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

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College Accounting
Fourteenth Edition
Jeffrey Slater
Mike Deschamps
Instructor's Resource Manual
for
College Accounting:
A practical Approach
By Carolyn Strauch

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Chapter 1
Accounting Concepts and Procedures
Chapter Overview
The chapter begins with an introduction to accounting and the organizational forms of business: sole
proprietorships, partnerships, corporations, and limited liability companies. Learning Unit 1-1 has assets,
liabilities, and equities defined and explained through examples and the accounting equation. Learning
Unit 1-2 illustrates the steps necessary to prepare a balance sheet. Learning Unit 1-3 expands the
accounting equation to include revenues, expenses, and withdrawals. Each element of the equation is
further defined. A variety of transactions are analyzed along with their impact on the accounting
equation. Learning Unit 1-4 discusses the income statement, the statement of owner’s equity, and the
balance sheet. The accounting equation is used to illustrate how the income statement, statement of
owner’s equity, balance sheet are developed and interrelated. The net income from the income statement
is carried to the statement of owner’s equity, and the ending capital is carried from the statement of
owner’s equity to the balance sheet. The demonstration problem and the solution tips help students
record the effect of transactions on the accounting equation and to ultimately prepare financial statements.
Learning Objectives
After studying Chapter 1, your students should gain proficiency in the following:
1. Explain Accounting, Business, and the Accounting Equation.
2. Prepare a Balance Sheet.
3. Record Transactions into the Expanded Accounting Equation.
4. Prepare the Three Financial Statements.

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Chapter 1 Assignment Grid
Estimated Level
Learning Time in of
Assignment Topic(s) Unit(s) Minutes Difficulty
Discussion Questions and Critical Thinking/Ethical Case
1 Functions of Accounting 1 5 Easy
2 Types of Businesses 1 5 Medium
3 Business Classifications 1 5 Medium
4 Bookkeeping and technology 1 5 Easy
5 Accounting equation 1 5 Easy
6 Capital 1 5 Easy
7 Accounting equation 1 5 Easy
8 Balance sheet 2 10 Medium
9 Account categories 3 5 Easy
10 Account categories 3 5 Easy
11 Account categories 3 5 Easy
12 Expenses 3 5 Medium
13 Income statement 4 5 Easy
14 Statement of owner’s equity 4 5 Easy
15 Ethical case 4 5 Medium
Concept Checks
1 Classifying Accounts 1 5 Easy
2 The Accounting Equation 1 5 Medium
3 Shift versus Increase in Assets 1 5 Medium
4 The Balance Sheet 2 5 Easy
5 The Accounting Equation Expanded 3 5 Easy
6 Identifying Assets 2 5 Easy
7 The Accounting Equation Expanded 3 5 Medium
8 Preparing Financial Statements 4 5 Easy
9 Preparing Financial Statements 4 5 Easy
Exercises (Set A)
1A-1 Accounting Equation 1 5 Easy
1A-2 Accounting Equation 1 5 Easy
1A-3 Balance Sheet 2 10 Easy
1A-4 Accounting Equation – Expanded 3 15 Medium
1A-5 Financial Statements 4 20 Medium
Exercises (Set B)
1B-1 Accounting Equation 1 5 Easy
1B-2 Accounting Equation 1 5 Easy
1B-3 Balance Sheet 2 10 Easy
1B-4 Accounting Equation – Expanded 3 15 Medium
1B-5 Financial Statements 4 20 Medium
Problems (Set A)
1A-1 Accounting Equation 1 15 Easy
1A-2 Balance Sheet 2 15 Medium
1A-3 Accounting Equation Expanded 3 20 Medium
1A-4 Financial Statements 4 30 Medium
1A-5 Financial Statements 3, 4 45 Hard

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Estimated Level
Learning Time in of
Assignment Topic(s) Objective(s) Minutes Difficulty
Problems (Set B)
1B-1 Accounting Equation 1 15 Easy
1B-2 Balance Sheet 2 15 Medium
1B-3 Accounting Equation Expanded 3 20 Medium
1B-4 Financial Statements 4 30 Medium
1B-5 Financial Statements 3, 4 45 Hard
Financial Report Problem
Reading Amazon’s Annual Report 2 5 Easy
Keeping It Real
Suarez Computer Center 3, 4 45 Medium
Learning Unit 1-1: Accounting, Business, and the Accounting
Equation
Summary: Accounting is the language of business. It provides financial information to users and helps
the decision making process. The accounting process analyzes, records, classifies, summarizes, reports,
and interprets financial information for decision makers. The four main categories of business
organizations are (1) sole proprietorships, (2) partnerships, (3) corporations, and limited liability
companies. Business organizations can also be classified into service, merchandise, or manufacturing
businesses according to the need that they fulfill. Generally accepted accounting principles are the set of
procedures and guidelines developed to assure the consistent preparation and interpretation of the
accounting reports. The main difference between bookkeeping and accounting is the level of analysis and
scope of duties.
The basic accounting equation is presented as: Assets = Liabilities + Owner’s Equities. The assets are
properties (resources) of value that the firm or business owns. Examples are cash, land, supplies, office
equipment, buildings, and other properties of value. Liabilities are obligations that come due in the future
or claims of the creditors to assets. An example is accounts payable. The owner’s equity is the rights or
financial claims to the assets of a business. The owner’s investment of equity is called capital.
A shift in assets indicates that the makeup of the assets has changed, but the sum total of the assets
remains 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 liabilities
and owner’s equity.
Key Concepts: Accounting, sole proprietorship, partnership, corporation, limited liability company,
service company, 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 payable
Lecture Outline:
1) Accounting is the language of business. It provides information to managers, owners, investors,
government agencies, and others inside and outside the organization.

