Chapter 4, Problem 5E

(a)

To determine

Journalizing: It 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.

Adjusting entries: Adjusting entries are passed at the end of the accounting period to maintain the accounts on accrual basis. These entries are passed in order to adjust the amounts of incomes and expenses in the accounting period in which they are actually earned and incurred respectively.

To prepare: The adjusting entries for Company M

(b)

To determine

Adjusted trial balance: An adjusted trial balance refers to the final trial balance resulting after posting the adjusting entries at the end of the period.

Financial statements: Financial Statements are a set of statement consisting of an Income Statement and Balance Sheet prepared to know the financial position of the organization.

Worksheet: A worksheet is the summarized form of accounting information which is made in order to ensure that the accounts are made properly.

To prepare: The financial Statement column to which each balance of trial balance should be extended.