Chapter05 UML 2007

Chapter05 UML 2007 - Ch. 5: Closing Process Chapter 5...

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Ch. 5: Closing Process 1 Chapter 5 Closing Process In this chapter you will see how accounting systems are organized to keep results of different accounting periods separate from one another. The process that produces financial statements relating to separate accounting periods is the closing process. The Accounting Process (so far) In the first four chapters, we saw the goal of a company's financial accounting system is to provide information about the company's resources and where they came from. The information is provided in the form of financial statements. To generate information for financial statements, accounting systems are organized around the accounting equation: Assets = Liabilities + Stockholders' Equity The equality of the accounting equation is constantly maintained through the debits equal credits process. In brief, in order to produce information for financial statements, accounting systems: 1. organize data to be reported by using a chart of accounts and a general ledger. 2. analyze business events, or transactions, and convert them into debits and credits through the preparation of journal entries. The journal entries are recorded in the general journal. 3. post the journal entries to the general ledger. 4. verify the data in the general ledger accounts will result in a balanced accounting equation through the preparation of a trial balance. 5. review data in the trial balance for reasonableness and prepare adjusting entries to correct any unreasonable account balances. 6. post the adjusting entries to the general ledger. 7. verify the data in the general ledger accounts will result in a balanced accounting equation through the preparation of an adjusted trial balance. Once the adjusted trial balance is prepared, it is possible to produce reasonable financial statements from the adjusted trial balance data. The work in Chapter 4 resulted in the Parks Computer Service Corporation's September financial statements, presented again in Exhibits 5-1, 5-2, and 5-3.
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2 Ch. 5: Closing Process Exhibit 5-1 Parks Computer Service Corporation Income Statement for the Month Ended September 30 Revenues Fees Revenue $3,300 Operating Expenses Supplies Expense $170 Utilities Expense $60 Telephone Expense $45 Wages Expense $450 Rent Expense $325 Insurance Expense $120 Total Operating Expenses $1,170 Income Before Taxes $2,130 Income Taxes Expense $425 Net Income $1,705 From the Parks Computer Service Corporation's income statement we saw management used the company's resources in September to generate $1,705 of additional resources (net income). The income statement showed management brought in resources of $3,300 (fees revenue) and used $1,595 of resources (total operating expenses of $1,170 + income taxes expense of $425). Exhibit 5-2
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter05 UML 2007 - Ch. 5: Closing Process Chapter 5...

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