Professional Documents
Culture Documents
CHAPTER 3
The Accounting Information System
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
1
1, 2, 3, 4,
13
1A, 2A
1B, 2B
5, 6
3A, 4A
3B, 4B
Exercises
A
Problems
B
Problems
1.
1, 2, 3
2.
Explain what an
account is and how it
helps in the recording
process.
3.
5, 6, 7, 8,
9, 10, 11,
12, 13
2, 3
4.
14
5.
15, 16
4, 6, 7
7, 8, 9, 12,
13
6.
17
7.
18
6A, 7A
6B, 7B
8.
19, 20, 21
9, 10
6A, 7A,
8A, 9A,
10A
6B, 7B,
8B, 9B,
10B
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Description
Difficulty
Level
Time
Allotted (min.)
1A
Moderate
40-50
2A
Moderate
40-50
3A
Simple
20-30
4A
Simple
30-40
5A
Journalize transactions.
Moderate
30-40
6A
Moderate
40-50
7A
Moderate
40-50
8A
Moderate
30-40
9A
Complex
40-50
10A
Moderate
40-50
1B
Moderate
40-50
2B
Moderate
40-50
3B
Simple
20-30
4B
Simple
30-40
5B
Journalize transactions.
Moderate
30-40
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Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
6B
Moderate
40-50
7B
Moderate
40-50
8B
Moderate
30-40
9B
Complex
40-50
10B
Moderate
40-50
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ANSWERS TO QUESTIONS
1.
Yes, a business can enter into a transaction in which only the left side of the accounting
equation is affected. An example would be a transaction where an increase in one asset is
offset by a decrease in another asset. An increase in the Equipment account which is
offset by a decrease in the Cash account is a specific example.
2.
3.
(a)
(b)
(c)
(d)
4.
An account consists of three parts: (a) the title, (b) the left or debit side, and (c) the right or
credit side. Because the alignment of these parts resembles the letter T, it is referred to as
a T account.
5.
Charles is incorrect. The double-entry system merely records the dual effect of a
transaction on the accounting equation. A transaction is not recorded twice; it is recorded
once, with a dual effect.
6.
Natalie is incorrect. A debit balance only means that debit amounts exceed credit amounts
in an account. Conversely, a credit balance only means that credit amounts are greater
than debit amounts in an account. Thus, a debit or credit balance is neither favourable nor
unfavourable.
7.
(a)
(b)
(c)
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Questions (Continued)
8. (a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Accounts Receivable
Cash
Dividends
Accounts Payable
Service Revenue
Income Tax Expense
Common Shares
Unearned Revenue
debit balance
debit balance
debit balance
credit balance
credit balance
debit balance
credit balance
credit balance
9. (a)
(b)
(c)
(d)
(e)
(f)
Accounts Receivable
Accounts Payable
Equipment
Dividends
Supplies
Service Revenue
asset
liability
asset
shareholders' equity
asset
shareholders equity
10. (a)
(b)
(c)
11. (a)
(b)
(c)
(d)
(e)
(f)
Cash
Accounts Receivable
Dividends
Accounts Payable
Salaries Expense
Service Revenue
debit balance
credit balance
debit balance
debit balance
debit balance
credit balance
12. The balance in total Shareholders Equity should not equal the balance in the Cash
account. The balance in Shareholders Equity includes Common Shares (investment by
shareholders) and Retained Earnings (net earnings retained in the business). Investment
by shareholders would normally be made in cash. The Retained Earnings component
would include earnings calculated on an accrual basis and therefore would not equal the
entries to the Cash account.
13. Two other accounts that the company might have used to record a cash receipt from a
customer are:
(1)
Unearned revenue where customer paid in advance.
(2)
Accounts Receivable - where the customer was making a payment on a previous
credit purchase.
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Questions (Continued)
14. The basic steps in the recording process are:
(1)
Analyse each transaction in terms of its effect on the accounts.
(2)
Enter the transaction information in the general journal (book of original entry).
(3)
Transfer the journal information to the appropriate accounts in the general ledger
(book of accounts).
15. This would not be a more efficient process because all transaction would be posted
individually rather than posting summary amounts.
16. (a)
(b)
(c)
(d)
17. (a)
(b)
Cash
9,000
Common Shares
9,000
(Invested cash in the business in exchange for common shares)
Prepaid Insurance
Cash
(Paid one-year insurance policy)
800
Supplies
1,500
Accounts Payable
(Purchased supplies on account)
Cash
7,500
Service Revenue
(Received cash for services rendered)
800
1,500
7,500
18. Posting from the general journal to the general ledger should be performed on a timely
basis to ensure that the general ledger reflects the most up-to-date accounting
information. With the use of computers in the recording process, entries posted to the
general journal are usually simultaneously posted to the general ledger. The more
frequently the journal entries are posted the more accurate the accounting records.
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Questions (Continued)
19. A trial balance is a list of accounts and their balances at a given time. The primary purpose
of a trial balance is to prove the mathematical equality of debits and credits after all
journalized transactions have been posted. A trial balance also facilitates the discovery of
errors in journalizing and posting. In addition, it is useful in preparing financial statements .
The main limitation of the trial balance is that numerous errors may still exist even though
the debit and credit columns of the trial balance agree. For example, provided the debits
and credit are equal, a trial balance will still balance even though a journal entry has been
omitted or if an entry is posted to the wrong account.
20. The proper sequence is as follows:
2.
An accounting transaction occurs.
3.
Information is entered in the general journal.
1.
Debits and credits are posted to the general ledger.
5.
A trial balance is prepared.
4.
Financial statements are prepared.
21. (a)
equal.
(b)
Solutions Manual
The trial balance would balance because the debits and credits would still be
The trial balance would not balance because the debit side would be $810 higher
than the credit side
3-7
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a
.
b
.
c.
d
.
e
.
f.
Assets
Liabilities
Shareholders
Equity
NE
NE
NE
NE
NE
+/-
NE
NE
1.
2.
3.
4.
5.
6.
