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Financial Statements and Reversing Entries

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What are the steps in completing the accounting cycle?

What is the component that links the three main financial statements? Explain how?

Why does GAAP require more than one financial statement?

What are the pros and cons of using of reversing entries?

Are reversing entries required? Why or why not?

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Please refer to file response attached, which is also presented below. I hope this helps and take care.

RESPONSE:

Financial Statements

The four financial statements are the Income Statement, Statement of Owner Equity or Statement of Retain Earnings, Balance Sheet, and the Cash Flow Statement.

1. What is the purpose of an income summary account?

The Income Summary account is the account in the general ledger used to summarize the revenue and expenses for the fiscal period. In other words, the purpose is to provide a summary of the revenues and expenses for a fiscal period.

2. What accounts appear on the Income Statement?

Income statement is a report of the net income or net loss for a fiscal period; sometimes called a "profit and loss" statement.

In other words, a company's income statement is a record of its earnings or losses for a given period. It shows all of the money a company earned (revenues) and all of the money a company spent (expenses) during this period, and the resulting net income (or loss). It also accounts for the effects of some basic accounting principles such as depreciation.

If revenues ...

Solution Summary

This solution explains the steps in completing the accounting cycle, the component that links the three main financial statements, and why the GAAP requires mores than one financial statement. It also looks at the pros and cons of using of reversing entries, and whether or not reversing entries are required.

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See Also This Related BrainMass Solution

Journalize adjusting Entries: Garg Employment & Undercover Roofing

A. On December 31, the adjusted trial balance of Garg Employment Agency shows the following selected data.
Accounts $24,000 Commission $92,000
Receivable Revenue
Interest 7,800 Interest Payable 1,500
Expense
Analysis shows that adjusting entries made to (1) accrue $4,200 of commission revenue and (2) accrue $1,500 interest expense.
Instructions:
Prepare the closing entries for the temporary accounts at December 31.
Prepare the reversing entries on January 1.
Post the entries in (a) and (b). Rule and balance the accounts. (Use T accounts)
Post the entries to record (1) the collection of the accrued commissions on January 10 and (2) the payment of all interest due ($2,700) on January 15.
Post the entries in (d) to the temporary accounts.

b. Problem P4-1A - Prepare a worksheet, financial statements, and adjusting and closing entries.
The trial balance columns of the work sheet for Undercover Roofing, Inc. at March 31, 2006, are as follows.
Undercover Roofing, Inc.
Work Sheet
For the month ended March 31, 2006
Trial Balance
Account Titles Dr. Cr.
Cash 2500
Accounts Receivable 1800
Roofing Supplies 1100
Equipment 6000
Accumulated Depreciation 1200
Equipment
Accounts Payable 1400
Unearned Revenue 300
Common Stock 5000
Retained Earnings 2000
Dividends 600
Service Revenue 3000
Salaries Expense 700
Miscellaneous Expense 200
12900 12900

Other Data:
1. A physical count reveals only $140 of roofing supplies on hand.
2. Depreciation for March is $200.
3. Unearned revenue amounted $130 after adjustment on March 31.
4. Accrued salaries are $350.

Instructions:
a. Enter the trial balance on a work sheet and complete the work sheet.
(a)adjusted trial balance $13,450
b. Prepare an income statement and a retained earnings statement for the month of March and a classified balance sheet at March 31. No additional issuances of stock occurred in March.
(b) net income $9760
Total assets $9040
C. Journalize the adjusting entries from the adjustments columns of the work sheet.
d. Journalize the closing entries from the financial statement columns of the work sheet.

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