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Completing the Accounting Cycle
Completing the Accounting Cycle
FUNDAMETAL ACCOUNTINGPresented by:
MALIHA
FUNDAMETAL ACCOUNTINGPresented by:
MALIHA
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OutlineOutline
What is Accounting? Who uses accounting information? Main Division Of Accounting Chart of Account Accounting Concepts/Conventions Cash VS Accrual Accounting Accounting Cycle Fundamental Accounting Equation & Concept of Double Entry System The Basic Accounting Elements General Journal & General Ledger The preparation of adjusted Trial Balance Preparation of a Worksheet & its usefulness. The Closing process & Closing entries Preparation of Financial Statement Q & A Session Conclusion
What is Accounting? Who uses accounting information? Main Division Of Accounting Chart of Account Accounting Concepts/Conventions Cash VS Accrual Accounting Accounting Cycle Fundamental Accounting Equation & Concept of Double Entry System The Basic Accounting Elements General Journal & General Ledger The preparation of adjusted Trial Balance Preparation of a Worksheet & its usefulness. The Closing process & Closing entries Preparation of Financial Statement Q & A Session Conclusion
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What is Accounting?What is Accounting?
The Language of Business.A means to communicate
Financial information.A way to convey information
about a Business to users.
The Language of Business.A means to communicate
Financial information.A way to convey information
about a Business to users.
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Who uses Accounting Information?
Who uses Accounting Information?
OwnersManagersInvestors (including potential)
Analysts on their behalf
Creditors (including potential)Government (tax assessment)RegulatorsCustomers
OwnersManagersInvestors (including potential)
Analysts on their behalf
Creditors (including potential)Government (tax assessment)RegulatorsCustomers
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Main Divisions of AccountingMain Divisions of Accounting
Financial accounting Primarily prepared for users external to the
company.→Revenues, earnings, assets, etc.
Management accounting Primarily for internal purposes
→Costing, budgeting, net present value, etc.
Financial accounting Primarily prepared for users external to the
company.→Revenues, earnings, assets, etc.
Management accounting Primarily for internal purposes
→Costing, budgeting, net present value, etc.
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Recording Business Transactions
Recording Business Transactions
The Accounting Period
One YearCalendar year
Fiscal year
Less than One YearQuarterlyMonthly
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CHART OF ACCOUNTCHART OF ACCOUNT
What is the Chart of Accounts?It is the list of accounts used by a business.Each business entity has its unique chart
of accounts.Every chart of accounts has the same
numbered account categories:
– Assets, Liabilities, Owner’s Equity
– Revenues, Expenses
What is the Chart of Accounts?It is the list of accounts used by a business.Each business entity has its unique chart
of accounts.Every chart of accounts has the same
numbered account categories:
– Assets, Liabilities, Owner’s Equity
– Revenues, Expenses
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Accounting Concepts / Conventions
Accounting Concepts / Conventions
Business EntityMoney MeasurementRealizationDual Aspect (Double entry System)Substance over formPrudenceConsistencyMatching (Accruals)Going concern
Business EntityMoney MeasurementRealizationDual Aspect (Double entry System)Substance over formPrudenceConsistencyMatching (Accruals)Going concern
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Important ConceptsImportant Concepts
4 concepts
as “Fundamental” ARE:
1.Going Concern
2.Consistency
3.Prudence
4.Accruals
4 concepts
as “Fundamental” ARE:
1.Going Concern
2.Consistency
3.Prudence
4.Accruals
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CASH VS ACCRUAL ACCOUNTINGCASH VS ACCRUAL ACCOUNTING
Cash AccountingRevenue is recorded when cash is received.Expense is recorded when cash is disbursed.
Very straightforward. Facts determine the timing of entries. Less room for judgment.
Accrual AccountingRevenue is recorded (recognized) when the revenue has been
earned. When the product or service has been provided to the customer,
regardless of when payment is received.Expenses are matchedmatched to the revenue that they helped to
earn, regardless of when payment is made.
