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Completing the Accounting Cycle

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									 AGRICULUTURAL TECHNICAL INSTITUTE
      BUS TEC T101 ACCOUNTING




           Chapter 4
Completing the Accounting Cycle
             Part 2
        Closing Entries
 ACCOUNTING CONCEPTS
CH 1: ACCT & THE BUS ENVIRONMENT
CH 2: RECORDING TRANSACTIONS
CH 3: MEASURING INCOME; ADJUSTMENTS
CH 4: COMPLETING THE ACCTING CYCLE
CH 5: MERCHANDISE OPERATIONS
CH 6: MERCHANDISE INVENTORY
CH 7: SPECIAL JOURNALS
CH 8: CONTROLLING CASH
CH 9: RECEIVABLES
CH 10: PLANT ASSETS & INTANGIBLES
CH 11: CURRENT LIABILTIES & PAYROLL
CH 17: CASH FLOW
CH 4: COMPLETING THE ACCT CYCLE

          PART 1 SUMMARY

1. New Terms        2. New Procedures
   a. Accting Cycle     a. Work Sheet
   b. Work Sheet        b. Net Income Calc
   c. Income Column
   d. Bal Sheet Column
   ACCOUNTING CONCEPTS
Business Transactions           Chapter One
   Journal Entries              Chapter Two
   Posting to Ledgers
   Trial Balance
       Adjusting Entries        Chapter Three

       Adjusted Trial Balance
           Worksheet            Chapter Four

           Closing Entries

Financial Statements
 CH 4: COMPLETING THE ACCTING CYCLE

         LEARNING OBJECTIVES
AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD
                   BE ABLE TO:
                 PART 1: WORKSHEET
1. Prepare an accounting work sheet.
2. Use work sheet to complete accounting cycle.

               Part 2: Closing Entries
 3.Close revenue, expense, & withdrawal accounts.
 4. Classify assets & liab as current or long-term.
127
OBJ   1 Prepare an accounting work sheet

        The Accounting Cycle
A. DURING THE PERIOD
      1. JOURNALIZE TRANSACTIONS
      2. POST TO THE LEDGER


B. END OF THE PERIOD
   1. JOURNALIZE AND POST ADJUSTING ENTRIES
   2. JOURNALIZE AND POST CLOSING ENTRIES

   3. PREPARE FINANCIAL STATEMENT
131
OBJ   1 Prepare an accounting work sheet

                       Adjusted         Income           Balance
                     Trial Balance     Statement           Sheet
 Account Title       Dr.    Cr.         Dr.   Cr.       Dr.    Cr.
 Cash                 12,10                             12,10
 Accounts receivable      0                                 0
 Supplies             3,050                             3,050
 Equipment              150                               150
 Accum. depreciation 15,50 7,700                        15,50 7,700
 Accounts payable         0 1,200                           0 1,200
 Salary payable               1,100                            1,100
 Unearned revenue             1,500                            1,500
 Capital                      7,200                            7,200
 Withdrawals
 Revenue                    25,400             25,400
 Salary expense       1,000           12,000            1,000
 Supplies expense                        100
 Depreciation expense 12,00              200
     Totals               0 44,100    12,300   25,400         18,700
         Net income     100           13,100                  13,100
                        200           25,400   25,400   31,80 31,800
148
OBJ   3 Close rev, exp, & withdrawal accts

        Closing the Accounts
1. Why?
     a. Prepares the accounts for recording
       transactions during the next period.
     b. Measure net income for each period
       separately from all others
  2. Where? a. Journal b. Ledger
 3. When? End of every fiscal period

  4. Who?   Accountants, Chief Fiscal Officer
148
OBJ   3 Close rev, exp, & withdrawal accts
         Closing the Accounts
5. What?
     a. Receipts b. Expenses c. Withdraws
6. How?    4 Step Closing Entry Process
  a. Service Revenue xxxxxx
        Income Summary            xxxxx
  b. Income Summary xxxxxx
       All Expense Accounts Individually xxxxxx
c. Income Summary xxxxx (if a profit)
      Capital             xxxxx
 d. Capital xxxxxx
      Withdraws xxxxx
149
OBJ   3 Close rev, exp, & withdrawal accts

                  Closing Entries
      Revenues               Expenses &
       increase              Withdrawals
       Owner’s                decrease
        Equity.             Owner’s Equity.

