Questions:

➢  Accounting has often been called the language of business. In what respects would you agree with this description? How might you argue that this description is deficient?

➢  Define asset, liability, and stockholders’ equity.

➢  How do liabilities and stockholders’ equity differ? How are they similar?

➢  How do accounts payable and notes payable differ? How are they similar?

➢  Define revenues. How are revenues measured?

➢  Define expenses. How are expenses measured?

➢  What is a balance sheet? On what aspect of a business does the balance sheet provide information?

➢  What is an income statement? On what aspect of a business does this statement provide information?

➢  What information does the statement of retained earnings provide?

➢  Identify the three types of activities shown in a statement of cash flows.

➢  What is a transaction? What use does the accountant make of transactions? Why?

➢  What is the accounting equation? Why must it always balance?

➢  Give an example from your personal life that illustrates your use of accounting information in reaching a decision.

➢  You have been elected to the governing board of your church. At the first meeting you attend, mention is made of building a new church. What accounting information would the board need in deciding whether or not to go ahead?

➢  A company purchased equipment for $ 2,000 cash. The vendor stated that the equipment was worth $ 2,400. At what amount should the equipment be recorded?

➢  What is meant by money measurement?

➢  Of what significance is the exchange-price (or cost) concept? How is the cost to acquire an asset determined?

➢  What effect does the going-concern (continuity) concept have on the amounts at which long-term assets are carried on the balance sheet?

➢  Of what importance is the periodicity (time periods) concept to the preparation of financial statements?

➢  Describe a transaction that would:

• Increase both an asset and capital stock.
• Increase both an asset and a liability.
• Increase one asset and decrease another asset.
• Decrease both a liability and an asset.
• Increase both an asset and retained earnings.
• Decrease both an asset and retained earnings.
• Increase a liability and decrease retained earnings.
• Decrease both an asset and retained earnings.
• Identify the causes of increases and decreases in stockholders’ equity

B) Accounting Exercises:

Exercise 1. Applying Basic Accounting Equation

Royals Palm, Inc. reports the following assets and liabilities. Compute the totals that would appear in the corporation’s basic accounting equation (Assets = Liabilities + Stockholders’ Equity (Capital Stock)).

Cash………………………….$55,000

Accounts Payable……………25,000

Office Supplies………………. 1, 500

Loan Payable…………………..7,000

Accounts Receivable………….10,000

Answer:

Exercise 2. Applying Basic Accounting Equation

Dan and Den, Inc. reports the following assets and liabilities. Compute the totals that would appear in the corporation’s basic accounting equation (Assets = Liabilities + Stockholders’ Equity (Capital Stock)).

Cash………………………….$37,000

Accounts Payable……………15,000

Supplies……………………….1, 800

Loan Payable…………………..9,000

Inventory……………………….12,000

Answer:

Exercise 3. Complete missing amounts in fundamental accounting equation for several businesses:

Exercise 4.  Perez Company had the following transactions during January:

1.  Jan 1  Issued $100,000 in stock to owners in exchange for cash to start the business.

2.  Jan 5  Borrowed $50,000 from the bank by signing a notes payable.

3.  Jan 10  Purchase equipment by paying cash for $25,000.

3.  Jan 15  Paid January rent of $2,400 for the office space (hint:  since this is for January, record as rent expense)

4.  Jan 18 Performed services for customers and received cash immediately for $8,000.

5.  Jan 20  Purchased $2,000 in supplies on account.

Prepare a transaction analysis for the January transactions.  Remember to prove the accounting equation at the end.

Exercise 5.  On December 31, Bryniuk’s Company, the accounting records showed the following information:

Prepare the Income Statement for year ended December 31.

Exercise 6.  Using the information from Exercise 5, prepare the Statement of Retained Earnings for December 31.

Exercise 7.  Using the information from Exercises 5 and 6, prepare the Balance Sheet for December 31.

Comprehensive Problems Example:

1. Company received cash from clients for services, $4,500
2. Larson paid to creditors $500,
3. Paid office rent for the month of December, $750,
4. Company billed client for accounting services on account, $5,200
5. Supplies were purchased on account, $650,
6. Company received cash from clients billed previously, $6,000
7. Larson received an invoice for office equipment repair services from Office Extra for December (the invoice will be paid next month), $850,
8. Larson paid monthly salaries, $2,700,
9. Utilities expense were paid, $280,
10. Miscellaneous expense were paid, $350,
11. Dividends were paid, $550.

1. Company received cash from clients for services, $7,500
2. Cast 77 paid to creditors $600,
3. Paid office rent for the month of December, $950,
4. Company billed client for accounting services on account, $8,200
5. Supplies were purchased on account, $450,
6. Company received cash from clients billed previously, $4,200
7. Cast 77 received an invoice for services from Copy Plus for December (the invoice will be paid next month), $550,
8. Cast 77 paid monthly salaries, $4,700,
9. Utilities expense were paid, $380,
10. Miscellaneous expense were paid, $250,
11. Paid for monthly insurance, $200
12. Dividends were paid, $750.

• Apply the basic accounting equation (create a spreadsheet, please see comprehensive example) to complete a transaction analysis for each transaction (hint:  enter the balances provided first).
• Prepare income statement at the end of December 31.
• Prepare statement of retained earnings equity at the end of December 31.
• Prepare balance sheet at the end of December 31.