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Completing the Accounting Cycle. ACG 2021: Chapter 4. Record entries in the journal Post to the ledger Prepare trial balance Record and post adjusting entries Prepare adjusted trial balance. Prepare financial statements Income Statement Statement of Retained earnings Balance Sheet

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Completing the Accounting Cycle


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Presentation Transcript
completing the cycle
Record entries in the journal

Post to the ledger

Prepare trial balance

Record and post adjusting entries

Prepare adjusted trial balance

Prepare financial statements

Income Statement

Statement of Retained earnings

Balance Sheet

Statement of Cash Flows

Completing the Cycle
financial statements
Income statement

Shows results of operations for a period of time

Financial Statements

Brady Corp

Income Statement

December 31, 2001

Revenues:

Fees earned $50,000

Expenses

Salaries exp $12,000

Rent expense 15,800

Supplies exp 7,200

Total 35,000

Net income 15,000

financial statements1
Statement of Retained Earnings

Shows the changes in the earnings of the corporation

Financial Statements

Brady Corp

Statement of Retained Earnings

Dec 31, 2001

Beg RE $9,875

Add Net income 15,000

24,875

Deduct: dividends 10,000

Ending RE 14,875

financial statements2
Balance sheet

Shows that the accounting equation holds true

Snapshot of a moment in time

Three sections

Assets

Liabilities

Shareholder’s Equity

Financial Statements
balance sheet
Balance Sheet

Brady Corporation

Balance Sheet

Dec 31, 2001

Assets:Liabilities:

Cash $12,705 Accts pay $7280

Accts rec 5,400 Loans pay 9800

Supplies 1,250 Total $17,080

Fixed assets 15,100

Total $34,455 Stockholder’s Equity

Capital stock $2,500

Retained earn 14,875

Total 17,375

TOTAL 34,455

financial statements3
Statement of Cash Flows

sources and uses of cash

Operating

Investing

Financing

Always prepared in the same order

Financial Statements
closing entries
Real accounts

Balances of accounts reported on the balance sheet are carried forward from year to year

Temporary

Balances of accounts reported on the income statement not carried forwarded

We ZERO the account

Closing Entries
closing entries1
Income Summary

Clearance account used to process the closing entries

Four entries

Close revenues

Close expenses

Close income summary

Close dividends

Closing Entries
close income summary
Close income summary

Income summary

Exp $8,000

Rev $10,000

Balance $2,000

close income summary1
Close income summary

Close the amount of net income to retained earnings

balance in retained earnings
Balance in Retained earnings

Retained Earnings

Dividends $4,000

$12,000 Beg Balance

2,000 Net income

$10,000 Ending balance

closing entries2
Closing entries
  • After closing entries are posted
  • Post Closing trial balance is prepared
accounting year
Accounting Year
  • Calendar year – ends on December 31st
  • Fiscal year – endsother than December 31st