Generally Accepted Accounting Principles and Owners Equity

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Chapter 7
Accounting Information Systems


1. What is the right side of an account called?
2. What is the left side of an account called?
3. An organizational scheme used to classify accounts as assets, liabilities, or owners’ equity is known as what? 4. What journal is used to record both the account(s) to be debited and the account(s) to be credited? 5. A collection of specific asset, liability and owners’ equity accounts in known as what? 6. What type of entry is made to adjust the accounts for internal events prior to preparing financial statements? 7. What type of entry is made to close out a temporary account and transfer the balance to retained earnings? 8. What type of account has an opposite balance to the normal balance of its associated account? 9. Recording the appropriate part of a journal entry to the affected account is known as what process? 10. A listing of all general ledger accounts and their respective balances to ensure that debits equal credits is known as what?


E7.1The following events occurred during the first month of business at a local marketing company. Indicate which of the events are accounting events and provide a short justification for your answer.

A. The owner invested money from his savings account for start-up costs. B. Employees hired agree to sign a non-compete agreement. C. The owner pays the first and last month’s rent on office space. D. Computer equipment is purchased on account for each employee. E. Three employees attend the Chamber of Commerce meeting to generate sales contacts. F. A client pays for advertising services performed by the company. G. The office supply store across the street is planning a major advertising promotion next month.

E7.2 Specify in the space provided the effect of each of the following accounting events on assets, liabilities, and owners’ equity. Use I for Increase, D for Decrease, and NA for Not Applicable. Owners

AssetsLiabilities Equity
________________________A.Issued preferred stock for cash. ________________________B.Purchased office computers on account. ________________________C.Purchased computer supplies for cash. ________________________D.Returned defective supplies and received a cash refund.

________________________E.Made a payment on computers purchased above.
________________________F.Purchased inventory by making a cash down payment with the balance owed on open

E7.3For each of the accounting elements that follow (A-F), indicate in the space provided the appropriate number of the financial statement(s) where the element would appear. 1. Income statement

2. Statement of owners’ equity
3. Balance sheet
4. Statement of cash flows

________A.Cash balance in checking account
________B.Unused supplies
________C.Merchandise sold on account
________D.Stock issued
________E.Utilities expense
________F.Taxes payable

E7.4Various accounts are affected differently by debits and credits. For each of these accounts, sate whether it is increased or decrease by a debit or credit. Also indicate whether the normal balance is a debit balance or a credit balance.The first account is an example.

AccountsIncreased byDecreased byNormal Balance

B. Interest Payable
C. Equipment
D. Fees Earned
E. Salaries Expense

E7.5For each of the following situations, prepare the adjusting entry for the month ended April 30 and indicate the effect each adjustment would have on net income. A. Marketing Unlimited has a $20,000 contract with a client to prepare a catalog describing the client’s various products. Payment was to be received when the catalog was completed in June. As...
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