Basic Accounting Concepts, Principles, And Procedu
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Basic Accounting Concepts, Principles, and Procedures, 2ed. Vol. 2
The content includes:
Academic-quality texts with comprehensive content explained in an easy to understand, step-by-step manner.
Extra reinforcement at key points, such as the enhanced introduction to business and accounting.
• Learning Goal 15: Identify an Accounting System; Explain and Use Its Features
• Learning Goal 16: Report and Control Cash
• Learning Goal 17: Record, Report, and Control Receivables
• Learning Goal 18: Record, Report, and Control Merchandise Inventory
• Learning Goal 19: Record, Report, and Control Fixed Assets and Intangibles
• Learning Goal 20: Record, Report, and Control Current Liabilities and Payroll
• Learning Goal 21: Prepare and Analyze a Statement of Cash Flows
, Learning Goal 1: Explain the Meaning of “Accounting Period” S
SOLUTIONS Learning Goal 1
Multiple Choice
1. b
2. d
3. c
4. c
5. a Although all the other items are important as well—especially (b) and (d).
6. c
7. c
Reinforcement Problems
LG 1-1. The life of a business is divided into regular, equal accounting periods because:
■■ Income measurement: Net income can only be measured over a period of time.
■■ Timeliness: Financial information is needed frequently and regularly.
■■ Comparability: Selecting equal time periods makes information comparable.
The issues created are:
a. Deciding what is the best way to measure financial change during each period.
b. The need to carefully define the elements that will measure the change.
c. Knowing in what periods revenues and expenses should be recorded.
d. Making sure that all revenues and expenses do get recorded.
LG 1-2. The active policy falls into 2017, 2018, and 2019.
July 1 July 1
Sept. 10 Sept. 9
2017 2018 2019
LG 1-3. No! Rosie’s Company earned the $12,000 in only one month, while Greg’s Company
needed a year to earn the same amount. Rosie’s Company will earn 12 × $12,000 = $144,000 in
a year. The length of the time period makes a big difference!
LG 1-4.
A revenue can either increase an asset or decrease a liability, but always increases retained
●●
earnings.
An expense can either increase a liability or decrease an asset, but always decreases
●●
, Learning Goal 2: Explain the Basic Principles for Recording Revenues and Expenses S
SOLUTIONS Learning Goal 2
Multiple Choice
1. d Business income (or loss) is more properly measured using accrual basis accounting because
accrual basis accounting recognizes (records) noncash revenues as well as cash revenues, and
noncash expenses as well as cash expenses.
2. c 3. d 4. b 5. d 6. b 7. c 8. a
9. a Expenses must be matched with revenues. Also, concerning (d) remember that a cash basis
balance sheet will never show receivables or payables, because revenues and expenses cannot
be accrued—they must always be received or paid in cash.
Reinforcement Problems
LG 2-1. The periodicity (time-period) assumption is the assumption that the life of a business can
be divided into regular, fixed time intervals. The revenue recognition principle tells accountants
how to determine the amount of revenue that should be recorded in any particular time period.
The matching principle tells accountants how to determine the amount of expense that should be
recorded in any particular time period.
LG 2-2.
a. When cash basis is used, accounts receivable and accounts payable do not appear on the
balance sheet. An account receivable results from noncash revenue. Noncash revenue
transactions are not recorded on a cash basis. Accounts payable result from noncash expenses
or purchases not paid for. Because there are no cash payments, these transactions would not be
recorded.
b. Unlike cash basis, accrual basis accounting records all revenues (cash and noncash), so it is not
necessary for cash to be received in order to record revenue. However, all receipts of cash are
not revenue. Examples: Loans and owner investments are not revenue.
c. Unlike cash basis, accrual basis accounting records all expenses (cash and noncash), so it is not
necessary for cash to be paid in order to record an expense. However, all payments of cash are
not expenses. Examples: Buying assets for cash and paying back loans.
d. The manager is incorrect because it is not yet earned. The order is not yet finished and
delivered to the customer, so no revenue can be recorded. Intentionally recording the revenue
on December 31 would be a violation of the revenue recognition principle, would overstate the
year’s revenue, and would be a fraudulent transaction.
LG 2-3.
Which Period to record:
Situation principle? Revenue / Expense
a. C
ape Fear Company performed $500 of repair revenue $500 January revenue
services in January and was paid in March. recognition
b. W
ilkes Delivery Company used $250 of matching $250 August expense. This expense can-
automotive supplies in August. not be traced to any particular revenue.
Mostyn-Vol 2_SG2.indd 1 12/2
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