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2) Businesses can be classified into one of four types of organizations:
a) Sole Proprietorships are businesses that have one owner.
i) Easy to form
ii) Owner can lose personal assets to meet obligations of business
iii) Ends with death of owner or closing of business
b) Partnerships are businesses that have at least two owners.
i) Easy to form
ii) Partners could lose personal assets to meet obligations of partnership
iii) Ends with death of partner or closing of business
c) Corporations are businesses owned by stockholders.
i) More difficult to form
ii) Limited limited personal risk – stockholders’ loss is usually limited to their stock investment
iii) Continues indefinitely
d) Limited Liability Company (LLC)
i) More difficult to form
ii) Limited liability or limited personal risk – members’ loss is limited to their investment in the
company
iii) May end with death of member
3) Businesses can be classified into service, merchandise, and manufacturing businesses.
a) Service company – Business that provides a service
b) Merchandise company – Business that makes its own products or buys a product from a
manufacturing company and sells it to its customers
c) Manufacturer – Business that makes a product and sells it to its customers
4) Accounting (also called the accounting process) is a system that measures the activities of a business
in financial terms, provides written reports and financial statements about those activities, and
communicates these reports to decision makers and others. It does this by performing the following
functions:
a) Analyzing: looking at what happened in the past and how the business was affected
b) Recording: Putting the information into the accounting system
c) Classifying: Grouping all the same activities (e.g. all purchases) together
d) Summarizing: Totaling the results
e) Reporting: Issuing the statements that tell the results of the previous functions
f) Interpreting: Examining the statements to determine how the various pieces of information they
contain relate to each other
g) Communication: Providing the reports and financial statements to people who are interested in
the information, such as the business’s decision makers, investors, creditors, and government
agencies
5) Difference between Bookkeeping and Accounting
Bookkeeping is the recording function of the accounting process. Accounting uses the bookkeeping
prepared information to prepare the financial statements used to analyze the company’s financial
position. An accountant prepares tax forms, prepares budgets, and performs further analysis of
financial information.
6) The accounting equation illustrates the relationship between assets, liabilities, and equities.
a) Assets are properties (resources) of value owned by a firm: Assets = Liabilities + Owner’s Equity
b) Equities are the rights or financial claim of creditors (liabilities) and owners (owner’s equity)
who supply the assets to the firm.
c) Liabilities are obligations that come due in the future.
7) A business transaction is an event that affects the financial position of a business and may be
reliably recorded.
8) The accounting equation must balance after each business transaction is recorded.

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Teaching Tips/Strategy: The instructor may begin by discussing the accounting goals and the
relationship with the business activities. In addition, the instructor can present the accounting function and
how it helps business organizations identify key activities and help on the decision making process. To
aid students in understanding accounting, provide an example of how accounting can help in the decision
making process. To explain business classification concepts, the instructor may use a group-based activity
that consists of listing familiar business names and indicate classification, category, and type of each
business organization. This group-based interaction will aid in evaluating the level of understanding of
this topic. Utilize as reference Tables 1.1 and 1.2 for the students as examples of categories and
classifications. Table 1.1 illustrates the business organizations and characteristics of each organization,
and Table 1.2 illustrates examples of Service, Merchandise, and Manufacturing Businesses.
Teaching Tips/Strategy: Utilize a group-based activity to aid in explaining the accounting equation
elements. Present familiar business organizations and identify what assets and liabilities they are likely to
have. Concept Checks #1 and #2 can be used to assess the student’s knowledge of the accounting
equation elements and account classification. Concept Check #3 can aid in understanding the shift in
assets versus the increase in assets. Exercises 1-A1 and 1-A2 are excellent as additional practice and/or
homework 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 Sheet
Summary: The balance sheet or statement of financial position shows the financial position of a business
as of a particular date. The balance sheet figures represent the basic accounting equation. The assets
appear on the left-hand side of the statement while liabilities and owner’s equity appear on the right-hand
side
Key Concepts: Balance sheet
Lecture Outline:
The balance sheet is a statement, as of a particular date, that shows the amount of assets owned by a
business as well as the amount of claims (liabilities and owner’s equity) against these assets. Statement of
financial position is another name for a balance sheet. The proper form for the balance sheet contains:
a) Heading: the company name, the statement name, the statement date
b) Shows assets, liabilities, and equity amounts
c) Dollar signs appear to the left of each column’s top figure and to the left of the column’s total
d) A single underline appears above a total and a double underline appears beneath it
e) It is important to align numbers
f) Provides a look at the financial position of the business
Teaching Tips/Strategy:
The Exercise 1A-3 is an excellent exercise to present and prepare a step-by-step balance sheet during
lecture. Use the Figure 1-7 as reference for the proper presentation.
As the exercise is finalized, comment on the various details of how the balance sheet has been presented
(monetary unit/ dollar signs, single and double underlines, and the alignment) and why these particular
details are essential to the reader. Students can comment or present their opinions/comments on the
financial situation of the business for which the balance sheet was prepared. This activity will enhance

