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Financial accounting

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Practice 3-1
Solution:
a. The accounts impacted by the transaction are ‘Cash’ and ‘Notes Payable’
b. Both ‘Cash’ and ‘Notes Payable’ accounts increased.
c. ‘Cash’ and ‘Notes Payable’ accounts increased by $5,000.
d. Total Assets increased by $5,000, Total Liabilities increased by $5000, Total Equity, however remained unchanged.
Practice 3-2
Solution:
a. The accounts impacted by the transaction are ‘Cash’ and ‘Land’
b. ‘Cash’ account decreased while ‘Land’ account increased.
c. ‘Cash’ decreased by $45,000. ‘Land’ increased by $45,000.
d. Total Assets, Total Liabilities and Total Equity remained unchanged.
Practice 3-11 Solution
20XX
May 1 Cash.. . 125,000
Notes Payable.. 125,000
Borrowed from Far West Bank signing a 2-yearnote at 14%
Practice 3-12 Solution
20XX
May 14 Land.. 45000
Cash.. 45000
Bought land on west side of Hatu Lake
Practice 3-16 Solution
Refer to Practice 3-11
Notes Payable
20XX
20XX
May1 Beg. Bal. 0
May1 Cash 125000
May30 End. Bal. 125000
Cash
20XX
20XX
May1 Beg. Bal. 0
May1 Notes Payable 125,000
May30 End. Bal. $125,000
Refer to Practice 3-12
Land
20XX
20XX
May1 Beg. Bal. 0
May14 Cash 45000
May30 End. Bal. $45000
Cash
20XX
20XX
May1 Beg. Bal. 0
May 14 Land 45000
May30 End. Bal….
These are called "generally accepted" because they are widely accepted by business community. Otherwise, these rules will have no application in business.
In the USA, Financial Accounting Standard Board (FASB) develops GAAP. It is a private body that sets both broad and specific rules (Wild, 2005). Securities and Exchange Commission (SEC) is another government entity that sets reporting requirements for companies that issues stock to general public.
In addition to above-mentioned two bodies, there is another board called International Accounting Standards Board (IASB) that establishes International Financial Reporting Standards. This is an attempt to establish a harmonious and consistent system of accounting throughout the globe. However, IASB cannot impose these rules to organizations.
The main objective of GAAP is to make financial information "relevant, reliable and comparable" (Wild, 2005). Managers’ decisions are highly affected by the relevant financial information. Adherence to GAAP offers reliability to financial information and wins the trust of the user. Good understanding of these principles is necessary especially when you are comparing the performance of two or more companies, especially when the companies belong to different industries or countries.
An adjusting entry is necessary to bring assets/ liabilities and revenu