Completing the Accounting Cycle Chapter 4 Completing the Accounting Cycle Financial Accounting, IRFS Weygandt Kimmel Kieso

Completing the Accounting Cycle 1. Using a Worksheet 2. Closing the Books 3. Summary of Accounting Cycle 4. Classified Statement of Financial Position Steps in preparation Preparing financial statements Preparing adjusting entries Preparing closing entries Posting closing entries Preparing a post-closing trial balance Reversing entries—An optional step Correcting entries—An avoidable step Intangible assets Property, plant, and equipment Long-term investments Current assets Equity Non-current liabilities Current liabilities

2. Closing the Books 結帳 At the end of the accounting period, the company makes the accounts ready for the next period. 虛帳戶/臨時性/名目帳戶 永久性帳戶 Illustration 4-5 SO 2 Explain the process of 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. Closing entries are only at the end of the annual accounting period. SO 2 Explain the process of closing the books.

Closing the Books In addition to updating Retained Earnings to its correct ending balance, closing entries produce a zero balance in each temporary account. (臨時性科目) 損益彙總 1 2 Illustration 4-30 3 損益表科目 4 SO 7 Explain the purpose of closing entries.

Closing the Books Note: Dividends are closed directly to Retained Earnings and not to Income Summary because Dividends are not an expense. Illustration 4-6 Retained Earnings is a permanent account; all other accounts are temporary accounts. SO 2

Closing entries need to be posted Closing the Books Illustration 4-7 Closing entries journalized Closing entries need to be posted

Posting closing entries Closing the Books Illustration 4-8 Posting of closing entries Posting closing entries

Preparing a Post-Closing Trial Balance 結帳後試算表 Purpose is to prove the equality of the permanent account balances after journalizing and posting of closing entries. Temporary accounts will have zero balances. Illustration 4-9 SO 3

Summary of the Accounting Cycle 8-9: take place only at the end of a company’s annual accounting period. 1-3:occur daily during the accounting period 1. Analyze business transactions 9. Prepare a post-closing trial balance 2. Journalize the transactions 8. Journalize and post closing entries 3. Post to ledger accounts 7. Prepare financial statements 4. Prepare a trial balance 6. Prepare an adjusted trial balance 5. Journalize and post adjusting entries 4-7: on a periodic basis Illustration 4-12

Correcting Entries—An Avoidable Step are unnecessary if the records are error-free.如紀錄沒錯就不需要 are made whenever an error is discovered. must be posted before closing entries.須在結帳前過帳 Instead of preparing a correcting entry, it is possible to reverse the incorrect entry and then prepare the correct entry. ( 另一作法: 可先轉原先分錄, 再做正確的分錄 ) SO 5 Explain the approaches to preparing correcting entries.

Correcting Entries—An Avoidable Step Illustration (Case 1): On May 10, Mercato Co. journalized and posted a $50 cash collection on account from a customer as a debit to Cash $50 and a credit to Service Revenue $50. The company discovered the error on May 20, when the customer paid the remaining balance in full. Incorrect entry Cash 50 Service revenue 50 Correct entry Cash 50 Accounts receivable 50 Correcting entry Service revenue 50 Accounts receivable 50 SO 5 Explain the approaches to preparing correcting entries.

Correcting Entries—An Avoidable Step Illustration (Case 2): On May 18, Mercato purchased on account office equipment costing $450. The transaction was journalized and posted as a debit to Delivery Equipment $45 and a credit to Accounts Payable $45. The error was discovered on June 3. Incorrect entry Delivery equipment 45 Accounts payable 45 Office equipment 450 Correct entry Accounts payable 450 Office equipment 450 Correcting entry Delivery equipment 45 Accounts payable 405 SO 5 Explain the approaches to preparing correcting entries.

