account or owner’s equity.g)The new balance forowner’s equityis carried to the Balance Sheet.9)The Balance Sheet:

Loading page image...

2-7a)Lists all assets, liabilities and the new equity or capital account balance.b)The total of assets = total of liabilities and equity.TeachingTips/Strategy:Usethe“SuccessCoach”LU2-3 to reviewtrial balance and financial statementconcepts. After reviewing the concepts, complete the Concept Checks#4to illustrate the process needed tobuild atrialbalance.The instructor can use the Concept Check #5as a demonstration exercise to explain the importance ofaccounts and the proper classification within the financial statements. Exercises 2A-5 and 2B-5 areexcellent classroom practice to reinforce the objective #3concepts.Use the “Ten-Minute Quiz” questions #7, #8,#9 and #10 to reinforce the Learning Unit 2-3 concepts.Teaching Tips/Strategy: Each chapter contains a Try It! at the end of each Learning Unit. The Try its! areintended as practice for students and/or as checking of student understanding.There is also a DemonstrationSummary Problem with each chapter to provide an overview of all the chapter concepts. Students can studyand review this problem to view how all the chapter concepts fit together.

Loading page image...

2-8NameDateSectionCHAPTER 2TEN-MINUTE QUIZCircle the letter of the best response.1.Although debits increase assets, they alsoa.increase revenuesb.increase expensesc.increase owner's equityd.increase liabilities2.The right side of a T account is thea.increase sideb.decrease sidec.credit sided.debit side3.A compound entry isa.an entryinvolving more than one debit or creditb.an entry involving multiple transactionsc.an entry involving more than one dated.an entry increasing and decreasing the same account4.Which of the following accounts has a normal debit balance?a.Mia Wong, Capitalb.Cashc.Accounts Payabled.Fees Earned5.Which of the following accounts has a normal credit balance?a.Office Equipmentb.Salaries Expensec.Accounts Receivabled.Accounts Payable6.Payment of salaries to employees is recorded as a(n)a.assetb.liabilityc.revenued.expense7.The trial balancea.shows the income earned during the yearb.shows the total amount of assetsc.shows the accuracy of the general ledgerd.is the first financial statement prepared8.Which account is shown on the balance sheet?a.Cashb.UtilitiesExpense

Loading page image...

2-9c.Withdrawals by ownerd.Revenue9.Which account is shown on the income statement?a.Equipmentb.Owner, Capital Accountc.Accounts Payabled.Rent Expense10.Which account is shown on the statement ofowner'sequity?a.Fees Earnedb.Accounts Receivablec.Owner,Withdrawalsd.Accounts PayableAnswerKey to Chapter 2 Quiz1.b2.c3.a4.b5.d6.d7.c8.a9.d10.c

Loading page image...

3-1Chapter3Beginning the Accounting CycleChapter OverviewThe chapter begins by explaining the accounting cycle is the accounting proceduresperformed over aperiod oftime and the accounting cycle takes place over a period of time called a fiscal year. Theaccounting cyclehas several steps: the transaction occurs,is analyzed, recorded as a journal entry in thegeneral journal, and posted to the general ledger. The information in the general ledger is used to preparethe trial balance. While the trial balance is not a formal financial statement, it is used to prepare formalfinancial statements: the income statement, the statement of owner’s equity, and the balance sheet.Transaction analysis is used to understand how to record a business transaction as a journal entry.Examples of increasing assets, decreasing liabilities, increasing expenses, etc. are used to illustrate themany possible types of journal entries.Posting the same journal entries to the general ledger is thenillustrated. A trial balance is prepared from the general ledger information while the text also explainsways to troubleshoot if the trial balance does not balance.Demonstration Problems illustrate the entireprocess and offer tips to journalizing and posting.Learning ObjectivesAfter studying Chapter 3, your students should gain proficiency in the following:1.AnalyzeandRecordBusinessTransactions into aJournal.2.PostingtotheLedger.3.PreparingtheTrialBalance.

Loading page image...

