Question

31. What is an adjusted trial balance?

32. An adjusting entry normally affects what types of accounts?

33. What are closing entries? What purpose do they serve? What accounts are

closed? What accounts are NOT closed? When are they prepared?

34. What is Income Summary?

35. What accounts are included in a post-closing trial balance?

36. What is a classified Balance Sheet? What are the sub-sections of assets and

liabilities?

37. Merchandise inventory—define, characteristics

38. Gross profit, operating expenses, operating income

39. Credit terms

40. What do the debit entries and credit entries to merchandise inventory mean?

Answer 1

Solution. 31. An organization operating in competitive economic market needs to record, interpret and analyze its financial data in order to take decisions, one such internal record is adjusted trial balance which records total debit balance equals total credit balance brought forward from general ledger account heads.

32.Recording an adjusting entry both debit and credit side encompassing income statement and other side of balance sheet of the company to conform with accrual accounting concept.

33.Closing entries transfer the end balances of accounts heads to next accounting period. They serve the purpose of reconciling accounts by transferring and closing account heads to next accounting period. Temporary accounts of a company are closed whereas account heads under the balance sheet are not closed. They are prepared at the end of the company's accounting period.

34.Income summary account is prepared by a company recording revenue account and expense account at the end of an accounting period generating information on the profit/loss incurred by the company during its operation.

35.Assets, liabilities and, equity account are included in a post-closing trial balance of a company at the end of an accounting period.

36.An organization prepares balance sheet at the end of accounting period in order to record and publish information items regarded as debit and credit balances. It encompasses current assets, fixed assets, cash and cash equivalents, current liabilities, long-term liabilities, shareholder's equity on asset and liabilities side respectively.

37.Merchandise inventory refers to the cost of finished goods available or held for sale. It represents or characterizes as a current asset, ready for sale, and finished goods inventory.

38.Gross profit represents revenue earned less cost of goods sold by an organization during an accounting period and is reported on the income statement.

Operating expenses represents expenses incurred indirectly in order to run and administer the company and includes wages, depreciation, etcetera incurred during an accounting period.

Operating income represents profit generated after deducting operating expenses during an accounting period by the company.

39.Credit terms include terms against which the payment for sales have been made on credit to the buyer by the seller encompassing time period/limit and amount.

40.Debit balance on merchandising inventory reflects rising debit and diminishing credit during an accounting period and maintained in order to analyze inventory information and facilitates in decision making.