Exercise 2-8A (Algo) Supplies and the financial statements model LO 2-5 Pizza Express Inc. began the Year 2 accounting period with $7,500 cash, $6,000 of common stock, and $1,500 of retained earnings. Pizza Express was affected by the following accounting events during Year 2: 1. Purchased $13,000 of supplies on account. 2. Earned and collected $30,000 of cash revenue. 3. Paid $11,500 cash on accounts payable. 4. Adjusted the records to reflect the use of supplies. A physical count indicated that $2.300 of supplies was still on hand on December 31, Year 2. Required a. Show the effects of the events on the financial statements using a horizontal statements model given below. In the Cash Flows column, use OA to designate operating activity, FA for financing activity, IA for investing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank. The beginning balances have been entered as an example. (Enter any decreases to account balances and cash outflows with a minus sign. Not all cells will require entry.) Event No. Beg bal 1. 2 3. 4 Totals Cash Assets . 7,500+ 7,500 Supplies M W 01- Liabilities Accounts Payable PIZZA EXPRESS INC. Effect of Events on Financial Statements for Year 2 0+ Stockholders' Equity Retained Earnings Common Stock 6,000+ 6,000 1,500 1,500 Revenue 0 Income Statement Expense . W Net Income 0 Statement of Cash Flows
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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