9 Use the work sheetto complete theaccounting cycle.
10 Recording the Adjusting Entries The work sheethelps identifythe accountsthat needadjustments.Actual adjustmentof the accountsrequiresjournalizingand postingthe entries.
11 Recording the Adjusting Entries The adjusting entries may be recorded in the journal when they are entered on the work sheet.Many accountants journalize and post the adjusting entries just before they make the closing entries.
12 The Accounting Work Sheet What is the work sheet?A work sheet is a multi-columned document used by accountants to help move data from the trial balance to the financial statements.It is an internal document.
14 The Accounting Work Sheet The company has earned revenue of $1,700 which will be collected next month.Inventory of supplies at month end totaled $150.Depreciation for the period was calculated as $200.
16 Close the revenue,expense, andwithdrawal accounts.
17 Closing the AccountsClosing the accounts is the end of period process that prepares the accounts for recording transactions during the next period.
18 Expenses and Withdrawals Closing the AccountsClosing EntriesExpenses and WithdrawalsdecreaseOwner’s Equity.RevenuesincreaseOwner’s Equity.
19 Closing the AccountsRevenues and Expense accounts are closed to Income Summary.Income Summary is closed to Capital.Withdrawals are closed to Capital.In a corporation, Dividends are closed to Retained Earnings.
20 Closing the Accounts Income Summary A debit balance represents net loss.A credit balance represents net income.
22 Postclosing Trial Balance The accounting cycle ends with the postclosing trial balance.The postclosing trial balance is dated as of the end of the period for which the statements have been prepared.
23 Permanent Accounts What accounts never close? Assets Liabilities Owner’s equityBalances of permanent accounts carry over to the next period.
24 Classify assets and liabilities as current or long-term.
25 LiquidityThis is a measure of how quickly an item can be converted into cash.On the balance sheet, assets and liabilities are classified as either current or long-term to indicate their relative liquidity.
26 Current AssetsCurrent assets are cash, or will be converted to cash, in one year or within the normal business operating cycle.What are some other examples?short-term receivablesinventoryprepaid expenses
27 Current LiabilitiesCurrent liabilities are debts or obligations due within one year or within the operating cycle.What are some examples?accounts and salary payablesshort-term notes payableunearned revenue
28 Long-term Assets and Liabilities Long-term assets include all other assets.property, equipment, and intangiblesLong-term liabilities are all other debts due in longer than one year or the entity’s operating cycle.
29 The Classified Balance Sheet Debit sideCurrent assetsLong-term assetsCredit sideCurrent liabilitiesLong-term liabilitiesListed in the orderof decreasingliquidityListed in the orderof how soon theymust be paid
30 The Classified Balance Sheet XYZ ServicesJanuary 31, 20XXAssets LiabilitiesCurrent assets: Current liabilities:Cash ,100 Accounts payable ,200Accounts receivable ,050 Salary payable 1,100Supplies Unearned revenue 1,500Total current assets 15, Total liabilities 3,800Plant assets Owner’s equityEquipment 15, Capital 19,300Less Accum. deprec. 7, ,800Total liabilities andTotal assets 23,100 owner’s equity 23,100
31 Different Formats of Balance Sheet Report FormatAccount FormatAssetsLiabilitiesOwner’s EquityAssets = Liabilities +Owner’s Equity
32 Use the current ratio and the debt ratio to evaluate a company.
33 Comparative Financial Statements They enhance the user’s ability to analyze a company’s past performance.What are two common ratios used to measure liquidity?Current ratioDebt ratio
34 Current RatioThis measures the ability of a business to pay its current liabilities with its current assets.Current ratio = Current assets ÷ Current liabilities
35 Total liabilities ÷ Total assets Debt RatioIt indicates the proportion of a business’s assets that are financed with debt.It measures their ability to pay both current and long-term debt.Total liabilities ÷ Total assets
