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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Flow of accounts into financial statements

The balances for the accounts that follow appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet. Indicate whether each account would flow into the income statement, statement of owner's equity, or balance sheet.

1. Accumulated Depreciation—Building

2. Cash

3. Fees Earned

4. Insurance Expense

5. Prepaid Rent

6. Supplies

7. Tina Greer, Drawing

8. Wages Expense

To determine

Financial Statement: It refers to the complete record of the financial transactions of the

Company. It provides financial information to its users.

The four types of financial statements are as follows:

  1. 1. Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
  2. 2. Statement of owners’ equity: This statement reports the beginning owner’s equity and all the changes, which led to ending owners’ equity. Additional capital, net income from income statement is added to and drawings is deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
  3. 3. Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets, which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.
  4. 4. Statement of cash flows: This statement reports all the cash transactions that are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.

To Indicate: Whether each account would flow into the income statement, statement of owners’ equity or balance sheet.

Explanation

Accumulated depreciation is a contra-asset account. Therefore, it will appear in the asset side of the balance sheet.

Cash is a current asset account. Therefore, it will appear in the asset side of the balance sheet.

Fees earned are a revenue account and to calculate the net income, the total expenses are deducted from the total revenue. Therefore, it will appear in the income statement.

Insurance expense is an expense account and to calculate the net income, the total expenses are deducted from the total revenue. Therefore, it will appear in the income statement.

Prepaid rent is a current asset account...

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