Essay on Business Transaction

Describe the steps in recording and posting the effects of a business transaction and provide some examples of source documents used in these steps.

Analysis of transactions- this is to verify the financial transaction, and the identification of the respective accounts to be effected.

Journalize transactions: it involves filling the transactions into the General Journal, after recording the transaction on their respective Journals.

Post - After preparing the Journal entry for the transaction, we should post this to Ledger account. The ledger will keep a record of all the transactions, entered during the period and then will provide the balance.

Prepare unadjusted trial balance Preparation of the all list of ledgers is done at the end of the financial period. This is known as the Preparation of unadjusted trial balance. This trial balance with match the totals of debits and credits, and proves the arithmetical accuracy of the accounts.

Adjustments There is the requirement to check, and make adjustments, for the revenues and expenses not accounted for, this is done at the end of the period,

Prepare adjusted trial balance After account adjustments and entering them on their corresponding accounts, the adjusted trial balance is followed. The trial balance is used in the preparation of the financial statements.

Preparation of the financial statements: The balance the financial statements (Income Statement, Statement of retained earnings and the Balance sheet) is prepared after adjustment of the trial balance

The closing of the temporary accounts: What follows is the closing of the temporary accounts. At this point, closing journal entries are prepared and entered to their particular leger accounts. All the balances of the temporary accounts will read zero while the net balance is shifted to the retained earnings account or capital account.

Prepare the post-closing trial balance: It entails preparation of another post-closing trial balance, the trial balances and the permanent accounts are transferred over to the next period.

Define debit and credit and name the types of accounts that are (three correct responses):

Debit: it refers to an entry recording of the owned amount, it is listed on the left-side of the account.

Increased by a debit: Assets (Cash, Inventory, Accounts receivable.)

Decreased by a debit: Liabilities and stockholder equity (Unearned revenue, accounts payable, retained earnings, Bonds payable).

Credit: it is on the right side of the account, and it is where sum received are recorded.

Increased by a credit: Liabilities and stockholder (Unearned revenue, accounts payable, retained earnings, Bonds payable)

Decreased by a credit: Assets (Cash, Accounts receivable, Inventory)

Distinguished:

Correctly identify all of the types of accounts on the list.

The type of accounts in the list are:

Real Accounts

Personal Accounts

Nominal Accounts

Question 2:

Proficient:

Which steps in the accounting cycle are performed throughout the accounting cycle?

The steps to be performed throughout the accounting cycle are:

Analysis of transactions- this is to verify the financial transaction, and the identification of the respective accounts to be performed.

Journalize transactions: it involves filling the transactions into the General Journal, after recording the transaction on their respective Journals.

Post - After preparing the Journal entry for the transaction, we should post this to Ledger account. The ledger will keep a record of all the transactions, entered during the period and then will provide the balance.

Which of the steps in the accounting cycle are performed only at the end of the accounting period?

The steps in the accounting cycle are performed only at the end of the accounting period

Preparation of the unadjusted trial balance: of all the ledger accounts are prepared at the end of the period, together with their balances; it is referred to Preparation of unadjusted trial balance.

Adjustments: It involves checking of the requirements and making required adjustments. i.e. the expenses and revenues that are not accounted for.

Adjusted Trial Balance: adjusted trial balance is prepared after the adjustments have been made and posted on their respective accounts.

Financial Statements-After preparing the adjusted trial balance, preparation of the financial Statements is followed, it includes Statement of retained earnings, Income Statement, together with the Balance sheet.

Closing the Temporary Accounts: This involves preparation and posting of the closing journal entries on their respective ledger accounts. At the end of it, the balances of the temporary accounts become zero while the net balances are transferred to the retained earnings account or the capital accounts.

Preparation of the post-closing trial balance- It is made up of the permanent accounts and their balances are carried forward to the next period.

Distinguished:

Many of the steps in the accounting cycle can be performed on a computer with an accounting software package. Research three of the most commonly used packages and decide which one you would choose if you were starting a small business this year.

The most commonly used accounting packages

QuickBooksSage software

SAP

QuickBooks are easy to use and it properly maintains the account. Managers can effectively keep track of their money coming and leaving the accounts. It also has the feature of identifying the tax due and onetime payment. It also maintains the data backup and if lost, there are chances of it being retrieved with the bank level security.

