The Accounting Cycle 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. The Process

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.) A nother trial balance, called the “after- closing” 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 #4- 28A

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

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 Let’s look at the closing entries for Collins Consultants. 1.) Establishes zero balances in all revenue, expense, and dividend accounts AND 2.) ‘Updates’ the Retained Earnings 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) Close out (get to zero balance) the revenue accounts 2) Close out (get to zero balance) the expense accounts 3) 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

After-Closing Trial Balance for Prob. 4-28A

Components of the Annual Report Ready Notes Notes Management’s Discussion & Analysis Audit Opinion In addition to the four basic financial statements

Class Assignment Questions Questions 1, 13, (Page 181 in textbook)

Chapter 4 The End