Professional Documents
Culture Documents
ACCOUNTING CYCLE
Chapter 4
Helps in
Reduces Not a preparing
possibility of
errors.
required interim financial
report. statements.
Shows the
Links accounts
effects of
and their
proposed
adjustments.
transactions.
McGraw-Hill/Irwin Slide 2
FastForward
Work Sheet
For Month Ended December 31, 2009
P1
First,
First, enter
enter the
the
unadjusted
unadjusted
amounts
amounts toto the
the
worksheet.
worksheet.
McGraw-Hill/Irwin Slide 3
FastForward
Work Sheet
For Month Ended December 31, 2009
P1
Next,
Next, enter
enter
the
the
adjustments.
adjustments.
McGraw-Hill/Irwin Slide 4
FastForward
Prepare
Prepare Work Sheet
adjusted
adjusted trial
trial For Month Ended December 31, 2009
balance.
balance.
McGraw-Hill/Irwin Slide 5
Sort
Sort adjusted
adjusted trial
trial balance
FastForwardbalance
Work Sheet
amounts
amounts to financial
to financial
For Month statements.
statements.
Ended December 31, 2007
P1
McGraw-Hill/Irwin Slide 6
Total
Total statement columns,FastForward
statement columns, compute
compute
Work Sheet
income
income or
or loss,
loss, and
and
For balance
balance
Month columns.
columns.
Ended December 31, 2007
P1
McGraw-Hill/Irwin Slide 7
P1
PREPARE THE FINANCIAL STATEMENTS
A
A work
work sheet
sheet
does
does not
not
substitute
substitute for
for
financial
financial
statements.
statements.
McGraw-Hill/Irwin Slide 8
P1
McGraw-Hill/Irwin Slide 9
Prepare the
Balance Sheet.
FastForward
FastForward
Balance
BalanceSheet
Sheet
December
December 31,2009
31, 2009
Assets
Assets
Cash
Cash $$ 4,350
4,350
Accounts
Accountsreceivable
receivable 1,800
1,800
Supplies
Supplies 8,670
8,670
Prepaid
Prepaidinsurance
insurance 2,300
2,300
Equipment
Equipment $$26,000
26,000
Less:
Less:accum.
accum.depr.
depr. (375)
(375) 25,625
25,625
Total assets
Total assets $$42,745
42,745
Liabilities
Liabilities
Accounts
Accountspayable
payable $$ 6,200
6,200
Salaries payable
Salaries payable 210
210
Unearned
Unearnedconsulting
consultingrevenues
revenues 2,750
2,750
Total liabilities
Total liabilities $$ 9,160
9,160
Owner's
Owner'sEquity
Equity
C.Taylor,
C.Taylor,Capital
Capital 33,585
33,585
Total
Total liabilitiesand
liabilities andequity
equity $$42,745
42,745
McGraw-Hill/Irwin Slide 10
C1
CLOSING PROCESS
Resets revenue,
expense and Identify accounts
withdrawal account for closing.
balances to zero at
the end of the period.
Record and post
closing entries.
Helps summarize a
period’s revenues
and expenses in the
Income Summary Prepare post-closing
account. trial balance.
McGraw-Hill/Irwin Slide 11
TEMPORARY AND
C1
PERMANENT ACCOUNTS
Revenues Assets
Withdrawals
Liabilities
Expenses
Owner’s
Capital
Temporary Permanent
Accounts Accounts
Income
Summary The
The closing
closing process
process
applies
applies only
only to
to
temporary
temporary accounts.
accounts.
McGraw-Hill/Irwin Slide 12
P2
RECORDING CLOSING ENTRIES
Close Revenue accounts to
Income Summary.
Let’s see how
the closing
Close Expense accounts to
process works!
Income Summary.
Close Withdrawals to
Owner’s Capital.
McGraw-Hill/Irwin Slide 13
P2
Using the
adjusted trial
balance,
balance let’s
prepare the
closing
entries for
FastForward.
McGraw-Hill/Irwin Slide 14
P2
Close
Revenue
accounts to
Income
Summary.
McGraw-Hill/Irwin Slide 15
P2 CLOSE REVENUE ACCOUNTS
TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Consulting revenue 7,850
Rental revenue 300
Income summary 8,150
McGraw-Hill/Irwin Slide 16
P2 CLOSE REVENUE ACCOUNTS
TO INCOME SUMMARY
Consulting Revenue
7,850 7,850
Income Summary
8,150
Rental Revenue
300 300
McGraw-Hill/Irwin Slide 17
P2
Close Expense
accounts to
Income Summary.
McGraw-Hill/Irwin Slide 18
P2 CLOSE EXPENSE ACCOUNTS
TO INCOME SUMMARY
Dr. Cr.
Dec. 31 Income summary 4,365
Depreciation expense-Equipment 375
Salaries expense 1,610
Insurance expense 100
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230
Close Income
Summary to
Owner’s Capital.
McGraw-Hill/Irwin Slide 21
P2 CLOSE INCOME SUMMARY
TO OWNER’S CAPITAL
Dr. Cr.
Dec. 31 Income summary 3,785
C. Taylor, Capital 3,785
McGraw-Hill/Irwin Slide 22
P2 CLOSE INCOME SUMMARY
TO OWNER’S CAPITAL
McGraw-Hill/Irwin Slide 23
P2
Close
Withdrawals to
Owner’s
Capital.
McGraw-Hill/Irwin Slide 24
P2 CLOSE WITHDRAWALS
TO OWNER’S CAPITAL
Dr. Cr.
