1. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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McGraw-Hill/Irwin

2. Financial Statements and Closing Procedures
Chapter 13
Financial Statements and Closing Procedures
Section 1: Preparing the Financial Statements
Section Objectives
Prepare a classified income statement from the worksheet.
Prepare a statement of owner’s equity from the worksheet.
Prepare a classified balance sheet from the worksheet.

3. The Classified Income Statement
Prepare a classified income statement from the worksheet
Objective 1
The Classified Income Statement
A classified income statement is sometimes called a multiple-step income statement.
At the end of the period, the three financial statements must be prepared. A newspaper’s classified section is similar to a business’s classified financial statements. Classifying like information together on financial statements makes them easier to interpret.
A classified financial statement is a format in which items are divided into groups of similar accounts and a subtotal is given for each group.
The Classification and order of information depends on the type of business and the expected use of the statement. We can use a worksheet to prepare a classified income statement. A classified income statement is sometimes called a multiple-step income statement. This type of income statement contains several subtotals which are computed before the net income is calculated.

4. What is a single-step income statement?
QUESTION:
What is a single-step income statement?
A single-step income statement is a format in which only one computation is needed to determine the net income.
ANSWER:
(Total Revenue – Total Expenses = Net Income)

5. Cost of Goods Sold
The Cost of Goods Sold section contains information about the cost of the merchandise that was sold during the period.
Three elements are needed to compute the cost of goods sold:
Beginning inventory
Net delivered cost of purchases
Ending inventory

6. Net Delivered Cost of Purchases
Freight In
(Purchases Returns and Allowances)
(Purchases Discounts)
Net Delivered Cost of Purchases

7. Cost of Goods Sold Beginning Merchandise Inventory
Net Delivered Cost of Purchases
Cost of Goods Available for Sale
Less Ending Inventory
Cost of Goods Sold
Remember, the Cost of Goods Sold section contains information about the cost of the merchandise that was sold during the period.

8. Cost of Goods Sold
Merchandise available for sale
Cost of goods sold

9. Net income from operations

10. Other Income and Other Expenses

11. Net income for Whiteside Antiques

12. Prepare a Statement of Owner’s Equity from the worksheet
Objective 2
The statement of owner's equity reports the changes that occurred in the owner's financial interest during the period.
The ending capital balance for Bill Whiteside, $84,576.80, is used to prepare the balance sheet.

13. Current Assets
Current assets for Whiteside Antiques

14. Plant and Equipment Noncurrent assets are called long-term assets.
An important category of long-term assets is plant and equipment.
For many businesses plant and equipment represents a sizable investment.

15. Total current liabilities
Whiteside Antiques
Partial Balance Sheet
December 31, 2013
Assets
Prepaid Interest
75.00
6,300.00
Total Current Assets
98,716.00
Total Plant and Equipment
31,900.00
Total Assets
Total current liabilities
130,616.00
Liabilities and Owner’s Equity
Current Liabilities
Notes Payable-Trade
2,000.00
Notes Payable-Bank
9,000.00
Accounts Payable
24,129.00
Interest Payable
20.00
Social Security Tax Payable
1,158.40
Medicare Tax Payable
267.40
Employee Income Tax Payable
990.00
Fed. Unemployment Tax Pay.
9.60
State Unemployment Tax Pay.
64.80
Salaries Payable
1,200.00
Sales Tax Payable
7,200.00
Total Current Liabilities
46,039.20

16. Long-Term Liabilities
Although repayment of long-term liabilities might not be due for several years, management must make sure that periodic interest is paid promptly.
Long-term liabilities include mortgages, notes payable, and loans payable.
After current liabilities comes long-term liabilities. Long-term liabilities are debts of a business that are due more than one year in the future.
Long-term liabilities include mortgages, notes payable, and loans payable. There were no long term liabilities for Whiteside Antiques as of December 31, 2013.

17. Financial Statements and Closing Procedures
Chapter 13
Financial Statements and Closing Procedures
Section 2: Completing the Accounting Cycle
Section Objectives
Journalize and post the adjusting entries.
Journalize and post the closing entries.
Prepare a postclosing trial balance.
Journalize and post reversing entries.

18. Adjusting Entries Type of Adjustment Worksheet Reference Purpose
Inventory
(a – b)
Removes beginning inventory and adds ending inventory to the accounting records.
Expense
(c – e)
Matches expense to revenue for the period; the credit is to a contra asset account.
Accrued Expense
(f – i)
Matches expense to revenue for the period; the credit is to a liability account.
Prepaid Expense
(j –l)
Matches expense to revenue for the period; the credit is to an asset account.
Recognizes interest earned in the period. The debit is to an asset account, (interest receivable) and the credit is to a revenue account.
Accrued Interest
(m)

19. There are four steps in the closing process:
Close revenue accounts and cost of goods sold accounts with credit balances to Income Summary.
Close expense accounts and cost of goods sold accounts with debit balances to Income Summary.
Close Income Summary, which now reflects the net income or loss for the period, to owner's capital.
Close the drawing account to owner's capital.