2
Debits and Credits:
Analyzing and Recording
Business Transactions
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
2. The left-hand side is always the debit side. It is an arbitrary rule.
4. The financial statements are the end products of the accounting process.
6. Which accounts are affected? Which categories do the accounts belong? Are the accounts increasing or
decreasing? What do the rules of debit and credit say? What does the T-account look like?
7. Disagree. Computers will record debits and credits based on the account type.
9. The financial statements are prepared from the ending balances of the accounts (debit or credit) in the ledger.
The columns on financial statements are used for listing amounts and for subtotaling.
10. It is easier to prepare the reports from the trial balance rather than the expanded accounting equation because
11. The question in this case is whether Meg should be allowed to put fictitious figures into the trial balance. I would
SOLUTIONS TO CONCEPT CHECKS
1. The ending balance in Cash is $13,200(debit balance). The ending balance in M.
Meade, Capital is $17,000(credit balance).
Cash 110
9/5 4,000
800 7/25
9/9 10,000
14,000
800
Bal. 13,200
M. Meade, Capital 311
9,000 6/9
5,000 9/3
3,000 9/7
17,000 Bal.
2.
Incr.
Decr. Normal
Bal.
A.
Liability
Cr.
Dr.
Cr.
B.
Revenue
Cr.
Dr.
Cr.
C.
Asset
Dr.
Cr.
Dr.
D.
Capital
Cr.
Dr.
Cr.
E.
Withdrawal
Dr.
Cr.
Dr.
F.
Asset
Dr.
Cr.
Dr.
G.
Expense
Dr.
Cr.
Dr.
3.
Account
Category
Increase/Decrease
Dr. or Cr.
T Accounts
Cash
Asset
↑
Dr.
Cash
1,100
Accounts Receivable
Asset
↑
Dr.
Acc. Rec.
2,900
Tutoring Fees Earned
Revenue
↑
Cr.
Tutoring Fees
Earned
4,000
4. Cash
Accounts Receivable
Office Equipment
5. A. BS
B. BS
C. BS
SOLUTIONS TO SET A EXERCISES
2A-1. Balance Sheet Accounts
Assets
111 Cash
112 Accounts Receivable
121 Office Equipment (Microsoft Surface Tablet)
Liabilities
2A-2.
1.
Accounts Affected
2.
Category
3.
↑↓
4.
Rules
5.
T-Account Update
Computer Equipment
Asset
↑
Dr.
Computer Equipment
25,000
Cash
Asset
↓
Cr.
Cash
6,000
Accounts Payable
Liability
↑
Cr.
Accounts Payable
19,000
EXERCISES(CONTINUED)
2A-3.
ACCOUNT
CATEGORY
↑
↓
FINANCIAL STATEMENT
Computer Supplies
Asset
Dr.
Cr.
Balance Sheet
Legal Fees Earned
Revenue
Cr.
Dr.
Income Statement
P. Roy, Withdrawals
Withdrawal
Dr.
Cr.
Statement of Owner’s Equity
Accounts Payable
Liability
Cr.
Dr.
Balance Sheet
Salaries Expense
Expense
Dr.
Cr.
Income Statement
Auto
Asset
Dr.
Cr.
Balance Sheet
2A-4.
Dr.
Cr.
A.
8
1
B.
6
1
C.
9
4
D.
1
7
E.
10
1
F.
3
5
G.
2
7
H.
1
2
I.
3
4
EXERCISES(CONTINUED)
2A-5.
(1)
HUGO’S CLEANERS
INCOME STATEMENT
FOR MONTH ENDED JULY 31, 201X
Revenue:
Cleaning Fees
$
5
0
4
Operating Expenses:
Salaries Expense
$
1
7
5
Utilities Expense
7
5
Total Operating Expenses
2
5
0
Net Income
$
2
5
4
(2)
HUGO’S CLEANERS
STATEMENT OF OWNER’S EQUITY
FOR MONTH ENDED JULY 31, 201X
J. Hugo, Capital, July 1, 201X
$
8
5
3
Net Income for July
$
2
5
4
Less: Withdrawals for July
(1
1
5)
Increase in Capital
1
3
9
J. Hugo, Capital, July 31, 201X
$
9
9
2
(3)
HUGO’S CLEANERS
BALANCE SHEET
JULY 31, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$
6
0
0
Liabilities
Equipment
6
9
2
Accounts Payable
$
3
0
0
Owner’s Equity
J. Hugo, Capital
9
9
2
Total Liabilities and
Total Assets
$1
2
9
2
Owner’s Equity
$1
2
9
2
SOLUTIONS TO SET B EXERCISES
2B-1. Balance Sheet Accounts
Assets
111 Cash
112 Accounts Receivable
121 Office Equipment (Apple iPad)
2B-2.
