Report Form of Balance Sheet and Preparing Financial Statements from the Trial Balance
Standards and Key Concepts
100
What are two main accounts in an income statement?
Revenue and Expense
100
What are the two types of financial statements?
Balance Sheet and Income Statement
100
Does withdrawal of assets increase or decrease the owner's equity?
Decrease
100
What is an account form balance sheet?
lists the assets on the left, and liabilities and owner's equity on the right side
100
What is the revenue recognition principle?
Revenue is recognized at the time the revenue is earned.
200
What is Revenue
Revenue is the proceeds from the sale of goods or services to customers
200
What side does owner's equity increase and decrease?
Owner's equity decreases on the debit side and increases on the credit side.
200
What is a drawing account?
It is an account that records the withdrawal of assets from the business by the owner.
200
What is a report form balance sheet?
It lists the assets, liabilities, and owner's equity vertically
200
What the matching principle?
The costs recorded in the expense accounts should be matched with the revenue of the same accounting period.
300
What is expense?
Expense are the costs incurred to generate revenue.
300
What side do asset and liabilities increase and decrease?
Assets increase on debit side and decrease on the credit side.
Liabilities increase on the credit side and decrease on the debit side.
300
What does the General Ledger contain?
Assets, Liabilities, Owner's Equity, Revenue, and Expense
300
What modifications are present on the report form balance sheet?
The dollar sign now has to be placed beside the first figure in each column and beside the final double-underlined total
300
What is the time period principle?
Each company sets and defines an accounting period. The company consistently uses the same time period when it prepares its financial statements.
400
What are the major criteria used to decide whether a separate expense account is needed?
Frequency of usage and dollar value of the expense
400
What are the income statement accounts and what is their effect on owner's equity?
Income statement accounts are revenue and expense.
Revenue increases owner's equity.
Expense decreases owner's equity.
400
Is a drawings account a debit account or credit account? and Why?
A drawings account is a debit account because the withdrawal of cash/equipment decreases the owner's equity.
400
In what order do you prepare the financial statements?
Trial Balance --> Income Statement --> Balance Sheet
400
What is the cash basis of accounting?
recognizes revenue and expense only when cash exchanges hands.
500
What side do revenue and expense increase on? And why?
Revenue increases owner's equity therefore, it is recorded on the credit side.
Expenses decreases owner's equity therefore, it is recorded on the debit side.
500
What is the equation for an income statement?
Net income/loss=revenue-expense
500
Why is income statement prepared first?
Because net income or net loss affects the balance sheet
500
Give an example of what has been added to the owner's equity?
Add: Net income for the year
Less: M. Balan, Drawings
Increase/Decrease in Capital
New Capital
500
What is accrual basis of accounting?
records revenue when it is earned, whether it is in the form of cash or credit. Expenses are recorded when incurred, whether they are paid in cash or credit.