Cash AccountingRevenue is recorded when cash is received.Expense is recorded when cash is disbursed.
Very straightforward. Facts determine the timing of entries. Less room for judgment.
Accrual AccountingRevenue is recorded (recognized) when the revenue has been
earned. When the product or service has been provided to the customer,
regardless of when payment is received.Expenses are matchedmatched to the revenue that they helped to
earn, regardless of when payment is made.
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The Accounting CycleThe Accounting Cycle
Process by which accountants prepare financial statements for an entity for a specific period of time
Process by which accountants prepare financial statements for an entity for a specific period of time
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Accounting Cycle Accounting Cycle
1.Analyze 1.Analyze TransactionsTransactions
1.Analyze 1.Analyze TransactionsTransactions
2. 2. JournalizeJournalize
2. 2. JournalizeJournalize 3. Post 3. Post 3. Post 3. Post
4. Unadjusted 4. Unadjusted trial balancetrial balance
4. Unadjusted 4. Unadjusted trial balancetrial balance
5. Adjust5. Adjust 5. Adjust5. Adjust
6. Adjusted 6. Adjusted trial balancetrial balance
6. Adjusted 6. Adjusted trial balancetrial balance
7. Close 7. Close AccountsAccounts
7. Close 7. Close AccountsAccounts
8. Prepare 8. Prepare Financial Financial
statementsstatements
8. Prepare 8. Prepare Financial Financial
statementsstatements
Start the Start the next cyclenext cycle
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Accounting CycleAccounting Cycle
Journalize Transaction
Post to Accounts
Adjust Accounts
Close Accounts
Prepare Financial Statements
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Fundamental Accounting EquationFundamental Accounting Equation
Assets = Liabilities + Owners’ EquityAssets = Liabilities + Owners’ Equity This equation is always in balance
In order for this equation to remain in balance, double-entry bookkeeping is employed.
→That is, the recording of every transaction or event must have at least two parts
Either an equal impact (increase or decrease) to both sides of the equation or equal and opposite impact to one side.
→The recording of every transaction must keep this equation in balance
Assets = Liabilities + Owners’ EquityAssets = Liabilities + Owners’ Equity This equation is always in balance
In order for this equation to remain in balance, double-entry bookkeeping is employed.
→That is, the recording of every transaction or event must have at least two parts
Either an equal impact (increase or decrease) to both sides of the equation or equal and opposite impact to one side.
→The recording of every transaction must keep this equation in balance
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Double Entry SystemDouble Entry System
All journal entries have two “sides”:Debit and Credit
For every journal entry, the total debits must equal the total credits
→This ensures that the fundamental accounting equation (A = L + OE) is always in balance.
The basic journal entry:Debit Account name1 PKR amount Credit Account name2 PKR amountTo record…
All journal entries have two “sides”:Debit and Credit
For every journal entry, the total debits must equal the total credits
→This ensures that the fundamental accounting equation (A = L + OE) is always in balance.
The basic journal entry:Debit Account name1 PKR amount Credit Account name2 PKR amountTo record…
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More DetailMore Detail
“Debit” and “Credit” are just accounting-speak for “increase” and “decrease” “Debit” means “increase” for some elements and
“decrease” for other elements. Likewise for “credit”.
→For example, a company pays its Rs 500 utility bill:In English: the company has incurred an expense (the amount of
expense has increased) and the amount of cash in the company has decreased.
An expense (Utilities) has increasedAn asset (Cash) has decreased
In Journal entry:Debit Utility expense Rs 500 Credit Cash Rs 500To record the payment of utility bill
“Debit” and “Credit” are just accounting-speak for “increase” and “decrease” “Debit” means “increase” for some elements and
“decrease” for other elements. Likewise for “credit”.
→For example, a company pays its Rs 500 utility bill:In English: the company has incurred an expense (the amount of
expense has increased) and the amount of cash in the company has decreased.
