Chapter 3, Problem 1GLP

To determine

Introduction:

General Purpose Financial Statements:

• Financial statements are financial records of the entities transactions for a given reporting period and indicate the financial health of an entity. They comprise of:

1. Income Statements and Notes to Income Statement,

2. Statement of Retained Earnings

3. Statement of Shareholders’ Equity.

4. Balance Sheets and,

5. Cash flow statements.

• Income Statements and Notes to Income Statement record the results of the company’s operations during a particular reporting period and provide information about the sources of funds and expenses of an entity.

• The sources of incomes are revenues from sales of goods and services and expenses are in the form of direct and indirect cost of operations. Surplus or deficit of the incomes over expenses is carried forward to the Balance sheet.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Prepare:

Impact of Adjustments on Net Income