Principles of Accounting: Chapter Four

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Chapter 4 shows how adjustments like those from the previous chapter are applied in the development of an adjusted trial balance. Correct financial statements may be prepared from the adjusted trial balance. Sometimes a business may use an optional worksheet to facilitate and document the financial statement preparation process. Several such worksheets are illustrated.

Following completion of an accounting cycle, a business may close its books for the period. This process "zeros out" the balances contained in revenue, expense, and dividend accounts ("temporary accounts"), and transfers the net effect to retained earnings. The temporary accounts are then ready to begin to capture the next period's activity. The chapter also illustrates the application of optional reversing entries and describes why some businesses may find them beneficial.

The chapter closes by illustrating an expanded form of balance sheet. The classified balance sheet results in segregated reporting of key asset and liability categories, and facilitates financial statement analysis such as that pertaining to an evaluation of a company's liquidity.

Exercises

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

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Problems
Goals Achievement
Fill in the Blanks
Multiple Choice
Objectives
Key Terms

Problems: Chapter Four

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Basic		Problem	Worksheet	Combined	Objective

	B-4.01				Preparation of an adjusted trial balance

	B-4.02				Preparing financial statements from an adjusted trial balance

	B-4.03				Basic understanding of the worksheet

	B-4.04				Temporary vs. real accounts

	B-4.05				The closing process

	B-4.06				The accounting cycle

	B-4.07				Reversing entries

	B-4.08				Classified balance sheet

	B-4.09				Current and quick ratios



Involved		Problem	Worksheet	Combined	Objective

	I-4.01				Comprehensive problem from adjustments to financial statements

	I-4.02				Analysis of adjustments by review of trial balances

	I-4.03				Developing a worksheet and related financial statements

	I-4.04				Team-based identification of errors and corrections

	I-4.05				The complete accounting cycle

	I-4.06				Classified balance sheet

	I-4.07				Current and quick ratios from annual reports

The preceding table includes links to "Basic" and "Involved" problems. Each link will download the file containing a spreadsheet for the problem and a template worksheet on which you can prepare the solution electronically. If you see a light bulb icon on a worksheet, just mouse over above the icon and a comment box will appear. The comments include useful suggestions for improving your spreadsheet skills.

Solutions to these problems may be obtained from your instructor, however you may not post or redistribute, electronically or otherwise, any such solution material. Solution material may be provided to you for your sole use only, at the discretion of your individual instructor. Violation of this policy constitutes a copyright violation. Alternative problems, with solutions, may be found under the "Exercises" tab within each chapter. Video solutions to selected problems are available to students enrolling in the online course.