The Information Needed To Prepare A Balance Sheet Is Obtaine

18 Tf The Information Needed To Prepare A Balance Sheet Is Obtained

18. T/F The information needed to prepare a balance sheet is obtained from a work sheet’s Account Title column and the Balance Sheet columns.

19. T/F Reporting revenue earned and the expenses incurred to earn that revenue in the same fiscal period is an application of the accounting concept—Matching Expenses with Revenue.

20. T/F Expense accounts are closed by posting a credit to each expense account and debiting the income summary for the total of all expense account balances.

Paper For Above instruction

The preparation of financial statements, especially the balance sheet, requires careful gathering and analysis of account data. The balance sheet, also known as the statement of financial position, provides a snapshot of an organization’s assets, liabilities, and equity at a specific point in time. To accurately construct this statement, accountants must extract relevant information from the accounting records, notably the work sheet, which serves as an essential tool for adjusting and summarizing financial data before finalizing the reports.

In the context of preparing the balance sheet, the work sheet plays a crucial role. The Account Title column lists all the account names involved in the organization’s accounting period. Adjacent to this, the Balance Sheet columns—typically labeled as "Debit" and "Credit"—reflect the final balances after all adjustments have been made. This structured layout enables accountants to identify the balances of assets, liabilities, and owner’s equity accounts quickly. By cross-referencing these columns, the preparer can ensure that the totals align with the fundamental accounting equation: Assets = Liabilities + Owner’s Equity. This process underlines the importance of accurate data collection from the work sheet's specific columns to assemble a balanced and precise statement of financial position.

Furthermore, a core principle in accrual-based accounting that directly impacts the timing and recognition of revenues and expenses is the Matching Expenses with Revenue concept. This principle asserts that expenses incurred to generate revenue should be recognized in the same fiscal period as the revenue they help to produce. This ensures that financial statements accurately reflect the profitability of an organization during a given period, providing stakeholders with meaningful insights. For instance, if a company performs services in March and receives payment in April, the related expenses—for that period—must be recorded in March to match the revenues earned. This alignment helps in assessing the true profitability of the period and is a cornerstone of Generally Accepted Accounting Principles (GAAP) and the matching principle in accounting standards.

Account closing procedures further illustrate the application of fundamental accounting concepts. Expense accounts, which accumulate the costs incurred in operations, are temporary accounts that require closure at the end of each accounting period. The process involves a credit entry to each expense account, reducing its balance to zero, and a corresponding debit to the income summary account, which consolidates net income or loss. This procedure ensures that expense accounts start with a zero balance in the subsequent period, ready to record new expenses. The income summary, after being closed to the owner's equity account (or retained earnings in a corporation), reflects the net income or loss for the period, thus maintaining the integrity and continuity of the accounting cycle.

In summary, understanding the sources of financial information, such as the work sheet, and adhering to key accounting principles like the matching concept and proper account closure procedures are fundamental for accurate financial reporting. These processes uphold the transparency and reliability of financial statements, serving the needs of stakeholders in assessing an organization’s financial health and operational efficiency.

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