FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
5th Edition
ISBN: 9781260847826
Author: SPICELAND
Publisher: INTER MCG
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Chapter 2, Problem 7AP
To determine

Write a memo to the instructor describing each step of the six-step measurement process for each of the three transactions.

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Explanation of Solution

External events:

External events are the events which involves an exchange transaction between the two parties, which is between a company, and another entity. Examples of external transactions include borrowing of cash from bank, purchase of inventory, and sale to a customer.

There are six steps involved to measure the external transaction. They are as follows:

Step1: Identify the accounts that are affected by an external transaction using the source documents.

Step 2: Impact of the transactions on the accounting equations should be analyzed.

Step 3: Transaction which results in a debit or credit to account balances should be assessed.

Step 4: The assessed transactions which are resulted in debit or credit is then recorded in journal.

Step 5: The transactions which are recorded in journal are posted to the general ledger.

Step 6: At last, the Trial balance is prepared.

MEMO

From: ABC

To: The Instructor

Date: 17th May

Subject: Transaction Analysis

Respected sir/madam,

Each step of the six-step measurement process for each of the three transactions is described as follows:

a. Decorating services provided on account to one of its clients for $500.

Step 1: Identify the accounts that are affected by an external transaction.

  • Accounts Receivable (Asset)
  • Service Revenue (Equity)

Step 2: Impact of the transactions on the accounting equation:

Asset=Liability+Owners'Equity+$500(Accounts Receivable)=+$500(Service Revenue)

Step 3: Assess the transaction which results in a debit or credit to account balances should be assessed.

  • Accounts receivable is an asset account, and it has increased. Hence, debit accounts receivable account.
  • Service revenue is a revenue account. It is one of the components of stockholders’ equity account. Service revenue is increased, which increases the revenue account, and in turn increases the stockholders’ equity account. Hence, credit service revenue account.

Step 4: Journal Entry:

Record the following journal entry in the general journal:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Accounts Receivable500
Service Revenue500
(To record the revenues earned)

Table (1)

Step 5: The transactions which are recorded in journal are posted to the general ledger.

Step 6: At last, the Trial balance is prepared.

b. Paid $1,200 for an employee’s salary in the current period.

Step 1: Identify the accounts that are affected by an external transaction.

  • Salaries expense (Equity)
  • Cash (Asset)

Step 2: Impact of the transactions on the accounting equation:

Asset=Liability+Owners'Equity$1,200(Cash)=$1,200(Salaries Expense)

Step 3: Assess the transaction which results in a debit or credit to account balances should be assessed.

  • Salaries expense is an expense account. It is one of the components of stockholders’ equity account Salaries expense is increased, which increases the expense account, and in turn decreases the stockholders’ equity account. Hence, debit service revenue account.
  • Cash is an asset account, and it has increased. Hence, credit cash account.

Step 4: Journal Entry:

Record the following journal entry in the general journal:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Salaries Expense1,200
Cash1,200
(To record the payment of salary expenses)

Table (2)

Step 5: The transactions which are recorded in journal are posted to the general ledger.

Step 6: At last, the Trial balance is prepared.

c. Purchased office equipment for $2,700 cash.

Step 1: Identify the accounts that are affected by an external transaction.

  • Equipment (Asset)
  • Cash (Asset)

Step 2: Impact of the transactions on the accounting equation:

Asset=Liability+Owners'Equity+$2,700(Equipment )=$2,700(Cash)=

Step 3: Assess the transaction which results in a debit or credit to account balances should be assessed.

  • Equipment is an asset account, and it has increased. Hence, debit Equipment account.
  • Cash is an asset account, and it has increased. Hence, credit cash account.

Step 4: Journal Entry:

Record the following journal entry in the general journal:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Equipment2,700
Cash2,700
(To record the purchase of equipment for cash)

Table (3)

Step 5: The transactions which are recorded in journal are posted to the general ledger.

Step 6: At last, the Trial balance is prepared.

Regards,

ABC.

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Chapter 2 Solutions

FINANCIAL ACCOUNTING

Ch. 2 - Prob. 11SSQCh. 2 - 12. The payment for utilities of the current month...Ch. 2 - Prob. 13SSQCh. 2 - Prob. 14SSQCh. 2 - 15. A trial balance can best be explained as a...Ch. 2 - Applying Excel #2-1 A company has the following...Ch. 2 - Applying Excel #2-2 A company has the following...Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - 6. What is the normal balance (debit or credit) of...Ch. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQCh. 2 - Prob. 11RQCh. 2 - 12. Provide the proper format for recording a...Ch. 2 - Prob. 13RQCh. 2 - Prob. 14RQCh. 2 - Prob. 15RQCh. 2 - Prob. 16RQCh. 2 - Prob. 17RQCh. 2 - Prob. 18RQCh. 2 - Prob. 19RQCh. 2 - Prob. 20RQCh. 2 - BE2-1 Below are the steps in the measurement...Ch. 2 - BE2-2 Using the notion that the accounting...Ch. 2 - BE2-3 Suppose a local company has the following...Ch. 2 - Prob. 4BECh. 2 - Prob. 5BECh. 2 - Prob. 6BECh. 2 - BE2-7 The following transactions occur for the...Ch. 2 - Prob. 8BECh. 2 - BE2-9 Consider the following T-account for...Ch. 2 - BE2-10 The following transactions occur for the...Ch. 2 - BE2-11 Using the following information, prepare a...Ch. 2 - BE2-12 Your study partner is having trouble...Ch. 2 - Prob. 1ECh. 2 - E2-2 Below are the external transactions for...Ch. 2 - Prob. 3ECh. 2 - E2-4 Boilermaker House Painting Company incurs the...Ch. 2 - Prob. 5ECh. 2 - Prob. 6ECh. 2 - Prob. 7ECh. 2 - E2-8 Terrapin Company engages in the following...Ch. 2 - Prob. 9ECh. 2 - Prob. 10ECh. 2 - E2-11 Bearcat Construction begins operations in...Ch. 2 - E2-12 Below are several transactions for Scarlet...Ch. 2 - Prob. 13ECh. 2 - Prob. 14ECh. 2 - E2-15 Consider the recorded transactions...Ch. 2 - Prob. 16ECh. 2 - Prob. 17ECh. 2 - E2-18 Below is the complete list of accounts of...Ch. 2 - Prob. 19ECh. 2 - Prob. 20ECh. 2 - Prob. 1PACh. 2 - Prob. 2PACh. 2 - Prob. 3PACh. 2 - Prob. 4PACh. 2 - Prob. 5PACh. 2 - Prob. 6PACh. 2 - Prob. 7PACh. 2 - Prob. 8PACh. 2 - Prob. 9PACh. 2 - P2-1B Below is a list of activities for Tigers...Ch. 2 - Prob. 2PBCh. 2 - Prob. 3PBCh. 2 - P2-4B Eli owns an insurance office, while Olivia...Ch. 2 - Prob. 5PBCh. 2 - Prob. 6PBCh. 2 - Prob. 7PBCh. 2 - Prob. 8PBCh. 2 - 4. prepare a trial balance as of November...Ch. 2 - Prob. 1APCh. 2 - Prob. 2APCh. 2 - Prob. 3APCh. 2 - American Eagle Outfitters, Inc. vs. The Buckle,...Ch. 2 - Prob. 5APCh. 2 - Prob. 6APCh. 2 - Prob. 7AP
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