3-2Chapter 3 Assignment GridEstimatedLevelLearningTime inofAssignmentTopic(s)Objective(s)MinutesDifficultyDiscussion Questions and Critical Thinking/Ethical Case1Accounting Cycle15Easy2Accounting Period15Easy3Accounting Period15Easy4Interim Financial Stmts.15Easy5General Ledger25Easy6Posting and Balancing25Easy7General Journal15Easy8General Journal15Easy9Posting and Balancing25Medium10Posting and Balancing25Easy11Posting and Balancing25Medium12Posting and Balancing25Medium13Accounting Errors35Medium14EthicalIssue35MediumConcept Checks1General Journal15Easy2General Journal25Easy3Posting and Balancing25Easy4TrialBalance315Medium5Correcting Entry35EasyExercises(Set A)3A-1Journal Entries110Easy3A-2Journal Entries110Easy3A-3Posting210Easy3A-4Journalizing, Posting, Trial Balance1, 2, 320Medium3A-5Trial Balance315Medium3A-6ErrorCorrection310MediumExercises(Set B)3B-1Journal Entries110Easy3B-2Journal Entries110Easy3B-3Posting210Easy3B-4Journalizing, Posting, Trial Balance1, 2, 320Medium3B-5Trial Balance315Medium3B-6ErrorCorrection310MediumProblems(Set A)3A-1Journalizing130Medium3A-2Journalizing, Posting, Trial Balance1, 2, 345Hard3A-3Journalizing, Posting, Trial Balance1, 2, 345HardProblems(Set B)3B-1Journalizing130Medium3B-2Journalizing, Posting, Trial Balance1, 2, 345Hard3B-3Journalizing, Posting, Trial Balance1, 2, 345Hard

Loading page image...

3-3EstimatedLevelLearningTime inofAssignmentTopic(s)Objective(s)MinutesDifficultyFinancial Report ProblemReadingAmazon’sAnnual Report35EasyKeeping It RealSuarezComputer Center1,2,345MediumComputerized Accounting ApplicationSage 50Software Simulation–Workshop 1 Atlas CompanyQuickBooksSoftware Simulation–Workshop 1 Atlas CompanyChapter3Beginning the Accounting CycleSummary:Theaccounting cycleconsists of normal accounting procedures that take place overaperiodof time. The cycle begins with the recording of business transactions into a journal and ends with thecompletion of a post-closing trial balance.Theaccounting periodis the span of time in which theaccounting cycle takes place. Although the accounting period may vary,usually, it is one year long.Thefiscal yearis the12-monthperiod a business chooses for its accounting year.Thecalendar yearisthe12-monthperiod between January 1 and December 31.The natural business year is the business’sfiscal year that ends at the same time as a slow seasonal period begins.While yearly financial statementsare prepared at the end of the fiscal year,interim reportsare prepared during the fiscal year. Interimfinancials may be prepared monthly, quarterly, orover other time periodsdeemed appropriate bymanagement.Learning Unit 3-1: Analyzing and Recording Business Transactionsinto a Journal (Steps 1 and 2 of the Accounting Cycle)Summary:TheGeneral Journalis the simplest journal and records transaction information inchronological order according to the transaction date. This journal records the journal entry in its entirety.The general journal is the record of business transactions and is organized in chronological orderaccording to the transaction date. TheJournalis the first formal record of a business transactionoccurring and is also called thebook of original entryandtheLedgeris consideredthebook of finalentry.As transactions occur, they are summarized into accounting form andrecordedas ajournal entryin thegeneral journal.Compoundjournalentriesare entries that have more than one debit and/or credit.KeyConcepts:Accounting cycle, accounting period,calendar year, interim reports,journal, journalentry,journalizing,book of original entry,book of final entry,compound journal entryLectureOutline:1.General journal or Journal:a.is thesimplest form of a journalb.records information in chronologicalorder as they occurc.links the debit and creditparts of transactions together

Loading page image...

