Chapter 4 Notes
Chapter 4 Notes BA 210
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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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