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Lecture Fundamental accounting principles (20/e): Chapter 4 - Wild, Shaw, Chiappetta

Chapter 4 - Completing the accounting cycle. After completing this chapter you should be able to: Explain why temporary accounts are closed each period, identify steps in the accounting cycle, explain and prepare a classified balance sheet. | Chapter 4 COMPLETING THE ACCOUNTING CYCLE Chapter 4: Completing the accounting cycle BENEFITS OF A WORK SHEET Aids the preparation of financial statements. Reduces possibility of errors. Links accounts and their adjustments. Assists in planning and organizing an audit. Helps in preparing interim financial statements. Shows the effects of proposed transactions. Not a required report. P 1 A work sheet is not a required report, yet using a manual or electronic work sheet has several potential benefits. Specifically, a work sheet: 1. Aids the preparation of financial statements. 2. Reduces the possibility of errors. 3. Links accounts and adjustments to their impacts in financial statements. 4. Assists in planning and organizing an audit of financial statements. 5. Helps in preparing interim financial statements. 6 Shows the effects of proposed transactions. FastForward Worksheet For the Month Ended December 31, 2011 P 1 The difference between the totals of the Income Statement columns is net income or net loss. This occurs because revenues are entered in the Credit column and expenses in the Debit column. If the Credit total exceeds the Debit total, there is net income. If the Debit total exceeds the Credit total, there is a net loss. For FastForward, the Credit total exceeds the Debit total, giving a $3,785 net income. The net income from the Income Statement columns is then entered in the Balance Sheet and Statement of Owner’s Equity Credit column. Adding net income to the last Credit column implies that it is to be added to owner’s capital. If a loss occurs, it is added to the Debit column. This implies that it is to be subtracted from owner’s capital. The ending balance of owner’s capital does not appear in the last two columns as a single amount, but it is computed in the statement of owner’s equity using these account balances. PREPARING THE FINANCIAL STATEMENTS P 1 Using the worksheet, the first financial statement we prepare is the income statement. The income | Chapter 4 COMPLETING THE ACCOUNTING CYCLE Chapter 4: Completing the accounting cycle BENEFITS OF A WORK SHEET Aids the preparation of financial statements. Reduces possibility of errors. Links accounts and their adjustments. Assists in planning and organizing an audit. Helps in preparing interim financial statements. Shows the effects of proposed transactions. Not a required report. P 1 A work sheet is not a required report, yet using a manual or electronic work sheet has several potential benefits. Specifically, a work sheet: 1. Aids the preparation of financial statements. 2. Reduces the possibility of errors. 3. Links accounts and adjustments to their impacts in financial statements. 4. Assists in planning and organizing an audit of financial statements. 5. Helps in preparing interim financial statements. 6 Shows the effects of proposed transactions. FastForward Worksheet For the Month Ended December 31, 2011 P 1 The difference between the totals of the Income Statement columns is