Accounting Chapter 4 Notes

temporary accounts dividends revenues and expenses

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Unformatted text preview: the financial statements, and close the accounts. Catherine Liou - Financial statements: 1) Income Statement ! 2) Statement of Retained Earnings ! 3) Balance Sheet - The formal financial statements yield the same net income or loss that is shown on the worksheet - Accounts can use the worksheet to prepare monthly statements without journalizing and posting the adjusting entries. Closing the Accounts - Closing the accounts: Occurs at the end of the period. Closing consists of journalizing and posting the closing entries in order to get the accounts ready for the next period. The closing process zeroes out all the revenues and all the expenses in order to measure each period’s net income separately from all other periods. - Temporary Accounts: (Dividends, revenues, and expenses) they are closed. - Permanent accounts: (Assets, liabilities, common stock and retained earnings) are not closed at the end of the period - Closing entries transfer the revenue, expense and dividends balances to the Retained earnings account to ready the company’s books for the next period. - Income Summary: As an intermediate step, the revenues and the expenses may be transferred first to the income summary. The income summary summarizes the net income for the period by collecting the sum of all the expenses and the sum of all the revenues. It is a temporary “holding tank” that shows the amount of net income or net loss of the current period. The Closing Process Expense Income Summary Revenues Debits 2. Closed 1. Closed Credit Expenses Revenues to to 3. Closed Net income Income to income summary Summary Retained Earnings Dividends Retained Earnings 4. Dividends Beginning Debits 4. Closed balance to 5. Net Income Retained Ending Balance Earnings Closing the Temporary Accounts - The four steps in closing the account: Catherine Liou 1. Make the revenue accounts equal...
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