Accounts Payable
Advertising Expense
Service Revenue
Accounts Receivable
Unearned Service Revenue
Dividends
(a)
Debit
Effect
(a)
Credit
Effect
Decrease
Increase
Decrease
Increase
Decrease
Increase
Increase
Decrease
Increase
Decrease
Increase
Decrease
(b)
Normal
Balance
Credit
Debit
Credit
Debit
Credit
Debit
Solutions Manual
1
2
3
12
30
Account Debited
Cash
Equipment
Rent Expense
Accounts Receivable
Income Tax Expense
3-8
Account Credited
Common Shares
Accounts Payable
Cash
Service Revenue
Cash
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Cash
2,500
Common Shares
2
3
12
30
2,500
Equipment
Accounts Payable
900
Rent Expense
Cash
500
Accounts Receivable
Service Revenue
300
100
900
500
300
100
Analyse each transaction. In this step, business documents are examined to determine the
effects of the transaction on the accounts.
2.
Enter each transaction in the general journal. This step is called journalizing and it results
in making a chronological record of the transactions.
3.
Transfer general journal information to general ledger accounts. This step is called posting. Posting makes it possible to accumulate the effects of journalized transactions on
individual accounts.
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(a)
Basic Analysis
The asset Cash is increased.
(b)
(a)
Basic Analysis
The asset Prepaid Insurance
is increased.
(a)
(a)
Basic Analysis
The asset Cash is increased.
Basic Analysis
The expense Salaries
Expense is increased.
(b)
3-10
Debit-Credit Analysis
Debits increase assets:
debit Cash $900
Credits increase revenues:
credit Service Revenue $900.
(b)
Solutions Manual
Debit-Credit Analysis
Debits increase assets:
debit Prepaid Insurance $2,100
Credits decrease assets:
credit Cash $2,100.
Debit-Credit Analysis
Debits increase assets:
debit Cash $5,000.
Debit-Credit Analysis
Debits increase expenses:
debit Salaries Expense $500.
Credits decrease assets:
credit Cash $500.
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1
4
16
27
Cash
Common Shares
5,000
Prepaid Insurance
Cash
2,100
5,000
2,100
Cash
Service Revenue
900
Salaries Expense
Cash
500
900
500
3,200
Bal.
1,300
May 12
Service Revenue
1,900
May 5
May 15
Bal.
Cash
May 12
May 15
1,900
2,000
Bal.
3,900
3,200
2,000
5,200
750
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3-11
750
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Solutions Manual
Credit
$ 8,400
3,000
17,000
$ 3,400
4,000
150
20,000
1,090
1,200
6,600
4,000
1,000
640
$35,240
3-12
______
$35,240
Chapter 3
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Solutions Manual
Credit
$17,600
3,500
$ 3,000
2,200
10,000
7,000
4,500
25,600
18,600
2,400
1,200
$47,800
3-13
00 0000
$47,800
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SOLUTIONS TO EXERCISES
EXERCISE 3-1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
EXERCISE 3-2
Transaction
1.
2.
3.
4.
5.
6.
7.
8.
Assets
+19,000
-4,000
+15,000
-15,000
+3,000
-11,000
+32,000
-19,000
+1,000
Solutions Manual
Shareholders
Equity
+19,000
NE
NE
-4,000
Liabilities
NE
NE
NE
+4,000
Net
Earnings
NE
-4,000
Revenues
Expenses
NE
NE
NE
NE
NE
NE
NE
NE
-19,000
+1,000
+3,000
-11,000
+32,000
NE
NE
+3,000
NE
NE
NE
NE
NE
+11,000
NE
NE
NE
+3,000
-11,000
NE
NE
NE
3-14
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EXERCISE 3-3
(a)
1. Shareholders invested $15,000 cash in the business.
2. Purchased office equipment for $5,000, paying $1,000 in cash and the balance of $4,000
on account.
3. Paid $750 cash for supplies.
4. Earned $8,000 in revenue, receiving $4,600 cash and $3,400 on account.
5. Paid $1,500 cash on accounts payable.
6. Paid $2,000 cash dividends to shareholders.
7. Paid $800 cash for rent.
8. Collected $450 cash from customers on account.
9. Paid salaries of $2,900.
10. Incurred $500 of utilities expense on account.
11. Paid $1,500 of income tax expense.
(b) Issued common Shares
Service revenue
Dividends
Rent expense
Salaries expense
Utilities expense
Income tax expense
Increase in shareholders' equity
(c) Service revenue
Rent expense
Salaries expense
Utilities expense
Income tax expense
Net earnings
Solutions Manual
$15,000
8,000
(2,000)
(800)
(2,900)
(500)
(1,500)
$15,300
$8,000
(800)
(2,900)
(500)
(1,500)
$2,300
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EXERCISE 3-4
HAGIWARA INC.
Statement of Earnings
Month Ended August 31, 2004
Revenues
Service revenue
Expenses
Salaries expense
Rent expense
Utilities expense
Total expenses
Earnings before income tax
Income tax expense
Net earnings
$8,000
2,900
800
500
4,200
3,800
1,500
$2,300
HAGIWARA INC.
Statement of Retained Earnings
Month Ended August 31, 2004
Retained earnings, August 1
Add: Net earnings
$0,000
2,300
2,300
2,000
$ 300
Less: Dividends
Retained earnings, August 31
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HAGIWARA INC.
Balance Sheet
August 31, 2004
Assets
Current assets
Cash
Accounts receivable
Supplies
Total current assets
Property, plant and equipment
Office equipment0
Total assets
$ 9,600
2,950
750
$13,300
5,000
$18,300
Solutions Manual
3-17
$ 3,000
$15,000
300
15,300
$18,300
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EXERCISE 3-5
Account
Normal Balance
Financial Statement
Account Classification
Accounts payable
Accounts receivable
Cash and cash
equivalents
Common stock
Dividends
Credit
Debit
Debit
Balance sheet
Balance sheet
Balance sheet
Current liability
Current asset
Current asset
Credit
Debit
Shareholders equity
N/A
Credit
Debit
Credit
Debit
Debit
Debit
Balance sheet
Statement of retained
earnings
Balance sheet
Statement of earnings
Statement of earnings
Balance sheet
Balance sheet
Balance sheet
Credit
Statement of earnings
Solutions Manual
3-18
Current liability
Expense
Revenue
Current asset
Current asset
Property, plant and
equipment
Revenue
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EXERCISE 3-6
Account Debited
Transaction
(a)
Basic
Type
(b)
Specific
Account
Account Credited
(c)
(d)
Effect
Dr./Cr.
