day two
DESCRIPTION
TRANSCRIPT
![Page 1: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/1.jpg)
Dr. Fred Barbee 1
ACCT 201 ACCT 201 ACCT 201
Reporting and Preparing Financial Statements
UAA – ACCT 201 Principles of Financial
Accounting Dr. Fred Barbee
Chapter 3
![Page 2: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/2.jpg)
ACCT 201 ACCT 201 ACCT 201
![Page 3: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/3.jpg)
Topic LO Read HW
Closing ProcessC4, C5 P4, P5
118-123
QS8, QS9, E7
Classified Balance Sheet C6 123-
126 E8, E9
Decision Analysis A2, A3
126-127 P2A
Chapter 3 - Day 2 - Agenda
![Page 4: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/4.jpg)
ACCT 201 ACCT 201 ACCT 201
![Page 5: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/5.jpg)
Dr. Fred Barbee 5
ACCT 201 ACCT 201 ACCT 201
Learning Objective
Describe and prepare closing entries.
P4
Procedural
![Page 6: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/6.jpg)
Dr. Fred Barbee 6
ACCT 201 ACCT 201 ACCT 201
Learning Objective
Explain why temporary accounts are closed each period.
C4
Conceptual
![Page 7: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/7.jpg)
Temporary Accounts
Revenues
Income Summary
Expe
nses
Dividends
Permanent Accounts
Assets
Liab
ilitie
s Retained
EarningsTemporary and Permanent
Accounts
![Page 8: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/8.jpg)
CreditDebit
CreditDebit
Post.Ref.ItemDate
BalanceAccount No. ### Account Title
CreditDebit
CreditDebit
Post.Ref.ItemDate
BalanceAccount No. ### Account Title
Nominal (Temporary) Accounts
Real (Permanent) Accounts
ACCT 201 ACCT 201 ACCT 201
![Page 9: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/9.jpg)
Account Title Account No. ###
Date ItemPost.Ref. Debit Credit
Balance
Debit Credit
Real Accounts
![Page 10: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/10.jpg)
Dr. Fred Barbee 10
ACCT 201 ACCT 201 ACCT 201
Real Accounts . . .
Accounts that are not closed to a zero balance at the end of each accounting period.
Permanent accounts appearing on the Balance Sheet.
![Page 11: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/11.jpg)
Assets
Liabilities
Owner’s Equity
Assets
Liabilities
Owner’s Equity
ACCT 201 ACCT 201 ACCT 201
![Page 12: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/12.jpg)
Account Title Account No. ###
Date ItemPost.Ref. Debit Credit
Balance
Debit Credit
Nominal Accounts
![Page 13: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/13.jpg)
Dr. Fred Barbee 13
ACCT 201 ACCT 201 ACCT 201
Nominal Accounts . . .
Accounts that are closed to a zero balance at the end of each accounting period.
Temporary accounts generally appearing on the Income Statement.
![Page 14: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/14.jpg)
Revenues
Expenses
Revenues
Expenses
ACCT 201 ACCT 201 ACCT 201
![Page 15: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/15.jpg)
What are closing entries?
ACCT 201 ACCT 201 ACCT 201
![Page 16: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/16.jpg)
Dr. Fred Barbee 16
ACCT 201 ACCT 201 ACCT 201
Closing Entries . . .
Journal entries made at the end of an accounting period.
They clear all nominal accounts and prepare them to receive transactions in the new accounting period.They summarize a period’s revenues and expenses.
![Page 17: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/17.jpg)
Dr. Fred Barbee 17
ACCT 201 ACCT 201 ACCT 201
Purpose of Closing Entries
Closing entries bring the income statement accounts back to a zero balance, making them ready for a new set of transactions.
![Page 18: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/18.jpg)
Dr. Fred Barbee 18
ACCT 201 ACCT 201 ACCT 201
Purpose of Closing Entries .
The closing entry process transfers the net income or net loss for the accounting period to the owner’s equity and Reduces owner’s equity for any distributions to owners.
![Page 19: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/19.jpg)
Is there a set procedure?
ACCT 201 ACCT 201 ACCT 201
![Page 20: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/20.jpg)
![Page 21: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/21.jpg)
Account Title Account No. ###
Date ItemPost.Ref. Debit Credit
Balance
Debit CreditIncome Summary
Introducing a new
account!
![Page 22: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/22.jpg)
![Page 23: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/23.jpg)
![Page 24: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/24.jpg)
![Page 25: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/25.jpg)
![Page 26: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/26.jpg)
Overview of the Closing Process
![Page 27: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/27.jpg)
Using the adjusted trial balance, let’s prepare the
closing entries for
FastForward.
![Page 28: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/28.jpg)
![Page 29: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/29.jpg)
Now, let’s look at the ledger accounts after posting this closing entry.
Close Revenue Accounts to Income Summary
GENERAL JOURNAL Page 34Date Description PR Debit Credit
Dec. 31 Consulting Revenue 7,850Rental Revenue 300
Income Summary 8,150
![Page 30: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/30.jpg)
Close Revenue Accounts to Income Summary
Income Summary7,850
300
8,150
Consulting Revenue7,850 7,850
-
Rental Revenue300 300
-
![Page 31: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/31.jpg)
![Page 32: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/32.jpg)
Now, let’s look at the ledger accounts after posting this closing entry.
