Problem 1-1A

Objective : To record business transactions in an expanded accounting equation.

Cynthia Evans opened a tutoring service on January 2, 20xx. During January, the following transactions occurred.

Click this line to see worksheet for solution to Problem 1-1A

Exercise 1-6

Objective : To identify balance sheet items.

Directions : From the following list of items from the records of Ace Plumbing Company, identify those items that would appear on the Balance Sheet.

1. Revenue from Services -> Income Statement.
2. Cash -> Balance Sheet.
3. Land -> Balance Sheet.
4. Equipment -> Balance Sheet.
5. Miscellaneous Expense -> Income Statement.
6. Accounts Payable -> Balance Sheet.
7. Repairs Expense -> Income Statement.
8. Notes Payable -> Balance Sheet.
9. Supplies -> Balance Sheet.
10. Bill Rese, Capital -> Balance Sheet.
11. Accounts Receivable -> Balance Sheet.

Exercise 1-5

Objective : To prepare a statement of owner’s equity.

Directions : Stan Lawson is a financial planner. Prepare his statement of owner’s equity year ended December 31, 20xx, if he began the year with a capital balance of $42,600, earned a net income of $36,400 during the year, and withdrew $2,000 per month.

Click this line to see Stan’s Statement of Owner’s Equity

Google Spreadsheet

This morning, I stumbled into this new-fangled tool from Google. A spreadsheet program running inside a web browser. My initial reaction was good because this tool could improve how I work with documents dealing Accounting with forms, statements and other things related to Accounting.

What I found very useful with Google Spreadsheet is the spreadsheet publish tool, which makes a spreadsheet available online using their publish-to-web feature.

After spending several minutes going through the documentation, I was able to setup a Statement of Owner’s Equity using exercise 1-5

Exercise 1-4

Objective : To prepare an income statement.

Directions: From the following data, prepare an income statement in good form for the Twin City Barber Shop for the year ended December 31, 20XX. Use only those items that are needed.

Item

Salaries expense————————22,800
Rent expense—————————18,000
Supplies———————————3,500
Utilities expense————————-9,600
Revenue from Services—————-138,250
Cash———————————-19,400
Repairs expense————————–900
Misc. expense—————————-700

Click the image to see larger image.

Exercise 1-3

Objective : To record business transactions in equation form.

Directions : Use the transactions from exercise 1-2 and record them by using the plus and minus signs in the expanded equation.

Click the image to see larger image.

Exercise 1-2

Objective : To indicate the effect of business transactions on the accounting elements.

Directions: Using check marks, indicate the effects on the accounting elements for each of the business transactions presented.

Exercise 1-1

Objective: To calculate the value of the missing element in the accounting equation.

Directions: In each of these examples, find the missing value.

A : Assets, L : Liabilities, OE : Owner’s Equity.

1. A=$85,800 , L=$33,900, OE=?
2. A=$92,655, L=? OE=$47,395
3. A=?,L=$66,000, OE=$33,500
4. A=$45,952, L=? , OE=$29,044
5. A=?, L=$44,558, OE=$27,934
6. A=?, L=$44,300, OE=($16,300)

Answers:

1. OE = $85,800 – $33,900
2. L = $92,655 – $47,395
3. A = $66,000 + $33,500
4. L = $45,952 – $29,044
5. A = $44,300 + ($16,300)

Concepts Review

1. Phil Watson records and summarizes financial data. Is he doing Accounting. Explain your answer. From the definition, Accounting is the process of recording, summarizing, analysing and interpreting financial information to arrive at a judgment or decision. Since Phil is doing only two out of four steps, it does not fall under the definition of Accounting. Phil is certainly doing a function known as Bookkeeping.
2. Identify some of the users of accounting information. Users of accounting are: individuals, owners, staff, corporations, the public & government.
3. Classify the following businesses as service, merchandising, or manufacturing: (a) car dealer; (b)supermarket; (c)dental office; (d) computer factory; (e) email network provider.
   1. car dealer – service.
   2. supermarket – merchandising.
   3. dental office – service.
   4. computer factory – manufacturing.
   5. email network provider – service.
4. Identify and explain each of the basic accounting elements. The accounting elements are:
   1. Assets. – Items having money value that is owned by a business entity. Examples are cash, accounts receivables, supplies, equipment.
   2. Liabilities. – Items owed by the business. Examples are accounts payable and notes payable.
   3. Owner’s Equity. – Items that are left after all liabilities has been covered. Under this element are: revenue, expenses, drawings.
5. Why is good health not an asset in accounting. Good health has no monetary value.
6. What is the major difference between the assets Equipment and Supplies? Supplies are partnered with expenses and they don’t have depreciation amount. On the other hand, equipments are partnered with other accounts like cash, accounts payable, notes payable. Equipments also have depreciation amounts.
7. Why is firing an employee not considered to be a transaction. The act of firing an employee is an event that has no monetary value. What has monetary are the expenses incurred relating to the firing of the employee, such as retrenchment expense or forced retirement expense.
8. Bill Taylor has two businesses. Does the business entity concept state that Bill should combine both businesses into a single entity for accounting purposes? Explain your answer. The business entity concept states that the business and the owner are two separate entities. If Bill Taylor has two business, the entity concept defines that Bill can keep the two business separate if each of them have different business activities.
9. Which of the following are business transactions? (a) paid salaries, (b) hired an employee, (c) received cash for services performed, (d) the owner paid her home electric bill form her personal checking account.
   1. paid salaries – categorized under salary expense.
   2. hired an employee – not a business transaction.
   3. received cash for services performed – categorized under revenue.
   4. the owner paid her home electric bill form her personal checking account – categorized under utilities expense.
10. Explain the dual effect accounting. The principle states that any business transaction has at least two effects on the basic accounting elements.
11. What four types of transaction affect owner’s equity?
    1. Increase effect.
       1. Owner’s capital investment.
       2. Revenue.
    2. Decrease effect.
       1. Owner’s drawings
       2. Expenses.
12. How does buying an asset for cash differ from paying an expense? An expense is said to be the cost of doing a business and charged against revenue, as it relates to Income Statement. Cash, on the other hand, is not considered cost of performing a business, rather cash is considered a form of shifting an asset from one form to another. For example, shifting cash to office equipment.
13. Sue Lyon performed legal services for a client today, but agreed to let the client pay her in four equal installments, starting in 30 days. Has sue earned revenue today or will she earn it when the installments are received? Explain your answer. The principle of realization states that revenue is recorded when earned, not when payment is received. In Sue’s case, revenue is recorded at the time when it was earned, that is, today.
14. Why is the balance sheet called a snapshot, while the income statement and the statement of owner’s equity are called motion pictures? The Balance Sheet is the listing of a firm’s assets, liabilities and owner’s equity at a point in time. While Income Statement and Statement of Owner’s Equity shows what happened over a period of time.
15. How does the account form of the balance sheet differ from the report form? The account form places assets in a different column, while liabilities and owner’s equity are joined in one column. The report form places assets, liabilities and owner’s equity under one column.

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