On January 1, 2015, Ernie and Bert both sole proprietors decided to form a partnership to expand both of their businesses. According to their agreement, they will split profits and losses 75:25 and their initial capital will also reflect that ratio. The following are Ernie and Bert's Statement of Financial Position: Ernie Proprietor Statement of Financial Position December 31, 2014 ASSETS LIABILITIES AND EQUITY Cash Accounts payable Accrued expenses Notes payable Ernie, capital 50,000 65,000 55,000 80,000 90,000 Accounts Receivable 100,000 75,000 Inventories Equipment Accumulated depreciation- Equipment (185,000) 250,000 TOTAL ASSETS 290,000 TOTAL LIABILITIES&EQUITY 290,000 Bert Proprietor Statement of Financial Position December 31, 2014 ASSETS LIABILITIES AND EQUITY Cash Accounts Payable Accrued expenses Notes Payable Bert, Capital 30,000 75,000 Accounts receivable 110,000 85,000 90,000 100,000 Inventories Equipment Accumulated Depreciation- Equipment (100,000) 300,000 160,000 TOTAL ASSETS 425,000 TOTAL LIABILITIES&EQUITY 425,000 The values reflected in the Statement of Financial Position are already at fair values except fo the following accounts: Ernie's Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position. Both inventories of Ernie and Bert are now 90,000 and 70,000 respectively. Equipment for Bert has an assessed value of 275,000, appraised value of 250,000 and book value of 200,000. Additional accrued expenses are to be established in the amount of 10,000 for Bert only while additional accounts payable in the amount of 5,000 for Ernie. It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of Bert which will be personally paid by him.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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