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


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 ...

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