You have taken over a set of accounting books for a small business as a part-time job. At the end of the first accounting period, you have partially completed the work sheet by entering the proper ledger accounts and balances in the Trial Balance columns. You turn to the manager and ask, "Where is the list of additional information I can use in entering the adjusting entries?" The manager indicates there is no such list. In all the text problems you have done, you have always been given this information. How would you obtain the information for this real-life situation?
The steps I would take would be to look at the balance sheet. If the balance sheet were in balance from the previous period, I would work my way backward to determine where the company stands in the current period. The reason I would look at the balance sheet is that if everything were in balance at the end of the last period, it would be easier going forward with that information. I would look at the income accounts to see what revenues have been recorded and where entries were missing. I would than check the liabilities accounts to see if there were payable accounts transactions missing. With this information, I think it would be possible to establish a starting point to run a trail balance just to see where the company is financially and if there might be issues that may require adjustments entries.
What are the consequences of not making all of the required adjustments at the end of the accounting period?
If the adjustment entries were not entered at the end of an accounting period, the company’s financial information would be inaccurate. The company would be misstating their financial standing and misleading it investors based on overstated income and assets on the income statement and the balance sheet. The company also could hurt themselves, I they are in need of securing additional capital, investors and bank would have problems investing in a company based on misrepresented classified balance sheets.
After the Adjusted Trial Balance columns of a work sheet have been totaled, which account balances are extended to the Income Statement columns, the Statement of Retained Earnings columns, and the Balance Sheet columns?
• The income statement columns totals consisting of the revenue and expenses, they create the net income or loss balance.
• The statement of retained earnings columns consist of retained earnings from the income statement balance, (carried forward retained earnings if any) and dividends. They create the retained income balance that carries over to the balance sheet.
• The balance sheet columns are adjusted asset total, adjusted liabilities total, stockholder’s equity balance, and retained earnings balance,
Describe how is the statement of retained earnings prepared.
The statement of retained earnings is prepared by taking the income summary closed expense account total and...