Concept explainers
Chart of accounts
Monet Paints Co. is a newly organized business with a list of accounts arranged in alphabetical order, as follows:
Accounts Payable Accounts Receivable
Accumulated
Cost of Merchandise Sold Customer Refunds Payable Delivery Expense
Depredation Expense—Office Equipment
Depreciation Expense—Store Equipment
Estimated Returns Inventory
Insurance Expense
Interest Expense
Kailey Gamer, Capital
Kailey Gamer, Drawing
Land
Merchandise Inventory
Miscellaneous Administrative Expense
Miscellaneous Selling Expense
Notes Payable
Office Equipment
Office Salaries Expense
Office Supplies
Office Supplies Expense
Prepaid Insurance
Rent Expense
Salaries Payable
Sales
Sales Salaries Expense
Store Equipment
Store Supplies
Store Supplies Expense
Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order, as illustrated in Exhibit 2. Each account number is three digits: the first digit is to indicate the major classification (1 for assets. for example); the second digit is to indicate the subclassification (11 for current assets, for example); and the third digit is to identify the specific account (110 for Cash, 112 for Accounts Receivable, 114 for Merchandise Inventory, etc.).
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Chapter 6 Solutions
Accounting
- Analyzing the Accounts The controller for Summit Sales Inc. provides the following information on transactions that occurred during the year: a. Purchased supplies on credit, $18,600 b. Paid $14,800 cash toward the purchase in Transaction a c. Provided services to customers on credit1 $46,925 d. Collected $39,650 cash from accounts receivable e. Recorded depreciation expense, $8,175 f. Employee salaries accrued, $15,650 g. Paid $15,650 cash to employees for salaries earned h. Accrued interest expense on long-term debt, $1,950 i. Paid a total of $25,000 on long-term debt, which includes $1.950 interest from Transaction h j. Paid $2,220 cash for l years insurance coverage in advance k. Recognized insurance expense, $1,340, that was paid in a previous period l. Sold equipment with a book value of $7,500 for $7,500 cash m. Declared cash dividend, $12,000 n. Paid cash dividend declared in Transaction m o. Purchased new equipment for $28,300 cash. p. Issued common stock for $60,000 cash q. Used $10,700 of supplies to produce revenues Summit Sales uses the indirect method to prepare its statement of cash flows. Required: 1. Construct a table similar to the one shown at the top of the next page. Analyze each transaction and indicate its effect on the fundamental accounting equation. If the transaction increases a financial statement element, write the amount of the increase preceded by a plus sign (+) in the appropriate column. If the transaction decreases a financial statement element, write the amount of the decrease preceded by a minus sign (-) in the appropriate column. 2. Indicate whether each transaction results in a cash inflow or a cash outflow in the Effect on Cash Flows column. If the transaction has no effect on cash flow, then indicate this by placing none in the Effect on Cash Flows column. 3. For each transaction that affected cash flows, indicate whether the cash flow would be classified as a cash flow from operating activities, cash flow from investing activities, or cash flow from financing activities. If there is no effect on cash flows, indicate this as a non-cash activity.arrow_forwardThe accounts and their balances in the ledger of Markeys Mountain Shop as of December 31, the end of its fiscal year, are as follows: Data for the adjustments are as follows. Assume that Markeys Mountain Shop uses the perpetual inventory system. a. Merchandise Inventory at December 31, 140,357. b. Store supplies inventory (on hand) at December 31, 540. c. Depreciation of building, 3,400. d. Depreciation of store equipment, 3,800. e. Salaries accrued at December 31, 1,250. f. Insurance expired during the year, 1,480. Required 1. Complete the work sheet after entering the account names and balances onto the work sheet. Ignore this step if using CLGL. 2. Journalize the adjusting entries. If using manual working papers, record adjusting entries on journal page 63.arrow_forwardHere are the accounts in the ledger of Mishas Jewel Box, with the balances as of December 31, the end of its fiscal year. Here are the data for the adjustments. Assume that Mishas Jewel Box uses the perpetual inventory system. a. Merchandise Inventory at December 31, 124,630. b. Insurance expired during the year, 1,294. c. Depreciation of building, 3,300. d. Depreciation of store equipment, 6,470. e. Salaries accrued at December 31, 2,470. f. Store supplies inventory (on hand) at December 31, 1,959. Required 1. Complete the work sheet after entering the account names and balances onto the work sheet. Ignore this step if using CLGL. 2. Journalize the adjusting entries. If using manual working papers, record adjusting entries on journal page 63.arrow_forward
