Week Four Reflections

Week four reflections

Our team learned many new concepts this week. Among them are closing entries. Closing entries transfer net earnings and dividends to retained earnings so that the balance in retained earnings agrees with the retained earnings statement. In addition to correcting the end balance, closing entries produce zero balances in all temporary accounts, allowing these accounts to refresh and begin adding data for the new accounting period. Reversing entries are made at the beginning of an accounting period. It is the exact opposite of an adjusting entry made in the previous period. Post-closing trial balances list all permanent accounts and their balances after closing entries are posted. This proves the equality of the permanent account balances being carried forward.

The financial statement worksheet is important because it has everything you need to prepare financial statements themselves. The worksheet contains adjusted entries, items that are closed providing the accurate numbers for the already mentioned use of preparing financial statements. Because the numbers are adjusted and certain non-revolving like accounts are closed out, the information is considered to be the most reliable by SAPP. The reliability of these numbers to create statements is important to people like external users like an potential investor. A potential investor may be likely to look at the numbers to determine their amount of investment or to see if there is a good chance of ROI (Return on Investment) according to their investment practices.

A company's financial transactions and accounts are different from company to company. Therefore, it is helpful to classify entries in their financial statements into major categories. These are called classified income statements. These allow for easier understanding of any company's financial health. Retained earnings are net profits not paid out as dividends to stockholders, but are retained by a company to be reinvested into the business. Retained earnings have to be accounted for on the balance sheet under stockholders equity. A retained earnings statement is the calculation of these retained earnings for a specific accounting period. This is helpful in determining if a company is wisely managing and investing a stockholders money. A classified balance sheet is divided into major groups of assets, liabilities, and stockholder equity. This helps organize the various entries on a balance sheet, making the information easier to read and understand. This allows parties inside and outside of a company to see the company's financial position at any one point in time.