When Comparing the fiNancial Statements of One fiRm with Those

question 324

True/False

When comparing the financial statements of one firm with those of another firm, a problem that may
be encountered is that either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.

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Definitions:

Accounting Cycle

A series of steps taken in order to prepare financial statements, starting from transactions and ending with closing the books.

Post-closing Trial Balance

A financial statement that lists all accounts and their balances after closing entries have been made, usually the final step in the accounting cycle.

Reversing Entries

Journal entries made at the beginning of an accounting period to reverse or cancel out adjusting entries from the end of the previous period.

Adjusting Entries

These are journal entries made in an accounting period to allocate income and expenditures to the period in which they actually occurred.