Chapter 4, Problem 4.3BP

(A)

To determine

Financial Statements:

The statement prepared for the specific period which comprises the financial information of the organization. It includes a statement of income which shows the profitability of the business, balance sheet which shows the financial position in the terms of assets, liabilities, and capital, and cash flow statement which represents the cash flows for the accounting period.

The financial statements include the following statements:

Income Statement:

It can be known as “Profit and Loss statement” or “Revenue statement” or “Operating statement”. It is the financial statement of the company which provides the information about revenues and expenses of a specific period. It computes the net profit or net loss of the company for a particular period and represents the financial performance of the company.

Classified Balance Sheet:

In case of the classified balance sheet, the assets are arranged in different classes in order to their liquidity and liabilities are arranged in order to their time of obligation. The classified balance sheet provides more useful information to the company as compared to the other form of the balance sheet.

Statement of retained earnings:

It is the statement which denotes the portion of income which is not paid to the stockholders in the form of a dividend. The amount of retained earnings is used by the corporation in future for expansion and development. Retained earnings are the account maintained under the category of capital account.

Cash flow statement:

It is the statement which involves the outflows or inflows of cash in the organization which could be because of the investing, financing, and operating activities carried on by the organization.

Closing Entry:

Closing entry is made at the end of the accounting period; in order to transfer the temporary balances of the income statement to the permanent accounts on balance sheet. The main objective of it is to make the balances of temporary account to zero.

Post-closing trial balance:

The items that are presented in the financial statements are listed in the statement after posting the closing balances of ledgers in the trial balance. The statement is known as post-closing trial balance.

T-account:

It is the account or graphical representation of general ledger account or its entries. The left side of T-account is debit side and the right side represents as credit side. The journal entries prepared and posted to T-accounts. In the T-account of assets, the journal entries which increase the balance of asset are debited in the T-account.

In order to journalize the transaction, the following are the rules which are to be followed:

Rules of debit and credit:

All the items mentioned in the income statement and balance sheet are presented by journalizing the accounts, then classifying them into ledgers and afterward resulted in the summarized income statement and balance sheet.

For journalizing the various accounts, rules of debit and credit has been followed according to the category of the account. There are five categories of accounts:

Assets: It can be defined as the resources which are controlled and owned by the organization and which are capable of providing some future benefits for operating the core business of the organization. Whenever any asset has been purchased or any transaction which increases the amount of asset, the asset account will be debited.

Liabilities: These are referred as Company’s financial obligation arising during the course of Business Cycle, which will be settled by the outflow of Resources. Whenever any transaction raises the amount of liability, the liability account will be credited.

Revenues: It is income that an entity earns from its normal business operations. It reflects the amount which is received by the firm by manufacturing or providing goods and services. Whenever income has been earned or due, the revenue account will be credited.

Expenses: These are the gross outflows incurred by a business entity while carrying out their regular business operations like manufacturing and providing goods and services. Whenever any expense has been due to be incurred, the expense account has been debited.

Capital account: This account represents the balance of amount invested by the stockholders. It also includes the earnings which are due and not withdrawn by the stockholders. Whenever any transaction increases the amount of capital, the capital account will be credited.

To prepare: The statement of income, the statement of retained earnings and the classified balance sheet of Company F for the year ended on December 31, 2015.

(b)

To determine

To journalize: The closing entries for Company N for the year ended on December 31, 2015.

(c)

To determine

To prepare: T-accounts and income statement to post the closing entries of Company N for the year ended on December 31, 2015.

(d)

To determine

To prepare: Post-closing trial balance of Company N for the year ended on December 31, 2015.