Exam 2: Accounting for Business Transactions

Explain the recording and posting processes.

Based on the following trial balance for Barry's Automotive Shop,prepare an income statement,statement of retained earnings,and a balance sheet.There were no additional stock issuances during the year.

Revenues and expenses are two categories of ________ accounts.

A transaction that decreases a liability and increases an asset must also affect one or more other accounts.

Stark Co.has liabilities of $105 million and total assets of $350 million.Its debt ratio is 40.0%.

At year-end,a trial balance showed total credits exceeding total debits by $4,950.This difference could have been caused by:

What is a trial balance? What is its purpose?

The balances for the accounts of Milo's Management Co.for the year ended December 31 are shown below.Each account shown had a normal balance. Calculate the correct balance for Cash and prepare a trial balance.

Mary Sunny,the sole stockholder,began business as Sunny Law Firm on November 1.Record the following November transactions by making entries directly to the T-accounts provided.Next,prepare a trial balance as of November 30. a)Mary invested $15,000 cash and a law library valued at $6,000 in exchange for common stock. b)Purchased $7,500 of office equipment from John Bronx on credit. c)Completed legal work for a client and received $1,500 cash in full payment. d)Paid John Bronx $3,500 cash in partial payment of the amount owed. e)Completed $4,000 of legal work for a client on credit. f)Paid $2,000 in cash dividends. g)Received $2,500 cash as partial payment for the legal work completed for the client in (e). h)Paid $2,500 cash for the secretary's salary.

The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.

An expense account normally has a credit balance.

A general journal provides a place for recording all of the following except:

Explain debits and credits and their role in the accounting system of a business.

Jason Hope opened a hotel.Prepare journal entries to record the following transactions.Hope uses the accounts Room Rental Revenue and Event Revenue.All expenses for special events are recorded as Event Expense.(Omit explanations.)

Indicate whether a debit or credit entry would be required to record the following changes in each account. a.To decrease Cash b.To increase Common Stock c.To decrease Accounts Payable. d.To increase Salaries Expense. e.To decrease Supplies. f.To increase Revenue. g.To decrease Accounts Receivable. h.To increase Dividends.

A journal entry that affects only two accounts is called a compound entry.

Identify which error will cause the trial balance to be out of balance.

Identify the account below that impacts the equity of a business:

Identify the account used by businesses to record the transfer of assets from a business to its stockholders:

For each of the following accounts,identify whether a debit or credit yields the indicated change a.To increase Fees Earned b.To decrease Cash c.To decrease Unearned Revenue d.To increase Accounts Receivable e.To increase Common Stock f.To decrease Notes Payable g.To increase Prepaid Rent h.To increase Salaries Expense i.To increase Accounts Payable j.To decrease Prepaid Insurance