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Accounting Concepts
PR
and Procedures
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
ES
1. The functions of accounting are to analyze, record, classify, summarize, report,
interpret, and communicate financial information.
2. Sole proprietorship—1 owner; unlimited liability; easy to form; limited life
Partnership—2 or more owners; unlimited liability; easy to form; limited life
Corporation—Stockholders; limited liability; difficult to form; unlimited life
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3. Businesses are classified as service, merchandise, or manufacturing.
4. Computer technology has greatly reduced the time required for performing the
bookkeeping function.
5. The three elements of the basic accounting equation are assets, liabilities, and
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owner's equity.
6. Capital is the owner's current investment or equity in the assets of a business. It is
one subdivision of owner's equity.
7. True. The sum of the left side of the equation (assets) must equal the sum of the
right side of the equation (liabilities and owner's equity).
8. False. That is the income statement.
9. False. Revenue is a subdivision of owner's equity.
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10. Owner's equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
11. False. It is a subdivision of owner's equity and records payments of the owner’s
personal (non-business) expenses or distributions direct to the owner. It is not a
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business expense.
12. Reject. As expenses increase, owner's equity decreases.
13. Revenue less Expenses; an income statement shows performance over time.
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14. False. It calculates ending capital.
15. The question in this case is whether Paul should be allowed to "pad" his expense
account with an additional $100 of expenses. This would be unethical. Paul should
only expense those items that are business related. Paul's argument that he is
entitled to an additional $100 is not a valid assumption. However, he should be
reimbursed for any business expenses during the weekend.
16. The pandemic has forced many small businesses to add numerous safety
ES
precautions to keep both their employees and their customers safe. Some safety
measures include shields that create a barrier between a cashier and the customer,
requiring masks be worn by employees and customers, and social distancing
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markers on floors. These expenses are borne by companies in the short term but
are often passed onto customers via higher prices on products and services sold in
the long run. Other changes due to Covid-19 are: (1) offering more delivery and
pickup options to customers, (2) changing the business model to focus on online
sales, (3) offering remote working options to employees, and (4) reducing retail
M
hours for customers due to deep cleaning.
PR
ES
SI
All Chapters Included
VE
All Answers Included
G
R
AD
ES
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, SOLUTIONS TO CONCEPT CHECKS
1. a. A
M
b. A
c. L
d. A
e. OE
PR
f. A
2. a. Liabilities
b. Total Assets
c. Accounts Payable
ES
3. a. I
b. S
4. Total assets = Cash $36,000 + Computer equipment $20,000 = $56,000
5. b. Rashad Lewis, Capital
d. Rashad Lewis, Withdrawals
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f. Advertising Expense
g. Taxi Fees Earned
6. c. Accounts Payable
VE
d. Grooming Fees Earned
7. a, b, d
8. a. IS
b. BS
G
c. BS
d. BS
e. IS
f. IS
R
g. OE
h. BS
AD
9. a. OE
b. BS
c. BS
d. IS
ES
Copyright © 2023 Pearson Education, Inc. 1-3
, SOLUTIONS TO SET A EXERCISES
1A-1. a. $20,000 = $8,500 + $11,500
b. $65,000 = $5,000 + $60,000
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c. $15,000 = $12,000 + $3,000
1A-2.
PR
Assets = Liabilities + Owner’s Equity
Cash + Equipment = Accounts + Tatyana, Capital
Payable
A. +70,000 +70,000
B. (8,000) +8,000
ES
C. +900 +900
1A-3.
KIM COMPANY CLEANERS
BALANCE SHEET
SEPTEMBER 30, 202X
SI
Assets Liabilities and Owner’s Equity
Cash $67 0 0 0 Liabilities
Equipment 7 0 0 0 Accounts Payable $13 0 0 0
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Total Liabilities 13 0 0 0
Owner's Equity
B. Kim, Capital 61 0 0 0
Total Liabilities and
G
Total Assets $74 0 0 0 Owner's Equity $74 0 0 0
R
AD
ES
Copyright © 2023 Pearson Education, Inc. 1-4
1
M
Accounting Concepts
PR
and Procedures
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
ES
1. The functions of accounting are to analyze, record, classify, summarize, report,
interpret, and communicate financial information.
