Acconting Principles

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  • Topic: Balance sheet, Generally Accepted Accounting Principles, Accounts receivable
  • Pages : 38 (5719 words )
  • Download(s) : 72
  • Published : May 17, 2011
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Chapter 1

Accounting and the Business Environment

Short Exercises

(5 min.) S 1-1

Revenues increase owner’s equity by delivering goods or services to customers.

Expenses decrease owner’s equity by using up assets or increasing liabilities in order to deliver goods or services to customers.

(5 min.) S 1-2

1. The banker is an external user of financial information.

2. The financial statement that would provide the best information to answer the banker’s questions is the balance sheet.

(5 – 10 min.) S 1-3

This organization is the Financial Accounting Standards Board.

(5 – 10 min.) S 1-4

Claire’s needs will best be met by organizing a corporation.

(5 – 10 min.) S 1-5

1.c2.b3. d4. a

(5-10 min.) S 1-6
1. a. the entity concept
b. the cost principle
c. the stable-monetary unit concept
d. the reliability principle

2. Wendy Craven has $13,000 of equity in the business.

Assets| =| Liabilities| +| Owner’s Equity|
| | | | |
| | Accounts| | Craven,|
Cash + Furniture| =| Payable| +| Capital|
| | | | |
$6,000 + $12,000| =| $5,000| +| $13,000|
(5 min.) S 1-7

| Assets| =| Liabilities + Owner’s Equity|
| | | | | |
| | | | | |
| Cash| | | Owner, Capital| |
| | | | | |
(a)| $420| =| | $420| Revenue|
(b)| − $135| =| | − $135| Expense|

(5 min.) S 1-8

Monte Hall Gaming recorded no liability for the purchase of land because the business paid for the land with cash. The business has no debt—no liability—to make a future payment for the land.

(5 min.) S 1-9

Cash:| $ -0-|
| |
Total assets (accounts receivable):| $2,400|

(5 min.) S 1-10

1. The business recorded no revenue when it collected cash on account because it recorded the revenue one month earlier, when it was earned.

2.
| Assets| | | =| Liabilities + Owner’s Equity|
| | | | | | | |
| | | | | | | |
| Cash| +| Accts. Rec.| | | Owner, Capital| |
| | | | | | | |
(a)| $300| | | =| | $300| Revenue|
(b)| $300| | $-300| =| | 0| No effect|

(10 min.) S 1-11

Smart Touch Learning|
Balance Sheet|
April 21, 2010|
ASSETS| LIABILITIES|
Cash| $11,900| Accounts payable| $ 200 | Accounts receivable| 3,000| | |
Office supplies| 500| OWNER’S EQUITY|
Land| 20,000| Sheena Bright, capital| 35,200|
|              | Total liabilities and|              | Total assets| $35,400| owner's equity| $35,400|

(10 min.) S 1-12

Party Planner Extraordinaire|
Income Statement|
Year Ended December 31, 2011|
Revenue:| | |
Service revenue| | $109,000|
Expenses:| | |
Insurance expense| $3,000| |
Supplies expense| 900| |
Rent expense| 14,000| |
Salary expense| 44,000| |
Total expenses| | 61,900|
Net income| | $47,100|

(10 min.) S 1-13

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The operations of Party Planners Extraordinaire in 2011 resulted in a net income for the year. Net income means the year was good.
Exercises

(10 – 15 min.) E 1-14

1. E
2. A
3. I
4. F
5. J
6. B
7. D
8. C
9. G
10. H
11. K

(15-20 min.) E 1-15

1. The balance sheet is prepared by summarizing the assets, liabilities, and owner’s equity of the entity at a particular date. The assets are the resources the business has to work with. Liabilities are debts owed to creditors. Owner’s equity is the portion of the business assets owned outright by the owner....
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