(a)
Accounting cycle refers to the process of recording, posting, and preparing financial statements of a company. It shows the processing of the financial transactions in sequence that starts from occurrence of the transactions and ends with the preparation of financial statements.
To Explain: Whether the steps in accounting cycle for a merchandising company differs from the steps in the accounting cycle for a service company.
(a)
Answer to Problem 1Q
No, the steps in accounting cycle for a merchandising company does not differ from the steps in the accounting cycle for a service company.
Explanation of Solution
The steps in the accounting cycle that is same for both Merchandise Company, and Service Company are stated below:
- Analyze and record transactions in the journal.
Post the journals entries to the ledger (T-accounts).- Prepare a
trial balance . - Prepare financial statements.
- Prepare closing entries.
(b)
To Explain: Whether the measurement of net income in a merchandising company conceptually the same as in a service company.
(b)
Answer to Problem 1Q
Yes, the measurement of net income in a merchandising company is conceptually same as in a service company.
Explanation of Solution
The net income in both the companies is derived by deducting all the expenses from the total revenue earned during a year.
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Chapter 5 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
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