Definitions of entries; classification cash flow statement items
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Part One:
1) Why are adjusting entries necessary?
2) The analysis process for preparing adjusting entries involves two basic steps. Identify the two steps and explain why both are necessary.
3) What is the purpose of closing entries?
4) What is the purpose of the post-closing trial balance? Explain where the information for the post-closing trial balance comes from.
Part Two: For each of the following items, indicate whether it would be classified and reported under the operating activities (OA), investing activities (IA), or financing activities (FA) section of a statement of cash flows:
a. Cash receipts from selling merchandise
b. Cash payments for wages and salaries
c. Cash proceeds from sale of stock
d. Cash purchase of equipment
e. Cash dividends paid
f. Cash received from bank loan
g. Cash payments for inventory
h. Cash receipts from services rendered
i. Cash payments for taxes
j. Cash proceeds from sale of property no longer needed as expansion site
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Solution Summary
The solutions gives a brief but adequate explanation in response to each of the four questions about entries, and then answer the questions regarding classification of items in a cash flow statement. Also included is a general statement which gives the rule of thumb for how to determine where items are classified for the statement of cash flows.
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Part One:
1. Adjusting entries are journal entries made to adjust or correct the balance in an account to an amount determined to be correct.
2. The two basic steps is not a term I've seen, but the process is to review the account balance for correctness and then determine what the other side of the entry to be made will ...
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