Exam 2: The Recording Process

The normal balance of any account is the

Prepare a corrected trial balance for Luzon Company. All accounts should have a normal balance. LUZON COMPANY Trial Balance March 31, 2014

When three or more accounts are required in one journal entry, the entry is referred to as a

When debits do not equal credits on the trial balance, this indicates that the company has net income that needs to be transferred to the retained earnings account.

B. Goode has the following transactions during April of the current year. Indicate (a) the effect on the accounting equation and (b) the debit-credit analysis. Apr. 1 Opens a law office, investing $20,000 in cash. 4 Pays rent in advance for 6 months, $10,800 cash. 16 Receives $8,000 from clients for services provided. 27 Pays secretary $3,000 salary.

The general ledger contains all the accounts that are reported on the statement of financial position, whereas the general journal contains all the accounts that are reported on the income statement.

Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently formed company that manages residential rental properties. Linda Grider is the accountant. She prepared a chart of accounts based on an analysis of the expenditures of the company. One of the largest expense categories is Travel and Entertainment. Mr. Coleman believes that it is important to maintain a presence in the social life of the city. In this, he sharply differs from his father, Jim Coleman, Sr. The elder Mr. Coleman has set up Maris Properties in order to test his son's management skills before allowing him to manage the more lucrative commercial property business. Mr. Coleman, Sr. provided the capital for Maris, and maintains close contact with the company. He allowed his son, however, to hire his own employees. Mr. Coleman has asked Ms. Grider to change the name of the Travel and Entertainment account to Property Development. He hopes to deflect his father's attention away from the amount he has spent on travel and entertainment until he has proven that his methods work. When Ms. Grider resisted, he reminded her that he, not his father, hired her. He also reminded her that she had been enthusiastic about his business plans when she was hired. Required: 1. Who are the stakeholders in this situation? 2. Should Ms. Grider agree to the change in the Travel and Entertainment account to Property Development? Explain.

Some of the following errors would cause the debit and credit columns of the trial balance to have unequal totals. For each of the four cases, state whether the error would cause unequal totals in the trial balance. If the error causes unequal totals, indicate the amount of difference between the columns and state whether the debit or credit is larger. Each case is to be considered independently of the others. 1. A payment of $800 to a creditor was recorded by a debit to Accounts Payable of $80 and a credit to Cash of $800. 2. A $480 payment for a printer was recorded by a debit to Equipment of $48 and a credit to Cash for $48. 3. An account receivable in the amount of $1,500 was collected in full. The collection was recorded by a debit to Cash for $1,500 and a debit to Accounts Payable for $1,500. 4. An account payable was paid by issuing a check for $800. The payment was recorded by debiting Accounts Payable $800 and crediting Accounts Receivable $800.

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

All accounts reported in the statement of financial position are increased by using debits on the left-hand side of the T-account.

A compound journal entry involves

When only two accounts are required in one journal entry, the entry is referred to as a

A trial balance may balance even when each of the following occurs except when

Posting

The left side of an account is

After a transaction has been posted, the reference column in the journal should not be blank.

A journal is not useful for

The Dividends account

Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transactions. 1. The company issues ordinary shares in exchange for ₤25,000 cash. 2. Purchased ₤400 of supplies on credit. 3. Purchased equipment for ₤10,000, paying ₤3,000 in cash and signed a 30-day, ₤7,000, note payable. 4. Real estate commissions billed to clients amount to ₤4,000. 5. Paid ₤700 in cash for the current month's rent. 6. Paid ₤200 cash on account for supplies purchased in transaction 2. 7. Received a bill for ₤600 for advertising for the current month. 8. Paid ₤2,200 cash for salaries. 9. The company paid dividends of ₤1,200. 10. Received a check for ₤3,000 from a client in payment on account for commissions billed in transaction 4.

Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that insure that the ledger accounts are correct? Explain.