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									Completing the Accounting Cycle
Chapter 4
The Accounting Cycle
• The accounting process that begins with analyzing
  and journalizing transactions and ends with preparing
  the accounting records for the next period’s
  transactions is called the accounting cycle.
• There are ten steps in the accounting cycle.
The Accounting Cycle
1. Analyze and record transactions in the Journal
2. Post to the ledger
                                                            Ch. 2



3. Prepare an unadjusted trial balance
4. Assemble and Analyze adjusting data              Ch. 3


5. Prepare an optional End-of-Period work sheet     Ch. 4



6. Journalize and post adjusting entries                    Ch. 3

7. Prepare an adjusted trial balance
8. Prepare the Financial Statements
9. Journalize and post closing entries                      Ch. 4


10. Prepare a post-closing trial balance
Exhibit 1   End-of-Period Spreadsheet (Work Sheet)
Exhibit 2   Financial Statements Prepared from Work Sheet




                                     to statement of owner’s equity
            Financial Statements Prepared
Exhibit 2
            from Work Sheet (continued)
                               from the income statement




                                            to the balance sheet
            Financial Statements Prepared
Exhibit 2   from Work Sheet (continued)
                       from the statement of owner’s equity
Prepare Closing Entries
• Recall: The annual accounting period adopted by
  a business is known as its fiscal year.
• When a business adopts a fiscal year that ends
  when business activities have reached the lowest
  point in its annual operation, such a fiscal year is
  also called the natural year.
• At the end of the fiscal year, the firm completes
  its financial reports; it then must close out the
  revenue and expense account the for “old” year
  in order to prepare for the “new” year
Prepare Closing Entries
• Accounts that are relatively permanent from year to
  year are called real accounts (these include Assets,
  Liabilities, and the Owner’s Capital account)
• Accounts that report amounts for only one period are
  called temporary accounts or nominal accounts.
  These are the accounts that must be closed out at the
  end of the fiscal year:
         •Revenues     •Owner’s Drawing
         •Expenses     •Income Summary
Exhibit 4         Flowchart of Closing Entries for NetSolutions


                  Debit each revenue account
                  for the amount of its balance,
                  and credit Income Summary
                  for the total revenue.

                                         Fees Earned
            Income Summary              16,840 Bal. 16,840
                    16,960               Rent Revenue
                                          120 Bal. 120
                                Flowchart of Closing Entries for
          Exhibit 4             NetSolutions (continued)

          Wages Expense
Bal. 4,525            4,525              Income Summary
           Rent Expense                   9,855   16,960
Bal. 1,600            1,600
    Depreciation Expense
Bal. 50                    50
      Utilities Expense
Bal. 985                  985
      Supplies Expense                   Debit Income Summary
Bal.2,040             2,040             for the total expenses and
     Insurance Expense                     credit each expense
Bal. 200                  200
                                         account for its balance.
   Miscellaneous Expense
Bal.455                   455
                   Flowchart of Closing Entries for
Exhibit 4
                   NetSolutions (continued)

             Income Summary
               9,855    16,960
               7,105



                                          Debit Income Summary
            Chris Clark, Capital           for the amount of its
                       Bal. 25,000         balance (in this case,
                               7,105       the net income) and
                                             credit the capital
                                                 account.
            Chris Clark, Drawing
      Bal.4,000
                  Flowchart of Closing Entries for
Exhibit 4
                  NetSolutions (continued)



       Chris Clark, Capital
         4,000   Bal.25,000
                        7,105
                                      Debit the capital
                                   account for the balance
                                       of the drawing
       Chris Clark, Drawing          account, and credit
    Bal.4,000           4,000       drawing for the same
                                           amount.
    Exhibit 5     Closing Entries for NetSolutions




Step 1


  Step 2




    Step 3

         Step 4
Closing Entries
• After the closing entries are posted, all of the
  temporary accounts have zero balances.
• After the closing entries are posted, a Post Closing
  Trial Balance (PCTB) is prepared.
• The purpose of the PCTB is to verify that the ledger
  is in balance at the beginning of the next period.
Exhibit 7   Post-Closing Trial Balance
       5

           Illustrate the accounting
           cycle for one period.




4-25
Exhibit 9
 Journal
 entries for
 April, Kelly
 Consulting
Exhibit 9
 Journal
 entries for
 April, Kelly
 Consulting
 (continued)
Exhibit 10   Unadjusted Trial Balance, Kelly Consulting
 Exhibit 11   End-of-Period Spreadsheet (Work Sheet)




4-29
Exhibit 12
Adjusting
Entries,
Kelly
Consulting
Exhibit 13   Adjusted Trial Balance, Kelly Consulting
Exhibit 14   Financial Statements, Kelly Consulting
             Financial Statements, Kelly
Exhibit 14
             Consulting (continued)
             Financial Statements, Kelly
Exhibit 14
             Consulting (continued)
Exhibit 15   Closing Entries, Kelly Consulting
Exhibit 16   Post-Closing Trial Balance, Kelly Consulting
Exhibit 17   Ledger, Kelly Consulting
Exhibit 17   Ledger, Kelly Consulting (continued)
Exhibit 17   Ledger, Kelly Consulting (continued)
Exhibit 17   Ledger, Kelly Consulting (continued)

								
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