Chapter 4, Problem 4CCCP

(a)

To determine

Income Statement: A part of financial statement that lists the income and expenses of business for an accounting year is called income statement. It is prepared at the end of accounting period to know the profitability of the business.

Owner’s Equity Statement: The financial statement which helps to predict the change in capital of owner’s due investment made in business, personal drawing by owner and net income for an accounting year is called Owner’s equity statement.

Classified Balance Sheet: This is a financial statement where the assets, liabilities, and stockholders’ equity are organized and reported as different groups, and sub-groups on the basis of the nature of the classification made of a company at a particular point of time. It reveals the financial health of a company. Thus, this statement is also called as the Statement of Financial Position. It helps the users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities.

To prepare: An income statement and an owner’s equity statement and a classified balance sheet.

(b)

To determine

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

Leger Account: Leger account is an accounting book in which the debit entries are shown on the left side of the account and credit entries are shown on the right side of the account. It can be termed as a principal book.

To prepare: Closing entries.

(c)

To determine

Trial Balance: Trial balance is the record of accounts and their balances prepared at the end of accounting period. It is the prepared after journal and ledger and gives the summary of transactions occurred in the business. Debit balances are given in left column and credit balances are given in right column of trial balance.

To prepare: A post- closing trial balance.