$ 5,000
850
270
4,799
5,825
$18,634 $18,634
The revenues were $1,910, and only $1,060 of cash was received from those
Chapter 2, P 10. (Continued)
Trial balance prepared3.
Cash
(Today’s Date)
Office Equipment
4. User Insight: Transactions f and j examined
revenues. The company accepts credit sales to accommodate its students and
Supplies
Creative Training, Inc.
Computers
Accounts Receivable
Trial Balance
xxx
xxx
Note that the delivery trucks are an asset on our balance sheet because they will
Re: Accounting Policy for Delivery Trucks
You have asked me to record our newly purchased delivery trucks at current mar-
The entry to record the purchase should be made as follows:
Chapter 2, C 1.
Memorandum
Date:
To:
Today’s date
Owners
Student’s nameFrom:
Delivery Trucks
Cash
This case raises classification issues. Rebates, as the SEC says, should not be
classified as revenues. They should be classified as a reduction of costs and ex-
Chapter 2, C 2.
(b) 2,000 (a)
(c)
increases accounts receivable and delays the receipt of cash. The company is
2. T accounts set up and transactions recorded
Securities Available for Sale
Cash and Due from Banks
Chapter 2, C 3.
Asset
Accounts classified
1.
Cash and Due from Banks
2,000
5,000
flows. In this case, it appears that the company is making sales on credit, which
Chapter 2, C 4.
Financial statements are prepared on the accrual basis, which differs from cash
1.
Chapter 2, C 5.
CVS’s notes to the financial statements state that “Advertising costs are
expensed when the related advertising takes place.”
( $60,960 + ) ÷ 2
The trend is the same for both years examined.
times
=$87,472 = 1.5
$54,722
Financial ratio calculated
Asset Turnover
2008 = $87,472
Southwest
=
$57,841
Revenues
Average Total Assets
Chapter 2, C 6.
Chapter 2, C 7.
So the transaction was recorded properly as a sale when shipment was made on
In a normal sale, which this appears to be, title passes when the sale is made.
Opinions will vary about the ethics of Shah’s action. Most students will argue
December 31. But Shah undoubtedly was taking advantage of the company’s
that his behavior was not ethical. Others may insist that the action fell within
the company’s rules and that the conversation with the buyer was simply an
a. 14,375
14,375
Issued 575 shares of $25 par value
common stock
interest
e. 12,375
3,125
9,250
Purchased truck, making $3,125 down
payment
f. 1,125
1,125
Paid three months’ rent in advance
Cash
Truck Loan Payable
Prepaid Rent
Cash
Truck
1.
Cash
Common Stock
Chapter 2, C 8.
March transactions recorded in journal form
i. 500
1,125
1,625
Recorded delivery revenues for March
j. 375
375
Recorded receipt of payments on accounts
Chapter 2, C 8. (Continued)
Accounts Receivable
Cash
Cash
Delivery Revenue
Accounts Receivable
i. 1,125 j. 375 f. 1,125
12,375 g. 1,000 h. 625
m. 62 d. 250 c. 6,250
h. 625 Bal. 6,000
l. 93
Bal. 1,718
Loan PayableUnearned Revenue
Accounts Payable
Material Handling Equipment
Accounts Receivable
b.a.
2 and 3. Entries set up in T accounts and balances determined
Cash
Truck
e.
g. 1,000
87514,375
Office Equipment
Chapter 2, C 8. (Continued)
Prepaid Rent
$15,550
Information in trial balance evaluated
Takla Delivery Service Corporation
5.
Chapter 2, C 8. (Continued)
4. Trial balance prepared
Trial Balance
March 31, 2011
Cash
several reasons. One is that cash can be used to purchase assets that benefit
Cash account is a poor indicator of whether a company is profitable. There are
The activity of the Cash account is important because a business needs to main-
tain enough cash to operate and to pay its bills. However, the balance in the
To determine if a company is making a profit, the accountant must look beyond
The trial balance proves only that the accounts are in balance. It does not prove
It would be unethical to record an order as revenue. An order does not meet
the Cash account. Some indication of profitability can be obtained by examin-
ing the revenues and expenses listed in the trial balance. But this approach
Chapter 2, C 8. (Continued)
that a company has made a profit over the period.
6. Ethical implications identified