Chapter 4-1 CHAPTER COMPLETING THE ACCOUNTING CYCLE Accounting Principles, Eighth Edition Chapter 4-2 Study Study Objectives Objectives Prepare a worksheet Explain the process of closing the books Describe the content and purpose of a post-closing trial balance State the required steps in the accounting cycle Explain the approaches to preparing correcting entries Identify the sections of a classified balance sheet Chapter 4-3 Completing Completing the the Accounting Accounting Cycle Cycle Using a Worksheet Steps in preparation Preparing financial statements Preparing adjusting entries Chapter 4-4 Closing the Books Preparing closing entries Posting closing entries Preparing a post-closing trial balance Summary of Accounting Cycle Reversing entries—An optional step Correcting entries—An avoidable step Classified Balance Sheet Current assets Long-term investments Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Owner’s equity Using Using A A Worksheet Worksheet Worksheet A multiple-column form used in preparing financial statements Not a permanent accounting record Five step process Use of worksheet is optional Chapter 4-5 LO Prepare a worksheet Steps Steps in in Preparing Preparing aa Worksheet Worksheet Illustration 4-2 Chapter 4-6 LO Prepare a worksheet Steps Steps in in Preparing Preparing aa Worksheet Worksheet Example The trial balance for Undercover Roofing for the month ended March 31, 2008, is as follows Other data: Supplies on hand total $140 Depreciation for March is $200 Unearned revenue amounted to $130 on March 31 Accrued salaries are $350 Instructions a Prepare and complete the worksheet Chapter 4-7 LO Prepare a worksheet Steps Steps in in Preparing Preparing aa Worksheet Worksheet Prepare a Trial Balance on the Worksheet Account Titles Cash Accounts Receivable Roofing Supplies Equipment Accumulated Depreciation Accounts Payable Unearned Revenue I Spy, Capital I Spy, Drawing Service Revenue Salaries Expense Miscellaneous Expense Totals Include all accounts with balances Chapter 4-8 Trial Balance Dr Cr 2,500 1,800 1,100 6,000 1,200 1,400 300 7,000 600 3,000 700 200 12,900 12,900 Adjustments Dr Cr Adjusted Trial Balance Dr Cr Income Statement Dr Cr Balance Sheet Dr Cr Trial balance amounts come directly from ledger accounts LO Prepare a worksheet Steps Steps in in Preparing Preparing aa Worksheet Worksheet Enter the Adjustments in the Adjustments Columns Account Titles Cash Accounts Receivable Roofing Supplies Equipment Accumulated Depreciation Accounts Payable Unearned Revenue I Spy, Capital I Spy, Drawing Service Revenue Salaries Expense Miscellaneous Expense Totals Supplies Expense Depreciation Expense Salaries Payable Totals Chapter 4-9 Trial Balance Adjustments Dr Cr Dr Cr 2,500 1,800 1,100 (a) 960 6,000 1,200 (b) 200 1,400 300 (c) 170 7,000 600 (c) 170 3,000 700 350 (d) 200 12,900 12,900 (a) 960 (b) 200 (d) 350 1,680 1,680 Add additional accounts as needed Adjusted Trial Balance Dr Cr Income Statement Dr Cr Balance Sheet Dr Cr Adjustments Key: (a) Supplies used (b) Depreciation expense (c) Service revenue earned (d) Salaries accrued Enter adjustment amounts, total adjustments columns, and check for equality LO Prepare a worksheet Steps Steps in in Preparing Preparing aa Worksheet Worksheet Complete the Adjusted Trial Balance Columns Account Titles Cash Accounts Receivable Roofing Supplies Equipment Accumulated Depreciation Accounts Payable Unearned Revenue I Spy, Capital I Spy, Drawing Service Revenue Salaries Expense Miscellaneous Expense Totals Supplies Expense Depreciation Expense Salaries Payable Totals Chapter 4-10 Trial Balance Adjustments Dr Cr Dr Cr 2,500 1,800 1,100 (a) 960 6,000 1,200 (b) 200 1,400 300 (c) 170 7,000 600 (c) 170 3,000 700 350 (d) 200 12,900 12,900 (a) 960 (b) 200 (d) 350 1,680 1,680 Total the adjusted trial balance columns and check for equality Adjusted Trial Balance Dr Cr 2,500 1,800 140 6,000 1,400 1,400 130 7,000 600 3,170 1,050 200 Income Statement Dr Cr Balance Sheet Dr Cr 960 200 13,450 350 13,450 LO Prepare a worksheet The The Classified Classified Balance Balance Sheet Sheet Review Question Cash, and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle, are called: a Current assets b Intangible assets c Long-term investments d Property, plant, and equipment Chapter 4-34 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Long-Term Investments Investments in stocks and bonds of other companies Investments in long-term assets such as land or buildings that a company is not currently using in its operating activities Illustration 4-20 Chapter 4-35 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet 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 Chapter 4-36 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Property, Plant, and Equipment Illustration 4-21 Chapter 4-37 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Intangible Assets Assets that not have physical substance Illustration 4-22 Chapter 4-38 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Review Question Patents and copyrights are a Current assets b Intangible assets c Long-term investments d Property, plant, and equipment Chapter 4-39 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Current Liabilities Obligations the company is to pay within the coming year Usually list notes payable first, followed by accounts payable Other items follow in order of magnitude Liquidity - ability to pay obligations expected to be due within the next year Chapter 4-40 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Current Liabilities Chapter 4-41 Illustration 4-23 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Long-Term Liabilities Obligations a company expects to pay after one year Illustration 4-24 Chapter 4-42 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Review Question Which of the following is not a long-term liability? a Bonds payable b Current maturities of long-term obligations c Long-term notes payable d Mortgages payable Chapter 4-43 LO Identify the sections of a classified balance sheet The The Classified Classified Balance Balance Sheet Sheet Owner’s Equity Proprietorship - one capital account Partnership - capital account for each partner Corporation - Capital Stock and Retained Earnings Illustration 4-25 Chapter 4-44 LO Identify the sections of a classified balance sheet Recording Recording Process Process Discussion Question Q4-18 (a) What is the term used to describe the owner’s equity section of a corporation? (b) Identify the two owner’s equity accounts in a corporation and indicate the purpose of each See notes page for discussion Chapter 4-45 LO Identify the sections of a classified balance sheet Reversing Reversing Entries Entries Reversing Entries It is often helpful to reverse some of the adjusting entries before recording the regular transactions of the next period Companies make a reversing entry at the beginning of the next accounting period Each reversing entry is the exact opposite of the adjusting entry made in the previous period The use of reversing entries does not change the amounts reported in the financial statements Chapter 4-46 LO Prepare reversing entries Reversing Entries Example Illustration 4A-1 Chapter 4-47 LO Prepare reversing entries Copyright Copyright “Copyright © 2008 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” Chapter 4-48 .. .CHAPTER COMPLETING THE ACCOUNTING CYCLE Accounting Principles, Eighth Edition Chapter 4-2 Study Study Objectives Objectives Prepare a worksheet... in the accounting cycle Explain the approaches to preparing correcting entries Identify the sections of a classified balance sheet Chapter 4-3 Completing Completing the the Accounting Accounting... 3,170 1,050 200 960 200 350 13,450 2,410 760 3,170 3,170 11 ,040 3,170 11 ,040 350 10,280 760 11 ,040 Compute Net Income or Net Loss Chapter 4-13 LO Prepare a worksheet Steps Steps in in Preparing