Quiz 4: Completing the Accounting Cycle
The given question depicts the current assets and current liabilities of company A and company BB. Current Assets refer to those assets that are able to change into cash within one year or less than one year. It includes cash, accounts receivables, and inventory these assets can be changed into cash within one year or less than one year. Current liabilities refer to the liabilities that the firms owe to pay to others within a period of one year or less than one year. This includes accounts accrued expenses, income tax payable and so on. A Working capital is the difference between current assets or CA and current liabilities or CL of the firm. It is the cash available for running the day to day business of any firm. It is calculated by the following formula: B As seen from the calculation, Company A has the largest working capital. This means that Company A has more current assets to run its daily operations than Company BB. This means that the financial health of company A is better than company Bb.C Current ratio refers to the best financial ratio to check the liquidity of the company which also refers to the working capital position of the company. So, working capital is a good measure of comparing liquidity between companies. Working capital signifies the overall financial health of the company. It is a measure of short term cash availability of a firm. In the above calculation, it is seen that the working capital of Company A is more than that of BB which means that company BB has less cash available to run its daily business than Company A. So, in terms of liquidity Company A is in better position. D Current ratio refers to the best financial ratio to check the liquidity of the company. It is calculated by the following formula: E A high current ratio indicates that the company has as much short-term liquid assets that are required to meet its short-term debt obligations. It is seen from the above calculations of current ratio that Company BB has a higher current ratio as compared to Company A. This means that Company BB has a high liquidity to pay off its short terms obligations.
The income statement refers to the financial statement that states company's financial position over a specific accounting period. Financial position is assessed by expenses and revenues earned from the operating and non-operating activities of a firm over a specific period of time. The balance sheet is a statement of assets, liabilities and shareholders equity of a company at a particular point of time. The statement of retained earnings refers to the statement which shows the amount of profit after taxes which is given as dividend to shareholders and retained by the firm. 1.The accumulated depreciation of building will be recorded in the balance sheet of the company as on specific date, it would be subtracted from the value of the building and book value of building would be recorded in the balance sheet on assets side. 2.Cash is a current asset. So, it will flow into the balance sheet on assets side under current assets. 3.Fees earned will flow into income statement. Fees earned refer to the operating revenue of firm. So, it would be recorded in the revenues of income statement. 4.Insurance expenses refer to the cost incurred on receiving the insurance by the insurance company which is an operating expense. So, it will flow into income statement. 5.Prepaid Rent will flow into company's balance sheet because it is an asset for the company. It is a cost which is paid in advance and so it will be recorded in short-term assets till the expiry date. 6.Dividends would flow into statement of retained earnings of the company. It is paid to the shareholders from the profit after tax of the company. 7. Supplies refer to the cost of consumables used within a short span of time. Unused supplies are recorded into balance sheet under current assets while used supplies are recorded into income statement as expense. 8. Wage expenses will flow into the income statement. It is an administrative expense which implies the payment made to the workers by the firm.
End of Period Spreadsheet Spreadsheet is informal part of accounting prepared by using computer program. It is used to analyze and summarize the date of journal and Ledger. The Adjusting entries will useful to review the adjusted trial balance. 1.The Unadjusted trial balance, adjustments and adjusted trial balance of PS M for the year end July 31, 2018 is prepared as follows 2.The income statement includes all the income and expenses that incur in period. By analyzing the trial balance given in the problem the income and expenses are recognized. Income Statement of PS M co. as on July 31, 2018 is prepared as shown below. Retained Earnings Statement of PS M Co. as on July 31, 2018 is prepared as follows Balance sheet is prepared by taking the balances from the adjusted trial balance. In the present case the balances are given in the spreadsheet and the retained earning balance is taken from the statement of retained earnings. The Balance sheet of PS M co. as on July 30, 2018 is recorded as follows. 3.Closing entries are made to transfer the temporary accounts balances which are not carry forward for the next year, to permanent account at the year end. These entries are used to make the temporary accounts at Zero at the beginning of the year. Journal entries for the Closing entries are shown below. The entry for the closing of the income summary requires transfer of the net income or loss to the retained earnings account. Being Service revenue has been recorded in the books of account by debiting the service revenue account and by crediting the Income summary account with the same amount. All the expenses that are incurred in the current year and are pertaining to the current year are transferred to the income summary. Being closing entry for expenses has been recorded in the books of account by debiting the Income summary account and by crediting the expenses account with the same amount. The net balance of the income summary which is either the net profit or the loss is transferred to the retained earnings statement. Being Income summary transferred to retained earnings has been recorded in the books of account by debiting the Income summary account and by crediting the retained earnings account with the same amount. The dividends that are paid during the year are subtracted from the retained earning opening balance in order to arrive at the closing balance of the retained earnings account. Being Dividends transferred to retained earnings has been recorded in the books of account by debiting the retained earnings account and by crediting the dividends account with the same amount. 7. Post-closing Trial balance The Post-closing Trial balance of PS M Co. as on July 31, 2018 is corrected as follows