4. The Classified Statement of Financial Position Presents a snapshot 快照 at a point in time. To improve understanding, companies group similar assets and similar liabilities together. Standard Classifications Illustration 4-17 Assets Equity and Liabilities Intangible assets Equity 權益 Property, plant, and equipment 不動產、廠房及設備 (固定資產) Non-current liabilities Long-term investments Current liabilities Current assets 流動資產

The Classified Statement of Financial Position Intangible Assets 無形資產 Assets that do not have physical substance (實體物質) Give the company exclusive right 專屬權 of use for a specified period of time

The Classified Statement of Financial Position Property, Plant, and Equipment 固定資產 Long useful lives. 使用年限長 Currently used in operations. Depreciation 折舊 - allocating the cost of assets to a number of years. Accumulated depreciation累積折舊 - total amount of depreciation expensed thus far in the asset’s life. SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position ₩ ₩ ₩ The Classified Statement of Financial Position Property, Plant, and Equipment Illustration 4-20 (in billions) SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Long-Term Investments Investments in stocks and bonds 債劵 of other companies. Investments in long-term assets such as land or buildings that a company is not currently using in its operating activities. SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Current Assets 流動資產 Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer. Operating cycle 營業週期 is the average time it takes from the purchase of inventory to the collection of cash from customers. 有些公司將超過一年的分類為流動資產/負債因其operating cycle是超過一年的! 除非有特別聲明, 假設公司都用ㄧ年為流動/長期資產/負債的分隔點!

The Classified Statement of Financial Position Current Assets Illustration 4-22 約當現金 注意在財報上的順序(和以往不同) 過去是按照資產變現的速度來排序

The Classified Statement of Financial Position 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: Current assets. Intangible assets. Long-term investments. Property, plant, and equipment. SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Equity Proprietorship 獨資- one capital account. Partnership 合夥 - capital account for each partner. Corporation 公司– Share Capital and Retained Earnings. Illustration 4-23 SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Non-current Liabilities 非流動負債 Obligations 債務 a company expects to pay after one year. 依照長期負債之金額大小來排序!! SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Review Question Which of the following is not a non-current liability? Bonds payable Current maturities of long-term obligations Long-term notes payable Mortgages payable SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Current Liabilities Obligations the company is to pay within the coming year. (也包含一年內到期的長期負債) Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude 重要性 (即金額之大小). Liquidity - ability to pay obligations expected to be due within the next year. SO 6 Identify the sections of a classified statement of financial position.

The Classified Statement of Financial Position Current Liabilities SO 6 Identify the sections of a classified statement of financial position.

APPENDIX Reversing Entries It is often helpful to reverse some of the adjusting entries before recording the regular transactions of the next period. Companies make a reversing entry at the beginning of the next accounting period. Each reversing entry is the exact opposite of the adjusting entry made in the previous period. The use of reversing entries does not change the amounts reported in the financial statements. SO 7 Prepare reversing entries.

APPENDIX Reversing Entries Illustration: To illustrate the optional use of reversing entries for accrued expenses, we will use the salaries expense transactions for Pioneer Advertising Agency. October 26 (initial salary entry): Pioneer pays $4,000 of salaries earned between October 15 and October 26. October 31 (adjusting entry): Salaries earned between October 29 and October 31 are $1,200. The company will pay these in the November 9 payroll. November 9 (subsequent salary entry): Salaries paid are $4,000. Of this amount, $1,200 applied to accrued wages payable and $2,800 was earned between November 1 and November 9. SO 7 Prepare reversing entries.

With Reversing Entries (per appendix) Subsequent Salary Entry APPENDIX Reversing Entries Illustration 4A-1 With Reversing Entries (per appendix) Initial Salary Entry Oct. 26 Same entry Adjusting Entry Oct. 31 Same entry Closing Entry Oct. 31 Same entry Reversing Entry Nov. 1 Salaries payable 1,200 Salaries expense 1,200 Subsequent Salary Entry Nov. 9 Salaries expense 4,000 Cash 4,000 SO 7 Prepare reversing entries.

APPENDIX Reversing Entries Illustration 4A-2 Postings with reversing entries SO 7 Prepare reversing entries.