Completing the Accounting Cycle

1
Completing the Accounting Cycle
Chapter
4
2
Benefits of a Work Sheet
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.
Shows the effects of proposed transactions.
Links accounts and their adjustments.
3
FastForwardWork Sheet For Month Ended December
31, 2004
First, enter the unadjusted amounts to the
worksheet.
4
FastForwardWork Sheet For Month Ended December
31, 2004
Next, enter the adjustments.
5
FastForwardWork Sheet For Month Ended December
31, 2004
Prepare adjusted trial balance.
6
Sort adjusted trial balance amounts to financial
statements.
FastForwardWork Sheet For Month Ended December
31, 2004
7
Total statement columns, compute income or loss,
and balance columns.
FastForwardWork Sheet For Month Ended December
31, 2004
8
Prepare the Financial Statements
?Prepare the Income Statement.
A work sheet does not substitute for financial
statements.
9
?Prepare the Statement of Changes in Owners
Equity.


10
?Prepare the Balance Sheet.


11
Closing Process

• 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.

12
Temporary and Permanent Accounts
The closing process applies only to temporary
accounts.
13
Recording Closing Entries

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

14
Closing Process
Balances before closing.
15
Closing Process

• Close Revenue accounts to Income Summary.

16
Closing Process

• Close Expense accounts to Income Summary.

The balance in Income Summary equals net income.
17
Closing Process

• Close Income Summary to Owners Capital.

18
Closing Process

• Close Withdrawals account to Owners Capital.

19
Using the adjusted trial balance, lets prepare
the closing entries for FastForward.
20

• Close Revenue accounts to Income Summary.

21
Close Revenue Accounts to Income Summary
Now, lets look at the ledger accounts after
posting this closing entry.
22
Close Revenue Accounts to Income Summary
23

• Close Expense accounts to Income Summary.

24
Close Expense Accounts to Income Summary
Now, lets look at the ledger accounts after
posting this closing entry.
25
Close Expense Accounts to Income Summary

• Close Expense Accounts to Income Summary

Net Income


26

• Close Income Summary to Owners Capital.

27
Close Income Summary to Owners Capital
Now, lets look at the ledger accounts after
posting this closing entry.
28
Close Income Summary to Owners Capital

• Close Income Summary to Owners Capital

29

• Close Withdrawals to Owners Capital.

30
Close Withdrawals to Owners Capital
Now, lets look at the ledger accounts after
posting this closing entry.
31
Close Withdrawals to Owners Capital
32
Post-Closing Trial Balance
Lets look at FastForwards post-closing trial
balance.

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

33
Post-Closing Trial Balance
34
Lets discuss the components of a classified
balance sheet.
35
Classified Balance Sheet
Current items are those expected to come due
(both collected and owed) within the longer of
one year or the companys normal operating cycle.
36
Current assets are expected to be sold,
collected, or used within one year or the
companys operating cycle.
37
Long-term investments are expected to be held
for the longer of one year or the operating cycle.
38
Plant assets are tangible long-lived assets used
to produce or sell products and services.
39
Intangible assets are long-term resources used to
produce or sell products and services and that
lack physical form.
40
Current liabilities are obligations due within
the longer of one year or the companys operating
cycle.
41
Long-term liabilities are obligations not due
within the longer of one year or the companys
operating cycle.
42
Equity is the owners claim on the assets.
43
Current Ratio
Helps assess the companys ability to pay its
debts in the near future
44
End of Chapter 4