Accounting Topic 4

The steps of the bookkeeping cycle are as follow:

1. Record transactions in the general journal. 2. Post information from the general journal to the general ledger. 3. Prepare a pre-adjusting trial balance. 4. Record adjusting entries 5. Prepare a post-adjusting trial balance. 6. Prepare the Income Statement 7. Close the Revenue and Expense Accounts 8. Prepare the Statement of Owners' Equity 9. Close the Dividends account, if used. (It was not is this problem.) 10. Prepare a post-closing trial balance. 11. Prepare the Balance Sheet 12. Prepare the Statement of Cash Flows

Accounts that are increased with debit (left-side) entries include:

Assets Expenses. Even though expenses can be thought of as equity related accounts, since they affect Retained Earnings, when we increase Expenses, this causes Retained Earnings to decrease.

Snead Co. paid $3,000 cash on accounts payable.

Assets-Decrease Liabilities-Decrease Equity-N/A Revenue-N/A Expense-Increase Net Earnings-N/A Cash Flow-Decrease Debit: Accounts Pay Credit: Cash

Massey Co. paid off the $20,000 note payable it had used to purchase land (see transaction 9). There was no interest on this note.

Assets-Decrease Liabilities-Decrease Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Note Payable Credit:Cash

Snead Co. incurred $9,000 of cash "operating expenses" to pay its workers.

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-Decrease Debit: Operating Expense $9,000 Credit:Cash $9,000

At the end of 2014 Snead Co. recorded the first year's depreciation on the packaging machine. (See Transaction 8.) ADJUSTMENT

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit: Depreciation Expense Credit: Accumulated Depreciation

Snead Co. made a year-end adjustment related to the prepaid lease of office space that occurred in Transaction 10. Snead had used the office space for six months by year-end. ADJUSTMENT

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit: Rent Expense Credit: Accounts Receivable

Siegel Co. made a year-end adjustment related to the prepaid lease of office space that occurred in transaction 12. Siegel has used the office space for six months by year-end

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit:Rent Expense 1,000 Credit:Prepaid Rent 1,000 [($6,000 ÷ 3 years) X 6/12 = $1,000]

Snead Co. made a year-end adjustment after it determined that only $300 of the office supplies purchased earlier in the year were still on hand. (See Transaction 9). ADJUSTMENT

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit:Supplies Expense Credit: Office Supplies

Larrick Co. made a year-end adjustment after it determined that only $300 of the office supplies purchased in transaction 10 were still on hand.

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit:Supplies Expense 700 Credit:Supplies[$1,000 - $300] 700

Snead Co. paid a dividend of $1,000 cash to its owners

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Dividends Credit: Cash

Nelson Co. made a $5,000 cash distribution to its owners.

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Dividends Credit:Cash

Sanger Co. made a year-end adjustment to record depreciation on the equipment it purchased in transaction 7.

Assets-Decrease Liabilities-N/A Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit:Depreciation Expense Credit:Accumulated Depreciation

Snead Co. collected $7,000 of cash from customers for services that Snead agreed to perform in the future.

Assets-Increase Liabilities-Increase Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase Debit: Cash $7,000 Credit: Unearned Revenue $7,000

Founders Co. collected $8,000 cash from customers for services that Founders agreed to perform in the future

Assets-Increase Liabilities-Increase Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase Debit:Cash Cash:Unearned Revenue

On November 1, 2014 Snead Co. borrowed $15,000 cash from the bank. The principle and interest on the note are to be repaid in one-year, on October 31, 2015. The interest rate on the loan is 6%.

Assets-Increase Liabilities-Increase Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase Debit:Cash Credit:Notes Pay

Massey Co. purchased $20,000 of land using a note payable

Assets-Increase Liabilities-Increase Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-N/A Debit:Land Credit:Note Payable

Snead Co. provided $17,000 of services to its customers for cash.

Assets-Increase Liabilities-N/A Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-Increase Debit: Cash $17,000 Credit:Revenues $17,000

Massey Co. sold land for $8,000. The land had originally been purchased for $6,000. Show the net effects in the FSET

Assets-Increase Liabilities-N/A Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-Increase Debit:Cash Credit: Land Gain on Sale of Land

Lafayette Co. provided services to customers for $15,000 cash.

Assets-Increase Liabilities-N/A Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-Increase Debit:Cash Credit: Revenue

Snead Co. provided $8,000 of services to a customer "on account."

Assets-Increase Liabilities-N/A Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-N/A Debit: Account Receivable $8,000 Credit: Revenues $8,000

Lafayette Co. provided services to its customers for $20,000 on account.

Assets-Increase Liabilities-N/A Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-N/A Debit: Accounts Receivable Credit:Revenue

The owners of Snead Co. invested $50,000 cash to start the business.

Assets-Increase Liabilities-N/A Equity-Increase Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase (Finance) Debit: Cash 50,000 Credit: Common Stock 50,000

The owners of Pollak Co. began their business by investing $10,000 of cash

Assets-Increase Liabilities-N/A Equity-Increase Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase Finance Debit:Cash Credit:Common Stock

Snead Co. determined that it had provided $4,000 worth of services to the customers who had previously given it cash. (See Transaction 4.) ADJUSTMENT

Assets-N/A Liabilities-Decrease Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-N/A Debit:Unearned Rev Credit:Revenue

Founders Co. provided $4,000 worth of services to its customers who had previously given it cash (see transaction 4).