- RECORDING TRANSACTIONS IN THE PROPER JOURNAL Identify the journal (sales, cash receipts, purchases, cash payments, or general) in which each of the following transactions should be recorded: (a) Sold merchandise on account. (b) Purchased delivery truck on account for use in the business. (c) Received payment from customer on account. (d) Purchased merchandise on account. (e) Issued check in payment of electric bill. (f) Recorded depreciation on factory building.arrow_forwardSelling Expenses and General and Administrative Expenses Operating expenses are subdivided between selling expenses and general and administrative expenses when a multiple-step income statement is prepared. Identify each of the following items as a selling expense (S) or general and administrative expense (G$A). ______ 1. Advertising expense ______ 2. Depreciation expense—store furniture and fixtures ______ 3. Office rent expense ______ 4. Office salaries expense ______ 5. Store rent expense ______ 6. Store salaries expense ______ 7. Insurance expense ______ 8. Supplies expense ______ 9. Utilities expensearrow_forwardCosts and Expenses The following costs are incurred by a retailer: Display fixtures in a retail store Advertising Merchandise for sale Incorporation (i.e., legal costs, stock issue costs) Cost of a franchise Office supplies Wages and salaries Computer software Computer hardware Required For each cost, explain whether all of the cost or only a portion of the cost would appear as an expense on the income statement for the period in which the cost was incurred. If not all of the cost would appear on the income statement for that period, explain why not.arrow_forward
- Transactions Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery during May: 1. Received cash in exchange for common stock, 18,000. 2. Paid advertising expense, 4,850. 3. Purchased supplies on account, 2,100. 4. Billed customers for delivery services on account, 14,700. 5. Received cash from customers on account, 8,200. Indicate the effect of each transaction on the following accounting equation elements: Assets, Liabilities, Common Stock, Dividends, Revenue, and Expense. To illustrate, the answer to (1) follows: (1) Asset (Cash) increases by 18,000; Common Stock increases by 18,000.arrow_forwardFrom the following list, identify which items are considered original sources: A. accounts receivable B. receipt from post office for post office box C. purchase order D. general ledger E. adjusted trial balance F. statement of retained earnings G. electric bill H. packing slip I. company expense account J. statement of cash flowsarrow_forwardThe balances of the ledger accounts of Beldren Home Center as of December 31, the end of its fiscal year, are as follows: Data for the adjustments are as follows: ab. Merchandise Inventory at December 31, 102,765. c. Wages accrued at December 31, 1,834. d. Supplies inventory (on hand) at December 31, 645. e. Depreciation of store equipment, 5,782. f. Depreciation of office equipment, 1,791. g. Insurance expired during the year, 845. h. Rent earned, 2,500. Required 1. Complete the work sheet after entering the account names and balances onto the work sheet. Ignore this step if using CLGL. 2. Journalize the adjusting entries. If using manual working papers, record adjusting entries on journal page 16.arrow_forward
- AB Inc. purchased inventory on account from YZ Inc. The amount was $500. AB Inc. uses an accounting information system with special journals. Which special journal would the company use to record this transaction? A. sales journal B. purchases journal C. cash receipts journal D. cash disbursements journal E. general journalarrow_forwardFor each of the transactions, state which special journal (sales journal, cash receipts journal, cash disbursements journal, purchases journal, or general journal) and which subsidiary ledger (Accounts Receivable, Accounts Payable, or neither) would be used in recording the transaction. A. Paid utility bill B. Sold inventory on account C. Received but did not pay phone bill D. Bought inventory on account E. Borrowed money from a bank F. Sold old office furniture for cash G. Recorded depreciation H. Accrued payroll at the end of the accounting period I. Sold inventory for cash J. Paid interest on bank loanarrow_forwardThe trial balance of Hadden Company as of December 31, the end of its current fiscal year, is as follows: Here are the data for the adjustments. ab.Merchandise Inventory at December 31, 64,742.80. c.Store supplies inventory (on hand), 420.20. d.Insurance expired, 738. e.Salaries accrued, 684.50. f.Depreciation of store equipment, 3,620. Required Complete the work sheet after entering the account names and balances onto the work sheet.arrow_forward
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