Chapter 02 – Analyzing and Recording Transactions
Chapter 2
Analyzing and Recording Transactions
QUESTIONS
1. a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid
expenses (rent, insurance, etc.), office supplies, store supplies, equipment,
building, and land.
2. A note payable is formal promise, usually denoted by signing a promissory note to
pay a future amount. A note payable can be short-term or long-term, depending on
3. There are several steps in processing transactions: (1) Identify and analyze the
transaction or event, including the source document(s), (2) apply double-entry
4. A general journal can be used to record any business transaction or event.
5. Debited accounts are commonly recorded first. The credited accounts are commonly
indented.
6. A transaction is first recorded in a journal to create a complete record of the
7. Expense accounts have debit balances because they are decreases to equity (and
equity has a credit balance).
8. The recordkeeper prepares a trial balance to summarize the contents of the ledger
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Chapter 02 – Analyzing and Recording Transactions
10. The four financial statements are: income statement, balance sheet, statement of
owner’s equity, and statement of cash flows.
11. The balance sheet provides information that helps users understand a company’s
12. The income statement lists the types and amounts of revenues and expenses, and
13. An income statement user must know what time period is covered to judge whether
the company’s performance is satisfactory. For example, a statement user would not
14. (a) Assets are probable future economic benefits obtained or controlled by a specific
entity as a result of past transactions or events. (b) Liabilities are probable future
15. The balance sheet is sometimes referred to as the statement of financial position.
16. Debit balance accounts on the Apple balance sheet include: Cash and cash
equivalents; Short-term marketable securities; Accounts receivable; Inventories;
Deferred tax assets; Vendor non-trade receivables; Other current assets; Long-term
17. The asset accounts with receivable in its account title are: Accounts receivable, net
18. Samsung’s balance sheet lists the following current liabilities: Trade and other
payables; Short-term borrowings; Advances received; Withholdings; Accrued
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Chapter 02 – Analyzing and Recording Transactions
QUICK STUDIES
Quick Study 2-1 (10 minutes)
The likely source documents include:
Quick Study 2-2 (5 minutes)
a. A Asset
b. A Asset
c. A Asset
Quick Study 2-3 (5 minutes)
a. E Expense 655
b. R Revenue 406
c. A Asset 110
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Chapter 02 – Analyzing and Recording Transactions
Quick Study 2-4 (10 minutes)
Quick Study 2-5 (10 minutes)
Quick Study 2-6 (15 minutes)
a.
1) Analyze:
Assets = Liabilities + Equity
Cash
Equipment
D. Tyler, Capital
2) Record:
Date Account Titles and Explanation PR Debit Credit
May
Cash 10
7,000
1
Owner invests cash & equipment.
3) Post
Quick Study 2-6 (Continued)
b.
1) Analyze:
Assets = Liabilities + Equity
Office Supplies Accounts
Payable
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Equipment 167
3,000
2) Record:
Date Account Titles and Explanation PR Debit Credit
May
21
Office Supplies 124 500
Accounts Payable 201 500
Purchased office supplies on credit.
3) Post
Office Supplies 124
500
c.
1) Analyze:
Assets = Liabilities + Equity
Cash Landscaping Revenue
4,000 = 0 + 4,000
2) Record:
Date Account Titles and Explanation PR Debit Credit
3) Post
Cash 101
4,000
Quick Study 2-6 (Continued)
d.
1) Analyze:
Assets = Liabilitie
s
+ Equity
1,000 = 1,000 + 0
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Landscaping Revenue 403
4,000
Chapter 02 – Analyzing and Recording Transactions
2) Record:
Date Account Titles and Explanation PR Debit Credit
May
30
Cash 101 1,000
services.
3) Post
Cash 101
1,000
Quick Study 2-7 (10 minutes)
a. Debit e. Debit i. Credit
Quick Study 2-8 (10 minutes)
The correct answer is a.
Explanation: If a $2,250 debit to Utilities Expense is incorrectly posted as a
Quick Study 2-9 (10 minutes)
a. I e. B i. E
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Chapter 02 – Analyzing and Recording Transactions
Quick Study 2-10 (10 minutes)
a. Accounting under IFRS follows the same debit and credit system as
under US GAAP.
b. The same four basic financial statements are prepared under IFRS and
US GAAP: income statement, balance sheet, statement of changes in
c. Accounting reports under both IFRS and US GAAP are likely different
depending on the extent of accounting controls and enforcement. For
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Chapter 02 – Analyzing and Recording Transactions
EXERCISES
Exercise 2-1 (10 minutes)
4 a. Prepare and analyze the trial balance.
Exercise 2-2 (10 minutes)
a. 5 “Three” d. 1 “Asset”
Exercise 2-3 (5 minutes)
Exercise 2-4 (15 minutes)
Type of Normal Increase
Account Account Balance (Dr. or Cr.)
a. Land……………………………..………. asset debit debit
b. Cash……………………………………… asset debit debit
c. Legal Expense…..……..…………… expense debit debit
d. Prepaid Insurance……………….... asset debit debit
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Chapter 02 – Analyzing and Recording Transactions
l. Owner, Capital…...……………....... equity credit credit
Exercise 2-5 (15 minutes)
Of the items listed, the following effects should be included:
a. $28,000 increase in a liability account.
Explanation: This transaction created $62,000 in revenue, which is the
value of the service provided. Payment is received in the form of a $10,000
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