Questions and Answers of Small Business Accounting

True or False? If you use accounting software, you give up the audit trail. Explain your answer.
What is the trial balance? What is its purpose?
List the four steps needed to prepare a manual trial balance.
How do you prepare a computerized trial balance?
True or False? If your trial balance debits and credits are equal, all your ledger accounts are correct. Explain your answer.
Why do you think this chapter makes a point of defi ning ledger accounts? What other types of accounts might be in an accounting system?
In your own words, describe how you would calculate the new account balances as you post transactions manually.
From a security standpoint, what are the advantages and disadvantages of a manual accounting system? A computerized accounting system?
What are other possible uses of the trial balance (besides testing the equality of debits and credits)?
Your trial balance shows an usually high amount for Business Gifts Expenses. Describe the parts of the audit trail that you would use to research this amount.
Which of the following errors would not cause the trial balance to be “out of balance”?a. Math error in the Debit column.b. An amount transferred to the wrong trial balance column.c. Journal
What is a worksheet?
What information is found in the three-line heading of a worksheet?
How many columns are in a worksheet? List the columns.
Where do you fi nd the information for the fi rst three columns?
What is accrual accounting? Why are adjusting journal entries necessary if you use accrual accounting?
What is a contra account? Why is Accumulated Depreciation considered a contra account?
Why is the account category “prepaid expenses” considered an asset and not an expense?
True or False? The adjustment for bad debts will increase expenses and decrease assets.
Name the fi nancial statement sections of the worksheet. How many columns are in the fi nancial statement sections?
How do you determine the amounts to be entered in the fi nancial statement sections?
How do you use the worksheet to determine net income or net loss?
Does a computerized accounting system generate a worksheet? Why or why not?
Which of the following assets are depreciated? For each asset, state the reason why it is (or isn’t) depreciated.a. Cashb. Cash Registersc. Prepaid Advertisingd. Accounts Receivablee. Delivery Van
On a worksheet, why is the net income amount entered in the Debit column of the Income Statement section?
On July 1, 200X, Beautiful Day Salon bought chairs for styling stations. The chairs cost a total of $1,900 and the owner estimates she will use them for ten years, and then sell them for scrap for
On September 19, 200X, Solid Foundation Flooring paid $2,640 for a color ad in a monthly magazine. The ad will run for two years and will begin in two weeks (the October issue).a. Is an adjustment
On 6/30/200X, the balance of Creative Software’s Accounts Receivable account in the general ledger was $8,450. The following outstanding invoices made up the balance:Date Customer Invoice Amount
On December 31, 200X, Critters Pet Care had the following account balances in the general ledger for the month of December. All accounts have normal balances.101 Cash in Checking $ 2,750 105 Cash in
Using the information for Critters Pet Care and the following information, complete the Adjustments section and the Adjusted Trial Balance section of the Critters Pet Care worksheet.a. Critters Pet
Using the information for Critters Pet Care, fi nish the worksheet, including the Net Income entries
In what order are the fi nancial statements prepared?
Explain why a company would prepare more than one version of its income statement.
What is the formula for determining the bottom line?
What is benchmarking? What are the benefi ts of benchmarking?
What does the statement of owner’s equity communicate? What similar statement would be issued by a corporation?
Which profi tability ratios require both the income statement and the balance sheet?
What is liquidity? Name three measures of liquidity.
What does a debt to equity ratio of 1.5 indicate?
What is a permanent account? List three specifi c examples of permanent accounts.
What is a temporary account? List three specifi c examples.
Why are certain accounts closed at the end of the accounting period?
What is the purpose of a postclosing trial balance? Do you need a postclosing trial balance in a computerized accounting system? Why or why not?
How would you use the information developed for your income statement to improve your business operations? Give three specifi c examples.
Prepare the statement of owner’s equity for Company XYZ for the month ended June 30, 200X, based on the following information:Pamela Page, Capital beginning balance $20,000 Pamela Page, Withdrawals
What is liquidity? Which fi nancial statement provides information about liquidity?
