3 Concept: Accounting Period Cycle-Preparation of work sheet at the end of each fiscal pd. to summarize general ledger info for financial stmts.Concept: Adequate Disclosure – info for financial stmts. are found on the work sheet.Journal entries recorded to update general ledger accounts at the end of a fiscal period are called adjusting entries.
4 Recorded in the Gen. Deb. & Gen. Cred. Columns. Adj. Entries are put on the journal page right after the daily transactions.Recorded in the Gen. Deb. & Gen. Cred. Columns.Record 2 journal entries:To bring supplies account up to dateTo bring prepaid insurance account up to date.
6 Accounts used to accumulate information from one fiscal period to the next are called permanent accounts. AKA real accounts.Assets, Liab, O.E.Ending balance from one period beginning balance for next.
7 Accounts used to accumulate information until it is transferred to the owner’s capital account are called temporary accounts. AKA nominal accountsRevenue, expense, owner’s drawing, income summaryShow changes in capital for fiscal pd.Balances transferred to capital accountNew fiscal pd. balance is zero
8 Concept: Matching Revenue with Expenses Journal entries used to prepare temporary accounts for a new fiscal period are called closing entries.Concept: Matching Revenue with ExpensesA temporary account titled Income Summary is used to close revenue and expensesHas no normal balance sideNet income = credit balance in Income SummaryNet loss = debit balance in Income Summary
9 Information comes from Income Stmt and Balance Sheet of Work Sheet Four Closing EntriesAn entry to close income stmt accounts with credit balancesEntry to close income stmt accounts with debit balancesEntry to record net income or net loss and close Income SummaryEntry to close the owner’s drawingInformation comes from Income Stmt and Balance Sheet of Work Sheet
11 Accounting Cycle Analyze Transactions Journalize Post Prepare WorksheetPrepare Financial StatementsJournalize Adjusting and Closing EntriesPost Adjusting and Closing EntriesPrepare Post-Closing Trial Balance
12 After closing entries are posted debits & credits have to be verified as equal. A trial balance prepared after the closing entries are posted is called a post-closing trial balance.Only the permanent accounts are included
13 Accounting Cycle Analyze Transactions Journalize Post Prepare WorksheetPrepare Financial StatementsJournalize Adjusting and Closing EntriesPost Adjusting and Closing EntriesPrepare Post-Closing Trial Balance