36 Trend AnalysisDecision makers compare various ratios over a period of time.
37 Closing the Accounts Permanent Accounts Temporary Accounts Prepares accounts for recording transactions during next periodUpdates retained earnings accountPermanent AccountsTemporary Accounts
38 Four Closing EntriesClose all income statement accounts to Income SummaryEntry 1: Close revenue accounts to Income SummaryEntry 2: Close expense accounts to Income Summary
39 Four Closing Entries Revenue Expense Income Summary 500500200200Bal 0Bal 0Income Summary200500BalRevenues – Expenses =Net Income
40 Four Closing EntriesEntry 3: Close Income Summary to Retained EarningsEntry 4: Close Dividends to Retained Earnings
41 Four Closing Entries Income Summary Dividends Retained Earnings 200 500100100300BalBal 0BalRetained Earnings1,000 Beginning balance1003001, Ending balance
42 Income Summary Account Debit balance = Net LossCredit balance = Net Income
43 Post-Closing Trial Balance List of permanent accounts and their balances after posting closing entriesTotal debits and credits must be equal
44 Current AssetsCashReceivablesPrepaid expensesLong-term AssetsEquipmentBuildingsAccumulated depreciationCurrent LiabilitiesAccounts payableAccrued liabilitiesLong-term liabilitiesNone
45 Current Ratio: Current assets/ Current liabilities = EXAMPLECurrent Assets:Cash $3,000Accounts receivable 6,000Prepaid rent 2,000Supplies 1,000Total $12,000Current Liabilities:Accounts payable $4,000Salary payable 2,000Total $6,000Current Ratio: Current assets/ Current liabilities =$12,000 / $6,000 = 2
48 The worksheet helps accountants with all of the following except: Post to the accountsPrepare financial statementsClose the accountsMake adjusting entries
49 Answer: 1The worksheet is a tool that helps accountants organize the end-of-year activities – preparing adjusting and closing entries and the financial statements.
50 On the work sheet, in the balance sheet columns, if the total credits are $600 and total debits are $200, thenAn error has been madeNet loss is $400Total assets are $400Net income is $400
51 Answer: 2The difference between the debit and credit columns is the amount of net income or loss, which is used to balance the columns. In this case, $400 is needed in the debit column to balance them. A debit indicates that capital is decreasing.
52 Granite Company had revenues of $600 and expenses of $200 during the year. The owner’s beginning capital balance was $1,000, and the owner made no additional investments during the year. What is the balance in the capital account on Granite Company’s worksheet?
53 Answer: $1,000The capital balance on the worksheet is the amount in the account before closing entries. If the beginning balance was $1,000 and there were no additional investments, $1,000 would appear in the worksheet.
54 The purpose of closing entries is to Get the accounts ready for the next periodVerify that the balances in the accounts are correctEnsure that debits equal creditsBring the accounts up to date so that financial statements can be prepared
55 Answer: 1Closing entries zero out the temporary accounts and transfers their balances to the owner’s capital account. The temporary accounts are now ready to begin measuring activity for the next accounting period.
56 Which of the following accounts would not be closed? Utilities ExpenseAccumulated DepreciationService RevenueWithdrawals
57 Answer: 2Accumulated depreciation is a permanent account and is reported on the balance sheet. Permanent account balances carry forward into the next period.
58 Which of the following is a permanent account? Fees earnedUnearned revenueDepreciation expenseIncome summary
59 Answer: 2Unearned revenue is a liability. It’s balance carries forward into the next accounting period.
60 Revenues for an accounting period are $900 and expenses are $500 Revenues for an accounting period are $900 and expenses are $500. The balance in the income summary account before closing it to capital would be$500 debit$900 credit$400 credit$400 debit
61 Answer: 3Revenues are closed by debiting revenues and crediting income summary. Expenses are closed by debiting income summary and crediting expenses.Income Summary900500400 Bal
62 Which account would not appear in the postclosing trial balance? CashPrepaid InsuranceFees earnedE. Morgan, Capital
63 Answer: 3Fees earned is a temporary account and would have been closed before the postclosing trial balance was prepared.
64 In what order are assets listed on a classified balance sheet? In the order of their liquidityAlphabeticallyIn ascending dollar amountsIn descending dollars amounts
66 Mica Company has the following assets:. Land. $600. Building. 800 Mica Company has the following assets: Land $600 Building Inventory Accumulated depreciation, Building Prepaid rent 400 Cash 100 How much are total current assets?
68 Mica Company has the following assets:. Land……………………………. $600 Mica Company has the following assets: Land……………………………. $600 Building………………………… Inventory……………………… Accumulated depreciation, building………………………… Prepaid rent…………………… Cash…………………………… How much are total plant assets?
70 At the end of the accounting period, Quartz Company has a note payable of $82,000. Quartz Company pays $1,000 per month on the principal amount of the note. The company also has $3,000 in accounts payable. How much are total current liabilities?
72 A 2:1 current ratio indicates that Current assets are two times greater than current liabilitiesTotal assets are two times greater than total liabilitiesCurrent liabilities are two times greater than current assetsTotal liabilities are two times greater than total assets
73 Answer: 1The current ratio is current assets ÷ current liabilities.
74 A high debt ratio is Safer than a low debt ratio Riskier than a low debt ratioIndicates high profitabilityIndicates that total assets are considerably higher than total liabilities
75 Answer: 2The debt ratio is computed by dividing total liabilities by total assets. The debt ratio indicates the proportion of a company’s assets that are financed with debt. A low debt ratio is safer than a high debt ratio.