ACCT.PRINCIPLES (LL)
14th Edition
ISBN: 9781119707110
Author: Weygandt
Publisher: WILEY
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You are employed as an accountant for Innovative Computing. Your company is in the process of signing a large contract with an electronics components supplier. You have a friend who works for the electronics components supplier, and you were told the company having trouble paying bills. You ask to review the financial statements of the supplier.
1. Which financial statements would you find most helpful to determine the creditworthiness of the supplier? What information from the financial statements would you use to either support or disprove your friend’s claims?
2. What are the four basic financial statements? What is their purpose and what does each one tell you about a company?
3. How are the four financial statements interrelated? Which line items are used to prepare other statements?
4. In your opinion, explain which financial statement you think is the most important?
The following is an excerpt from a conversation between two employees of WXT Technologies, Nolan Sears and Stacy Mays. Nolan is the accounts payable clerk, and Stacy is the cashier.
Nolan:
Stacy, could I get your opinion on something?
Stacy:
Sure, Nolan.
Nolan:
Do you know Rita, the fixed assets clerk?
Stacy:
I know who she is, but I don't know her real well. Why?
Nolan:
Well, I was talking to her at lunch last Monday about how she liked her job. You know, the usual; and she mentioned something about having to keep two sets of books—one for taxes and one for the financial statements. That can't be good accounting, can it? What do you think?
Stacy:
Two sets of books? It doesn't sound right.
Nolan:
It doesn't seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What can be the difference between the two?
How would you respond to Nolan and Stacy if you were Rita?
An employee working on her first trial balance discovers that the Equipment account has a credit balance of $2500 and a customer's A/R account has a credit balance of $25.
Based on the knowledge you have gained in this course and how account balances are recorded and increase/decrease, has the accountant made a mistake in her records or are these situations possible?
Knowledge Booster
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