W2 Questions Assignment Example | Topics and Well Written Essays - 250 words

W2 Questions - Assignment Example In an accrual based double entry system, every transaction has both a debit and a credit in the books of accounts. The three major divisions in the accounting field are (1) Financial Accounting (2) Management Accounting and (3) Tax Accounting. Financial accounting relates to a description and classification of accounts into assets, liabilities, capital, revenues and expenses and their summarization on the Income Statement and Balance Sheet. Management accounting deals with the development or interpretation of accounting information to aid management in making decisions that help in running the business. Tax accounting deals with determining the tax effects of transactions, preparation and filing of tax returns in conformity with the applicable tax laws and procedures. The purpose of a balance sheet is to show the financial position of a business enterprise on a specific date, usually the end of the year. Accounts are typically classified as belonging either to the income statement or the balance sheet. Usual balance sheet accounts are assets such as Cash, liabilities such as Accounts Payable and owner’s equity such as the Capital account. The purpose of an income statement is to determine whether the business made a profit or loss from its operations over the period, usually a year. Both the income statement and the balance sheet are prepared at the end of the financial year. Usual income statement accounts are revenues such as Sales and expenses such as Advertising Expense. The statement of cash flows shows how the cash in a business was generated and how it was spent over the financial year. This can be the result of operating, investing and financing activities. Some examples of typical cash flow accounts are Depreciation, Interest and Dividends Received and Cash Paid for Interest and Income Taxes. 7. Based on the financial information below, prepare an income statement and a balance sheet for Joe’s-Fly-by-Night Oil Company for the year ended