ch04_2002

ch04_2002 - Chapter 4 Chapter 4 Completing the Accounting...

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Unformatted text preview: Chapter 4 Chapter 4 Completing the Accounting Cycle Financial Accounting, Sixth Edition Chapter 4-1 Study Objectives Study Objectives 1. 2. 3. 4. 5. 6. Prepare a worksheet. Explain the process of closing the books. Describe the content and purpose of a postclosing trial balance. State the required steps in the accounting cycle. Explain the approaches to preparing correcting entries. Identify the sections of a classified balance sheet. Chapter 4-2 Completing the Accounting Cycle Completing the Accounting Cycle Using a Worksheet Steps in preparation Preparing financial statements Preparing adjusting entries Closing the Books Preparing closing entries Posting closing entries Preparing a post-closing trial balance Summary of Accounting Cycle Reversing entries--An optional step Correcting entries--An avoidable step Classified Balance Sheet Current assets Long-term investments Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Stockholders' equity Chapter 4-3 Using A Worksheet Using A Worksheet Worksheet A multiplecolumn form used in preparing financial statements. Not a permanent accounting record. Five step process. Use of worksheet is optional. Chapter 4-4 SO 1 Prepare a worksheet. Steps in Preparing a Worksheet Steps in Preparing a Worksheet Illustration 41 Chapter 4-5 SO 1 Prepare a worksheet. Preparing Financial Statements Preparing Financial Statements b. Prepare an income statement for the month ended March 31, 2008. Undercover Roofing Income Statement For the Month Ended March 31, 2008 Revenues Service revenues Expenses Salaries expense Supplies expense Depreciation expense Miscellaneous expense Total expenses Net income Chapter 4-6 $ 3,170 $ 1,050 960 200 200 $ 2,410 760 SO 1 Prepare a worksheet. Preparing Financial Statements Preparing Financial Statements b. Prepare a statement of retained earnings for the month ended March 31, 2008. Undercover Roofing Retained Earnings Statement For the Month Ended March 31, 2008 Retained earnings, beginning Add: Net income Less: Dividends Retained earnings, ending $ 6,000 760 (600) 6,160 $ Chapter 4-7 SO 1 Prepare a worksheet. Preparing Financial Statements Preparing Financial Statements b. Prepare a balance sheet as of March 31, 2008. Assets Current assets Cash Accounts receivable Roofing supplies Total current assets Property, plant, and equipment Equipment Less: Accumulated depreciation Total assets $ 2,500 1,800 140 4,440 Undercover Roofing Balance Sheet March 31, 2008 6,000 1,400 $ 4,600 9,040 Liabilities and Stockholders' Equity Current liabilities Accounts payable Salaries payable Unearned revenue Total current liabilities Stockholders' equity Common stock Retained earnings Total liabilities and stockholder's equity $ 1,400 350 130 1,880 1,000 6,160 9,040 $ Chapter 4-8 SO 1 Prepare a worksheet. Closing the Books Closing the Books At the end of the accounting period, the company makes the accounts ready for the next period. Illustration 45 Chapter 4-9 SO 2 Explain the process of closing the books. Closing the Books Closing the Books Closing entries formally recognize, in the general ledger, the transfer of net income (or net loss) and dividends to retained earnings at the end of the accounting period. Chapter 4-10 SO 2 Explain the process of closing the books. Closing the Books Closing the Books Note: Dividends are closed directly to Retained Earnings and not to Income Summary because Dividends are not an expense. Illustration 46 Retained Earnings is a permanent account; all other accounts are temporary accounts. Chapter 4-11 SO 2 Explain the process of closing the books. Closing the Books Closing the Books d. Journalize the closing entries from the financial statement columns of the worksheet. Service revenue Income summary Closing Entries need to be Posted Income summary Salary expense Supplies expense Depreciation expense Miscellaneous expense Income summary Retained earnings Retained earnings Dividends Chapter 4-12 3,170 2,410 3,170 1,050 960 200 200 760 600 760 600 SO 2 Explain the process of closing the books. Preparing a Post-Closing Trial Balance Preparing a Post-Closing Trial Balance Purpose is to prove the equality of the permanent account balances after journalizing and posting of closing entries. All temporary accounts will have zero balances. Post-Closing Trial Balance Account Titles Dr. Cr. Cash $ 2,500 Accounts Receivable 1,800 Roofing Supplies 140 Equipment 6,000 Accumulated Depreciation $ 1,400 Accounts Payable 1,400 Salaries payable 350 Unearned Revenue 130 Common Stock 1,000 Retained Earnings 6,160 Totals $ 10,440 $ 10,440 Chapter 4-13 SO 3 Describe the content