Question

Chapter 4 - Graded Discussion The Chapter 4 discussion is found in the "TIF" Take It Further section in the back of the chapter. Please see TIF 4-3, where it reads, "Your friend, Daniel Nat, recently began work as the lead accountant for the Asheville Company. Dan prepared the following balance sheet for December 31, 2018" Asheville Company Balance Sheet For the Year Ended December 31, 2018 Assets Land.............. Accounts payable Accounts receivable.. $100,000 10,000 12,500 10,000 115,000 $247,500 Cash... Common stock.... Total assets... Liabilities Equipment Retained earnings. Wages payable... Total liabilities ..... $125,000 120,000 2.500 $247.500 . ***** *** .. Explain the errors in the Asheville Company balance sheet and the correct presentation for the balance sheet. Incorporate into your discussion the accounting equation and further comment on why financial statements are important to any given end user. Finally, why is it important for you as business students, to understand the accounting cycle and the process that leads to the financial statement preparation?

Answer 1

In the above balance sheet there are some errors given below,

Account payable & Common stock shown in assets side which is wrong it will come in liability side.

Equipment shown in liability side but it will come in assets side under non current assets.

The current balance sheet shown below,

Assets

Land 100,000

Equipment 125,000

Accounts Receivable 12,500

Cash 10,000

Total Assets 247,500

Liability

Common Stock 115,000

Accounts Payable 10,000

Retained Earning 120,000  

Wages Payable 2,500

Total Liabilities 247,500

Accounting Equation given Below,

Assets = Liability + Stock holder equity

247,500 = 12,500 + 235,000

In this given question Stock holder equity = Common Stock + Retained Earning

The accounting cycle is the holistic process of recording and processing all financial transactions of a company, from when the transaction occurs, to its representation on the financial statements, to closing the accounts. One of the main duties of a bookkeeper is to keep track of the full accounting cycle from start to finish. The cycle repeats itself every fiscal year as long as a company remains in business.

Accounting Cycle – 10 Steps of Accounting Process Explained

1. Analyzing and Classify Data about an Economic Event.
2. Journalizing the transaction.
3. Posting from the Journals to General Ledger.
4. Preparing the Unadjusted Trial Balance.
5. Recording Adjusting Entries.
6. Preparing the Adjusted Trial Balance.
7. Preparing Financial Statements.
8. Recording Closing Entries.