Situations for discussion

I. During the first week of an accounting course Student A expressed the opinion that a great deal of time could be saved if a business would record directly in ledger accounts rather than entering transactions first in a journal and then posting the debit and credit amounts from the journal to the ledger. Student B disagreed with this view but added that such a system should not be called double-entry bookkeeping since each transaction would be entered only once. Student C disagreed with both A and B. He argued that the use of a journal and ledger was more efficient than entering transactions directly in ledger accounts. Furthermore, he argued that the meaning of double-entry bookkeeping did not refer to the practice of maintaining both a journal and a ledger. Evaluate the statements made by all three students.

II. Trevor Smith owns and runs a general store. The following transactions took place last week:

Trevor’s cash sales for the week amount to $1,634.

He pays wages for the week $899.

Trevor takes $180 cash from the business for his own private use.

He pays $328 cash for servicing his delivery van.

Trevor sells meat, rolls etc. $65 to the local squash club; the treasurer will pay Trevor next week.

Enter the transactions into either debit or credit side of Trevor’s Smith ledger accounts. Explain your choice.

III. In which ledger would you expect to find the following accounts? Explain your choice.

Account name Purchases Sales General

ledger ledger ledger

Tamsin; a credit customer

Frank; a supplier to be paid next

month

Returns inwards account

Cash sales account

Rent account

Bank account

Capital account

Credit sales account

Drawings account

Motor expenses account

Purchases account.

Chapter III financial statements

This chapter presents the basic financial statements and analyses their main constituents.

After studying this unit you should be able to:

1. Define terminology related to different financial statements.

2. Understand the different purposes for which accounts are prepared.

3. Classify financial items as assets, liabilities, or capital.

4. Analyze financial statements.

5. Comment on the purposes of producing cash-flow statement.

6. Explain the significance of ratios.

Active vocabulary:

accounts payable – кредиторська заборгованість

accounts receivable – дебіторська заборгованість

adjustment – коригування

allowance for doubtful accounts – резерв на покриття сумнівних кредитів

apportion – пропорційно ділити, розподіляти

catchcall category – позиція «інше»

current assets – поточні активи, короткострокові активи

current liabilities – короткострокові, поточні забов’язання

debenture – боргове забов’язання

depreciation – амортизація

equity capital – 1) власний капітал; 2) капітал у вигляді акцій

fixed assets – 1) основні засоби, 2) основні активи

inflows and outflows – вливання капіталу та витік капіталу

intangible assets – нематеріальні активи

issuance of trade credit – видача торгового кредиту

liquidity – ліквідність

marketable securities – ліквідні цінні папери

merchandise inventory – товарні запаси

notes payable – векселі видані; векселі до оплати

notes receivable – векселі одержані; бухгалтерський рахунок, на якому відображені суми, які компанія повинна отримати за векселями

par value – номінальна вартість

prepaid expenses – авансовані кошти

promissory note – простий вексель

retailing firm – роздрібна компанія

retained earnings – нерозподілений прибуток

sales allowances – знижки при продажі

sales discounts – знижка для стимулювання збуту та збільшення обсягу продажу; знижки покупцям, які розплачуються готівкою

sales returns – повернення товару

wholesaling firm – оптова компанія

work in process (progress) – незавершене виробництво.