Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 2, Problem 2.1DMP
Judgment Case 2–1
Cash versus accrual accounting;
• LO2–4, LO2–8
You have recently been hired by Davis & Company, a small public accounting firm. One of the firm’s partners, Alice Davis, has asked you to deal with a disgruntled client, Mr. Sean Pitt, owner of the city’s largest hardware store. Mr. Pitt is applying to a local bank for a substantial loan to remodel his store. The bank requires accrual based financial statements but Mr. Pitt has always kept the company’s records on a cash basis. He doesn’t see the purpose of accrual based statements. His most recent outburst went something like this: “After all, I collect cash from customers, pay my bills in cash, and I am going to pay the bank loan with cash. And, I already show my building and equipment as assets and depreciate them. I just don’t understand the problem.”
Required:
1. Explain the difference between a cash basis and an accrual basis measure of performance.
2. Why, in most cases, does accrual basis net income provide a better measure of performance than net operating
3. Explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting.
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Question 6
Sherrie, a member, performs various bookkeeping functions for her very small closely held clients including posting cash receipts and disbursements to the client's general ledger. The client
provides Sherrie with copies of check stubs and deposit slips where the client has provided account codes that Sherrie merely records in the general ledger. In addition, on a monthly basis,
Sherrie calculates adjusting journal entries for depreciation, amortization, and tax accruals and posts these entries to the client's general ledger. Which of the following statements is true
regarding Sherrie's independence with regard to these bookkeeping clients?
O Sherrie's posting of client coded cash receipts and disbursements does not impair independence.
O Sherrie's posting of adjusting journal entries does not impair independence whether or not she discusses them with the client because these are routine accounting entries that small clients do
not understand.
ONeither of the described…
SECTION B Financial literacy: Debtors Ledger and General Ledger
QUESTION 2
(25]
(5)
Choose from the word bank below and FILL in the missing words.
Credit sales invoice
Credit purchases invoice
Sales
Debit
Credit
Debtors ledger
2.1 The statement of account sent to the debtors each month showing
clearly how much the debtor owes to the business.
141
2.2 When debtors buy aoods on credit. in the Debtors Ledger, it is
recorded in the
column and when they
(2)
pay their accounts, it is recorder
2.3
Which source document would be used when goods are sold on credit?
(1)
2.4 When a business sells goods to A. Bothe on credit
debtor control is debited and
(1)
is credited
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Question 1 of 1
The statement from Jackson County Bank on December 31 showed a balance of $26,662. A comparison of the bank statement
with the Cash account revealed the following facts.
1.
2
3.
Your answer is incorrect.
4
The bank collected a note receivable of $2,500 for Sheffield Corp. on December 15 through electronic funds transfer.
The December 31 receipts were deposited in a night deposit vault on December 31. These depasits were recorded by the
bankid January
Checks outstanding on December 31 totaled $1.200.
On December 31, the bank statement showed an NSF charge of $630 for a check received by the company from L. Bryan,
a customer on account
Prepare a bank reconciliation as of December 31 based on the available information. (Hint: The cash balance per books is $26,292.
This can be proved by finding the balance in the Cash account from parts (a) and (b)) (List items that increase cash balance first
Reconcile cash balance per bank…
Chapter 2 Solutions
Intermediate Accounting, 10 Ed
Ch. 2 - Explain the difference between external events and...Ch. 2 - Each economic event or transaction will have a...Ch. 2 - What is the purpose of a journal? What is the...Ch. 2 - Explain the difference between permanent accounts...Ch. 2 - Describe how debits and credits affect assets,...Ch. 2 - Describe how debits and credits affect temporary...Ch. 2 - What is the first step in the accounting...Ch. 2 - Prob. 2.8QCh. 2 - Prob. 2.9QCh. 2 - Prob. 2.10Q
Ch. 2 - What is an unadjusted trial balance? An adjusted...Ch. 2 - Define adjusting entries and discuss their...Ch. 2 - Define closing entries and their purpose.Ch. 2 - Define prepaid expenses and provide at least two...Ch. 2 - Deferred revenues represent liabilities recorded...Ch. 2 - Define accrued liabilities. What adjusting journal...Ch. 2 - Prob. 2.17QCh. 2 - [Based on Appendix A] What is the purpose of a...Ch. 2 - [Based on Appendix B] Define reversing entries and...Ch. 2 - [Based on Appendix C] What is the purpose of...Ch. 2 - Prob. 2.21QCh. 2 - Transaction analysis LO21 The Marchetti Soup...Ch. 2 - Journal entries LO22 Prepare journal entries for...Ch. 2 - Prob. 2.3BECh. 2 - Journal entries LO22 Prepare journal entries for...Ch. 2 - Adjusting entries LO25 Prepare the necessary...Ch. 2 - Adjusting entries; income determination LO24,...Ch. 2 - Prob. 2.12BECh. 2 - Journal entries LO22 Prepare journal entries to...Ch. 2 - T-accounts and trial balance LO23 Post the...Ch. 2 - Prob. 2.5ECh. 2 - Debits and credits LO22 Indicate whether a debit...Ch. 2 - Prob. 2.7ECh. 2 - Prob. 2.8ECh. 2 - Reversing entries Appendix 2B The employees of...Ch. 2 - Special journals Appendix 2C The White Companys...Ch. 2 - Prob. 2.24ECh. 2 - Prob. 2.3PCh. 2 - Prob. 2.4PCh. 2 - Prob. 2.8PCh. 2 - Prob. 2.12PCh. 2 - Judgment Case 21 Cash versus accrual accounting;...Ch. 2 - Communication Case 23 Adjusting entries LO24 I...Ch. 2 - Prob. 2.1DA
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