Solution Manual For Horngrens Accounting 11th Edition Miller Nobles Mattison Matsumura 013385678X 9780133856781 Download
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Chapter 2
Recording Business Transactions
Review Questions
1. The three categories of the accounting equation are assets, liabilities, and equity. Assets include
Cash, Accounts Receivable, Notes Receivable, Prepaid Expenses, Land, Building, Equipment,
Furniture, and Fixtures. Liabilities include Accounts Payable, Notes Payable, Accrued Liability, and
Unearned Revenue. Equity includes Owner, Capital; Owner, Withdrawals; Revenue; and Expenses.
2. Companies need a way to organize their accounts so they use a chart of accounts. Accounts starting
with 1 are usually Assets, 2 – Liabilities, 3 – Equity, 4 – Revenues, and 5 – Expenses. The second
and third digits in account numbers indicate where the account fits within the category.
3. A chart of accounts and a ledger are similar in that they both list the account names and account
numbers of the business. A ledger, though, provides more detail. It includes the increases and
decreases of each account for a specific period and the balance of each account at a specific point in
time.
4. With a double-entry you need to record the dual effects of each transaction. Every transaction affects
at least two accounts.
5. A T-account is a shortened form of each account in the ledger. The debit is on the left side, credit on
the right side, and the account name is shown on top.
6. Debits are increases for assets, owner’s withdrawals, and expenses. Debits are decreases for
liabilities, owner’s capital, and revenue.
7. Credits are increases for liabilities, owner’s capital, and revenue. Credits are decreases for assets,
owner’s withdrawals, and expenses.
8. Assets, owner’s withdrawals, and expenses have a normal debit balance. Liabilities, owner’s capital,
9. Source documents provide the evidence and data for accounting transactions. Examples of source
documents a business would have are: bank deposit slips, purchase invoices, bank checks, and sales
invoices
10. Transactions are first recorded in a journal, which is the record of transactions in date order.
12. Part 1: Date of the transaction. Part 2: Debit account name and dollar amount. Part 3: Credit account
name and dollar amount. The credit account name is indented. Part 4: Brief explanation.
13. When transactions are posted from the journal to the ledger, the dollar amount is transferred from the
debit and credit columns to the specific accounts in the ledger. The date of the journal entry is also
transferred to the accounts in the ledger. The posting reference columns in the journal and ledger are
also completed. In a computerized system, this step is completed automatically when the transaction
is recorded in the journal.
14. The trial balance is used to prove the equality of total debits and total credits of all accounts in the
ledger; it is also used to prepare the financial statements.
15. A trial balance verifies the equality of total debits and total credits of all accounts on the trial balance
and is an internal document used only by employees of the company. The balance sheet, on the other
hand, presents the business’s accounting equation and is a financial statement that can be used by
both internal and external users.
16. If total debits equal total credits on the trial balance, it does not mean that the trial balance is error-
free. An incorrect amount could have been used, an entry could have been completely missed, or the
wrong account title could have been debited or credited.
17. The debt ratio is calculated by dividing total liabilities by total assets and shows the proportion of
assets financed with debt. It can be used to evaluate a business’s ability to pay its debts.
S2-2
a. Increase to Accounts Receivable (DR) f. Decrease to Prepaid Rent (CR)
b. Decrease to Unearned Revenue (DR) g. Increase to Perry, Capital (CR)
c. Decrease to Cash (CR) h. Increase to Notes Receivable (DR)
d. Increase to Interest Expense (DR) i. Decrease to Accounts Payable (DR)
e. Increase to Salaries Payable (CR) j. Increase to Interest Revenue (CR)
S2-3
a. Notes Payable (CR) f. Hernandez, Capital (CR)
b. Hernandez, Withdrawals (DR) g. Utilities Expense (DR)
c. Service Revenue (CR) h. Office Supplies (DR)
d. Land (DR) i. Advertising Expense (DR)
e. Unearned Revenue (CR) j. Interest Payable (CR)
S2-4
Date Accounts and Explanation Debit Credit
Jan. 1 Cash 35,000
Davis, Capital 35,000
Owner contribution.
4 Cash 1,900
Service Revenue 1,900
Performed services for patients.
30 Cash 7,000
Accounts Receivable 7,000
Received cash on account from customers.
31 Cash 2,475
Unearned Revenue 2,475
Received cash for 3 months consulting services in
advance.
S2-6
Accounts Payable
May 2 6,000 14,000 May 1
May 22 12,000 1,000 May 5
7,000 May 15
500 May 23
4,500 Bal.
Requirement 2
Office Supplies
Mar. 15 2,600
Bal. 2,600
S2-8
Debt ratio = Total liabilities / Total assets = $60,000 / $240,000 = 0.25 = 25%
Exercises
E2-10
1. g
2. a
3. e
4. d
5. j
6. i
7. f
8. b
9. h
10. c
E2-11
Assets Equity
100 – Cash 300 – Raymond, Capital
110 – Automotive Supplies 310 – Raymond, Withdrawals
120 – Equipment
Revenues
Liabilities 400 – Service Revenue
200 – Accounts Payable
210 – Unearned Revenue Expenses
500 – Utilities Expense
510 – Advertising Expense
(e) Incr. Decr. Decr. (f) Incr. (g) Decr. (h) Incr. (i) Incr. (j) Decr. (k) Decr. (l) Incr. Incr. (m) Decr.
Debit (n) Credit (o) Debit Credit (p) Debit Credit (q) Debit Credit Debit Credit (r) Debit Credit
(a) Assets
(b) Equity
(c) Liabilities
(d) Owner, Withdrawal
(e) Incr.
(f) Incr.
(g) Decr.
(h) Incr.
(i) Incr.
(j) Decr.
(k) Decr.
(l) Incr.
(m)Decr.
(n) Credit
(o) Debit
(p) Debit
(q) Debit
(r) Debit
E2-15
E2-16
5 Equipment 2,200
Accounts Payable 2,200
Purchased equipment on account.
12 Cash 7,500
Notes Payable 7,500
Borrowed cash by signing note.
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