Accounting Volume 1 Canadian 9th Edition Horngren Solutions Manual

Accounting Volume 1 Canadian 9th

Edition Horngren Solutions Manual
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Accounting Volume 1 Canadian 9th Edition Horngren Solutions Manual

Chapter 2

Recording Business Transactions

Questions
1. The basic shortcut device of accounting is the T-account. It resembles the letter
T, and its left side is called the debit side and its right side the credit side.
2. The statement is false because debit means left and credit means right. Debits
and credits are used to record increases and decreases in accounts, so debits can
be increases or decreases depending on the type of account involved and
likewise for credits.
3. Examples:
a. A debit to an asset account indicates an increase in the asset.
b. To record a decrease in a liability, the accountant should record a debit.
c. Debit all asset accounts to record increases in them.
d. The accountant should debit Cash to record a receipt of cash.
e. The debit side of an account is the left side.
f. It is customary to record the debit side of a journal entry before recording
the credit side of the entry.
4. The three basic types of accounts are ASSETS, LIABILITIES, and OWNER’S
EQUITY. Two additional types of accounts are REVENUES and EXPENSES.
They are part of owner’s equity; revenues increase owner’s equity and expenses
decrease owner’s equity.
5. The dual effects of an owner’s investment in her business are (1) an increase in
the entity’s cash and (2) an increase in the owner’s equity.
6. Business Transaction Entry in Posting to Trial
→
Creates Source Document Journal → Ledger → Balance
7. The normal balance of an account is the side of the account—debit or credit—
that records increases. Also, an account’s normal balance is the side of the
account that usually has the account’s balance.
8. Account Type Normal Balance
Assets Debit
Liabilities Credit
Owner’s equity Credit
Revenues Credit
Expenses Debit
9. Posting transfers amounts from the journal to the ledger. This is important
because the transaction entries in the journal do not accumulate all the
information related to each account. The accounts in the ledger hold that

54 Copyright © 2014 Pearson Canada Inc.

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 information. The ledger groups together transactions that are similar. For
example, all cash transaction from the journal are grouped together in the
ledger. Therefore, the transfer of data to the accounts in the ledger—that is,
posting from the journal to the ledger—makes it possible to determine the
balance in each account. Posting comes after journalizing.
10. + a. Investment by owner 0 e. Cash payment on account
+ b. Invoice customer for services – f. Withdrawal of cash by owner
0 c. Purchase of supplies on credit 0 g. Borrowing money on a note payable
– d. Pay expenses with cash + h. Sale of services on account
11. Posting’s four steps are (1) copy the date of a transaction from the journal to the
ledger, (2) copy the journal page number from the journal to the ledger, (3) copy
(post) the dollar amounts of the debit and the credit from the journal to the
ledger, and (4) copy the account numbers from the ledger back to the journal to
indicate that the transaction amount has been posted to the ledger. Step 3,
transferring the transaction amount to the account, is the fundamental purpose
of posting.
12. Cash Sam Westman, Capital
Accounts Receivable Sales Revenue
Note Payable Salary Expense
13. “Accounts Payable has a credit balance of $2,800” means that the entity owes
$2,800 to its creditors on a debt that is not evidenced by a formal note payable.
14. The two business transactions are (1) Spiffy Cleaners providing laundry service
and earning revenue and (2) Bobby Ng paying cash to Spiffy Cleaners. The
business’s earning of the revenue increases the owner’s equity in the company,
and Ng’s payment of cash increases the business’s cash.
15. The ledger is the group of actual accounts in use that contain a record of activity
in those accounts. The chart of accounts is a list of all the accounts set up in the
ledger with their account numbers.
16. Accountants prepare a trial balance to check the accuracy of postings to
accounts and determine whether the total debits equal the total credits. It is a
useful summary of all the accounts and their balances and serves as an early
error-detection tool.
17. A compound journal entry is one that affects more than two accounts.
18. This error does not cause the trial balance to be out of balance because both the
total debits and the total credits are overstated by the same amount, $5,400
($6,000 – $600).
19. Collecting cash on account has no effect on total assets because the increase in
cash, which increases total assets, is offset by the decrease in accounts
receivable, which decreases total assets.
20. Both systems depend on the accuracy of the initial analysis of the transaction
and require that the journal entry be recorded correctly. Thereafter, a number of
errors could occur in a manual system (such as slides, transpositions, errors in
calculating account balances); these errors will affect a manual trial balance.
Most computerized systems will not allow you to post a journal entry if it does
not balance. Once the journal entry has been correctly recorded, the
computerized accounting system performs much the same actions as
accountants do in a manual system. These routine tasks are accomplished faster

Copyright © 2014 Pearson Canada Inc. 55

 and with less risk of error with a computer. The computer does not recognize
debits and credits, only increases and decreases by account type.

56 Copyright © 2014 Pearson Canada Inc.

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