1460T_c03.qxd12/31/0511:19 am Page104 EQA 104 Chapter 3 The Accounting Information System Uptown then balances the Income Statement columns.The company also enters the net income of $12,200 in the Balance Sheet Cr.column as an increase in retained earnings. Preparing Financial Statements from a Worksheet The worksheet provides the information needed for preparation of the financial state- ments without reference to the ledger or other records.In addition,the worksheet sorts the data into appropriate columns,which facilitates the preparation of the statements. The financial statements for Uptown Cabinet are shown in Chapter 3,pages 90-91. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3C KEY TERM 11. worksheet,101 Prepare a 10-column worksheet.The 10-column worksheet provides columns for the first trial balance,adjustments,adjusted trial balance,income statement,and balance sheet.The worksheet does not replace the financial statements.Instead,it is an informal device for accumulating and sorting information needed for the financial statements. Note:All asterisked Questions,Exercises,Problems,and Cases relate to material con- tained in the appendixes to the chapter. QUESTIONS 1.Give an example of a transaction that results in: 7.Indicate whether each of the items below is a real or nom- (a)A decrease in an asset and a decrease in a liability. inal account and whether it appears in the balance sheet or the income statement. (b)Adecrease in one asset and an increase in another asset. (a)Prepaid Rent. (c)A decrease in one liability and an increase in another liability. (b)Salaries and Wages Payable. 2.Do the following events represent business transactions? (c)Merchandise Inventory. Explain your answer in each case. (d)Accumulated Depreciation. (a)A computer is purchased on account. (e)Office Equipment. (b)A customer returns merchandise and is given credit (f)Service Revenue. on account. (g)Office Salaries Expense. (c)A prospective employee is interviewed. (h)Supplies on Hand. (d)The owner of the business withdraws cash from the 8.Employees are paid every Saturday for the preceding business for personal use. work week.If a balance sheet is prepared on Wednes- (e)Merchandise is ordered for delivery next month. day,December 31,what does the amount of wages 3.Name the accounts debited and credited for each of the earned during the first three days of the week(12/29, following transactions. 12/30,12/31)represent?Explain. (a)Billing a customer for work done. 9.(a)How do the components of revenues and expenses (b)Receipt of cash from customer on account. differ between a merchandising company and a service enterprise?(b)Explain the income measurement process (c)Purchase of office supplies on account of a merchandising company. (d)Purchase of 15 gallons of gasoline for the delivery 10.What is the purpose of the Cost of Goods Sold account? truck. (Assume a periodic inventory system.) 4.Why are revenue and expense accounts called temporary 11.Under a perpetual system,what is the purpose of the or nominal accounts? Cost of Goods Sold account? 5.Omar Morena,a fellow student,contends that the double- 12.If the $3,900 cost of a new microcomputer and printer entry system means that each transaction must be purchased for office use were recorded as a debit to recorded twice.Is Omar correct?Explain. Purchases,what would be the effect of the error on the 6.Is it necessary that a trial balance be taken periodically? balance sheet and income statement in the period in What purpose does it serve? which the error was made?Uptown then balances the Income Statement columns. The company also enters the net income of $12,200 in the Balance Sheet Cr. column as an increase in retained earnings. Preparing Financial Statements from a Worksheet The worksheet provides the information needed for preparation of the financial state￾ments without reference to the ledger or other records. In addition, the worksheet sorts the data into appropriate columns, which facilitates the preparation of the statements. The financial statements for Uptown Cabinet are shown in Chapter 3, pages 90–91. SUMMARY OF LEARNING OBJECTIVE FOR APPENDIX 3C 11. Prepare a 10-column worksheet. The 10-column worksheet provides columns for the first trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. The worksheet does not replace the financial statements. Instead, it is an informal device for accumulating and sorting information needed for the financial statements. Note: All asterisked Questions, Exercises, Problems, and Cases relate to material con￾tained in the appendixes to the chapter. 104 • Chapter 3 The Accounting Information System KEY TERM worksheet, 101 QUESTIONS 1. Give an example of a transaction that results in: (a) A decrease in an asset and a decrease in a liability. (b) Adecrease in one asset and an increase in another asset. (c) A decrease in one liability and an increase in another liability. 2. Do the following events represent business transactions? Explain your answer in each case. (a) A computer is purchased on account. (b) A customer returns merchandise and is given credit on account. (c) A prospective employee is interviewed. (d) The owner of the business withdraws cash from the business for personal use. (e) Merchandise is ordered for delivery next month. 3. Name the accounts debited and credited for each of the following transactions. (a) Billing a customer for work done. (b) Receipt of cash from customer on account. (c) Purchase of office supplies on account. (d) Purchase of 15 gallons of gasoline for the delivery truck. 4. Why are revenue and expense accounts called temporary or nominal accounts? 5. Omar Morena, a fellow student, contends that the double￾entry system means that each transaction must be recorded twice. Is Omar correct? Explain. 6. Is it necessary that a trial balance be taken periodically? What purpose does it serve? 7. Indicate whether each of the items below is a real or nom￾inal account and whether it appears in the balance sheet or the income statement. (a) Prepaid Rent. (b) Salaries and Wages Payable. (c) Merchandise Inventory. (d) Accumulated Depreciation. (e) Office Equipment. (f) Service Revenue. (g) Office Salaries Expense. (h) Supplies on Hand. 8. Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednes￾day, December 31, what does the amount of wages earned during the first three days of the week (12 ⁄ 29, 12 ⁄ 30, 12 ⁄ 31) represent? Explain. 9. (a) How do the components of revenues and expenses differ between a merchandising company and a service enterprise? (b) Explain the income measurement process of a merchandising company. 10. What is the purpose of the Cost of Goods Sold account? (Assume a periodic inventory system.) 11. Under a perpetual system, what is the purpose of the Cost of Goods Sold account? 12. If the $3,900 cost of a new microcomputer and printer purchased for office use were recorded as a debit to Purchases, what would be the effect of the error on the balance sheet and income statement in the period in which the error was made? 1460T_c03.qxd 12/31/05 11:19 am Page 104