                  Income Summary

  A debit balance             A credit balance
  represents net               represents net
       loss.                      income.
149
OBJ   3 Close rev, exp, & withdrawal accts
                 Closing Steps


        Step 2                   Step 1

                           Step 3


        Step 4
149
OBJ   3 Close rev, exp, & withdrawal accts

               Closing Step 1      Revenue
  Step1a Debit each
         Revenue Acct           Debit
         for Amt of its
         Credit Balance
                                 Closed Into

 Step1b   Credit Income
                                        Credit
          Summary for the
          Total of Revenue
          Accts                 Income Summary
149
OBJ   3 Close rev, exp, & withdrawal accts
 Step 1: Close Revenue to Income Summary
                        Before
                      Adjusted
                    Trial Balance       Revenue       Inc Sum
Account Title       Dr.    Cr.
Cash                 12,10                   25,400
Accounts receivable      0
Supplies             3,050
Equipment              150
Accum. depreciation 15,50 7,700         Revenue 25,400
Accounts payable         0 1,200
Salary payable               1,100       Inc Sum       25,400
Unearned revenue
Capital
                             1,500   After
                             7,200
Withdrawals
Revenue                    25,400      Revenue        Inc Sum
Salary expense       1,000
Supplies expense                      25,400 25,400       25,400
Depreciation expense 12,00
    Totals               0 44,100               0
                       100
149
OBJ   3 Close rev, exp, & withdrawal accts

           Closing Step 2        Expenses

Step 2a    Credit each                Credit
           Expense Acct for
           Amt of its Debit
           Balance              Closed Into

Step 2b   Debit Income
          Summary for the     Debit
          Total of Expense
          Accts                Income Summary
149
OBJ   3 Close rev, exp, & withdrawal accts
Step 2: Close Expenses to Income Summary
                       Before
                      Adjusted       Salary Exp    Inc Sum
                    Trial Balance
Account Title       Dr.    Cr.       12,000              25,400
Cash                 12,10
Accounts receivable      0           Inc Sum    12,300
Supplies             3,050
Equipment              150             Salary Exp      12,000
Accum. depreciation 15,50 7,700        Supp Exp          100
Accounts payable         0 1,200
Salary payable               1,100     Depr Exp         200
Unearned revenue             1,500
Capital
Withdrawals
                             7,200   After
Revenue                    25,400    Salary Exp    Inc Sum
Salary expense       1,000
Supplies expense                     12000 12,000 12,300 25,400
Depreciation expense 12,00
    Totals                              0
                         0 44,100
                       100
149
OBJ   3 Close rev, exp, & withdrawal accts

          Closing Step 3     Income Summary

Step 3a    Debit Income     Debit
           Summary for
           the Amt of its
           Balance            Closed Into
 Step2b    Credit Capital             Credit
           for the Same
           Amount
                                    Capital
149
OBJ   3 Close rev, exp, & withdrawal accts
 Step 3: Close Income Summary to Capital
                       Before
                      Adjusted
                    Trial Balance      Capital        Inc Sum
Account Title       Dr.    Cr.
Cash                 12,10                    7,200 12,300 25,400
Accounts receivable      0
Supplies             3,050
Equipment              150
Accum. depreciation 15,50 7,700
Accounts payable         0 1,200       Inc Sum       13,100
Salary payable               1,100
Unearned revenue             1,500      Capital          13,100
Capital                      7,200
Withdrawals                          After
Revenue                    25,400      Capital       Inc Sum
Salary expense       1,000
Supplies expense                              7,200 12,300 25,400
Depreciation expense 12,00
    Totals                                   13,100 13,100
                         0 44,100
                       100                   20,300 25,400 25,400
150
OBJ   3 Close rev, exp, & withdrawal accts

