Chapter 3, Problem 1DQ

How do the relationships between the balance sheet, income statement, job cost ledger, and equipment ledger help determine the changes made by each transaction?

To determine

Identify each relationship between the income statement, balance sheet, equipment ledger and job cost ledger with respect to the transactions.

Explanation of Solution

The relationship based on the transactions are as follows:

• The changes to liabilities and assets must be equal or else there are mistakes.
• The revenue must be consistent with the expenses and profit or else there are errors.
• The change in the net worth due to a transaction must alter the income statement.
• The changes in the profit result in changing the balance sheet.