Chapter 3, Problem 3.3AP

(a)

To determine

Adjusting entries: Adjusting entries are those entries which are recorded to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle

Accounting rules for journal entries:

• To record increase in account balance: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To record decrease in account balance: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total income of the Company.

Retained earnings: The retained earnings statement is that financial statement which shows the amount of net income which is actually retained by the Company on a particular date. These earnings can be utilized by the Company for the reinvestment and to pay its debts.

Balance sheet: The balance sheet of a Company is the one of the most important financial statements because it shows the financial position of the Company. Main components of balance sheet are assets, liabilities and stockholder’s equity.

$\text{Assets }=\text{ Liabilities}+\text{Stockholder's equity}$

Adjusting entries from adjusted trial balance of the E Company on September 30, 2015.

(b)

To determine

To prepare: Income statement and retained earnings statements for the quarter ended September 30, 2015

(c)

To determine

The outstanding amount on interest