04-PSU-ACC 202 - Principles of Accounting 2 - 2022F - Lecture Slides

4
Completing the
Chapter
Accounting Cycle
Financial
and
Managerial
Accounting
14e
Warren
Reeve Instructor: Nguyễn Thị Kim Hương - Hoàng Anh Thư
Duchac Cell: 0983.501512 0994.183.363
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CONTENT
1. Preparing Classified Financial Statements

2. Closing the Accounts
3. The Accounting Cycle
4. Reporting Using a Fiscal Year
1
Describe the flow of accounting

information from the unadjusted trial
balance into the adjusted trial
balance and financial statements.
4-2
7
Preparing an
Expanded End-of-Period Spreadsheet
Step 1. Enter the title.
Step 2. Enter the unadjusted trial balance.
Step 3. Enter the adjustments.
Step 4. Enter the adjusted trial balance.
Step 5. Extend the accounts to the Income
Statement and Balance Sheet columns.
Step 6. Total the Income Statement and Balance
Sheet columns, compute the net income or net
loss, and complete the spreadsheet.
1
Exhibit 1 End-of-Period Spreadsheet (Work Sheet)
9
Discussion question 1
Why is the total of the debit and credit columns on the

work sheet not equal?
2
Prepare financial
statements from adjusted
account balances.
4-4
11
Income Statement
• The income statement is prepared directly from

the Adjusted Trial Balance columns of the end-
of-period spreadsheet, beginning with fees
earned.
• The expenses in the income statement are listed
in order of size, beginning with the larger items.
o Miscellaneous Expense is the last item, regardless of
its amount.
2
Exhibit 2 Financial Statements Prepared from Work Sheet
to retained earnings statement
13
Retained Earnings Statement
• The first item normally presented on the retained

earnings statement is the balance of the retained
earnings account at the beginning of the period.
• The amount of dividends is deducted from the
net income to determine the ending retained
earnings account balance.
2
Financial Statements Prepared
Exhibit 2 from Work Sheet (continued)
from the income statement
to the balance sheet
15
Balance Sheet
(slide 1 of 2)
• The balance sheet is prepared directly from the

Adjusted Trial Balance columns of the end-of-
period spreadsheet, beginning with Cash.
• The asset and liability amounts are taken from
the spreadsheet.
• The retained earnings amount is taken from the
retained earnings statement.
Balance Sheet
(slide 2 of 2)
• A balance sheet that shows subsections for

assets and liabilities is a classified balance
sheet.
o Assets are commonly divided into two sections on the
balance sheet: (1) current assets and (2) property,
plant, and equipment.
o Liabilities are commonly divided into two sections on
the balance sheet: (1) current liabilities and (2) long-
term liabilities.
Current Assets
(slide 1 of 2)
• Cash and other assets that are expected to be

converted to cash or sold or used up usually within
one year or less, through the normal operations of
the business, are called current assets.
• Current assets include:
o Cash
o Notes receivable
o Accounts receivable
o Supplies
o Other prepaid expenses
Current Assets
(slide 2 of 2)
• Notes receivable are written promises by the

customer to pay the amount of the note and interest.
Like accounts receivable, notes receivable are
amounts that customers owe, but they are more
formal than accounts receivable.
• Notes receivable and accounts receivable are
current assets because they are usually converted
to cash within one year or less.
Property, Plant, and Equipment
• Property, plant, and equipment (also called

fixed assets or plant assets) include land and
assets that depreciate over a period of time.
o Assets that depreciate over time include:
 Equipment
 Machinery
 Buildings
Current Liabilities
• Amounts the business owes to creditors that will be due

within a short time (usually one year or less) and that are
to be paid out of current assets are called current
liabilities.
• Current liabilities include:
o Notes payable
o Accounts payable
o Wages payable
o Interest payable
o Taxes payable
o Unearned fees
Long-Term Liabilities
• Amounts the business owes to creditors that will

not be due for a long time (usually more than
one year) are called long-term liabilities.
Stockholders’ Equity
• Stockholders’ equity is the stockholders’ right to

the assets of the business.
• It is presented on the balance sheet below the
liabilities section.
• Stockholders’ equity is added to the total
liabilities, and this total must be equal to the total
assets.
2
Financial Statements Prepared
Exhibit 2 from Work Sheet (continued)
from the retained earnings statement
24
Discussion question in group 1
What is the difference between the financial statement

in American accounting and Vietnamese accounting?
3
Prepare closing entries.
4-11
26
Permanent Accounts
• Accounts that are relatively permanent from year

to year are called permanent accounts or real
accounts.
• The balances of these accounts are carried
forward from year to year.
• This includes accounts reported on the balance
sheet.
Temporary Accounts
• Accounts that report amounts for only one period

are called temporary accounts or nominal
accounts.
• Temporary accounts are not carried forward from
year to year because they relate to only one
period.
• This includes all accounts reported on the
income statement as well as the dividends
account, which is reported on the retained
earnings statement.
Closing Entries
• At the beginning of the next period, temporary accounts

should have zero balances.
• To achieve this, temporary account balances are
transferred to permanent accounts at the end of the
accounting period through journal entries.
• The entries that transfer these balances are called
closing entries. The transfer process is called the
closing process and is sometimes referred to as
closing the books.
• After the closing entries are posted, all of the temporary
accounts have zero balances.
3
Flowchart of Closing Entries for NetSolutions
Exhibit 4 (continued)
Debit each revenue account

