Week 2

Topics: Generally Accepted Accounting Principles, Balance sheet, Revenue Pages: 87 (2202 words) Published: January 22, 2015
Completing the
Accounting Cycle

The Accounting Cycle
Process by which companies produce their
financial statements
Use of a work sheet summarizes needed data
in one place

2

Accounting Cycle
Journalize Transaction

During the period

Post to Accounts
Adjust Accounts

End of the period

Prepare
Financial Statements
Close Accounts
3

Work Sheet
Internal summary device
NOT:
A journal
A ledger
A financial statement

Computerized spreadsheets work well

4

Work Sheet Steps
Enter account titles
and their
unadjusted
balances in the
Trial Balance
columns
Total the amounts

5

Work Sheet Steps
Enter the adjusting
entries in the
Adjustments
columns
Total the amounts

6

Work Sheet Steps
Compute each account’s adjusted balance by
combining the trial balance and adjustment
figures
Enter each account’s adjusted amount in the
Adjusted trial balance columns
See following slide

7

Work Sheet Steps

8

Work Sheet Steps
Draw an imaginary
line above the first
revenue account
Every account above
goes to the
Balance sheet
columns
Every account below
goes to the Income
Statement columns
9

10

Work Sheet
Steps
On the income
statement,
compute net
income
Revenues minus
expenses

Enter net income as
the balancing
amount
Net Income

11

Work Sheet
Steps
Also enter net
income as a
balancing amount
on the balance
sheet

Net Income
12

13

Preparing Financial
Statements from a Work Sheet
Both work sheet and financial statements
have the same account balances and the
same net income(or loss)
Work sheet is an internal document
Financial statements are for external users
Adjusting entries from work sheet need to be
recorded in journal and posted

14

Work Sheet

Financial Statement
Any Company
Income Statement
Month ended May 31, 2010
Revenue:
  Service revenue
Expenses:
  Salary expense
Depreciation
  expense
 

Net Income

Supplies expense

  Utilities expense
 
Total expenses
Net Income

 

 
  $
 
$1,000

6,500
 
 

1,000

 

500

 

400
 
  $

 
2,900
3,600

15

Any Company
Statement of Retained Earnings
Month ended May 31, 2010
Retained earnings, May 1, 2010
Add: Net Income

$3,200
3,600
6,800

Less: Dividends

(1,000)

Retained earnings, May 31, 2010

$5,800

16

17

Closing the Accounts
Occurs at the end of the period
Gets accounts ready for next period

Zeroes out revenue and expense accounts

18

Temporary and Permanent
Accounts
Temporary
Closed at the end of
the period
Revenues
Expenses
Dividends

Start next period
with a zero balance

Permanent
Not closed at the end
of the period
Assets
Liabilities
Common stock
Retained earnings

Ending balance
carries forward to
next period
19

Closing Entries
Transfer temporary accounts to Retained
earnings
Income summary account used in closing
process
Summarizes net income
Temporary holding tank
Closed into Retained earnings

20

Four Closing Entries
1. Close revenues

2. Close expenses

21

Income Summary
Expenses

Service Revenue
#1

6,500

6,500

2,900

2,900 #2

Income summary
2,900

6,500
Bal. 3,600

Revenues – Expenses =
Net Income
22

Four Closing Entries
3. Close Income summary

4. Close Dividends

23

Four Closing Entries
Income summary
#3

2,900

6,500

3,600

Bal. 3,600

Dividends
1,000

1,000 #4

Retained earnings
1,000

3,200 Beginning balance
3,600
5,800

Ending balance
24

Any Company
Statement of Retained Earnings
Month ended May 31, 2010
Retained earnings, May 1, 2010
Add: Net income

$3,200
3,600
6,800

Less: Dividends

(1,000)

Retained earnings, May 31, 2010

$5,800

Retained earnings
1,000

3,200 Beginning balance
3,600
5,800

Ending balance
25

Post-Closing Trial Balance
List of permanent
accounts and their
balances after...
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