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understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Why is it practical for accountants to rely on original or historical cost for valuation purposes?
Under the historical cost principle, changes in value after a transaction is recorded are not usually recognised in the accounts. Comment on this possible limitation of using historical cost in
What is an account, and how is it related to the ledger?
State whether each of the following accounts is an asset account, a liability account, or a shareholders' equity account:a. Notes Receivablee. Prepaid Rentb. Landf. Insurance Expensec. Dividends g.
In the shareholders' equity accounts, why do accountants maintain separate accounts for revenues and expenses?
Why is the system of recording entries called the double-entry system? What is significant about this system?
"Double-entry accounting refers to entering a transaction in both the journal and the ledger." Comment on this statement.
"Debits are bad, and credits are good." Comment on this statement.
What are the rules of double entry for (a) assets, (b) liabilities, and (c) shareholders' equity?
Why are the rules of double entry the same for liabilities and shareholders' equity?
What is the meaning of the statement, "The Cash account has a debit balance of 500 "?
Explain why debits, which decrease shareholders' equity, also increase expenses, which are a component of shareholders' equity.
What five steps are involved in analysing and processing a transaction?
Is it a good idea to forgo the journal and enter a transaction directly into the ledger? Explain your answer.
In recording entries in a journal, which is written first, the debit or the credit? How is indentation used in the general journal?
What is the relationship between the journal and the ledger?
Describe each of the following:a. Accountf. Journalisingb. Journal g. Postingc. Ledger h. Footingsd. Book of original entry i. Compound entrye. Post. Ref. column
What does a trial balance prove?
What is the normal balance of Accounts Payable? Under what conditions could Accounts Payable have a debit balance?
Can errors be present even though a trial balance balances? Explain your answer.
Which of the following events would be recognised and recorded in the accounting records of the LO 1 Recognition Sabatini Corporation on the date indicated?Feb. 17 Sabatini Corporation offers to
Gina Health Shop uses a large amount of supplies in its business. The following table summarises LO 1 Application of Recognition selected transaction data for orders of supplies purchased:Determine
Listed below are the ledger accounts of the Kedzie Service Corporation:Complete the following table, using Xs to indicate each account's classification and normal balance (whether a debit or credit
Analyse each of the following transactions, using the form shown in the example below the list.LO 4 Transaction Analysisa. Benny James established Benny's Barber Shop by investing 2,400 in exchange
Open the following T accounts: Cash; Repair Supplies; Repair Equipment; Accounts Payable; Share LO 4 Recording Transactions in T Accounts\section*{LO 7 Trial Balance} Capital; Dividends; Repair Fees
After recording the transactions in E 2-5, prepare a trial balance in proper sequence for Eastmoor Repair Service at June 30, 20xx.
Explain each transaction (a through \(\mathbf{h}\) ) entered below. Cash Accounts Receivable Equipment a. 60,000 b. 15,000 C. 6,000 g. 1,500 b. 15,000 h. 900 g. 1,500 e. 3,000 d. 9,000 h. 900 f.
Managers and accountants often encounter transactions with which they are unfamiliar. Use your LO 4 Analysis of Unfamiliar analytical skills to analyse and record in general journal form the
Open a general journal form like the one in Exhibit 2-3, and label it Page 10. After opening the LO 5 Recording Transactions in LO 6 the General Journal and Posting to the Ledger Accounts form,
Below is a \(\mathrm{T}\) account showing cash transactions for the month of July.Prepare the account in ledger form for Cash (Account 111). (See Exhibit 2-4 for an example.) Cash July 1 18,800 July
The accounts of the Barnes Service Corporation as of October 31, 20xx are listed below in alphabetiLO 7 Preparing a Trial Balance cal order. The amount of Accounts Payable is omitted.Prepare a trial
Which of the following errors would cause a trial balance to have unequal totals? Explain your LO 7 Effect of Errors on a Trial Balance answers.a. A payment to a lender was recorded as a debit to
This was the trial balance for Gilliam Services at the end of September:The trial balance does not balance because of a number of errors. Gilliam's accountant compared the amounts in the trial
The Ferraro Construction Corporation builds foundations for buildings and parking lots. The fol-LO 7 Preparing a Trial Balance lowing alphabetical list shows the account balances as of November
Elena Garcia established a small business, Garcia Training Centre, to teach individuals how to use spreadsheet analysis, word processing, and other techniques on microcomputers.a. Garcia began by
Monique Lacroix opened a photography and portrait studio on July 1. The studio completed the following transactions during the month:July 1 Opened the business by depositing 51,000 in a bank account
Bob Reeves won a concession to rent bicycles in the local park during the summer. In the month of LO 1 Transaction Analysis, LO 4 T Accounts, LO 5 General Journal, LO 7 and Trial Balance May, Reeves
Fulton Security Service provides ushers and security personnel for athletic events and other func-LO 4 Transaction Analysis, LO 5 General Journal, Ledger LO 6 Accounts, and Trial LO 7 Balance tions.
Why does the accountant use the term net profit?
Define the terms revenues and expenses.
Why are income statement accounts called temporary accounts?
Why does the need for an accounting period cause problems?
What is the significance of the going concern assumption?