Close Expense Accounts to Income Summary
![Page 33: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/33.jpg)
Close Expense Accounts to Income Summary
Income Summary375 7,850
1,610 300 100
1,000 1,050
230
3,785 Utilities Expense230 230
-
Depreciation Expense- Eq.
375 375 -
Salaries Expense1,610 1,610
-
Insurance Expense100 100
-
Supplies Expense1,050 1,050
-
Rent Expense1,000 1,000
-
Net Income
![Page 34: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/34.jpg)
Income Summary375 7,850
1,610 300 100
1,000 1,050
230
3,785
![Page 35: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/35.jpg)
GENERAL JOURNAL Page 34Date Description PR Debit Credit
Dec. 31 Income Summary 3,785Retained Earnings 3,785
Now, let’s look at the ledger accounts after posting this closing entry.
Close Income Summary to Retained Earnings
![Page 36: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/36.jpg)
Close Income Summary to Retained Earnings
Retained Earnings600 3,785
3,185
Income Summary375 7,850
1,610 300 100
1,000 1,050
230 3,785
-
![Page 37: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/37.jpg)
Dr. Fred Barbee 37
ACCT 201 ACCT 201 ACCT 201
Learning Objective
Explain and prepare a post-closing trial balance.
P5
Procedural
![Page 38: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/38.jpg)
Dr. Fred Barbee 38
ACCT 201 ACCT 201 ACCT 201
Post-Closing Trial Balance
List of permanent accounts and their balances after posting closing entries.
Total debits and credits must be equal.
![Page 39: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/39.jpg)
ACCT 201 ACCT 201 ACCT 201
![Page 40: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/40.jpg)
ACCT 201 ACCT 201 ACCT 201
![Page 41: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/41.jpg)
Dr. Fred Barbee 41
ACCT 201 ACCT 201 ACCT 201
Learning Objective
Identify steps in the accounting cycle.
C5
Conceptual
![Page 42: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/42.jpg)
1. Analyze Transaction
s
2. Journalize
3. Post
4. Prepare Unadjusted
Trial Balance
5. Adjust6. Prepare Adjusted
Trial Balance
7. Prepare Statements
8. Close
9. Prepare Post-Closing
Trial balance
10. Reverse (Optional)
![Page 43: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/43.jpg)
ACCT 201 ACCT 201 ACCT 201
![Page 44: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/44.jpg)
Dr. Fred Barbee 44
ACCT 201 ACCT 201 ACCT 201
Learning Objective
Explain and prepare a classified balance sheet.
C6
Conceptual
![Page 45: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/45.jpg)
Dr. Fred Barbee 45
ACCT 201 ACCT 201 ACCT 201
Classified Balance Sheet
![Page 46: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/46.jpg)
Dr. Fred Barbee 46
ACCT 201 ACCT 201 ACCT 201
Current Assets/Liabilities
Current items are those expected to come due (either collected or owed) within one year or the company’s operating cycle, whichever is longer.
![Page 47: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/47.jpg)
Dr. Fred Barbee 47
ACCT 201 ACCT 201 ACCT 201
Operating Cycle – Service Company – Exhibit 3-31
Cash Available
Cash paid for employee
work
Services sold to customers
Customers pay for services
![Page 48: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/48.jpg)
Dr. Fred Barbee 48
ACCT 201 ACCT 201 ACCT 201
Operating Cycle – Merchandising Company
Cash Available
Cash paid for products
Products sold to
customers
Customers pay for
products
![Page 49: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/49.jpg)
Classified Balance Sheet
Let’s look at the asset
section of a classified balance sheet.
ACCT 201 ACCT 201 ACCT 201
![Page 50: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/50.jpg)
![Page 51: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/51.jpg)
Current assets are assets that will be turned into cash or
expire (be used up) within the longer of one
year or the operating cycle.
![Page 52: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/52.jpg)
Property, plant and equipment includes assets
with useful lives of more than one year acquired for
use in the business rather than for resale.
![Page 53: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/53.jpg)
Other assets and intangible assets include items such as
patents, goodwill,
copyrights, etc.
![Page 54: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/54.jpg)
Let’s look at the liability section of a classified balance sheet.
ACCT 201 ACCT 201 ACCT 201
Classified Balance Sheet
![Page 55: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/55.jpg)
![Page 56: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/56.jpg)
Current liabilities are obligations that will be paid with current assets, normally
within one year.
![Page 57: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/57.jpg)
Long-term liabilities are debts that have maturity dates extending
beyond one year from the balance sheet date.
![Page 58: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/58.jpg)
Let’s look at the
stockholders’ equity section of a classified balance sheet.
ACCT 201 ACCT 201 ACCT 201
![Page 59: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/59.jpg)
![Page 60: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/60.jpg)
Contributed capital is often shown in two separate accounts . . .Common stockPaid-in capital
![Page 61: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/61.jpg)
Comprehensive income includes gains and losses not included in the
computation of net income.
![Page 62: Day Two](https://reader035.vdocument.in/reader035/viewer/2022062614/5464ecf7af7959e3078b49ef/html5/thumbnails/62.jpg)
Retained earnings is the accumulated earnings of the company less the accumulated dividends declared.