1. Chapter 3  Completing the Accounting Cycle

2. Chapter 3Mugan-Akman 20052-38 Accounting Cycle Analyze and record the transactions Post the transactions and prepare trial balance Adjust the accounts and prepare trial balance Close the accounts and prepare trial balance Prepare the financial statements

3. Chapter 3Mugan-Akman 20053-38 Matching Principle All revenues must be recorded in the accounting period in which the goods are sold or services are rendered and all expenses must be recorded in the accounting period in which they are incurred to produce such revenues

4. Chapter 3Mugan-Akman 20054-38 Adjusting Entries Some journal entries are made at the end of the accounting period just to separate the effect of an event into its proper periods. Each adjusting entry affects: 1) a revenue or expense account 2) an asset or liability account (except cash) Examples include: 1. Recognition of accrued revenues and receivables, 2. Interest calculations, 3. Recognition of accrued expenses and payables, 4. Allocation of prepaid operating costs, and 5. Recognition of depreciation.

5. Chapter 3Mugan-Akman 20055-38 When do we need adjusting entries? PrepaymentsAccruals 1.Allocation of costs between accounting periods 3.Expenses incurred but not recorded 2.Allocation of unearned revenues between accounting periods 4.Revenues earned but not recorded

6. Chapter 3Mugan-Akman 20056-38 TRIAL BALANCE

7. Chapter 3Mugan-Akman 20057-38 1.Allocation of costs between accounting periods 3.Expenses incurred but not recorded 2.Allocation of unearned revenues between accounting periods 4.Revenues earned but not recorded Adjusting Entries

8. Chapter 3Mugan-Akman 20058-38 Adjustment (1) Prepaid Rent

9. Chapter 3Mugan-Akman 20059-38 Adjustment (2) Prepaid Insurance

10. Chapter 3Mugan-Akman 200510-38 Adjustment (3) Office Supplies

11. Chapter 3Mugan-Akman 200511-38 Adjustment (4) Depreciation of Property Plant & Equipment

12. Chapter 3Mugan-Akman 200512-38 Express Travel Agency Partial Balance Sheet 31January 2004 In TL Plant and Equipment Office Equipment and Furniture 15.000 Less: Accumulated Depreciation (250) Plant and Equipment, net14.750

13. Chapter 3Mugan-Akman 200513-38 1.Allocation of costs between accounting periods 3.Expenses incurred but not recorded 2.Allocation of unearned revenues between accounting periods 4.Revenues earned but not recorded Adjusting Entries

14. Chapter 3Mugan-Akman 200514-38 Adjustment (5) Unearned Revenues

15. Chapter 3Mugan-Akman 200515-38 1.Allocation of costs between accounting periods 3.Expenses incurred but not recorded 2.Allocation of unearned revenues between accounting periods 4.Revenues earned but not recorded Adjusting Entries

16. Chapter 3Mugan-Akman 200516-38 January 2004 MoTuWeThFrSaSu 1234567 891011121314 15161718192021 22232425262728 293031

17. Chapter 3Mugan-Akman 200517-38 Adjustment (6) Accrued Salary Expense

18. Chapter 3Mugan-Akman 200518-38 Adjustment (7) Accrued Interest Expense

19. Chapter 3Mugan-Akman 200519-38 1.Allocation of costs between accounting periods 3.Expenses incurred but not recorded 2.Allocation of unearned revenues between accounting periods 4.Revenues earned but not recorded Adjusting Entries

20. Chapter 3Mugan-Akman 200520-38 Adjustment (8) Accrued Revenues

21. Chapter 3Mugan-Akman 200521-38 Effects of Adjusting Entries

22. Chapter 3Mugan-Akman 200522-38

23. Chapter 3Mugan-Akman 200523-38 Accounting Cycle Analyze and record the transactions Post the transactions and prepare trial balance Adjust the accounts and prepare trial balance Close the accounts and prepare trial balance Prepare the financial statements

24. Chapter 3Mugan-Akman 200524-38 Steps to Close Accounts Close temporary accounts with credit balances to income summary Close temporary accounts with debit balances to income summary Close income summary Close dividends or owners’ withdrawals

25. Chapter 3Mugan-Akman 200525-38

26. Chapter 3Mugan-Akman 200526-38 Closing Credit Balances

27. Chapter 3Mugan-Akman 200527-38

28. Chapter 3Mugan-Akman 200528-38 Closing Debit Balances

29. Chapter 3Mugan-Akman 200529-38 Closing Income Summary

30. Chapter 3Mugan-Akman 200530-38 Closing Withdrawals

31. Chapter 3Mugan-Akman 200531-38

32. Chapter 3Mugan-Akman 200532-38 Accounting Cycle Analyze and record the transactions Post the transactions and prepare trial balance Adjust the accounts and prepare trial balance Close the accounts and prepare trial balance Prepare the financial statements

33. Chapter 3Mugan-Akman 200533-38

34. Chapter 3Mugan-Akman 200534-38

35. Chapter 3Mugan-Akman 200535-38

36. Chapter 3Mugan-Akman 200536-38 Closing Credit Balances

37. Chapter 3Mugan-Akman 200537-38 Closing Debit Balances

38. Chapter 3Mugan-Akman 200538-38 Closing Income Summary