Assets-N/A Liabilities-Decrease Equity-Increase Revenue-Increase Expense-N/A Net Earnings-Increase Cash Flow-N/A Debit:Unearned Revenue Credit: Revenue

Snead Co. made an adjustment for accrued interest on the note payable it issued to the bank on November 1. (See Transaction 17.)

Assets-N/A Liabilities-Increase Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A

Snead Co. made an adjustment for accrued salaries of employees at the end of the accounting period.

Assets-N/A Liabilities-Increase Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit: Wage Expense Credit: Accrued Wages Pay

Snead Co. incurred $4,000 of operating expenses "on account" for advertisements

Assets-N/A Liabilities-Increase Equity-Decrease Revenue-N/A Expense-Increase Net Earnings-Decrease Cash Flow-N/A Debit:Expense Credit:Account Pay

On July 1, 2014 Snead Co. purchased a packaging machine for $10,000 cash. This machine is expected to last five-years and have no salvage value at the end of its life.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit: Equipment Credit: Cash

Sanger Co. purchased equipment for $12,000 cash. The equipment has an expected life of five years and estimated salvage value of $2,000.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Equipment Credit:Cash

Snead Co. purchased land for $30,000, cash.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Land Credit:Cash

Snead Co. purchased $1,000 of office supplies for cash.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Office Supplies Credit:Cash

On April 1, 2014 Snead Co. paid cash in advance of $6,000 for a one-year lease of office space.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Prepaid Rent Credit:Cash

Siegel Co. paid cash in advance of $6,000 for a three-year lease of office space

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Prepaid Rent Credit:Cash

Larrick Co. purchased $1,000 of office supplies for cash.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Decrease Debit:Supplies Credit:Cash

Lafayette Co. collected $13,000 cash from accounts receivable.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase Debit:Cash Credit:Account Receivable

Snead Co. collected $6,000 cash from accounts receivable.

Assets-N/A Liabilities-N/A Equity-N/A Revenue-N/A Expense-N/A Net Earnings-N/A Cash Flow-Increase Debit:Cash Credit:Accounts Receivable

The following account balances are available for the Oliver Co. Cash $ 5,000 Common Stock $12,000 Accounts Payable 6,000 Land 20,000 Supplies 1,000 Accumulated Depreciation 4,000 Equipment 15,000 Retained Earnings 19,000 If the account balances above were placed in a trial balance, the total of the debits column would be equal to: a. $27,000 b. $37,000 c. $41,000 d. $60,000

Cash + Supplies + Equipment + Land c. $41,000

Accounts that are increased with credit (right-side) entries include

Liabilities Common Stock (and other paid in capital type accounts) Retained Earnings Revenues (because revenues increase retained earnings) Contra-asset accounts

Which of the following statements is true? a. A journal entry may have one account debited and two accounts credited. b. Accumulated depreciation is an asset account that has a debit balance. c. Liability accounts have debit balances. d. The amount of a company's total assets will equal the amount of its total debits.

a. A journal entry may have one account debited and two accounts credited.

Which of the following accounts would not be closed to retained earnings at the end of the accounting period? a. Accumulated Depreciation. b. Rent Expense. c. Dividends. d. Interest Revenue.

a. Accumulated Depreciation. Accumulated Depreciation is a contra asset that appears on the balance sheet

Rhoads Co. purchased land by issuing a note payable. The journal entry to record this transaction would require a a. Debit to land and a credit to notes payable. b. Debit to notes payable and a credit to land. c. Debit to land and a debit to notes payable. d. Credit to land and a credit to notes payable.

a. Debit to land and a credit to notes payable.

What type event does the following journal entry describe? Accounts Payable 1,000 Cash 1,000 a. Provided services on account. b. Paid cash owed to suppliers. c. Incurred expenses on account. d. Collected cash from customers.

b. Paid cash owed to suppliers

Johnson Co. had the following trial balance before its closing entries were made. Account Debit Credit Cash $10,000 $ Equipment 8,000 Accumulated Depreciation 4,000 Common Stock 2,000 Retained Earnings 4,000 Revenues 20,000 Expenses 12,000 Totals $30,000 $30,000 After closing entries have been made and posted to the accounts, the balance in Retained Earnings will be: a. $ 4,000 b. $ 8,000 c. $12,000 d. $24,000

c. $12,000 Beginning balance [$4,000] + Revenues [$20,000] -Expenses [$12,000]

Debit entries act to: a. Decrease assets. b. Increase retained earnings. c. Increase expenses. d. Increase liabilities

c. Increase expenses.

An adjusting journal entry to record accrued interest on a note payable would involve: a. A debit to an asset account. b. A debit to a contra asset account. c. A credit to a liability account. d. A credit to a revenue account.

c. Interest Payable, a liability, would be credited.

Which of the following statements is true? a. Adjusting journal entries often involve cash. b. Adjusting journal entries are made after closing entries. c. Adjusting journal entries involve accruals but not deferrals. d. Adjusting journal entries are needed to correctly determine a company's net income.

d. Adjusting journal entries are needed to correctly determine a company's net income.

How would the following journal entry affect the accounting equation? Prepaid Rent 500 Cash 500 a. Assets would increase and equity would decrease. b. Liabilities would increase and assets would decrease. c. Liabilities would decrease and assets would decrease. d. There would be no effect on total assets, liabilities, or equity

d. There would be no effect on total assets, liabilities, or equity.