The accounting rules determine the proper debits and credits in our journal entries

Class,

We are now at the end of our first module in our class.

Accounting has long been regarded as the language of business. In this module, the principal focus was about financial accounting geared toward external reporting. We explored the measurement of income via the Income Statement and the balance sheet that provides a listing of the assets, liabilities, and equity sections of all businesses.

Here’s a tutorial on closing journal entries (not required in the course project)

https://www.youtube.com/watch?v=LHchevi1nwI&list=PL9WjeFIqaX5K9NN4yOy0NIrS1TiJYEp3J&index=5 (Links to an external site.)

TOPIC B – posted Wednesday – GAAP

#1. The accounting rules determine the proper debits and credits in our journal entries

Match the definitions to these terms, commonly known as generally accepted accounting principles (GAAP)

Relevance

Reliability

Comparability

Consistency

Monetary Unit

Economic Entity

Time Period

Going Concern

Cost Principle

Full Disclosure

Materiality

Conservatism

1) Ability to easily evaluate one company’s results relative to another’s.

2) Belief that a company will continue to operate for the foreseeable future.

3) The judgment concerning whether an item is large enough to matter to decision makers.

4) The reporting of all information that would make a difference to financial statement users.

5) The practice of preparing financial statements at regular intervals.

6) The quality of information that indicates the information makes a difference in a decision.

7) A belief that items should be reported on the balance sheet at the price that was paid to acquire the item.

8) A company’s use of the same accounting principles and methods from year to year.

9) The use of accounting methods that do not overstate assets or income.

10) Tracing accounting events to particular companies.

11) The desire to minimize errors and bias in financial statements.

12) Reporting only those things that can be measured in dollars.

#2. On which Financial Statement are each of these accounts reported?

(a) Common stock, (b) Income tax payable, (c) Dividends, (d) Income tax expense, (e) Ending balance of retained earnings, (f) Total assets, (g) Long-term debt, (h) Revenue, (i)Cash spent to acquire a building, (j)Selling, general & administrative expenses, (k), Adjustments to reconcile net income to net cash from operations, (l)Ending cash balance, (m) Current liabilities, (n) Net income

TOPIC A – posted Sunday – select as many as you wish

(1) What is the purpose of the journal in accounting? How is it related to the ledger? Briefly describe the steps in the accounting cycle.

(2) Briefly explain the rules of debits and credits as they relate to assets, liabilities, equity, revenue, and expenses.  Do debits always increase an account?  Do credits always decrease an account?  Give examples.

(3) Prepare the income statement and balance sheet from this trial balance.

(3) Prepare journal entries for these transactions and calculate the account balances that would be reported on the trial balance. Does the accounting equation balance?

1Received $50,000 cash and issued stock to the owners2Paid $40,000 cash for land3Bought $3,700 of supplies on account4Received $7,000 cash from customers for service revenue earned5Performed services for customers on account, $3,0006Paid cash expenses: rent, $1,100; employee salary, $1,200; utilities, $4007Paid $1,900 on the account payable created in transaction 38Received $1,000 on account9Sold land for cash at the land’s cost of $22,00010Declared and paid a dividend of $2,100 to the stockholders