Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 4 Accounting Information Systems 185

11.

Net income $3,513

Add:

Depreciation $ 80

Decrease in supplies 105

Decrease in prepaid insurance 65

Increase in accounts payable (from operations) 45

Increase in salary payable 300 595

Deduct:

Increase in accounts receivable 3,370

Net cash flows from operating activities $ 738

SELF-STUDY QUESTIONS Answers at end of chapter

1. A debit may signify a(n):
   A. increase in an asset account.
   B. decrease in an asset account.
   C. increase in a liability account.
   D. increase in the capital stock account.


2. The type of account with a normal credit balance is:
   A. an asset.
   B. dividends.
   C. a revenue.
   D. an expense.


3. A debit balance in which of the following accounts would
   indicate a likely error?
   A. Accounts Receivable
   B. Cash
   C. Fees Earned
   D. Miscellaneous Expense
   4. Which of the following entries closes the dividends account
   at the end of the period?
   A. Debit the dividends account, credit the capital stock
   account.
   B. Debit the retained earnings account, credit the
   dividends account.
   C. Debit the capital stock account, credit the dividends
   account.
   D. Debit the dividends account, credit the retained
   earnings account.
   5. Which of the following accounts would not be closed to
   the retained earnings account at the end of a period?
   A. Fees Earned
   B. Wages Expense
   C. Rent Expense
   D. Accumulated Depreciation

DISCUSSION QUESTIONS

1. When you registered for this class and paid your tuition,
   you interacted with the college’s information systems.
   (a) Are the registration and tuition payment systems
   business information systems? (b) Which system is part
   of the college’s accounting system?


2. What is the difference between an account and a ledger?


3. Do the terms debitandcreditsignify increase or de-
   crease, or can they signify either? Explain.


4. What is the effect (increase or decrease) of a debit to an
   expense account (a) in terms of stockholders’ equity
   and (b) in terms of expense?


5. What is the effect (increase or decrease) of a credit to a
   revenue account (a) in terms of stockholders’ equity
   and (b) in terms of revenue?


6. Regan Company adheres to a policy of depositing all
   cash receipts in a bank account and making all pay-
   ments by check. The cash account as of August 31 has
   a credit balance of $1,200, and there is no undeposited
   cash on hand. (a) Assuming that no errors occurred
   during journalizing or posting, what caused this un-
   usual balance? (b) Is the $1,200 credit balance in the
   cash account an asset, a liability, stockholders’ equity, a
   revenue, or an expense?


7. Tull Company performed services in June for a specific
   customer for a fee of $2,230. Payment was received the
   following July. (a) Was the revenue earned in June or
   July? (b) What accounts should be debited and credited
   in (1) June and (2) July?