and purpose of a post-closing trial balance. Summary of the Accounting Cycle Summary of the Accounting Cycle Illustration 412 1. Analyze business transactions 1. Analyze business transactions 9. Prepare a post-closing trial 9. Prepare a post-closing trial balance balance 8. Journalize and post closing 8. Journalize and post closing entries entries 7. Prepare financial 7. Prepare financial statements statements 6. Prepare an adjusted trial 6. Prepare an adjusted trial balance balance 2. Journalize the transactions 2. Journalize the transactions 3. Post to ledger accounts 3. Post to ledger accounts 4. Prepare a trial balance 4. Prepare a trial balance 5. Journalize and post 5. Journalize and post adjusting entries adjusting entries Chapter 4-14 SO 4 State the required steps in the accounting cycle. The Classified Balance Sheet The Classified Balance Sheet Presents a snapshot at a point in time. To improve understanding, companies group similar assets and similar liabilities together. Standard Classifications Assets Current assets Current liabilities Longterm investments Property, plant, and equipment Intangible assets Chapter 4-15 Illustration 417 Liabilities and Owner's Equity Longterm liabilities Stockholders' equity SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Current Assets Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer. Operating cycle is the average time it takes from the purchase of inventory to the collection of cash from customers. Chapter 4-16 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Current Assets Illustration 419 Companies usually list current asset accounts in the order they expect to convert them into cash. Chapter 4-17 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Review Question Cash, and other resources that are reasonably expected to be realized in cash or sold or consumed in the business within one year or the operating cycle, are called: a. Current assets. b. Intangible assets. c. Longterm investments. d. Property, plant, and equipment. Chapter 4-18 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Long-Term Investments Investments in stocks and bonds of other companies. Investments in longterm assets such as land or buildings that a company is not currently using in its operating activities. Illustration 420 Chapter 4-19 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Property, Plant, and Equipment Long useful lives. Currently used in operations. Depreciation allocating the cost of assets to a number of years. Accumulated depreciation total amount of depreciation expensed thus far in the asset's life. Chapter 4-20 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Property, Plant, and Equipment Illustration 421 Chapter 4-21 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Intangible Assets Assets that do not have physical substance. Illustration 422 Chapter 4-22 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Review Question Patents and copyrights are a. Current assets. b. Intangible assets. c. Longterm investments. d. Property, plant, and equipment. Chapter 4-23 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Current Liabilities Obligations the company is to pay within the coming year. Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude. Liquidity - ability to pay obligations expected to be due within the next year. Chapter 4-24 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Current Liabilities Illustration 423 Chapter 4-25 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Long-Term Liabilities Obligations a company expects to pay after one year. Illustration 424 Chapter 4-26 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Review Question Which of the following is not a longterm liability? a. Bonds payable b. Current maturities of longterm obligations c. Longterm notes payable d. Mortgages payable Chapter 4-27 SO 6 Identify the sections of a classified balance sheet. The Classified Balance Sheet The Classified Balance Sheet Stockholders' (Owners') Equity Proprietorship one capital account. Partnership capital account for each partner. Corporation Capital Stock and Retained Earnings. Illustration 425 Chapter 4-28 SO 6 Identify the sections of a classified balance sheet. Recording Process Recording Process Discussion Question Q4-18. (a) What is the term used to describe the owner's equity section of a corporation? (b) Identify the two owners' equity accounts in a corporation and indicate the purpose of each. See notes page for discussion Chapter 4-29 ...
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This note was uploaded on 02/13/2012 for the course ACCT 2000 taught by Professor Holmes during the Fall '08 term at LSU.

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