ACCT 201 Lecture Notes - Lecture 3: Accounting Equation, Trial Balance, Financial Statement

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10 Oct 2016

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Analyze the effect of business transactions on the basic accounting equation. Adjusted trial balance financial statements closing entries post-closing trial balance. Accounting transactions: transactions are economic events that require recording in the financial statements. Assets, lia(cid:271)ilities, o(cid:396) sto(cid:272)kholde(cid:396)s" e(cid:395)uit(cid:455) ite(cid:373)s (cid:272)ha(cid:374)ge as a (cid:396)esult of so(cid:373)e economic event. Analyzing transactions: the process of identifying the specific effects of economic events on the accounting equation, the accounting equation must always balance, expanded accounting equation, assets = lia(cid:271)ilities + sto(cid:272)kholde(cid:396)"s equity. Revenues expenses - dividends (cid:396)eve(cid:374)ue i(cid:374)(cid:272)(cid:396)eases sto(cid:272)kholde(cid:396)"s e(cid:395)uit(cid:455) Account receivable represents the right to receive payment at a later date. Explain how accounts, debits, and credits are used to record business transactions: debit and credit procedures, double-entry system. Each transaction must affect two or more accounts to keep basic accounting equation in balance. Recording done by debiting at least one account and crediting another. Debit: indicates the left side of an account. Credit: indicates the right side: debit and credit procedure.

Related Questions

QUESTION 1

Accounting is an information and measurement system thatidentifies, records, and communicates relevant, reliable, andcomparable information about an organization's businessactivities.

True

False

QUESTION 2

We use the accounting equation to identify what a company ownsand owes. The accounting equation is:

Assets = Liabilities + Equity

Assets = Liabilities â Equity

Assets = Liabilities + Revenues

Equity = Liabilities + Revenues

QUESTION 3

______ are beliefs that distinguish right from wrong. Thesebeliefs are accepted standards of gauging good and dishonestbehavior.

Accounting Standards

Ethics

Generally Accepted Accounting Principles

FASB

QUESTION 4

The _____ is a collection of all accounts within a companyâsaccounting system.

We use the accounting equation to identify what a company ownsand owes. _____ are resources a company owns or controls, _____ areclaims creditors have against a companyâs assets, and _____ is theownerâs claim on a companyâs assets.

QUESTION 6

In double entry accounting a credit to an asset account willrepresent an increase in the asset account balance; and a debitwill represent a decrease in the asset account balance.

True

False

QUESTION 7

The purchase of supplies on credit will ____ assets and ____liabilities.

During the accounting cycle, we analyze transactions toprepare statements.

True

False

QUESTION 9

The supplies account for a company has a $1,000 debit balanceat the beginning of the year. Supplies of $2,000 were purchasedduring the year and debited to the Supplies account. A December 31physical count shows $500 of supplies remaining at the end of theyear. Assume no other adjusting entries are made during the year.Using the 3-step process for creating adjusting entries, calculatethe adjustment amount for supplies (no journal entry isrequired).

During the accounting cycle, to complete step 7 youwould:

Prepare post-closing trial balance--Test clerical accuracy ofthe closing procedures.

Prepare adjusted trial balance--Summarize adjusted ledgeraccounts and amounts.

Prepare statements--Use adjusted trial balance to preparefinancial statements.

Close--Journalize and post entries to close temporaryaccounts.

QUESTION 11

The three financial statements that should be prepared duringthe accounting cycle are the:

Balance sheet, adjusted trial balance, income statement

Balance sheet, unadjusted trial balance, Statement of OwnerâsEquity

Income statement, adjusted trial balance, Statement of OwnerâsEquity

Balance sheet, Income statement, Statement of OwnerâsEquity

QUESTION 12

An optional working paper, which is not a required report oran accounting record, but is used to prepare a company's unadjustedtrial balance, adjusting entries, adjusted trial balance, andfinancial statements is a(n):

Adjusted trial balance

Worksheet

Post-closing trial balance

Unadjusted trial balance

General ledger

QUESTION 13

The two goals for completing the closing process are:

To identify accounts for closing and record the closingentries

To journalize and post transactions

To post transactions and prepare post-closing trialbalance

To reset revenues, expenses, and withdrawal account balancesto zero at the end of each period, and help summarize an accountingperiodâs revenues and expenses.

QUESTION 14

Fill in the Blank: The _____ describes a companyâs financialposition â by the types and amounts of assets, liabilities, andequity -- at a point in time.

QUESTION 15

Return on Assets is useful in evaluating management, analyzingand forecasting profits, and planning activities.

True

False

QUESTION 16

The Income Statement:

Identifies cash inflows (receipts) and cash outflows(payments) over a period-of-time.

Summarize adjusted ledger accounts and amounts

Describes a companyâs revenues and expenses along with theresulting net income or net loss -- over a period-of-time due toearnings activities

Resets revenues, expenses, and withdrawal account balances tozero at the end of each period.

QUESTION 17

An internal control system consists of the policies andprocedures used to:

Protect assets and Ensure reliable accounting

Urge adherence to company policies and Promote efficientoperations

All of the above

None of the above.

QUESTION 18

The cost-benefit principle is the second limitation of_______.

