Week 5 Discussion

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Austin Community College District *

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1002

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Accounting

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May 22, 2024

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Week 5 Discussion James Morales South University ACC1002-Accounting II SU01 Professor Tim Crawford September 15th, 2023 Discussion Question One: You are forming a business with a couple of construction friends who want to build custom homes. They are good at construction, but do not know anything about accounting. Using the example of the construction in the PBS tv show “This Old House”: Explain for your new business associates how you would do the accounting for this type of business. We will begin by creating a comprehensive chart of accounts which is a categorized list of all the financial transactions we'll encounter. This list will include accounts for revenues, expenses, assets, liabilities, and equity.
To streamline the recording and management of financial transactions, we will use specialized accounting software. This software will help us generate financial statements, track expenses, manage invoices, and monitor cash flow. Each financial transaction will be recorded as a journal entry that consists of a debit and a credit. This will help us maintain the fundamental accounting equation (Assets = Liabilities + Equity). Using proper terminology and accounting concepts, give a general explanation of the different types of costs involved and make up some sample transactions to record what you see on the tv show. You can assume the costs amounts and identify anything else you are assuming in order to record the transaction. Here's a more precise version of the text, with corrected spelling, grammar, and punctuation errors: 1. Purchase of Construction Materials: Debit Inventory (Assets), Credit Accounts Payable (Liabilities). If materials worth $10,000 are purchased on credit.
2. Payment to Contractors: Debit Labor Expense (Expenses), Credit Cash (Assets). If $8,000 is paid to contractors for their services. 3. Home Sale Revenue: Debit Cash (Assets), Credit Sales Revenue (Income). Assuming that a custom home is sold for $200,000. 4. Depreciation of Equipment: Debit Depreciation Expense (Expenses), Credit Accumulated Depreciation (Assets). If equipment with a useful life of 5 years is depreciated by $2,000. What other transactions and costs need to be recorded that you do not directly see on the tv show. Running a construction business involves various expenses that need to be accounted for. One of these expenses is overhead costs that cover administrative
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