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EXERCISE E

The following transactions are to be classified under accounts with the proprietor, Cash, Purchases, Sales, General Expense, C. B. Rogers, William Cooper, and John A. White, one half page to each.

February 1 Richard Strong invests $7500 cash in a certain business.

2 He rents a storeroom, paying $200 rent for February.

3 He buys, for cash, merchandise amounting to $2620.35.

4 He buys, for cash, merchandise amounting to $1325.60.

5 He sells, for cash, merchandise amounting to $1575.

6 He buys, on account from C. B. Rogers, merchandise amounting to $1600.

8 He sells, for cash, merchandise amounting to $712.65.

9 He sells, on account to William Cooper, merchandise amounting to $337.50.
10 He sells, on account to John A. White, merchandise amounting to $486.
11 He buys, on account from C. B. Rogers, merchandise amounting to $275.
12 He pays $16.80 for office stationery and supplies.

13 He sells, on account to John A. White, merchandise amounting to $962.30.
15 He sells, for cash, merchandise amounting to $365.20.

16 He buys, for cash, merchandise amounting to $157.80.

17 He buys, on account from C. B. Rogers, merchandise amounting to $319. 18 He sells, on account to William Cooper, merchandise amounting to $347. 19 He sells, on account to John A. White, merchandise amounting to $285. 20 The proprietor withdraws $100 cash for personal expenses.

REVIEW QUESTIONS

GENERAL PRINCIPLES AND FUNCTIONS OF ACCOUNTS

1 What is the object of bookkeeping?

2 Define double entry bookkeeping. Upon what general principle is it based?

3 What is an account?

How may accounts be classified in a general way?

4 What is a book of original entry? Define journalizing. Give a general rule for journalizing.

5 Define the ledger.

6 Define profit; income; loss; expense.

7 Define assets. Into what general classes are assets divided?

8 Define liabilities. What would the difference between assets and liabilities represent?

9 What does one need to know about a particular account in order to handle it intelli

gently?

10 What is meant by the "function " of an account?

11 What does the term "cash" include?

12 Give the functions of the Cash account.

13 What are personal accounts? Define credit in a business sense.

14 Define debtor; creditor; accounts receivable; accounts payable.

15 Give the rules for debiting and crediting personal accounts.

16 Define promissory note. Name the parties to a note.

17 What is meant by negotiability?

18 What is the twofold effect of an indorsement? What forms of indorsement are there, and what is the effect of each?

19 Is there any advantage in holding a note rather than a book account against a debtor? Explain fully.

20 Describe the process of obtaining a loan at a bank.

21 What is the difference between Notes Receivable and Notes Payable? Give the rule for handling both accounts.

22 What is the difference between a proprietor's net investment and his net worth? 23 What does the Proprietor's Capital account show? When would it be advisable to keep a Proprietor's Personal account as well? With what would such an account be debited and credited?

24 What is meant by the term "merchandise "?

25 Give the functions of the Purchases account; of the Sales account.

26 What is an inventory? In valuing the inventory, should cost or selling price be used? If the market price was lower than cost, what price should be used? If higher?

27 How is the cost of goods sold obtained?

28 What is gross profit? How obtained?

29 How is freight and cartage on goods bought handled? On goods sold? Explain the difference in treatment.

30 How is the rate of gross profit on sales determined (a) if cost of sales is the basis; (b) if the total sales is the basis? Explain the difference.

31 What is an expense? Give a general classification of expense items. What is the purpose of subdividing expense account?

32 With what items is Selling Expense account charged? General Expense?

33 What is the reason for keeping a separate account for Real Estate Expense?

JOURNALIZING

As previously explained, the elementary book of original entry is the journal. While in practice the journal is never used as the only book in which transactions are recorded, yet the elementary principles underlying business transactions are probably best understood when expressed in the form of journal entries.

Journalizing is the process of determining from the reading of a transaction the accounts to be debited and credited, and of recording these debits and credits in the journal. It is the fundamental process in the study of bookkeeping, and is of equal importance with the fundamental processes and principles that are found in the study of any other subject. Journalizing involves a careful analysis of the transaction, a proper classification of the accounts affected, and the recording of the debits and credits pertaining thereto in a concrete form.

In the exercises that immediately follow, all transactions are recorded in the journal, thus giving the practice so essential in building up a thorough mastery of the principles upon which the practice of bookkeeping is based. While doing this work, it should be clearly understood that no attempt is as yet made to keep books as they are kept in practice. That stage in the study of the subject has not yet been reached. We are still concerned with a study of fundamental principles and with practice in the application of these principles. From the knowledge of the principles of the subject acquired in this manner, the methods and practices of modern bookkeeping, as they are found in actual business, will later be developed.

In the next group of exercises no specific instructions will be given except such as are necessary to explain new principles as they arise. The ledger accounts employed are those which have already been studied in detail. Reference should be made by the student whenever necessary to the functions of these accounts and to the illustrations previously given of model accounts and of a model journal. In the study of each transaction the student should keep in mind the principle of the "equation of exchange" upon which double entry. bookkeeping is based. The journal entry required for each transaction is determined from the general rules applying to debits and credits, given on page 12. These rules, supplemented by the special rules which apply to particular accounts, should be constantly kept in mind and each transaction interpreted in accordance with them.

Below is an illustration of a model journal with daily transactions recorded therein in proper sequence. For explanation of the ruling of a journal and the use made of each ruled space, see pages 11 and 12. The date is written in full at the top of each page, the current year being used, the day of the month on which a transaction occurs being placed between each entry and the one following, in the blank space which separates the entries. The folio column on the left is used when the entries are posted to the ledger, a process which will be explained later. Particular attention should be given to the explanation of each transaction which, while it should be expressed in as few words as possible, should omit no important point.

Exercise 1

Make journal entries for the transactions given in Exercise D on page 35.

Exercise 2

Make journal entries for the transactions given in Exercise E on page 37.

Exercise 3

Make entries for the transactions on page 41 on journal paper or in a journal blank. The transactions occur in March, the numbers to the left indicating dates. The journal pages should be numbered, the number being placed on the outside corner of each page.

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1 Henry Fisher invests $5000 cash in a wholesale drug business.

3 He purchases furniture and fittings with which to equip his salesrooms, paying $2000 cash for the same.

same.

4 He purchases the necessary office supplies at a cost of $145, paying cash for the

6 He purchases, for cash, merchandise amounting to $387.

9 He sells, for cash, merchandise amounting to $162.

10 He sells, for cash, merchandise amounting to $265.

12 He purchases, from A. W. Lyman on account 30 days, merchandise amounting to $1921. 15 He sells, for cash, merchandise amounting to $520.

18 He sells, to Charles Luce on account 60 days, merchandise amounting to $168.50.

19 He purchases, from H. J. Whitmore on account, merchandise amounting to $367.80. 22 He pays $200 rent for March in cash.

23 He sells, on account to Thomas Joyce, merchandise amounting to $210.

25 He buys, for cash, merchandise amounting to $140. 26 He sells, for cash, merchandise amounting to $840.

29 He sells, for cash, merchandise amounting to $765.

31 He pays cash expenses for the month amounting to $275.

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