1. Chapter 8 Completing the Accounting Cycle

2. 8.1 WHY? Adjustment Process
At the End of the Year:
Need to finalize the accounts/ numbers for tax purposes, internal management, complete yearly financial statements for investors

3. Adjustment Process Accounts are brought up to date
Late transactions are added
Check for errors
Insure accounting standards have been followed

4. Accrual Accounting Reminder
Revenue and Expenses must be matched, even if cash has not been paid to get an accurate reflection of Profit
Time period concept: accountants must regularly measure financial performance
Revenue-Expenses=Profit

5. What is the purpose of doing monthly, quarterly, or bi-yearly financial statements? Comparability We are then able to compare the months, quarters or years to make management decisions

6. Late Arriving Invoices
Adjusting Entries
Used to update accounts to ensure their balances are correct and at their true value
Adjustments:
Supplies,
Prepaid Expenses,
Late Arriving Invoices

7. Supplies
Inventory (count) is taken of all the supplies in the business
This is very time consuming ($) , so it should be done only once a year.
If inventory is $3000 and supplies is at $15000
Supplies Supplies Expense
3000

8. Prepaid Expenses Calculate how many months have been used
Eg. Original value $1200 for 1 year insurance
5 Months Dec 31
1200/ 12 months= $100/ mth x 5 months=
$500 used
Prepaid Insurance Insurance Expense
700

9. Late Arriving Invoices
Rule: If they were expenses on or before the end of year (typically Dec 31) then they should be included in the Income Statement.
Debit the Expense, Credit the A/P account
Pg. 274

10. Unearned Revenue
It is possible that we have received money for a sale or service that we have not earned yet. A gift card is a perfect example of this. Because we OWE our client the product or service Unearned Revenue is a Liability. Transaction: Debit Fees Earned Credit Unearned Revenue

11. Adjusting the General Journal
Entries must also be done in the GJ
Eg.
To adjust for the inventory count of $4500
To adjust for four months of expired insurance
To record the 2016 invoices that arrived in 2017
To adjust for the cash advance received

12. 8.2 The Worksheet
The worksheet is an INFORMAL paper used to organize and plan the data for the financial statements.
Done in pencil or In a spreadsheet

17. Worksheet Steps Enter all the account names in order
Enter in trial balance balances (balanced?)
Make Adjusting Entries (may need to add new accounts below)
Total New Adjusted Balances
Move over Revenue and Expense Balances into the Income Statement Column
Calculate Net Income and Total
Move over A, L and OE into Balance Sheet column and total
Add Net income below credit total
Final Total is taken for the Balance Sheet
Make sure single and double underlines are put in Pg

18. 8.3 Closing Entries
In order to start fresh in the new fiscal year we need to zero out some of our accounts. These are called closing entries and are done in the general journal. What accounts do you think we need to zero out?

19. Income Summary A temporary account used for closing entries
All revenues and expenses are put in this account to see the true value of the net income or loss.
Debit Revenue Credit Income Summary
To close the 2016 balance of revenue
Debit Income Summary Credit All Expenses
To close the 2016 expense accounts

20. Income Summary
Net Income/ Loss value will then be deposited into the Capital account * IF Net Income Debit Income Summary Credit Capital * IF Net Loss Debit Capital Credit Income Summary To close the Income Summary account and transfer the net income (loss) to capital.

21. Close Drawings
Debit Capital Credit Drawings To close the Drawings account and transfer its balance to capital.

22. FINAL STEP! Post Closing Trial Balance 
Dated Jan 1, 2017 (begin of year) Has updated Capital balance No Revenue, Drawings or Expense accounts exist At this point we are all ready for another year of accounting. The accounting cycle is complete.