Accounting Equation and Basic Financial Statements

Accounting Equation and Basic Financial Statements

You will describe elements of the accounting environment and prepare an income statement, balance sheet, and statement of retained earnings.

Introduction

Imagine you are trying to grow your business by attracting investors, clients, or securing a loan. You\’ll need to tell a compelling story that demonstrates your understanding of business finance and the language it speaks—the language of accountants. Accounting is often called the language of business, and rightfully so, because effective business organizations set up an accounting information system to communicate data to help internal and external stakeholders make better decisions. Reporting the results of an organization\’s business transactions to these stakeholders requires the preparation of financial reports such as a balance sheet (statement of financial position), retained earnings, and the income statements. Accurate preparations of these statements require essential accounting knowledge and skills.

Overview

In this assessment, you are required to:

• Answer questions designed to test your knowledge of the basic accounting environment.
• Prepare income, balance, and retained earnings statements.

Preparation

• Use the Assessment 1 Template [XLSX] to complete this assessment.
• Review all suggested readings.

Note: Accuracy in accounting is paramount. Take your time and double-check your work for errors or omissions.

Scenario

For parts 2–4: Imagine that you have been given June 2010 financial transaction data provided by Moonlight Drive-In Theater and have been asked to prepare specified financial statements. This information is found in the Assessment 1 Template [XLSX].

Instructions?

Step 1: Describe the accounting environment.

Step 2: Prepare an income statement.

Step 3: Prepare a statement of retained earnings.

Step 4: Prepare a balance sheet.

Complete each of the following assessment parts in sequence using the Week 1 Assessment 1 Template [XLSX]. All parts of the template should be submitted together. Each template tab corresponds to one of the following assessment parts:

Part 1: Accounting Environment

Respond to the short-answer accounting environment questions found in the template on the \”Accounting Environment\” tab using proper grammar and language.

Part 2: Income Statement

• Source: Edwards, J. D., Hermanson, R. H., & Maher, M. W. (2011). Accounting principles: A business perspective, financial accounting (Chapters 1–8) [PDF]. Textbook Equity. Problem C, page 67.

Prepare an income statement for June 2010. Make sure to identify account names and amounts.

Part 3: Statement of Retained Earnings.

Prepare a statement of retained earnings for June 2010, using the information in Part 2.

Part 4: Balance Sheet.

Prepare a balance sheet as of June 30, 2010, using the information in Part 2. Make sure to identify account names and amounts.

Save and submit your completed template in the courseroom.

Competencies Measured?

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Define accounting terminology and its application to accounting principles.
  • Describe the accounting environment.
• Competency 3: Prepare financial statements from accounting system data.
  • Prepare an income statement.
  • Prepare a statement of retained earnings.
  • Prepare a balance sheet.
• Competency 4: Convey purpose, in an appropriate tone and style, incorporating supporting evidence and adhering to organizational, professional, and scholarly writing standards.
  • Convey clear meaning through appropriate word choice and usage.

References

Edwards, J. D., Hermanson, R. H., & Maher, M. W. (2011). Accounting principles: A business perspective, financial accounting (Chapters 1–8). Textbook Equity.