Analyzing and Recording Transactions
1. a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid expenses (rent, insurance, etc.), office supplies, store supplies, equipment, building, and land.
b. Common liability accounts: accounts payable, notes payable, and unearned revenue, wages payable, and taxes payable.
c. Common equity accounts: common stock and retained earnings and dividends.
2. A note payable is formal promise, usually denoted by signing a promissory note to pay a future amount. A note payable can be short-term or long-term, depending on when it is due, and usually carries an interest charge based on amount and time. An ...view middle of the document...
The trial balance also serves as a helpful internal document for preparing financial statements and other reports.
9. The error should be corrected with a separate (subsequent) correcting entry. The entry’s explanation should describe why the correction is necessary.
10. The four financial statements are: income statement, balance sheet, statement of retained earnings, and statement of cash flows.
11. The income statement lists the types and amounts of revenues and expenses, and reports whether the business earned a net income (also called profit or earnings) or a net loss.
12. An income statement user must know what time period is covered to judge whether the company’s performance is satisfactory. For example, a statement user would not be able to assess whether the amounts of revenue and net income are satisfactory without knowing whether they were earned over a week, a month, a quarter, or a year.
13. The balance sheet provides information that helps users understand a company’s financial position at a point in time. Accordingly, it is often called the statement of financial position. The balance sheet lists the types and dollar amounts of assets, liabilities, and equity of the business.
14. (a) Assets are probable future economic benefits obtained or controlled by a specific entity as a result of past transactions or events. (b)...