Chapter 4, Problem 4.4BP

To determine

Worksheet:

A worksheet is a tool that is used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger. Usually organizations use Microsoft Excel in order to use a worksheet electronically.

Classified Balance Sheet

In order to improve the ease of understanding, a classified balance sheet is used. In a classified balance sheet, various standard classifications and sections are used to classify all the similar assets and similar liabilities together. The items having similar economic characteristics are put in the same group so that the users of the statement can easily understand the items.

Classification Heads

• Current Assets
• Long-Term Investments
• Property Plant and Equipment
• Intangible Assets
• Current Liabilities
• Long-Term Liabilities
• Stockholder’s Equity

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 Increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To Decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains

Closing entries:

Closing entries are those journal entries which are passed to transfer the balances of temporary accounts to the permanent accounts. These are passed at the end of the accounting period, to transfer the final balance.

Rules for closing entries:

• Debit the account: All temporary accounts with credit balances.
• Credit the account: All temporary accounts with debit balances

Ledger Account

A ledger account helps to prepare the financial statements. The accounts of all the items are prepared separately such as assets, liabilities, revenues, expenses, owner’s equity and so on. The ledger accounts along with their balances are further posted to the trial balance.

The general ledger accounts are represented graphically through the T Accounts.

Post-Closing Trial Balance:

Post-closing trial balance is prepared, after journalizing the closing entries, and posting them to the respective ledgers.

To Prepare: (a) worksheet, (b) Financial statements (income statement, retained earnings statement, and classified balance sheet), (c) closing entries, (d) post the closing entries in ledgers, (e) post-closing trial balance.