(a)
Basic
Type
(b)
Specific
Account
(c)
(d)
Effect
Dr./Cr.
1.
Asset
Cash
Increase
Debit
Shareholders
Equity
Common
Shares
Increase
Credit
2.
Asset
Vehicle
Increase
Debit
Asset
Cash
Decrease
Debit
3.
Asset
Supplies
Increase
Debit
Liability
Accounts
Payable
Increase
Credit
4.
Asset
Accounts
Receivable
Increase
Debit
Shareholders
Equity
Service
Revenue
Increase
Credit
5.
Shareholders Advertising
Equity
Expense
Increase
Debit
Asset
Cash
Decrease
Debit
6.
Asset
Cash
Increase
Debit
Asset
Accounts
Receivable
Decrease
Debit
7.
Liability
Accounts
Payable
Decrease
Credit
Asset
Cash
Decrease
Debit
8.
Shareholders Dividends
Equity
Increase
Debit
Asset
Cash
Decrease
Debit
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EXERCISE 3-7
General Journal
Trans.
1.
2.
3.
4.
5.
6.
7.
8.
Solutions Manual
Account Titles
Cash
Common Shares
Debit
Credit
10,000
10,000
Vehicle
Cash
018,000
018,000
Supplies
Accounts Payable
00,500
Accounts Receivable
Service Revenue
02,600
Advertising Expense
Cash
00,200
Cash
Accounts Receivable
00,700
Accounts Payable
Cash
00,300
Dividends
Cash
00,500
00,500
02,600
00,200
00,700
00,300
00,500
3-20
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EXERCISE 3-8
Oct.
No accounting transaction.
10
27
30
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EXERCISE 3-9
General Journal
Date
Oct. 1
Cash
Common Shares
Debit
25,000
No entry.
Office Furniture
Accounts Payable
01,900
Accounts Receivable
Service Revenue
06,200
Cash
Service Revenue
00,140
Accounts Payable
Cash
00,700
Salaries Expense
Cash
00,2,500
10
27
30
Credit
25,000
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Account Titles
01,900
06,200
00,140
00,700
00,2,500
3-22
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EXERCISE 3-10
(a)
Cash
Oct. 1
10
25,000
140
Bal.
Oct. 27
30
Accounts Payable
700
2,500
Oct. 27
700
Oct. 3
1,900
Bal.
1,200
21,940
Common Shares
Accounts Receivable
Oct. 6
Bal.
Oct. 1
25,000
Bal.
25,000
6,200
6,200
Service Revenue
Office Furniture
Oct. 3
1,900
Oct. 6
Oct. 10
6,200
140
Bal.
1,900
Bal.
6,340
Salaries Expense
Oct. 30
2,500
Bal.
2,500
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Credit
$21,940
006,200
1,900
2,500
9$32,540
$ 1,200
25,000
0 6,340
______
$32,540
EXERCISE 3-11
(a)
Bal.
Cash
Aug. 1
10
31
Bal.
1,600
2,900
600
Aug. 12
1,000
Service Revenue
4,100
Accounts Receivable
Aug. 25
1,800
Bal.
1,200
Aug. 31
600
Office Equipment
Aug. 12
4,000
Bal.
4,000
1,600
Notes Payable
Aug. 12
3,000
Bal.
3,000
Common Shares
Aug. 1
1,600
Aug. 10
25
2,900
1,800
Bal.
4,700
Credit
$4,100
00,1,200
04,000
_____
$9,300
$3,000
01,600
4,700
$9,300
EXERCISE 3-12
(a) Oct. 1
10
10
12
15
20
20
Cash
4,000
Common Shares
4,000
(Invested cash in business in exchange for common shares)
Furniture
3,000
Accounts Payable
(Purchased furniture on account)
Supplies
Cash
(Purchased supplies)
3,000
400
400
Accounts Receivable
800
Service Revenue
(Billed clients for services provided)
800
Cash
750
Service Revenue
(Received cash for services rendered)
750
Cash
Notes Payable
(Obtained loan from bank)
8,000
8,000
Accounts Payable
1,500
Cash
(Made payment on accounts payable)
Rent Expense
Cash
(Paid cash for rent)
1,500
250
250
Cash
800
Accounts Receivable
(Received cash in payment of account)
800
Accounts Receivable
740
Service Revenue
(Billed clients for services provided)
740
30
31
31
Cash
2,000
Common Shares
2,000
(Invested cash in business in exchange for common shares)
Dividends
Cash
(Paid cash dividends)
300
500
Supplies Expense
Supplies
(Used supplies for operating)
180
300
500
180
(b)
HOLLY CORP.
Trial Balance
October 31, 2004
Debit
Cash
Accounts Receivable
Supplies
Furniture
Notes Payable
Accounts Payable
Common Shares
Dividends
Service Revenue
Store Wages Expense
Supplies Expense
Rent Expense
Totals
Credit
$12,600
00740
000,220
003,000
$08,000
0001,500
006,000
000,300
002,290
000,500
000,180
250
$17,790
______
$17,790
EXERCISE 3-13
(a)
Cash
Sept. 1
Accounts
Shareholders
+ Equipment = Payable +
Equity
+$15,000
+15,000
5,000
+12,000
+10,000 +
12,000
+3,000
______
+7,000 +
12,000
+ -500
______
$ 6,500 + +$12,000
5
25
30
=
=
=
=
+$15,000 Investment
+15,000
+7,000
____ _____
7,000 +
+15,000
-3,000
______
4,000 +
+15,000
_____
-500 Dividends
$4,000 +
$14,500
(b)
General Journal
Date
Sept. 1
5
25
30
Account Titles
Debit
Cash
Common Shares
15,000
Equipment
Cash
Accounts Payable
12,000
Accounts Payable
Cash
03,000
Dividends
Cash
00,500
Credit
15,000
05,000
07,000
03,000
00,500
Bal.
