Question

The following account balances were taken from the 2021 post-closing trial balance of the Bowler Corporation: cash, $5,000; accounts receivable, $10,000; inventory, $16,000; equipment, $100,000; accumulated depreciation, $40,000; accounts payable, $20,000; salaries payable, $12,000; retained earnings $9,000; and common stock, $50,000 Prepare a 12/31/2021 balance sheet. (Amounts to be deducted should be indicated by a minus sign.) BOWLER CORPORATION Balance Sheet At December 31, 2021 Assets $

Answer 1

1. Balance sheet is prepared at the end of the accounting year to ascertain the financial position in terms of Assets and Liabilities. The assets are classified into Current assets and Non-current assets. Liabilities are classified into Current liabilities and Non-current liabilities.

31,000 BOWLER CORPORATION Balance Sheet At December 31, 2021 Assets Current Assets Cash 5,000 Accounts receivable 10,000 Inventory 16,000 Total Current Assets Equipment 100,000 Less: Accumulated depreciation -40,000 Total Non-Current Assets Total Assets Liabilities and Shareholders' Equity Current Liabilities Accounts payable 20,000 Salaries payable 12,000 Total Liabilities Shareholders Equity Common stock 50,000 Retained Earnings 9,000 Total Shareholders Equity Total liabilities & Shareholders Equity 60,000 91,000 32,000 59,000 91,000

2. Closing entries are made to close the temporary accounts of revenue and expenses to retained earnings account. If any dividends are paid, such amount also will be transferred to Retained Earnings account.

Credit Debit 850,000 Event General Journal 1 Sales Revenue Retained Earnings (To record closing of revenue account using retained earnings account) 850,000 815,000 2 Retained Earnings Cost of goods sold Salaries expense Rent expense Interest expense (To record closing of expense account using retained earnings account) 580,000 180,000 40,000 15,000 12,000 3 Retained Earnings Dividends (To record closing of dividends account) 12,000

3. An income statement is prepared to ascertain the profits or loss earned by a business in an accounting period. It considers the revenue earned and the expenses incurred during that period.
A balance sheet is prepared to ascertain the financial position of a business in terms of Assets and Liabilities.
Closing entries are prepared at the end of an accounting period to close the temporary accounts like, revenues, expenses and dividends.

800,000 480,000 320,000 BLUEBOY CHEESE CORPORATION Income Statement for the year ended December 31, 2021 Sales revenue Less: Cost of goods sold Gross profit Operating expenses : Salaries expense 120,000 Rent expense 30,000 Depreciation expense 60,000 Advertising expense 5,000 Total operating expenses Operating income Other expenses Interest expense Net Income 215,000 105,000 4,000 101,000 BLUEBOY CHEESE CORPORATION Balance Sheet At December 31, 2021 Assets Current Assets Cash 21,000 Account receivable 300,000 Prepaid rent 10,000 Inventory 50,000 Total Current Assets 381,000 Plant, Property and Equipment Office Equipment 600,000 Less: Accumulated depreciation -250,000 350,000 Total Assets 731,000 Liabilities and Shareholders' Equity Current Liabilities Accounts payable 60,000 Notes payable 60,000 Salaries payable 8,000 Interest payable 2,000 Total Liabilities 130,000 Shareholders Equity Common stock 400,000 Retained Earnings 201,000 Total Shareholders Equity 601,000 Total liabilities & Shareholders Equity 731,000

Date General Journal Dec 31 Sales Revenue Retained Earnings (To record closing of revenue account using retained earnings account) Debit Credit 800,000 800,000 699,000 Dec 31 Retained Earnings Cost of goods sold Salaries expense Rent expense Depreciation expense Advertisement expense Interest expense (To record closing of expense account using retained earnings account) 480,000 120,000 30,000 60,000 5,000 4,000

Retained Earnings = Beginning balance + Sales revenue - Expenses = $100,000 + $800,000 - $699,000 = $201,000