completing the accounting cycle chapter 4 4-1. prepare the financial statements including the...
TRANSCRIPT
Completing the Accounting Cycle
Chapter 4
4-1
Prepare the financial statements including the classified balance
sheet
4-2
The financial statements come from the Adjusted
Trial Balance.
Each account on the Adjusted T/B has ONE and only ONE home on one of the financial statements.
No account is EVER used twice.
4-3
4-4
Revenues Service Revenue 17,500$ Expenses Rent Expense 3,000$ Salaries Expense 4,800 Supplies Expense 400 Utilities Expense 100 Depr Exp - Furniture 300 Depr Exp - Building 250 Interest Expense 100 Total expenses 8,950 Net income 8,550$
SMART TOUCH LEARNINGIncome Statement
Two Months Ended December 31, 2014
Income Statement Amounts
4-5
SMART TOUCH LEARNINGStatement of Retained Earnings
Two Months Ended December 31, 2014
Retained Eanings, 11/1/14 -$ Net income for the month 8,550
8,550 Dividends (5,000) Retained Earnings, 12/31/14 3,550$
Revenues Service Revenue 17,500$ Expenses Rent Expense 3,000$ Salaries Expense 4,800 Supplies Expense 400 Utilities Expense 100 Depr Exp - Furniture 300 Depr Exp - Building 250 Interest Expense 100 Total expenses 8,950 Net income 8,550$
SMART TOUCH LEARNINGIncome Statement
Two Months Ended December 31, 2014
4-6
SMART TOUCH LEARNINGStatement of Retained Earnings
Two Months Ended December 31, 2014
Retained Earnings, 11/1/14 -$ Net income for the month 8,550
8,550 Dividends (5,000) Retained Earnings, 12/31/14 3,550$
The Classified Balance Sheet
4-7
Classified Balance Sheet• Assets
– The Asset section is sub-divided into • current and• long-term groups
• Liabilities– Liabilities are also sub-divided into
• current and • long-term groups.
• Presentation makes it easier to evaluate– Liquidity– Solvency
4-8
Current Assets
• Cash or assets that will convert to cash or will be used up in the current operating cycle– Usually 1 year or lease
• Examples:– Cash– Accounts receivable– Supplies– Prepaid expenses– Inventory
9
Long-Term Assets• Not converted to cash within the current
year or operating cycle• Categories
– Plant assets• Land• Building• Furniture• Equipment
– Long-term investments– Intangible assets
10
Current Liabilities
• Must be paid either with cash or goods and services within operating cycle– Typically one year or less
• Examples:– Accounts payable– Notes payable due within one year– Salary payable– Interest payable– Unearned revenue
11
Long-Term Liabilities
• Are not due within the current year or operating cycle
• Examples:– Notes payable with due dates over one year– Mortgages
12
4-13
The Asset section is sub-divided into current and
long-term groups.
Sometimes, there is also a sub-grouping for long-
term investments.
Current Assets
4-14
Liabilities are also sub-divided into current and
long-term groups.
Equity is usually not sub-divided.
Current Liabilities
Long-term Liabilities
Closing the Accounts• Occurs at the end of the period
– Gets accounts ready for next period
• Zeroes out revenue and expense accounts• Updates Capital to the ending balance• Four step process
15
Closing the Accounts
• Step 1 – Close Revenues to Income summary account
• Step 2 – Close individual Expense accounts to Income summary account
• Step 3 – Close Income summary account to Retained Earnings account
• Step 4 - Close Dividend account to Retained Earnings account
16
Close these• Revenue accounts• Expense accounts• Dividends account
Do not close these• Asset accounts• Liability accounts• Common Stock and
Retained Earnings accounts
At the end of each period must transfer the temporary account balances to the permanent Retained Earnings account.