15,000 Sept. 5
Sept. 25
Sept. 30
Common Shares
5,000
3,000
500
Sept. 1
15,000
Bal.
15,000
6,500
Dividends
Equipment
Sept. 5
12,000
Bal.
12,000
Accounts Payable
Sept. 25
3,000 Sept. 5
Bal.
7,000
4,000
Sept. 30
500
Bal.
500
EXERCISE 3-14
Error
(a)
In Balance
(b)
Difference
(c)
Larger Column
1.
2.
3.
4.
5.
6.
No
Yes
Yes
No
Yes
No
$400
0
0
$300
0
$9
Debit
n/a
n/a
Credit
n/a
Credit
EXERCISE 3-15
(a)
SPEEDY DELIVERY SERVICE, INC.
Trial Balance
July 31, 2004
Debit
Cash ($111,640 - $83,920 debit total of all accts. without cash)
Accounts Receivable
Prepaid Insurance
Delivery Equipment
Accumulated Amortization
Accounts Payable
Salaries Payable
Notes Payable
Common Shares
Retained Earnings
Dividends
Service Revenue
Amortization Expense
Salaries Expense
Gas and Oil Expense
Repair Expense
Insurance Expense
Income Tax Expense
Totals
Credit
$ 27,720
13,640
1,960
49,360
$ 19,745
7,390
815
18,450
40,000
4,630
700
20,610
9,870
4,420
750
1,200
520
1,500
$111,640
000 0000
$111,640
$ 20,610
9,870
4,420
750
1,200
520
16,760
3,850
1,500
$ 2,350
$4,630
2,350
6,980
700
$6,280
$27,720
13,640
1,960
$43,320
$49,360
(19,745)
29,615
$72,935
$ 8,205
18,450
26,655
46,280
$72,935
SOLUTIONS TO PROBLEMS
PROBLEM 3-1A
(a) and (b)
TransAction
1.
Cash
Flow
Statement
F
2.
- 5,000
3.
- 500
4.
- 400
5.
6.
+4,100
+4,100 (c)
7.
-500
-500 (d)
8.
-1,500
-1,500 (e)
9.
-140
-140 (f)
10.
11.
+120
12.
-1,000
Total
Cash
+$15,000
Accounts
Receivabl
e
Supplies
Equipment
Accounts Payable
Common
Shares
+$15,000
+$5,000
- $500 (a)
+ $400
+ $250
- 250 (b)
+400
$10,180
Retained
Earnings
+400 (g)
-120
-1,000 (h)
$280
$400
$5,000
$250
$15,000
$610
Rent expense
Advertising expense
Service revenue
Dividends
Salaries expense
Utilities expense
Service revenue
Income tax expense
(c)
Service revenue
Expenses
Salaries expense
Rent expense
Advertising expense
Utilities expense
Income tax expense
Net earnings
$4,500
$1,500
500
250
140
1,000
3,390
$1,110
OR
Increase in retained earnings
Add: Dividends
Net earnings
$ 610
500
$1,110
PROBLEM 3-2A
(a)
Bal.
1.
2.
3.
4.
5.
6.
7.
8.
9.
$ 9,000
3,100
+1,600
-1,000
+2,300
600
1,700
+7,000
-2,500
$11,000
Accounts
Office
Notes
Accounts
Common
+ Receivable + Supplies + Equipment = Payable + Payable + Shares
$1,700
$600
$6,000
$3,600
3,100
+3,100
1,600
+4,100
+6,600
00 000
$6,700
0 0
$600
00 000
$10,100
+$7,000
700 000
$7,000
$28,400 = $28,400
+170
00 000
$3,770
Retained
Earnings
$13,000
$ 700
00 0 00
$13,000
+8,900
600
700
900
100
170
-2,500
$4,630
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(b)
(a)
(b)
(c)
(d)
(e)
(f )
(g)
Service revenue
Dividends
Salaries expense
Rent expense
Advertising expense
Utility expense
Income tax expense
CORSO CARE CORP.
Statement of Earnings
Month Ended September 30, 2004
Revenues
Service revenue
Expenses
Rent expense
Salaries expense
Utilities expense
Advertising expense
Total expenses
Earnings before taxes
Income tax expense
Net earnings
$8,900
900
700
170
100
1,870
7,030
2,500
$4,530
$0,700
4,530
5,230
0 600
$4,630
Assets
$11,000
6,700
600
$18,300
10,100
$28,400
Liabilities
Notes payable
$ 7,000
Accounts payable
3,770
Total liabilities
Shareholders' equity
Common shares
$13,000
Retained earnings
3
4,630
Total shareholders equity 0
Total liabilities and shareholders' equity
$10,770
17,630
$28,400
PROBLEM 3-3A
Normal
Financial
Balance
Statement
Credit
Balance Sheet
Classification
Current Liabilities
Accounts receivable
Debit
Balance Sheet
Current Assets
Capital assets
Debit
Balance Sheet
Cash
and
short-term Debit
deposits
Cost of goods sold and
Debit
selling, general and
administrative expenses
Balance Sheet
Depreciation and
amortization expense
Debit
Dividends
Debit
Statement of
Retained Earnings
Debit
Credit
Balance Sheet
Investments
Debit
Balance Sheet
Investment income
Credit
Merchandise inventories
Debit
Balance Sheet
Current Assets
Prepaid expenses
Debit
Balance Sheet
Current Assets
Retained earnings
Credit
Balance Sheet
Shareholders Equity
Sales
Credit
Share capital
Credit
Balance Sheet
Account
Accounts payable and
accrued items
N/A
Current Liabilities
Shareholders Equity
PROBLEM 3-4A
(a)
(1)
TransBasic
action
Type
1.
Asset
Account Debited
(2)
(3)
(4)
Specific
Account Effect Dr./Cr.
Cash
Increase Debit
2.
Asset
Cash
Increase Debit
3.
