Chapter 2 Discussion questions1. List and describe the steps in the accounting cycle.Accounting cycle can be divided into the following steps：(1) Journalize transactions. Analyzing transaction and enter all transactions in the journal, thus creating a chronological record of events；(2) Post to ledger accounts. Post debits and credits from the journal to the proper ledger accounts, thus creating a record classified by accounts；(3) Prepare a trial balance. Prove the equality of debits and credits in the ledger；(4) Make end-of-period adjustments. Draft adjusting entries in the general journal, and post to 1edger accounts；(5) Prepare an adjusted trial balance. Prove again the equality of debits and credits in the ledger. We should pay attention to that these are the amounts used in the preparation of financial statements；(6) Prepare financial statements and appropriate disclosures. An income statement shows the results of operation for the period. A statement of owner’s equity shows changes in owner’s equity during the period. A balance sheet shows the financial position of the business at the end of the period；(7) Journalize and post the closing entries. The closing entries clear the revenue, expense, and drawing accounts, making them ready for recording the events of the next accounting period. These entries also bring the balance in the owner’s capital account up-to-date；(8) Prepare an after-closing trial balance. This step ensures that the 1edger remains in balance after posting of the closing entries. 2. What are a journal and its relationship to the ledger?In a western accounting system, the information about each business transaction is initially recorded in an accounting record called a Journal. Afterward, the data is transferred or posted to the ledger, the book of subsequent or secondary entry. The various transactions are evidenced by sales tickets, purchase invoices, check stubs, and so on. Since the journal is the accounting record in which transactions are first recorded, it is sometimes called the book of original entry. It is also called the day book because the journal is a chronological (day-by-day) record of all business transactions.3. Explain the process of journalizing.Example 2-1.4. Specify the types of adjustments that need to be made at the end of each accounting period.Adjusting entries can be divided into deferrals and accruals. Each adjustment affects both the balance sheet and income statement. The adjustments can be further divided into five categories: prepaid expenses, depreciation, unearned revenues, accrued expenses, and accrued revenues.5. What purpose does the adjusted trial balance serve?After adjusted entries are made, we can go ahead with adjusted trial balance. By preparing and using adjusted trial balance, we can prove that the ledger is still in balance after all the necessary adjusting entries have been journalized and posted. Once an adjusted trial balance has been prepared, the process of recording changes in financial position for this accounting period is complete.6. What are the major steps in preparing closing entries?(1) Close the various revenue accounts by transferring their balances into the income summary account.(2) Close the various expense accounts by transferring their balances into the income summary account.(3) Close the income summary account by transferring its balance into the owner’s capital account.(4) Close the account of owner’s withdrawals by transferring its balance into the owner’s capital account.Exercises1. Why do accountants record transactions in the journal?A. To ensure that all transactions are posted to the ledgerB. To ensure that total debits equal total creditsC. To have a chronological record of all transactionsD. To help prepare the financial statements Answer: C2. Posting is the process of transferring information from the:A. Journal to the trial balanceB. Ledger to the trial balanceC. Ledger to the financial statementsD. Journal to the ledgerAnswer: D3. Which of these accounts has a normal debit balance?A. Rent expenseB. WithdrawalsC. Service revenueD. Both A and B have a normal debit balanceAnswer: D4. An adjusting entry could contain all of the following excerpt:A. A debit to unearned revenueB. A credit to cashC. A debit to interest receivableD. A credit to salary payableAnswer: B5. Failure to record an adjusting entry for an accrued expense, will result in the following: Liabilities Net IncomeA. No effect UnderstateB. Understate Overstate C. Overstate UnderstateD. Understate No effectAnswer: B。