Owner’s Capital account

Revenues. The company will receive assets (for example, cash) in exchange for goods sold and services rendered. Therefore, company’s assets and owner’s equity will increase. The increase in owner’s equity created by delivering goods or services to customers is called revenue. 

Expenses. Expenses use up assets or create liabilities in the course of operating a business. The cost of operating a business is called expense. Expenses have the opposite effect of revenues; expenses decrease owner’s equity. Businesses will try to minimize expenses and thereby maximize net income.

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.

Analyzing includes identification of economic events to understand how it affects accounting equation and which accounts should be used in recording.

There are several types of external users and they can be individuals or organizations outside a company such as investors, creditors, taxing authorities, government, customers, suppliers etc. The primary external users are investors and creditors, because they have a direct financial interest in a business.

The correct answer is D.

Prepaid Expenses. Companies might pay certain expenses in advance, such as insurance and rent. A prepaid expense is considered as an asset because the prepayment provides a future benefit for the business. Prepaid Rent, Prepaid Insurance, and Supplies are examples of prepaid expenses.

Preparing post-closing trial balance is the last step of the accounting cycle.

In deferral adjustments the cash payment occurs before an expense is incurred. Deferred expenses are advance payments of future expenses. Deferred expenses are also called as prepaid expenses. As mentioned before, deferred expenses are the ones that are firstly paid and reported as an asset but will not be recorded as an expense until a future accounting period. In other words, cash is paid before the expense is recognized.

Assets are divided into two sections: current assets and non-current assets. Liabilities are also divided into two sections: current liabilities and non-current (long-term) liabilities. There is one more section in the classified balance sheet and, that is for the owner’s equity.

In the income statement company reports revenues, expenses and their differences.

Current assets include the assets that will be converted into cash, sold, consumed or received within 12 months or within the business’s operating cycle, and the cash and cash equivalents. Here are some examples for current assets: cash and cash equivalents, accounts receivables, merchandise inventory, prepaid expenses, supplies, marketable securities, etc.

Liabilities are the existing debts of the company. Non-current liabilities are the liabilities that their maturity dates are over one year or the operating cycle. Companies use their non-current liabilities for financing non-current assets as well as current assets. Financing current assets with non-current liabilities creates an advantage for the company rather than using current liabilities. Company can use the assets financed by non-current liabilities and earn more profit till the maturity date rather than using current liability

Dr./Cr. Rules for Distributions (Owner’s withdrawals): Distributions increase on left side by debiting while decrease on right side by crediting and normally show debit balance. The correct answer is A.

Managers are internal information users. There are several types of external users and they can be individuals or organizations outside a company such as investors, creditors, taxing authorities, government, customers, suppliers etc

Manages 

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. At each statement date, companies make the necessary adjustment entries related with accrued expenses. Before the adjustments, liabilities and expenses are understated. So in adjusting entry, expense account will be debited and a liability account will be credited.

The correct answer is A.

300,000-20,000= 280,000 / 40 = 7,000

The time-period concept assumes that unlimited economic life of a company will be divided into regular intervals and that financial statements will be prepared for specific periods such as a month, quarter, or year. Each company is set up with the expectation that it will have an unlimited lifetime (remember the going concern assumption). But companies’ related parties (such as government, creditors, investors, management, customers, etc.) wish to have information about the activities and financial position of the company over certain periods. In order to meet these demands and give feedback, the unlimited economic lifetimes are divided into artificial time periods by accountants. The time-period concept (or alternatively periodicity concept) assumes that unlimited economic life of a company will be divided into artificial time periods and that financial statements can be prepared for specific periods such as a month, quarter, or year.

Posting is the procedure of transferring journal entries to the ledger accounts.