Service

• Accounting Cycle


  1. Transaction are analyzed and recorded in the journal

  2. Transaction are posted to the ledger

  3. An unadjusted trial balance is prepared

  4. Adjustment data are assembled and analyzed

  5. An optional end-of-period spreadsheet is prepared

  6. Adjusting entries are journalized and posted to the ledger

  7. An adjusted trial balance is prepared

  8. Financial statements are prepared

  9. Closing entries are journalized and posted to the ledger

  10. Post closing trial balance is prepared
• Process of adjusting accounts and preparing financial statements is one of the most important in accounting
• Unadjusted Trial Balance (UTB)


  Verifies the total of the debit balance to the total of credit
• Unequal trial balance = an error has occurred
• Errors must be found and corrected at the end of the period
• Adjusted Trial Balance (ATB)

  Illustrate the effect of the adjusting entries on the unadjusted accounts
• Many accountants prepare such spreadsheet called work sheet; it allows the manager and accountant to see the effect of the adjustment on the financial statements
• Income Statement is prepared directly from the Adjusted Trial Balance
• Miscellaneous Expense is last item, regardless of its amount
• Balance Sheet is prepared directly from the adjusted Trial Balance; classified balance sheet
• Assets


  The rights of the company to economic benefits owned by a business
• Current Assets


  Assets that are expected to be converted to cash or sold or used up usually within one year or less through normal operation of the business
• Property, Plant and Equipment


  Also referred as fixed assets or plant assents
• Liabilities


  Obligations owed by a business to transfer resources to creditors
• Current Liabilities


  Liabilities that will be due within short time (1 year or less)
• Long-Term Liabilities


  Liabilities that will not be due for a long time (more than 1 year)
• Statement of Cash Flow

  Prepared by analyzing the cash account which are classified into operating, investing or financing activity
• Statement of Cash Flow is normally prepared using different more complex method called indirect method
• Permanent Accounts (real)


  Balance sheet accounts with balances that carry forward from year to year
• Temporary Accounts (nominal)


  Income statement accounts and are not carried forward to the next period
• At the beg. of the year, temporary accounts should have 0 balances
• Temporary accounts are called temporary because you close it at the end of accounting period
• Examples of temporary accounts

  • Revenues
  • Expenses
  • Withdrawals
• Income summary


  You close all temporary accounts to Income Summary
• Closing Process


  1. Closing Entries journal entries that transfer balances of temporary accounts to permanent accounts at the end of accounting period

  2. Closing entries transfer balances of temporary accounts to the owner's capital account

  3. Recorded in the journal and are dated as of the last day of accounting period

  4. Often inserted above the closing entries to separate them from the adjusting entries
• Closing Process only applies to temporary accounts
• Closing Process resets revenue, expense and withdrawal account balances to zero at the end of the period
• Closing Process helps summarize a period's revenues and expenses in the Income Summary Account
• Steps in Closing Process

  1. Identify accounts for closing

  2. Record and post-closing entries

  3. Prepare post-closing trial balance
• Closing process involve two steps; Revenue and expense accounts are transferred to the owner's capital, Balance of the owner's drawing account is transferred to the owner's capital
• Post-Closing Trial Balance


  Prepared after the closing entries have been posted, its purpose is to verify that the ledger in balance at the beginning of the next period
• Worksheet


  Not an F/S but rather a tool to prepare financial statements, Composed of 10 columns
• Benefits of a worksheet

  • Aids the preparation of financial statements
  • Reduce risk of errors
  • Links accounts and their adjustments
  • Helps in preparing interim financial statements
  • Shows the effects of proposed transactions
• Five Steps of Use of Work Sheet

  1. Enter Unadjusted Trial Balance

  2. Enter Adjustments

  3. Prepare Adjusted TB

  4. Sort ATB amounts to financial statements

  5. Total statement columns, compute income or loss and balance columns
• Interim is preparing an financial statements which coverage is less than a year
• Proposed transactions are the adjusting entries
• Closing Entries


  Journal entries that transfer balances of temporary accounts to permanent accounts at the end of accounting period
• Closing entries transfer balances of temporary accounts to the owner's capital account
• Closing entries are recorded in the journal and are dated as of the last day of accounting period
• Closing entries are often inserted above the closing entries to separate them from the adjusting entries