Asset
Vehicle
Increase Debit
(1)
Basic
Type
Shareholders
Equity
Account Credited
(2)
(3)
Specific
Account
Effect
Common
Increase
Shares
(4)
Dr./Cr.
Credit
Shareholders
Equity
(Revenue)
Asset
Service
Revenue
Increase
Credit
Cash
Decrease Credit
Liability
Note
Payable
Increase
Credit
Credit
4.
Asset
Cash
Increase Debit
Liability
Unearned
Revenue
Increase
5.
Shareholders
Equity
(Expense)
Wages
Expense
Increase Debit
Asset
Cash
Decrease Credit
6.
Asset
Service
Revenue
Increase
Credit
7.
Asset
Supplies
Increase Debit
Shareholders
Equity
(Revenue)
Liability
Accounts
Payable
Increase
Credit
8.
Asset
Cash
Increase Debit
Asset
Accounts
Receivable
Decrease Credit
Transaction
(1)
Basic
Type
9.
Shareholders
Equity
(Expense)
10.
Shareholders
Equity
(Expense
Account Debited
(2)
(3)
Specific
Account Effect
(4)
Dr./Cr.
Rent
Increase Debit
Expense
Income
Increase Debit
Tax
Expense
(1)
Basic
Type
Asset
Asset
Account Credited
(2)
(3)
Specific
Account
Effect
Cash
Cash
(b)
Cash Flow
Issue shares
Provide services
Payment for truck
Deposit from customers
Payment of wages
Collection from customers
Payment of rent
Payment of income taxes
Ending cash
$10,000
2,500
(10,000)
5,000
(2,000)
20,000
(1,500)
(800)
$23,200
Net Earnings
Provide services
Payment of wages
Bill customers
Payment of rent
Payment of income tax
Net earnings
$ 2,500
(2,000)
20,000
(1,500)
(800)
$18,200
(4)
Dr./Cr.
Decrease Credit
Decrease Credit
PROBLEM 3-5A
Date
Apr. 1 Cash
Common Shares
(Issued shares for cash)
Debit
75,000
4 Land
Cash
Note Payable
(Purchased land for cash, note)
50,000
8 Advertising Expense
Accounts Payable
(Incurred advertising expense on
account)
01,800
11 Salaries Expense
Cash
(Paid salaries)
01,700
Credit
75,000
10,000
40,000
01,800
01,700
12 No entry.
13 Prepaid Insurance
Cash
(Paid for one-year insurance policy)
03,000
17 Dividends
Cash
(Payment of cash dividend)
00,600
20 Cash
Admission Revenue
(Received cash for admission fees)
05,700
03,000
00,600
05,700
Date
Account Titles and Explanation
Apr. 25 Cash
Unearned Admissions Revenue
(Received advance for future
services)
Debit
Credit
07,500
07,500
30 Cash
Admission Revenue
(Received cash for admission fees)
7,875
30 Accounts Payable
Cash
(Paid creditor on account)
0,700
7,875
0,700
PROBLEM 3-6A
(a)
Date
Debit
May 1 Cash
Common Shares
(Issued shares for cash)
Credit
52,000
52,000
0800
0800
7 Rent Expense
Cash
(Paid office rent)
00,900
00,900
11 Accounts Receivable
Service Revenue
(Billed client for services provided)
01,100
12 Cash
Unearned Revenue
(Received an advance for future
services)
04,200
17 Cash
Service Revenue
(Received cash for revenue earned)
04,200
31 Salaries Expense
Cash
(Paid salaries)
01,000
00,320
00,100
01,100
04,200
04,200
01,000
00,320
00,100
Cash
May 1
52,000 May 7
900
May 12
May 17
Bal.
4,200 May 31
4,200 May 31
May 31
58,080
1,000
320
100
Accounts Payable
May 31
320 May 3
Bal.
800
480
Accounts Receivable
May 11
1,100
Bal.
1,100
Unearned Revenue
May 12
4,200
Bal.
4,200
Supplies
May 3
800
Bal.
800
Common Shares
May 1
52,000
Bal.
52,000
Bal.
1,000
Service Revenue
May 11
May 17
1,100
4,200
Bal.
5,300
May 7
900
Bal.
900
(c)
1,000
May 31
100
Bal.
100
$58,080
001,100
00800
001,000
900
100
$61,980
Credit
$00,480
004,200
052,000
005,300
_ ___
$61,980
PROBLEM 3-7A
(a) and (c)
Apr. 1 Bal.
Apr. 9
Apr. 25
Apr. 30
Bal.
Apr. 30
Bal.
Cash
6,000 Apr. 2
3,800 Apr. 10
3,000 Apr. 12
85 Apr. 29
Apr. 30
5,885
Accounts Receivable
85
85
Apr. 30
Bal.
Prepaid Rentals
1,000
1,000
Apr. 1 Bal.
Bal.
Land
10,000
10,000
Apr. 1 Bal.
Bal.
Buildings
8,000
8,000
Apr. 1 Bal.
Bal.
Equipment
6,000
6,000
Apr. 10
Apr. 10
1,000
3,000
400
1,600
1,000
Accounts Payable
1,000 Apr. 1 Bal.
Apr. 20
Bal.
2,000
500
1,500
Mortgage Payable
2,000 Apr. 1 Bal.
Bal.
8,000
6,000
Common Shares
Apr. 1 Bal.
Bal.
20,000
20,000
Admission Revenue
Apr. 9
Apr. 25
Bal.
3,800
3,000
6,800
Concession Revenue
Apr. 30
Bal.
170
170
Apr. 12
Bal.
Advertising Expense
400
400
Apr. 2
Apr. 20
Bal.
Apr. 29
Bal.
