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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

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.
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 worksheet8
Steps in preparation of the worksheet

Step2:

Entry the adjusting entries’

steps in preparation of the worksheet9
Steps in preparation of the worksheet

Step3:

Entry the adjusted trial balance

steps in preparation of the worksheet10
Steps in preparation of the worksheet

Step4:

Entry Adjusted Amounts to Income Statement Columns

steps in preparation of the worksheet11
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
  • 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.
slide15

Expenses

Revenues

The closing process applies only to temporary accounts.

Income Summary

Temporary Accounts

permanent accounts

Assets

Permanent Accounts

Owner’s Capital

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 a ccounts to income summary

The entries :

Dr. Sales Revenue61000

Interest Revenue 2917

Cr. Income Summary63917

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 entries22
The Closing Entries
  • Close expense accounts to Income Summary.The entries are:Dr. Income Summary Cr. All Expenses
the closing entries23
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