Complete a 4-part assessment that requires you to categorize balance sheet accounts, prepare a balance sheet, prepare an income statement, and analyze items in a financial statement.
Because the balance sheet reflects all journal entries affecting the business since inception, knowledge of the placement of each account is essential to preparing a financial statement. Likewise preparation of the balance sheet, or statement of financial position, is an essential skill and requires the accountant to take information from the accounting system and summarize it in a single location. Generally accepted accounting principles (GAAP) require organizations to prepare both an income statement and a balance sheet. Before the balance sheet can be prepared, the organization’s net income must be determined. Finally, balance sheets do not always balance once they are prepared, and income statements do not always contain correct account data. This can cause havoc across the accounting department and requires the accountant to locate the missing or incorrect data.
Assessment 1 addressed internal and external users of accounting information. The characteristic that sets them apart is the type of data that they require. When an organization reports its financial results to the world, the external users look to see if the organization made any money during its most recent year and whether the assets the organization owns minus the debts it owes result in any profits that can be put back into the organization to make more money for the organization, or reward the shareholders for their investment in the organization.
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.
This assessment includes four parts. Use the templates provided for each part to complete the assessment. All the templates are linked in the Resources under the Required Resources heading. Submit all four templates for this assessment.
Part 1: Categorizing Balance Sheet Account
Accounts are either temporary or permanent, with the temporary ones assigned to revenues and expenses, leaving the permanent ones to reside on the balance sheet. Because the balance sheet reflects all journal entries affecting the business since inception, knowledge of the placement of each account is essential to preparing the statement. Because you have been studying the parts of the balance sheet, this is an opportunity to apply your knowledge to an important piece of the accounting cycle.
Determine the correct balance sheet category for each of the following accounts. Use the Assessment 2, Part 1 Template to complete this part of the assessment.
Part 2: Balance Sheet Preparation
Reporting the results of an organization’s business transactions requires the preparation of financial statements that will be shared with both internal and external users of financial data. For this reason, preparation of the balance sheet, or statement of financial position, is an essential skill and requires the accountant to take information from the accounting system and summarize it in a single location. This assessment demonstrates your skill in the preparation of this financial statement.
Use the following account information to prepare the 2011 balance sheet for Blaze Industries. Be sure to use the proper balance sheet format. If you need to research this format, you may wish to start with the suggested materials in the Resources. Use the Assessment 2, Part 2 Template to complete this part of the assessment.
Part 3: Income Statement Preparation
Generally accepted accounting principles (GAAP) require organizations to prepare both an income statement and a balance sheet. Before the balance sheet can be prepared, the organization’s net income must be determined. This requires the accountant to pull together data from numerous system accounts and other sources of information. In this part of the assessment, demonstrate your skill in putting together the necessary account data and preparing an income statement in good form.
Use the Assessment 2, Part 3 Template to complete Part 3 of the assessment. On the first page of the template is financial data for Southwest Business School. On the second page is a blank income statement. Use the information provided on the first page to prepare the income statement on the second page.
Part 4: Analyzing Items in the Financial Statement
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