BA 99.

1 HANDOUT: COMPLETION OF THE ACCOUNTING CYCLE

THE WORKSHEET

Video link: https://youtu.be/k63ThYccTB4

WORKSHEET – a multicolumn form that may be used in the adjustment process and in preparing
financial statements

STEPS IN PREPARING THE WORKSHEET

1. Prepare a __________________
2. Enter adjustments in the adjustment column
3. Enter adjusted balances in the adjusted trial balance columns
4. Extend adjusted balances to appropriate statement columns
5. Total the statement columns, __________________________, and complete the worksheet

Refer to the last page for the worksheet example.

CLOSING THE BOOKS

Video link: https://youtu.be/mUpVZwFOlMY

TYPES OF ACCOUNTS
1. Temporary/Nominal Accounts
- relate only to a given accounting period
- closed at the end of the accounting period
- all _____________ & ____________ accounts; ________________ account
2. Permanent/Real accounts
- relate to one or more future accounting periods
- carried forward into the next accounting period
- all _____________ & ____________ accounts; ________________ account

CLOSING ENTRIES – the transfer of profit (loss) and owner’s drawings to owner’s capital; journalized
and posted only at the end of the annual accounting period.

Income Summary/Profit and Loss Summary – a temporary account wherein the revenue and
expenses are closed; the resulting profit (credit balance) or loss (debit balance) is transferred to
owner’s capital

STEPS:

1. Close revenue accounts to Income Summary: ________ revenue accounts, credit Income
Summary
2. Close expense accounts to Income Summary: Debit Income Summary, _________ expense
accounts
3. Close Income Summary to Owner’s Capital
If net income (________ is greater than _________), debit __________________, credit
Owner’s Capital
If net loss (expenses are greater than revenue), debit Owner’s capital, credit Income
Summary

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BA 99.1 HANDOUT: COMPLETION OF THE ACCOUNTING CYCLE

4. Close Owner’s Drawings to Owner’s Capital: ____________ Owner’s Capital, __________

Owner’s Drawings

POST-CLOSING TRIAL BALANCE – lists permanent/real accounts after journalizing and posting of
closing entries.

- Purpose: to prove the equality of permanent account balances forwarded in the next
accounting period

THE ACCOUNTING CYCLE AND DIFFERENT TYPES OF JOURNAL ENTRIES

Video link: https://youtu.be/3GMYvbXe6ZU

THE ACCOUNTING CYCLE

1. Analyze the business transaction

2. Journalize the transaction Occur Daily
3. Post to ledger accounts
4. Prepare a trial balance
5. Journalize and post adjusting entries
6. Prepare the adjusted trial balance Occur Periodically
7. Prepare financial statements
8. Journalize and post-closing entries Occur Annually
9. Prepare post-closing trial balance

TYPES OF JOURNAL ENTRIES

1. ADJUSTING ENTRIES
2. CLOSING ENTRIES
3. CORRECTING ENTRIES – an avoidable step

ADJUSTING ENTRIES CORRECTING ENTRIES

As Part of the
Accounting Cycle

Timing

Accounts affected

2 APPROACHES TO CORRECTION

a. Correcting Entries - Determine “should be” or correct entry; compare it against the
“entry made”
b. Reverse the incorrect entry; book the correct entry

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BA 99.1 HANDOUT: COMPLETION OF THE ACCOUNTING CYCLE

4. REVERSING ENTRIES – an optional step

- Made at the beginning of the next accounting period
- Is the exact opposite of the adjusting entry made in the previous period
- Purpose: to simplify the recording of subsequent transaction related to an adjusting
entry
- Used for accruals – accrued revenue and accrued expenses

ADJUSTING ENTRY REVERSING ENTRY

Accrued Asset (DR) XXX

Revenues Revenue (CR) XXX
Accrued Expense (DR) XXX
Expenses Liability (CR) XXX

THE CLASSIFIED STATEMENT OF FINANCIAL POSITION/BALANCE SHEET

Video link: https://youtu.be/L4Qjm_potYY

ASSETS

CURRENT ASSETS

- Assets that are reasonably expected to be realized as cash or sold or consumed within 1 year or the
business’s operating cycle

- Current assets such as Cash, Receivables, etc. are presented in order of liquidity

- Important in assessing the business’s ability to pay short-term debt.

NONCURRENT ASSETS

-Assets held beyond 1 year or the business’s operating cycle

-Common groups of noncurrent assets:

Property Plant and Equipment

Intangible Assets

Long-term Investments

LIABILITIES

CURRENT LIABILITIES

- Criteria: (1) expected to be settled within the normal operating cycle or (3) within 12 months after
end of reporting period; (2) held for purposes of trading and (4) the business has no right to defer
settlement for at least 12 months after the reporting period.

NON-CURRENT LIABILITIES

- Obligations expect to be paid after 1 year or after an operating cycle

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BA 99.1 HANDOUT: COMPLETION OF THE ACCOUNTING CYCLE

EQUITY

Sole Proprietorship Partnership Corporation

NOTES TO THE FINANCIAL STATEMENTS

- equally important as they describe how some of the numbers on the face of the statement of
financial position was calculated and often provides additional information.

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BA 99.1 HANDOUT: COMPLETION OF THE ACCOUNTING CYCLE

EXAMPLE OF A WORKSHEET
Account Unadjusted Trial Balance Adjusting Entries Adjusted Trial Balance Income Statement Statement of Financial Position

DR CR DR CR DR CR DR CR DR CR

101 Cash 3,500 3,500

112 Accounts Receivable 6,000 1,700 7,700

126 Supplies 1,900 900 1,000

130 Prepaid Insurance 3,600 150 3,450

149 Equipment 11,400 11,400

150 Accumulated Depreciation – Equipment 190 190

201 Accounts Payable 4,500 250 4,750

209 Unearned Service Revenue 2,000 1,600 400

212 Salaries and Wages Payable 1,104 1,104

301 S. Cuono, Capital 18,700 18,700

302 S. Cuono, Drawings 1,000 1,000

400 Service Revenue 9,500 3,300 12,800

631 Supplies Expense 900 900

717 Depreciation Expense 190 190

722 Insurance Expense 150 150

726 Salaries and Wages Expense 6,400 1,104 7,504

729 Rent Expense 900 900

732 Utilities Expense 250 250

34,700 34,700 5,894 5,894 37,944 37,944

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