WORKSHEET

 Worksheets are prepared at the end of an accounting period and usually include a list of
accounts, account balances, adjustments to each account, and each account’s adjusted
balance all sorted in financial statement order.
 An accounting worksheet is a tool used to help bookkeepers and accountants complete
the accounting cycle and prepare year-end reports like unadjusted trial balances, adjusting
journal entries, adjusted trial balances, and financial statements.
 It simplifies work to be done at the end of the accounting period.
 It avoids errors in the permanent record of accounting.
 If an error is made on the work sheet it can be corrected easily.
 A worksheet is an analytical device used to facilitate the gathering of data for
adjustments, the preparation of financial statement, and closing entries.

ADJUSTING ENTRIES

 Adjusting entries are journal entries made at the end of an accounting cycle to update
certain revenue and expense accounts and to make sure you comply with the matching
principle. The matching principle states that expenses have to be matched to the
accounting period in which the revenue paying for them is earned.
 An adjusting journal entry is an adjustment recorded at the end of an accounting period to
an asset or liability account and related expense or income accounts to record business
events that occurred in the period but were not recorded.

ADJUSTED TRIAL BALANCE

 An adjusted trial balance is a listing of all the account titles and balances contained in
the general ledger after the adjusting entries for an accounting period have been posted to
the accounts.
 The purpose of the adjusted trial balance is to be certain that the total amount of debit
balances in the general ledger equals the total amount of credit balances..
 To verify that the total of the debit balances in all accounts equals the total of all credit
balances in all accounts; and
 To be used to construct financial statements (specifically, the income
statement and balance sheet; construction of the statement of cash flows requires
additional information).
FINANCIAL STATEMENTS

 Financial statements are written records that convey the business activities and the
financial performance of a company. Financial statements include the balance sheet,
income statement, and cash flow statement. Financial statements are often audited by
government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing,
or investing purposes.
 Reports prepared by a company's management to present the financial performance and
position at a point in time.
 Financial statements are the means by which information accumulated and processed in
financial accounting is periodically communicated to the users. The financial Statements
are the end products of the accounting process.

COMPLETE SET OF FINANCIAL STATEMENTS

1. statement of financial position as at the end of the period;

2. statement of comprehensive income for the period;
3. statement of changes in equity for the period;
4. statement of cash flows for the period;
5. Notes, comprising a summary of significant accounting policies and other explanatory
information; and
6. A statement of financial position as at the beginning at the earliest comparative period
when an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements or when it reclassifies in its financial
statements.

The statement of financial position (balance sheet) lists all the assets, liabilities and equity of an
entity as at specific date. The income statement presents a summary of the revenues and
expenses of an entity for a specific period. The statement of changes in equity presents a
summary of the changes in capital such as investments, profit or loss and withdrawals during a
specific period. The statement of cash flows reports the amount of cash received and disbursed
during the period. Accounting policies are the specific principles, bases, conventions, rules and
practices adopted by an enterprise in preparing and presenting financial statements. Notes to
financial statements provide narrative descriptions or disaggregation of items presented in the
statement and information about items that do not qualify for recognition in the statements.
BALANCE SHEET

 A balance sheet is a financial statement that reports a company's assets, liabilities and
shareholders' equity at a specific point in time, and provides a basis for computing rates
of return and evaluating its capital structure. It is a financial statement that provides a
snapshot of what a company owns and owes, as well as the amount invested by
shareholders.
 A balance sheet is a statement of the financial position of a business which states the
assets, liabilities and owner's equity at a particular point in time. In other words, the
balance sheet illustrates your business's net worth.
 assets, liabilities, and the owner’s capital is reflected in this column. The total of the
debits will equal the total of the credit entries.

INCOME STATEMENT

 If the total of the revenue (credit) column exceeds the expense (debit) column, the
difference is the net income for the year. However, if the expenses exceed the revenue,
the net result is a loss. 

 If the total of the revenue (credit) column exceeds the expense (debit) column, the
difference is the net income for the year. However, if the expenses exceed the revenue,
the net result is a loss. 