           Closing Step 4

Step 4a     Credit Withdraw for the Amt
            of its Debit Balance

Step 4b     Debit Capital for the Same
            Amount


            Credit
Withdraw             Closed Into           Capital
                                   Debit
150
OBJ   3 Close rev, exp, & withdrawal accts
      Step 4: Close Withdraws to Capital
                         Before
                      Adjusted
                    Trial Balance      Capital        Withdraw
Account Title       Dr.    Cr.                7,200
Cash                 12,10                            1,000
Accounts receivable      0                   13,100
Supplies             3,050                   20,300
Equipment              150
Accum. depreciation 15,50 7,700      Capital    1,000
Accounts payable         0 1,200
Salary payable               1,100     Withdraw       1,000
Unearned revenue             1,500   After
Capital                      7,200
Withdrawals                            Capital        Withdraw
Revenue                    25,400             7,200   1,000 1,000
Salary expense       1,000
                                     1,000
Supplies expense                             13,100
Depreciation expense 12,00                   20,300
    Totals               0 44,100
                       100                   19,300
150
OBJ   3 Close rev, exp, & withdrawal accts
                      Adjusted       Closings
                     Trial Balance
Account Title        Dr.    Cr.     Debit Credit
Cash                 12,10
Accounts receivable      0
Supplies             3,050
Equipment              150
Accum. depreciation 15,50 7,700
Accounts payable         0 1,200
Salary payable                1,100
Unearned revenue              1,500
Capital                       7,200   1,000 13,100
Withdrawals                                  1,000
Revenue                     25,400    25,40
Salary expense       1,000                0 12,000
Supplies expense                               100
Depreciation expense 12,00                     200
    Totals               0 44,100
                       100
                 Income Summary 12,300 25,400
                       200           13,100
                     44,10
                         0
151
OBJ   3 Close rev, exp, & withdrawal accts
         Postclosing Trial Balance
                  Post Closing        The accounting cycle
                     Trial Balance     ends with the post
Account Title        Dr.    Cr.
Cash
Accounts receivable
                     12,10            closing trial balance.
                         0
Supplies             3,050
Equipment              150
Accum. depreciation 15,50 7,700       The postclosing trial
Accounts payable
Salary payable
                         0 1,200
                              1,100
                                       balance is dated as
Unearned revenue              1,500    of the end of the
Capital                     19,300
Withdrawals
Revenue
                                       period for which the
Salary expense                         statements have
Supplies expense
Depreciation expense                   been prepared.
    Totals                  30,800
OBJ   3 Close rev, exp, & withdrawal accts

         Permanent Accounts


      What accounts NEVER close?
      Assets
      Liabilities
      Owner’s equity
      Balances of permanent accounts carry
        over to the next period.
152
OBJ    4      Classify Assets & Liabilities
 Current Assets
 Current assets are cash, or will be
  converted to cash, in one year
 What are some other examples?
      Inventory
      Short-term receivable,
      Prepaid expenses
 Long-term Assets
  Long-term assets include all other assets.
    property, equipment, and intangibles
152
OBJ   4    Classify Assets & Liabilities

 Current Liabilities
  Current liabilities are debts or obligations
   due within one year
  What are some examples? accounts and
   salary payable, short-term notes
   payable, unearned revenue
 Long-term Liabilities
  Long-term liabilities are all other debts
   due in longer than one year
153
OBJ   4      Classify Assets & Liabilities
               Business Name
           Classified Balance Sheet
                  As of Date
      Assets                   Liabilities
 Current assets            Current liabilities

 Long-term assets           Long-term liabilities
                           Listed in order of how
                           soon they must be paid
   Listed in the order
 of decreasing liquidity   Owner’s Equity
153
OBJ   4           Classify Assets & Liabilities
      The Classified Balance Sheet
                             XYZ Services
                        Classified Balance Sheet
                           January 31, 20XX
      Assets                                        Liabilities
Current assets:                              Current liabilities:
 Cash                             12,100     Accounts payable        1,200
 Accounts receivable               3,050     Salary payable          1,100
 Supplies                            150     Unearned revenue        1,500
    Total current assets          15,300       Total current liab    3,800
Plant assets                                Long Term Liabilities
Equipment                15,500             Total Liabilities        3,800
                                            Owner’s equity
  Less Accum. deprec.      ( 7,700) 7,800        Capital            19,300
                                            Total liabilities and
       Total assets               23,100    owner’s equity          23,100
              Accounting Ratios
   Current Ratio
     Total   Current Assets
     Total Current Liabilities
     Measures ability to pay current liabilities

   Debt Ratio
     TotalLiabilities
       Total Assets
     Measures overall ability to pay debts
 CH 4: COMPLETING THE ACCTING CYCLE
           PART 2 SUMMARY
1. New Terms         2. New Procedures
   a. Income Summary     a. Closing
    b. Temporary Accts
    c. Permanent Accts
    d. Closing Entries
    e. Post Closing Trial Bal
3. Accts That Close 4. Accts That DO NOT Close
   A. Revenue            A. Assets
   B. Expenses           B. Liabilities
   C. Withdraw           C. Capital
   D. Inc Summary
End of Chapter 4

								
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