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their understanding of the basic elements of an accounting equation and help develop critical thinking and
analytical skills.
Exercise 1B-3 is a good assignment to evaluate the student’s basic knowledge of the balance sheet
statement and its proper presentation.
Use the “Ten-Minute Quiz” questions #7 and #10 to reinforce Learning Unit 1-2 Concepts.
Learning Unit 1-3: The Accounting Equation Expanded: Revenue,
Expenses, and Withdrawals
Summary: As a part of doing business, all organizations earn revenue and incur expenses.
A service company earns revenue when it provides services to its clients. When revenue is earned, the
owner’s equity is increased. In effect, revenue is a subdivision of owner’s equity. A business’s expenses
are the costs the company incurs in carrying out necessary operations in its effort to generate revenue.
Expenses are also a subdivision of owner’s equity. When expenses are incurred, they decrease owner’s
equity. Expenses can be paid for in cash or they can be charged. When revenue totals more than expenses,
the result is called net income. When expenses total more than revenue, the result is net loss. When
owners need to withdraw cash or other assets from the business to pay living or other personal expenses
that do not relate to the business, the transaction will be recorded in an account called withdrawals or
owner’s drawing account. The withdrawals account is a subdivision of owner’s equity that records
personal expenses not related to the business. Hence, withdrawals result in a decrease in the owner’s
equity (see Figure 1.3). It is important to remember the difference between expenses and withdrawals.
Expenses relate to business operations. Withdrawals are the result of personal needs outside the normal
operations of the business. All business transactions are recorded in the expanded accounting equation
that include withdrawals, revenues, and expenses.
Key Concepts: Cash basis, accrual basis, revenue, accounts receivable, expense, net income, net loss,
withdrawals, expanded accounting equation
Lecture Outline:
1) The accounting equation expands to include revenue, expenses, and withdrawals: Assets = Liabilities
+ Capital - Withdrawals + Revenue - Expenses.
a) Revenue is earned by a company when it provides services for its clients or sells goods to its
customers.
b) Expenses are the costs the company incurs in carrying on operations in its effort to create
revenue.
c) Net Income occurs when total revenues are greater than expenses. Net Loss occurs when total
expenses are greater than revenues.
d) Withdrawals are the recording of the owner’s withdrawing cash or other assets from the business
to 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 plus
additional investment from owners, plus revenues, less expenses, and less withdrawals.
3) Various transactions are used to illustrate the transactional effects on the accounting equation.
Teaching Tips/Strategy: Use as a lecture demonstration the“Success Coach” LU 1-3 Do It Right Now
Checkup” (end of the chapter) to reinforce the Learning Unit 1-3 concepts.

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Learning Unit 1-4: The Three Financial Statements
Summary: The financial statements present how well the business has performed over a specific period
of time. An income statement is an accounting statement that shows business results in terms of revenue
and expenses. If revenues are greater than expenses, the report shows net income. If expenses are greater
than revenues, the report shows net loss. An income statement typically covers 1, 3, 6, or 12 months. The
statement shows the result of all revenues and expenses throughout the entire period and not just as of a
specific date. An example income statement for Jess Bora’s Computer Consulting business is shown in
Figure 1.4. The second statement, the statement of owner’s equity, shows for a certain period of time
what changes occurred in the capital account. Examples of the statement of owner’s equity are shown in
Figure 1.5 and Figure 1.6. The third statement, the balance sheet, utilizes the expanded accounting
equation (see Figure 1.7) to present the asset accounts (cash, accounts receivable, and computer
equipment) appear on the left side of the balance sheet, and the accounts payable and capital accounts
appear on the right side. The ending balance of capital can be calculated within the accounting
equation or can be found on the statement of owner’s equity as the ending capital amount.
Key Concepts: Income statement, statement of owner’s equity, ending capital
Lecture Outline:
1) The accounting equation maintains totals for each component of the equation.
2) The Income Statement is an accounting statement that shows business results in terms of revenue
and expenses for a specific time period. The proper form for the income statement:
a) Cannot cover more than one year
b) Heading – the company name, the statement name, the period covered by the statement
c) Shows revenue, expenses, and net income or net loss
d) Revenue is listed first
e) Expenses are listed in alphabetical order, from largest amount to smallest, or a pattern established
by the accountant
f) Net income or net loss is the difference between revenue and expenses
3) The Statement of Owner’s Equity shows changes in capital. Proper form for the statement of
owner’s equity includes:
a) Heading – the company name, the statement name, the period covered by the statement
b) Shows the beginning equity balance, investments by owner, net income or net loss, withdrawals
by owner, and the ending equity balance
4) The Balance Sheet illustrates the balance in the accounting equation: assets equal liabilities plus
owner’s equity. This statement was addressed earlier in the chapter.
Teaching Tips/Strategy: Use the Exercise 1A-5 as a classroom demonstration to reinforce the proper
form and procedures while completing financial statements. Explain the relationship between the
statements with an example such as an “Amazing Race” or “a scavenger hunt” game. The clues from the
statement are needed to complete the rest of the statements. The net income (income statement) is needed
for the statement of owner’s equity ending balance. The ending balance of the capital (statement of
owner’s equity) is needed to complete the equity section of the balance sheet.
The Exercise 1B-5 is an excellent way to complete a team-based activity to reinforce this objective.
Use the “Ten-Minute Quiz” questions #7, #8, #9 and #10 to reinforce Learning Unit 1-4 Concepts.

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Name Date Section
CHAPTER 1
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. Select the accounts affected by the following transaction: TJ Rex invests $50,000 to open a music
store.
a. Assets and Owner’s Equity
b. Assets and Liabilities
c. Liabilities and Owner’s Equity
d. Capital and Owner’s Equity
2. Select the accounts affected by the following transaction: TJ Rex uses credit to buy musical
instruments to sell in the store.
a. Assets and Owner’s Equity
b. Assets and Liabilities
c. Liabilities and Owner’s Equity
d. Capital and Owner’s Equity
3. Select the accounts affected by the following transaction: TJ Rex provides guitar lessons for $25
cash.
a. Cash and Accounts Payable
b. Cash and Revenue
c. Accounts Receivable and Revenue
d. Cash and Expenses
4. Select the accounts affected by the following transaction: TJ Rex receives $100 for previous
lessons provided on account.
a. Cash and Accounts Receivable
b. Cash and Revenue
c. Accounts Receivable and Revenue
d. Cash and Expenses
5. Select the accounts affected by the following transaction: TJ Rex receives the utility bill but will
wait and pay it next month.
a. Cash and Accounts Receivable
b. Cash and Revenue
c. Accounts Receivable and Revenue
d. Accounts Payable and Expenses
6. Which of the following is not an asset?
a. Cash
b. Land
c. Mortgage Payable
d. Patents

