Sentence question

Question 1

What is posting?

Answer 1

Posting is the process that you transfer the information from journals to respective ledger accounts.

Question 2

Explain the purpose of a trial balance.

Answer 2

The listing of all general ledger accounts and their balances. It is an essential step in the accounting cycle because it checks the integrity of the double entry process.

A trial balance does not:
Pick up missing journal entries
Pick up journal entries not posted
Incorrect amounts in journal entries & Dr/Cr wrong way
Pick up offsetting errors or posting to wrong accounts

Question 3

Differentiate between the cash basis and accrual basis of accounting.

Answer 3

Accrual-based accounting
Revenue recognised when earned (when goods are delivered, or services are provided.)
Expenses recgnised when incurred (when assets are consumed, or liabilities incurred).
-Cash is not related

Cash-based accounting
Revenue recognised when the cash is received or paid.
Expenses recognised when the cash is received or paid. Profit or Loss is the difference between cash in and cash out.

Question 4

Explain why adjusting entries are needed.

Answer 4

The reason is because, to ensure the recognition criteria is followed for assets, liabilities, revenue and expenses - revenue & expenses are then recorded in the correct accounting period. It is required every time financial statements are prepared. Without adjusting entries, the financial information would not be accurate.