3-4d.called the “book of original entry”e.records the first formalinformation about business transactionsf.the journal and the ledger are separate books2.Journal entry:a.The format thattransactions(debits and credits)arerecordedonce it is analyzed.b.Journal entries rules:i.The debit portion of the transactionis alwaysrecorded first.ii.The credit portion of a transaction is indented a½inch and placed below thedebit portion.iii.The explanation of the journal entry follows immediately after the credit and 1inchfrom the date column.iv.Oneline space follows each transaction and explanation.v.Finally, as always, the total amount of debits must equal the total amount ofcredits.3.Journalizing:a.Theprocess of recording a transactionentry into thegeneraljournal.4.Compound journal entry:a.A journal entry that affectsmore than two accountson the debit or the credit side.5.Theseare examples of the most common types of business transactions:a.The owner investingcash (asset)in the business.(Fig. 3.2onpage68)Dr. CashXXCr. CapitalXXInitial investment by the ownerb.The purchase of equipment with a down payment (cash) and the rest on credit.(Fig.3.3onpage68)This is an example of a compound entry: ajournal entry that affects morethan two accounts on the debit or the credit side.Dr.ComputerEquipmentXXCr. CashXXCr. Accounts PayableXXPurchase ofcomputerequipmentc.Prepayment of rentwith cash (Fig. 3.4 on page69).Dr. Prepaid Rent (asset)XXCr. CashXXRentpaidin advanced.Purchasing ofcomputersupplies on account(Fig. 3.5 on page69).Dr.ComputerSupplies (asset)XXCr.Accounts PayableXXPurchasecomputersupplies on accounte.Recording of fees earned(revenue)and(cash)received(Fig. 3.6 on page69).Dr. CashXXCr.Graphic DesignFees (revenue)XXCash received for servicesrenderedf.Recording of salaries paid(Fig. 3.7 on page70).Dr.OfficeSalaries ExpenseXXCr. CashXXPayment ofofficesalariesg.Receiveadvertising bill(but unpaid) (Fig. 3.8onpage70)Dr. Advertising ExpenseXXCr .Accounts PayableXXReceive the advertising billh.Withdrawal of funds(cash) for personal use (Fig. 3.9 on page70)

Loading page image...

3-5Dr. WithdrawalsXXCr. CashXXOwner withdraws cash for personal usei.Recordingof fees earned (revenue) but not received (accounts receivable). (Fig. 3.10onpage71)Dr. Accounts ReceivableXXCr.Graphic DesignFees(revenue)XXBill customer for fees earnedj.Payment ofofficesalaries (Fig. 3.11 on page71)Dr.OfficeSalaries ExpenseXXCr. CashXXPayment ofofficesalariesk.Partial payment(cash)of an amount owed(accounts payable).(Fig 3.12onpage71)Dr. Accounts PayableXXCr. CashXXPaid half of the amount owedl.Payment of the telephone bill(Fig. 3.13 page72).Dr. Telephone ExpenseXXCr. CashXXPayment of the telephone billTeaching Tips/Strategy:As classwork,your students shouldcomplete theLearningUnit3-1Try It!anddiscusstheDemonstration Summary Problem(page83)to review the basic concepts. Indicate anddistinguish keyword includedon each transaction to facilitate therecordingprocess.Example oftransactions keywords are:Paid–indicate a check or a payment done = cash is decreased(credit)Fees earned-indicate revenue was earned= revenue increases (credit)Cash received–indicatecustomers paid the business =cashincreases (debit)Owner invested-the equity of the owner increases(credit)Personal use–indicate the owner took cash or property from the business = withdrawal debitPurchase on account–asset purchase on credit = accounts payable increases(debit)Payment of a debt–satisfying a debt, not purchasingagain= accounts payable (debit)The Exercises 3A-1 and 3A-2 are excellent to teach how to analyzetransactionsand complete journalentries. Problem 3A-1 is a comprehensive problem to assess the full understanding of the learningobjective concept.Reviewthe “SuccessCoach LU3-1” (page87)andthe“Ten-Minute Quiz” questions #3-#10 to reinforce the LearningObjective3-1concepts.Learning Unit 3-2: Posting to the Ledger (Step 3 of the AccountingCycle)Summary:The transactions from the general journal are entered (or posted) to the general ledger whichis also called thebook of final entry. The General Ledger lists the balances and changes to each accountwithin the business.The general ledger records all of the transactions in one location. A business needs toknow these account balances in order to operate successfully and prepare financial statements. We do this

Loading page image...

