Solution for Financial Accounting: The Impact on Decision Makers 7th Edition Chapter 3, Problem 1

by Gary A. Porter, Curtis L. Norton
315 Solutions 13 Chapters 30793 Studied ISBN: 9781439080528 Finance 5 (2)

Chapter 3, Problem PA 1 : LO 3 Analyzing the Effects of Transactions on...

LO 3 Analyzing the Effects of Transactions on the Accounting Equation

In-class discussion: What accounts will our business need?

The transition from seeing accounts listed in the text to choosing accounts to use in a real business is not always obvious. An interesting and informative exercise involves inventing a small business, and asking students to suggest a list of accounts (chart of accounts) that the business will need as it begins operations. Use very simple examples like a lemonade stand, a babysitting service, or newspaper delivery.

Step-By-Step Solution

LO 3 Solution

Encourage students to think about what it is that a business has to “keep track of.” A lemonade stand, for example, would probably need a cash account, perhaps accounts receivable, inventory, furniture, perhaps accounts payable, owner’s capital, and then a revenue account and some expenses: wages, supplies, permits. A lot will depend upon how your class imagines this business. In all cases, students have an opportunity to apply the textbook’s theory to a realistic situation.

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