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

3. 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

4. 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.

5. 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.

6. 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.

7. 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

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

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

10. 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

11. 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

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.

13. 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.

14. 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
SO 5 Explain the approaches to preparing correcting entries.

15. 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

16. 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

17. 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.

18. 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.

19. 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.

20. 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!

21. 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

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

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

28. 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.

29. 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.

30. 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.

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