CHAPTER 1
INTRODUCTION TO ACCOUNTING AND BUSINESS
DISCUSSION QUESTIONS
1. Some users of accounting information include managers, employees, investors, creditors,
customers, and the government.
2. The role of accounting is to provide information for managers to use in operating the business.
In addition, accounting provides information to others to use in assessing the economic
performance and condition of the business.
3. The corporate form allows the company to obtain large amounts of resources by issuing stock.
For this reason, most companies that require large investments in property, plant, and equipment
are organized as corporations.
4. No. The business entity assumption limits the recording of economic data to transactions directly
affecting the activities of the business. The payment of the interest of $4,500 is a personal
transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent
with the cost principle.
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized
in the accounting records.
b. Cash would increase by $2,125,000, land would decrease by $900,000, and stockholders’
equity would increase by $1,225,000.
7. An account receivable is a claim against a customer for goods or services sold. An account
payable is an amount owed to a creditor for goods or services purchased. Therefore, an account
receivable in the records of the seller is an account payable in the records of the purchaser.
8. (b) The business realized net income of $91,000 ($679,000 – $588,000).
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
10. (a) Net income or net loss
(b) Common stock and retained earnings at the end of the period
(c) Cash at the end of the period
1-1
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
BASIC EXERCISES
BE 1–1
$190,000. Under the cost principle, the land should be recorded at the cost to Upstate
Metal Roofing.
BE 1–2
a. A = L + SE
$710,000 = $195,000 + SE
SE = $515,000
b. A = L + SE
$710,000 + $125,000 = $195,000 + $25,000 + SE
$835,000 = $220,000 + SE
SE = $615,000
BE 1–3
(2) Expense (Advertising Expense) increases by $8,500;
Asset (Cash) decreases by $8,500.
(3) Asset (Supplies) increases by $3,200;
Liability (Accounts Payable) increases by $3,200.
(4) Asset (Accounts Receivable) increases by $31,750;
Revenue (Delivery Service Fees) increases by $31,750.
(5) Asset (Cash) increases by $27,700;
Asset (Accounts Receivable) decreases by $27,700.
BE 1–4
Worldwide Travel
Income Statement
For the Year Ended July 31, 20Y6
Fees earned $ 1,175,000
Expenses:
Salary and wages expense $776,000
Office expense 175,000
Miscellaneous expense 80,000
Total expenses (1,031,000)
Net income $ 144,000
1-2
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
BE 1–5
Worldwide Travel
Statement of Stockholders’ Equity
For the Year Ended July 31, 20Y6
Common Retained
Stock Earnings Total
Balances, August 1, 20Y5 $120,000 $550,000 $670,000
Issued common stock 60,000 60,000
Net income for the year 144,000 144,000
Dividends (35,000) (35,000)
Balances, July 31, 20Y6 $180,000 $659,000 $839,000
BE 1–6
Worldwide Travel
Balance Sheet
July 31, 20Y6
Assets
Cash $143,450
Accounts receivable 42,750
Supplies 3,800
Land 675,000
Total assets $865,000
Liabilities
Accounts payable $ 26,000
Stockholders’ Equity
Common stock $180,000
Retained earnings 659,000
Total stockholders’ equity 839,000
Total liabilities and stockholders’ equity $865,000
1-3
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
BE 1–7
Worldwide Travel
Statement of Cash Flows
For the Year Ended July 31, 20Y6
Cash flows from (used for) operating activities:
Cash received from customers $ 1,225,000
Cash paid for operating expenses (1,116,050)
Net cash flows from operating activities $108,950
Cash flows from (used for) investing activities:
Cash paid for purchase of land (50,000)
Cash flows from (used for) financing activities:
Cash received from issuing common stock $ 60,000
Cash paid as dividends (35,000)
Net cash flows used for financing activities 25,000
Net increase in cash $ 83,950
Cash balance, August 1, 20Y5 59,500
Cash balance, July 31, 20Y6 $143,450
BE 1–8
a. Dec. 31, Dec. 31,
20Y4 20Y3
Total liabilities……………………………………………… $4,085,000 $2,880,000
Total stockholders’ equity………………………………… $4,300,000 $3,600,000
Ratio of liabilities to stockholders’ equity……………… 0.95 * 0.80 **
* $4,085,000 ÷ $4,300,000
** $2,880,000 ÷ $3,600,000
b. Increased
1-4
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTRODUCTION TO ACCOUNTING AND BUSINESS
DISCUSSION QUESTIONS
1. Some users of accounting information include managers, employees, investors, creditors,
customers, and the government.