Closing Entries
4-17
4-18
Closing Revenues
4-19
Revenues Service Revenue 17,500$ Expenses Rent Expense 3,000$ Salaries Expense 4,800 Supplies Expense 400 Utilities Expense 100 Depr Exp - Furniture 300 Depr Exp - Building 250 Interest Expense 100 Total expenses 8,950 Net income 8,550$
SMART TOUCH LEARNINGIncome Statement
Two Months Ended December 31, 2014
Closing Expenses
4-20
Revenues Service Revenue 17,500$ Expenses Rent Expense 3,000$ Salaries Expense 4,800 Supplies Expense 400 Utilities Expense 100 Depr Exp - Furniture 300 Depr Exp - Building 250 Interest Expense 100 Total expenses 8,950 Net income 8,550$
SMART TOUCH LEARNINGIncome Statement
Two Months Ended December 31, 2014
Closing Income Summary
4-21
Closing Dividends
4-22
Prepare the post-closing trial balance
4-23
• Only balance sheet accounts are left after the closing entries are posted.
• The revenue and expense accounts now have a $0 balance.
• The books are ready for the start of the next fiscal period.
4-24
Smart Touch Learning
Post-Closing Trial Balance
December 31, 2014
Debit Credit
Cash 12,200$
Accounts Receivable 1,800
Office Supplies 100
Prepaid Rent 2,000
Furniture 18,000
Accum Depr - Furniture 300$
Building 60,000
Accum Depr - Building 250
Land 20,000
Accounts Payable 200
Utilities Payable 100
Salaries Payable 1,200
Interest Payable 100
Unearned Revenue 400
Notes Payable 60,000
Common Stock 48,000
Retained Earnings 3,550
114,100$ 114,100$
Describe the accounting cycle
4-25
Summary of the Accounting Cycle
Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall 4-26
Start with beginning account balances
Summary of the Accounting Cycle
4-27
Analyze & journalize
transactions
Start with beginning account balances
Summary of the Accounting Cycle
4-28
Analyze & journalize
transactions
Post journal
entries to ledger
accounts
Start with beginning account balances
Summary of the Accounting Cycle
4-29
Analyze & journalize
transactions
Post journal
entries to ledger
accounts
Prepare unadjusted trial balance
Start with beginning account balances
Summary of the Accounting Cycle
4-30
Analyze & journalize
transactions
Post journal
entries to ledger
accounts
Prepare unadjusted trial balance
Start with beginning account balances
Prepare the worksheet (optional)
Summary of the Accounting Cycle
4-31
Analyze & journalize
transactions
Post journal
entries to ledger
accounts Prepare unadjusted trial balance
Journalize and post adjusting
entries
Start with beginning account balances
Prepare the worksheet (optional)
Summary of the Accounting Cycle
4-32
Analyze & journalize
transactions
Post journal
entries to ledger
accounts Prepare unadjusted trial balance
Journalize and post adjusting
entries
Prepare adjusted trial
balance
Start with beginning account balances
Prepare the worksheet (optional)
Summary of the Accounting Cycle
4-33
Analyze & journalize
transactions
Post journal
entries to ledger
accounts Prepare unadjusted trial balance
Journalize and post adjusting
entries
Prepare adjusted trial
balance
Prepare financial
statements
Start with beginning account balances
Prepare the worksheet (optional)
Summary of the Accounting Cycle
4-34
Analyze & journalize
transactions.
Post journal
entries to ledger
accounts Prepare unadjusted trial balance
Journalize and post adjusting
entries
Prepare adjusted trial
balance
Prepare financial
statements
Journalize and post
closing entries
Start with beginning account balances
Prepare the worksheet (optional)
Summary of the Accounting Cycle
4-35
Analyze & journalize
transactions
Post journal
entries to ledger
accounts Prepare unadjusted trial balance
Journalize and post adjusting
entries
Prepare adjusted trial
balance
Prepare financial
statements
Prepare post-closing trial
balance
Journalize and post
closing entries
Start with beginning account balances
Prepare the worksheet (optional)
Use the current ratio to evaluate business
performance
4-36
Current Ratio(Liquidity Measure)
4-37
Measures a company’s ability to pay its current liabilities
38
Current ratio
2047 = 1.911070
Wal-Mart
39
Current ratio
51893 = .88758484
Cisco
40
Current ratio
51421 = 2.6719233