tailieunhanh - Lecture Accounting principles – Chapter 4: Completion of the accounting cycle

In this chapter students will be able to: Prepare closing entries and a post-closing trial balance, explain the steps in the accounting cycle including optional steps, prepare correcting entries, prepare a classified balance sheet, illustrate measures used to evaluate liquidity,. | Completion of the Accounting Cycle Closing the books Preparing and posting closing entries Preparing the post-closing trial balance Summary of the accounting cycle Worksheets, reversing and correcting entries Classified balance sheet Using information in the financial statements Working capital and current and acid-test ratios 2 Copyright John Wiley & Sons Canada, Ltd. CHAPTER 4: Completion of the Accounting Cycle Prepare closing entries and a post-closing trial balance. Explain the steps in the accounting cycle including optional steps. Prepare correcting entries. Prepare a classified balance sheet. Illustrate measures used to evaluate liquidity. Prepare a work sheet (Appendix 4A). Prepare reversing entries (Appendix 4B). Copyright John Wiley & Sons Canada, Ltd. 3 STUDY OBJECTIVES: Closing the Books Done at the end of the accounting period Accounts are made ready for the next period Temporary accounts: Only collect data for a single period; closed at the end of the period Revenue, expense and owner’s drawings accounts Permanent accounts: Not closed Balances are carried forward into next period All balance sheet accounts 4 Copyright John Wiley & Sons Canada, Ltd. Closing Entries Transfer temporary account balances to the owner’s capital account Updates the owner’s capital account balance Reduces balances in all temporary accounts to zero, so they are ready for the next period Journalizing and posting closing entries are a required step in the accounting cycle Revenue and expense accounts are closed to Income Summary (a temporary account) 5 Copyright John Wiley & Sons Canada, Ltd. 5 The Closing Process 6 Copyright John Wiley & Sons Canada, Ltd. The Closing Process Close revenue accounts Debit each revenue account for its balance Credit Income Summary for total revenues Close expense accounts Debit Income Summary for total expenses Credit each expense account for its balance Close Income Summary Debit Income Summary for balance (credit if loss) Credit owner’s capital | Completion of the Accounting Cycle Closing the books Preparing and posting closing entries Preparing the post-closing trial balance Summary of the accounting cycle Worksheets, reversing and correcting entries Classified balance sheet Using information in the financial statements Working capital and current and acid-test ratios 2 Copyright John Wiley & Sons Canada, Ltd. CHAPTER 4: Completion of the Accounting Cycle Prepare closing entries and a post-closing trial balance. Explain the steps in the accounting cycle including optional steps. Prepare correcting entries. Prepare a classified balance sheet. Illustrate measures used to evaluate liquidity. Prepare a work sheet (Appendix 4A). Prepare reversing entries (Appendix 4B). Copyright John Wiley & Sons Canada, Ltd. 3 STUDY OBJECTIVES: Closing the Books Done at the end of the accounting period Accounts are made ready for the next period Temporary accounts: Only collect data for a single period; closed at the end of the period Revenue, .