In this chapter, the learning objectives are: 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.
Chapter 4-1 CHAPTER COMPLETING THE ACCOUNTING CYCLE Accounting Principles, Eighth Edition Chapter 4-2 Study Objectives Study Objectives Prepare a worksheet Explain the process of closing the books Describe the content and purpose of a postclosing 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 the Accounting Cycle Completing the Accounting Cycle Using Usingaa Worksheet Worksheet Closing Closingthe the Books Books Steps in preparation Preparing financial statements Preparing adjusting entries Preparing closing entries Posting closing entries Preparing a post-closing trial balance Chapter 4-4 Summary Summaryof of Accounting Accounting Cycle Cycle Reversing entries—An optional step Correcting entries—An avoidable step Classified Classified Balance BalanceSheet Sheet Current assets Long-term investments Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Owner’s equity Using A Worksheet Using A Worksheet Worksheet A multiplecolumn form used in preparing financial statements. Not a permanent accounting record Five step process Use of worksheet is optional Chapter 4-5 LO 1 Prepare a worksheet Steps in Preparing a Worksheet Steps in Preparing a Worksheet Illustration 42 Chapter 4-6 LO 1 Prepare a worksheet Steps in Preparing a Worksheet Steps in Preparing a Worksheet Example The trial balance for Undercover Roofing for the month ended March 31, 2008, is as follows Trial Balance Other data: Account Titles Dr Cr 1. Supplies on hand total $140 Cash $ 2,500 Accounts Receivable 1,800 2. Depreciation for March is $200 Roofing Supplies 1,100 3. Unearned revenue amounted to $130 Equipment 6,000 Accumulated Depreciation $ 1,200 on March 31 Accounts Payable 1,400 4. Accrued salaries are $350 Unearned Revenue 300 I Spy, Capital I Spy, Drawing Service Revenue Salaries Expense Miscellaneous Expense Totals Chapter 4-7 7,000 600 3,000 700 200 $ 12,900 Instructions a. Prepare and complete the worksheet $ 12,900 LO 1 Prepare a worksheet Steps in Preparing a Worksheet Steps in Preparing a Worksheet 1. 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 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 Include all accounts with balances Chapter 4-8 LO 1 Prepare a worksheet Steps in Preparing a Worksheet Steps in Preparing a Worksheet 2. 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 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 Add additional accounts as needed Chapter 4-9 Adjustments Dr Cr (a) 960 (b) 200 (c) 170 (d) 350 1,680 (c) 170 (d) 350 (a) 960 (b) 200 1,680 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 1 Prepare a worksheet Steps in Preparing a Worksheet Steps in Preparing a Worksheet 3. 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 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 (a) 960 (b) 200 (c) 170 (c) 170 (d) 350 (a) 960 (b) 200 1,680 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 (d) 350 1,680 Total the adjusted trial balance columns and check for equality 13,450 350 13,450 LO 1 Prepare a worksheet The Classified Balance Sheet The Classified Balance 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 Longterm investments d Property, plant, and equipment Chapter 4-34 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet LongTerm Investments Investments in stocks and bonds of other companies. Investments in longterm assets such as land or buildings that a company is not currently using in its operating activities Illustration 420 Chapter 4-35 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance 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 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet Property, Plant, and Equipment Illustration 421 Chapter 4-37 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet Intangible Assets Assets that do not have physical substance Illustration 422 Chapter 4-38 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet Review Question Patents and copyrights are a Current assets b Intangible assets c Longterm investments d Property, plant, and equipment Chapter 4-39 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance 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 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet Current Liabilities Chapter 4-41 Illustration 423 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet LongTerm Liabilities Obligations a company expects to pay after one year Illustration 424 Chapter 4-42 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet Review Question Which of the following is not a longterm liability? a Bonds payable b Current maturities of longterm obligations c Longterm notes payable d Mortgages payable Chapter 4-43 LO 6 Identify the sections of a classified balance sheet The Classified Balance Sheet The Classified Balance Sheet Owner’s Equity Proprietorship one capital account. Partnership capital account for each partner. Corporation Capital Stock and Retained Earnings Illustration 425 Chapter 4-44 LO 6 Identify the sections of a classified balance sheet Recording Process Recording Process Discussion Question Q418. (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 6 Identify the sections of a classified balance sheet Reversing Entries Reversing 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 7 Prepare reversing entries Reversing Entries Example Illustration 4A1 Chapter 4-47 LO 7 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 backup 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 ... Identify? ?the? ?sections of a classified balance sheet Chapter 4-3 Completing? ?the? ?Accounting? ?Cycle Completing? ?the? ?Accounting? ?Cycle Using Usingaa Worksheet Worksheet Closing Closingthe the Books Books Steps in preparation.. .CHAPTER? ? COMPLETING THE ACCOUNTING CYCLE Accounting? ?Principles, Eighth Edition Chapter 4-2 Study Objectives Study Objectives Prepare a worksheet Explain? ?the? ?process of closing? ?the? ?books... Q42. Explain? ?the? ?purpose of? ?the? ?worksheet See notes page for discussion Chapter 4-21 LO 1 Prepare a worksheet Closing? ?the? ?Books Closing? ?the? ?Books At? ?the? ?end of? ?the? ?accounting? ?period,? ?the? ?company makes? ?the? ?