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7. Which of the following is reported on the balance sheet?
a. Accounts Payable
b. Fees Earned
c. Depreciation Expense
d. Withdrawals
8. Which of the following is represented on the income statement?
a. Cash received from sale of equipment
b. Accounts Payable
c. Office Equipment
d. Net loss
9. Which of the following will not appear on the statement of owner’s equity?
a. Net income
b. Withdrawals
c. Capital
d. Fees Earned
10. Which financial statement illustrates the accounting equation?
a. Statement of Owner’s Equity
b. Income Statement
c. Balance Sheet
d. Statement of Cash Flows
Answer Key to Chapter 1 Quiz
1. a
2. b
3. b
4. a
5. d
6. c
7. a
8. d
9. d
10. c

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Chapter 2
Debits and Credits: Analyzing and Recording Business Transactions
Chapter Overview
This chapter transitions from analyzing transactions and listing each account in a potentially long
accounting 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 or
decrease; 4) using the debit and credit rules to determine if the result of steps 2 and 3 results in a journal
entry debit or credit; and 5) computing the balance in the T account. T accounts are used to illustrate debits
and credits and how to evaluate each account’s balance. A T account is a simpler way to illustrate an
account. It has a debit and credit side and can be used to compute the balance in that account. Several
examples 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 balance is illustrated. A trial balance is a
listing 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 prepare financial statements. Finally, the interrelationship
between the financial statements is emphasized. The income or loss from the income statement is carried to
the statement of owner’s’ equity. The ending balance in the statement of owner’s equity is carried to the
balance sheet.
Learning Objectives
After studying Chapter 2, your students should gain proficiency in the following:
1. Explain T Accounts and How to Foot and Balance.
2. Use a Chart of Accounts to Record Transactions in T Accounts According to the Rules of Debits and
Credits.
3. Prepare a Trial Balance and the Financial Statements.

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Chapter 2 Assignment Grid
Estimated Level
Learning Time in of
Assignment Topic(s) Objective(s) Minutes Difficulty
Discussion Questions and Critical Thinking/Ethical Case
1 Define ledger 1 5 Easy
2 Debit 1 5 Easy
3 Footings 1 5 Easy
4 Accounting cycle 2 5 Easy
5 Transaction Analysis Chart 2 5 Easy
6 Transaction Analysis Chart 2 5 Easy
7 Double Entry bookkeeping 2 5 Easy
8 Trial Balance 3 5 Easy
9 Financial Statements 3 5 Easy
10 Financial Statements 3 5 Easy
11 Trial Balance 3 5 Medium
Concept Checks
1 The T account 1 5 Easy
2 Transaction Analysis 2 5 Easy
3 Transaction Analysis 2 5 Easy
4 Trial Balance 3 5 Easy
5 Trial Balance/ Financial Statements 3 10 Easy
Exercises (Set A)
2A-1 Chart of accounts 2 10 Easy
2A-2 Transaction analysis 2 5 Easy
2A-3 Transaction analysis 2 5 Easy
2A-4 Account analysis 2 20 Medium
2A-5 Financial Statements 3 20 Medium
Exercises (Set B)
2B-1 Chart of accounts 2 10 Easy
2B-2 Transaction analysis 2 5 Easy
2B-3 Transaction analysis 2 5 Easy
2B-4 Account analysis 2 20 Medium
2B-5 Financial Statements 3 20 Medium
Problems (Set A)
2A-1 Transaction Analysis 2 20 Medium
2A-2 Transaction Analysis 2 20 Medium
2A-3 Trial Balance 1, 3 20 Medium
2A-4 Financial Statements 3 40 Hard
2A-5 Transactions, Trial Balance, & Financial Prep 2, 3 60 Hard
Problems (Set B)
2B-1 Transaction Analysis 2 20 Medium
2B-2 Transaction Analysis 2 20 Medium
2B-3 Trial Balance 1, 3 20 Medium
2B-4 Financial Statements 3 40 Hard
2B-5 Transactions, Trial Balance, & Financial Prep 2, 3 60 Hard

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Estimated Level
Learning Time in of
Assignment Topic(s) Objective(s) Minutes Difficulty
Financial Report Problem
Reading Amazon’s Annual Report 2 5 Easy
Keeping It Real
Suarez Computer Center 1, 2, 3 60 Medium
Learning Unit 2-1: The T Account and How to Foot and Balance
Summary: The T account is a tool to demonstrate the increases and decreases in each account. The T
account is a skeleton version of a standard account. A standard account form is the formal structure
required for each account. All T accounts have three parts: account title, debit (left) and credit (right). The
T accounts are footed to determine the balance or ending balance for the specific account. Foot is to (sum)
add all debits and add (sum) all credits, and footing is totaling each individual column. The column
balances are subtracted to compute the final total or ending balance for each account. The ending balance is
always presented on the bigger or normal side. To record transactions, the accountant determines which
accounts are credited or debited utilizing the debit and credit rules. The double-entry bookkeeping is an
accounting system in which the recording of each transaction affects two or more accounts. You must
include at least one debit and one credit per transaction, and the total amount of debits is equal to the total
amount of credits.
Key Concepts: account, standard account, ledger, T account, debit, credit, footings, ending balance
Lecture 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 individual
elements 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,

