Adjustments for Financial Reporting

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Question 1: Proficient: You have taken over a set of accounting books for a small business as a part-time job. At the end of the first accounting period, you have partially completed the work sheet by entering the proper ledger accounts and balances in the Trial Balance columns. You turn to the manager and ask, "Where is the list of additional information I can use in entering the adjusting entries?" The manager indicates there is no such list. In all the text problems you have done, you have always been given this information. How would you obtain the information for this real-life situation? The steps I would take would be to look at the balance sheet. If the balance sheet were in balance from the previous period, I would work my way backward to determine where the company stands in the current period. The reason I would look at the balance sheet is that if everything were in balance at the end of the last period, it would be easier going forward with that information. I would look at the income accounts to see what revenues have been recorded and where entries were missing. I would than check the liabilities accounts to see if there were payable accounts transactions missing. With this information, I think it would be possible to establish a starting point to run a trail balance just to see where the company is financially and if there might be issues that may require adjustments entries. Distinguished: What are the consequences of not making all of the required adjustments at the end of the accounting period? If the adjustment entries were not entered at the end of an accounting period, the company’s financial information would be inaccurate. The company would be misstating their financial standing and misleading it investors... ... middle of paper ... ...0; 2014—$172,500. Determine the current ratio for 2013 and 2014. Does the change in the current ratio from 2013 to 2014 indicate a favorable or unfavorable trend? The current ratio for 2013 is USD 262,500 = 1.75:1 USD 150,000 The current ratio for 2014 is USD 310,500 = 1.80:1 USD 172,500 The trend shows the company is improving their current ratio in 2014 and it is a favorable trend. The company shows a .05 improvement over 2013. References Hermanson, R., Edwards, J., & Maher, M. (2010).Accounting principles: A business perspective. (Vol. 2). Textbook Equity inc. DOI: www.textbookequity.com Siegel Ph.D. CPA, Joel G.; Shim Ph.D., Jae K. (2010-02-01). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.

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