2. The role of accounting is to provide information for managers to use in operating the business.
In addition, accounting provides information to others to use in assessing the economic
performance and condition of the business.
3. The corporate form allows the company to obtain large amounts of resources by issuing stock.
For this reason, most companies that require large investments in property, plant, and equipment
are organized as corporations.
4. No. The business entity assumption limits the recording of economic data to transactions directly
affecting the activities of the business. The payment of the interest of $4,500 is a personal
transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent
with the cost principle.
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized
in the accounting records.
b. Cash would increase by $2,125,000, land would decrease by $900,000, and stockholders’
equity would increase by $1,225,000.
7. An account receivable is a claim against a customer for goods or services sold. An account
payable is an amount owed to a creditor for goods or services purchased. Therefore, an account
receivable in the records of the seller is an account payable in the records of the purchaser.
8. (b) The business realized net income of $91,000 ($679,000 – $588,000).
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
10. (a) Net income or net loss
(b) Common stock and retained earnings at the end of the period
(c) Cash at the end of the period
1-1
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
BASIC EXERCISES
BE 1–1
$190,000. Under the cost principle, the land should be recorded at the cost to Upstate
Metal Roofing.
BE 1–2
a. A = L + SE
$710,000 = $195,000 + SE
SE = $515,000
b. A = L + SE
$710,000 + $125,000 = $195,000 + $25,000 + SE
$835,000 = $220,000 + SE
SE = $615,000
BE 1–3
(2) Expense (Advertising Expense) increases by $8,500;
Asset (Cash) decreases by $8,500.
(3) Asset (Supplies) increases by $3,200;
Liability (Accounts Payable) increases by $3,200.
(4) Asset (Accounts Receivable) increases by $31,750;
Revenue (Delivery Service Fees) increases by $31,750.
(5) Asset (Cash) increases by $27,700;
Asset (Accounts Receivable) decreases by $27,700.
BE 1–4
Worldwide Travel
Income Statement
For the Year Ended July 31, 20Y6
Fees earned $ 1,175,000
Expenses:
Salary and wages expense $776,000
Office expense 175,000
Miscellaneous expense 80,000
Total expenses (1,031,000)
Net income $ 144,000
1-2
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
BE 1–5
Worldwide Travel
Statement of Stockholders’ Equity
For the Year Ended July 31, 20Y6
Common Retained
Stock Earnings Total
Balances, August 1, 20Y5 $120,000 $550,000 $670,000
Issued common stock 60,000 60,000
Net income for the year 144,000 144,000
Dividends (35,000) (35,000)
Balances, July 31, 20Y6 $180,000 $659,000 $839,000
BE 1–6
Worldwide Travel
Balance Sheet
July 31, 20Y6
Assets
Cash $143,450
Accounts receivable 42,750
Supplies 3,800
Land 675,000
Total assets $865,000
Liabilities
Accounts payable $ 26,000
Stockholders’ Equity
Common stock $180,000
Retained earnings 659,000
Total stockholders’ equity 839,000
Total liabilities and stockholders’ equity $865,000
1-3
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
BE 1–7
Worldwide Travel
Statement of Cash Flows
For the Year Ended July 31, 20Y6
Cash flows from (used for) operating activities:
Cash received from customers $ 1,225,000
Cash paid for operating expenses (1,116,050)
Net cash flows from operating activities $108,950
Cash flows from (used for) investing activities:
Cash paid for purchase of land (50,000)
Cash flows from (used for) financing activities:
Cash received from issuing common stock $ 60,000
Cash paid as dividends (35,000)
Net cash flows used for financing activities 25,000
Net increase in cash $ 83,950
Cash balance, August 1, 20Y5 59,500
Cash balance, July 31, 20Y6 $143,450
BE 1–8
a. Dec. 31, Dec. 31,
20Y4 20Y3
Total liabilities……………………………………………… $4,085,000 $2,880,000
Total stockholders’ equity………………………………… $4,300,000 $3,600,000
Ratio of liabilities to stockholders’ equity……………… 0.95 * 0.80 **
* $4,085,000 ÷ $4,300,000
** $2,880,000 ÷ $3,600,000
b. Increased
1-4
© 2025 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
