1. Completing the Accounting Cycle CPA, MBA By Rachelle Agatha, CPA, MBA Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac

2. 1. Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. 2. Prepare financial statements from adjusted account balances. 3. Prepare closing entries. After studying this chapter, you should be able to:

3. 4. Describe the accounting cycle. 5. Illustrate the accounting cycle for one period. 6. Explain what is meant by the fiscal year and the natural business year.

4. Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. Objective 1 4-1

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

7. 4-1 Spreadsheet (Work Sheet) AccountsDrCrDrCrDrCr Trial BalanceAdjustmentsAdjusted TB Adjustments are entered here. Two possibilities: 1. Deferrals – Existing balances are changed. 2. Accruals – New information is entered.

8. 4-1 Spreadsheet (Work Sheet) AccountsDrCrDrCrDrCr Trial BalanceAdjustmentsAdjusted TB Adjustments are combined with the trial balance. Account balances are now adjusted.

9. 4-1 Spreadsheet (Work Sheet) AccountsDrCrDrCrDrCr Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column. Adjusted TBIncome State.Balance Sheet

10. 4-1 Spreadsheet (Work Sheet) AccountsDrCrDrCrDrCr Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column. Adjusted TBIncome State.Balance Sheet

11. Prepare financial statements from adjusted account balances. Objective 2 4-2

12. 4-1

13. 4-2

16. A classified balance sheet is a balance sheet that was expanded by adding subsections for current assets; property, plant, and equipment; and current liabilities. 4-2

17. 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 4-2

18. Notes receivable are written promises by the customer to pay the amount of the note and possibly interest at an agreed rate. 4-2

19. Owner’s equity is the owner’s right to the assets of the business. Owner’s equity is added to the total liabilities, and the total must be equal to the total assets. 4-2

20. Prepare closing entries. Objective 3 4-3

21. After the closing entries are posted, all of the temporary accounts have zero balances. 4-3

22. Accounts that are relatively permanent from year to year are called real or permanent accounts. Accounts that report amounts for only one period are called temporary accounts or nominal accounts. 4-3

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 or closed to Income Summary. 4-3

24. The balance of Income Summary is then transferred to the owner’s capital account. The balance of the owner’s drawing account is also transferred to the owner’s capital account. The entries that transfer these balances are called closing entries. 4-3

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

28. 4-2

29. Completion of the accounting cycle. Objective 4 4-4

30. 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.

31. 31 1. Transactions are analyzed and recorded in journal 2. Post Transaction from the Journal to the General Ledger 3. Prepare the Unadjusted Trial Balance 4. Adjustment data is gathered & Analyzed balance. Accounting Cycle

32. 32 5. Optional end-of-period worksheet 6. Record Adjusting Entries 7. Prepare the Adjusted Trial Balance 8. Prepare Financial Statements balance. Accounting Cycle, cont 9. Record Closing Entries & Post 10. Prepare a Post Closing Trial Balance

33. 33 Accounting Periods The annual accounting period adopted by a business is known as its fiscal year. When a business adopts a fiscal year that ends when business activities have reached the lowest point in its annual operation, such a fiscal year is also called the natural year.

34. 34 Annual Accounting Period An annual accounting period is 12 months and can be a calendar year or a fiscal year.

35. 35 Optional end-of-period worksheet Record Adjusting Entries Prepare the Adjusted Trial Balance Prepare Financial Statements balance. Lecture Summary Record Closing Entries & Post Prepare a Post Closing Trial Balance