CLOSING ENTRIES

 Closing entries, also called closing journal entries, are entries made at the end of an

accounting period to zero out all temporary accounts and transfer their balances to
permanent accounts. In other words, the temporary accounts are closed or reset at the end
of the year.
 A closing entry is a journal entry that is made at the end of the accounting period to
transfer balances from a temporary account to a permanent account.
 Companies use closing entries to reset the balances of temporary accounts − accounts that
show balances over a single accounting period − to zero. By doing so, the company
moves these balances into permanent accounts on the balance sheet. These permanent
accounts show a company’s long-standing financials.
 The income summary is a temporary account used to make closing entries.
 All temporary accounts must be reset to zero at the end of the accounting period. To do
this, their balances are emptied into the income summary account. The income summary
 account then transfers the net balance of all the temporary accounts to retained earnings,
which is a permanent account on the balance sheet.
 We prepare closing entries for the temporary accounts such as the revenue and expense
accounts. The closing entries are recorded after the financial statements for the
accounting year are prepared. The reason for the closing entries is to ensure that each
revenue and expense account will begin the next accounting year with a zero balance.
 Income and expenses and withdrawal accounts are temporary accounts that accumulate
information related to a specific accounting period. These temporary accounts facilitate
income statement preparation. At the c of the owner’s capital account represents the
cumulative net result of income, expense, and withdrawal transactions. This phase of the
cycle is called the closing procedure.

A temporary account is said to be closed when an entry is made such that its balance
becomes zero. Closing simply transfers the balance of one account to another account. In
this case, the balances of the temporary accounts of an entity are transferred to the capital
account. A summary account—Income Summary is used to close the income and expense
accounts.

1.) Close the income accounts

Income accounts have credit balances before the closing entries are posted. For this
reason, an entry debiting each revenue account in the amount of its balance is needed
to close the account. The credit is to the income summary account.
The dual effect of the entry is to make the balances of the income accounts equal to
zero, and to transfer the balances in total credit side of the income summary account.
2.) Close the expense accounts.
Expense accounts have debit balance before the closing entries are posted.. For this
reason, a compound entry is needed crediting each expense account for its balance
and debiting the income summary for the total. These data can be found in the debit
side of the income statement columns of the worksheet.
The effect of posting the closing entry is to reduce the expense account balances to
zero and to transfer the total account balances to the debit side of the income
summary.
3.) Close the income summary
After posting the closing entries involving the income and expenses accounts, the
balance of the income summary account will be equal to the profit or loss for the
period. A profit is indicated by a credit balance and a loss by a debit balance. The
income summary account, regardless of the nature of its balance, must be closed to
the capital account.
The effect of posting this closing entry is to close the income summary account
balance and to transfer the balance to Gevera’s capital account for the profit.
 4.) Close the withdrawal account
The withdrawal account shows the amount by which capital is reduced during the
period by withdrawals of cash or other assets of the business by the owner for
personal use.
The effect of posting this closing entry is to close the withdrawal account and to
transfer the balance to the capital account.

POST—CLOSING TRIAL BALANCE

 The amounts in the “Adjusted Trial Balance” (or the income statement” and “Balance
sheet” columns) are cross-footed with the amounts in the “Closing Entries” columns. The
resulting amounts are then placed in the “post-closing trial balance”
 It is possible to commit an error in posting the adjustment and closing entries to the
ledger accounts; thus, it is necessary to test the equality of the accounts by preparing a
new trial balance.
 The post-closing trial balance verifies that all the debits equal the credits in the trial
balance.
 The trial balance contains only balance sheet items such as assets, liabilities, and ending
capital because all income and expense accounts, as well as the withdrawals account,
have zero balances.

REVERSING ENTRIES

 Reversing entries, or reversing journal entries, are journal entries made at the beginning
of an accounting period to reverse or cancel out adjusting journal entries made at the end
of the previous accounting period. This is the last step in the accounting cycle.
 Reversing entries are made because previous year accruals and prepayments will be paid
off or used during the new year and no longer need to be recorded as liabilities and assets.
These entries are optional depending on whether or not there are adjusting journal
entries that need to be reversed.
 Only the adjusting entries made for the following may be reversed: (1) Accruals for
income or expenses; (2) Prepayments recorded using the expense method; (3) Advance
collections recorded using the income method.
 Generally, a reversing entry should be made for any adjusting entry that increased an
asset or liability account. Therefore, all accruals reversed but only deferrals initially
recorded in income statement—income or expense—accounts are reversed.