ACCOUNT NAME Balance Sheet OR Income Statement? Asset, Liability, Equity, Revenue, Expense? Debit OR Credit to show an INCREASE? Accounts Payable Interest Paid Land Bank Loan Cost of Goods Sold Accounts Receivable Inventory Long-Term Debt Taxes Sales Dividends Paid Unearned Revenue Selling, General & Administrative Interest Earned Capital Stock Cost of Merchandise Sold Equipment Pre-Paid Utilities Wages Payable Depreciation Cash
The following transactions occurred at a small retail store called Bead-It. The store sells materials for people interested in making their own jewelry. (1) Purchased (with cash) $500 worth of merchandise. (2) Sold $50 worth of merchandise. The customer promised to make the payment for the merchandise within a week. The merchandise had cost $30. (3) Received the amount in full from the previous customer
(4) Paid the wages of sales clerk in the amount of $200. (5) Purchased a new cash register in the amount of $2,000. Bead-It promises to make payments for the cash register over the next 4 months. (6) Bead-It makes a $500 payment on the cash registered it had purchased.
(7) Bead-It makes a $1,200 payment for fire & theft insurance to be covered during the next year (8) A month goes by since transaction (7) (9) Bead-It receives $100 in interest on its savings account.
What do the following recorded transactions indicate has happened? 1. Debit Credit Accounts Receivable $100 2. Debit Credit Inventory $100 Accounts Payable $100 3. Debit Credit Interest $100 4. Debit Credit Bonds $100 5. Debit Credit Accounts Receivable $100 Inventory $80 Cost of Goods Sold $80 Revenue $100 6. Debit Credit Depreciation $100 Car $100 7. Debit Credit Accounts Payable $100 8. Debit Credit Capital Stock $100 9. Debit Credit Rent $100 Accounts Payable $100
Some Accounting Issues 1. The owner of the store Bead-It is considering opening another store in a nearby town. The initial cost of the store (inventory, remodeling, etc.) will be $150,000. The owner is deciding how to finance the new store. One option is to get a 10 year loan from a bank at an interest rate of 6%. A second option is to take on a partner (a good friend has wanted to become business partners for a long time now). Discuss the accounting issues involved in the two options. 2. Bead-It s internet provider is offering a special deal. The deal consists of an annual payment of $100 (to be paid at the beginning of the year) for unlimited access. Currently, Bead-It pays $10 per month at the end of each month of service. Discuss the accounting issues involved in the two payment plans. 3. Joe the Plumber owns his own plumbing company. Joe has just completed training and received his class 3 certification. The training courses leading to certification cost Joe nearly $4,000. However, Joe believes this has been a good business decision because it will allow him to bid for lucrative government jobs. Joe s accountant insists that the $4,000 be recorded as an expense. Joe, on the other hand, makes the argument that the money should be thought of as an investment and therefore be noted as an asset to the business. At any rate, Joe explains that it cannot be viewed as an expense because it will not be matched with the revenues generated in the future (something the accountant had emphasized to Joe on several occasions). Discuss how the training should be recorded. 4. A small private liberal arts college receives tuition income from students enrolled. Some of the students pay cash to the college at the beginning of the year, while other students make monthly payments during the school year. The college constructs its financial statements two times per year: once on Jan. 1 for its winter board meeting and a final statement on June 30 th for tax purposes. When should the college book the tuition as revenue? 5. An ice-cream retailer purchases a fully-loaded new refrigerator for $2,000. The refrigerator is fully-loaded in the sense that it came with $300 worth of ice-cream. The owner of the store plans to record the entire transaction as an addition to the Property, Plant, and Equipment account and depreciate it as an expense over the next 5 years. Discuss whether the owner is taking the correct approach to this transaction.