Questions and Answers of Small Business Accounting

Describe fi ve transactions that a janitorial service would have.
You are starting a catering business and are preparing to meet with a printer about ordering business forms. Which forms will you have printed?
You prepared an invoice for a customer and you want to enter it in the journal. What specifi c information will you copy from the invoice to the journal? What information is not on the invoice?
In a manual accounting system, would you ever post a transaction directly from a source document to the general ledger? Why or why not?
Which of the following accounts would be closed at the end of the accounting period?Cash in Checking Loan Payable Tom Gegich, Capital Sales—Hardware License Renewal Fees
Which of the following accounts would be carried forward at the end of the accounting period?Accounts Receivable Sales Tax Payable Diane Fratelli, Capital Floor Installation Income Truck Maintenance
How would an expandable file help with your accounts payable? Can you think of a reason why you would use an expandable file if you already have a computerized accounting system? Explain your answer.
How long do you think you should keep income tax returns? What about other income-tax-related documents? Why?
What is the suggested time frame for keeping files accessible? Do you think this is reasonable? Why or why not?
In the real world, when does a business use the general journal?
Why are the pages of a journal numbered?
What is the purpose of the Withdrawals account?
What is the normal balance of the Withdrawals account?How does the Withdrawals account affect a person’s ownership interest?
What type of account is Accounts Payable? What is it used for?
What is a compound entry? Describe how the debits and credits are listed in a compound entry.
What is the normal balance of Accounts Receivable? What type of account is this?
List three transactions of your own creation that refl ect the categories demonstrated in the chapter.
Which transaction decreases the Accounts Payable account? Is the account debited or credited?
Which transaction decreases the Accounts Receivable account? Is the account debited or credited?
How is the combined journal different from the general journal?
You have three business partners. How many equity accounts will your business have? Briefly describe the accounts.
Why do you think the owner’s cash withdrawals are not recorded directly in the Capital account?
When would you credit the Withdrawals account?
The chapter shows an example of a compound journal entry. Give two more examples of compound journal entries.
If your company offered credit to customers, what payment terms would you have (the number of days before you require payment)? Why?
Journalize the following transactions:6/01/200X: Rafael Salas, owner of Creative Software, Invested$3,000 in the business, Memo 21.6/10/200X: Rafael Salas took $1,450 out of the business for personal
Journalize the following transactions:7//01/200X: Beautiful Day Salon replaced the chairs at three styling stations, buying on credit at Specialty Fixtures, Invoice 912 for $1,900.7/02/200X: The
Journalize the following transaction:8/15/200X: Gegich Repair Service bought the following items at Wholesale Mart, Check 189:Copier paper, $35 Motor oil for vans, $200 Hardware supplies including
Journalize the following transaction:9/15/200X: The owner of Solid Foundation Flooring went to Hal’s Tech World and bought a computer system for $1,700. She also bought CD-ROMs and
Journalize the following transactions:10/01/200X: John Ross transferred a van that he owned to his business, Critters Pet Care. According to the Kelley Blue Book, the van was worth $12,000. John
What is a ledger account? Give fi ve examples.
Why is the audit trail necessary?
List the steps needed to post the credit side of a transaction.
How are the posting reference columns used?
If the ledger account has a debit balance and the account is then debited, in which column will the new balance appear?
If the ledger account has a $5,000 credit balance and the account is then debited for $700, which column will show the new balance?What is the new balance?
If your Cash ledger account shows a credit balance, what does this mean?
How do you correct an erroneous journal entry that has already been posted?
How does a computerized accounting program combine the fi rst three steps of the accounting cycle? Provide two specifi c examples.
In a computerized accounting system, how would you research the details of amounts in the Paper Supplies account?
Is it easy or diffi cult to make changes to transactions in a computerized system? Explain your answer.
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.

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