Adjusting Entries You have agreed to help your brother-in-law prepare financial

Question

Adjusting Entries You have agreed to help your brother-in-law prepare financial statements for the first six months of his newly created business. He hands you a shoebox with his bank statements detailing the cash collections and cash payments during the year. You also find in the shoebox some invoices for equipment and supplies purchased during the year along with a record of services provided to customers including dates and amounts billed. Where would you begin to make sense of this mess and what steps would you take to provide him a set of financial statements using accrual accounting?

Explanation / Answer

Ans: Financial Statements are prepared on the basis of documents which are to be maintained by the person.First of all Bank statement shall be entered in which it should be mentioned that to whom the payment is made and from whom the payment is collected. after that all the parties shall be created and bill shall be entered against them which are issued by the company and for which th co. or the individual whose statement is prepared has made the payment.

After entry of statement and bill, the bill shall be adjusted and trial balance shall be prepared that shall state the dr. and cr. amount.after prepration of Trial Balance Profit and loss account shall be prepared which shall state the net earning or loss incurred by the company. a profit and loss contain all the expenses incured by the company and are the income earned by the co. from any where in business.

While profit and loss account got prepared, Balancesheet shall be prepared that shall disclosed the company net worth, company liability and its asset.

And this profit and loss account and the Balance sheet is known as the Financial statement.

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