The Accounting Cycle

Reporting Financial Results

Chapter 5

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5-1
Preparing Financial Statements
Publicly owned companies – those with shares listed on a
stock exchange – have obligations to release annual and
quarterly information to their stockholders and to the public.

The annual report includes comparative financial statements

and other information relating to the company’s financial
position, business operations, and future prospects.

The financial statements contained in the annual report must be

audited by a firm of certified public accountants (CPAs).
5-2
Now, let’s prepare the financial statements
for Overnight Auto Service for 2015.
5-3
The Income Statement

Net
Net income
income also
also appears
appears on
on the
the
Statement
Statement of
of Retained
Retained Earnings.
Earnings.
5-4
The Statement of Retained
Earnings

Next, let’s prepare the Balance Sheet.

5-5
The Balance Sheet

5-6
Relationships among the
Financial Statements

5-7
Drafting the Notes that
Accompany Financial
Statements
Examples
ExamplesofofItems
ItemsDisclosed
Disclosed
Notes to the 
Lawsuits
Lawsuitspending
pending
Financial Statements 
Scheduled
Scheduledplant
plantclosings
closings

Governmental
Governmentalinvestigations
investigations

Significant
Significantevents
eventsoccurring
occurring
after
afterthe
thebalance
balancesheet
sheetdate
date

Specific
Specificcustomers
customersthat
that
account
accountfor
foraalarge
largeportion
portionof
of
revenue
revenue

Unusual
Unusualtransactions
transactionsand
and
related
relatedparty
partytransactions
transactions

5-8
Closing the Temporary Accounts
 Close Revenue
accounts to
Income Summary.

 Close Expense
accounts to
Income Summary.

 Close Income
Summary account
to Retained
Earnings.

 Close Dividends to
Retained Earnings.

5-9
 Closing Entries for Revenue
Accounts
Since
Since both
both revenue
revenue accounts
accounts have
have credit
credit
balances,
balances, the
the closing
closing entry
entry requires
requires aa debit
debit to
to
the
the Revenue
Revenue accounts.
accounts.

GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
Dec 31 Repair Service Revenue 172,000
Rent Revenue
Revenue Earned
Earned 3,000
Income Summary 175,000
To close the revenue accounts.

5-10
Closing Entries for Revenue
Accounts

5-11
Closing Entries for Expense Accounts

Net Income

5-12
 Closing the Income Summary
Account
Since
Since Income
Income Summary
Summary has
has aa $39,942
$39,942 credit
credit
balance,
balance, the
the closing
closing entry
entry requires
requires aa debit
debit to
to
Income
Income Summary.
Summary.

GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
Dec 31 Income Summary 39,942
Retained Earnings 39,942
To close Income Summary.

5-13
Closing the Dividends Account
Since
Since the
the Dividends
Dividends account
account has
has aa debit
debit
balance,
balance, the
the closing
closing entry
entry requires
requires aa credit
credit to
to
the
the Dividends
Dividends account.
account.

GENERAL JOURNAL
P
Date Account Titles and Explanation RDebit Credit
Dec 31 Retained Earnings 14,000
Dividends 14,000
To close the Dividends account.

5-14
After-Closing Trial Balance

5-15
End of Chapter 5

5-16