The trial balance of Pacilio Security Services, Inc. as of January 1, Year 2, was as follows: Cash $ 8,500 Land 4,000 Notes Payable 5,000 Common Stock 6,000 Retained Earnings 1,500
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.
The
| Cash | $ | 8,500 | |
| Land | 4,000 | ||
| Notes Payable | 5,000 | ||
| Common Stock | 6,000 | ||
| 1,500 | |||
During Year 2, Pacilio Security Services experienced the following transactions:
- Acquired an additional $2,000 from the issue of common stock.
- Paid $3,000 on the debt owed to the Small Business Government Agency. The loan is interest-free.
- Performed $21,000 of security services for numerous local events during the year; $15,000 was on account and $6,000 was cash.
- On May 1, rented a small office building. Paid $2,400 for 12 months’ rent in advance.
- Purchased supplies on account for $650.
- Paid salaries expense for the year of $8,000.
- Incurred other operating expenses on account, $6,200.
- On September 1, Year 2, a customer paid $600 for services to be provided over the next six months.
- Collected $13,500 of
accounts receivable during the year. - Paid $5,800 on accounts payable.
- Paid $1,500 of advertising expenses for the year.
- Paid a cash dividend to the shareholders of $1,000.
- The market value of the land was determined to be $5,000 at December 31, Year 2.
Information for Adjustments
- There was $65 of supplies on hand at the end of the year.
- Recognized the expired rent.
- Recognized the revenue earned from Transaction 8.
- Accrued salaries were $1,200 at December 31, Year 2.
Required
a. Show the effects of the events on the financial statements using a horizontal statements model given below. In the
b. Prepare an income statement, statement of changes in
c. Indicate whether the transaction increases (+), decreases (–), or increases and decreases (+/-) for each element of the financial statements. Also, in the Cash Flow column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity. The first transaction is recorded as an example.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
