Copyright 2006 Pearson Education Canada Inc. 6-1

Copyright 2006 Pearson Education Canada Inc. 6-1


Outline

The Financial Statement Worksheet Preparing Formal Financial Statements: Step 6 Closing the Books: Step 7 Closing Entries 1-4 Closing Procedures Applicable to a Corporation Reversing Entries: An Optional Procedure Accounting Cycle Flowchart


The Financial Statement The Financial Statement WorksheetWorksheet

A multi-column form which is used as a“tool” in the preparation of financialstatements

It has five sets of Dr. and Cr. columns:Unadjusted trial balanceAdjustmentsAdjusted trial balanceIncome statementBalance sheet


Trial Balance Adjustments Income Statement Balance Sheet

Account Name Debits Credits Debits Credits Debits Credits Debits Credits Debits Credits

Cash 100 100 100

Accounts Receivable 200 200 200

Notes Receivable 300 300 300

Food Inventory 110 (b)89 21 21

Prepaid Insurance 12 (a)7 5 5

Furniture and Equipment 220 220 220

Accumulated Depreciation 88 ©22 110 110

Accounts Payable 150 150 150

Notes Payable 100 100 100

Amy Neat, Capital 502 502 502

Amy Neat , Withdrawals 50 50 50

Sales 300 300 300

Other Income 20 20 20

Salaries & Wages 100 (e)7 107 107

Interest Expense 20 (d)5 25 25

Other Operating Expenses 48 48 48

1160 1,160

Insurance Expense (a)7 7 7

Cost of Food Sold (b)89 89 89

Depreciation Expense ©22 22 22

Accrued Interest Payable (d)5 5 5

Accrued Salaries Payable (e)7 7 7

Interest Income (f)18 18 18

Accrued Interest Receivable (f) 18 18 18

148 148 1212 1,212 298 338 914 874

NET INCOME 40 40

Adj Trial Bal

Neat RestaurantF/S Worksheet

Year ended July 31, 2005


The Financial Statement WorksheetExcellent tool for preparing adjusting entries, the

adjusted trial balance, financial statements, and closing entries

Does not replace journalizing adjusting entries in the General Journal

Does not replace posting adjusting entries from the General Journal to the General Ledger

Does not replace formal financial statements, but shows all their data on one sheet.


Preparing Formal Financial Statements: Step 6

Income Statement

Statement of Owner’s Equity (or Statement of Retained Earnings)

Balance Sheet


Closing the Books: Step 7

Entry # 1- Close revenue accounts Entry # 2- Close expense accounts Entry # 3- Close income summary account Entry # 4- Close withdrawals or dividends

(if any) to appropriate owner’s equity account


Closing entry #1 - Close revenue accounts

Debit each of the revenue accounts found on the income statement columns of the financial statement worksheet

2005July 31 Sales 300 Interest income 18

Other income 20 Income Summary 338 To close revenue accounts


Closing entry #2 - Closing expense accounts

Credit each of the expense accounts found on the income statement debit column of the financial statement worksheet.

2005July 31 Income summary 298 Salaries & Wages 107 Interest Expense 25 Other operating exp. 48 Insurance expense 7 Cost of food sold 89 Depreciation expense 22 To close expense accounts


Closing entry # 3-Closing the Income Summary Account

To close income summary

debit the account for the net income and credit the appropriate owner’s equity account

July 31 Income Summary 40 Amy Neat, Capital 40

To close the income summary account


Closing entry # 4-Closing owner’s withdrawals (or dividends)

Close the withdrawals account to the appropriate Owner’s Equity account, or Dividends account to Retained Earnings

July 31 Amy Neat, Capital 50 Amy Neat Withdrawals 50 To close the withdrawals account


Closing procedures applicable to corporations

Close revenue and expense accounts to income summary, just as with other types of companies

Close income summary to retained earnings

Close dividends to retained earnings


Reversing Entries: An Optional Procedure

Reversing accrual adjustments on the first day of each accounting period

Main purpose: simplify the recording of payments and receipts of accruals


Complete Accounting Cycle Flowchart

Step 1Analysis of

Business Transactions

Step 2Journalizing

Step 3Posting

Step 4Taking

The TrialBalance

Step 5AdjustingThe TrialBalance

Step 6 Financial

Statements

Step 7 Closing the

Books

Documents

Copyright 2006 Pearson Education Canada Inc. 6-1