ACO01 - Lecture 5 - Completing the Accounting Cycle [Compatibility Mode]

ACO01 - Lecture 5 - Completing the Accounting Cycle [Compatibility Mode]

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1 Completing the Accounting Cycle ACO01 Financial Accounting for Business Dr. Anh Nguyen Lecture 5 7. Prepare financial statements 8. Close 9. Prepare post closing trial balance STEPS IN THE ACCOUNTING CYCLE 1. Analyse transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare adjusted trial balance
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2 4 Learning Objective Describe and prepare closing entries. Explain why temporary accounts are closed each period. Temporary Accounts Revenues Income Summary Expenses Dividends Permanent Accounts Assets Liabilities Retained Earnings Temporary and Permanent Accounts Account Title Account No. ### Date Item Post. Ref. Debit Credit Balance Debit Credit Real Accounts
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3 7 Real Accounts . . . Accounts that are not closed to a zero balance at the end of each accounting period. Permanent accounts appearing on the Balance Sheet. Assets Liabilities Owner’s Equity Assets Liabilities Owner’s Equity Account Title Account No. ### Date Item Post. Ref. Debit Credit Balance Debit Credit Nominal Accounts
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4 10 Nominal Accounts . . . Accounts that are closed to a zero balance at the end of each accounting period. Temporary accounts generally appearing on the Income Statement. Revenues Expenses Revenues Expenses ACCT 201 ACCT 201 What are closing entries?
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5 13 Closing Entries . . . Journal entries made at the end of an accounting period. They clear all nominal accounts and prepare them to receive transactions in the new accounting period. They summarize a period’s revenues and expenses. 14 Purpose of Closing Entries Closing entries bring the income statement accounts back to a zero balance, making them ready for a new set of transactions. The closing entry process transfers the net income or net loss for the accounting period to the owner’s equity and Reduces owner’s equity for any distributions to owners. Is there a set procedure?
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6 Account Title Account No. ### Date Item Post. Ref. Debit Credit Balance Debit Credit Income Summary Introducing a new account!
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8 Overview of the Closing Process FastForward Adjusted Trial Balance December 31, 2011 Cash 3,950 $ Accounts receivable 1,800 Supplies 8,670 Prepaid insurance 2,300 Equipment 26,000 Accumulated depreciation-Equip. 375 $ Accounts payable 6,200 Salaries payable 210 Unearned revenue 2,750 Common Stock 30,000 Retained Earnings 600 Consulting revenue 7,850 Rental revenue 300 Depreciation expense-Equipment 375 Salaries expense 1,610 Insurance expense 100 Rent expense 1,000 Supplies expense 1,050 Utilities expense 230 Totals 47,685 $ 47,685 $ Using the adjusted trial balance, let’s prepare the closing entries for FastForward. FastForward Adjusted Trial Balance December 31, 2001 Cash 3,950 $ Accounts receivable 1,800 Supplies 8,670 Prepaid insurance 2,300 Equipment 26,000 Accumulated depreciation-Equip. 375 $ Accounts payable 6,200 Salaries payable 210 Unearned revenue 2,750 Common Stock 30,000 Retained Earnings 600 Depreciation expense-Equipment 375 Salaries expense 1,610 Insurance expense 100 Rent expense 1,000 Supplies expense 1,050 Utilities expense 230 Totals 47,685 $ 47,685 $ Consulting revenue 7,850 Rental revenue 300
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ACO01 - Lecture 5 - Completing the Accounting Cycle [Compatibility Mode]

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