1. An officer of Westway Corporation recently commented that when he receives the firm’s financial statements, he looks at just the bottom line of the income statement—the line that shows the net income or net loss for the period. He said that he does not bother with the rest of the income statement because “it’s only the bottom line that counts.” He also does not read the balance sheet. Do you think this manager is correct in the way he uses the financial statements? Why or why not? 2. The president of Brown Corporation is concerned about the firm’s ability to pay its debts on time. What items on the balance sheet would help her to assess the firm’s debt-paying ability? 3. Why is it important that a firm’s financial records be kept up-to-date and that management receive the financial statements promptly after the end of each accounting period? 4. What kinds of operating and general policy decisions might be influenced by data on the financial statements?
> What effect does each of the following items have on net income? a. The owner withdrew cash from the business. b. Credit customers paid on outstanding balances that were past due. c. The business bought equipment on account. d. The business journalized a
> What procedure is used to record an entry in the general journal?
> What is the value of having a description for each general journal entry?
> What is a compound journal entry?
> What is the accounting cycle?
> What are posting references? Why are they used?
> An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions. Analyze: 1. The Home Depot, Inc.’s statement reports one figure
> What is posting?
> What is a ledger?
> In what order are accounts arranged in the general ledger? Why?
> What is an audit trail? Why is it desirable to have an audit trail?
> How should corrections be made in the general journal?
> What is the purpose of a journal?
> Why is Prepaid Rent considered an asset account?
> The terms debit and credit are often used in describing the effects of transactions on different accounts. What do these terms mean?
> Indicate whether each of the following types of account would normally have a debit balance or a credit balance: a. An asset account b. A liability account c. The owner’s capital account d. A revenue account e. An expense account
> How is the balance of an account determined?
> Credit memos are created when a product is returned. A debit to Sales Returns and Allowances and a credit to Accounts Receivable are recorded when a credit memo is created. A credit memo will reduce A/R and write off the invoice. You have noticed that th
> Accounts are classified as permanent or temporary accounts. What do these classifications mean?
> When a chart of accounts is created, number gaps are left within groups of accounts. Why are these number gaps necessary?
> In what order do accounts appear in the chart of accounts?
> What is the purpose of a chart of accounts?
> Why is the modern system of accounting usually called the double-entry system?
> What are accounts?
> What are expenses?
> What is revenue?
> Why does the third line of the headings differ on the balance sheet and the income statement?
> 1. How does the Sales Returns and Allowances account provide management with a measure of operating efficiency? What problems might be indicated by a high level of returns and allowances? 2. Suppose you are the accountant for a small chain of clothing st
> What information is shown in the heading of a financial statement?
> What information does the statement of owner’s equity contain?
> What information does the income statement contain?
> What information does the balance sheet contain?
> What are assets, liabilities, and owner’s equity?
> Describe the effects of each of the following business transactions on assets, liabilities, and owner’s equity. a. Bought equipment on credit. b. Paid salaries to employees. c. Sold services for cash. d. Paid cash to a creditor. e. Bought furniture for c
> How does net income affect owner’s equity?
> How is net income or net loss determined?
> What is the fundamental accounting equation?
> Employees sometimes make mistakes and errors in recording accounting transactions. Is this considered fraud?
> Internal control and fraud prevention is an area tested on the Certified Bookkeeper’s exam. Certification in your field indicates you have a certain level of education and training. Go to the American Institute of Professional Bookkeepers’ website at www
> Name two common internal control and fraud prevention procedures.
> What is the goal of internal control?
> Define fraud.
> Define internal control.
> What is a limited liability company (LLC)?
> How does one become a Certified Bookkeeper (CB)?
> What does the Certified Bookkeeper (CB) designation imply?
> What is the purpose of the Public Company Accounting Oversight Board?
> What led to the passage of the Public Company Accounting Reform and Investor Protection Act of 2002?
> What is the function of the Securities and Exchange Commission?
> What groups consistently offer opinions about proposed FASB statements?
> What is the purpose of the Financial Accounting Standards Board?
