Part 2 — REVIEW QUESTIONS ON THE SUBJECT OF THEORY OF ACCOUNTS

PART II

1. Into what two general and what three special classes are accounts divided in double entry bookkeeping?

2. Define and give examples of personal, real, representative, and nominal accounts.

3. What is a merchandise account? What accounts are substituted for the merchandise account in modern bookkeeping? In what particular is the use of these accounts an improvement over the older method of using a merchandise account?

4. Name and define four classes of assets, giving examples of each.

5. Give two examples of fixed assets in one business which become floating assets in another business. Give two examples of floating assets in one business which become fixed assets in another business.

6. What are revenue receipts? revenue expenditures? What accounts are designated by the term revenue accounts?

7. What is the broad term by which all revenue expenditure accounts are designated? Name and define five commonly used subdivisions of this account.

8. What is meant by journalizing? When purchase and sales books are used, what class of entries are made in the journal? Give three examples of journal entries involving transfers of value from one account to another.

9. What is a three column journal, and how is it used?

10. Journalize the following transactions:

April 15. Bought from Reliance Mills, on account

94 bbls. flour @ $4.75

Sold to D. H. Pointer, on account

15 bbls. flour @ 5.35

Sold to H. S. Fleming, on account

60 bu. wheat @ 1.05

April 16. Gave to Reliance Mills, my note payable in 60 days, to balance account

Received from D. H. Pointer note for 30 days to balance account.

11. What is meant by posting? Explain the operation of posting, using one of the above transactions as an example.

12. In what particular does posting from the cash book differ from posting from the journal? Explain this difference, and illustrate with two examples.

13. What is a trial balance, and for what purpose is it taken? What does a trial balance prove?

14. What are cash discounts? Are cash discounts a proper charge against capital, or against revenue? Why?

15. Name two ways of treating cash discounts in the ledger, based on your answer to the previous question.

16. Illustrate two methods of entering cash discounts allowed in the cash book; illustrate the customer's ledger account as it would appear after posting the credit, from each of these entries. Which method, in your opinion, most clearly shows how the account was settled?

17. Should cash discounts earned be credited against the cost of goods purchased, or credited to profits? Why?

18. What is a profit and loss account? What does the balance of this account represent? How frequently is the balance of profit and loss account transferred? To what accounts, in a proprietorship or partnership? in a corporation?

19. What is a trading account, and what is its purpose? With what classes of items should trading account be debited and credited? How is the trading account constructed?

20. What is meant by the turnover? How can the amount of the turnover be shown in the trading account?

21. What is a manufacturing account, and of what items is it made up? What does the balance of the manufacturing account represent?

22. What is a merchandise inventory account, and when and for what purpose is it used? When are the books said to be closed?

23. What is a balance sheet? In what order should the asset and liability accounts be listed on the balance sheet?

24. From the following trial balance prepare trading account, profit and loss account, and balance sheet.

TRIAL BALANCE

Proprietor (Investment) $7,500.00

Bill Payable 3,000.00

Accounts Payable 1,550.00

Bank $1,254.84

Accounts Receivable 2,685.11

Bills Receivable 3,860.00

Merchandise Inventory 6,277.76

Furniture and Fixtures 750.00

Purchases 7,605.78

Expense 1,416.30

Discount on Sales 112.65

Interest 44.20

Sales 11,990.70

Cash 122.46

————— —————

$24,084.90 $24,084.90

Inventory at end of period $6,807.09.

25. Give examples of the proper journal entries when the following transactions occur in respect to notes receivable:

When a note is received; When a note is paid; When a note is collected by the bank.

26. Complete the explanations of the following entries, and state under what circumstances they would be made:

Bank $199.00

Interest 1.00

Bills Discounted $200.00

Bills Discounted 200.00

Bank 200.00

Bills Receivable 5.00

Bills Discounted 1,000.00

Bank 1,005.00

27. Make the proper journal entries under the following circumstances:

When a note is past due; When a note is renewed; When a renewed note has been discounted.

28. We buy from Marshall Field & Company a bill of dry goods, amounting to $978.40, and give them our note @ 60 days in payment. What entry?

29. Marshall Field & Company discount our note, and it is presented for payment by the Continental National Bank. We give our check in payment of the note, with interest @ 5%. How much do we pay, and what is the entry?

30. We borrow $1,000.00 from our bank on our note @ 30 days, interest @ 6%. What is the exact entry?

31. When a draft has been accepted how should it be treated on the books?

32. What is the proper entry when a customer pays our sight draft?

33. We draw on George Johnson for $650.00 @ 60 days sight. He accepts the draft, which we discount at our bank 3 days later, the bank charging us 7% interest. What entries are necessary?

34. We accept a draft from John V. Farwell & Co. for $416.00 payable in 90 days. What is the entry on our books? What is the entry on the books of Farwell & Co.?

35. We pay a sight draft drawn by Cable Piano Co. What entry?