Bookkeeping 18. Operating Statement

Question 1

1. Now, for the preparation of the OPERATING STATEMENT, you focus on columns 5 and 6 and select

Answer 1

ONLY REVENUE AND EXPENSE ITEMS, and enter them in columns 7 and 8, according to whether they are Debit or Credit items.

Question 2

2. Revenue accounts such as SALES REVENUE or SERVICE REVENUE normally have (Dr or Cr) balances:

Answer 2

CREDIT, and they are placed on column 8.

Question 3

3. Expense items normally have (Cr or Dr) balances:

Answer 3

DEBIT, so they are placed on the debit side of the Operating Statement columns.

Question 4

4. What should you do if columns 7 and 8 do not balance?

Answer 4

Inequality is normal here, Dr and Cr in these columns are not expected to be equal.

Question 5

5. Once you have transferred all REVENUE and EXPENSE items to columns 7 and 8, the remaining items will pertain to :

Answer 5

Assets, Liabilities, and Capital.

Question 6

6. Assets, Liabilities, and Capital are transferred to:

Answer 6

columns 9 and 10 (Balance Sheet), according to whether they are Dr or Cr.

Question 7

7. What are some examples of the ASSET accounts?

Answer 7

1. Cash
2. Accounts Receivable
3. Supplies
4. Furniture and Fixtures
5. Machinery
6. Land and Buildings
7. Any other property of value

Question 8

8. What is the NORMAL account balance for an ASSET?

Answer 8

DEBIT

Question 9

9. What is ACCUMULATED DEPRECIATION?

Answer 9

It is called a CONTRA ASSET account because it is applied AGAINST capital assets, and is entered as a CREDIT on Column 10

Question 10

10. LIABILITY ACCOUNTS, such as ACCOUNTS PAYABLE or SALARIES PAYABLE normally have (Dr or Cr) balances?

Answer 10

CREDIT, so they go on column 10

Question 11

11. Now you total Columns 7, 8, 9, and 10. For Columns 7 and 8, you:

Answer 11

subtract the SMALLER SUM from the LARGER SUM and write the difference BELOW THE SMALLER TOTAL.

Question 12

12. If the total for Column 8 is larger than that for Column 7, then:

Answer 12

the business shows a profit in the amount of the difference.

Question 13

13. If Column 9 totals more than Column 10:

Answer 13

the OWNER’S EQUITY (Capital) has increased in the amount of the difference.

Question 14

13. Which columns must equal?

Answer 14

The DIFFERENCE between Columns 7 and 8 SHOULD BE EQUAL to the DIFFERENCE between Columns 9 and 10.