Lesson 5 completing the accounting cycle
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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 5 completing the accounting cycle

Lesson 5Completing the Accounting Cycle

Task Team of

FUNDAMETAL ACCOUNTING

School of Business, Sun Yat-sen University


Outline

Outline

  • 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.


Accounting cycle

3. Post

2.Journalize

1.Analyze Transactions

4. Unadjusted trial balance

Start the next cycle

8.Close

5. Adjust

7. Prepare finance statements

6. Adjusted trial balance

Accounting Cycle


What we have done

What We Have Done?

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

    • Analyzing

    • Recording

    • Posting

    • Unadjusted trial balance

    • Adjusting

    • Adjusted trial balance

Let’s start from the worksheet


What are on the worksheet

What are on the Worksheet?

  • A worksheet includes following columns:

    • Unadjusted trial balance.

    • Adjusting entries

    • Adjusted trial balance.

    • income statement

    • Balance sheet

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


A blank worksheet

A Blank Worksheet


Steps in preparation of the worksheet

Steps in preparation of the worksheet

Step 1:

Enter the accounts and unadjusted trial balance


Steps in preparation of the worksheet1

Steps in preparation of the worksheet

Step2:

Entry the adjusting entries’


Steps in preparation of the worksheet2

Steps in preparation of the worksheet

Step3:

Entry the adjusted trial balance


Steps in preparation of the worksheet3

Steps in preparation of the worksheet

Step4:

Entry Adjusted Amounts to Income Statement Columns


Steps in preparation of the worksheet4

Steps in preparation of the worksheet

Step5:

Entry Adjusted Amounts to Balance sheet Columns


Preparing the financial statements

Preparing the Financial Statements

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

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


Closing process

Closing Process

  • 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 and permanent accounts

Temporary and Permanent Accounts

  • Temporaryaccountsare 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.


Temporary accounts

Expenses

Revenues

The closing process applies only to temporary accounts.

Income Summary

Temporary Accounts


Permanent accounts

Assets

Owner’s Capital

Permanent Accounts

Liabilities

The closing process does not apply to permanent accounts.

Permanent Accounts


Steps in the closing process

Steps in the Closing Process

  • Set an Income Summary account.

  • Close Revenue accounts to Income Summary.

  • Close Expense accounts to Income Summary.

  • Close Income Summary account to Retained Earnings


Close r evenue accounts to income summary

The entries :

Dr. Sales Revenue61000

Interest Revenue 2917

Cr. Income Summary 63917

Close Revenue Accounts to Income Summary


Close expense accounts to income summary

The entries:

Dr. Income 86600

Cr. Cost of Sales 30000

Operating Expense 56600

Close Expense Accounts to Income Summary


Close income summary to retained earnings

The Entries:

Dr. Income Summary 22683

Cr. Retained Earnings 22683

Close Income Summary to Retained Earnings


The closing entries

The Closing Entries

  • Close revenue accounts to Income Summary.

    The entries are:

    Dr. All Revenue

    Cr. Income Summary


The closing entries1

The Closing Entries

  • Close expense accounts to Income Summary.

    The entries are:Dr. Income Summary Cr. All Expenses


The closing entries2

The Closing Entries

  • 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

Post-Closing Trial Balance

  • 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


Post closing trial balance1

Post-Closing Trial Balance


The end of lesson 5

The End of Lesson 5


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