Chapter_4_Dot_Lrn - Chapter 4 Completing the Accounting...

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Unformatted text preview: Chapter 4 Completing the Accounting Cycle LO 2 1. Analyze business transactions 2. Record journal entries in the journal 3. Post the entries to the ledger. Prepare TB. 4. Adjust the accounts. Prepare the adj. TB. 5. Close the accounts. Prepare a post-cl. TB. 6. Prepare the Financial Statements . The order of these steps can vary depending on the system in place Step 6 may be completed before Step 5. LO 2 Closing Entries Two Account Types : Permanent accounts Balance sheet accounts Also called real accounts Carry over end-of-period balances into the next accounting period Temporary accounts Income statement accounts (revenues and expenses) Also called nominal accounts Begin each accounting period with a zero balance LO 2 Closing Entries : Journal entries made at the end of an accounting period Two purposes: 1. Clear Revenue, Expense, and Withdrawal accounts (temporary accounts) of their balances 2. Summarize a period's revenues and expenses LO 2 Revenue and Expense accounts must begin each period with zero balances for the Income Statement to present the activity of a single period. LO 2 Income Summary Account : Summarizes revenues and expenses for a period Temporary account Used only in the closing process Never appears in the financial statements Appears in the Chart of Accounts after Withdrawals and before Revenue accounts. (see p. 49) LO 2 All revenue and expense account balances are transferred to Income Summary during the closing process The balance in Income Summary equals net income or loss reported on the income statement This balance is then transferred to the Capital account (a synonym for Owner's Equity account) Revenue and expense accounts represent increases and decreases to Owner's Equity LO 2 1. Close credit balances from income statement...
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Chapter_4_Dot_Lrn - Chapter 4 Completing the Accounting...

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