Chap 004

Chapter 4

COMPLETING THE ACCOUNTING C YCLE

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

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P1

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.

Not a required report.

Helps in preparing interim financial statements. Shows the effects of proposed transactions.

P1

FastForward Worksheet For the Month Ended December 31, 2011

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P1

PREPARING THE FINANCIAL STATEMENTS

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P1

PREPARING THE FINANCIAL STATEMENTS

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C1

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.

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TEMPORARY AND PERMANENT ACCOUNTS

C1

Revenues      s      e      s      n      e      p      x       E

Temporary Accounts

Income Summary

Assets

W i     t   h   d  r   a w  a l     s

     s      e       i       t       i       l       i       b      a       i       L

Permanent Accounts

The closing process applies only to temporary accounts.

 C  O  a w   p n i    e  t    a r  ’   l    s

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P2

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.

Let’s see how the closing process works!

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P2

FastForward Adjusted Trial Balance December 31, 2011 Debit Cash $ 4,350 Accounts receivable 1,800 Supplies 8,670 Prepaid insurance 2,300 Equipment 26,000 Accumulated depreciation-Equip. Accounts payable Salaries payable Unearned consulting revenue C. Taylor, Capital C. Taylor, Withdrawals 200 Consulting revenue Rental revenue Depreciation expense-Equipment 375 Salaries expense 1,610 Insurance expense 100 Rent expense 1,000 Supplies expense 1,050 Utilities expense 230 T t l $ 47 685

Credit

$

375 6,200 210 2,750 30,000 7,850 300

$

47,685

Close

Credit Balances in Revenue  Accounts to Income Summary.

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P2

CLOSE CREDIT B ALANCES IN REVENUE ACCOUNTS TO INCOME SUMMARY 

Dr. Dec. 31

Consulting revenue Rental revenue

Income summary

Cr.

7,850 300

8,150

Now, let’s look at the ledger accounts after posting this closing entry.

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P2

CLOSE CREDIT B ALANCES IN REVENUE ACCOUNTS TO INCOME SUMMARY 

Consulting Revenue 7,850 7,850

Income Summary 8,150 Rental Revenue 300

300

-

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P2

FastForward Adjusted Trial Balance December 31, 2011 Debit Cash $ 4,350 Accounts receivable 1,800 Supplies 8,670 Prepaid insurance 2,300 Equipment 26,000 Accumulated depreciation-Equip. Accounts payable Salaries payable Unearned consulting revenue C. Taylor, Capital C. Taylor, Withdrawals 200 Consulting revenue Rental revenue Depreciation expense-Equipment 375 Salaries expense 1,610 Insurance expense 100 Rent expense 1,000 Supplies expense 1,050 Utilities expense 230 T t l $ 47 685

Credit

$

375 6,200 210 2,750 30,000 7,850 300

$

47,685

Close

Debit Balances in Expense Accounts to Income Summary.

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P2



CLOSE DEBIT B ALANCES IN EXPENSE  ACCOUNTS TO INCOME SUMMARY

Dec. 31 Income summary Depreciation expense-Equipment Salaries expense Insurance expense Rent expense Supplies expense Utilities expense

Dr. 4,365

Now, let’s look at the ledger accounts after posting this closing entry.

Cr. 375 1,610 100 1,000 1,050 230

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P2



CLOSE DEBIT B ALANCES IN EXPENSE  ACCOUNTS TO INCOME SUMMARY

Depreciation Expense- Eq. 375 375 -

Rent Expense 1,000 1,000 -

Salaries Expense 1,610 1,610 -

Supplies Expense 1,050 1,050 -

Insurance Expense 100 100 -

Utilities Expense 230 230 -

Income Summary 4,365 8,150 3,785

Net Income

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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.

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END OF CHAPTER 4