"The matching rule is the most significant concept in accounting." Do you agree with this statement? Explain your answer.
In what two ways is accrual accounting accomplished?
Why do adjusting entries have to be made?
What are the four situations that require adjusting entries? Give an example of each.
"Some assets are expenses that have not expired." Explain this statement.
What do plant and equipment, office supplies, and prepaid insurance have in common?
What is the difference between accumulated depreciation and depreciation expense?
Why are contra accounts used to record depreciation?
How does unearned revenue arise? Give an example.
Where does unearned revenue appear on the balance sheet?
What accounting problem does a magazine publisher who sells three-year subscriptions have?
Under what circumstances does a company have accrued revenues? Give an example. What asset arises when the adjustment is made?
What is an accrued expense? Give three examples.
"Why worry about adjustments? Doesn't it all come out in the wash?" Discuss these questions.
Why is the income statement usually the first statement prepared from the adjusted trial balance?
What is the purpose of the Profit Summary account?
To what management goals do the measurements of net profit and cash flow relate?
The accountant for Marina Company makes the following assumptions or performs the following LO 2 Applications of Accounting LO 3 Concepts Related to Accrual LO 4 Accounting activities:1. In
An examination of the Prepaid Insurance account shows a balance of 4,112 at the end of an Prepaid Insurance accounting period, before adjustment. Prepare journal entries to record the insurance
Each column below represents a supplies account:1. Determine the amounts indicated by the question marks in the columns. 2. Make the adjusting entry for Columna, assuming supplies purchased are
Salim Engineering has a five-day workweek and pays salaries of 70,000 each Friday.LO 5 Adjusting Entry for Accrued Salaries 1. Make the adjusting entry required on July 31, assuming that August 1
Paris Company produces computer software that is sold by Bond Systems. Paris receives a royalty of Recognition 15 per cent of sales. Royalties are paid by Bond Systems and received by Paris
Prepare year-end adjusting entries for each of the following:1. Office Supplies had a balance of 168 on January 1. Purchases debited to Office Supplies during the year amount to 830 . A year-end
Antonia Soria, a lawyer, was paid 72,000 on April 1 to represent a client in property negotiations LO 5 Accounting for Revenue over the next twelve months. Received in Advance 1. Record the entries
East Asia Refrigeration Company has the following liabilities at year end:1. Which of these accounts probably was created at the end of the accounting year as a result of an accrual? Which probably
Prepare the monthly income statement and balance sheet for Rogers Security Services from the data LO 6 Preparation of Financial provided in this adjusted trial balance: Rogers Security Services
After adjusting entries had been made, the balance sheets of Pandan Company showed the following SO 9 Relationship of Cash to Expenses Paid or Revenues Received asset and liability amounts at the end
The following amounts are taken from the balance sheets of Neutral Bay Corporation:During 20x2, expenses related to Prepaid Expenses were 103,000, and expenses related to Accrued Liabilities were
The income statement for Jarvis Company included the following expenses for \(20 \mathrm{xx}\) :Listed below are the related balance sheet account balances at year end for last year and this year:1.
Horowitz Newspaper Agency delivers morning, evening, and Sunday city newspapers to subscribers who live in the suburbs. Customers can pay a yearly subscription fee in advance (at a savings) or pay
On May 31, the end of the current accounting year, the following information was available to help Entries Costa Corporation's accountants make adjusting entries:a. The Supplies account showed a
Here is the trial balance for Crown Advisory Services on July 31:The following information is also available:a. Ending inventory of office supplies, 132 .b. Prepaid rent expired, 220 .c. Depreciation
The Foremost Janitorial Service is owned by Ron Hudson. After six months of operations, the September 30, 20xx trial balance for the company was prepared.The balance of the Share Capital account
The trial balance for Century Dance School at the end of its current accounting year appears at the top of the next page. Loretta Harper, the owner, made no investments in the business during the
Benzinger Truck Rental owns thirty small trucks that it rents by the day. Its adjusted trial balance at LO 6 Preparation of Financial the end of the current accounting year is shown below.1. Prepare
What are the principal qualitative characteristics of accounting information, and what is their significance?
What are the constraints on providing relevant and reliable information?
What is the purpose of classified financial statements?
What are four common categories of assets?
What criteria must an asset meet to be classified as current? Under what condition is an asset considered current even though it will not be realised as cash within a year? What are two examples of
In what order should current assets be listed?
What is the difference between a current investment in the current assets section and a security in the investments section of the balance sheet?
What is an intangible asset? Give at least three examples.
Name the two major categories of liabilities.
Explain how the multistep form of income statement differs from the single-step form. What are the relative merits of each?
Why are other revenues and expenses separated from operating revenues and expenses in the multistep income statement?
Explain earnings per share and how this figure appears on the income statement.
Define liquidity and name two measures of liquidity.
How is the current ratio calculated and why is it important?
Which is the more important goal-liquidity or profitability? Explain your answer.
Name five measures relevant to profitability.
"Return on assets is a better measure of profitability than profit margin." Evaluate this statement.
Explain the difference between share capital and retained earnings.
Why are notes to financial statements necessary?
Why is the disclosure of accounting policies important?
What additional information is provided by a segment report?
What is the purpose of the independent auditors' report?

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