Homework: Transaction Analysis & Financial Statements
Competencies Measured
By successfully completing this homework, you will demonstrate your proficiency in the following course competencies and homework criteria:
1. Competency 1: Analyze the relationship between business events and accounting.
a. Comparatively analyze two companies, including asset investments, return on assets, and company expenses.
b. Analyze company equity, including correct net income and debt ratio calculations.
2. Competency 2: Apply accounting principles as the language of business.
a. Prepare T-accounts, adjusting journal entries, and an adjusted trial balance.
Complete three accounting exercises related to transaction analysis and financial statements using a provided worksheet.
Introduction
Accounting is the language used by a business to communicate how well it is performing to its many stakeholders. Stockholders want to know how their money has been used and what return they will receive on their investment. Creditors want to know the business has the financial resources to continue their business relationship.
Potential investors want to know if a business is a good investment. Lastly, employees of a business want to know that their hard work is paying off in continued employment. Each of these stakeholders has a vested interest in the success of the business, and financial reporting will provide them with the data needed to make sound business and investment decisions.
The Accounting Cycle
The accounting cycle begins when business events are translated to transactions, which affect the financial health of a business, and ends with the preparation of financial statements used to communicate financial health to the various stakeholders of the business.
Adjustments and Financial Statements
The annual reporting period is not always a calendar year ending on December 31. An organization can elect to adopt a fiscal year comprising any 12 consecutive months or 52 consecutive weeks. Regardless of which reporting period an organization chooses, the end of a reporting period requires adjustments that are often necessary to properly reflect revenues when earned and expenses when incurred.
Following these adjustments, an adjusted trial balance will be prepared, and it is from this adjusted trial balance that the necessary financial statements will be prepared. Lastly, certain ledger accounts will require their balances to be closed so they can begin the next accounting period with zero balances. These accounts are known as temporary or nominal accounts. When all of this work has been completed, a new accounting period will begin and the cycle will repeat itself.
Overview
This homework consists of three accounting exercises. The exercises are provided in the Transaction Analysis and Financial Statements Worksheet. Use this worksheet to record and submit your solutions for Exercises.
Preparation
In addition, practice problems for each exercise are provided in the Homework Practice Problems Worksheet. The worksheet and answer key can be found in the Capella Resources activity of this homework and are optional.
Format your homework according to the following formatting requirements:
o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
o The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.