Accounting

ACCOUNTING

E2-1 Accounting Equation1 ) Assets 255 ,000 .00

Less : Owner 's Equity 89 ,000 .00

Liabilities 166 ,000 .00 2 ) Liabilities 430 ,000 .00

Add : Owner 's Equity 620 ,000 .00

Assets 1 ,050 ,000 .00 3 ) Assets 100 ,000 .00

Less : Liabilities 40 ,000 .00

Owner 's Equity 60 ,000 .00 4 ) Assets 680 ,000 .00

Less : Owner 's Equity 295 ,000 .00

Liabilities 385 ,000 .00 E2-2 Determining the impact of transactions on the accounting equation

a ) Assets increase to

260 ,000 while liabilities increase to 160 ,000

b ) Assets decrease to 245 ,000 and liabilities decrease to 145 ,000

c ) Assets increase to 256 ,000 and shareholder 's equity increases to 106 ,000

d ) No effect on assets . Inventory increases by 2 ,000 and cash decreases by the same

e ) Assets decrease to 249 ,000 and shareholder 's equity decrease to 99 ,000

f ) Assets increase to 262 ,000 and liabilities increase to 162 ,000

E2-4 Classification of Balance Sheet accounts

a ) Inventory - This should be classified as current assets . These are goods purchased by the firm intended for sale within the year

b ) Accounts payable that are usually paid within 60 days of receiving an invoice from a supplier - This should be classified as current liabilities since this is expected to be settled within the accounting period , or in less than a year upon incurrence

c ) Accounts receivable from customers expected to be paid within 30 days - This should be classified as current assets since this is expected to be collected in less than a year

d ) Land - This should be classified as non-current assets . The benefit that can be derived from it is long-term and in a span of several years . It is not normally intended for resale (unless the firm is a real estate company

e ) Furniture in the company 's head office - This should be classified as non-current assets since the benefit that can be derived from it extends beyond one year . Unlike Land however , this is subject to depreciation /amortization

f ) Bank loan that the bank can ask the company to repay at any time - This should be classified as current liabilities because of its immediacy in accordance to accounting 's principle of conservatism . In the absence of certainty when the loan would be satisfied , the fact that the creditor can ask for its repayment at any time , the firm should recognize it as an immediate obligation

E2-8 Prepare a balance sheet

PICTON CORPORATION

Balance Sheet

As of the year ending December 31 , 20XX

ASSETS

Current Assets

Cash

12 ,000 .00

Accounts Receivable

35 ,000 .00

Inventory

85 ,000 .00

Insurance paid for in Advance

10 ,000 .00

142 ,000 .00

Non-current Assets

Land

125 ,000 .00

Furniture Fixtures (net of amortization

250 ,000 .00

375 ,000 .00 517 ,000 .00

LIABILITIES SHAREHOLDER 'S EQUITY

Current Liabilities

Amounts Owed to Suppliers

75 ,000 .00

Wages Payable

12 ,000 .00

Advances Paid by Customers

20 ,000 .00

Loans from Shareholders

50 ,000 .00

157 ,000 .00

Long-term Liabilities

Bank loan

100 ,000 .00

Long-term Debt

30 ,000 .00

130 ,000 .00

br 287 ,000 .00

Shareholder 's Equity

Capital Stock

150 ,000 .00

Retained Earnings

80 ,000 .00

230 ,000 .00 517 ,000 .00

E3-3 Preparing closing entries using spreadsheets and journal entries

a

ST . BRUNO INC

Work Sheet (partial

For the Year Ended December 31 , 2007

Adjusted Trial Balance

Income Statement

Balance Sheet

Account Titles

Dr

Cr

Dr

Cr

Dr

Cr

Retained Earnings

17 ,500 ,000

17 ,500 ,000

Revenue

5 ,125 ,000

5 ,125 ,000

Expenses

3 ,225 ,000 3 ,225 ,000

Sub 62 ,900

62 ,900

3 ,225 ,000

5 ,125 ,000

17 ,500 ,000

Net Income

1 ,900 ,000

1 ,900 ,0003 ,225 ,000

3 ,225 ,000 19 ,400 ,000

Closing entry

Revenue

5 ,125 ,000

Expenses

3 ,225 ,000

Income Expense Summary

1 ,900 ,000b ) Income Expense Summary 1 ,900 ,000

Retained Earnings 1 ,900 ,000

c ) Closing entries are necessary to prepare for the next accounting period , and is usually done after posting the adjusting entries . Since the temporary accounts (also called nominal accounts , or the income statement accounts ) record the transactions of a one given accounting period , they should be closed as well along with the year . Their balances are transferred to balance sheet accounts (also called real accounts , which reflects the firm 's financial position as of a given period

d ) In the absence of a closing entry , temporary accounts would float ' that is , they would not reflect in the balance sheet particularly in the Retained Earnings account . The firm would not be able to integrate the result of its operation for 2008 . In effect , the income statement of 2009 will be unduly overstated since the balances of temporary accounts were carried over

E3-4 Preparing closing entries using spreadsheets and journal entries

a

NIAGARA FALLS LTD

Work Sheet (partial

For the Year Ended August 31 , 2010 Adjusted Trial Balance Closing entries Income Statement

Account Titles Dr . Cr . Dr . Cr . Dr . Cr

Sales

225 ,720 225 ,720

225 ,720

Cost of Sales 76 ,200

76 ,200 76200

Selling Marketing 22 ,740

22 ,740 22740

General Administrative 15 ,450

15 ,450 15450

Research Development 9 ,675

9 ,675 9675

Amortization 9 ,420

9 ,420 9420

Interest 4 ,500

4 ,500 4500

Other 3 ,315

3 ,315 3315

Income Taxes 30 ,390 30 ,390 30390

Sub Net Income54 ,030

171 ,690 171 ,690 Closing entry

Sales

225 ,720

Cost of Sales 76 ,200

Selling Marketing

22 ,740

General Administrative

15 ,450

Research Development

9 ,675

Amortization 9 ,420

Interest 4 ,500

Other expenses

3 ,315

Income Taxes 30 ,390

Income Expense Summary

54 ,030 b ) Income Expense Summary

54 ,030

Retained Earnings

54 ,030 c ) Closing entries are necessary to prepare for the next accounting period , and is usually done after posting the adjusting entries . Since the temporary accounts (also called nominal accounts , or the income statement accounts ) record the transactions of a one given accounting period , they should be closed as well along with the year . Their balances are transferred to balance sheet accounts (also called real accounts , which reflects the firm 's financial position as of a given period

d ) In the absence of a closing entry , temporary accounts would float ' that is , they would not reflect in the balance sheet particularly in the Retained Earnings account . The firm would not be able to integrate the result of its operation for 2008 . In effect , the income statement of 2010 will be unduly overstated since the balances of temporary accounts will be carried over

E3-5 Recognizing the effects of debits and credits

a . Increase in accounts receivable - debit

b . Decrease in unearned revenue - debit

c . Decrease in prepaid rent - credit

d . Increase in revenues earned from services - credit

e . Increase in cost of goods sold - debit

f . Increase in capital stock - credit

g . Decrease in amortization expense - credit

h . Decrease in accounts payable - debit

REFERENCES

Barrow , C Tracy , T (2004 . Understanding Business Accounting for Dummies . West Sussex , England : John Wiley and Sons , Ltd ...