CHAPTER 4 ACCOUNTING RECORDS AND SYSTEMS
Changes from Tenth Edition The chapter has been updated. Approach Instructors will differ in the coverage that they give to this chapter, depending on their personal preference and on the background of their students. For executive groups, the material may either be omitted altogether or suggested as optional reading. For students who have previously had a course in accounting, a review of this chapter is probably desirable, even though there should be nothing new in it for them. For beginning students, we find it highly desirable to give much practice in the mechanics of accounting. As pointed out in the text, this practice is intended to provide facility in a tool that will prove useful in later work in analyzing problems, rather than to make the students into expert bookkeepers. Instructors have taught a whole first course in accounting without once mentioning debit and credit. We believe that their principal motive for doing this is to prove to their colleagues that it can be done. Actually, the debit and credit mechanism is a device that permits the students to record the results of their analysis of transactions unambiguously. It also facilitates clear communication in the classroom. Discussion is likely to be cumbersome and subject to much misunderstanding if debits and credits are not required. Many of the fine points of bookkeeping are omitted from the text, but our experience has been that enough information is given so that students understand the idea of debit and credit and can use the journal, ledger, and other tools in analyzing subsequent cases. Cases The first two cases are primarily for practice and drill. It is perhaps not even necessary to discuss both of them in detail in class although some time should be allowed for students to raise questions. As in other cases, no standard terminology should be enforced although it may be in order to call attention at this point to the fact that when the name of an account is given, this precise name should be used in the journal entries. One of the cases is an unincorporated business and the other is a corporation, so that the student can observe that there is a very little difference in the recordkeeping for these two types of businesses. Also, in one case the accounting period is a year and in the other it is a month, to emphasize the similarity of accounting for these different time intervals. Copies Express is a straightforward complete cycle problem.
Octane Service Station involves a complete cycle of transactions. It involves several judgmental matters. Some instructors regard it as being too difficult for use here and defer it until a later chapter.
Note: Octane Service Station is quite difficult. Although given in Chapter 4, it can be used as well in any of the following chapters, or even as a review after Chapter 14. Problems
Problem 4-1 Beg. Bal. (4) Bal. Cash $900 $3,400 (3) 5,350 950 (5) $1,900 (3) Accounts Payable $3,400 $3,600 Beg. Bal. 2,350 (1) $2,550 Bal. Notes Payable $950 $950 Beg. Bal.
Accounts Receivable Beg. Bal. $3,000 $5,350 (4) (2) 6,350 Bal. $4,000 Inventory $5,700 $4,150 (2) 2,350 $3,900
Beg. Bal. (1) Bal. Problem 4-2
1) Dr. Prepaid Rent Cr. Cash Prepaid rent is an asset.
2) Dr. Sales Discounts and Allowances $34,150 Cr. Provision for Sales Discounts and Allowances $34,150 Sales discounts and allowances is a deduction from gross sales to arrive at net sales. The provision is a liability. 3) Dr. Interest Receivable $35 Cr. Interest Income $35 Interest receivable is an asset. Interest income would be listed as other income in this period’s income statement. 4) Dr. Depreciation Expense $13,660 Cr. Accumulated Depreciation $13,660 Depreciation expense is an income statement item. Accumulated depreciation is disclosed as a deduction from the related depreciable asset.
5) Dr. Cash Cr. Deferred revenue Deferred revenue is a liability.
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