1. Chapter 5 Completion of the Accounting Cycle

2. Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements.

3. Spreadsheet (Work Sheet) Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB Accounts are listed in the Trial Balance column using the ending balance found in the general ledger. 5

4. 6 Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered. Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB Spreadsheet (Work Sheet)

5. 7 Adjustments are combined with the trial balance. Account balances are now adjusted. Trial Balance AccountsDrCrDrCrDrCr AdjustmentsAdjusted TB

6. 8 Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet Spreadsheet (Work Sheet)

7. 9 Asset, liability, and stockholders’ equity, balances in the Adjusted Trial Balance column are extended to the Balance Sheet column. Adjusted TB AccountsDrCrDrCrDrCr Income State.Balance Sheet Spreadsheet (Work Sheet)

8. The net income or net loss is determined. Then the Income Statement and Balance Sheet columns are totaled and double-ruled.

9. Cash2,0652,065 Accounts Receivable2,7202,720 Supplies760760 Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable900900 Unearned Rent240240 Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,84016,840 Wages Expense4,5254,525 Rent Expense1,6001,600 Utilities Expense985985 Supplies Expense2,0402,040 Miscellaneous Expense455455 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense200200 Rent Revenue 120120 Wages Payable250250 Depreciation Expense5050 Accum. Depreciation5050 43,40043,4009,85516,96033,54526,440

10. Cash2,0652,065 Accounts Receivable2,7202,720 Supplies760760 Prepaid Insurance2,2002,200 Land20,00020,000 Office Equipment1,8001,800 Accounts Payable900900 Unearned Rent240240 Capital Stock25,00025,000 Dividends4,0004,000 Fees Earned16,84016,840 Wages Expense4,5254,525 Rent Expense1,6001,600 Utilities Expense985985 Supplies Expense2,0402,040 Miscellaneous Expense455455 Account TitleDebitCreditDebitCreditDebitCredit Adjusted Trial Balance Income Statement Balance Sheet 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Insurance Expense200200 Rent Revenue 120120 Wages Payable250250 Depreciation Expense5050 Accum. Depreciation5050 43,40043,4009,85516,96033,54526,440 Net income7,1057,105 16,96016,96033,54533,545

11. 9,85516,96033,54526,4407,105 16,96016,96033,54533,545 Income Statement Balance Sheet Net Income The difference between the Income Statement column totals is the net income (or net loss) for the period.

12. Accounting Worksheet (9:37) http://www.youtube.com/watch?feature=en dscreen&v=FSbILlkrIZ8&NR=1www.youtube.com/watch?feature=en dscreen&v=FSbILlkrIZ8&NR=1

13. Prepare financial statements from adjusted account balances.

14. A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities. Classified Balance Sheet

15. 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.  Cash  Accounts Receivable  Supplies

16. Notes receivable are written promises by the customer to pay the amount of the note and possibly interest at an agreed rate.

17. 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.  Equipment  Machinery  Buildings  Land

18. 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.  Accounts payable  Wages payable  Interest payable  Unearned fees

19. Liabilities not due for a long time (usually more than one year) are long-term liabilities. Notes payable Mortgage payable Bond payable

20. Stockholders’ equity is the stockholders’ right to the assets of the business. Total stockholders’ equity is added to the total liabilities, and this total must be equal to the total assets. Stockholders’ equity consists of capital stock and retained earnings.

21. Prepare closing entries.

22. 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.

23. To report amounts for only one period, temporary accounts should have zero balances at the beginning of the period. At the end of the period the revenue and expense account balances are transferred to Income Summary.

24. The balance of Income Summary is then transferred to Retained Earnings. Finally, the balance of Dividends is transferred to Retained Earnings. The entries that transfer these balances are called closing entries.

25. The Closing Process

26. After the closing entries are posted, all of the temporary accounts have zero balances.

27. Describe the accounting cycle.

28. 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.

29. 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. 6.Adjusting entries are journalized and posted to the ledger. 7.An adjusted trial balance is prepared. 8.Financial statements are prepared. 9.Closing entries are journalized and posted to the ledger. 10.Prepare a postclosing trial balance. 1.Transactions are analyzed and recorded in the journal. The Accounting Cycle

30. The annual accounting period adopted by a business is known as its fiscal year.

31. The financial history of a business may be shown by a series of balance sheets and income statements, as displayed below. Financial History of a Business

32. Summary of the Material for this chapter

33. 5-1 Work Sheet Form and Procedure Trial Balance AdjustmentsAdjusted Trial Balance Income Statement Balance Sheet Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr. Work Sheet Account Titles (Ledger account titles) (Additional account titles for adjustments) 1. Prepare a trial balance on the work sheet. 2. Enter adjustment data. 3. Enter adjusted balances. 4. Extend adjusted balances to appropriate statement columns. 5. Total the statement columns, compute net income, (or net loss), and complete work sheet.

34. 5-2 Accounting Cycle (1) Analyze business transactions (2) Journalize the transactions (3) Post to ledger accounts (4) Prepare a trial balance (5) Journalize and post adjusting entries: Prepayments/Accruals (6) Prepare an adjusted trial balance (7) Prepare financial statements: Income statement Retained earnings statement Balance sheet (8) Journalize and post closing entries (9) Prepare a post-closing trial balance Work sheet Optional Steps in the Accounting Cycle (The steps in the accounting cycle are performed in sequence and are repeated in each accounting period.)

35. 5-3 Standard Classifications CLASSIFIED BALANCE SHEET CLASSIFIED BALANCE SHEET LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES 1.Notes Payable 2.Account Payable 3.Unearned Revenue 4.Salaries Payable 5.Taxes Payable LONG-TERM LIABILITIES 1.Long-term Notes Payable 2.Mortgage Payable 3.Bonds Payable STOCKHOLDERS’ EQUITY 1.Common Stock 2.Retained Earnings ASSETS CURRENT ASSETS INTANGIBLE ASSETS PROPERTY, PLANT, AND EQUIPMENT LONG-TERM ASSETS 1.Cash 2.Short-term Investments 3.Receivables 4.Prepaid Expenses 1.Stocks 2.Bonds 1.Land 2.Buildings 3.Equipment 4.Furniture 1.Patents 2.Copyrights 3.Trademarks > Less: Accumulated Depreciation