Salaries Expense
1,600
1,600
Date
Debit
0,1,000
Credit
0,1,000
3,800
2,000
1,000
3,800
3,000
0,400
0,500
25 Cash
Admission Revenue
(Received cash for admissions)
3,000
29 Salaries Expense
Cash
(Paid salaries expense)
PROBLEM 3-7A (Continued)
(b) (Continued)
1,600
0,400
0,500
3,000
1,600
Date
Debit
Apr. 30 Cash
Accounts Receivable
Concession Revenue (17% X $1,000)
(Received cash and balance on account
for concession revenue)
0,085
0,085
30 Prepaid Rentals
Cash
(Paid cash for future film rental)
(d)
0,1,000
$05,885
000,085
000,1,000
010,000
008,000
006,000
000,400
001,500
1,600
$34,470
PROBLEM 3-8A
(a) Correct:
8
Incorrect: 1, 2, 3, 4, 5, 6, and 7
Credit
$01,500
006,000
020,000
006,800
000,170
000 000
$34,470
Credit
0,170
0,1,000
(b)
(1)
Error In Balance
1.
No
2.
Yes
3.
No
4.
Yes
5.
Yes
6.
No
7.
Yes
(2)
Difference
$90
Nil
$750
Nil
Nil
$500
Nil
(3)
Larger Column
Credit
N/A
Debit
N/A
N/A
Debit
N/A
PROBLEM 3-9A
SAGINAW LTD.
Trial Balance
May 31, 2004
Debit
Cash ($7,490 + $420)
Accounts Receivable ($2,570 $210)
Prepaid Insurance ($700 + $100)
Supplies
Equipment ($8,000 - $420)
Accumulated Amortization
Accounts Payable ($4,500 - $100 + $420)
Common Shares ($5,700 + $700)
Dividends
Retained Earnings
Service Revenue ($6,960 - $210)
Salaries Expense
Advertising Expense
Amortization Expense
Insurance Expense
Income Tax Expense ($200 + $100)
Totals
Credit
$ 7,910
2,360
040800
420
4207,580
$ 3,200
04,820
0 6,400
700
6,000
006,750
4,200
1,100
1,600
200
300 00 0000
$27,170 $27,170
PROBLEM 3-10A
(a)
7,308
559,151
38,912
1,205,333
152,294
42,421
45,428
12,105
1,551,104
7,184,503
117,412
496,702
122,860
Credit
$1,454,655
388,543
258,870
541,599
230,824
199,231
668,304
7,383,813
24,744
51,418
0000000000
436,368
$11,586,951 $11,586,951
$7,383,813
7,184,503
45,428
7,229,931
153,882
42,421
$ 111,461
$ 668,304
111,461
779,765
38,912
$ 740,853
Current assets
Cash in stores
Short-term deposits
Credit card receivables
Other accounts receivable
Merchandise inventories
Prepaid expenses and other current
assets
Total current assets
Long-term receivables
Property, plant and equipment
Goodwill
Other assets
Total assets
7,308
51,418
559,151
117,412
1,551,104
122,860
$2,409,253
12,105
1,205,333
152,294
496,702
$4,275,687
(Continued)
Liabilities and Shareholders' Equity
Liabilities
Trade accounts payable
$436,368
Other accounts payable and accrued
541,599
liabilities
Short-term borrowings
24,744
Long-term debt due within one year
258,870
Total current liabilities
Long-term liabilities
Long-term debt
$388,543
Other long-term liabilities
230,824
Total long-term liabilities
Total liabilities
Shareholders' equity
Capital stock
$1,454,655
Other shareholders equity items
199,231
Retained earnings
740,853
Total shareholders equity
Total liabilities and shareholders equity
$1,261,581
619,367
1,880,948
2,394,739
$4,275,687
PROBLEM 3-1B
(a) and (b)
Transaction
1.
Cash Flow
Statement
F
2.
- 700
3.
- 2,500
Cash
+$20,000
Accounts
Receivabl
e
Supplies
Equipment
Common
Shares
+$20,000
+$2,500
+$300
5.
-600
6.
+1,000
7.
-400
8.
-300
9.
-1,200
10.
+8,000
11.
-2,000
$21,300
Retained
Earnings
-$700 (a)
4.
Total
Accounts
Payable
-300 (b)
+$600
+$8,000
+9,000 (c)
-400 (d)
-300
-1,200 (e)
-8,000
-2,000 (f)
$0
$600
$2,500
$0
$20,000
$4,400
Rent expense
Advertising expense
Service revenue
Dividends
Salaries expense
Income tax expense
(c)
Service revenue
Expenses
Salaries expense
Rent expense
Advertising expense
Income tax expense
Net earnings
$9,000
$1,200
700
300
2,000
4,200
$4,800
OR
Increase in retained earnings
Add: Dividends
Net earnings
$4,400
400
$4,800
PROBLEM 3-2B
(a)
$4,000
+2,000
2,700
+3,000
400
2,750
6.
7.
8.
9.
550
+2,000
0
-1,300
$3,300
Accounts
Office
Notes
Accounts
Common
Retained
+ Receivable + Supplies + Equipment = Payable + Payable + Shares + Earnings
$2,500
2,000
+3,400
$500
$5,000
, 00
00 0
$500
00
$7,000
$6,500
2,700
+1,600
+2,000
0
0000 0
$3,900
$4,200
+$2,000
+
0000 0
$2,000
$14,700 = $14,700
+300
00
$3,400
$1,300
+6,400 (a)
1,500
900
350
550
0000 0
$6,500
(b)
(c)
(d)
(e)
300 (f)
-1,300 (g)
$2,800
(b)
(a)
(b)
(c)
(d)
Service revenue
Salaries expense
Rent expense
Advertising expense
(e) Dividends
(f) Utilities expense
(g) Income tax expense
$6,400
1,500
900
300
350
3,050
3,350
1,300
$ 2,050
$1,300
0 2,050
3,350
550
$2,800
$3,300
3,900
500
$ 7,700
7,000
$14,700
$2,000
3,400
$6,500
2,800
$ 5,400
9,300
$14,700
PROBLEM 3-3B
Account
Normal
Balance
Financial
Statement
Classification
Accounts receivable
Debit
Balance Sheet
Amortization expense
Debit
Common shares
Credit
Balance Sheet
Debit
Equipment
Debit
Balance Sheet
Debit
Credit
Balance Sheet
Insurance expense
Debit
Interest revenue
Credit
Inventories
Debit
Balance Sheet
Current Assets
Long-term debt
Credit
Balance Sheet
Long-term Liabilities
Notes payable
Credit
Balance Sheet
Short or Long-term
Liabilities
Prepaid insurance
Debit
Balance Sheet
Current Assets
Retained earnings
Credit
Balance Sheet
Shareholders Equity
Sales revenue
Credit
Balance Sheet
Current Assets
Shareholders Equity
Current Liabilities
Current Liabilities
PROBLEM 3-4B
(a)
(1)
TransBasic
action
Type
1. Asset
Account Debited
(2)
(3)
(4)
Specific
Dr./Cr.
