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Completing the Accounting Cycle

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Aids the preparation of financial statements. Reduces ... Key Terms p. 154 (glossary on web) Multiple Choice Quiz p. 154-155. Discussion Questions p. 155 ... – PowerPoint PPT presentation

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Title: Completing the Accounting Cycle


1
Chapter 4
  • Completing the Accounting Cycle

2
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.
3
FastForwardWork Sheet For Month Ended December
31, 2007
P1
First, enter the unadjusted amounts to the
worksheet.
4
FastForwardWork Sheet For Month Ended December
31, 2007
Prepare adjusted trial balance.
P1
5
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
8
Prepare the Financial Statements
P1
?Prepare the Income Statement.
A work sheet does not substitute for financial
statements.
9
P1
?Prepare the Statement of Owners Equity.


10
?Prepare the Balance Sheet.


11
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.

12
Temporary and Permanent Accounts
C1
The closing process applies only to temporary
accounts.
13
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.

14
P2
Using the adjusted trial balance, lets prepare
the closing entries for FastForward.
15
P2
  • Close Revenue accounts to Income Summary.

16
Close Revenue Accounts to Income Summary
P2
Now, lets look at the ledger accounts after
posting this closing entry.
17
Close Revenue Accounts to Income Summary
P2
18
P2
  • Close Expense accounts to Income Summary.

19
Close Expense Accounts to Income Summary
P2
Now, lets look at the ledger accounts after
posting this closing entry.
20
Close Expense Accounts to Income Summary
  • Close Expense Accounts to Income Summary

P2





Net Income


21
P2
  • Close Income Summary to Owners Capital.

22
Close Income Summary to Owners Capital
P2
Now, lets look at the ledger accounts after
posting this closing entry.
23
P2
  • Close Income Summary to Owners Capital

24
P2
  • Close Withdrawals to Owners Capital.

25
Close Withdrawals to Owners Capital
P2
Now, lets look at the ledger accounts after
posting this closing entry.
26
Close Withdrawals to Owners Capital
P2
27
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.
28
Post-Closing Trial Balance
P3
29
C3
Lets discuss the components of a classified
balance sheet.
30
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.
31
C3
Current assets are expected to be sold,
collected, or used within one year or the
companys operating cycle.
32
C3
Long-term investments are expected to be held
for more than one year or the operating cycle.
33
C3
Plant assets are tangible long-lived assets used
to produce or sell products and services.
34
C3
Intangible assets are long-term resources used to
produce or sell products and services and that
lack physical form.
35
C3
Current liabilities are obligations due within
the longer of one year or the companys operating
cycle.
36
C3
Long-term liabilities are obligations not due
within the longer of one year or the companys
operating cycle.
37
C3
Equity is the owners claim on the assets.
38
Current Ratio
A1
Helps assess the companys ability to pay its
debts in the near future
39
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
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