Liabilities are defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of the entity’s resources6

Liquidity is the measure of how quickly and easily an account can be converted into cash

Crediting refers to the act of making an entry on the right side of an account and when credit amount exceeds debits, credit balance occurs.

Two main groups of information users are internal users and external users.

Balance sheet reports the assets, liabilities, and owner’s equity of the business at a specific date.

The correct answer is D.

After closing of revenue accounts,expense accounts and Income Summary account, it is timeto prepare post-closing trial balance as the ending step in the accounting cycle. Post-closing trial balance shows the accounts with only balances.

Distributions increase on left side

Debiting refers to the act of making an entry on the left side of an account and when debit amount exceeds credits, debit balance occurs.

Owner,Capital. Owner’s Capital account represents the net contribution of the owner in the business.

The process of analysing and updating of accounts at the end of the period before the financial statements are prepared is called the adjusting process.

For the preparation of financial statements, the starting point is the adjusted trial balance.

Recording plays a connective role between identification and communication activities and so refers a set of actions includes bookkeeping, classifying and measuring

The rightness of an action generally depends on the skills and knowledge of the accountant. In other words, the possibility of making a mistake, for instance in classifying or measurement of financial transactions, will be low if the accountant of a company has sufficient skills and knowledge. Therefore, accounting profession is one of the most important professional groups in society, and so accountants are legally subject to a set of procedures in their career.

The company has journalized and posted all adjusting entries. Next, it prepares another trial balance from the ledger accounts. This is called an adjusted trial balance. An adjusted trial balance is a list of all the accounts with their adjusted balances. The purpose is to ensure that total debit balances are equal to total credit balances in the ledger after all adjustments. Adjusted trial balance is the last step to prepare financial statements. So, we can say that adjusted trial balance is the basis for the preparation of financial statements. Financial statements are prepared from the adjusted trial balance. The correct answer is B.

Recording is a systematic way of keeping chronological diary of events measured in monetary unit.

In cash basis accounting, companies record revenues when they receive the cash and they record expenses when the cash is paid.

Some types of services, such as insurance, are normally paid for before they are used. As you learned before, these prepayments are deferrals. Rent, interest, salaries, wages, utilities, etc. are the other examples of accrued expenses over time. Expenses incurred but not yet paid or recorded at the end of the accounting period are accrued expenses. Accrued expenses are the ones that are firstly incurred and not recorded as an expense until a future accounting period. Because of the unnecessity, such kinds of expenses are not required for daily recordings. For that reason, companies do not recognize them until the preparation of financial reports. The amount of such an accrued but unpaid item at the end of the accounting period is both an expense and a liability.