An expense (Utilities) has increasedAn asset (Cash) has decreased
In Journal entry:Debit Utility expense Rs 500 Credit Cash Rs 500To record the payment of utility bill
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2 Kinds of Entries2 Kinds of Entries
1. Transactional• The recording of an exchange with another entity
2. Adjusting• Required only when financial statements are
prepared to “adjust” accounts to where they should be
• Always include at least one Balance Sheet account and one Income Statement account.• e.g. Depreciation of capital assets, earning of interest
revenue.
1. Transactional• The recording of an exchange with another entity
2. Adjusting• Required only when financial statements are
prepared to “adjust” accounts to where they should be
• Always include at least one Balance Sheet account and one Income Statement account.• e.g. Depreciation of capital assets, earning of interest
revenue.
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The Basic Accounting Elements:
The Basic Accounting Elements:
Asset Expense
Liability Revenue Owners’ Equity
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Basic Accounting Elements Basic Accounting Elements
Asset Has future benefit to the entity
Liability Obligation to transfer assets in the future
Owners’ Equity Owners’ interest in the company
Revenue Increase in economic resources resulting from normal
operations of the company
Expense Decrease in economic resources resulting from normal
operations of the company
Asset Has future benefit to the entity
Liability Obligation to transfer assets in the future
Owners’ Equity Owners’ interest in the company
Revenue Increase in economic resources resulting from normal
operations of the company
Expense Decrease in economic resources resulting from normal
operations of the company
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The Basic Accounting Elements:
The Basic Accounting Elements:
Balance Sheet Income StatementBalance Sheet/
Stmt of Retained Earnings
Debit Asset Expense
Credit Liability RevenueOwners’ Equity
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Going back to the Fundamental Accounting Equation:
Going back to the Fundamental Accounting Equation:
Assets =Assets = Liabilities Liabilities ++
Owners’ EquityOwners’ Equity
Debit Credit Credit
AssetsCurrent assets
Long-term assets
LiabilitiesCurrent liabilities
Long-term liabilities
Direct investmentCapital stock
Indirect investmentDividends (debit)
Retained earnings
Revenue (credit)
Expense (debit)
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General JournalGeneral Journal
What is the General Journal? It is the book of original entry.Transactions are written in a journal in
chronological order.The format of the journal is important.Journalizing is the process of entering
information as debits and credits to the correct accounts.
What is the General Journal? It is the book of original entry.Transactions are written in a journal in
chronological order.The format of the journal is important.Journalizing is the process of entering
information as debits and credits to the correct accounts.
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General LedgerGeneral Ledger
What is the General Ledger?It is the book of final entry.The information from the journal is
transferred to the ledger in the posting process.
Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger.
What is the General Ledger?It is the book of final entry.The information from the journal is
transferred to the ledger in the posting process.
Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger.
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MORE DETAILMORE DETAIL
So far we have discussed the major concepts involves in the accounting cycle: Analyzing Recording Posting Unadjusted Trial Balance Adjusting Adjusted Trial Balance
So far we have discussed the major concepts involves in the accounting cycle: Analyzing Recording Posting Unadjusted Trial Balance Adjusting Adjusted Trial Balance
BE BE PRACTICAPRACTICA
L L NOWNOW
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What are on the Worksheet? What are on the Worksheet?
A Worksheet includes following columns: Unadjusted trial balance. Adjusting entries Adjusted trial balance. Income statement Balance sheet
Worksheet can be used to simplify the preparation of financial statements.
Used to help move data from the trial balance to the financial statements
An internal document – not financial statement
A Worksheet includes following columns: Unadjusted trial balance. Adjusting entries Adjusted trial balance. Income statement Balance sheet
Worksheet can be used to simplify the preparation of financial statements.
