© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. FINANCIAL STATEMENTS, CLOSING ENTRIES, AND REVERSING ENTRIES Chapter 12

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Whitewater Raft Supply

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Whitewater Raft Supply

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Each of the amounts that appear in the _________ _________ columns of the work sheet will be used in the _________ _________. The basic format of an _________ _________ : _____________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Several years ago, Della Reyes bought an antique table at a second-hand store for $800. She sold the table for $1,850. She advertised in the daily newspaper at a cost of $73. How much did she clear as profit? Gross Profit - Net Profit _____________ is the ______ on the sale of the table _____________ _______________. In this example, _____________ is $_______. Net Income or Net Profit is the final or clear profit after all operating expenses have been deducted. In this example, the net profit is $977 _________ or _________, it is word ____ that refers to clear profit. In single-sale situations (such as this example), the final outcome is _________. In large business with many sales and expenses, it is referred to as _________.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. __________________________ and __________ _____________ are deducted from Sales to give us _____________. Note that we record these items in the ______ ______ in which they appear in the ledger. _____________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. An important function of accounting is to provide tools for interpreting the financial statement or the results of operations. One frequently used to analyze financial statements is _______________________________. Ratio Analysis

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. _____________________ Net Sales is the 100% row

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The section of the income statement that requires the greatest amount of concentration is the ___________ __________________ section. _____________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. First, let’s look closely at the Purchases section. To arrive at ________________, we deduct the sum of ________________________ and _________ _________ from _________. Then we add _________ to get ________________________. Delivered Cost of Purchases

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost of Goods Sold You might think of Cost of Goods Sold like this: Here’s the same Cost of Goods Sold expressed in proper wording:

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income from Operations

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. __________________ are any expenses related to the office or administration, or any expense that cannot be directly connected with a selling activity: ______________ __________________ are any expenses directly connected with the selling activity, such as– ______________ __________ Expenses

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Other ______ classification includes any ______ account other than ______. Typical accounts are as follows: ________________ The Other ______ classification includes various __________ ______, such as– ______________ Other Income and Other Expenses

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Every figure in the __________ _________ columns of the work sheet is used in either the _________ of _________ _________ or the balance sheet. The _________ _________ is prepared first, followed by the _________ __ _________ _________, concluding with the _________ _________. The ________________________ and the ___________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Statement of Owner’s Equity and the Balance Sheet The balance of J. Conner, Capital listed on the worksheet… …from the ledger there is a credit of $9,000 representing an additional investment. From this the J. Conner, Capital beginning balance can be calculated. $253, – $9,000 = $244,774

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 1

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ____________ consist of cash and any other assets or resources that are expected to be realized in cash or to be sold or consumed during the __________________________ (or one year, if the normal operating cycle is less than twelve months). Examples of accounts that are current assets include ______, ________________, ________________, and ________________. ________________ (current) are short-term (one year or less) promissory notes (promise-to-pay notes) held by the firm. ________________ and ______ are considered _______ items that will be used or will expire with the following operating cycle or one year. Current ________ Current _____ are listed in the order of their ____________________, or what is referred to as ________.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ________________ are relatively long-lived assets that are held for use in the ___________ or ______ of other _______________. Some accountants refer to them as _____________. Three accounts that usually appear in this category are _____, ________, and ________. _____ and ________ are followed by their respective _____________ accounts. Property and Equipment Property and equipment assets are listed in the ___________________, with the _________ asset placed _____.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Current ___________ are ______ that will become due within the normal operating cycle of the business, usually within one year. They normally will be paid, when due, from current ______. Three accounts that usually appear in this category are ______, ________________, ________________, and ________________. Current ____________ Current liabilities are listed in the __________________________.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ___________ Liabilities are debts that are payable over a comparatively ______ period, usually ______ than one year. ____________ Liabilities The ______ portion of notes, contracts, and loans (______ due within the next year) is shown as a _____________. The remaining amount is shown as a _____________.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 2

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. _______________ is the amount of ______ a firm has available to use or to work with during a ______ ______ ______ (usually less than one year). It is determined by ______ current ______ from current ______. __________ ___________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ___________ The ______________ is useful in revealing a firm’s ability to pay its bills. It is determined by ______ current ______ by current ______.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Whitewater Raft Supply: Working Capital and Current Ratio In the case of Whitewater Raft Supply, they have $_____ in current _____ available to pay _____ dollar currently _____ on December 31.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 3

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. At the end of the fiscal period, you close the _________ and _________ accounts so that you can start the next fiscal period with _______ balances. You close the _________ account because it, too, applies to one fiscal period. Recall that these accounts are called _________ _________ accounts, or _________. _________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Four Steps in the Closing Procedure Note that ______________________ and ______________________ are closed along with the _______ accounts.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Four Steps in the Closing Procedure Note that ______ ______ and ______ ________________ are closed along with the ______ accounts.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Four Steps in the Closing Procedure

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Four Steps in the Closing Procedure

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ________________________ are general journal entries that are the _____ _____ of certain adjusting entries. A reversing entry enables the accountant to record routine transactions in the usual manner, _______ ______ an adjusting entry affecting one of the accounts involved in the transaction has intervened. _____________ Entries

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. All the employees of Mason Company earn, altogether, $400 per day for a five-day week and their payday occurs every Friday. Their current paychecks include wages for that Friday and for the preceding four days. The last day of the fiscal year falls on Wednesday, December 31. Mason Company Example Entries up to year-end

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Mason Company Example On December 31 st, Wages Expense is credited for $103,200. And, Wages Payable continues to have a credit balance of $1,200. The $2,000 payroll on January 2 is allocated by debiting Wages Payable for $1,200, debiting Wages Expense for $800, and crediting Cash for $2,000 Wages Expense has a debit balance, as of December 26 th, of $102,000.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The following reversing entry is made on the first day of the following fiscal period (which is an exact reverse of the adjusting entry): Mason Company Example

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. On the first payday of the new fiscal period, Wages Expense is debited while Cash is credit for $2,000 (just as if it was the middle of the fiscal year). After the payroll entry, there will now be a debit balance of $800 in Wages Expense, which is the correct amount. Mason Company Example

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Mason Company Example

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If an adjusting entry is to be reversed, it must meet BOTH of the following qualifications: ________________________________________ _____________________ Reversing Entries With the exception of the first year of operations, Merchandise Inventory and contra accounts (such as Accumulated Depreciation ) always have previous balances. Consequently, adjusting entries involving these accounts should _____________ be reversed.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.