Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Business Formation Example

Financial Accounting

2. Transaction Analysis

Journal Entries: Business Formation Example

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Multiple Choice

Which of the following best describes the two steps for opening an account in the context of journal entries for business formation?

Analyzing transactions and closing the account

Posting transactions and preparing a trial balance

Writing the account title and recording the balance

Recording adjusting entries and preparing financial statements

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Verified step by step guidance

Understand the context of opening an account: In financial accounting, opening an account refers to the process of setting up a ledger account to record transactions related to a specific category, such as assets, liabilities, or equity.

Step 1: Writing the account title - This involves naming the account appropriately based on the type of transaction or financial category it represents (e.g., Cash, Accounts Receivable, Capital). The account title is essential for identifying the purpose of the account.

Step 2: Recording the balance - After naming the account, the initial balance (if any) is recorded. This could be the opening balance for assets, liabilities, or equity accounts, depending on the nature of the business formation transaction.

Clarify why other options are incorrect: For example, 'Analyzing transactions and closing the account' is not relevant to opening an account, as closing pertains to the end of an accounting period. Similarly, 'Recording adjusting entries and preparing financial statements' occurs later in the accounting cycle, not during account setup.

Reinforce the correct answer: Opening an account is a foundational step in the accounting process, and it involves writing the account title and recording the balance to ensure accurate tracking of transactions.