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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

MANAGING YOUR WRITING

You are a public accountant with many small business clients. During a recent visit to a client’s business, the bookkeeper approached you with a problem. The columns of the trial balance were not equal. You helped the bookkeeper find and correct the error, but believe you should go one step further. Write a memo to all of your clients that explains the purpose of the double-entry framework, the importance of maintaining the equality of the accounting equation, the errors that might cause an inequality, and suggestions for finding the errors.

To determine

Write a memo to the clients that explain the purpose of the double-entry framework, the importance of maintaining the equality of the accounting equation, the errors that might cause an inequality, and suggestions for finding the errors.

Explanation

Memo

From,

ABC

To,

XYZ

Re: Explain the purpose of the double-entry framework, the importance of maintaining the equality of the accounting equation, the errors that might cause an inequality, and suggestions for finding the errors.

Sir,

For the trial balance to be equal it better for all the clients to know about the concepts of double entry framework, maintenance of equality of the accounting equation , the errors that might cause an equality.

  • Double- entry a system of accounting where a transaction is recorded in two accounts correspondingly: debit and credit. The sum of the debit must equal the credits for every transaction. This system is followed as to keep the accounting equation in balance. The double-entry framework ensures that compete record and information of every transaction is maintained. For example: If only increase in the asset is recorded then the useful information relating to the manner by which asset is increased is lost. When cash account increases it might be due to borrowing of money, investment by the owner, sale of asset or by the service rendered. As a result, debit to cash must be affected or I must be explained with a credit to some other account.
  • The accounting system depends on the accounting equation [Assets= Liabilities +Owner's equity] that must remain same for every transaction that is recorded. For example: An increase in the asset is offset by a decrease in another asset or increases in the owners’ equity or liabilities

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