BE23-13 (a) Indicate in general journal form how the items below would be entere
ID: 2434535 • Letter: B
Question
BE23-13 (a) Indicate in general journal form how the items below would be entered in a worksheet for the preparation of the statement of cash flows.(a) Net Income is $317,000
my answer was:
ANSWER:
Account Title Dr. Cr.
(a) Operating Net Income $317,000
Retained Earnings $317,000
My problem/question I am posing is:
Net income is a reconciling item in the direct method and is a direct computation in the indirect method (that sounds funny). Since net income is "closed" or is included in retained earning on the balance sheet - then that is how you would find the current period net income in a trial balance.
Am I on the right track?
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Please know the teacher has asked me this question which I am uncertain as to what he is looking for. Please help?
Explanation / Answer
Net Income is the amount – excess of revenue over expenses. This is calculated and transferred to retained earnings account, which is shown as a part of owner’s equity in the balance sheet. The Journal entry made by you for transfer of net income to retained earnings is- Account Title Dr. Cr. Net Income $317,000 Retained Earnings $317,000 However, in case of Statement of cash flows, there is no Journal entry required, as this is a statement to show how the cash has moved in the business. How the cash was received – from where it was received and how it has been utilized. The three types of Cash flow activities are to identify the inflow and outflows of cash. I hope the above will remove your doubts, in case you still need any clarification please send me a message, I will immediately reply. Thanks
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