Sage software- Can be easily used, as for the Sage 50, the management can properly manage the inventory, invoice the customers Pay bills, and also use electronic banking. The software has the capacity of bringing best according to the accounting standards and securing the desktop installation.

SAP: it is a complete management software that helps in efficiency running the business. It has various financial accounting features that meet the global accounting requirements.

When starting a new business, the most appropriate software package for accounting is QuickBooks, because it is less expensive and has quick installation and it is easy to operate. It comes with the free version for 1 month and later upgraded according to the subscription payments.

Question 3:

Proficient:

Why are separate "expense" and "revenue" accounts used when all revenues and expenses could be shown directly in the retained earnings account?

According to the accounting principles, if you maintain one account, there will be a mix-up of the expenses and the revenue. Hence, we wont be able to know the total expense made as well as the total revenue earned. By having a separate account, there will be easy understanding of the business and identify where the urgent actions are required, and the manager will be able to come up with their decisions depending on the available information that they have received.

Describe three examples of transactions that would affect a firm's income statement. For each transaction, identify if the transaction has a positive or negative effect on the firm's net income.

The three transactions affecting firm's income statement are:

Salary expense- A firm that has employees is obliged with the responsibilities of paying salary to them, this will be considered as an expense and debited on the salary expense account. Then the expense will appear on the operating expense aide of the income statement. At the end of the transaction period, there will be a decrease in the net income.

Rent Expense- If the firm is operating on the rented premises, the rent will be paid to the owner will be considered as an expense, and it will be debited from its appropriate expense account, and also entered on the income statement as an operating expense. This will eventually decrease the net income for that period.

Interest revenue- interest revenue is like when the company is given interest depending on its bank deposit. The amount of the interest revenue will be credited to the respective interest revenue account, consequently increasing the net income for the period.

Distinguished:

What is the purpose of the "dividends" account and under what circumstances would this account be increased?

The purpose of Dividends account is to maintain the amount paid to stakeholders as a portion of the business profits. The account can be increased when making the payments of the dividend. Because it is profit distribution, the income will not be affected.

Under what circumstances would the "dividends" account be decreased?

The dividends account will be decreased when it is closed when transferring the dividends to the retained earning account, whereby the account decreases and the balance become zero.

Question 4:

Proficient:

Are the following possibilities conceivable in an entry involving only one debit and one credit? Please explain your response for each item. Provide five or six correct responses:

Distinguished:

Correctly identify all of the items.

Increase a liability and increase an expense.

When receiving the bill of expense, record it n the accounts. In most cases, the expenses are recorded once they are paid. Although, in the event that, the end of the period is nearing and no payment has been made because of some reasons or its payment is yet to be due it is recorded under liability. The recording will lead to an increase of the liability.

Increase in asset and decrease a liability.

There could be an increase in the asset when debiting the asset account while the decrease in liability will be effected with the debiting the liability account. Because both needs debit transaction, there are no possibilities in increasing the assets and decreasing the assets of the liabilities of a single transaction

Increase revenue and decrease an expense.

The increase in revenue is possible with the increase in an asset account or decrease in the liability account. Hence Increase revenue and decrease an expense is not possible in one transaction.

Decrease an asset and increase another asset.

It is possible to have a decrease in one asset as well as an increase in another asset, this could happen when a purchase is made and its payment made in cash. If there is payment of cash while purchasing the inventory, the decrease in cash will be there together with the increase of the inventory.

Increase a liability and decrease an asset

The increase in liability can be effected with the credit to the liability account, and the decrease in asset could be the effect with the credit to assets account. Because of the both need credit, there is no possibility to have one transaction with an increase in liability and decrease in an asset.

Decrease an asset and increase a liability

Credit to liability leads to increase in the liability. Credit to assets accounts leads to the decrease in an asset. There is no possibility of having one transaction because both accounts need credit, increase a liability and Decrease an asset.

Increas asset and decrease revenue

Credit in assets brings a decrease in asset and debt on revenue brings a decrease in revenue. In an event of a sales return, there will be a decrease in the revenue (sales account), together with the decrease in the asset (cash /Accounts receivable).

Increase revenue and decrease a liability

Credit in revenue will lead to the increase in revenue while debit on liability will lead to the decrease in the liability. In a scenario where the revenue earned from unearned revenue, there will be an increase in revenue (sales account) with also a decrease in the liability (unearned revenue)

Question 5:

Proficient:

Define the "normal" balance for an account....