Chapter 04

Chapter 04 - COMPLETING THE ACCOUNTING CYCLE Chapter 4...

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Unformatted text preview: COMPLETING THE ACCOUNTING CYCLE Chapter 4 McGraw-Hill/Irwin Slide 2 McGraw-Hill/Irwin Slide 2 STEPS IN THE ACCOUNTING CYCLE McGraw-Hill/Irwin Slide 3 McGraw-Hill/Irwin Slide 3 PURPOSES OF CLOSING PROCESS It resets revenue, expense, and withdrawals account balances to zero at the end of each period. This is done so that these accounts can properly measure income and withdrawals for the next period. It helps in summarizing a periods revenues and expenses and in updating owners equity account. McGraw-Hill/Irwin Slide 4 McGraw-Hill/Irwin Slide 4 TEMPORARY ACCOUNTS Temporary accounts accumulate data related to one accounting period. All income statement accounts the withdrawals accounts and the income summary are referred to as temporary accounts. McGraw-Hill/Irwin Slide 5 McGraw-Hill/Irwin Slide 5 PERMANENT ACCOUNTS Permanent accounts carry their ending balances into the next period. The cumulative running balance reflects all transactions affecting that account since the inception of the business. All accounts which appear on a balance sheet (assets, liabilities, equity accounts) are permanent accounts. McGraw-Hill/Irwin Slide 6 McGraw-Hill/Irwin Slide 6 CLOSING PROCESS Revenue, expense and withdrawal accounts must begin each period with zero balances (i.e., we need to reset their balances to zero at the end of the period). Owners capital must be updated to include revenues, expenses, and withdrawals from the current year. Identify accounts for closing. Record and post closing entries. Prepare post-closing trial balance. McGraw-Hill/Irwin Slide 7 McGraw-Hill/Irwin Slide 7 Lets see how the closing process works! RECORDING CLOSING ENTRIES Close Revenue accounts to Income Summary. Close Expense accounts to Income Summary. Close Income Summary account to Owners Capital. Close Withdrawals to Owners Capital. McGraw-Hill/Irwin Slide 8 McGraw-Hill/Irwin Slide 8 Using the adjusted trial adjusted trial balance balance , lets prepare the closing entries for FastForward. McGraw-Hill/Irwin Slide 9 McGraw-Hill/Irwin Slide 9 Close Revenue accounts to Income Summary. McGraw-Hill/Irwin Slide 10 McGraw-Hill/Irwin Slide 10 CLOSE REVENUE ACCOUNTS TO INCOME SUMMARY Now, lets look at the ledger accounts after posting this closing entry. Dr. Cr. Dec. 31 Consulting revenue 7,850 Rental revenue 300 Income summary 8,150 McGraw-Hill/Irwin Slide 11 McGraw-Hill/Irwin Slide 11 CLOSE REVENUE ACCOUNTS TO INCOME SUMMARY Consulting Revenue 7,850 7,850- Rental Revenue 300 300- Income Summary 8,150 McGraw-Hill/Irwin Slide 12 McGraw-Hill/Irwin Slide 12 Close Expense accounts to Income Summary. McGraw-Hill/Irwin Slide 13 McGraw-Hill/Irwin Slide 13 Now, lets look at the ledger accounts after posting this closing entry....
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This note was uploaded on 03/12/2012 for the course BUSI 1002 taught by Professor Liu during the Winter '10 term at HKU.

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Chapter 04 - COMPLETING THE ACCOUNTING CYCLE Chapter 4...

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