Chapter 02 – Accounting System and Financial Statements
Chapter 2
Accounting System and
Financial Statements
QUESTIONS
1. a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid
expenses (rent, insurance, etc.), office supplies, store supplies, equipment,
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
8. The recordkeeper prepares a trial balance to summarize the contents of the ledger
reports.
9. The error should be corrected with a separate (subsequent) correcting entry. The
10. The four financial statements are: income statement, balance sheet, statement of
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
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; Advance received; Withholdings; Accrued
19. Current ratio: Current assets / Current liabilities = $60,454/$14,337 = 4.22
Debt ratio: Total liabilities / Total assets = $22,083/$93,798 = 0.24
Chapter 02 – Accounting System and Financial Statements
QUICK STUDIES
Quick Study 2-1 (10 minutes)
The likely source documents include:
Quick Study 2-2 (5 minutes)
a. A Asset
b. EQ Equity
Quick Study 2-3 (5 minutes)
a. E Expense
b. R Revenue
Quick Study 2-4 (10 minutes)
a.
Debit
d.
Debit
g.
Credit
b.
Debit
e.
Debit
h.
Debit
c.
Credit
f.
Debit
i.
Credit
Quick Study 2-5 (10 minutes)
a.
Debit
e.
Debit
i.
Credit
b.
Debit
f.
Credit
j.
Debit
c.
Credit
g.
Credit
k.
Debit
d.
Credit
h.
Debit
l.
Credit
Quick Study 2-6 (10 minutes)
a.
Debit
e.
Debit
i.
Credit
b.
Credit
f.
Credit
j.
Debit
c.
Debit
g.
Credit
d.
Credit
h.
Credit
Quick Study 2-7 (15 minutes)
a. 1) Analyze:
Assets
=
Liabilities
+
Equity
Cash Equipment
Common Stock
70,000 + 30,000
=
0
+
100,000
2) Record:
Date
Account Titles and Explanation
PR
Debit
Credit
May 15
Cash
101
70,000
Equipment
167
30,000
Common Stock
307
100,000
Owner invests cash & equipment for stock.
3) Post
Cash 101
70,000
Equipment 167
30,000
Common Stock 307
100,000
Quick Study 2-7 (Continued)
d. 1) Analyze:
Assets
=
Liabilities
+
Equity
Cash
Unearned Landscaping
Revenue
1,000
=
1,000
+
0
2) Record:
Date
Account Titles and Explanation
PR
Debit
Credit
May 30
Cash
101
1,000
Unearned Landscaping Revenue
236
1,000
Received cash in advance for landscaping
services.
3) Post
Cash 101
1,000
Quick Study 2-8 (10 minutes)
The correct answer is a.
Unearned Landscaping Revenue 236
1,000
EXERCISES
Exercise 2-1 (10 minutes)
1 a. Analyze each transaction from source documents.
Exercise 2-2 (10 minutes)
a.
3
d.
5
b.
4
e.
2
c.
1
Exercise 2-3 (5 minutes)
a.
2
b.
1
Exercise 2-6 (15 minutes)
Of the items listed, the following effects should be included:
a. $28,000 increase in a liability account.
Exercise 2-7 (25 minutes)
Aug. 1 Cash ………………………………………………………… 6,500
Photography Equipment …………………………... 33,500
Common Stock …………………………………… 40,000