Introduction to the Accounting Cycle:
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1. Question 1:
o Proficient:
• Describe the steps in recording and posting the effects of a business transaction and provide some examples of source documents used in these steps.
• Define debit and credit and name the types of accounts that are (three correct responses):
• Increased by a debit.
• Decreased by a debit.
• Increased by a credit.
• Decreased by a credit.
o Distinguished:
• Correctly identify all of the types of accounts on the list.
2. Question 2:
o Proficient:
• Which steps in the accounting cycle are performed throughout the accounting cycle?
• Which of the steps in the accounting cycle are performed only at the end of the accounting period?
o Distinguished:
• Many of the steps in the accounting cycle can be performed on a computer with an accounting software package. Research three of the most commonly used packages and decide which one you would choose if you were starting a small business this year.
3. Question 3:
o Proficient:
• Why are separate “expense” and “revenue” accounts used when all revenues and expenses could be shown directly in the retained earnings account?
• Describe three examples of transactions that would affect a firm’s income statement. For each transaction, identify if the transaction has a positive or negative effect on the firm’s net income.
o Distinguished:
• What is the purpose of the “dividends” account and under what circumstances would this account be increased?
• Under what circumstances would the “dividends” account be decreased?
4. Question 4:
o Proficient:
• Are the following possibilities conceivable in an entry involving only one debit and one credit? Please explain your response for each item. Provide five or six correct responses:
• Increase a liability and increase an expense.
• Increase an asset and decrease a liability.
• Increase revenue and decrease an expense.
• Decrease an asset and increase another asset.
• Decrease an asset and increase a liability.
• Decrease revenue and decrease an asset.
• Decrease a liability and increase revenue.
o Distinguished:
• Correctly identify all of the items.
5. Question 5:
o Proficient:
• Define the “normal” balance for an account.
• What are the rules of debit and credit for accounts appearing on a firm’s balance sheet?
o Distinguished:
• What are the rules associated with accounts appearing on a firm’s income statement?