=========================preview======================
(ACCT102)Chap002.pdf
Back to ACCT102 Login to download
======================================================
Chapter 2

Analyzing and Recording Transactions

QUESTIONS

1. a. Common asset accounts: cash, notes receivable, prepaid expenses (rent, insurance, etc.), office supplies, store supplies, equipment, building, and land.
b. Common liability accounts: accounts payable, notes payable, and unearned revenue, wages payable, and taxes payable.
c. Common equity accounts: owners capital and owners withdrawals.
2. A note payable is a written document that specifies a definite amount owed to an entity at a specified date (dates), and usually demands interest. A note payable can be short-term or long-term. An account payable also references an amount owed to an entity, and the amount can be increased by the debtor(s) making additional purchases. Moreover, an account payable is not usually a single document but may represent the result of several oral, implied, or sometimes written promises to pay the creditor. An account payable is usually short-term.
3. There are several steps in processing transactions: (1) Identify and analyze the transaction or event, including the source document(s), (2) apply double-entry accounting, (3) record the transaction or event in a journal, and (4) post the journal entry to the ledger. These steps would be followed by a trial balance and then the reporting of financial statements.
4. A general journal can be used to record any business transaction and event.
5. Debited accounts are commonly recorded first. The credited accounts are commonly indented.
6. Expense accounts have debit balances because they are decreases to equity (and equity has a credit balance).
7. A transaction is first recorded in a journal to create a complete record of the transaction in one place. (The journal is often referred to as the book of original entry.) This process reduces the likelihood of errors in ledger accounts.
8. The recordkeeper prepares a trial balance to summarize the contents of the ledger and to verify the equality of total debits and total credits. The trial balance also serves as a helpful internal document for preparing financial statements and other reports.
9. The error should be corrected with a separate (subsequent) correcting entry. The entrys explanation should describe why the correction is necessary.
10. The four financial statements are: income statement, balance sheet, statement of owners equity, and statement of cash flows.
11. An income statement reports whether the business earned a net income (also called profit or earnings) or a net loss. Importantly, the income statement lists the types and amounts of revenues and expenses making up net income or net loss.
12. An income statement user must know what time period is covered to judge whether the companys performance is satisfactory. For example, a statement user would not be able to assess whether the amounts of revenue and net income are satisfactory without knowing whether they were earned over a week, a