1.
Accounts Affected
2.
Category
3.
↑↓
4.
Rules
5.
T-Account Update
Computer Equipment
Asset
↑
Dr.
Computer Equipment
22,000
Cash
Asset
↓
Cr.
Cash
5,000
Accounts Payable
Liability
↑
Cr.
Accounts Payable
17,000
EXERCISES(CONTINUED)
2B-3.
ACCOUNT
CATEGORY
↑
↓
FINANCIAL STATEMENT
Office Supplies
Asset
Dr.
Cr.
Balance Sheet
Rental Fees Earned
Revenue
Cr.
Dr.
Income Statement
A. Troy, Withdrawals
Withdrawal
Dr.
Cr.
Statement of Owner’s Equity
Accounts Payable
Liability
Cr.
Dr.
Balance Sheet
Wage Expense
Expense
Dr.
Cr.
Income Statement
Computer
Asset
Dr.
Cr.
Balance Sheet
2B-4.
Dr.
Cr.
A.
8
1
B.
6
1
C.
9
4
D.
1
7
E.
10
1
F.
3
5
G.
2
7
H.
1
2
I.
3
4
EXERCISES(CONTINUED)
2B-5.
(1)
HELM’S CLEANERS
INCOME STATEMENT
FOR MONTH ENDED MAY 31, 201X
Revenue:
Cleaning Fees
$
4
2
0
Operating Expenses:
Salaries Expense
$
1
2
5
Utilities Expense
9
7
Total Operating Expenses
2
2
2
Net Income
$
1
9
8
(2)
HELM’S CLEANERS
STATEMENT OF OWNER’S EQUITY
FOR MONTH ENDED MAY 31, 201X
J. Helm, Capital, May 1, 201X
$
8
6
2
Net Income for May
$
1
9
8
Less: Withdrawals for May
(1
4
0)
Increase in Capital
5
8
J. Helm, Capital, May 31, 201X
$
9
2
0
(3)
HELM’S CLEANERS
BALANCE SHEET
MAY 31, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$
3
0
0
Liabilities
Equipment
9
1
0
Accounts Payable
$
2
9
0
Owner’s Equity
J. Helm, Capital
9
2
0
Total Liabilities and
Total Assets
$1
2
1
0
Owner’s Equity
$1
2
1
0
SOLUTIONS TO SET A PROBLEMS
PROBLEM 2A-1
Accounts Affected
Category
Inc.
↑
Dec.
↓
Rules
T-Account update
A. Cash
Asset
↑
Dr.
Cash
Brenden Oulette,
Capital
Brenden Oulette, Capital
Capital*
↑
Cr.
(A)21,000
21,000 (A)
B. Delivery Trucks
Asset
↑
Dr.
Delivery Trucks
Accounts Payable
Accounts Payable
Liability
↑
Cr.
(B) 6,000
6,000 (B)
C. Rent Expense
Expense
↑
Dr.
Rent Expense
Accounts Payable
Accounts Payable
Liability
↑
Cr.
(C) 900
6,000 (B)
900 (C)
D. Cash
Asset
↑
Dr.
Cash
Delivery Fees Earned
Delivery Fees Earned
Revenue
↑
Cr.
(A) 21,000
(D) 1,400
1,400 (D)
E. Accounts Receivable
Asset
↑
Dr.
Accounts Receivable
Delivery Fees Earned
Delivery Fees Earned
Revenue
↑
Cr.
(E) 370
1,400 (D)
370 (E)
F. Brenden Oulette, Withdrawals
Withdrawal*
↑
Dr.
Brenden Oulette,
Withdrawals
Cash
Cash
Asset
↓
Cr.
(F) 750
(A)21,000
(D) 1,400
750 (F)
* A subdivision of Owner‘s Equity