(Objective 6-4) The following general ledger accounts are included in the trial balance for an audit client, Jones Wholesale Stationery Store.
Accounts payable | Depreciation expense – furniture and equipment | Prepaid insurance |
Accounts receivable | Property tax expense | |
Accrued interest expense | Furniture and equipment | Property tax payable |
Accrued sales salaries | Income tax expense | Purchases |
Accumulated depreciation – furniture and equipment | Income tax payable | Rent expense |
Insurance expense | Retained earnings | |
Advertising expense | Interest expense | Salaries, office and general |
Allowance for doubtful accounts | Inventory | Sales |
Bad debt expense | Loans payable | Sales salaries expense |
Cash | Notes payable | Telecommunications expense |
Common stock | Notes receivable—trade |
a. Identify the accounts in the trial balance that are likely to be included in each transaction cycle. Some accounts will be included in more than one cycle. Use the format that follows.
Cycle
Balance Sheet Accounts
Income Statement Accounts
Sales and collection
Acquisition and payment
Payroll and personnel
Inventory and warehousing
Capital acquisition and repayment
b. How will the general ledger accounts in the trial balance most likely differ if the company were a retail store rather than a wholesale company? How will they differ for a hospital or a government unit?
Objective 6-4
Classify transactions and account balances into financial statement cycles and identify benefits of a cycle approach to segmenting the audit.
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