3-6by transferring the information from the general journal to the general ledger. This transferring is calledposting.The general ledger is organized by accounts and in the order of the accounting equation: A = L +OE.The general ledgerusually consists offour-column accountformsthat include the debit or creditfrom the journal and the debit or credit running account balance.Cross-referencingis the process ofadding to the PR(Posting Reference)columnof the journal the account number of the ledgerthat wasupdated from the journal.Key Concepts:Posting,four-columnaccount,cross-referencingLectureOutline:1.The General Ledger:a.lists the balances and changes to each account within the business,b.records all of the transactions in one location,c.is organized by accounts and in the order of theaccounting equation: A = L + OE,d.is a four-column account that includes the debit or credit from the journal,e.and the debit or credit running account balance.2.Posting:transferring the information from the general journal to the general ledger.Steps for posting to the ledger:a.Record the date.b.Record the journal page number in the posting reference (PR) column of ledger.c.Record debit or credit amount in the appropriate debit or credit column.Compute theupdatedbalance of the account.Recordthe updated balancein the appropriate debit orcredit balance column.d.Record the ledger account number in theposting reference (PR)column of the journal.3.Posting References:a.Journal PR column illustrates which transactions have and have not been recorded.b.LedgerPR column in the ledger traces back to the original entry in the journal.Teaching Tips/Strategy:Reviewthe Demonstration Summary Problem for an example of posting toledger accounts.Use the“SuccessCoach LU 3-2(page87)to check understandingof the objectiveconcepts.AssignExercise 3A-3or3B-3toprovideanopportunity topractice postingjournal entries to the ledger.Learning Unit 3-3: Preparing the Trial Balance (Step 4 of theAccounting Cycle)Summary:ATrial Balanceis an informal listing of the ledger accounts and their balances in the ledgerthat aids in proving the equality of debits and credits. It is prepared bylisting all accounts and recordingtheir balances in the appropriate debit or credit columns. The accounts are listed inthe accountingequation order orbalancesheet order. Thedebitand credit columnsare totaledand compared foraccuracy. Both credit and debit columnsmust balance and match.Key Concepts:Trial balance, slide, transpositionLectureOutline:1.Trial balance is the list of the individual accounts with their balances from the ledger. (Figure3.17)2.If the informationisNOTjournalized or posted correctly, the trial balance will not be correct.

Loading page image...

3-73.Atrialbalance is not a formal financial statement and willNOTshow the beginning capitalbalance if additional investments were made during the year.4.If the trial balancedoesnotbalance,doublecheck the transactions for journalizing and posting5.Errors in posting need to have an audit trail and be initialed by the person changing or correctingthem.6.Understand common mistakes made when preparing a trial balance:a.Mathematical errors often result in amounts being off by 10,100,1,000,etc.b.A postingcould have beenmissed if the difference between total debits and credits isequal to an individual account balance in the ledger.c.Divide the difference by 2, then check to see if a debit was posted as a credit,or viceversa.d.Slide–the error that results in adding or deleting zeros in the writing of a number. Forexample:79,200 slides to 7,920by dropping a zero.The differencebetween the twonumbersis divisible by 9.e.Transposition–the accidental rearrangement of digits of a number. For example,152 canbe transposed to 125. The differencebetween the two numbersis divisible by 9.f.Compare the balances in the ledger with those in the trial balance to determine if thebalances were copied correctly.g.Recompute balances in each ledger account.h.Trace all postings from the journal to the ledger.7.Correcting mistakes when journalizing and posting:a.If the mistake was made before the posting, draw a line through the wrong information inthe journal, write the correct information above it and initial the change.b.If the mistake was made after posting to the correct account, draw a line through thewrong information in the ledger including the wrong balance, write the correctinformation above it, initial the change,and calculate the new balance.c.If the mistake was made after posting to the wrong account, make a new correcting entry.TeachingTips/Strategy:Indicate thata trial balance is not a financial statementbut is used as a tooltoverify the accuracy of the account ending balances before financial statementsare completed.Use the“SuccessCoach LU 3-3 (page87)to checkunderstandingof the objectives concepts.ConceptCheck#4is excellent as a critical thinking activity to identify the errors presented on the indicated trialbalance. Exercises3A-4and 3B-4give students the opportunity to preparejournal entries, post to theledger and preparea trial balance. Assignproblem3A-3 or 3B-3asan excellent way to tie all theconcepts together.

Loading page image...

