Lecture Principles of financial accouting - Chapter 4: Completing the accounting cycle

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Lecture Principles of financial accouting - Chapter 4: Completing the accounting cycle

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Lecture Principles of financial accouting, chapter 4 - Completing the accounting cycle. After completing this chapter you should be able to: Explain why temporary accounts are closed each period, identify steps in the accounting cycle, explain and prepare a classified balance sheet.

Chapter Completing the Accounting Cycle PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W Caldwell, D.B.A., CMA Jon A Booker, Ph.D., CPA, CIA Cynthia J Rooney, Ph.D., CPA Winston Kwok, Ph.D., CPA McGraw­Hill/Irwin         Copyright © 2011 by The McGraw­Hill Companies, Inc. All rights reserved 4 ­ 2 P 1 Benefits of a Work Sheet Aids the preparation of financial statements Reduces possibility of errors Links accounts and their adjustments Not a required report Assists in planning and organizing an audit Helps in preparing interim financial statements Shows the effects of proposed transactions P 1 4 ­ 3 FastForward Worksheet For the Month Ended December 31, 2011 Unadjusted Trial  Balance Adjustments Adjusted Trial  Balance Income  Statement Balance Sheet  and Statement  of Changes in  Equity P 1 4 ­ 4 FastForward Worksheet For the Month Ended December 31, 2011 Unadjusted Trial  Balance Adjustments Adjusted Trial  Balance Income  Statement Balance Sheet  and Statement  of Changes in  Equity P 1 4 ­ 5 FastForward Worksheet For the Month Ended December 31, 2011 Unadjusted Trial  Balance Adjustments Adjusted Trial  Balance Income  Statement Balance Sheet  and Statement  of Changes in  Equity P 1 4 ­ 6 FastForward Worksheet For the Month Ended December 31, 2011 Unadjusted Trial  Balance Adjustments Adjusted Trial  Balance Income  Statement Balance Sheet  and Statement  of Changes in  Equity P 1 4 ­ 7 FastForward Worksheet For the Month Ended December 31, 2011 Unadjusted Trial  Balance Adjustments Adjusted Trial  Balance Income  Statement Balance Sheet  and Statement  of Changes in  Equity 4 ­ 8 P 1 Preparing the Financial Statements 4 ­ 9 C 1 Recording Closing Entries Resets revenue, expense and withdrawal account balances to zero at the end of the period Helps summarize a period’s revenues and expenses in the Income Summary account Identify accounts for closing Record and post closing entries Prepare post-closing trial balance 4 ­ 10 Temporary and Permanent Accounts C 1 Income Summary Liabilities Permanent Accounts The The closing closing process process applies applies only only to to temporary temporary accounts accounts Owner’s Capital Temporary Accounts Assets Withdrawals Expenses Revenues 4 ­ 27 P 3 Post-Closing Trial Balance FastForward Post-Closing Trial Balance December 31, 2011 Debit Cash $ 4,350 Accounts receivable 1,800 Supplies 8,670 Prepaid insurance 2,300 Equipment 26,000 Accumulated depreciation-Equip Accounts payable Salaries payable Unearned consulting revenue C Taylor, Capital C Taylor, Withdrawals Consulting revenue Rental revenue Depreciation expense-Equipment Salaries expense Insurance expense Rent expense Supplies expense Utilities expense Totals $ 43,120 Credit $ 375 6,200 210 2,750 33,585 - $ 43,120 4 ­ 28 C 2 Accounting Cycle 4 ­ 29 C 3 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 Property, plant and equipment Intangible assets Current items are those expected to come due (both collected and owed) within the longer of one year or the company’s normal operating cycle 4 ­ 30 C 3 Current assets are expected to be sold, collected, or used within one year or the company’s operating cycle 4 ­ 31 C 3 Long-term financial assets or investments are expected to be held for more than one year or the operating cycle 4 ­ 32 C 3 Property, plant and equipment are tangible long-term assets used to produce or sell products and services 4 ­ 33 C 3 Intangible assets are long-term resources used to produce or sell products and services and that lack physical form 4 ­ 34 C 3 Current liabilities are obligations due within the longer of one year or the company’s operating cycle 4 ­ 35 C 3 Long-term liabilities are obligations not due within the longer of one year or the company’s operating cycle 4 ­ 36 C 3 Equity Equity is is the the owner’s owner’s claim claim on on the the assets assets 4 ­ 37 A 1 Current Ratio Helps assess the company’s ability to pay its debts in the near future Current Ratio = $ in millions Current assets Current liabilities Current ratio Current Assets Current Liabilities Limited Brands, Inc 2009 2008 $ $ 2,867 2,919 2007 $ 2,771 2006 $ 2,784 1,225 1,374 1,709 1,575 2.3 2.1 1.6 1.8 4 ­ 38 P 4 4A – REVERSING ENTRIES Reversing entries are optional They are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period The purpose of reversing entries is to simplify a company’s recordkeeping Let’s see how the accounting for our payroll accrual will be handled with and without reversing entries 4 ­ 39 P 4 4 ­ 40 P 4 Without Reversing Entries With Reversing Entries 4 ­ 41 END OF CHAPTER ... company’s operating cycle 4 ­ 35 C 3 Long-term liabilities are obligations not due within the longer of one year or the company’s operating cycle 4 ­ 36 C 3 Equity Equity is is the the owner’s owner’s... Expense- Eq 375 375      - Rent Expense 1,000 1,000      - Salaries Expense 1,610 1,610      - Supplies Expense 1,050 1,050      - Insurance Expense 100 100      - Utilities Expense 230 230      -. ..4 ­ 2 P 1 Benefits of a Work Sheet Aids the preparation of financial statements Reduces possibility of errors Links accounts and their adjustments Not a required report Assists

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Mục lục

  • Completing the Accounting Cycle

  • Benefits of a Work Sheet

  • PowerPoint Presentation

  • Slide 4

  • Slide 5

  • Slide 6

  • Slide 7

  • Preparing the Financial Statements

  • Recording Closing Entries

  • Temporary and Permanent Accounts

  • Slide 11

  • Slide 12

  • Slide 13

  • Close Credit Balances in Revenue Accounts to Income Summary

  • Slide 15

  • Slide 16

  • Close Debit Balances in Expense Accounts to Income Summary

  • Slide 18

  • Slide 19

  • CLOSE INCOME SUMMARY TO OWNER’S CAPITAL

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