Professional Documents
Culture Documents
Accounting
Cycle
Chapter 4
Objective 1
Prepare an accounting
work sheet.
The Accounting Cycle
The accounting cycle is the process by
which accountants prepare financial
statements for an entity for a specific
period of time.
The Accounting Cycle
For a new business, begin by setting up
ledger accounts.
For an established business, begin with
account balances carried over from the
previous period.
The Accounting Cycle
Accounts Receivable
Accounts Receivable
1,350
1,350
1,700
1,700 3,050
The Accounting Cycle
Work Sheet
Cash 12,100
Accounts
receivable 3,050
Balance Income
Sheet Statement
The Accounting Cycle
Adjusting entries Closing entries
©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber 4-9
The Accounting Work Sheet
a The company has earned revenue of $1,700
which will be collected next month.
b Inventory of supplies at month end totaled
$150.
c Depreciation for the period was calculated
as $200.
The Accounting Work Sheet
Adjusted
Trial Balance Adjustments Trial Balance
Account Title Dr. Cr. Dr. Cr. Dr. Cr.
Cash 12,100 12,100
Accounts receivable 1,350 a) 1,700 3,050
Supplies 250 b) 100 150
Equipment 15,500 15,500
Accum. depreciation 7,500 c) 200 7,700
Accounts payable 1,200 1,200
Salary payable 1,100 1,100
Unearned revenue 1,500 1,500
Capital 7,200 7,200
Withdrawals 1,000 1,000
Revenue 23,700 a) 1,700 25,400
Salary expense 12,000 12,000
Supplies expense b) 100 100
Depreciation expense c) 200 200
Totals 42,200 42,200 2,000 2,000 44,100 44,100
Closing Entries
Expenses
Revenues and
increase Withdrawals
Owner’s decrease
Equity. Owner’s
Equity.
Closing the Accounts
Revenues and Expense accounts are closed
to Income Summary.
Income Summary is closed to Capital.
Withdrawals are closed to Capital.
In a corporation, Dividends are closed to
Retained Earnings.
Closing the Accounts
Income Summary
A debit A credit
balance balance
represents represents
net loss. net income.
Closing the Accounts
(Close Revenue
Account) Income
Revenue Summary
28,500 12,000 (Close Expense
7,500 Accounts) 4,450 28,500
9,000 24,050
Salary Exp (Close Income
Summary)
1,500 3,300 Capital
1,800 Account
Rent Exp
2,500 24,050
800 800 (Close
Supplies Exp Withdrawals Withdrawals
Account) 2,500 2,500
350 350
©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber 4 - 23
Postclosing Trial Balance
The accounting cycle ends with the
postclosing trial balance.
The postclosing trial balance is dated as
of the end of the period for which the
statements have been prepared.
Permanent Accounts
What accounts never close?
– Assets
– Liabilities
– Owner’s equity
Balances of permanent accounts carry over
to the next period.
Objective 4