2. Sole proprietorship—1 owner; unlimited liability; easy to form; limited life
Partnership—2 or more owners; unlimited liability; easy to form; limited life
Corporation—Stockholders; limited liability; difficult to form; unlimited life
SI
3. Businesses are classified as service, merchandise, or manufacturing.
4. Computer technology has greatly reduced the time required for performing the
bookkeeping function.
5. The three elements of the basic accounting equation are assets, liabilities, and
VE
owner's equity.
6. Capital is the owner's current investment or equity in the assets of a business. It is
one subdivision of owner's equity.
7. True. The sum of the left side of the equation (assets) must equal the sum of the
right side of the equation (liabilities and owner's equity).
8. False. That is the income statement.
9. False. Revenue is a subdivision of owner's equity.
G
10. Owner's equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
11. False. It is a subdivision of owner's equity and records payments of the owner’s
personal (non-business) expenses or distributions direct to the owner. It is not a
R
business expense.
12. Reject. As expenses increase, owner's equity decreases.
13. Revenue less Expenses; an income statement shows performance over time.
AD
14. False. It calculates ending capital.
15. The question in this case is whether Paul should be allowed to "pad" his expense
account with an additional $100 of expenses. This would be unethical. Paul should
only expense those items that are business related. Paul's argument that he is
entitled to an additional $100 is not a valid assumption. However, he should be
reimbursed for any business expenses during the weekend.
16. The pandemic has forced many small businesses to add numerous safety
ES
precautions to keep both their employees and their customers safe. Some safety
measures include shields that create a barrier between a cashier and the customer,
requiring masks be worn by employees and customers, and social distancing
wertyuik
wertyu
, jhgfds
markers on floors. These expenses are borne by companies in the short term but
are often passed onto customers via higher prices on products and services sold in
the long run. Other changes due to Covid-19 are: (1) offering more delivery and
pickup options to customers, (2) changing the business model to focus on online
sales, (3) offering remote working options to employees, and (4) reducing retail
M
hours for customers due to deep cleaning.
PR
ES
SI
All Chapters Included
VE
All Answers Included
G
R
AD
ES
wertyuik
wertyu
, SOLUTIONS TO CONCEPT CHECKS
1. a. A
M
b. A
c. L
d. A
e. OE
PR
f. A
2. a. Liabilities
b. Total Assets
c. Accounts Payable
ES
3. a. I
b. S
4. Total assets = Cash $36,000 + Computer equipment $20,000 = $56,000
5. b. Rashad Lewis, Capital
d. Rashad Lewis, Withdrawals
SI
f. Advertising Expense
g. Taxi Fees Earned
6. c. Accounts Payable
VE
d. Grooming Fees Earned
7. a, b, d
8. a. IS
b. BS
G
c. BS
d. BS
e. IS
f. IS
R
g. OE
h. BS
AD
9. a. OE
b. BS
c. BS
d. IS
ES
Copyright © 2023 Pearson Education, Inc. 1-3
, SOLUTIONS TO SET A EXERCISES
1A-1. a. $20,000 = $8,500 + $11,500
b. $65,000 = $5,000 + $60,000
M
c. $15,000 = $12,000 + $3,000
1A-2.
PR
Assets = Liabilities + Owner’s Equity
Cash + Equipment = Accounts + Tatyana, Capital
Payable
A. +70,000 +70,000
B. (8,000) +8,000
ES
C. +900 +900
1A-3.
KIM COMPANY CLEANERS
BALANCE SHEET
SEPTEMBER 30, 202X
SI
Assets Liabilities and Owner’s Equity
Cash $67 0 0 0 Liabilities
Equipment 7 0 0 0 Accounts Payable $13 0 0 0
VE
Total Liabilities 13 0 0 0
Owner's Equity
B. Kim, Capital 61 0 0 0
Total Liabilities and
G
Total Assets $74 0 0 0 Owner's Equity $74 0 0 0
R
AD
ES
Copyright © 2023 Pearson Education, Inc. 1-4
