1. What is a trial balance? What is its purpose?

A trial balance is a list of all accounts with their balances to provide a check on the equality of the debits and credits. The purpose of the trial balance to provide a check of equality between the debits and credits, and therefore make any adjustments that need to be recorded.

2. What is the purpose of recording adjusting entries?

The purpose of adjusting entries is to reflect cash that may be received or paid from a different accounting period.

3. List four types of adjusting entries and give an example of each type.

Four types of adjusting entries include deferred revenues, accrued revenues, deferred expenses and accrued expenses.

Deferred revenue- an example of this would be unearned franchise fees.
Accrued revenue- an example of this would be any accounts receivable/interest receivable.
Deferred expenses- an example of this would be prepaid rent and insurance
Accrued expenses- an example of this would be accounts payable such as salaries, utilities and interest

4. What is a contra asset? Give an example of one.

A contra account is an account that is an offset to, or reduction of, the primary account. An example of this would be in the property and equipment, the contra account would be the accumulated depreciation.

5. Explain how the financial statements relate to each other.

The financial statements relate to each other because in reviewing the trial balance sheet you can see the assets, liabilities, stockholders equity, revenues and gains and expenses and losses.

6. What is the equation for each of the following statements:

a) Income statement- Revenues- Expenses= Net Income b) Balance Sheet- Assets= Liabilities + Stockholders Equity c) Statement of Cash Flows- +/- Cash Flows from Operating Activities