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f) and total columns.
5) The ledger has all the individual accounts, and all transactions affecting an account are recorded on the
form.
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 form
includes:
a) the title, which expresses the name of the account
b) 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 side
c) 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 credits
iv) The ending balance will be on the side that has the greater number.
Teaching Tips/Strategy: Use the “Success Coach” LU 2-1 to assess the understanding of the following
concepts: T account, rules of debit and credit, and the account normal balance. Explain the basic accounting
equation 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 to
the right of the equal sign, such as liabilities 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 or
credit. If the account is an expense or a withdrawal, it decreases equity. The account increases by left or
debit.
For lecture practice, utilize the Concept Check #1 to use T accounts to foot and balance each account.
Use the “Ten-Minute Quiz” question #2 to reinforce T accounting concepts.
Learning Unit 2-2: The Chart of Accounts: Recording Transactions
in T Accounts According to Rules of Debits and Credits.
Summary: The accounting recording process starts with a business transaction, an exchange between two
or more parties, sharing items of equal value. The double-entry analysis of transactions presents two or
more accounts that are affected and the total of debits and credits that are equal. This double-entry system
helps in checking the recording of business transactions. All business transactions are recorded in accounts.
An account is a tool used to record and summarize the effects of the organization’s transactions. The basic
accounting equation contains the following account categories: assets, liabilities, capital, withdrawals,
revenues and expenses. The chart of accounts is a system of accounts that summarizes increases and
decreases of all individual accounts. This numbering system of accounts allows accounts to be located
quickly. For example, 100s are assets, 200s are liabilities, 300s are equity, 400s are revenues and 500s are
expenses (See Table 2.2). A compound entry is a transaction that involves more than one debit or more
than one credit.

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The 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 increase by
credit side (right) and decrease by debit side (left). The equity subdivisions or categories will use the debit
and 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 credit
and decrease by debit (same as the equity).
2. The expenses decrease the organization’s equity. Therefore, all expense accounts will increase by
debit and decrease by credit. (Note that any item that decreases the equity, the behavior is opposite
to the main equity account.)
3. Capital accounts increase the organization’s equity. Therefore, any capital transaction will increase
by credit and decrease by debit. Withdrawals by owner decrease the organization’s equity.
Therefore, any withdrawal increases are recorded on the debit side.
Key Concepts: normal balance of an account, chart of accounts, compound entry, double-entry
bookkeeping
Lecture Outline:
1) Refer to Table 2.1 for the rules of debit and credit using T accounts affecting the accounting equation.
a) For assets increases are on 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 side which is the same as for capital.
e) For withdrawals and expenses increases are on the debit side which is the opposite of how capital
increases 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 transaction
affects two or more accounts, and the total of the debits is equal to the total of credits.
Teaching Tips/Strategy: Use the “Success Coach” LU 2-2 (end of the chapter) to review the debit and
credit rules. After reviewing the concepts, complete the Concept Checks #2 and #3 to check the debit and
credit rules. Exercises 2A-1, 2A-2, 2A-3, and 2A-4 are excellent classroom practice to reinforce the
objective #2 concepts.
Use the “Ten-Minute Quiz” questions #1 - #5 to reinforce the Learning Objective #2.

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2-6
Learning Unit 2-3: The Trial Balance and Preparation of Financial
Statements
Summary: The trial balance is a list of all accounts with their balances in the same order as they appear in
the chart of accounts. A trial balance is not a financial statement although it is used to prepare financial
statements. A trial balance is a listing of each account with each account balance listed in its proper debit or
credit column. Balances on the trial balance are taken directly from footings and ending balances on the T
accounts. The total of the debit column should equal the total of the credit column.
The financial statements include: income statement, statement of owner’s equity, and the balance sheet. All
financial statements have two columns. The columns are used for subtotals and NOT for debit and credit
format. There are no debits and credits on the financial statements. The income statement summarizes the
revenues and expenses to calculate the net income or net loss. The statement of owner’s equity updates the
ending capital balance for the period. It includes the beginning and ending balances of capital accounts, the
net income or net loss, and the withdrawals account. The balance sheet is the representation of the
accounting equation as the last day of the period or as a “snapshot”. The balance sheet includes all assets,
liabilities, and the ending balance of equity.
Key Concepts: Trial balance
Lecture Outline:
2) The trial balance:
a) is a list of all accounts with their balances,
b) the order of accounts is the same as they appear in the chart of accounts,
c) is not a financial statement but is a tool used to prepare 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 income or net loss from the income statement flows to the statements of owner’s equity,
ii) the ending balance of capital on the owner’s equity statement flows to 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 subtotal
d) Two underlines represent the end of the statement or the final “bottom line” number.
7) The Income Statement: (is generally prepared first)
f) includes revenues and expenses
g) includes gains or losses
h) Net Income – revenues are greater than expenses. (Revenues – Expenses)
i) Net Loss – expenses are greater than revenues. (Expenses – Revenues)
j) The net income or net loss is carried to the statement of owner’s equity.
8) The Statement of Owner’s Equity:
a) Start with the capital balance as of the beginning of the period
b) Add: Net income (from the income statement)
c) Add: additional investments from the owners
d) Deduct: Net Loss (from the income statement)
e) Deduct: any withdrawals
f) Calculate the new ending balance for the capital account or owner’s equity.
g) The new balance for owner’s equity is carried to the Balance Sheet.
9) The Balance Sheet:

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2-7
a) Lists all assets, liabilities and the new equity or capital account balance.
b) The total of assets = total of liabilities and equity.
Teaching Tips/Strategy: Use the “Success Coach” LU 2-3 to review trial balance and financial statement
concepts. After reviewing the concepts, complete the Concept Checks #4 to illustrate the process needed to
build a trial balance.
The instructor can use the Concept Check #5 as a demonstration exercise to explain the importance of
accounts and the proper classification within the financial statements. Exercises 2A-5 and 2B-5 are
excellent classroom practice to reinforce the objective #3 concepts.
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! are
intended as practice for students and/or as checking of student understanding. There is also a Demonstration
Summary Problem with each chapter to provide an overview of all the chapter concepts. Students can study
and review this problem to view how all the chapter concepts fit together.

