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Journalizing:
Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.
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.
It is prepared at the end of an accounting period listing all the ledgers and their balances. The total of the debit balances in the trial balance shall be equal to the total of the credit balances. It is prepared to check whether there is any mathematical error in the accounts.
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
Income Statements:
Income statement is also known as the
Retained earnings are the profits of the company that are not distributed among the shareholders of the company. These retained earnings are included in the retained earnings statement which are used for the development of the business in the future whenever required.
Classified
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
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.
(a)
To Prepare: The journal
a) Journal entries and post the entries to ledgers, (b) Trial balance on worksheet,(c) post adjustments on worksheet (d) Financial statements (income statement, retained earnings statement and classified balance sheet), (e) Journalize and post adjustment entries (f) Journalize and post-closing entries, (g) Post-closing trial balance.
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Chapter 4 Solutions
FINANCIAL ACCOUNTING - ACCESS
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