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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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Financial statements and closing entries

The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2016, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:

Chapter 4, Problem 4.2BPR, Financial statements and closing entries The Gorman Group is a financial planning services firm

Instructions

1. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.

2. Journalize the entries that were required to close the accounts at October 31.

3. If the balance of Nicole Gorman, Capital had instead increased $115,000 after the closing entries were posted, and the withdrawals remained the same, what would have been the amount of net income or net loss?

1.

To determine

Financial statement

A financial statement is the complete record of financial transactions that take place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements; they are:

  • Balance Sheet
  • Income statement
  • Statement of owners’ equity
  • Statement of cash flows

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

To Prepare: An income statement for the year ended October 31, 2016.

Explanation

An income statement for the year ended October 31, 2016 is as follows:

G Group
Income Statement
For the year ended October 31, 2016
Particulars Amount ($) Amount ($)
Revenues:    
    Service fees $468,000  
    Rent revenue 5,000  
Total revenues 473,000
Expenses:    
     Salaries Expense $291,000  
     D...

2.

To determine

To Journalize: The closing entries for G Group.

3.

To determine

The net income or net loss if the capital has increased $115,000 and the withdrawals remained the same after the closing entries were posted.

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