Balance Sheet and External Users

Topics: Balance sheet, Generally Accepted Accounting Principles, Accounts receivable Pages: 7 (1166 words) Published: February 9, 2013
Khalid Al Mulla
Assignment 1

Presented below is the basic accounting equation (in thousands). Determine the missing amounts.

Assets = Liabilities + Equity
90,000 = 50,000 + 40,000
110,000 = 40,000 + 70,000
94,000 = 41,000 + 53,000

Indicate whether each of the following items is an asset (A), liability (L), or part of equity (E).

(A) Accounts receivable
(L) Salaries and wages payable
(A) Equipment
(A) Supplies
(E) Owner's capital
(L) Notes payable

Classify each of the following items as dividends (D), revenue (R), or expense (E).

(E) Advertising expense
(R) Service revenue
(E) Insurance expense
(E) Salaries and wages expense
(D) Owner's Drawings
(R) Rent revenue
(E) Utilities expense
Jenks Company performs the following accounting tasks during the year.

(C) Analyzing and interpreting information.
(R) Classifying economic events.
(C) Explaining uses, meaning, and limitations of data.
(R) Keeping a systematic chronological diary of events.
(R) Measuring events in dollars and cents.
(C) Preparing accounting reports.
(C) Reporting information in a standard format.
( I )Selecting economic activities relevant to the company.
(R) Summarizing economic events.
Accounting is “an information system that identifies, records, and communicates the economic events of an organization to interested users.” -------------------------------------------------

Categorize the accounting tasks performed by Jenks as relating to either the identification (I), recording (R), or communication (C) aspects of accounting.

(a) The following are users of financial statements.

Customers (External users)
Internal revenue service (External users)
Labor unions (External users)
Marketing manager (Internal users)
Production supervisor (Internal users)
Securities and exchange commission (External users)
Store manager (Internal users)
Suppliers (External users)
Vice president of finance (Internal users)

Identify the users as being either external users or internal users .

(b) The following questions could be asked by an internal user or an external user.

Can we afford to give our employees a pay raise? (Internal users) Did the company earn a satisfactory income? (External users) Do we need to borrow in the near future? (Internal users)
How does the company’s profitability compare to other companies? (External users) What does it cost us to manufacture each unit produced? (Internal users) Which product should we emphasize? (Internal users)

Will the company be able to pay its short-term debts? (External users)

Identify each of the questions on the previous page as being more likely asked by an internal user or an external user . -------------------------------------------------

Meredith Cleaners has the following statement of financial position items. (L) Accounts payable
(A) Cash
(A) Equipment
(A) Supplies
(A) Accounts receivable
(L) Notes payable
(L) Salaries and wages payable
(E) Owner's capital
Classify each item as an asset, liability, or owner's equity. E1-6
Selected transactions for Evergreen Lawn Care Company are listed below. 1.Made cash investment to start business. (A+ , OE+)
2.Paid monthly rent. (A- , OE-)
3.Purchased equipment on account. (A+ , L+)
4.Billed customers for services performed. (A+ , OE+)
5.Withdrew cash for owner’s personal use. (A- , OE-)
6.Received cash from customers billed in (4). (A+ , A-)
7.Incurred advertising expense on account. (L+ , OE-)
8.Purchased additional equipment for cash. (A+ , A-)
9.Received cash from customers...
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