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2-8
Name Date Section
CHAPTER 2
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. Although debits increase assets, they also
a. increase revenues
b. increase expenses
c. increase owner's equity
d. increase liabilities
2. The right side of a T account is the
a. increase side
b. decrease side
c. credit side
d. debit side
3. A compound entry is
a. an entry involving more than one debit or credit
b. an entry involving multiple transactions
c. an entry involving more than one date
d. an entry increasing and decreasing the same account
4. Which of the following accounts has a normal debit balance?
a. Mia Wong, Capital
b. Cash
c. Accounts Payable
d. Fees Earned
5. Which of the following accounts has a normal credit balance?
a. Office Equipment
b. Salaries Expense
c. Accounts Receivable
d. Accounts Payable
6. Payment of salaries to employees is recorded as a(n)
a. asset
b. liability
c. revenue
d. expense
7. The trial balance
a. shows the income earned during the year
b. shows the total amount of assets
c. shows the accuracy of the general ledger
d. is the first financial statement prepared
8. Which account is shown on the balance sheet?
a. Cash
b. Utilities Expense

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3-1
Chapter 3
Beginning the Accounting Cycle
Chapter Overview
The chapter begins by explaining the accounting cycle is the accounting procedures performed over a
period of time and the accounting cycle takes place over a period of time called a fiscal year. The
accounting cycle has several steps: the transaction occurs, is analyzed, recorded as a journal entry in the
general journal, and posted to the general ledger. The information in the general ledger is used to prepare
the trial balance. While the trial balance is not a formal financial statement, it is used to prepare formal
financial 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 the
many possible types of journal entries. Posting the same journal entries to the general ledger is then
illustrated. A trial balance is prepared from the general ledger information while the text also explains
ways to troubleshoot if the trial balance does not balance. Demonstration Problems illustrate the entire
process and offer tips to journalizing and posting.
Learning Objectives
After studying Chapter 3, your students should gain proficiency in the following:
1. Analyze and Record Business Transactions into a Journal.
2. Posting to the Ledger.
3. Preparing the Trial Balance.

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3-2
Chapter 3 Assignment Grid
Estimated Level
Learning Time in of
Assignment Topic(s) Objective(s) Minutes Difficulty
Discussion Questions and Critical Thinking/Ethical Case
1 Accounting Cycle 1 5 Easy
2 Accounting Period 1 5 Easy
3 Accounting Period 1 5 Easy
4 Interim Financial Stmts. 1 5 Easy
5 General Ledger 2 5 Easy
6 Posting and Balancing 2 5 Easy
7 General Journal 1 5 Easy
8 General Journal 1 5 Easy
9 Posting and Balancing 2 5 Medium
10 Posting and Balancing 2 5 Easy
11 Posting and Balancing 2 5 Medium
12 Posting and Balancing 2 5 Medium
13 Accounting Errors 3 5 Medium
14 Ethical Issue 3 5 Medium
Concept Checks
1 General Journal 1 5 Easy
2 General Journal 2 5 Easy
3 Posting and Balancing 2 5 Easy
4 Trial Balance 3 15 Medium
5 Correcting Entry 3 5 Easy
Exercises (Set A)
3A-1 Journal Entries 1 10 Easy
3A-2 Journal Entries 1 10 Easy
3A-3 Posting 2 10 Easy
3A-4 Journalizing, Posting, Trial Balance 1, 2, 3 20 Medium
3A-5 Trial Balance 3 15 Medium
3A-6 Error Correction 3 10 Medium
Exercises (Set B)
3B-1 Journal Entries 1 10 Easy
3B-2 Journal Entries 1 10 Easy
3B-3 Posting 2 10 Easy
3B-4 Journalizing, Posting, Trial Balance 1, 2, 3 20 Medium
3B-5 Trial Balance 3 15 Medium
3B-6 Error Correction 3 10 Medium
Problems (Set A)
3A-1 Journalizing 1 30 Medium
3A-2 Journalizing, Posting, Trial Balance 1, 2, 3 45 Hard
3A-3 Journalizing, Posting, Trial Balance 1, 2, 3 45 Hard
Problems (Set B)
3B-1 Journalizing 1 30 Medium
3B-2 Journalizing, Posting, Trial Balance 1, 2, 3 45 Hard
3B-3 Journalizing, Posting, Trial Balance 1, 2, 3 45 Hard

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3-3
Estimated Level
Learning Time in of
Assignment Topic(s) Objective(s) Minutes Difficulty
Financial Report Problem
Reading Amazon’s Annual Report 3 5 Easy
Keeping It Real
Suarez Computer Center 1, 2, 3 45 Medium
Computerized Accounting Application
Sage 50 Software Simulation – Workshop 1 Atlas Company
QuickBooks Software Simulation – Workshop 1 Atlas Company
Chapter 3
Beginning the Accounting Cycle
Summary: The accounting cycle consists of normal accounting procedures that take place over a period
of time. The cycle begins with the recording of business transactions into a journal and ends with the
completion of a post-closing trial balance. The accounting period is the span of time in which the
accounting cycle takes place. Although the accounting period may vary, usually, it is one year long.
The fiscal year is the 12-month period a business chooses for its accounting year. The calendar year is
the 12-month period between January 1 and December 31. The natural business year is the business’s
fiscal year that ends at the same time as a slow seasonal period begins. While yearly financial statements
are prepared at the end of the fiscal year, interim reports are prepared during the fiscal year. Interim
financials may be prepared monthly, quarterly, or over other time periods deemed appropriate by
management.
Learning Unit 3-1: Analyzing and Recording Business Transactions
into a Journal (Steps 1 and 2 of the Accounting Cycle)
Summary: The General Journal is the simplest journal and records transaction information in
chronological 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 order
according to the transaction date. The Journal is the first formal record of a business transaction
occurring and is also called the book of original entry and the Ledger is considered the book of final
entry.
As transactions occur, they are summarized into accounting form and recorded as a journal entry in the
general journal. Compound journal entries are entries that have more than one debit and/or credit.
Key Concepts: Accounting cycle, accounting period, calendar year, interim reports, journal, journal
entry, journalizing, book of original entry, book of final entry, compound journal entry
Lecture Outline:
1. General journal or Journal:
a. is the simplest form of a journal
b. records information in chronological order as they occur
c. links the debit and credit parts of transactions together

