Preparing Financial Statements Including A Classified Balanc

Preparing financial statements including a classified balance sheet in report form, preparing and posting closing entries, and preparing a post-closing trial balance

Requirements: 1. Prepare the company’s income statement for the year ended June 30, 2016. 2. Prepare the company’s statement of owner’s equity for the year ended June 30, 2016. (Assume that there were no contributions made by the owner during this year) 3. Prepare the company’s classified balance sheet in report form at June 30, 2016. 4. Journalize the closing entries. 5. Open the T-Accounts using the balances from the adjusted trial balance and post the closing entries to the T-Accounts. 6. Prepare the company’s post-closing trial balance at June 30, 2016.

Paper For Above instruction

The preparation of financial statements is a fundamental aspect of accounting, serving as a vital communication tool for stakeholders to assess the financial health of a company. For Elmo Real Estate Appraisal, the process involves several critical steps, each contributing to a comprehensive understanding of the company’s fiscal position as of June 30, 2016.

Firstly, the income statement for the year ended June 30, 2016, must be prepared. This statement provides a summary of revenues and expenses incurred during the fiscal year, culminating in the net income or loss. Utilizing the adjusted trial balance, revenues such as service income and gains, alongside expenses including operating costs, salaries, and depreciation, are identified and classified accordingly. The resulting net income figure is essential for subsequent statements and reflects the company's profitability over the period.

Next, the statement of owner’s equity details changes in the owner’s capital account over the fiscal year. Since there were no contributions by the owner during this period, the primary consideration is the addition of net income and any withdrawals or dividends. The beginning capital balance from the prior period is adjusted for net income, resulting in the closing owner’s equity as of June 30, 2016.

The third step involves preparing a classified balance sheet in report form. This report categorizes assets and liabilities into current and long-term classifications, providing a structured snapshot of the company's financial position. Assets such as cash, accounts receivable, and property are listed under current and long-term assets, respectively. Liabilities are similarly classified, with current obligations like accounts payable and accrued expenses distinguished from long-term liabilities such as notes payable.

Following the preparation of these statements, the process of journalizing closing entries is undertaken. Closing entries serve to transfer temporary account balances—revenues, expenses, and withdrawals—to retained earnings or owner’s equity accounts, resetting the temporary accounts for the new fiscal period. Accurate journal entries are recorded, debiting revenue and expense accounts and crediting income summary or directly adjusting owner’s equity to reflect the period’s net income.

Once the closing entries are journalized, they must be posted to T-accounts. This involves opening T-accounts with balances from the adjusted trial balance, then posting the debit and credit entries from the closing entries. This step ensures that all accounts reflect the updated balances after closing, preparing the ledger for the subsequent accounting period.

Finally, a post-closing trial balance is prepared. This trial balance includes only the permanent accounts—assets, liabilities, and owner’s equity—since temporary accounts have been closed. It verifies that debits equal credits and confirms that the ledger is in balance before the commencement of the new accounting cycle.

Each of these steps is essential for accurate financial reporting and compliance with accounting standards. Employing an Excel spreadsheet to perform and document these tasks enhances accuracy, organization, and ease of review. By meticulously preparing each statement and adjusting ledger balances, Elmo Real Estate Appraisal can maintain clear records, facilitate decision-making, and meet regulatory obligations.

References

  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2021). Financial Accounting (12th ed.). McGraw-Hill Education.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
  • Horngren, C. T., Sundem, G. L., Elliott, J. A., & Philbrick, R. N. (2018). Introduction to Financial Accounting. Pearson.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2020). Financial Accounting Theory and Analysis (13th ed.). Wiley.
  • American Institute of CPAs (AICPA). (2022). Financial Reporting Framework. AICPA Publications.
  • Investopedia. (2023). Financial Statements: Definition & Types. https://www.investopedia.com/terms/f/financialstatements.asp
  • The Balance Sheet. (2023). How to Prepare a Balance Sheet. https://www.thebalancemoney.com/how-to-make-a-balance-sheet-3575043
  • AccountingTools. (2022). Closing Entries. https://www.accountingtools.com/articles/what-are-closing-entries.html
  • Corporate Finance Institute. (2021). T-accounts and Journal Entries. https://corporatefinanceinstitute.com/resources/knowledge/accounting/t-accounts/
  • U.S. Securities and Exchange Commission. (2020). Preparing Financial Statements. https://www.sec.gov/

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