The most common violation of the recognition concept is when a revenue is recog-

DQ1.DQ2.DQ3.DQ4.DQ5.DQ6.DQ7.DQ8.The most common violation of the recognition concept is when a revenue is recog- order as revenue before the service is performed or the product is delivered to the

TRANSACTIONS

CHAPTER 2—Solutions

ANALYZING AND RECORDING BUSINESS

Discussion Questions Assets and expenses are closely related because many assets are expenses that Owner's Capital is the most likely account to have an abnormal balance. When ex- All equipment needs normal repairs. These are considered an ongoing cost of busi- No issue is more important than another. Each must be resolved satisfactorily for a penses. They appear on opposite sides of the accounting equation.inventory.have not yet been used. Examples are prepaid assets and plant and equipment. As such as a major overhaul that is done every five years, the expenditure will benefit A retail company selling promotional products would have an account called transaction to be recorded correctly.a result, debits increase assets and expenses, and credits decrease assets and ex- nized before the earnings process is complete. For instance, the recording of an ness and, thus, are expenses. However, it may be argued that if the repair is major, future years and, thus, could be recorded as an asset.mal balance (debit) in owner's capital.penses exceed revenues (net loss) and contributed capital, it will create an abnor- ments (e.g., unused equipment), or get a loan from a bank.service. With prepaid expenses (an asset), cash is paid in advance of receiving a service.With unearned revenues (a liability), cash is received in advance of providing a To maintain liquidity it can seek more time from creditors, sell long-term invest- customer would overstate revenues.2-1 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.Principles of Financial Accounting 12th Edition Needles Solutions Manual Visit TestBankDeal.com to get complete for all chapters

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10 15 1

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2 5 7 19 22 25 31

Debit Accounts Receivable; credit Programming Service Revenue Debit Cash; credit S. Michael, Capital Debit Office Equipment; credit Cash Debit Supplies; credit Accounts Payable Debit Cash; credit Programming Service Revenue Debit Cash; credit Unearned Programming Service Revenue SE5. Transaction Analysis May Debit Rent Expense; credit Cash The classification concept is applied by reducing the asset Cash and increasing the asset Supplies. Supplies are classified as an asset because they have not been used up and The concept of valuation is applied by recording the supplies at cost of $1,000.will benefit future operations. If they were used up immediately, they could be classified as Supplies Expense.Revenue Asset None (Owner's Equity) Liability Asset Asset point on June 1 when the transaction takes place. Supplies are purchased with cash, and the buyer takes title to the supplies.Expense SE2. Recognition, Valuation, and Classification Liability The concept of recognition is applied by recording the transaction at the recognition SE4. Normal Balances Debit Debit Debit Credit Credit Debit Credit Debit SE1. Classification of Accounts Do not recognize because an order is not a complete transaction. There is no Feb. Recognize the purchase. Delivery has been made; there is an obligation to pay.

Short Exercises

obligation on the part of either party at this point.SE3. Recognition Jan.Mar. Recognize the payment. Cash is paid, and the obligation no longer exists.2-2 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

May 2 10,000 May 5 5,000 May 22 1,200

19 1,000 25 1,300

22 1,200

12,200 6,300May 2 10,000 Bal. 5,900 May 31 500 May 19 1,000

31 500

Bal. 1,500 May 7 600 May 25 1,300 May 5 5,000 May 7 600 600 1,200

10,000

1,500

13,300

5,900 500 600 5,000 1,300 Unearned Programming Service Revenue

• Michael, Capital

Programming Service Revenue Rent Expense Supplies Office Equipment Accounts Payable

13,300

Michael's Programming Service Trial Balance May 31, 2014 Cash Accounts Receivable Supplies Rent Expense Cash Office Equipment SE7. Preparing a Trial Balance Accounts Payable Accounts Receivable Programming Service

• Michael, Capital

SE6. Recording Transactions in T Accounts Revenue Service Revenue Unearned Programming 2-3 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Page 4 Post.Ref. Debit Credit Sept. 63,800 3,800

161,800

1,800 Ref. Debit Debit Credit Sept. 16 J4 1,800 1,800 Ref. Debit Debit Credit Sept. 6 J4 3,800 3,800

16 J4 2,000

Ref. Debit Debit Credit Sept. 6 J4 3,800

$ 7,700

2,500 600 5,000 $ 600 5,000

10,000

1,500 1,300

$17,100 $17,100

DescriptionDate Credit 3,800 Accounts Receivable Service Revenue Billed customer for services performed 1,800 Credit Accounts Receivable SE9. Posting to the Ledger Accounts SE8. Recording Transactions in the General Journal Cash Accounts Receivable Received cash on account from customer billed on Sept. 6 General Journal Unearned Programming Service Revenue

• Stoker, Capital

Michael's Programming Service Trial Balance September 30, 2014 Cash general journal in SE8.Account No. 113 Account No. 411 Accounts Receivable Supplies Office Equipment Accounts Payable Programming Service Revenue Rent Expense Credit Note: At this point, the account numbers would also be posted to the accounts in the CashAccount No. 111 Balance Item Date Post.Date Item Balance Post.Balance Post.Service Revenue Date Item 2-4 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.