Accounting Assignment

Complete Exercise BE4-1.

BE4-1 Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income.

The first transaction has been completed as an example. CASH NETINCOME

-100 0

(a) Purchased $100 of supplies for cash. $100 $ 0

(b) Recorded an adjusting entry to record use of $20 of the above supplies.

(c) Made sales of $1,300, all on account.

(d) Received $800 from customers in payment of their accounts.

(e) Purchased equipment for cash, $2,500.

(f) Recorded depreciation of building for period used, $600.

Complete Problems 4-2A & 4-3A.

***THE FOLLOWING QUESTIONS NEED TO BE ANSWERED WITHIN 150-200 WORDS… THESE ARE SIMPLE DISCUSSIONS. PLEASE DO NOT TYPE A PAPER.. IT DOES NOT NEED TO BE FORMATTED.***

What are the required steps in completing the accounting cycle? How do the different steps affect the financial statements? What is the effect on the financial statements of missing a step when completing the accounting cycle?

As we are learning there is much repetition in the accounting cycle. All financial transactions require a General Journal entry, and all financial transaction must be posted to the General Ledger. Here is how it goes.

1. Analyze the business transactions. - This is where we determine which accounts have been affected by each transaction.

2. Journalize the transactions - This is when we create and post journal entries in the General Journal.

3. Post to ledger accounts - Once we have journaled all of the transactions, we post the dollar amounts to the General Ledger T accounts and determine the ending balances in each account.

4. Prepare a trial balance - We check to be sure that we are in balance. Debits are equal to credits

5. Journalize and post adjusting entries - This happens at the end of each period. This is actually two steps. We create the adjusting journal entries in the General Journal. We post them to General Ledger T accounts and determine the ending balances.

6. Prepare an adjusted trial balance - We check to be sure that we are still in balance after we have posted the adjusting entries.

7. Prepare the financial statements

8. Journalize and post closing entries - This happens after the financial statements have been completed. This is actually two steps. We create closing journal entries in the General Journal. We post them to the General Ledger T accounts and then determine the ending balances in each account.

9. Prepare a post-closing trial balance - We check to be sure that we are still in balance after we have posted the closing entries.

As you can see, each and every time we post entries to the General Journal, we also post them to the General Ledger, and then we rerun the trial balance.

Class, if a company uses Cash Basis as opposed to the Accrual Basis Method, would the company follow the same steps? Why or why not?

If any steps of the accounting cycle are missed, the financial data could be inaccurate.

Users of financial statements expect a fair and accurate presentation of the company's performance. If a company goes out of its way to manage earnings, this is a problem. Earnings management occurs when a company inflates revenues, improperly uses adjusting entries, or uses one-time items to boost earnings. Sometimes managers may feel pressure from higher-ups or stockholders. If they give in to the pressure and provide questionable quality of earnings, this can mislead financial statement users.

Class, what do we mean when we say a company has a high quality of earnings?

How would you explain the purpose of the adjusted trial balance to someone who knew nothing about it?

we use trial balances to determine that debits are equal to credits. This is precisely why we use double-entry accounting. It is much more accurate than single-entry. Let's look at some of the reasons why.

1. A double entry system allows for checks and balances. Since debits must always equal credits, it is pretty easy to find out if the records are out of balance. In single entry accounting, there would be much more difficult to know if a clerical error was made.

2. Detailed records make tax and audit preparation much easier.

3. A single-entry system is aimed toward the income statement of an organization. Therefore income and expenses are the main focus. This can be problematic if assets and liabilities are not being monitored.

Class, share some other problems that might be arise with a single-entry accounting system?