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3-4
d. called the “book of original entry”
e. records the first formal information about business transactions
f. the journal and the ledger are separate books
2. Journal entry:
a. The format that transactions (debits and credits) are recorded once it is analyzed.
b. Journal entries rules:
i. The debit portion of the transaction is always recorded first.
ii. The credit portion of a transaction is indented a ½ inch and placed below the
debit portion.
iii. The explanation of the journal entry follows immediately after the credit and 1
inch from the date column.
iv. One line space follows each transaction and explanation.
v. Finally, as always, the total amount of debits must equal the total amount of
credits.
3. Journalizing:
a. The process of recording a transaction entry into the general journal.
4. Compound journal entry:
a. A journal entry that affects more than two accounts on the debit or the credit side.
5. These are examples of the most common types of business transactions:
a. The owner investing cash (asset) in the business. (Fig. 3.2 on page 68)
Dr. Cash XX
Cr. Capital XX
Initial investment by the owner
b. The purchase of equipment with a down payment (cash) and the rest on credit. (Fig.3.3
on page 68) This is an example of a compound entry: a journal entry that affects more
than two accounts on the debit or the credit side.
Dr. Computer Equipment XX
Cr. Cash XX
Cr. Accounts Payable XX
Purchase of computer equipment
c. Prepayment of rent with cash (Fig. 3.4 on page 69).
Dr. Prepaid Rent (asset) XX
Cr. Cash XX
Rent paid in advance
d. Purchasing of computer supplies on account (Fig. 3.5 on page 69).
Dr. Computer Supplies (asset) XX
Cr. Accounts Payable XX
Purchase computer supplies on account
e. Recording of fees earned (revenue) and (cash) received (Fig. 3.6 on page 69).
Dr. Cash XX
Cr. Graphic Design Fees (revenue) XX
Cash received for services rendered
f. Recording of salaries paid (Fig. 3.7 on page 70).
Dr. Office Salaries Expense XX
Cr. Cash XX
Payment of office salaries
g. Receive advertising bill (but unpaid) (Fig. 3.8 on page 70)
Dr. Advertising Expense XX
Cr .Accounts Payable XX
Receive the advertising bill
h. Withdrawal of funds (cash) for personal use (Fig. 3.9 on page 70)

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3-5
Dr. Withdrawals XX
Cr. Cash XX
Owner withdraws cash for personal use
i. Recording of fees earned (revenue) but not received (accounts receivable). (Fig. 3.10 on
page 71)
Dr. Accounts Receivable XX
Cr. Graphic Design Fees (revenue) XX
Bill customer for fees earned
j. Payment of office salaries (Fig. 3.11 on page 71)
Dr. Office Salaries Expense XX
Cr. Cash XX
Payment of office salaries
k. Partial payment (cash) of an amount owed (accounts payable). (Fig 3.12 on page 71)
Dr. Accounts Payable XX
Cr. Cash XX
Paid half of the amount owed
l. Payment of the telephone bill (Fig. 3.13 page 72).
Dr. Telephone Expense XX
Cr. Cash XX
Payment of the telephone bill
Teaching Tips/Strategy: As classwork, your students should complete the Learning Unit 3-1 Try It! and
discuss the Demonstration Summary Problem (page 83) to review the basic concepts. Indicate and
distinguish keyword included on each transaction to facilitate the recording process.
Example of transactions 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 – indicate customers paid the business = cash increases (debit)
Owner invested - the equity of the owner increases (credit)
Personal use – indicate the owner took cash or property from the business = withdrawal debit
Purchase on account – asset purchase on credit = accounts payable increases (debit)
Payment of a debt – satisfying a debt, not purchasing again = accounts payable (debit)
The Exercises 3A-1 and 3A-2 are excellent to teach how to analyze transactions and complete journal
entries. Problem 3A-1 is a comprehensive problem to assess the full understanding of the learning
objective concept. Review the “Success Coach LU 3-1” (page 87
) and the “Ten-Minute Quiz” questions #3-#10 to reinforce the Learning Objective 3-1 concepts.
Learning Unit 3-2: Posting to the Ledger (Step 3 of the Accounting
Cycle)
Summary: The transactions from the general journal are entered (or posted) to the general ledger which
is also called the book of final entry. The General Ledger lists the balances and changes to each account
within the business. The general ledger records all of the transactions in one location. A business needs to
know these account balances in order to operate successfully and prepare financial statements. We do this

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3-6
by transferring the information from the general journal to the general ledger. This transferring is called
posting. The general ledger is organized by accounts and in the order of the accounting equation: A = L +
OE. The general ledger usually consists of four-column account forms that include the debit or credit
from the journal and the debit or credit running account balance. Cross-referencing is the process of
adding to the PR (Posting Reference) column of the journal the account number of the ledger that was
updated from the journal.
Key Concepts: Posting, four-column account, cross-referencing
Lecture Outline:
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 the accounting 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 the
updated balance of the account. Record the updated balance in the appropriate debit or
credit balance column.
d. Record the ledger account number in the posting reference (PR) column of the journal.
3. Posting References:
a. Journal PR column illustrates which transactions have and have not been recorded.
b. Ledger PR column in the ledger traces back to the original entry in the journal.
Teaching Tips/Strategy: Review the Demonstration Summary Problem for an example of posting to
ledger accounts.
Use the “Success Coach LU 3-2 (page 87) to check understanding of the objective concepts. Assign
Exercise 3A-3 or 3B-3 to provide an opportunity to practice posting journal entries to the ledger.
Learning Unit 3-3: Preparing the Trial Balance (Step 4 of the
Accounting Cycle)
Summary: A Trial Balance is an informal listing of the ledger accounts and their balances in the ledger
that aids in proving the equality of debits and credits. It is prepared by listing all accounts and recording
their balances in the appropriate debit or credit columns. The accounts are listed in the accounting
equation order or balance sheet order. The debit and credit columns are totaled and compared for
accuracy. Both credit and debit columns must balance and match.
Key Concepts: Trial balance, slide, transposition
Lecture Outline:
1. Trial balance is the list of the individual accounts with their balances from the ledger. (Figure
3.17)
2. If the information is NOT journalized or posted correctly, the trial balance will not be correct.

