Language of Business - Research Paper Example

Download file to see previous pages The accounts impacted by the transaction are 'Cash' and 'Notes Payable'b. Both 'Cash' and 'Notes Payable' accounts increased. c. 'Cash' and 'Notes Payable' accounts increased by $5,000.d. Total Assets increased by $5,000, Total Liabilities increased by $5000, and Total Equity, however, remained unchanged.Practice 3-2Solution:a. The accounts impacted by the transaction are 'Cash' and 'Land's. 'Cash' account decreased while the 'Land' account increased. c. 'Cash' decreased by $45,000.   These are called "generally accepted" because they are widely accepted by the business community. Otherwise, these rules will have no application in business. In the USA, Financial Accounting Standard Board (FASB) develops GAAP. It is a private body that sets broad and specific rules (Wild, 2005). The Securities and Exchange Commission (SEC) is another government entity that sets reporting requirements for companies that issues stock to the general public. In addition to the two bodies mentioned above, another board, International Accounting Standards Board (IASB), establishes International Financial Reporting Standards.   This is an attempt to establish a unified and consistent accounting system throughout the globe. However, IASB cannot impose these rules on organizations. The main objective of GAAP is to make financial information "relevant, reliable and comparable" (Wild, 2005). Managers' decisions are highly affected by the relevant financial information. Adherence to GAAP offers reliability to financial details and wins the user's trust. An understanding of these principles is necessary, especially when comparing the performance of two or more companies, mainly when the companies belong to different industries or countries.   An adjusting entry is necessary to bring assets/ liabilities and revenu   Revenue/expenses account for its proper level (Wild, 2005). Adjusting entries help measure income correctly, correct any errors, and are necessary for the appropriate valuation of balance sheet accounts (Wild, 2005).       The analysis process for preparing to adjust entries involves two basic steps. Identify the two steps and explain why both are necessary.   The two primary steps in the process of analyzing and adjusting entries are   The Balance Sheet should be updated to reflect the actual scenario. Debit or credit the relevant balance sheet account. See which revenue ad expenses accounts have been affected due to the adjustments mentioned above. Debit or credit the relevant income statement account accordingly.  Both of these steps are necessary to carry out so that the financial statements reflect the actual situation closely.   What is the purpose of closing entries? Closing entries are used to shift revenue, expenses, and dividend balances to retained earning versions (Wild, 2005). These are temporary accounts and must be precise (i.e., brought to zero balance) before the next accounting cycle. Closing entries clear these accounts to zero balance, which can be used for the next accounting cycle. In this way, Retained Earnings are brought to their proper level for that accounting period.   What is the purpose of the post-closing trial balance? Explain where the information for the post-closing trial balance comes from.   Post-Closing Trial balance is usually the last step of the accounting cycle before financial statements, which is used to make sure that all temporary accounts, i.e., revenues, expenses, and dividends, have been cleared, i.e., have zero balance and all debits equal credits (Libby, Libby, Short, 2001). The information for the Trial balance comes from the ledger. Moreover, this lists all accounts and their balances in one place, which helps test arithmetical errors of posting. ...Download file to see next pages Read More