Transcript Document

The Accounting Cycle
The Process
1.) Transactions occur in the normal course of
business. We record them in our records
with a JOURNAL ENTRY (called
“Journalizing”).
(Equivalent of entering a row on transaction
worksheet)
2.) Journal entries are then “transferred” to the
GENERAL LEDGER (called “Posting”).
(Equivalent of putting dollar amount in a
column on the transaction worksheet)
3.) A trial balance may be prepared. It shows the
balance (amount and whether debit or
credit) of each account. A trial balance is
NOT the same as a “Balance Sheet”, which is
a formal financial statement.
Accounting cycle continued...
4.) ADJUSTING ENTRIES are made
(journalized) and posted to the LEDGER
at the end of the accounting period
BEFORE Financial Statements are
prepared.
5.) Financial statements are written.
6.) CLOSING ENTRIES are made
(journalized) and posted to the ledger.
7.) Another trial balance, called the “afterclosing” or “post-closing” trial balance
may be prepared.
Adjusting Entries
Before financial statements are
prepared, adjusting entries must be
journalized and posted to make sure
that all accounts are properly stated
and that nothing has been omitted:



Recorded at the end of the period after
all ‘routine’ journal entries have been
journalized and posted
Necessary to get the account balances
‘correct’ before financial statements are
prepared
Events # 9, 10, and 11 for Problem #428A
Trial Balance for Prob. 4-28A
The Slide for The Travel Company
(Prob. 4-28A) is an “Adjusted Trial
Balance”—it reflects the account
balances after the three adjusting
entries (#9, 10, & 11) have been
journalized and posted to the ledger
accounts.
(This file is among the files I provided to
you)
Adjusted Trial Balance for #4-28A
The Travel Company
Trial Balance
December 31, 2005
Account Titles
Debit
Cash
Accounts Receivable
Supplies
Prepaid Rent
Accounts Payable
Salaries Payable
Common Stock
Dividends
Service Revenue
Operating Expenses
Salaries Expense
Supplies Expense
Rent Expense
$27,800
4,000
150
3,500
Totals
$55,900
Credit
$ 4,300
3,600
20,000
3,000
28,000
12,500
3,600
650
700
$55,900
LEDGER ACCOUNT BALANCES
after the adjusting entries, but
before the closing entries, are
the dollar amounts that go on
the financial statements.
The Closing Process
1.) Establishes zero
balances in all
revenue, expense,
and dividend
accounts
AND
Let’s look at the
2.)closing
‘Updates’
the for
entries
Retained
Earnings
Collins Consultants.
account to the correct
end of period
balance.
Closing Entries for Prob. 4-28A
Follow the three step approach for closing
entries for the Class problem:
1)
2)
3)
Close out (get to zero balance) the revenue
accounts
Close out (get to zero balance) the expense
accounts
Close out (get to zero balance) the dividends
account
Review the ‘after-closing’ trial balance:


Which accounts are missing?
Which account has a different dollar balance?
Closing Entries for Prob. 4-28A
Date
Account Titles
Debit
Credit
Closing Entries
Dec. 31 Service Revenue
Retained Earnings
28,000
Dec. 31 Retained Earnings
Operating Expenses
Salaries Expense
Supplies Expense
Rent Expense
17,450
Dec. 31 Retained Earnings
Dividends
28,000
12,500
3,600
650
700
3,000
3,000
After-Closing Trial Balance for
Prob. 4-28A
The Travel Company
After Closing Trial Balance
December 31, 2005
Account Titles
Debit
Cash
Accounts Receivable
Supplies
Prepaid Rent
Accounts Payable
Salaries Payable
Common Stock
Retained Earnings
$27,800
4,000
150
3,500
Totals
$35,450
Credit
$ 4,300
3,600
20,000
7,550
$35,450
Components of the Annual Report
Ready Notes
In addition to the four basic financial statements
Notes
Management’s
Discussion &
Analysis
Audit
Opinion
Class Assignment Questions
Questions 1, 13, 15-17 (Page 181 in
textbook)
Chapter 4
The End