Effect
Account
Supplies
Increase Debit
(1)
Basic
Type
Liability
Liability
Increase Debit
Account Credited
(2)
(3)
(4)
Specific
Dr./Cr.
Effect
Account
Accounts Increase Credit
Payable
2.
Asset
Furniture
Note
Increase Credit
Payable
3.
Asset
4.
Shareholders Dividends
Equity
(Capital)
Increase Debit
Asset
Cash
Decrease Credit
5.
Liability
Accounts
Payable
Decrease Debit
Asset
Cash
Decrease Credit
6.
Asset
Cash
Increase Debit
Asset
7.
Shareholders Operating
Equity
Expenses
(Expense)
Increase Debit
Asset
Cash
8.
Shareholders Wages or
Equity
Operating
(Expense)
Expenses
Increase Debit
Liability
Decrease Credit
$30,000
(1,000)
(600)
20,000
(12,000)
$36,400
Net Earnings
Fees earned
Operating expenses
Wages expense
Net earnings
$90,000
(12,000)
(4,000)
$74,000
PROBLEM 3-5B
Date
Mar. 1 Cash
Common Shares
(Issued shares for cash)
Debit
60,000
3 Land
Building
Equipment
Cash
(Purchased Lee's Golf Land)
43,000
19,000
06,000
5 Advertising Expense
Cash
(Paid for advertising)
01,600
6 Prepaid Insurance
Cash
(Paid for one-year insurance policy)
01,800
10 Equipment
Accounts Payable
(Purchased equipment on account)
04,900
18 Cash
Golf Revenue
(Received cash for revenue earned)
, 1,200
19 Cash
Unearned Golf Revenue
(Received cash for coupon books
sold)
05,000
Credit
60,000
68,000
01,600
01,800
04,900
01,200
05,000
Mar. 25 Dividends
Cash
(Payment of cash dividend)
Debit
00
, 500
30 Salaries Expense
Cash
(Paid salaries expense)
0,700
30 Accounts Payable
Cash
(Paid creditor on account)
4,900
31 Cash
Golf Revenue
(Received cash for revenue earned)
0,500
Credit
00,
500
0,700
4,900
0,500
PROBLEM 3-6B
(a)
Date
Apr. 1 Cash
Common Shares
(Issued shares for cash)
Debit
16,000
Credit
16,000
00,800
3 Supplies
Accounts Payable
(Purchased supplies on account)
01,500
10 Accounts Receivable
Service Revenue
(Billed clients for services
rendered)
0,1,100
11 Cash
Unearned Revenue
(Received cash advance for
future service)
00,500
20 Cash
Service Revenue
(Received cash for revenue
earned)
01,500
30 Salaries Expense
Cash
(Paid monthly salary)
01,200
(Continued)
00,800
0 1,500
01,100
00,500
01,500
01,200
Date
Debit
600
Credit
600
16,000 Apr. 2
500 Apr. 30
1,500 Apr. 30
Service Revenue
800
1,200
600
Apr. 10
Apr. 20
1,100
1,500
Bal.
2,600
15,400
Salaries Expense
Accounts Receivable
Apr. 10
Bal.
Apr. 30
1,200
Bal.
1,200
1,100
1,100
Rent Expense
Supplies
Apr. 3
Bal.
800
Bal.
800
1,500
1,500
Accounts Payable
Apr. 30
Apr. 2
600 Apr. 3
Bal.
1,500
900
Unearned Revenue
Apr. 11
500
Bal.
500
Common Shares
Apr. 1
16,000
Bal.
16,000
$15,400
001,100
001,500
001,200
800
$20,000
Credit
$00,900
000,500
016,000
002,600
______
$20,000
PROBLEM 3-7B
(a) and (c)
Mar. 10
Cash
Mar. 1 Bal.
Mar. 9
Mar. 20
Mar. 31
Mar. 31
16,000
6,500
7,500
600
20,000
Bal.
27,400
Mar. 2
Mar. 10
Mar. 12
Mar. 20
Mar. 31
10,600
4,000
10,600
800
4,000
3,800
9,400
Common Shares
Mar. 1 Bal. 80,000
Bal.
80,000
Accounts Receivable
Mar. 31
600
Bal.
600
Admission Revenue
Land
Mar. 1 Bal.
42,000
Bal.
42,000
18,000
Bal.
18,000
Equipment
6,500
7,500
20,000
Bal.
34,000
Concession Revenue
Buildings
Mar. 1 Bal.
Mar. 9
Mar. 20
Mar. 31
Mar. 31
1,200
Bal.
1,200
Advertising Expense
Mar. 12
800
Bal.
800
Mar. 1 Bal.
16,000
Bal.
16,000
(a) (Continued)
Accounts Payable
Mar. 2
Mar. 20
12,000
4,000
Bal.
16,000
Salaries Expense
Mar. 31
3,800
Bal.
3,800
Debit
12,000
No entry.
Cash
Admission Revenue
(Received cash for admissions)
06,500
10
10,600
11
No entry.
12
Advertising Expense
Cash
(Paid advertising expenses)
00,800
0
7,500
20
Cash
Admission Revenue
(Received cash for admissions)
20
04,000
31
Salaries Expense
Cash
(Paid salaries expense)
03,800
Credit
08,000
04,000
06,500
10,600
00,800
0
7,500
04,000
03,800
Date
Debit
Mar. 31 Cash
Accounts Receivable
Concession Revenue (15% X $8,000)
(Received cash and balance on
account for concession revenue)
31
00,600
00,600
Cash
Admission Revenue
(Received cash for admissions)
(d)
20,000
01,200
20,000
Cash
Accounts Receivable
Land
Buildings
Equipment
Accounts Payable
Common Shares
Admission Revenue
Concession Revenue
Advertising Expense
Film Rental Expense
Salaries Expense
Totals
Credit
$ 27,400
0000,600
0042,000
0018,000
0016,000
0000,800
0016,000
3,800
$124,600
Credit
$09,400
0080,000
0034,000
0001,200
0 000000
$124,600
PROBLEM 3-8B
Error
1.
