W3 Assignment 2 Practice Problems Financial Accounting Pract

W3 Assignment 2 Practice Problemsfinancial Accountingpractice Proble

W3 Assignment 2 Practice Problems for financial accounting include a series of exercises focused on recording transactions, analyzing their effects on financial statements, and understanding concepts such as revenue recognition, cash flow, adjusting entries, closing procedures, and errors in accounting. The exercises involve transactions related to receivables, supplies, prepaid items, closing entries, trial balances, and comprehensive activities with purchases and sales. The problems require preparing journal entries, T-accounts, horizontal statements models, calculating net income and cash flows, adjusting entries, error analysis, and constructing income statements with common size percentages.

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Financial accounting entails recording, analyzing, and reporting a company's financial transactions and position. The exercises outlined aim to develop proficiency in core accounting processes, including journal entries, adjusting entries, preparing financial statements, and understanding the impact of errors on financial reports.

One fundamental area covered is the recognition of receivables and their impact on financial statements. For instance, Rice Company’s transactions in 2013 demonstrate how to record services performed on account, cash collections, and how these transactions affect income, cash flows, and retained earnings. The key is understanding the timing of revenue recognition and cash receipt, which influences both income statements and cash flow statements. The recording of accounts receivable and collection transactions in T-accounts and horizontal models helps visualize these effects clearly.

Similarly, the exercises involving supplies highlight the importance of adjusting entries at year-end to reflect supplies used during the period. When supplies are purchased on account, the initial entry increases both supplies and accounts payable. As supplies are consumed, an adjusting entry decreases supplies and recognizes supplies expense. This accrual process ensures that net income accurately reflects the period’s consumption, and the ending balance of supplies on the balance sheet is correct. The discrepancy between net income and cash flows stems from the accrual basis of accounting versus cash basis, emphasizing the importance of adjusting entries.

Prepaid items, such as leases or insurance, require separate recording and adjusting procedures. Washington Mining’s lease example illustrates how prepayments are initially recorded and subsequently apportioned as expenses over time. Proper recognition ensures accurate reflection of financial health and profitability, with the lease expense recognized proportionally and prepaid rent reported as an asset until used.

The exercises on closing entries demonstrate the process of closing temporary accounts like revenues and expenses into retained earnings, which is essential for preparing accurate financial statements for the new period. Walker Spa’s closing entries exemplify the steps to transfer balances from temporary to permanent accounts and update retained earnings accordingly.

Error analysis in trial balances is an advanced topic that emphasizes the importance of accuracy in record-keeping. The case of Smith Inc. reveals specific errors that cause discrepancies between debits and credits and distort asset, liability, and equity balances. Understanding how these errors influence trial balance totals and financial ratios allows accountants to identify and correct mistakes effectively.

Comprehensive exercises, such as the activities of The Wedding Shop, integrate multiple accounting concepts, including purchase discounts, inventory management, sales revenue recognition, and land sale transactions. These activities require recording multiple journal entries, calculating gross margins, analyzing price changes, and projecting future net income based on growth rates. Such exercises reinforce the importance of accurate recording and interpretative analysis in financial decision-making.

Overall, these practice problems serve to reinforce essential accounting principles, develop technical skills in journal entry preparation, and foster a deeper understanding of the interconnectedness of financial statements. Mastery of these exercises prepares students to accurately record transactions, prepare compliant financial reports, and analyze financial data to make informed business decisions.

References

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• Horngren, C. T., Sundem, G. L., Elliott, J. A., & Philbrick, D. (2018). Introduction to Financial Accounting (11th ed.). Pearson.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2020). Financial Accounting Theory and Analysis: Text and Cases (13th ed.). Wiley.
• Accounting Standards Board (ASB). (2021). Generally Accepted Accounting Principles (GAAP). Financial Accounting Standards Board.
• Central Bank of Nigeria. (2020). Understanding Financial Statements. Retrieved from https://www.cbn.gov.ng
• Investopedia. (2023). Accounting Concepts and Principles. Retrieved from https://www.investopedia.com
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• FASB. (2022). Accounting Standards Codification. Financial Accounting Standards Board.