1. Chapter 4 Completing the Accounting Cycle

2. What is a Worksheet A multi-column form used in the adjustment process and a tool for preparing the financial statements— – Balance Sheet – Income Statement – Owner’s Equity Statement

3. Steps in Preparing a Worksheet Trial Balance Columns – Get all balances from the ledger Make necessary adjustments Do an adjusted trial balance – Check to see if debits=credits Transfer Revenue and Expense amounts to Income Statement Columns Transfer Assets, Liabilities and Capital to Balance Sheet Columns

4. Let’s Look Go to Chapter 4 Plastic Inserts Notice the Trial Balance Columns should equal Notice the Adjustments and Adjusted Trial Balance Accounts should equal The Income Statement columns will not equal – The Difference will be the Net Income or Loss The Balance Sheet Columns will not equal – The Difference should be the same as the Income Statement Columns

5. Financial Statements Income Statement – Use the revenue – Use the expenses – Put in Proper Form – Income or Loss will be the same as the worksheet

6. Financial Statements Balance Sheet – Use the Assets and Liability amounts from the balance sheet columns – The new capital amount is made up of: The capital amount on the worksheet + net income amount The capital amount on the worksheet – net loss amount

7. Part 2 Closing the Books After the worksheet and the preparation of the financial statements, the company must make the books ready for the next period.

8. Temporary vs. Permanent Accounts Temporary – Expenses – Revenue – Drawing Permanent – Assets – Liabilities – Capital

9. We Need to Close the Following Accounts Revenue Expenses Drawing

10. Closing Entries Need to bring temporary accounts to “0” How do you think we do this??

11. Use of a Temporary Account An account we use for closing entries only is: Income Summary

12. Closing the Revenue Service Revenue (Debit) Income Summary (Credit)

13. Closing the Expenses Income Summary (Debit) Advertising Expense(Credit) Depreciation Expense(Credit) Insurance Expense(Credit) Salaries Expense(Credit) Interest Expense(Credit) Utilities Expense(Credit)

14. Closing the Income Summary When there is a net income Income Summary(Debit) Capital(Credit) When there is a net loss Capital(Debit) Income Summary(Credit)

15. Closing the Drawing Account Capital(Debit) Drawing(Credit)

16. Post all the Closing Entries When you post all the closing entries – These accounts will have a “0” balance Revenue Expenses Drawing

17. Finally Prepare a Post Closing Trial Balance The only accounts with balances will be: – Assets – Liabilities – Capital

18. Correcting Entries There are times when a mistake is made in the journal or ledger. If a mistake is caught before it is posted, you can draw a line through the entry and write the correct account Once it is posted, you must do a correcting entry

19. Example Let’s say that you posted $100 to Salary Expense and it was suppose to go to Utility Expense 1. Put it in Utility Expense 2. Take it out of Salary Expense Utility Expense (Debit)100 Salary Expense (Credit)100

20. Accounting Cycle Analyze Transaction Enter into a Journal Post to a Ledger Make Adjusting Entries/Post Complete a Worksheet Do Financial Statements: Income Statement, OE Statement and Balance Sheet Do Closing, Reversing and Correcting Entries/Post

21. Test Review Define – Worksheet – Closing Entries – Correcting Entries – Income Summary – Temporary Accounts – Permanent Accounts Analyze – How do you determine net income or net loss? – What does the post-closing trial balance tell you? – Why do you need to do a correcting entry? – What are the financial statements? Apply – Problem similar to 4-1A