In an S corporation, which account do you think is used to close out the net income or net loss at the period-end close?The following information applies to Questions 5–10.
Does this bank have a branch that’s conveniently located to my business?
Does this bank operate at times when I need it most?
Does this bank offer secure ways to deposit cash even when the bank is closed?
What is your main tool for protecting cash fl ow? Why?
What documentation should you keep for each bank deposit?
What is a lock box? What kinds of businesses would benefi t most from having a lock box?
What is the bank reconciliation? List fi ve reasons the bank reconciliation might be “out of balance.”
What is the purpose of petty cash? How do you document petty cash expenditures?
What is a change fund?
How do you use the cash register summary to prove out the cash register?
Describe two situations in which you would debit the Cash Over or Short account.
True or False? A small business is more vulnerable to internal fraud than a large business. Explain your answer.
Describe the controls you would put in place to prevent an employee from receiving customers’ checks and then depositing the money into his or her own bank account.
What are the possible consequences of not reconciling the bank statements in a timely manner?
Suppose you have a small manufacturing business. What are some expenses you might need petty cash for? How much petty cash would you keep on hand? How often would you need to replenish the petty cash?
Your retail store does a large cash business. Develop a policy to safeguard the cash you take in during the day.
For Items a–k, identify whether:
It is an adjustment to the bank balance.
It is an adjustment to the book balance.
It is not a bank reconciliation adjustment.
It requires a journal entry.(Be aware that an item can have more than one answer.)a. Check 352 not cleared.b. Monthly bank fee that has been journalized.c. Interest income.d. Deposit in transit.e. A
What is an employer identifi cation number? How do you obtain one?
Which two forms must be filled out by all new hires? Which of these forms must the employer also fill out?
What is the purpose of the Fair Labor Standards Act? Do all employees fall under all provisions of the act? If not, what are the exceptions?
True or False? The minimum wage in all states is the same as that set by the federal government.
List the taxes that are withheld from an employee’s earnings.
Is the entire amount of an employee’s pay subject to social security tax?To Medicare tax? Explain your answers.
Which withheld taxes does the employer match?
How do you determine the amount to withhold for federal income tax?
Are benefi ts always paid for by the employer only? Explain your answer.
How do employee-paid, tax-exempt benefi ts reduce the amount of income tax an individual pays?
List three examples of employer-paid, tax-exempt benefi ts.
List three examples of employer-paid, taxable benefi ts.
Defi ne gross earnings.
How do you calculate net pay?
Name the account(s) debited in the payroll journal entry. Name the account(s) credited.
Complete the table below using the data provided. Each employee must be paid according to the Fair Labor Standards Act with all hours worked over 40 in a 7-day period paid at a time and a half rate.
Maxine Sanders is a single employee who claims one allowance.Prior to the current pay period, her year-to-date total earnings were$75,000. Her pay for the current pay period is $3,000. Calculate
Determine the amount of federal income tax for an employee that earns $1,025 per pay period and claims fi ve withholding allowances.
Joseph Smith is a salaried employee who is paid biweekly. His yearly salary is $52,000. Calculate his gross biweekly salary.
Refer to question
Suppose Joseph is paid semimonthly. Calculate his semimonthly salary.
An employer uses a commission process to determine his employee’s gross pay. The employee is given his choice of two methods.a. 10% commission on all salesb. $500 base guaranteed salary & 5 percent
A married employee who claims two allowances earned $1,030 during the current pay period. The employee’s year to date pay prior to this pay period is $54,000. The employee is not taxed at the state
What is the lookback period? How is it used in determining a company’s payroll tax deposit schedule?
What schedule for making timely deposits does a new company use?
What are the two methods available for depositing payroll taxes?When must you use a specifi c method? Describe the circumstances in which you can only use one specifi c method.
When you make a tax deposit, which accounts are debited and credited?
Defi ne Form W-2 and Form W-3.
List fi ve important pieces of information that appear on Form W-2.
What are the due dates for Form W-2?
Who receives Form W-3? What are the due dates for this form?SELF-CHECK
Describe a method for maintaining employee records in a manual bookkeeping system.

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