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4-2
COURSE OUTLINE
Two aims of this course (1) Understanding of a general accounting system (2)
Instructor: Nguyễn Thị Thu, PhD, MBA, MA. Introducing the Uniform accounting system in Vietnamese enterprises

ACC5070 PRINCIPLES OF ACCOUNTING Chapter 1

Source
Accounting in Action

Chapter 2: Chapter 5: Accounting for

The Recording Process Merchandising Operations

Chapter 3: Chapter 6:
Adjusting the Accounts Inventories

Chapter 4: Completing the

Accounting Cycle

Chapter 7
The Vietnamese Accounting System

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4-3 4-4
CHAPTER 4 CHAPTER OUTLINE
COMPLETING THE ACCOUNTING CYCLE

Chapter Preview
§ In this chapter, we will study the remaining steps in
the accounting cycle, especially the closing process,
again using Yazici Advertising A.S.̧ as an example.
Then, we will consider correcting entries and
classified statements of financial position.

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4-5 4-6
LEARNING OBJECTIVE 4.2 TEMPORARY VERSUS PERMANENT ACCOUNTS
PREPARE CLOSING ENTRIES AND A POST-CLOSING
TRIAL BALANCE

At the end of the accounting period, the company

makes the accounts ready for the next period.

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4-7 4-8
PREPARING CLOSING ENTRIES

PREPARING CLOSING ENTRIES

Closing entries formally recognize in the ledger the transfer
of:
• Net income (or net loss) to owner’s capital
• Dividends to retained earnings
Produce a zero balance in each temporary account.
Companies generally journalize and post closing entries only
at end of the annual accounting period.

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4-9 Assets = LIABILITIES + EQUITY 4-10

Cash Notes Payable Dividends Sal. & Wag. Expense
1) 10,000 3) 900 1) 5,000 20) 500 Clo) 500 26) 4,000

CLOSING ENTRIES JOURNALIZED

2) 1,200 4) 600 Accounts Payable Income Summary Adj) 1,200
31) 10,000 20) 500 5) 2,500 Clo) 7,740 Clo)10,600 Bal. 5,200 Clo) 5,200
26) 4,000 Unearned Ser. Rev. Clo) 2,860 Rent Expense
21,200 6,000 Adj) 400 2) 1,200 Adj) 900 Clo) 900
Bal.15,200 Bal. 800 Service Revenue Interest Expense
Accounts Receivable Sal. & Wag. Payable 31) 10,000 Adj) 50 Clo) 50
Adj) 200 Adj) 1,200 Adj) 400
Supplies Interest Payable Adj) 200
5) 2,500 Adj) 1,500 Adj) 50 Clo)10,600 Bal. 10,600
Bal. 1,000 Share Cap.—Ordinary Supplies Expense
Prepaid Insurance 1) 10,000 Adj) 1,500 Clo) 1,500
4) 600 Adj) 50 Retained Earnings Depreciation Expense
Bal. 550 Clo) 500 Clo) 2,860 Adj) 40 Clo) 40
Equipment Bal. 2,360 Insurance Expense
1) 5,000 Adj) 50 Clo) 50
Acc. Dep.—Equipment
Adj) 40

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4-11 4-12
THE POST-CLOSING TRIAL BALANCE THE POST-CLOSING TRIAL BALANCE

Retained Earnings
(1/10) 0 ACTION PLAN

(31/10) 500 (31/10) 2,860 • Close revenue and expense accounts to Income Summary.

Bal. 2,360 •Close Income Summary to Retained Earnings.

•Close Dividends to Retained Earnings.

