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Accounting Theory and Merchandising Organizations

Answer questions about accounting theory and merchandising accounting.

Introduction

A legal firm’s operations are different than Ford or GM operations. Lawyers provide a service whereas Ford is a manufacturing business that needs to maintain an inventory of various parts used in their vehicles. Each requires its own accounting approach.

We now delve into accounting theory in greater depth. Now that you have learned some accounting procedures, you are better able to relate these theoretical concepts to accounting practice. Accounting theory is a set of basic concepts, assumptions, and related principles that explain and guide the accountant’s actions in identifying, measuring, and communicating financial information.

Your study of accounting began with service companies as examples because they are the least complicated type of business. You are now ready to apply the accounting process to a more complex business type: a merchandising company. This type of company is represented by manufacturers, wholesalers, and retailers.

Overview

This assessment focuses on accounting assumptions, concepts, principles, modifying conventions, objectives, qualitative characteristics, accounting policies, and the income statements for service and merchandising organizations. It requires knowledge of the following:

  • The effects of accounting assumptions on the accounting process.
  • The effects of accounting concepts on the accounting process.
  • How generally accepted accounting principles (GAAP) affect financial reporting.
  • The impact of modifying conventions on the accounting process.
  • How accounting objectives, qualitative characteristics, and policies affect financial reporting.
  • The differences and similarities between income statements for service and merchandising organizations.
  • The methods used to determine the amount of merchandise inventory on hand.
  • How to use the gross margin percentage as a tool for financial analysis.

Preparation

Note: Accuracy in accounting is paramount so take your time and double-check your work for errors or omissions.

Instructions

Answer questions correctly. When you are satisfied with your responses, save and submit your template in the classroom.

Step 1: Discuss the effects of the five major accounting assumptions on the accounting process.

Step 2: Describe the five concepts’ impact on the accounting process.

Step 3: Describe the five major accounting principles.

Step 4: Describe the impact on the accounting process of the three modifying conventions.

Step 5: Identify the accounting procedures of Principles, Assumptions, Concepts.

Step 6: Complete the equations of merchandising accounting.

Step 7: Describe the two methods used to determine merchandise inventory.

Completing the Accounting Cycle

Answer questions related to the accounting cycle.

Introduction

A company may be profitable but cash poor, or generating millions of dollars in revenue but still not profitable. How the business transactions are reported in books is very important for regulators as well as investors. Accurate reporting of business transactions is essential for transparency.

This course has introduced the accounting process of analyzing, classifying, and summarizing business transactions into accounts. Now, you begin to examine things in more detail, including:

  • The difference between the cash basis and accrual basis of accounting.
  • The classes and types of adjusting entries (prepared at the end of an accounting time frame).
  • Use of a worksheet to summarize the work completed during the accounting period.
  • The preparation of an organization’s closing entries.
  • How to report financial data using a classified balance sheet.

Overview

This assessment focuses on the need for adjusting entries, including:

  • The difference between the cash and accrual bases of accounting.
  • The concept of adjusting entries and how they are prepared.
  • How to classify adjusting entries.
  • The concept of asset depreciation and its effect on book values.

Preparation

Note: Accuracy in accounting is paramount so take your time and double-check your work for errors or omissions.

Instructions

Answer questions correctly. When you are satisfied with your responses, save and submit your template in the courseroom.

Step 1: Compare and contrast how revenues and expenses are reported under the cash basis of accounting and the accrual basis of accounting.

Step 2: Explain why adjusting entries are necessary at the end of an accounting period.

Step 3: Identify examples of an adjusting journal entry for various types of transactions.

Step 4: Explain accumulated depreciation.

Step 5: Identify which account balances are extended to the Income Statement columns, the Statement of Retained Earnings columns, and the Balance Sheet columns.

Step 6: Determine the current ratio between assets and liabilities for a given year.

Step 7: List the accounting cycle steps in proper order.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 1: Define accounting terminology and its application to accounting principles.
    • Compare and contrast how revenues and expenses are reported under the cash basis of accounting and the accrual basis of accounting.
    • Explain accumulated depreciation.
    • List the accounting cycle steps in proper order.
  • Competency 2: Apply accounting cycle strategies to manage business financial events.
    • Explain why adjusting entries are necessary at the end of an accounting period.
    • Identify examples of an adjusting journal entry for various types of transactions.
    • Identify which account balances are extended to the Income Statement columns, the Statement of Retained Earnings columns, and the Balance Sheet columns.
    • Determine the current ratio between assets and liabilities for a given year.
  • Competency 4: Convey purpose, in an appropriate tone and style, incorporating supporting evidence and adhering to organizational, professional, and scholarly writing standards.
    • Convey clear meaning through appropriate word choice and usage.

The Accounting Cycle and Journal Entries

You will answer questions about the accounting cycle and prepare general journal entries.

Introduction

Have you looked at the balance sheet or income statement of companies like Apple, Microsoft, Google, Amazon, or Facebook? What is their cash situation? How much profit are they making? What is their stock price? Investors and market participants examine such information on regular basis through a company’s financial statements.

When an organization reports its financial results to the world, the external users look to see if the organization made any money during its most recent year. Will the assets the organization owns, minus the debts it owes, result in any leftovers that can be put back into the organization to make more money, or reward the shareholders for their investment in the organization?

You have studied the business language of accounting and financial statements, and now you will explore the accounting cycle and its first few steps, including:

  • Recording of business transactions.
  • Using general journal entries.
  • Learning how a trial balance is used to prove the work completed in the first few steps in the accounting cycle.

Overview

In this assessment, you are required to answer questions about the accounting cycle and prepare general journal entries.

Preparation

Note: Accuracy in accounting is paramount. Take your time and double-check your work for errors or omissions.

Instructions

Step 1: Describe the accounting cycle with specified details.

Step 2: Create required journal entries.

Complete both parts using the Assessment 2 Template.

Part 1: Accounting Cycle

Respond to the short-answer questions found in the template on the Accounting Cycle tab using proper grammar and language.

Part 2: Journal Entries

Prepare specified journal entries.

Save and submit your completed template in the courseroom.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 1: Define accounting terminology and its application to accounting principles.
    • Describe the accounting cycle with specified details.
  • Competency 3: Prepare financial statements from accounting system data.
    • Create required journal entries.
  • Competency 4: Convey purpose, in an appropriate tone and style, incorporating supporting evidence and adhering to organizational, professional, and scholarly writing standards.
    • Convey clear meaning through appropriate word choice and usage.