8 The Accounting Work Sheet What is the work sheet?A work sheet is a multi-columned document used by accountants to help move data from the trial balance to the financial statements.It is an internal document.
10 The Accounting Work Sheet The company has earned revenue of $1,700 which will be collected next month.Inventory of supplies at month end totaled $150.Depreciation for the period was calculated as $200.
15 Objective 2Use the work sheetto complete theaccounting cycle.
16 Recording the Adjusting Entries The work sheethelps identifythe accountsthat needadjustments.Actual adjustmentof the accountsrequiresjournalizingand postingthe entries.
17 Recording the Adjusting Entries The adjusting entries may be recorded in the journal when they are entered on the work sheet.Many accountants journalize and post the adjusting entries just before they make the closing entries.
18 Objective 3Close the revenue,expense, andwithdrawal accounts.
19 Closing the AccountsClosing the accounts is the end of period process that prepares the accounts for recording transactions during the next period.
20 Expenses and Withdrawals Closing the AccountsClosing EntriesExpenses and WithdrawalsdecreaseOwner’s Equity.RevenuesincreaseOwner’s Equity.
21 Closing the AccountsRevenues and Expense accounts are closed to Income Summary.Income Summary is closed to Capital.Withdrawals are closed to Capital.In a corporation, Dividends are closed to Retained Earnings.
22 Closing the Accounts Income Summary A debit balance represents net loss.A credit balance represents net income.
24 Postclosing Trial Balance The accounting cycle ends with the postclosing trial balance.The postclosing trial balance is dated as of the end of the period for which the statements have been prepared.
25 Permanent Accounts What accounts never close? Assets Liabilities Owner’s equityBalances of permanent accounts carry over to the next period.
26 Classify assets and liabilities as current or long-term. Objective 4Classify assets and liabilitiesas current or long-term.
27 LiquidityThis is a measure of how quickly an item can be converted into cash.On the balance sheet, assets and liabilities are classified as either current or long-term to indicate their relative liquidity.
28 Current AssetsCurrent assets are cash, or will be converted to cash, in one year or within the normal business operating cycle.What are some other examples?short-term receivablesinventoryprepaid expenses
29 Current LiabilitiesCurrent liabilities are debts or obligations due within one year or within the operating cycle.What are some examples?accounts and salary payablesshort-term notes payableunearned revenue
30 Long-term Assets and Liabilities Long-term assets include all other assets.property, equipment, and intangiblesLong-term liabilities are all other debts due in longer than one year or the entity’s operating cycle.
31 The Classified Balance Sheet Debit sideCurrent assetsLong-term assetsCredit sideCurrent liabilitiesLong-term liabilitiesListed in the orderof decreasingliquidityListed in the orderof how soon theymust be paid
32 The Classified Balance Sheet XYZ ServicesJanuary 31, 20XXAssets LiabilitiesCurrent assets: Current liabilities:Cash ,100 Accounts payable ,200Accounts receivable ,050 Salary payable 1,100Supplies Unearned revenue 1,500Total current assets 15, Total liabilities 3,800Plant assets Owner’s equityEquipment 15, Capital 19,300Less Accum. deprec. 7, ,800Total liabilities andTotal assets 23,100 owner’s equity 23,100
33 Different Formats of the Balance Sheet Report FormatAccount FormatAssetsLiabilitiesOwner’s EquityAssets = Liabilities +Owner’s Equity
34 Use the current ratio and the debt ratio to evaluate a company. Objective 5Use the current ratio and the debtratio to evaluate a company.
35 Comparative Financial Statements They enhance the user’s ability to analyze a company’s past performance.What are two common ratios used to measure liquidity?Current ratioDebt ratio
36 Current RatioThis measures the ability of a business to pay its current liabilities with its current assets.Current ratio = Current assets ÷ Current liabilities
37 Total liabilities ÷ Total assets Debt RatioIt indicates the proportion of a business’s assets that are financed with debt.It measures their ability to pay both current and long-term debt.Total liabilities ÷ Total assets
38 Trend AnalysisDecision makers compare various ratios over a period of time.