Used to help move data from the trial balance to the financial statements
An internal document – not financial statement
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A Blank WorksheetA Blank Worksheet
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Steps in preparation of the worksheetSteps in preparation of the worksheet
AccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000
Short-term investment 100000
Accounts Receivable 36000
Interest receivable
Prepaid Expense 20000
Inventory 20000
Plant and Equipmemt 250000
Accumulated Depreciation
Accounts Payable 50000
Wages payable
Unearned Revenue 50000
Paid Capital 500000
Sales Revenue 36000
Interest Revenue
Cost of Sales 30000
Operating expenses 9000
total 636000 636000
Smith Inc.Work Sheet
For Year ended Dec.31 2004
Balance Sheet andStatement of Owner's
Equity
Unadjusted TrialBalance
Adjustments Adjusted Trial
Balance Income Statement
AccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000
Short-term investment 100000
Accounts Receivable 36000
Interest receivable
Prepaid Expense 20000
Inventory 20000
Plant and Equipmemt 250000
Accumulated Depreciation
Accounts Payable 50000
Wages payable
Unearned Revenue 50000
Paid Capital 500000
Sales Revenue 36000
Interest Revenue
Cost of Sales 30000
Operating expenses 9000
total 636000 636000
Smith Inc.Work Sheet
For Year ended Dec.31 2004
Balance Sheet andStatement of Owner's
Equity
Unadjusted TrialBalance
Adjustments Adjusted Trial
Balance Income Statement
Step 1:Step 1:Enter the Enter the
accounts and accounts and unadjusted unadjusted trial balancetrial balance
Step 1:Step 1:Enter the Enter the
accounts and accounts and unadjusted unadjusted trial balancetrial balance
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Steps in preparation of the worksheetSteps in preparation of the worksheet
AccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000
Short-term investment 100000
Accounts Receivable 36000
Interest receivable 2916.67
Prepaid Expense 20000 10000
Inventory 20000
Plant and Equipmemt 250000
Accumulated Depreciation 2600
Accounts Payable 50000
Wages payable 35000
Unearned Revenue 50000 25000.00
Paid Capital 500000
Sales Revenue 36000 25000
Interest Revenue 2916.67
Cost of Sales 30000
Operating expenses 9000 47600.00
total 636000 636000 75516.67 75516.67
Smith Inc.Work Sheet
For Year ended Dec.31 2004
Balance Sheet andStatement of Owner's
Equity
Unadjusted TrialBalance
Adjustments Adjusted Trial
Balance Income Statement
AccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000
Short-term investment 100000
Accounts Receivable 36000
Interest receivable 2916.67
Prepaid Expense 20000 10000
Inventory 20000
Plant and Equipmemt 250000
Accumulated Depreciation 2600
Accounts Payable 50000
Wages payable 35000
Unearned Revenue 50000 25000.00
Paid Capital 500000
Sales Revenue 36000 25000
Interest Revenue 2916.67
Cost of Sales 30000
Operating expenses 9000 47600.00
total 636000 636000 75516.67 75516.67
Smith Inc.Work Sheet
For Year ended Dec.31 2004
Balance Sheet andStatement of Owner's
Equity
Unadjusted TrialBalance
Adjustments Adjusted Trial
Balance Income Statement
Step2:Step2:Entry the Entry the adjusting adjusting entries’entries’
Step2:Step2:Entry the Entry the adjusting adjusting entries’entries’
2929
Steps in preparation of the worksheetSteps in preparation of the worksheet
AccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000 171000Short-term investment 100000 100000Accounts Receivable 36000 36000
Interest receivable 2916.67 2916. 67
Prepaid Expense 20000 10000 10000
Inventory 20000 20000
Plant and Equipmemt 250000 250000
Accumulated Depreciation 2600 2600
Accounts Payable 50000 50000
Wages payable 35000 35000
Unearned Revenue 50000 25000.00 25000. 00