for the amount of its balance,
and credit Income Summary
for the total revenue.
Fees Earned
Income Summary 16,840 Bal. 16,840
16,960 Rent Revenue
120 Bal. 120
30
3
Flowchart of Closing Entries for
Exhibit 4 NetSolutions (continued)
Wages Expense
Bal. 4,525 4,525 Income Summary
Rent Expense 9,855 16,960
Bal. 1,600 1,600
Depreciation Expense
Bal. 50 50
Utilities Expense
Bal. 985 985
Supplies Expense Debit Income Summary
Bal. 2,040 2,040
for the total expenses and
Insurance Expense
credit each expense
Bal. 200 200
account for its balance.
Miscellaneous Expense
Bal. 455 455
31
3
Exhibit 4
NetSolutions (continued)
Income Summary
9,855 16,960
7,105
Debit Income Summary

Retained Earnings for the amount of its
Bal.0 balance (in this case,
7,105 the net income) and
credit Retained
Earnings.
Dividends
Bal.4,000
32
3
Exhibit 4
NetSolutions (continued)
Retained Earnings
4,000 Bal. 25,000
7,105
Debit Retained
Earnings for the
balance of the
Dividends dividends account, and
Bal.4,000 4,000 credit the dividends
account.
33
3
Exhibit 5 Closing Entries for NetSolutions
Step 1
Step 2
Step 3
Step 4
34
Post-Closing Trial Balance
• A post-closing trial balance is prepared after the

closing entries have been posted.
• The purpose of the post-closing (after closing)
trial balance is to verify that the ledger is in
balance at the beginning of the next period.
3
Exhibit 7 Post-Closing Trial Balance
36
Discussion question in group 2
What is the difference between the Closing entries in

American accounting and Vietnamese accounting?
Accounting Cycle
(slide 1 of 2)
• The accounting process that begins with

analyzing and journalizing transactions and ends
with the post-closing trial balance is called the
accounting cycle.
Accounting Cycle
(slide 2 of 2)
The steps in the accounting cycle are as follows: (10

Steps)
Step 1. Transactions are analyzed and recorded in the
journal.
Step 2. Transactions are posted to the ledger.
Step 3. An unadjusted trial balance is prepared.
Step 4. Adjustment data are assembled and analyzed.
Step 5. An optional end-of-period spreadsheet is
prepared.
Accounting Cycle
(slide 2 of 2)
Step 6. Adjusting entries are journalized and posted to the

ledger.
Step 7. An adjusted trial balance is prepared.
Step 8. Financial statements are prepared.
Step 9. Closing entries are journalized and posted to the
ledger.
Step 10. A post-closing trial balance is prepared.
Which step is the most important of the steps in

Accounting Cycle?
Fiscal Year
• The annual accounting period adopted by a

business is known as its fiscal year.
• Fiscal years begin with the first day of the month
selected and end on the last day of the following
twelfth month.
• When a corporation adopts a fiscal year that
ends when business activities have reached the
lowest point in its annual operating cycle, such a
fiscal year is called the natural business year.
The balances for the accounts that follow appear in the

Adjusted Trial Balance columns of the end-of-period
spreadsheet. Indicate whether each account would flow
into the income statement, retained earnings statement, or
balance sheet.
1. Accounts Payable 2. Accounts Receivable
3. Cash 4. Dividends
5. Fees Earned 6. Supplies
7. Unearned Rent 8. Utilities Expense
9. Wages Expense 10. Wages Payable
Discussion question
Balances for each of the following accounts appear in an

adjusted trial balance. Identify each as (A) asset, (B)
liability, (C) revenue, or (D) expense.
1. Accounts Receivable 2. Equipment
3. Fees Earned 4. Insurance Expense
5. Prepaid Advertising 6. Prepaid Rent
7. Rent Revenue 8. Salary Expense
9. Salary Payable 10. Supplies
11. Supplies Expense 12. Unearned Rent
Learn more
https://www.youtube.com/watch?v=mn9nVICrOqI

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4

1. Preparing Classified Financial Statements

Describe the flow of accounting

Why is the total of the debit and credit columns on the

• The income statement is prepared directly from

to retained earnings statement

• The first item normally presented on the retained

to the balance sheet

• The balance sheet is prepared directly from the

• A balance sheet that shows subsections for

• Cash and other assets that are expected to be

• Notes receivable are written promises by the

• Property, plant, and equipment (also called

• Amounts the business owes to creditors that will be due

• Amounts the business owes to creditors that will

• Stockholders’ equity is the stockholders’ right to

What is the difference between the financial statement

Prepare closing entries.

• Accounts that are relatively permanent from year

• Accounts that report amounts for only one period

• At the beginning of the next period, temporary accounts

Debit each revenue account

Debit Income Summary

• A post-closing trial balance is prepared after the

What is the difference between the Closing entries in

• The accounting process that begins with

The steps in the accounting cycle are as follows: (10

Step 6. Adjusting entries are journalized and posted to the

Which step is the most important of the steps in

• The annual accounting period adopted by a

The balances for the accounts that follow appear in the

Balances for each of the following accounts appear in an

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