3-8NameDateSectionCHAPTER 3TEN-MINUTE QUIZCircle the letter of the best response.1.Which of the following illustrates the accounting cycle?1-The Trial Balance is prepared.2-Postings are made into the General Ledger3-Journal entries are recorded4-Transactions occura.1, 2, 3, 4b.1, 3, 2, 4c.4, 3, 2, 1d.4, 2, 3, 12.Which is nota General Journal?a.Book of original entryb.Book of final entryc.Journald.Simplestform of journal3.Select the transaction that would increase assets.a.Purchase inventory for cashb.Providedconsultingservices for cashc.Received cash from a bill sent to customers last monthd.Paid insurance for the next 3 months4.Select the transaction that increases owner's equity.a.Received cash from a bill sent to customers last monthb.Paid insurance for the next 3 monthsc.Purchase inventory for cashd.Providedconsultingservices for cash5.Select the transaction that increases liabilities.a.Paid insurance for the next 3 monthsb.Purchase inventory for cashc.Received utility billd.Received cash from a bill sent to customers last month6.The proper journal entry to record the $100 purchase of supplies on account would be:a.Office Supplies100Accounts payable100b.Cash100Office Supplies100c.Office Supplies100Cash100d.Accounts payable100Office Supplies1007.The proper journal entry to record the $200 rent paid in advance would be:a.Prepaid Rent200Accounts payable200b.Cash200Prepaid Rent200c.Prepaid Rent200

Loading page image...

3-9Cash200d.Accounts payable200Prepaid Rent2008.The proper journal entry to record receiving the $150 advertising bill would be:a.Cash150Advertising Expense150b.Advertising Expense150Accounts payable150c.Advertising Expense150Cash150d.Accounts payable150Advertising Expense1509.The proper journal entry to record the $150 payment of last month's advertising bill would be:a.Cash150Advertising Expense150b.Advertising Expense150Accounts payable150c.Advertising Expense150Cash150d.Accounts payable150Cash15010.The proper journal entry to record the $170 receipt of a bill sent to a customer last month wouldbe:a.Cash170Accounts Receivable170b.Fees Earned170Accounts Receivable170c.Fees Earned170Cash170d.Accounts Receivable170Cash170AnswerKey to Chapter 3 Quiz1.c2.b3.b4.d5.c6.a7.c8.b9.d10.a

Loading page image...

4-1Chapter4The Accounting Cycle ContinuedChapter OverviewThechapter begins with an introduction to adjusting entries. Some transactions cannot be observed by thecompany and,therefore,arenot recordedas often as a sales or cash payment entry. Examples of thesetransactions arewear and tear on equipment or theexpiration of insurance.Adjusting entries are used toallocate revenue and expenses properlybased upon theaccounting periodusedand to adjust the balancesheet accountsand income statement accountsto reflect an accurate balance. At the end of the accountingperiod and after preparing a trial balance, businesses record adjusting entries. They utilize a worksheet toorganize and check the financial data before preparing financial statements.A worksheet consists of a trial balance,adjusting entries, and an adjusted trial balance. Each of theseareas hasits owndebit and credit columns to help review the account balances. For each of these areas,the total debits will equal the total credits. The worksheet also contains columns showing the ledgeraccounts arranged according to financial statement location. There are debit and credit columns for thebalance sheet accounts and for the income statement accounts. For eachof these financial statements, thetotal debit and credit columns do not equal each other but are “off” by the same dollar amount. In order tobalance the debit and credits, one financial statement needs that dollar amount added as a debit and theother as a credit.This amount is equal to the net income or net loss for the year.At this point in theaccounting cycle, any errors in financial statement preparation are corrected.Afterthe worksheet has beenproperly prepared, formal financial statements are easily prepared.Learning ObjectivesAfter studying Chapter 4, your students shouldgain proficiency in the following:1.Explain Adjustments and How to Record Them on a Worksheet.2.Complete the Worksheet.3.Prepare Financial Statements from the Worksheet.

Preview Mode

This document has 256 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Solution Manual for College Accounting: A Practical Approach, 14th Edition

Accounting

Master Managerial Accounting Techniques

Controlling and Reporting of Real Assets

Team A Week 5 Problems

Accounting Audit Final Exam MCQs 2015

Sarbanes Oxley Act, GAAP and IFRS

IFRS or US GAAP Which is the Best Reporting Standard

Midterm Exam on Governmental and Not-for-Profit Accounting

Financial Reporting, Regulations, and Corporate Governance

Company

Explore

Study Tools