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(a)
Journalizing: Journal is the book of original entry whereby all the financial transactions are recorded in chronological order. Under this method each transaction has two sides, debit side and credit side. Total amount of debit side must be equal to the total amount of credit side. In addition, it is the primary books of accounts for any entity to record the daily transactions and processed further till the presentation of the financial statements
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.
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.
Adjusted Trial Balance: Once the adjusting entries are made and posted to the ledger accounts, an adjusted trial balance is prepared. The main purpose of preparing an adjusted trial balance (second trial balance in an accounting cycle) is to check whether the debit and credit balance of the statements after passing the
Financial Statements: Financial statements are the financial reports that a company prepares in order to disseminate the information about its financial position and performance for a particular period of time. It is the major source of information for the stakeholders of the company from where they can collect real-time information about the performance and financial position of the company and proceed with the informed decision making. The three financial statements of a company include the
Income Statements: Income statement is also known as the
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.
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: It is the statement of trial balance, which is prepared after journalizing the closing entries and posting them to the respective ledgers.
To Journalize and post:The transactions.
(b)
To prepare:The trial balance.
(c)
To enter:The adjustments on the worksheet and complete the worksheet.
(d)
To prepare:An income statement, a retained earnings statement and a classified balance sheet.
(e)
To journalize and post:The adjusting entries.
(f)
To journalize and post:The closing entries and complete the closing process.
(g)
To prepare:A post-closing trial balance.
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Chapter 4 Solutions
FINANCIAL ACCOUNTING - ACCESS
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