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3-7
3. A trial balance is not a formal financial statement and will NOT show the beginning capital
balance if additional investments were made during the year.
4. If the trial balance does not balance, double check the transactions for journalizing and posting
5. Errors in posting need to have an audit trail and be initialed by the person changing or correcting
them.
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 posting could have been missed if the difference between total debits and credits is
equal 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 vice
versa.
d. Slide – the error that results in adding or deleting zeros in the writing of a number. For
example: 79,200 slides to 7,920 by dropping a zero. The difference between the two
numbers is divisible by 9.
e. Transposition – the accidental rearrangement of digits of a number. For example, 152 can
be transposed to 125. The difference between the two numbers is divisible by 9.
f. Compare the balances in the ledger with those in the trial balance to determine if the
balances 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 in
the 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 the
wrong information in the ledger including the wrong balance, write the correct
information 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.
Teaching Tips/Strategy: Indicate that a trial balance is not a financial statement but is used as a tool to
verify the accuracy of the account ending balances before financial statements are completed.
Use the “Success Coach LU 3-3 (page 87) to check understanding of the objectives concepts. Concept
Check #4 is excellent as a critical thinking activity to identify the errors presented on the indicated trial
balance. Exercises 3A-4 and 3B-4 give students the opportunity to prepare journal entries, post to the
ledger and prepare a trial balance. Assign problem 3A-3 or 3B-3 as an excellent way to tie all the
concepts together.

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3-8
Name Date Section
CHAPTER 3
TEN-MINUTE QUIZ
Circle 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 Ledger
3-Journal entries are recorded 4-Transactions occur
a. 1, 2, 3, 4 b. 1, 3, 2, 4
c. 4, 3, 2, 1 d. 4, 2, 3, 1
2. Which is not a General Journal?
a. Book of original entry b. Book of final entry
c. Journal d. Simplest form of journal
3. Select the transaction that would increase assets.
a. Purchase inventory for cash
b. Provided consulting services for cash
c. Received cash from a bill sent to customers last month
d. Paid insurance for the next 3 months
4. Select the transaction that increases owner's equity.
a. Received cash from a bill sent to customers last month
b. Paid insurance for the next 3 months
c. Purchase inventory for cash
d. Provided consulting services for cash
5. Select the transaction that increases liabilities.
a. Paid insurance for the next 3 months
b. Purchase inventory for cash
c. Received utility bill
d. Received cash from a bill sent to customers last month
6. The proper journal entry to record the $100 purchase of supplies on account would be:
a. Office Supplies 100
Accounts payable 100
b. Cash 100
Office Supplies 100
c. Office Supplies 100
Cash 100
d. Accounts payable 100
Office Supplies 100
7. The proper journal entry to record the $200 rent paid in advance would be:
a. Prepaid Rent 200
Accounts payable 200
b. Cash 200
Prepaid Rent 200
c. Prepaid Rent 200

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3-9
Cash 200
d. Accounts payable 200
Prepaid Rent 200
8. The proper journal entry to record receiving the $150 advertising bill would be:
a. Cash 150
Advertising Expense 150
b. Advertising Expense 150
Accounts payable 150
c. Advertising Expense 150
Cash 150
d. Accounts payable 150
Advertising Expense 150
9. The proper journal entry to record the $150 payment of last month's advertising bill would be:
a. Cash 150
Advertising Expense 150
b. Advertising Expense 150
Accounts payable 150
c. Advertising Expense 150
Cash 150
d. Accounts payable 150
Cash 150
10. The proper journal entry to record the $170 receipt of a bill sent to a customer last month would
be:
a. Cash 170
Accounts Receivable 170
b. Fees Earned 170
Accounts Receivable 170
c. Fees Earned 170
Cash 170
d. Accounts Receivable 170
Cash 170
Answer Key to Chapter 3 Quiz
1. c
2. b
3. b
4. d
5. c
6. a
7. c
8. b
9. d
10. a

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4-1
Chapter 4
The Accounting Cycle Continued
Chapter Overview
The chapter begins with an introduction to adjusting entries. Some transactions cannot be observed by the
company and, therefore, are not recorded as often as a sales or cash payment entry. Examples of these
transactions are wear and tear on equipment or the expiration of insurance. Adjusting entries are used to
allocate revenue and expenses properly based upon the accounting period used and to adjust the balance
sheet accounts and income statement accounts to reflect an accurate balance. At the end of the accounting
period and after preparing a trial balance, businesses record adjusting entries. They utilize a worksheet to
organize 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 these
areas has its own debit 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 ledger
accounts arranged according to financial statement location. There are debit and credit columns for the
balance sheet accounts and for the income statement accounts. For each of these financial statements, the
total debit and credit columns do not equal each other but are “off” by the same dollar amount. In order to
balance the debit and credits, one financial statement needs that dollar amount added as a debit and the
other as a credit. This amount is equal to the net income or net loss for the year. At this point in the
accounting cycle, any errors in financial statement preparation are corrected. After the worksheet has been
properly prepared, formal financial statements are easily prepared.
Learning Objectives
After studying Chapter 4, your students should gain 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.

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