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Warren SMChap04 - CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE...

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157 CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE EYE OPENERS 1. The end-of-period spreadsheet (work sheet) illustrates flow of accounting information from the unadjusted trial balance into the adjusted trial balance and into the financial state- ments. In doing so, the spreadsheet (work sheet) illustrates the impact of the adjust- ments on the financial statements. 2. No. The end-of-period spreadsheet (work sheet) is a device used by the accountant to facilitate the preparation of statements. 3. A net income of $240,350 ($915,800 – $675,450) would be reported. When the Credit column exceeds the Debit column, net income is reported. If the Debit column of the Income Statement columns is more than the Credit column, a net loss is reported. 4. a. Current assets are composed of cash and other assets that may reasonably be expected to be realized in cash or sold or consumed in the near future through the normal operations of the business. b. Property, plant, and equipment is com- posed of assets used in the business that are of a permanent or relatively fixed nature. 5. Current liabilities are liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets. Liabilities that will not be due for a compara- tively long time (usually more than one year) are called long-term liabilities. 6. Revenue, expense, and dividends accounts are generally referred to as temporary accounts. 7. Closing entries are necessary at the end of an accounting period (1) to transfer the bal- ances in temporary accounts to permanent accounts and (2) to prepare the temporary accounts for use in accumulating data for the following accounting period. 8. Adjusting entries bring the accounts up to date, while closing entries reduce the reve- nue, expense, and dividends accounts to zero balances for use in accumulating data for the following accounting period. 9. (1) Debit each revenue account for its bal- ance and credit Income Summary for the total revenue. (2) Credit each expense account for its bal- ance and debit Income Summary for the total expenses. (3) Debit Income Summary for its balance (net income) and credit the retained earnings account. In case of a net loss, credit Income Summary for its balance (net loss) and debit the retained earnings account. (4) Debit the retained earnings account for the balance of the dividends account and credit the dividends account. 10. The purpose of the post-closing trial balance is to make sure that the ledger is in balance at the beginning of the next period. 11. a. The financial statements are the most important output of the accounting cycle. b. Yes, all companies have an accounting cycle that begins with analyzing and jour- nalizing transactions and ends with a post-closing trial balance. However, companies may differ in how they im- plement the steps in the accounting cy- cle. For example, while most companies use computerized accounting systems, some companies may use manual sys- tems.
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