Paid Capital 500000 500000
Sales Revenue 36000 25000 61000
Interest Revenue 2916.67 2916. 67
Cost of Sales 30000 30000
Operating expenses 9000 47600.00 56600. 00
total 636000 636000 75516.67 75516.67 676516. 67 676516. 67
Smith Inc.Work Sheet
For Year ended Dec.31 2004 Balance Sheet and
Statement of Owner's Unadjusted Trial
BalanceAdjustments
Adjusted TrialBalance
Income StatementAccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000 171000Short-term investment 100000 100000Accounts Receivable 36000 36000
Interest receivable 2916.67 2916. 67
Prepaid Expense 20000 10000 10000
Inventory 20000 20000
Plant and Equipmemt 250000 250000
Accumulated Depreciation 2600 2600
Accounts Payable 50000 50000
Wages payable 35000 35000
Unearned Revenue 50000 25000.00 25000. 00
Paid Capital 500000 500000
Sales Revenue 36000 25000 61000
Interest Revenue 2916.67 2916. 67
Cost of Sales 30000 30000
Operating expenses 9000 47600.00 56600. 00
total 636000 636000 75516.67 75516.67 676516. 67 676516. 67
Smith Inc.Work Sheet
For Year ended Dec.31 2004 Balance Sheet and
Statement of Owner's Unadjusted Trial
BalanceAdjustments
Adjusted TrialBalance
Income Statement
Step3:Step3:Entry the Entry the adjusted adjusted
trial balancetrial balance
Step3:Step3:Entry the Entry the adjusted adjusted
trial balancetrial balance
3030
Steps in preparation of the worksheetSteps in preparation of the worksheet
AccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000 171000
Short-term investment 100000 100000
Accounts Receivable 36000 36000
Interest receivable 2916.67 2916. 67
Prepaid Expense 20000 10000 10000
Inventory 20000 20000
Plant and Equipmemt 250000 250000
Accumulated Depreciation 2600 2600
Accounts Payable 50000 50000
Wages payable 35000 35000
Unearned Revenue 50000 25000.00 25000. 00
Paid Capital 500000 500000
Sales Revenue 36000 25000 61000 61,000
Interest Revenue 2916.67 2916. 67 2,917
Cost of Sales 30000 30000 30,000
Operating expenses 9000 47600.00 56600. 00 56,600
total 636000 636000 75516.67 75516.67 676516. 67 676516. 67 86,600 63,917
Net Income (22,683)
Smith Inc.Work Sheet
For Year ended Dec.31 2004 Balance Sheet and
Statement of Owner's Unadjusted Trial
BalanceAdjustments
Adjusted TrialBalance
Income StatementAccountDr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 171000 171000
Short-term investment 100000 100000
Accounts Receivable 36000 36000
Interest receivable 2916.67 2916. 67
Prepaid Expense 20000 10000 10000
Inventory 20000 20000
Plant and Equipmemt 250000 250000
Accumulated Depreciation 2600 2600
Accounts Payable 50000 50000
Wages payable 35000 35000
Unearned Revenue 50000 25000.00 25000. 00
Paid Capital 500000 500000
Sales Revenue 36000 25000 61000 61,000
Interest Revenue 2916.67 2916. 67 2,917
Cost of Sales 30000 30000 30,000
Operating expenses 9000 47600.00 56600. 00 56,600
total 636000 636000 75516.67 75516.67 676516. 67 676516. 67 86,600 63,917
Net Income (22,683)
Smith Inc.Work Sheet
For Year ended Dec.31 2004 Balance Sheet and
Statement of Owner's Unadjusted Trial
BalanceAdjustments
Adjusted TrialBalance
Income Statement
Step4:Step4:Entry Adjusted Entry Adjusted
Amounts to Amounts to Income Statement Income Statement
ColumnsColumns
Step4:Step4:Entry Adjusted Entry Adjusted
Amounts to Amounts to Income Statement Income Statement
ColumnsColumns
3131
Steps in preparation of the worksheetSteps in preparation of the worksheet
Step5:Step5:Entry Adjusted Entry Adjusted
Amounts to Amounts to Balance sheet Balance sheet
ColumnsColumns
Step5:Step5:Entry Adjusted Entry Adjusted
Amounts to Amounts to Balance sheet Balance sheet
ColumnsColumns
3232
Closing ProcessClosing Process
The closing process occurs at the end of an accounting period after financial statements are prepared.
