Week 5

 Also known as an accounting period.  It’s the period of time that business reports financial information.  Business determines the length of fiscal period based on how often it needs information to make decisions.  Most fiscal periods begin at beginning of a month: Jan 1, Aug 1, etc.  Summarize detail from ledger onto the trial balance then prepare work sheet then prepare financial statements.

 An accounting form used to summarize the general ledger information that’s needed to prepare the financial statements.

Total debits must equal total credits before proceeding to adjustments.

 Record Supplies account adjustment ◦ Debit to Supplies Expense account in Adjustments debit column. ◦ Credit to Supplies account in the Adjustments credit column.  Record the Prepaid Insurance adjustment ◦ Debit to Insurance Expense account in Adjustments debit column. ◦ Credit to Prepaid Insurance account in the Adjustments credit column.  Prove the Adjustment columns to ensure debit total equals credit total.

Need to update ledger accounts at end of fiscal period. Adjustments are performed. Need to match expenses in same period they helped generate revenue.

 Extend all Balance Sheet account balances ◦ Extend up-to-date asset account balances to Balance Sheet debit column ◦ Extend up-to-date liability account balances to Balance Sheet credit column ◦ Extend the owner’s capital and drawing account balances to the Balance Sheet columns  Extend all Income Statement account balances ◦ Extend up-to-date revenue account balances to the Income Statement credit column ◦ Extend up-to-date expense account balances to the Income Statement debit column

 Total Income Statement and Balance Sheet columns.  Calculate Net Income or Net Loss amount by taking difference between Income Statement credit column total and Income Statement debit column total.  Write amount of net income or net loss below smaller of two Income Statement column totals.  Extend the same amount to the smaller of two Balance Sheet column totals.

The total amount of revenue (credit column) is more than total amount of expenses (debit column) therefore the business had net income (made money).