Page 103 - Accounting Principles (A Business Perspective)

2. Recording business transactions

➢ Decrease an asset and increase a liability.
➢ Decrease a revenue and decrease an asset.
➢ Decrease a liability and increase a revenue.
➢ Describe the nature and purposes of the general journal. What does journalizing mean? Give an
example of a compound entry in the general journal.
➢ Describe a ledger and a chart of accounts. How do these two compare with a book and its table of
contents?

➢ Describe the act of posting. What difficulties could arise if no cross-indexing existed between the
general journal and the ledger accounts?

➢ Which of the following cash payments would involve the immediate recording of an expense? Why?
➢ Paid vendors for office supplies previously purchased on account.
➢ Paid an automobile dealer for a new company auto.
➢ Paid the current month's rent.
➢ Paid salaries for the last half of the current month.
➢ What types of accounts appear in the unadjusted trial balance? What are the purposes of this trial
balance?

➢ You have found that the total of the Debits column of the trial balance of Burns Company is USD
200,000, while the total of the Credits column is USD 180,000. What are some possible causes of
this difference? If the difference between the columns is divisible by 9, what types of errors are
possible?
➢ Store equipment was purchased for USD 2,000. Instead of debiting the Store Equipment account,
the debit was made to Delivery Equipment. Of what help will the trial balance be in locating this
error? Why?

➢ A student remembered that the side toward the window in the classroom was the debit side of an
account. The student took an examination in a room where the windows were on the other side of the
room and became confused and consistently reversed debits and credits. Would the student's trial
balance have equal debit and credit totals? If there were no existing balances in any of the accounts
to begin with, would the error prevent the student from preparing correct financial statements?
Why?
Exercises

Exercise A A diagram of the various types of accounts follows. Show where pluses (+) or minuses (-) should be
inserted to indicate the effect debits and credits have on each account.
Asset Accounts = Liability Accounts + Stockholders' Equity Accounts
Debit Credit Debit Credit Debit Credit
Expense and Dividends Revenue Accounts
Accounts Account
Debit* Credit Debit Credit*

Exercise B Prepare the journal entry required for each of the following transactions:
a. Cash was received for services performed for customers, USD 1,200.

b. Services were performed for customers on account, USD 4,200.

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