Question 2-1 (LO 2-1)
External transactions are transactions between the company and a separate economic entity.
Question 2-2 (LO 2-1)
1. Use source documents to identify accounts affected by external transactions.
2. Analyze the impact of the transaction on the accounting equation.
Question 2-3 (LO 2-2)
Dual effect refers to each transaction having an effect on at least two accounts of the
accounting equation such that the accounting equation will always be in balance. If an economic
Question 2-4 (LO 2-2)
Assets = Liabilities + Stockholders’ equity
(a) Increase =Increase +No change
(b) Decrease =No change +Decrease
Question 2-5 (LO 2-2)
Jerry is not correct. While it is possible for a transaction to increase one account and decrease
another, dual effect simply indicates that at least two accounts will always be affected. However,
Chapter 2
The Accounting Cycle: During the Periodreview Questions
Answers to Review Questions (continued)
Question 2-6 (LO 2-3)
Accounts Normal balance
Assets Debit
Liabilities Credit
Stockholders’ equity Credit
Question 2-7 (LO 2-3)
Jenny is not correct. Any account can be debited or credited. Since an asset has a normal
debit balance, it would be debited when it increases and credited when it decreases. Similarly,
Question 2-8 (LO 2-3)
Accounts Increase
(a) Cash Debit
(b) Salaries payable Credit
Question 2-9 (LO 2-3)
Accounts Decrease*
(a) Cash Credit
(b) Salaries payable Debit
* Answers are opposite of those in Question 2-8
Answers to Review Questions (continued)
Question 2-10 (LO 2-3)
These statements are consistent. Retained earnings has three components – revenues,
expenses, and dividends. Changing the balance of any of these components changes the balance
Question 2-11 (LO 2-4)
A journal provides a chronological record of all transactions affecting a firm. A journal entry
Question 2-12 (LO 2-4)
Question 2-13 (LO 2-4)
In each journal entry, the sum of all amounts debited equals the sum of all amounts credited.
Question 2-14 (LO 2-4)
(a) Debit Credit
Cash 1,200
(b
)
Debit Credit
Rent Expense 500
Date Debit Credit
Account Name . . . . . . . . . . . . . . . . . . . . . . Amount
(c) Debit Credit
Building 10,000
Answers to Review Questions (continued)
Question 2-15 (LO 2-4)
(a) Purchase supplies by paying cash of $20,000.
Question 2-16 (LO 2-5)
A T-account is an informal means to show the balance in an account. The left side is referred
Question 2-17 (LO 2-5)
Posting is the process of transferring the debit and credit information from the journal to
individual accounts in the general ledger.
(a) Supplies Cash
(b) Accounts
Receivable Service Revenue
(c) Accounts Payable Cash
Question 2-18 (LO 2-6)
The general ledger is the collection of all accounts used to record the company’s transactions.
Question 2-19 (LO 2-6)
A trial balance is a list of all accounts and their balances at a particular date. Balance refers to
Question 2-20 (LO 2-6)
Not necessarily. While total debits equaling total credits is a good indication that all accounts
BRIEF Exercises
Brief Exercise 2-1 (LO 2-1)
Proper order:
(c) Use source documents to identify accounts affected by external
(d) Analyze the impact of the transaction on the accounting equation.
(b) Assess whether the impact of the transaction results in a debit or
Brief Exercise 2-2 (LO 2-2)
Assets = Liabilities + Stockholders’ Equity
Possible
(Yes/No)
(a) Increase = Decrease + No change No
(b) No change = Increase + Increase No
(c) Decrease = No Change + Decrease Yes
Brief Exercise 2-3 (LO 2-2)
Total Assets
Total Liabilities and
Stockholders’ Equity
Cash $ 7,200 Accounts Payable $ 1,700
Brief Exercise 2-4 (LO 2-2)
Assets =Liabilities +Stockholders’ Equity
(a) +$50,000 =$0 ++$50,000
(b) +$42,000
Brief Exercise 2-5 (LO 2-3)
Account Debit Credit
Asset + −
Liability − +
Common Stock − +
Brief Exercise 2-6 (LO 2-3)
(a) The balance of an asset account increases with a debit and decreases with a
(b) The balance of a liability account increases with a credit and decreases with
(c) The balance of a stockholders’ equity account increases with a credit and
(d) The balance of a revenue account increases with a credit and decreases with
(e) The balance of an expense account increases with a debit and decreases with
Brief Exercise 2-7 (LO 2-4)
(a) Debit Credit
Equipment 15,000
(b)
Supplies 600
(c)
Rent Expense 800
Brief Exercise 2-8 (LO 2-4)
(a) Debit Credit
Cash 17,000
(b)
Prepaid Insurance 4,200
(c)
Equipment 20,000
(d)
Cash 30,000
Brief Exercise 2-9 (LO 2-5)
1. Cash
13,000
8,200
2. Postings on the left side (or debit side) of the cash T-account represent increases
3. Postings on the right side (or credit side) of the cash T-account represent
Brief Exercise 2-10 (LO 2-2, 2-3, 2-4, 2-5)
Assets =Liabilities +
Stockholders’
Equity
(a) +$30,000 =$0 ++$30,000
(a) Debit Credit
Cash 30,000
(b)
Supplies 20,000
(c)
Salaries Expense 7,000
Cash Service Revenue
(a)
0
30,000
0
30,000 (a)
Supplies
Accounts
Payable Salaries Expense
0
0
0
Brief Exercise 2-11 (LO 2-6)
Trial Balance
Accounts Debit Credit
Cash $ 6,100
Accounts Receivable 4,400
Prepaid Rent 900
Accounts Payable $ 2,000
Salaries Payable 700
Common Stock 6,200
Brief Exercise 2-12 (LO 2-6)
Trial Balance
Accounts Debit Credit
Cash $ 7,300
Accounts Receivable 2,100
Office Equipment 10,400
Accounts Payable $ 3,900
Unearned Revenue 1,100