Reasons for closing entries: Resets revenue and expense account balances
to zero at the end of the period. Updates the retained earnings account to
reflect net income and distributions.
The closing process occurs at the end of an accounting period after financial statements are prepared.
Reasons for closing entries: Resets revenue and expense account balances
to zero at the end of the period. Updates the retained earnings account to
reflect net income and distributions.
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Temporary and Permanent AccountsTemporary and Permanent Accounts
Temporary accounts are also called nominal accounts. They are opened at the beginning of a period, used to record events for that period and closed at the end of the period. They accumulate data related to one accounting period only.
Temporary accounts are also called nominal accounts. They are opened at the beginning of a period, used to record events for that period and closed at the end of the period. They accumulate data related to one accounting period only.
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Temporary AccountsTemporary Accounts
Income Income SummarySummary
Rev
enu
esR
even
ues
Exp
ense
sE
xpen
ses
The closing process The closing process applies only to applies only to
temporary accounts.temporary accounts.
The closing process The closing process applies only to applies only to
temporary accounts.temporary accounts.
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Permanent AccountsPermanent Accounts
Permanent Permanent AccountsAccounts
AssetsAssets
LiabilitiesLiabilities Owner’s Owner’s CapitalCapital
The closing process does The closing process does not apply to permanent not apply to permanent
accounts.accounts.
The closing process does The closing process does not apply to permanent not apply to permanent
accounts.accounts.
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Steps in the Closing ProcessSteps in the Closing Process
Set an Income Summary account. Close Revenue accounts to Income
Summary. Close Expense accounts to Income
Summary. Close Income Summary account to
Retained Earnings
Set an Income Summary account. Close Revenue accounts to Income
Summary. Close Expense accounts to Income
Summary. Close Income Summary account to
Retained Earnings
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Close Revenue Accounts to Income Summary
Close Revenue Accounts to Income Summary
Income Summary63,917
63,917
Income Summary63,917
63,917
…61,000 61,000
Sales Revenue…
61,000 61,000
Sales Revenue
2,917 2,917
-
Interest Revenue2,917 2,917
-
Interest RevenueThe entries :
Dr. Sales Revenue 61000 Interest Revenue 2917 Cr. Income Summary 63917
The entries :
Dr. Sales Revenue 61000 Interest Revenue 2917 Cr. Income Summary 63917
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Close Expense Accounts to Income Summary
Close Expense Accounts to Income Summary
…30,000 30,000
-
Cost of Sales…
30,000 30,000 -
Cost of Sales
Income Summary86,600 63,917
(22,683)
Income Summary86,600 63,917
(22,683)
The entries:Dr. Income 86600 Cr. Cost of Sales 30000 Operating Expense 56600
The entries:Dr. Income 86600 Cr. Cost of Sales 30000 Operating Expense 56600
…56,600 56,600
-
Operating Expense…
56,600 56,600 -
Operating Expense
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Close Income Summary to Retained Earnings
Close Income Summary to Retained Earnings
Retained Earnings…
(22,683)
Retained Earnings…
(22,683)
Income Summary86,600 63,917
(22,683)
(22,683) -
Income Summary86,600 63,917
(22,683)
(22,683) - The Entries:
Dr. Income Summary 22683 Cr. Retained Earnings 22683
The Entries:
Dr. Income Summary 22683 Cr. Retained Earnings 22683
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The Closing EntriesThe Closing Entries
Close Revenue Accounts to Income Summary.
The entries are:
Dr. All Revenue
Cr. Income Summary
Close Revenue Accounts to Income Summary.