2.
3.
4.
5.
6.
7.
8.
(a) In Balance
No
Yes
Yes
Yes
No
Yes
Yes
Yes
(b) Difference
$600
Nil
Nil
Nil
$250
Nil
Nil
Nil
PROBLEM 3-9B
WARGO LTD.
Trial Balance
June 30, 2004
Debit
Cash ($5,652 + $180)
Accounts Receivable ($3,230 - $180 + $54)
Supplies ($800 - $340)
Equipment ($3,000 + $340)
Accumulated amortization
Accounts Payable
Unearned Revenue
Common Shares
Dividends ($800 + $600)
Service Revenue ($4,380 + $801)
Salaries Expense ($3,400 - $600)
Office Expense
Amortization Expense
Income Tax Expense
Totals
$ 5,832
3,104
460
3,340
1,400
2,800
910
50
200
$18,096
Credit
$
50
02,665
001,200
009,000
005,181
______
$18,096
PROBLEM 3-10B
(a)
Debit
$ 500
150
180
870
1,500
160
130
225
510
800
495
90
_____
$5,610
Credit
$ 300
550
160
1,200
1,000
400
2,000
$5,610
$2,000
870
130
150
225
1,375
625
160
$ 465
$0,400
0__ 465
$ 865
Current assets
Cash
Accounts receivable
Inventories
Prepaid insurance
Total current assets
Long-term investment
Property, plant and equipment
Land
Equipment
$1,500
Less: accumulated amortization,
equipment
300
Total property, plant and equipment
Total assets
$180
500
510
90
$1,280
495
$ 800
1,200
2,000
$3,775
$ 160
$1,000
1,200
$550
865
2,200
2,360
1,415
$ 3,775
Increase
Side
Decrease
Side
Normal
Balance
Credit
Debit
Credit
Debit
Debit
Debit
Debit
Credit
Credit
Credit
Credit
Credit
Debit
Debit
Debit
Debit
Debit
Credit
(b)
1.
2.
3.
4.
5.
6.
Cash is decreased.
Cash is increased.
Accumulated depreciation is increased.
Accounts payable is increased.
Interest payable is increased.
Accounts receivable is increased.
Debit
$ 823
304
605
1,702
68
24
5,587
1,599
15
383
Credit
533
2,336
179
106
3,420
68
344
1,195
2,375
25
16
133
23,082
21,425
354
161
____414
$ 33,638
______
$33,638
Debit
$ 123.1
191.4
285.4
444.0
30.5
2.7
15.4
1.9
134.6
1,243.9
555.6
28.5
135.5
Credit
$ 971.9
37.4
21.1
150.1
435.3
75.5
57.7
6.7
903.4
382.0
23.8
3.8
10,414.5
9,964.4
124.0
41.7
105.4
$13,455.6
00000000
$13,455.6
11
51
52
55
71
(d) Answer will depend on the company chosen. Some answers could include 71112 dance
companies; 711211 sports teams and clubs; and, 71111 theatre companies and dinner
theatres.
Debit
$ 39,117
212,454
469,172
724,926
138,305
Credit
$ 388,722
344,836
4,728
338,342
460,688
74,919
4,728
4,130,154
17,221
3,669,961
82,958
382,420
48,408
4,236
000000000
$5,776,685
00017,075
$5,776,685
Assets
Liabilities
Shareholders
Equity
$ 460,688
74,919
(4,728)
4,130,154
17,221
(3,669,961)
(82,958)
(382,420)
(48,408)
(4,236)
17,075
$ 507,346
Goodwill, leases and similar rights these items are not generally grouped together.
Short-term placements would be called short-term investments.
Shares and participations would be called common and preferred shares.
Restricted and non restricted equity are not terms used in Canada but they are similar in
intent (i.e. limited liability for share capital doesnt allow this amount to be distributed to
shareholders).
Financial liabilities would be called long-term liabilities (from financing sources).
Revenues net turnover would be sales.
Depreciation would be called amortization.
Correct.
Cash
Lesson Revenue
Cash
Unearned Revenue
9
14
15
20
500
500
1,700
800
Dividends
Cash
400
Cash
250
1,700
Office Equipment
Cash
Riding Revenue
31
250
800
400
154
154
Correct.
(b) The error in the entries of May 14 and May 20 would prevent the trial balance from
balancing.
(c)
Net earnings as reported
Add: May 9, Hay and feed expense
May 15, Salaries expense (Dividends
declared and paid)
$4,500
$1,700
4002,100
6,600
500
$6,100
$12,475
$1,700
9
1,709
$14,184
Accounting Instructor
In the first transaction, bills totaling $6,000 were sent to customers for services rendered.
Therefore, the asset Accounts Receivable is increased $6,000 and the revenue Service
Revenue is increased $6,000. Debits increase assets and credits increase revenues, so the
journal entry is:
Accounts Receivable
Service Revenue
(Bill customer for services rendered)
6,000
6,000
The $6,000 amount is then posted to the debit side of the general ledger account Accounts
Receivable and to the credit side of the general ledger account Service Revenue.
In the second transaction, $2,000 was paid in salaries to employees. There fore, the expense
Salaries Expense is increased $2,000 and the asset Cash is decreased $2,000. Debits
increase expenses and credits decrease assets, so the journal entry is:
Salaries Expense
Cash
(Salaries paid)
2,000
2,000
The $2,000 amount is then posted to the debit side of the general ledger ac count Salaries
Expense and to the credit side of the general ledger account Cash.
Miss the deadline but find the error causing the imbalance.
2.
3.
Do as she did and locate the error later, making the adjustment in the next quarter.
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