Bookkeeping 18. Operating Statement Flashcards
- Now, for the preparation of the OPERATING STATEMENT, you focus on columns 5 and 6 and select
ONLY REVENUE AND EXPENSE ITEMS, and enter them in columns 7 and 8, according to whether they are Debit or Credit items.
- Revenue accounts such as SALES REVENUE or SERVICE REVENUE normally have (Dr or Cr) balances:
CREDIT, and they are placed on column 8.
- Expense items normally have (Cr or Dr) balances:
DEBIT, so they are placed on the debit side of the Operating Statement columns.
- What should you do if columns 7 and 8 do not balance?
Inequality is normal here, Dr and Cr in these columns are not expected to be equal.
- Once you have transferred all REVENUE and EXPENSE items to columns 7 and 8, the remaining items will pertain to :
Assets, Liabilities, and Capital.
- Assets, Liabilities, and Capital are transferred to:
columns 9 and 10 (Balance Sheet), according to whether they are Dr or Cr.
- What are some examples of the ASSET accounts?
- Cash
- Accounts Receivable
- Supplies
- Furniture and Fixtures
- Machinery
- Land and Buildings
- Any other property of value
- What is the NORMAL account balance for an ASSET?
DEBIT
- What is ACCUMULATED DEPRECIATION?
It is called a CONTRA ASSET account because it is applied AGAINST capital assets, and is entered as a CREDIT on Column 10
- LIABILITY ACCOUNTS, such as ACCOUNTS PAYABLE or SALARIES PAYABLE normally have (Dr or Cr) balances?
CREDIT, so they go on column 10
- Now you total Columns 7, 8, 9, and 10. For Columns 7 and 8, you:
subtract the SMALLER SUM from the LARGER SUM and write the difference BELOW THE SMALLER TOTAL.
- If the total for Column 8 is larger than that for Column 7, then:
the business shows a profit in the amount of the difference.
- If Column 9 totals more than Column 10:
the OWNER’S EQUITY (Capital) has increased in the amount of the difference.
- Which columns must equal?
The DIFFERENCE between Columns 7 and 8 SHOULD BE EQUAL to the DIFFERENCE between Columns 9 and 10.