Bank reconciliations

Petty cash controls

Voucher system of controls

Internal controls

QUESTION 19

The Unadjusted Trial Balance columns of a company's work sheetshows the Store Supplies account with a balance of $750. TheAdjustments columns shows a credit of $425 for supplies used duringthe period. The amount shown as Store Supplies in the Balance Sheetcolumns of the work sheet is:

A company shows a $600 balance in Prepaid Rent in theUnadjusted Trial Balance columns of the work sheet. The Adjustmentscolumns show expired rent of $200. This adjusting entry resultsin:

$200 decrease to net income

$200 increase to net income

$200 different between the debit and credit columns of theUnadjusted Trial Balance

An error in the Balance Sheet

QUESTION 21

This semester we have discussed four major financialstatements. List the 4 financial statements and describe them. Makesure to include how they flow together.

QUESTION 22

Explain the purpose of adjusting entries at the end of aperiod.

peararmadillo281

Record (journalize) transactions in the books) Doherty Tree Cellular, Inc.,
completed the following transactions during April 2012, its first month of operations:

Apr 1	Received $19,800 and issued common stock.
2	Purchased $200 of office supplies on account.
4	Paid $14,300 cash for land to use as a building site.
6	Performed service for customers and received cash of $2,600.
9	Paid $100 on accounts payable.
17	Performed service for UFax on account totaling $1,900.
23	Collected $100 from UFax on account.
30	Paid the following expenses: salary, $1,900; rent, $1,300.

1.Record the transactions in the journal of Doherty Tree Cellular, Inc. Key transactions by date and include an explanation for each entry.

CLASS, LETS TAKE RECORDING STEP 1 STEP FURTHER - THE TRIAL BALANCE

Now that we know what the accounting equation is and we have some experience with Journal Entries.

Letâs review the process and take the recording process one step further.

STEP 1) Analyze transaction: As an actual accountant, we determine if a transaction should be recorded by analyzing source documents.

For example: If the Company makes a sale; they will complete a sales document (or sales
tape is generated). If the Company purchases something a purchase invoice is forwarded to Accounting. There is a different type of source documents for different types of transactions.

Note: as an accountant a large part of the battle is making sure there is a source document for all transactions and that all departments capture and forward these documents to Accounting!

STEP 2) Accounting prepares journal entry: for each transaction based on GAAP. (Mostly using the constraints, assumptions, principles we've discussed: materiality, conservatism, matching, revenue recognition, etc).

The entry is entered into a Journal for those types of Transactions (There is a Sales Journal, A/P Journal for purchases, Payroll journal for payroll related entries, General Journal for misc. entries., etc.

Journal entries are made in the proper form, and include: date, description, indent of credit side of each entry.

STEP 3) The Journal entry is posted to General ledger; which includes all activity for all accounts.

However, the recording process is not over. Letâs talk about the trial balance. Please answer ALL however only post ONE question at a time to allow more to participate.

1) Why do we prepare it?

apricotox859

Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis

Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, was as follows:

Account Titles	Debit	Credit
Cash	â5,000
Accounts receivable	â4,000
Supplies	â2,000
Small tools	â6,000
Equipment
Accumulated depreciation (on equipment)
Other assets (not detailed to simplify)	â9,000
Accounts payable		â7,000
Notes payable
Wages payable
Interest payable
Income taxes payable
Unearned revenue
Common stock (60,000 shares, $0.10 par value)		â6,000
Additional paid-in capital		â9,000
Retained earnings		â4,000
Service revenue
Depreciation expense
Wages expense
Interest expense
Income tax expense
Remaining expenses (not detailed to simplify)
âTotals	26,000	26,000

Transactions during 2017 follow:

A.Borrowed $20,000 cash on July 1, 2017, signing a one-year, 10 percent note payable.

B.Purchased equipment for $18,000 cash on July 1, 2017.

C.Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.

D.Earned $70,000 in revenues for 2017, including $14,000 on credit and the rest in cash.

E.Incurred remaining expenses of $35,000 for 2017, including $7,000 on credit and the rest paid with cash.

F.Purchased additional small tools, $3,000 cash.

G.Collected accounts receivable, $8,000.

H.Paid accounts payable, $11,000.

I..Purchased $10,000 of supplies on account.

J.Received a $3,000 deposit on work to start January 15, 2018.

K.Declared and paid a cash dividend, $10,000.

Data for adjusting entries:

L.Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2017 (debit Remaining Expenses).

M.Depreciation for 2017, $2,000.

N.Interest accrued on notes payable (to be computed).

O.Wages earned since the December 24 payroll but not yet paid, $3,000.

P.Income tax expense was $4,000, payable in 2018.

Required:

1.Set up T-accounts for the accounts on the trial balance and enter beginning balances.

2.Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.

3.Journalize and post the adjusting entries (l) through (p).

4.Prepare an income statement (including earnings per share rounded to two decimal places), statement of stockholdersâ equity, and balance sheet.

5.Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.

6.Journalize and post the closing entry.

7.Compute the following ratios (rounded to two decimal places) for 2017 and explain what the results suggest about the company:

a,Current ratio

b,Total asset turnover

c,Net profit margin

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ACCT 201 Lecture Notes - Lecture 3: Accounting Equation, Trial Balance, Financial Statement

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