Chapter 2, Problem 2.5CP

a.

To determine

Chart of Accounts: The purpose of chart of accounts is to identify the particular account with the number assigned to it, to help the business better organize number of accounts used. Any account can be recognized through the short number allocated to it instead of large name of the account. This number is unique to an account to avoid any confusion.   

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

T-account:

An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

1. (a) The title of the account
2. (b) The left or debit side
3. (c) The right or credit side

To prepare: A chart of accounts that would be appropriate for Service EC.

b.

To determine

To prepare: An income statement for the month of June using T-accounts in order to assess the profitability of Service EC.

c.

To determine

To compute: The amount of cash on hand on June 30 based on Person CN’s records of receipts and payments.

d.

To determine

To discuss: The possible causes of the difference between the amount of cash computed in (c) and the actual amount of cash on hand.