Dec. 31 C. Taylor, Capital 200
C. Taylor, Withdrawals 200
McGraw-Hill/Irwin Slide 25
P2 CLOSE WITHDRAWALS
TO OWNER’S CAPITAL
C. Taylor,
Withdrawals C. Taylor, Capital
200 200 200 30,000
3,785
- 33,585
McGraw-Hill/Irwin Slide 26
P3
POST-CLOSING TRIAL BALANCE
McGraw-Hill/Irwin Slide 27
P3
POST-CLOSING TRIAL BALANCE
McGraw-Hill/Irwin Slide 28
C2 Steps in the Accounting Cycle
McGraw-Hill/Irwin Slide 29
C3
CLASSIFIED BALANCE SHEET
Categories of a Classified Balance Sheet
Assets Liabilities and Equity
Current assets Current liabilities
Noncurrent assets Noncurrent liabilities
Long-term investments Equity
Plant assets
Intangible assets
McGraw-Hill/Irwin Slide 30
Snowboarding Components
Balance Sheet (Partial)
January 31, 2009
C3 ASSETS
Current assets
Cash $ 6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
Total current assets $ 42,900
Long-term investments
Current assets are expected to
Notes receivable be sold,
1,500
Investments in stocks and bonds
18,000
collected, or used within one 48,000
year or the
Land held for future expansion
Total investments 67,500
company’s operating cycle.
Plant assets
Equipment $ 33,200
Buildings 170,000 203,200
Less accumulated depreciation 53,000 150,200
Land 73,200
Intangible assets 10,000
Total assets $ 343,800
McGraw-Hill/Irwin Slide 31
Snowboarding Components
Balance Sheet (Partial)
January 31, 2009
C3 ASSETS
Current assets
Cash $ 6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
Total current assets $ 42,900
Long-term investments
Notes receivable 1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total investments 67,500
Plant assets
Long-term investments are
Equipment expected to be held
$ 33,200
for more than one year or170,000
Buildings
the operating
203,200
Less accumulated depreciation
53,000
cycle.
150,200
Land 73,200
Intangible assets 10,000
Total assets $ 343,800
McGraw-Hill/Irwin Slide 32
Snowboarding Components
Balance Sheet (Partial)
January 31, 2009
C3 ASSETS
Current assets
Cash $ 6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
Total current assets $ 42,900
Long-term investments
Notes receivable 1,500
Plant assets are tangible long-lived assets used
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
to produce or sell products and services.
Total investments 67,500
Plant assets
Equipment $ 33,200
Buildings 170,000 203,200
Less accumulated depreciation 53,000 150,200
Land 73,200
Intangible assets 10,000
Total assets $ 343,800
McGraw-Hill/Irwin Slide 33
Snowboarding Components
Balance Sheet (Partial)
January 31, 2009
C3 ASSETS
Current assets
Cash $ 6,500
Short-term investments 2,100
Accounts receivable 4,400
Merchandise inventory 27,500
Prepaid expenses 2,400
Total current assets $ 42,900
Long-term investments
Notes receivable 1,500
Investments in stocks and bonds 18,000
Land held for future expansion 48,000
Total investments 67,500
Intangible assets are long-term resources
Plant assets
Equipment $ 33,200
used to produce or sell products
Buildings 170,000 and services
203,200
and that lack physical form.
Less accumulated depreciation
Land
53,000 150,200
73,200
Intangible assets 10,000
Total assets $ 343,800
McGraw-Hill/Irwin Slide 34
Snowboarding Components
Balance Sheet (Partial)
C3
January 31, 2009
LIABILITIES
Current liabilities
Accounts payable $ 15,300
Wages payable 3,200
Notes payable 3,000
Current portion of long-term liabilities 7,500
Total current liabilities $ 29,000
Long-term liabilities:
Current liabilities are obligations due within
150,000the
Notes payable (net of current portion)
longer of one year or the company’s operating
Total liabilities $ 179,000
EQUITY
T. Hawk, Capital cycle. 164,800
Total liabilities and equity $ 343,800
McGraw-Hill/Irwin Slide 35
Snowboarding Components
Balance Sheet (Partial)
C3
January 31, 2009
LIABILITIES
Current liabilities
Accounts payable $ 15,300
Wages payable 3,200
Notes payable 3,000
Current portion of long-term liabilities 7,500
Total current liabilities $ 29,000
Long-term liabilities:
Notes payable (net of current portion) 150,000
Total liabilities $ 179,000
Long-term liabilities are obligations not due
EQUITY
within the longer of one year or the company’s
T. Hawk, Capital 164,800
Total liabilities and equity $ 343,800
operating cycle.
McGraw-Hill/Irwin Slide 36
Snowboarding Components
Balance Sheet (Partial)
C3
January 31, 2009
LIABILITIES
Current liabilities
Accounts payable $ 15,300
Wages payable 3,200
Notes payable 3,000
Current portion of long-term liabilities 7,500
Total current liabilities $ 29,000
Long-term liabilities:
Notes payable (net of current portion) 150,000
Total liabilities $ 179,000
EQUITY
T. Hawk, Capital 164,800
Total liabilities and equity $ 343,800
Equity
Equity is
is the
the owner’s
owner’s claim
claim on
on the
the assets.
assets.
McGraw-Hill/Irwin Slide 37
A1
CURRENT RATIO
Helps assess the company’s ability to pay
its debts in the near future
Current Assets
Current Ratio =
Current Liabilities
McGraw-Hill/Irwin Slide 39