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4-13 4-14
DO IT 2 – POST CLOSING ENTRIES LEARNING OBJECTIVE 4.3
Service Revenues Dividends
EXPLAIN THE STEPS IN THE ACCOUNTING CYCLE
,,,, ,,,,
AND HOW TO PREPARE CORRECTING ENTRIES
(1) 98,000Bal 98,000 Bal 15,00015,000 (4)

Sal. & Wag. Exp. Rent Expenses Supplies Expense

,,,, ,,,, ,,,,
Bal 51,00051,000 (2) Bal 22,00022,000 (2) Bal 7,0007,000 (2)

Retained Earnings Income Summary

(4) 15,000 18,000 (3) (2) 80,000 98,000 (1)
Bal 3,000 (3) 18,000 Bal 18,000

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4-15 4-16
OVERVIEW OF THE ACCOUNTING CYCLE CORRECTING ENTRIES—AVOIDABLE STEP

General Journal General Ledgers

• Unnecessary if accounting records are free of
Trial
Business
transactions Balance errors
• Made whenever an error is discovered
Adjusted
Adjustments
Trial • Must be posted before closing entries
Balance Financial
Statements Instead of preparing a correcting entry, it is
possible to reverse the incorrect entry and then
Closes Post-closing
Trial Balance
prepare the correct entry.

Analysing Journalizing Posting Balancing Reporting

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4-17
CORRECTING ENTRIES—CASE 1
Case 1: On May 10, Mercato Co. journalized and posted a NT$500 cash
collection on account from a customer as a debit to Cash and a credit to
Service Revenue for NT$500. The error was discovered when the customer
paid the remaining balance in full.
4-18
CORRECTING ENTRIES—CASE 2
Case 2: On May 10, 18, Mercato purchased on account equipment costing
NT$4,500. The transaction was journalized and posted as a debit to Equipment
NT$450 and a credit to Accounts Payable NT$450. The error was discovered
on June 3.

(4,500-450=4,050)

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4-19 4-20
LEARNING OBJECTIVE 4.4

CLASSIFIED SFP – ASSET SECTION

IDENTIFY THE SECTIONS OF A
CLASSIFIED STATEMENT OF FINANCIAL POSITION (SFP)

• Presents a snapshot at a point in time

• To improve understanding, companies group
similar assets and similar liabilities together

Assets Equity and Liabilities

Intangible assets Equity
Property, plant, and equipment Non-current liabilities
Long-term investments Current liabilities
Current assets

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4-21 4-22
CLASSIFIED SFS INTANGIBLE ASSETS SECTION
Long-lived assets that do not have physical substance.

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PROPERTY, PLANT, AND EQUIPMENT
• Long useful lives. Currently used in operations
• Depreciation - allocating the cost of assets to a number of years
• Accumulated depreciation - total amount of depreciation expensed
thus far in the asset’s life
• Sometimes called fixed assets or plant assets
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LONG-TERM INVESTMENTS
• Investments in stocks and bonds of other companies
• Investments in long-term assets such as land or buildings
that are not currently being used in operating activities
• Long-term notes receivable

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4-25 4-26
CURRENT ASSETS CURRENT ASSETS
• Assets that a company expects to convert to cash or use up
The correct order of presentation in a classified statement of
within one year or the operating cycle, whichever is longer
financial position for the following current assets is:
• Operating cycle is the average time that it takes to
§ purchase inventory, a. accounts receivable, cash, prepaid insurance, inventory.
§ sell it on account, and
b. prepaid insurance, inventory, accounts receivable, cash.
§ collect cash from customers
c. cash, accounts receivable, inventory, prepaid insurance.
d. inventory, cash, accounts receivable, prepaid insurance.

Current assets are listed:

a. in the reverse order of expected conversion to cash.
b. by importance.
c. by longevity.
d. by size.

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EQUITY NON-CURRENT LIABILITIES
• Proprietorship - one capital account (Investment, Income/loss, withdrawals) Obligations a company expects to pay after one year.
• Partnership - capital account for each partner
• Corporation: Share Capital—Ordinary and Retained Earnings (Income, div.)

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4-29 4-30
CURRENT LIABILITIES
• Obligations company has to pay within coming year or its operating
cycle, whichever is longer
• Common examples are accounts payable, salaries and wages
payable, notes payable, interest payable, income taxes payable,
and current maturities of long-term obligations
• Liquidity - ability to pay obligations expected to be due within the
next year

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