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CHAPTER 7 7-1, 7-2, & 7-3. Terms  Concept: Consistent Reporting  Applied when the same accounting procedures are followed in the same way in each accounting.

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Presentation on theme: "CHAPTER 7 7-1, 7-2, & 7-3. Terms  Concept: Consistent Reporting  Applied when the same accounting procedures are followed in the same way in each accounting."— Presentation transcript:

1 CHAPTER 7 7-1, 7-2, & 7-3

2 Terms  Concept: Consistent Reporting  Applied when the same accounting procedures are followed in the same way in each accounting period  Fiscal Period:  The length of time for which a business summarizes and reports financial information  Most businesses use a one year fiscal period  Can begin on any date – but is usually 1 st of Month  Usually ends during a period of low business activity

3 Terms  Concept: Accounting Period Cycle  When changes in financial information are reported for a specific period of time in the form of financial statements

4 Work sheet  Work sheet  A columnar accounting form used to summarize the general ledger information needed to prepare financial statements  Planning tool- not considered a permanent accounting record – prepared with a pencil  Four Reasons for a Work sheet 1. To prove equality of debits and credits in the general ledger (Trial Balance) 2. To bring account balances up to date (Adjustments) 3. To separate account balances according to the financial statements 4. To calculate the amount of net income or loss

5 Preparing the Heading of the Worksheet  Consists of three lines 1. The name of the business 2. The name of the report (Work Sheet) 3. Date (For Year Ended December 31, 2009)

6 Preparing the Trial Balance  Trial Balance  A proof of the equality of debits and credits  Information comes from the general ledger  Accounts listed in the same order as the Chart of Accounts  All account titles are listed even if no balances (Income Summary, Insurance Expense, Supplies Expense will have 0 balances)

7 Trial Balance

8 Planning Adjustments  Concept: Matching Expenses with Revenue  When revenue from business activities and expenses associated with those earning that revenue are recorded in the same fiscal period  Adjustments  Changes recorded on the work sheet to update general ledger accounts  Why?  Assets consumed in order to earn revenue become expenses of the business

9 Adjustments 1. Supplies Adjustment  Beg. Balance – Ending Balance=Supplies Used (expense)  DR – Supplies Expense  CR – Supplies

10 Adjustments 1. Prepaid Insurance Adjustment  Beg. Balance – Ending Balance=Insurance Used (expense)  DR – Insurance Expense  CR – Prepaid Insurance

11 Proving Adjustments

12 Financial Statements  Balance Sheet  Reports Assets, Liabilities, and Owner’s Equity on a specific date  Income Statement  Shows the revenue and expenses for a fiscal period

13 Recording Net Income/Loss  To determine Net Income  Revenue – Expenses (Income Statement Credit – Debit)  If Net Income Reported as: DR in Income Statement column CR in the Balance Sheet column  If Net Loss Reported as: CR in Income Statement column DR in Balance Sheet column

14 Extending Balances on the Work Sheet


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