Vintage Test for you !!

Exhibit 21 illustrates the advantages of a debit and credit system of recording transactions when transactions are recorded manually. Because increases in accounts are separated from decreases, it is simpler to calculate balances than if increases and decreases are recorded in one column. Remember that for most of our history, computers, calculators, and other electronic devices were not available. Account balances had to be determined using basic rules of math. Debits and credits facilitated that process. Read more…

For the accounting equation to balance, every transaction must have an equal amount of debits and credits. Therefore, total debits must always equal total credits for a companys transactions or accounts taken as a whole. Consequently, debits and credits provide a useful control to help ensure integrity of the accounting process. If debits do not equal credits, an error has been made. Read more…

For most of its history, accounting has recorded transactions using debits and credits. They were particularly useful to facilitate the calculation of account balances prior to the advent of computers. Though the accounting process is largely computerized today, debits and credits remain part of the language of accounting. To understand this method, begin with the accounting equation, including revenues and expenses as subcategories of owners equity, as described in Exhibit 18. Read more…

We can interpret the ratio as the amount a company earned for each dollar of total investment. Thus, Moms Cookie Company earned 4.1 cents for each dollar of investment in January. It is common to report many ratios, especially those expected to be less than one, as percentages, as shown above. Whether 4.1% is a good return or not can be assessed by comparing the amount with expectations of owners, with returns for similar companies, and with returns for other periods. A good return for one company is not necessarily good for another, particularly if the companies operate in different industries, countries, or geographic regions. Read more…

Many business decisions rely on accounting information. Decision makers use accounting information to evaluate a companys performance. A variety of analysis tools are available for this purpose. We examine these in later chapters. Financial statement numbers themselves provide useful information. For example, managers need to know how much cash or merchandise inventory a company has available so they can determine whether purchases can or should be made. Creditors need to know about a companys liabilities and profits to determine whether to make additional loans. Analysis often involves a comparison of Read more…

Businesses transform resources into goods and services for sale to customers. Accounting measures and reports the results of that transformation process. Financing activities describe how a company obtains financial resources from owners and creditors. Investing activities describe how a company uses financial resources to acquire long-term assets to be used by the company. Operating activities describe how a company uses its financial resources and long-term assets to acquire and sell its products. Read more…