Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 4 Accounting Information Systems 207

At the end of the current month, Ross Heimlich prepared a trial balance for Main Street Motor

Co. The credit side of the trial balance exceeds the debit side by a significant amount. Ross has

decided to add the difference to the balance of the miscellaneous expense account in order to

complete the preparation of the current month’s financial statements by a 5 o’clock deadline.

Ross will look for the difference next week when he has more time.

Discuss whether Ross is behaving in a professional manner.

The following discussion took place between Heather Sims, the office manager of Sedgemoor

Data Company, and a new accountant, Ed Hahn.

Ed:I’ve been thinking about our method of recording entries. It seems that it’s inefficient.

Heather:In what way?

Ed:Well—correct me if I’m wrong—it seems like we have unnecessary steps in the process.

We could easily develop a trial balance by posting our transactions directly into the

ledger and bypassing the journal altogether. In this way we could combine the recording

and posting processes into one step and save ourselves a lot of time. What do you think?

Heather:We need to have a talk.

What should Heather say to Ed?

The following excerpt is from a conversation between Peter Kaiser, the president and chief

operating officer of Sprocket Construction Co., and his neighbor, Doris Nesmith:

Doris:Peter, I’m taking a course in night school, “Intro to Accounting.” I was wondering—could

you answer a couple of questions for me?

Peter:Well, I will if I can.

Doris:Okay, our instructor says that it’s critical we understand the basic concepts of

accounting, or we’ll never get beyond the first test. My problem is with those rules of

debit and credit...you know, assets increase with debits, decrease with credits, etc.

Peter:Yes, pretty basic stuff. You just have to memorize the rules. It shouldn’t be too difficult.

Doris:Sure, I can memorize the rules, but my problem is I want to be sure I understand the

basic concepts behind the rules.

For example, why can’t assets be increased with credits and decreased with debits

like revenue? As long as everyone did it that way, why not? It would seem easier if we

had the same rules for all increases and decreases in accounts.

Also, why is the left side of an account called the debit side? Why couldn’t it be called

something simple...like the “LE” for Left Entry? The right side could be called just “RE”

for Right Entry.

Finally, why are there just two sides to an entry? Why can’t there be three or four

sides to an entry?

In a group of four or five, select one person to play the role of Peter and one person to play the

role of Doris.

1. After listening to the conversation between Peter and Doris, help Peter answer Doris’s
   questions.


2. What information (other than just debit and credit journal entries) could the accounting sys-
   tem gather that might be useful to Peter in managing Sprocket Construction Co.?

The following is an excerpt from a telephone conversation between Pedro Mendoza, president

of Goliath Supplies Co., and Natalie Weich, owner of Flint Employment Co.:

Pedro:Natalie, you’re going to have to do a better job of finding me a new computer

programmer. That last guy was great at programming, but he didn’t have any

common sense.

Activity 4-2

Ethics and professional
conduct in business

Activity 4-4

Debits and credits

Activity 4-5

Financial statements

Activity 4-3

Recording transactions