Question

Explain how a business uses each one of these accounting concepts and why is it important?

Here are the concepts:

1. The balance sheet.
2. The trial balance and preparation of financial statements.
3. Preparing the trial balance.(step 4 of the accounting cycle)
4. The worksheet.(step 5 of the accounting cycle)
5. Closing entries.(step 8 of the accounting cycle)
6. The bank reconciliation process.
7. Preparing a payroll register and maintaining an employee earnings record.
8. Journalizing transactions for a perpetual inventory system.
9. Purchases and cash payments in a perpetual inventory system.
10. Cash payments transactions and schedules of accounts payable.

Answer 1

Answer: The business uses each one of these accounting concepts in following mannner:

1. The balance sheet: The balance sheet provides the financial position of an organization, Balance sheet strengthen the position of assets & liabilities of that organization which is used for making a comparison between the inter & intracompany or organization.
2. The trial balance and preparation of financial statements: trial balance shows the accuracy of transactions recorded in the financial statement & after completing the trial balance financial statement such as a statement of profit & loss & balance sheet etc are prepared.
3. Preparing the trial balance: Trial balance are prepared from the transaction posted to ledger accounts with respects to a particular ledger while drafting the trial balances of respective account will be entered in trial balance & it automatically gets tallied
4. The worksheet: Worksheet refers to the report prepared by the entity to record the accounting information which is useful in the preparation of the financial statement
5. Closing entries. After posting the voucher in journal & ledger & trial balance need to make the closing related to accrual & other receivable & payable transactions
6. The bank reconciliation process: bank reconciliation transaction prepared by the entity to reconcile the cash balance with the balance available in the bank statement
7. Preparing a payroll register and maintaining an employee earnings record: it is a very important function in the preparation of financial statement as employees cost are very important for any organization & their recording is also too important
8. Journalizing transactions for a perpetual inventory system: It is very important for any organization to properly maintain the perpetual inventory system so that the effect of bought or purchased of inventory will be updated on a real-time basis
9. Purchases and cash payments in a perpetual inventory system: It is too important for the organization to make the cash payment towards the purchase of inventory in a perpetual system so that it will be recognized in the books of account properly
10. Cash payments transactions and schedules of accounts payable: while preparing the financial statement it is required to properly recognize the transaction related to cash payment & schedules of accounts payable & their aging so that payable will be paid within the due date specified. also, it needs to be shown in the financial statements so that the users of financial statements are able to understand it properly.