> What are the three major areas of accounting?
> What is tax planning?
> What are the major functions or activities performed by accountants in private industry?
> What are the three types of business entities, and how do they differ?
> What is the purpose of the postclosing trial balance?
> What account balances or other amounts are included on two different financial statements for the period? Which statements are involved?
> What information is provided by the statement of owner’s equity?
> Edward Foster is a building contractor. He and his customer have agreed that he will submit a bill to them when he is 25 percent complete, 50 percent complete, 75 percent complete, and 100 percent complete. For example, he has a $300,000 room addition. W
> Selecting the right employees is a critical step for enhancing the entity’s system of internal control and fraud prevention. Reflected below are several possible ways to check the background of employees. For each item listed, indicate why the background
> How do current liabilities and long-term liabilities differ?
> Give examples of some current assets that usually are classified as Current Assets on the balance sheet.
> What is the purpose of the balance sheet?
> What are operating expenses? Are financing expenses included in operating expenses?
> Which section of the income statement contains information about the purchases made during the period and the beginning and ending inventories?
> Fuji Company had a current ratio of 2.0 in 20X1 and 2.2 in 20X2. Does this signify an improvement or decline in Fuji Company’s liquidity from 20X1 to 20X2?
> Jarrett Company’s inventory turnover ratio was nine times in 20X1 and eight times in 20X2. Did Jarrett Company sell its inventory more quickly, or more slowly, in 20X2 compared to 20X1?
> What are the steps in the accounting cycle?
> If the owner invests additional capital in the business during the month, how would that new investment be shown in the financial statements?
> DuPont reported depreciation expense of $1,308 million on its consolidated financial statements for the period ended December 31, 2018. The following excerpt is taken from the company’s consolidated balance sheet for the same year: Ana
> On December 31, Klein Company made an adjusting entry debiting Interest Receivable and crediting Interest Income for $300 of accrued interest. What reversing entry, if any, should be recorded for this item on January 1?
> What types of adjustments are reversed?
> If the totals of the adjusted trial balance Debit and Credit columns are equal, but the postclosing trial balance does not balance, what is the likely cause of the problem?
> What types of accounts, permanent or temporary, appear on the postclosing trial balance?
> Give an example of an expense that is classified as Other Expense in the income statement.
> What adjustment is made to record accrued salaries?
> What is an accrued expense? Give three examples of items that often become accrued expenses.
> What adjustment is made for depreciation on office equipment?
> Explain the meaning of the following terms that relate to depreciation: a. Salvage value b. Depreciable base c. Useful life d. Straight-line method
> What types of assets are subject to depreciation? Give three examples of such assets.
> Journal entries and adjusting journal entries can be used to conceal theft of company assets as well as to inflate a company’s profits or deflate company losses. One of the biggest bankruptcies and biggest accounting scandals in the United States occurre
> Why is depreciation recorded?
> Income Summary amounts are extended to which statement columns on the worksheet?
> Unearned Fees Income is classified as which type of account?
> When a specific account receivable is deemed uncollectible, it is written off by debiting _____and crediting______.
> What is the alternative method of handling unearned income?
> What adjustment is made to record income earned during a period?
> How is unearned income recorded when it is received?
> What is unearned income? Give two examples of items that would be classified as unearned income
> What adjustment is made for accrued interest on a note receivable?
> 1. A building owned by Hopewell Company was recently valued at $850,000 by a real estate expert. The president of the company is questioning the accuracy of the firm’s latest balance sheet because it shows a book value of $550,000 for the building. How w
> What is accrued income? Give an example of an item that might produce accrued income.
> What is the alternative method of handling prepaid expenses?
> What adjustment is made to record expired insurance?
> How is the cost of an insurance policy recorded when the policy is purchased?
> What is a prepaid expense? Give three examples of prepaid expense items.
> When must Form W-2 be issued? To whom is it sent?
> What is the purpose of Form W-3? When must it be issued? To whom is it sent?
> What is the lookback period?
> What are the four taxes levied on employers?
