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					                                                     Chapter 4   Completing the Accounting Cycle                      183



At a Glance

1. Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial
   balance and financial statements.

                                                                                          Example       Practice
Key Points                                         Key Learning Outcomes                  Exercises    Exercises

Exhibit 1 illustrates the end-of-period process    • Using an end-of-period                  4-1      4-1A, 4-1B
by which accounts are adjusted and how the           spreadsheet (work sheet),
adjusted accounts flow into the financial            describe how the unadjusted
statements.                                          trial balance accounts are
                                                     affected by adjustments and
                                                     how the adjusted trial bal-
                                                     ance accounts flow into the
                                                     income statement and bal-
                                                     ance sheet.


2. Prepare financial statements from adjusted account balances.

                                                                                          Example       Practice
Key Points                                         Key Learning Outcomes                  Exercises    Exercises

Using the end-of-period spreadsheet (work          • Describe how the net income             4-2      4-2A, 4-2B
sheet) shown in Exhibit 1, the income state-         or net loss from the period
ment and balance sheet for NetSolutions can          can be determined from an
be prepared. The retained earnings statement         end-of-period spreadsheet
is prepared by listing the beginning balance         (work sheet).
of retained earnings, adding net income (sub-
tracting a net loss), and deducting dividends.     • Prepare an income statement,            4-3      4-3A, 4-3B
A classified balance sheet has sections for cur-     retained earnings statement,
rent assets; property, plant, and equipment;         and a balance sheet.
current liabilities; long-term liabilities; and
stockholders’ equity.                              • Indicate how accounts would             4-4      4-4A, 4-4B
                                                     be reported in a classified
                                                     balance sheet.


3. Prepare closing entries.

                                                                                          Example       Practice
Key Points                                         Key Learning Outcomes                  Exercises    Exercises

Four entries are required in closing the tem-      • Prepare the closing entry for           4-5      4-5A, 4-5B
porary accounts. The first entry closes the          revenues.
revenue accounts to Income Summary. The
second entry closes the expense accounts to        • Prepare the closing entry for           4-5      4-5A, 4-5B
Income Summary. The third entry closes the           expenses.
balance of Income Summary (net income or
net loss) to the retained earnings account.        • Prepare the closing entry for           4-5      4-5A, 4-5B
The fourth entry closes the dividends account        transferring the balance of
to the retained earnings account.                    Income Summary to the
   After the closing entries have been posted        retained earnings account.
to the ledger, the balance in the retained
earnings account agrees with the amount re-
ported on the retained earnings statement          • Prepare the closing entry for           4-5      4-5A, 4-5B
and balance sheet. In addition, the revenue,         the dividends account.
expense, and dividends accounts will have
zero balances.


                                                                                                        (continued)
184               Chapter 4   Completing the Accounting Cycle



      4. Describe the accounting cycle.

                                                                                             Example       Practice
      Key Points                                          Key Learning Outcomes              Exercises    Exercises

      The 10 basic steps of the accounting cycle are
      as follows:
       1. Transactions are analyzed and recorded          • List the 10 steps of the ac-
          in the journal.                                   counting cycle.
       2. Transactions are posted to the ledger.
       3. An unadjusted trial balance is prepared.        • Determine whether any steps
       4. Adjustment data are assembled and ana-            are out of order in a listing
          lyzed.                                            of accounting cycle steps.
       5. An optional end-of-period spreadsheet
          (work sheet) is prepared.
                                                          • Determine whether there are         4-6      4-6A, 4-6B
       6. Adjusting entries are journalized and
                                                            any missing steps in a listing
          posted to the ledger.
                                                            of accounting cycle steps.
       7. An adjusted trial balance is prepared.
       8. Financial statements are prepared.
       9. Closing entries are journalized and
          posted to the ledger.
      10. A post-closing trial balance is prepared.


      5. Illustrate the accounting cycle for one period.

                                                                                             Example       Practice
      Key Points                                          Key Learning Outcomes              Exercises    Exercises

      The complete accounting for Kelly Consulting,       • Complete the accounting
      P.C. for the month of April is described and          cycle for a period from begin-
      illustrated on pages 163–176.                         ning to end.


      6. Explain what is meant by the fiscal year and the natural business year.

                                                                                             Example       Practice
      Key Points                                          Key Learning Outcomes              Exercises    Exercises

      The annual accounting period adopted by a           • Explain why companies use a
      business is its fiscal year. A company’s fiscal       fiscal year that is different
      year that ends when business activities have          from the calendar year.
      reached the lowest point in its annual operat-
      ing cycle is called the natural business year.

				
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