When cash is paid liabilities are overstated and

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When cash is paid, liabilities are overstated andassets are understated(ii)►DR Accounts payable, CR Cash(iii) ►EXAMPLE(iv)►ARQ: If Iris Awedit, the accountant for OrenJellow Cakes, fails to prepare an adjusting entry atyear-end to record the unpaid Federal Expressinvoice:C.►Adjusted Trial Balance and Financial Statements1.►Adjusted trial balancea)►Prepared from the general ledger after:(1) ►All transactions have been entered into general journal AND(2) ►All journal entries, including adjusting journal entries, havebeen posted to the general ledgerb) ►Purposes:(1) Ensure debits equal credits(2) Used to prepare financial statements2.►Financial statementsa)►Income statementb)►Retained earnings statementc)►Balance sheetD.►Closing the Books1.Make correcting entries
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Chapter 7 / Exercise 1
Financial Accounting: The Impact on Decision Makers
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a)►PURPOSE: To correct any errors in journal entriesb)Used whenever an error is discoveredc)►EXAMPLE►d) ►ARQ: Warren Peace, Mono’s reclusive author, is arguing with youabout which financial statements are affected by correcting entries. If youare to be right, you must argue correcting entries:2.►Preparing the accounts for the next accounting perioda)►Temporary vs. permanent accounts(1) Temporary accounts(a) Only related to a given accounting period(b) INCLUDES:(i)All income statement accounts(ii)Dividends account on the balance sheet(c) Accounts are closed at the end of each accountingperiod(2) ►Permanent accounts(a) Relate to one or more future accounting periods(b) INCLUDES:(i)All balance sheet accounts (except Dividends)(c) Accounts are NOT closed at the end of each accountingforward(i)Balance carries forward to the next accountingperiodb)►Preparation of closing entries(1) ►PURPOSE:(a) Transfer net income/loss and Dividends to RetainedEarnings in the general ledger(2) ►Done ONLY at the end of the annual accounting period(3) ►Entries to be made:(a) ►DR each revenue account for its balance, CR IncomeSummary(b) ►DR Income Summary, CR each expense account forits balance(c) ►DR Income Summary, CR Retained Earnings for netincome (OR DR Retained Earnings, CR Income Summaryfor net loss)(d) ►DR Retained Earnings, CR Dividends for its balance(4) ►Results:(a) Each temporary account will have a zero balance whencompleted(i)Income Summary is ONLY used at closing(b) ►Each permanent account carries forward theremaining balance to the next accounting periodc)►Preparing post-closing trial balance(1) ►PURPOSE: Confirm debits equal credits for the permanentaccounts(2) ►What about temporary accounts?(a) NO temporary accounts included as those accountsshould have a zero balance nowIV.►Accounting for Merchandising Operations (CH 5)A.►Merchandising Operations
1.Calculation of income for sales businessesa) ►FORMULA:(1) Sales revenue(2) ►LESS COGS (not used in a service business)(a) Total cost of merchandise sold during the accountingperiod(3) ►EQUALS Gross profit(4) ►LESS Operating expenses(5) ►EQUALS Net income/loss2.►Calculating COGSa)►Inventory at beginning of accounting periodb)PLUS cost of goods purchasedc)LESS Sales returns and allowances and sales discountsd)

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Term
Winter
Professor
TIAN
Tags
Balance Sheet, Generally Accepted Accounting Principles, DR Cash, CR Cash
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Accounting: The Impact on Decision Makers
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Chapter 7 / Exercise 1
Financial Accounting: The Impact on Decision Makers
Norton/Porter
Expert Verified

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