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# Lesson 5 Completing the Accounting Cycle - PowerPoint PPT Presentation

Lesson 5 Completing the Accounting Cycle Task Team of FUNDAMETAL ACCOUNTING School of Business, Sun Yat-sen University Outline Describe the preparation of adjusted trial balance Describe and prepare a worksheet and describe its usefulness.

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Lesson 5 Completing the Accounting Cycle

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Lesson 5Completing the Accounting Cycle

FUNDAMETAL ACCOUNTING

School of Business, Sun Yat-sen University

• Describe the preparation of adjusted trial balance

• Describe and prepare a worksheet and describe its usefulness.

• Describe the closing process and explain why temporary accounts are closed each period.

• Prepare closing entries.

2. Journalize

1.Analyze Transactions

Start the next cycle

8.Close

7. Prepare finance statements

Accounting Cycle

• So far we have discussed the following steps in the accounting cycle:

• Analyzing

• Recording

• Posting

Let’s start from the worksheet

• A worksheet includes following columns:

• income statement

• Balance sheet

• Worksheet can be used to simplify the preparation of financial statements.

Step 1:

Enter the accounts and unadjusted trial balance

Step2:

Step3:

Step4:

Entry Adjusted Amounts to Income Statement Columns

Step5:

Entry Adjusted Amounts to Balance sheet Columns

• Financial Statements can be prepared easily using the completed worksheet.

• The nature and the preparation of Financial Statement will be discussed in lesson 9

• The closing process occurs at the end of an accounting period after financial statements are prepared.

• Reasons for closing entries:

• Resets revenue and expense account balances to zero at the end of the period.

• Updates the retained earnings account to reflect net income and distributions.

• Temporary accounts are also called nominal accounts. They are opened at the beginning of a period, used to record events for that period and closed at the end of the period. They accumulate data related to one accounting period only.

Revenues

The closing process applies only to temporary accounts.

Income Summary

Temporary Accounts

Permanent Accounts

Owner’s Capital

Liabilities

The closing process does not apply to permanent accounts.

Permanent Accounts

• Set an Income Summary account.

• Close Revenue accounts to Income Summary.

• Close Expense accounts to Income Summary.

• Close Income Summary account to Retained Earnings

Dr. Sales Revenue61000

Interest Revenue 2917

Cr. Income Summary63917

Close Revenue Accounts to Income Summary

Dr. Income 86600

Cr. Cost of Sales 30000

Operating Expense 56600

Close Expense Accounts to Income Summary

Dr. Income Summary 22683

Cr. Retained Earnings 22683

Close Income Summary to Retained Earnings

• Close revenue accounts to Income Summary.

The entries are:

Dr. All Revenue

Cr. Income Summary

• Close expense accounts to Income Summary.The entries are:Dr. Income Summary Cr. All Expenses

• Close Income Summary account to Retained Earnings.

• If there is a profit, the entries are:Dr. Income Summary Cr. Retained Earnings

• If there is a loss, the entries are:Dr. Retained Earnings Cr. Income Summary

• Post-Closing Trial Balance is a list of balances for all accounts that not closed.

• The purpose of a post-closing trial balance is to verifies that:

• Total debits = total credits for permanent accounts.

• All temporary accounts have zero balances