1. 4 - 1 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Accounting Cycle Chapter 4

2. 4 - 2 Benefits of a Work Sheet Aids the preparation of financial statements. Reduces possibility of errors. Links accounts and their adjustments. Assists in planning and organizing an audit. Helps in preparing interim financial statements. Shows the effects of proposed transactions. Not a required report. P 1

3. 4 - 3 FastForward Worksheet For the Month Ended December 31, 2013 P 1

4. 4 - 4 Recording Closing Entries 1.Resets revenue, expense, and withdrawal account balances to zero at the end of the period. 2.Helps summarize a period’s revenues and expenses in the Income Summary account. Identify accounts for closing. Record and post closing entries. Prepare post-closing trial balance. C 1

5. 4 - 5 Temporary Accounts Revenues Income Summary Expenses Withdrawals Permanent Accounts Assets Liabilities Owner’s Capital Temporary and Permanent Accounts The closing process applies only to temporary accounts. C 1

6. 4 - 6 Let’s see how the closing process works! Recording Closing Entries  Close Credit Balances in Revenue Accounts to Income Summary.  Close Debit Balances in Expense accounts to Income Summary.  Close Income Summary account to Owner’s Capital.  Close Withdrawals to Owner’s Capital. P 2

7. 4 - 7 Summary of the Closing Process 1.Close Credit Balances in Revenue Accounts to Income Summary. 2.Close Debit Balances in Expense Accounts to Income Summary. 3.Close Income Summary to Owner’s Capital. 4.Close Withdrawals Account to Owner’s Capital.

8. 4 - 8 Let’s look at FastForward’s post-closing trial balance. Post-Closing Trial Balance  List of permanent accounts and their balances after posting closing entries.  Total debits and credits must be equal. P 3

9. 4 - 9 Post-Closing Trial Balance P 3

10. 4 - 10 Accounting Cycle C 2

11. 4 - 11 Current items are those expected to come due (both collected and owed) within the longer of one year or the company’s normal operating cycle. Classified Balance Sheet C 3

12. 4 - 12 Global View The definition of an asset is similar under U.S. GAAP and IFRS and involves three basic criteria: (1) the company owns or controls the right to use the item, (2) the right arises from a past transaction or event, and (3) the item can be reliably measured. Both systems define the initial asset value as historical cost for nearly all assets. The definition of an asset is similar under U.S. GAAP and IFRS and involves three basic criteria: (1) the company owns or controls the right to use the item, (2) the right arises from a past transaction or event, and (3) the item can be reliably measured. Both systems define the initial asset value as historical cost for nearly all assets. The definition of a liability is similar under U.S. GAAP and IFRS and involves three basic criteria: (1) the item is a present obligation requiring a probable future resource outlay, (2) the obligation arises from a past transaction or event, and (3) the obligation can be reliably measured. The definition of a liability is similar under U.S. GAAP and IFRS and involves three basic criteria: (1) the item is a present obligation requiring a probable future resource outlay, (2) the obligation arises from a past transaction or event, and (3) the obligation can be reliably measured.

13. 4 - 13 Current Ratio Helps assess the company’s ability to pay its debts in the near future Current Ratio = Current Assets Current Liabilities Limited Brands, Inc. A 1

14. 4 - 14 End of Chapter 4