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Accounting Cycles

1. A friend comes to you with the following plight: "I'm confused. An asset is something positive, and it is increased with a debit. However, an expense is something negative and it is increased with a debit. I don't get it." How can you straighten out your friend?

2. Which of the following steps in the accounting cycle requires the most thought and judgment by the accountant: (a) preparing a trial balance, (b) posting adjusting, and closing entries, or (c) analyzing and recording transactions? Explain your answer.

3. York Inc. manufactures notebook computers and has experienced noticeable declines in the purchase price of many of the components it uses, including computer chips. Which inventory costing method should York use if it wants to maximize net income? Explain your answer

Solution Preview

1) Before we go into the question, we need to understand the following. Consider the accounting identity: Asset = Liability + Shareholders Equity. The left side of the identity is debit and the right side of the identity is credit. That means if an account is on the left side of the identity, an increase in this account is created by debiting the ...

Solution Summary

This solution discusses various questions regarding accounting cycles.