1. Completing the Accounting Cycle
ACG 2021: Chapter 4

2. Completing the Cycle Record entries in the journal Post to the ledger
Prepare trial balance
Record and post adjusting entries
Prepare adjusted trial balance
Prepare financial statements
Income Statement
Statement of Retained earnings
Balance Sheet
Statement of Cash Flows

3. Financial Statements Income statement
Shows results of operations for a period of time
Brady Corp
Income Statement
December 31, 2001
Revenues:
Fees earned $50,000
Expenses
Salaries exp $12,000
Rent expense ,800
Supplies exp ,200
Total ,000
Net income ,000

4. Statement of Retained Earnings
Financial Statements
Statement of Retained Earnings
Shows the changes in the earnings of the corporation
Brady Corp
Statement of Retained Earnings
Dec 31, 2001
Beg RE $9,875
Add Net income ,000
24,875
Deduct: dividends ,000
Ending RE ,875

5. Financial Statements Balance sheet Three sections
Shows that the accounting equation holds true
Snapshot of a moment in time
Three sections
Assets
Liabilities
Shareholder’s Equity

6. Balance Sheet Brady Corporation Balance Sheet Dec 31, 2001
Assets: Liabilities:
Cash $12, Accts pay $7280
Accts rec , Loans pay
Supplies , Total $17,080
Fixed assets ,100
Total $34, Stockholder’s Equity
Capital stock $2,500
Retained earn ,875
Total ,375
TOTAL ,455

7. Financial Statements Statement of Cash Flows sources and uses of cash
Operating
Investing
Financing
Always prepared in the same order

8. Closing Entries Real accounts Temporary
Balances of accounts reported on the balance sheet are carried forward from year to year
Temporary
Balances of accounts reported on the income statement not carried forwarded
We ZERO the account

9. Closing Entries Income Summary Four entries
Clearance account used to process the closing entries
Four entries
Close revenues
Close expenses
Close income summary
Close dividends

10. Example: Fees earned $10,000 Rent expense $2,000 Wages expense $6,000
Dividends
$4,000
Retained earnings
$12,000

11. Close Revenues Date Account PR Debit Credit Dec 31 Fees earned 10000
Income summary
10,000

12. Close Expenses Date Account PR Debit Credit Dec 31 Income summary 8000
Rent expense
2000
Wages expenses
6000

13. Close income summary Income summary Exp $8,000 Rev $10,000
Balance $2,000

14. Close income summary Date Account PR Debit Credit Dec 31
Close the amount of net income to retained earnings
Date
Account PR
Debit
Credit
Dec 31
Income summary
2000
Retained earnings

15. Close dividends Date Account PR Debit Credit Dec 31 Retained earnings
4000
Dividends

16. Balance in Retained earnings
Dividends $4,000
$12, Beg Balance
2, Net income
$10,000 Ending balance

17. Example 1 Date Account PR Debit Credit Dec 31 Fees earned 20,000
Income Summary
Income summary
24,000
Rent expense
6000
Wages exp
8000
Misc exp
10000

18. Example 1 Date Account PR Debit Credit Dec 31 Retained earnings 4000
Income summary
4,000
Income Summary
3000
Dividends

19. Closing entries After closing entries are posted
Post Closing trial balance is prepared

20. Accounting Year Calendar year – ends on December 31st
Fiscal year – ends other than December 31st