Completing the Accounting Cycle

1
Chapter 4

• Completing the Accounting Cycle

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Benefits of a Work Sheet
P1
Aids the preparation of financial statements.
Assists in planning and organizing an audit.
Not a required report.
Reduces possibility of errors.
Helps in preparing interim financial statements.
Links accounts and their adjustments.
Shows the effects of proposed transactions.
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FastForwardWork Sheet For Month Ended December
31, 2007
P1
First, enter the unadjusted amounts to the
worksheet.
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FastForwardWork Sheet For Month Ended December
31, 2007
Prepare adjusted trial balance.
P1
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FastForwardWork Sheet For Month Ended December
31, 2007
P1
Next, enter the adjustments.
6
Sort adjusted trial balance amounts to financial
statements.
FastForwardWork Sheet For Month Ended December
31, 2007
P1
7
Total statement columns, compute income or loss,
and balance columns.
FastForwardWork Sheet For Month Ended December
31, 2007
P1
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Prepare the Financial Statements
P1
?Prepare the Income Statement.
A work sheet does not substitute for financial
statements.
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P1
?Prepare the Statement of Owners Equity.


10
?Prepare the Balance Sheet.


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Closing Process
C1

• Resets revenue, expense and withdrawal account
  balances to zero at the end of the period.
• Helps summarize a periods revenues and expenses
  in the Income Summary account.

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Temporary and Permanent Accounts
C1
The closing process applies only to temporary
accounts.
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Recording Closing Entries
P2

• Close Revenue accounts to Income Summary.
• Close Expense accounts to Income Summary.
• Close Income Summary account to Owners Capital.
• Close Withdrawals to Owners Capital.

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P2
Using the adjusted trial balance, lets prepare
the closing entries for FastForward.
15
P2

• Close Revenue accounts to Income Summary.

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Close Revenue Accounts to Income Summary
P2
Now, lets look at the ledger accounts after
posting this closing entry.
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Close Revenue Accounts to Income Summary
P2
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P2

• Close Expense accounts to Income Summary.

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Close Expense Accounts to Income Summary
P2
Now, lets look at the ledger accounts after
posting this closing entry.
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Close Expense Accounts to Income Summary

• Close Expense Accounts to Income Summary

P2





Net Income


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P2

• Close Income Summary to Owners Capital.

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Close Income Summary to Owners Capital
P2
Now, lets look at the ledger accounts after
posting this closing entry.
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P2

• Close Income Summary to Owners Capital

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P2

• Close Withdrawals to Owners Capital.

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Close Withdrawals to Owners Capital
P2
Now, lets look at the ledger accounts after
posting this closing entry.
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Close Withdrawals to Owners Capital
P2
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Post-Closing Trial Balance
P3

• List of permanent accounts and their balances
  after posting closing entries.
• Total debits and credits must be equal.

Lets look at FastForwards post-closing trial
balance.
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Post-Closing Trial Balance
P3
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C3
Lets discuss the components of a classified
balance sheet.
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Classified Balance Sheet
C3
Current items are those expected to come due
(both collected and owed) within the longer of
one year or the companys normal operating cycle.
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C3
Current assets are expected to be sold,
collected, or used within one year or the
companys operating cycle.
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C3
Long-term investments are expected to be held
for more than one year or the operating cycle.
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C3
Plant assets are tangible long-lived assets used
to produce or sell products and services.
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C3
Intangible assets are long-term resources used to
produce or sell products and services and that
lack physical form.
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C3
Current liabilities are obligations due within
the longer of one year or the companys operating
cycle.
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C3
Long-term liabilities are obligations not due
within the longer of one year or the companys
operating cycle.
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C3
Equity is the owners claim on the assets.
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Current Ratio
A1
Helps assess the companys ability to pay its
debts in the near future
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Homework

• Read Chapter 4
• Read and answer the Decision Maker and Decision
  Ethics questions
• Read and answer the Quick Checks
• Visit the Publishers website tools for Ch 4
• Key Terms p. 154 (glossary on web)
• Multiple Choice Quiz p. 154-155
• Discussion Questions p. 155
• P 4-2A p.162-163