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4. Completing the Accounting Cycle. Student Version. 1. Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 4-2. 1. Exhibit 1. End-of-Period Spreadsheet (Work Sheet). 2. - PowerPoint PPT Presentation
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21-24-2
1
Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements.
4-2
61-64-6
from the income statement
to the balance sheet
2Financial Statements Prepared from Work Sheet (continued)Exhibit 2
71-74-7
A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities.
2
Balance Sheet
81-84-8
• Cash and other assets that are expected to be converted into cash, sold or used up usually within a year or less, through the normal operations of the business, are called current assets.
2
• Property, plant, and equipment (also called fixed assets) include assets that depreciate over a period of time. Land is an exception as it is not subject to depreciation.
(continued)
91-94-9
• Liabilities 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.
2
• Liabilities not due for a long time (usually more than one year) are long-term liabilities.
• Stockholders’ equity is the stockholders’ right to the assets of the business.
101-104-10
from the retained earnings statement
2Financial Statements Prepared from Work Sheet (continued)Exhibit 2
121-124-12
Accounts that are relatively permanent from year to year are called real accounts. Accounts that report amounts for only one period are called temporary accounts or nominal accounts.
3
Closing Entries
131-134-13
Debit each revenue account for the amount of its balance, and credit Income Summary for the total revenue.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
Income Summary 16,840
120
16,960
3Flowchart of Closing Entries for NetSolutions (continued) Exhibit 4
141-144-14
Wages Expense
Rent Expense
Depreciation Expense
Utilities Expense
Supplies Expense
Insurance Expense
Bal. 200
Miscellaneous Expense
Bal. 455
Income Summary
Debit Income Summary for the total expenses and
credit each expense account for its balance.
16,960
Bal. 4,525
Bal. 1,600
Bal. 50
Bal. 985
Bal. 2,040
9,855
455
200
2,040
985
50
1,600
4,525
3Flowchart of Closing Entries for NetSolutions (continued)Exhibit 4
151-154-15
Retained Earnings
Bal. 0
Dividends
Bal. 4,000
Income Summary
16,9609,8557,105
7,105
Debit Income Summary for the
amount of its balance (in this case, the net income) and credit Retained Earnings.
3Flowchart of Closing Entries for NetSolutions (continued)
Exhibit 4
161-164-16
Retained Earnings
Bal. 25,0007,105
Dividends
Bal. 4,000 4,000
4,000 Debit Retained Earnings for the
balance of the dividends account, and
credit the dividends account.
3
Flowchart of Closing Entries for NetSolutions (continued)
Exhibit 4
181-184-18
After the closing entries are posted, all of the temporary accounts have zero balances.
3
Closing Entries
191-194-19
A post-closing trial balance is prepared after the closing entries have been posted. The purpose of the PCTB is to verify that the ledger is in balance at the beginning of the next period.
3
Post-Closing Trial Balance
221-224-22
The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period’s transactions is called the accounting cycle. There are ten steps in the accounting cycle.
4
231-234-23
2. Transactions are posted to the ledger.
3. An unadjusted trial balance is prepared.
4. Adjustment data are assembled and analyzed.
5. An optional end-of-period spreadsheet (work sheet) is prepared.
1. Transactions are analyzed and recorded in the journal.
(continued)
Accounting Cycle
4
241-244-24
7. An adjusted trial balance is prepared.
8. Financial statements are prepared.
9. Closing entries are journalized and posted to the ledger.
10. A post-closing trial balance is prepared.
6. Adjusting entries are journalized and posted to the ledger.
Accounting Cycle (continued)
4
381-384-38
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 year.
6
Fiscal Year
411-414-41
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Adjustments Trial Balance
123456789
10111213141516171819202122232425
Adjusted
2,360 2,360
(b) 200(a) 1,240
(d) 500
(c) 120
(c) 120(d) 500
(f) 50
(b) 200(a) 1,240
(e) 250
Cash 2,065 2,065Accounts Receivable 2,220 2,720Supplies 2,000 760Prepaid Insurance 2,400 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50Accounts Payable 900 900Wages Payable 250Unearned Rent 360 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,340 16,840Rent Revenue 120Wages Expense 4,275 4,525Rent Expense 1,600 1,600Depreciation Expense 50Utilities Expense 985 985Supplies Expense 800 2,040Insurance Expense 200Miscellaneous Exp. 455 455
42,600 42,600 43,400 43,400
(f) 50
4-41
421-424-42
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
123456789
10111213141516171819202122232425
Adjusted
The four columns are summed.
Cash 2,065 2,065Accounts Receivable 2,220 2,720Supplies 2,000 760Prepaid Insurance 2,400 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50Accounts Payable 900 900Wages Payable 250Unearned Rent 360 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,340 16,840Rent Revenue 120Wages Expense 4,275 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 800 2,040Insurance Expense 200Miscellaneous Exp. 455 455
42,600 42,600 9,855 16,960 33,545 26,440
4-42
431-434-43
9,855 16,960 33,545 26,4407,105 7,105
16,960 16,960 33,545 33,545
Income Statement Balance Sheet
Net IncomeNet Income
The difference between the Income Statement columns totals is the net income (or net loss) for the period.
441-444-44
Account Title Debit Credit Debit Credit Debit Credit
Trial Balance Income Statement Balance Sheet
123456789
10111213141516171819202122232425
Adjusted
Cash 2,065 2,065Accounts Receivable 2,220 2,720Supplies 2,000 760Prepaid Insurance 2,400 2,200Land 20,000 20,000Office Equipment 1,800 1,800Accumulated Depr. 50Accounts Payable 900 900Wages Payable 250Unearned Rent 360 240Capital Stock 25,000 25,000Dividends 4,000 4,000Fees Earned 16,340 16,840Rent Revenue 120Wages Expense 4,275 4,525Rent Expense 1,600 1,600Depreciation Expense 50 50Utilities Expense 985 985Supplies Expense 800 2,040Insurance Expense 200Miscellaneous Exp. 455 455
42,600 42,600 9,855 16,960 33,545 26,440Net income 7,105 7,105
16,960 16,960 33,545 33,5454-44
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