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Chapter 4 Notes

by: Amelia Cassidy

Chapter 4 Notes BA 210

Amelia Cassidy

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About this Document

These notes cover chapter 4, as covered in the class lecture and textbook
Financial Accounting
Dr. Greenman
Class Notes
business, Accounting, financial accounting
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This 8 page Class Notes was uploaded by Amelia Cassidy on Tuesday March 1, 2016. The Class Notes belongs to BA 210 at Embry-Riddle Aeronautical University - Daytona Beach taught by Dr. Greenman in Spring 2016. Since its upload, it has received 20 views. For similar materials see Financial Accounting in Business at Embry-Riddle Aeronautical University - Daytona Beach.


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Date Created: 03/01/16
Chapter 4 ­ Completing the Accounting Cycle            ● Using A Worksheet  ○ Worksheet Definition  ■ Multiple­Column form used in making adjusting entries/preparing  financial statements  ■ Working Tool  ○ Not a permanent accounting record  ○ Usage is optional                       ○ Steps in Preparing a Worksheet          ■ Step 1: Prepare A Trial Balance On the Worksheet  ● Enter all ledger accounts w/balances in account titles space  ● Enter debit/credit amounts from ledger   ■ Step 2: Enter Adjustments in Adjustments Columns  ● Turn over first transparency   ● Keying​  = process of entering adjustments  ● Companies do not journalize adjustments until after  worksheet completed/final statements prepared  ■ Step 3: Enter Adjusted Balances In Adjusted Trial Balance  Columns  ● 2nd transparency turnover  ● For each account, amount in adjusted trial balance columns  is balance that appears in ledger after journalizing/posting  adjusting entries   ■ Step 4: Extend Adjusted Trial Balance Amounts To  Appropriate  ● Every adjusted trial balance must be extended to one of four  columns  ■ Step 5: Total the Statement Columns, Compute the Net Income  (or Net Loss), and Complete the Worksheet  ● Total each financial statement column  ● Net income/loss = difference between two totals  ● Debit amount balances income statement, credit amount  balances balance sheet      ○ Preparing Financial Statements from a Worksheet      ■ Completed worksheet is not substitute for financial statement  ● Working tool of accountant  ○ Preparing Adjusting Entries from a Worksheet  ■ Worksheet is not a journal ­ cannot be used as basis for posting to  ledger accounts  ■ Adjusting entries prepared from adjusting columns  ● Closing the Books  ○ Definition  ■ Making accounts ready for following period  ○ Temporary Accounts Definition  ■ Nominal accounts  ■ Accounts that relate only to a given accounting period  ■ Consist of all income statement/dividend account  ■ Close at end of accounting period  ○ Permanent Account Definition  ■ Real accounts  ■ Relate to one + accounting period  ■ Has all balance sheet accounts  ■ Balances carry forward to next accounting period    ○ Preparing Closing Entries  ■ Closing Entries Definition  ● Entries made at end of accounting period to transfer  balances of temporary accounts to permanent stockholders’  equity account­ retained earnings  ● Produce zero balance in each temporary account  ■ Income Summary Definition  ● Temporary account used in closing revenue/expense  accounts  ■ Closing entries recorded in general journal  ■ Steps:  ● Debit revenue account for balance, credit income summary  for total revenues  ● Debit income summary for total expenses, credit each  expense account for balance  ● Debit income summary/credit retained earning for amount of  net income  ● Debit retained earnings for balance in dividends account,  credit dividends for same amount    ■ Closing Entries Illustrated    ● Avoid doubling revenue/expense balances instead of zeroing  ● Don’t close dividends through income summary account  ○ Dividends are not an expense, do not factor in  determining net income  ○ Posting Closing Entries  ■ Balance in income summary before closed must equal net  income/loss for period    ○ Preparing a Post­Closing Trial Balance  ■ Definition  ● Lists permanent accounts/balances after journalizing/posting  of closing entries  ● Purpose is to prove equality of permanent account balances  carried forward into next accounting period  ● Will only contain permanent balance sheet accounts       


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