Financial accounting 12th warren duchac chapter 04

Completing the Accounting Cycle Chapter Student Version These Theseslides slidesshould shouldbe beviewed viewedusing usingthe thepresentation presentation mode mode(click (clickthe the icon icontotostart startpresentation) presentation) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Prepared by: C Douglas Cloud Professor Emeritus of Accounting Pepperdine University Learning Objective 1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Flow of Accounting Information © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Flow of Accounting Information End-of-Period Spreadsheet (Work Sheet) Unadjusted TB Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr Cr  Account balances are listed in the Trial Balance column using the ending balances found in the general ledger (continued) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Flow of Accounting Information End-of-Period Spreadsheet (Work Sheet) Unadjusted TB Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr Cr  Adjustments are entered here Two possibilities:  Deferrals – Existing balances are changed  Accruals – New information is entered © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use (continued) LO Flow of Accounting Information End-of-Period Spreadsheet (Work Sheet) Unadjusted TB Accounts Dr Cr Adjustments Dr Cr Adjusted TB Dr Cr  Adjustments are combined with the trial balance amounts Account balances are now adjusted © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use (continued) LO Flow of Accounting Information End-of-Period Spreadsheet (Work Sheet) Adjusted TB Accounts Dr Cr Income State Dr Cr Balance Sheet Dr Cr  Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use (continued) LO Flow of Accounting Information End-of-Period Spreadsheet (Work Sheet) Adjusted TB Accounts Dr Cr Income State Dr Cr Balance Sheet Dr Cr  Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use (concluded) Learning Objective Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements Prepare financial statements from adjusted account balances © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO Income Statement  The income statement is prepared directly from the Income Statement or Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet) beginning with fees earned of $16,840 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 10 LO Accounting Cycle (continued) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 38 LO Accounting Cycle © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use (continued)39 LO Accounting Cycle 40 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use (concluded) LO Accounting Cycle © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 41 LO Unadjusted Trial Balance © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 42 LO Adjusting Entries © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 43 LO Adjusted Trial Balance © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 44 Learning Objective Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements Prepare financial statements from adjusted account balances Prepare closing entries Describe the accounting cycle Illustrate the accounting cycle for one period Explain what is meant by the fiscal year and the natural business year © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 45 LO Accounting Period  The annual accounting period adopted by a business is known as its fiscal year  When a business adopts a fiscal year that ends when business activities have reached the lowest point in its annual operation, such a fiscal year is also called the natural business year © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 46 Learning Objective Explain what is meant by the fiscal year and the natural business year Describe and illustrate the use of working capital and the current ratio in evaluating a company’s financial condition © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 47 LO Working Capital and Current Ratio  The ability to convert assets into cash is called liquidity  The ability of a business to pay its debts is called solvency  Working capital is the excess of the current assets of a business over its current liabilities © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 48 LO Working Capital and Current Ratio NetSolutions’ working capital at the end of 2011 is $6,355 as computed below This amount of working capital implies that NetSolutions is able to pay it current liabilities Working Capital = Current Assets – Current liabilities = $7,745 – $1,390 = $6,355 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 49 LO Working Capital and Current Ratio  The current ratio is another means of expressing the relationship between current assets and current liabilities The current ratio is computed by dividing current assets by current liabilities © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 50 LO Working Capital and Current Ratio The current ratio for NetSolutions at the end of 2011 is 5.6, computed as follows: Current Ratio = = Current Assets Current Liabilities $7,745 $1,390 = 5.6 (rounded) © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 51 Completing the Accounting Cycle The End Student Version Prepared by: C Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use ... Learning Objective Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements Prepare financial statements from adjusted... Learning Objective Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements Prepare financial statements from adjusted...Learning Objective 1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements © 2011 Cengage Learning All