The entries are:
Dr. All Revenue
Cr. Income Summary
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The Closing EntriesThe Closing Entries
Close Expense Accounts to Income Summary.The entries are:Dr. Income Summary Cr. All Expenses
Close Expense Accounts to Income Summary.The entries are:Dr. Income Summary Cr. All Expenses
4242
The Closing EntriesThe Closing Entries
Close Income Summary account to Retained Earnings.
If there is a profit, the entries are:Dr. Income Summary Cr. Retained Earnings
If there is a loss, the entries are:Dr. Retained Earnings Cr. Income Summary
Close Income Summary account to Retained Earnings.
If there is a profit, the entries are:Dr. Income Summary Cr. Retained Earnings
If there is a loss, the entries are:Dr. Retained Earnings Cr. Income Summary
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Post-Closing Trial BalancePost-Closing Trial Balance
Post-Closing Trial Balance is a list of balances for all accounts that not closed.
The purpose of a post-closing trial balance is to verifies that: Total debits = total credits for permanent
accounts. All temporary accounts have zero balances
Post-Closing Trial Balance is a list of balances for all accounts that not closed.
The purpose of a post-closing trial balance is to verifies that: Total debits = total credits for permanent
accounts. All temporary accounts have zero balances
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Post-Closing Trial BalancePost-Closing Trial Balance
Account
Dr Cr
Cash 171000Short-term investment 100000Accounts Receivable 36000Interest receivable 2916. 67Prepaid Expense 10000Inventory 20000Plant and Equipmemt 250000Accumulated Depreciation 2600Accounts Payable 50000Wages payable 35000Unearned Revenue 25000Paid Capital 500000Retained Earnings (22683)Sales Revenue
Interest Revenue
Cost of Sales
Operating expenses
total 589,917 589,917
Smith Inc.
Post-Closing Trial Balance
For Year ended Dec.31 2004
Balance SheetAccount
Dr Cr
Cash 171000Short-term investment 100000Accounts Receivable 36000Interest receivable 2916. 67Prepaid Expense 10000Inventory 20000Plant and Equipmemt 250000Accumulated Depreciation 2600Accounts Payable 50000Wages payable 35000Unearned Revenue 25000Paid Capital 500000Retained Earnings (22683)Sales Revenue
Interest Revenue
Cost of Sales
Operating expenses
total 589,917 589,917
Smith Inc.
Post-Closing Trial Balance
For Year ended Dec.31 2004
Balance Sheet
4545
Preparing the Financial StatementsPreparing the Financial Statements
Financial Statements can be prepared easily using the completed worksheet.
Financial Statements can be prepared easily using the completed worksheet.
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Financial StatementsFinancial Statements
There are 4 statements in a standard set of financial statements1. Balance Sheet
→ The “what do we have?” statement→ Shows what the entity owns and owes (the difference being the
owners’ residual interest)
2. Income Statement→ The “what did we do?” statement→ Shows the activity the entity undertook in its normal course of
operations.
3. Statement of Retained Earnings→ Shows the changes in Retained earnings in the year
Often shown at the bottom of the Income Statement
4. Statement of Cash Flows→ Shows the sources and uses of cash in the year
Information is derived from the B/S and I/S and other
There are 4 statements in a standard set of financial statements1. Balance Sheet
→ The “what do we have?” statement→ Shows what the entity owns and owes (the difference being the
owners’ residual interest)
2. Income Statement→ The “what did we do?” statement→ Shows the activity the entity undertook in its normal course of
operations.
3. Statement of Retained Earnings→ Shows the changes in Retained earnings in the year
Often shown at the bottom of the Income Statement
4. Statement of Cash Flows→ Shows the sources and uses of cash in the year
Information is derived from the B/S and I/S and other
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The Classified Balance SheetThe Classified Balance Sheet
Debit sideCurrent assetsLong-term assets
Credit side Current liabilities
Long-term liabilities
The END But Knowledge has No
END
The END But Knowledge has No
END