Completing the Accounting Cycle

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# Completing the Accounting Cycle - PowerPoint PPT Presentation

Completing the Accounting Cycle Chapter 4 The worksheet helps accountants with all of the following except: Post to the accounts Prepare financial statements Close the accounts Make adjusting entries Answer: 1

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### Completing the Accounting Cycle

Chapter 4

• Post to the accounts
• Prepare financial statements
• Close the accounts

The worksheet is a tool that helps accountants organize the end-of-year activities – preparing adjusting and closing entries and the financial statements.

On the work sheet, in the balance sheet columns, if the total credits are \$600 and total debits are \$200, then
• An error has been made
• Net loss is \$400
• Total assets are \$400
• Net income is \$400

The difference between the debit and credit columns is the amount of net income or loss, which is used to balance the columns. In this case, \$400 is needed in the debit column to balance them. A debit indicates that capital is decreasing.

Granite Company had revenues of \$600 and expenses of \$200 during the year. The owner’s beginning capital balance was \$1,000, and the owner made no additional investments during the year. What is the balance in the capital account on Granite Company’s worksheet?

The capital balance on the worksheet is the amount in the account before closing entries. If the beginning balance was \$1,000 and there were no additional investments, \$1,000 would appear in the worksheet.

The purpose of closing entries is to
• Get the accounts ready for the next period
• Verify that the balances in the accounts are correct
• Ensure that debits equal credits
• Bring the accounts up to date so that financial statements can be prepared

Closing entries zero out the temporary accounts and transfers their balances to the owner’s capital account. The temporary accounts are now ready to begin measuring activity for the next accounting period.

Which of the following accounts would not be closed?
• Utilities Expense
• Accumulated Depreciation
• Service Revenue
• Withdrawals

Accumulated depreciation is a permanent account and is reported on the balance sheet. Permanent account balances carry forward into the next period.

Which of the following is a permanent account?
• Fees earned
• Unearned revenue
• Depreciation expense
• Income summary

Unearned revenue is a liability. It’s balance carries forward into the next accounting period.

Revenues for an accounting period are \$900 and expenses are \$500. The balance in the income summary account before closing it to capital would be

• \$500 debit
• \$900 credit
• \$400 credit
• \$400 debit

Revenues are closed by debiting revenues and crediting income summary. Expenses are closed by debiting income summary and crediting expenses.

Income Summary

900

500

400 Bal

• Cash
• Prepaid Insurance
• Fees earned
• E. Morgan, Capital

Fees earned is a temporary account and would have been closed before the postclosing trial balance was prepared.

• In the order of their liquidity
• Alphabetically
• In ascending dollar amounts
• In descending dollars amounts

Mica Company has the following assets: Land \$600 Building 800 Inventory 300 Accumulated depreciation, Building 200 Prepaid rent 400 Cash 100 How much are total current assets?

Current assets:

Cash \$100

Prepaid rent 400

Inventory 300

\$800

Mica Company has the following assets: Land……………………………. \$600 Building………………………… 800 Inventory……………………….. 300 Accumulated depreciation, building…………………………. 200 Prepaid rent……………………. 400 Cash……………………………. 100 How much are total plant assets?

Current assets:

Land \$600

Building 800

Less Accumulated depreciation (200) 600

\$1,200

At the end of the accounting period, Quartz Company has a note payable of \$82,000. Quartz Company pays \$1,000 per month on the principal amount of the note. The company also has \$3,000 in accounts payable.How much are total current liabilities?

Current liabilities:

Accounts payable \$3,000

Currently maturing portionof long-term note 12,000

\$15,000

A 2:1 current ratio indicates that
• Current assets are two times greater than current liabilities
• Total assets are two times greater than total liabilities
• Current liabilities are two times greater than current assets
• Total liabilities are two times greater than total assets