Financial Accounting Chapter 4 Notes
Financial Accounting Chapter 4 Notes ACC-142
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This 3 page Class Notes was uploaded by bauer47 Notetaker on Wednesday March 2, 2016. The Class Notes belongs to ACC-142 at Iowa Central Community College taught by DawnA. Humburg in Fall 2015. Since its upload, it has received 23 views. For similar materials see Financial Accounting in Accounting at Iowa Central Community College.
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Date Created: 03/02/16
Chapter 4 Completing the Accounting Cycle Before we start, let’s review the accounting cycle: 1. Analyze transactions 2. Journalize transactions 3. Post from the journal to the ledger (t-accounts) 4. Prepare an unadjusted trial balance (purpose: to make sure the debit balances = the credit balances from the ledger) 5. Adjusting entries (update); NEVER USE CASH 6. Prepare an adjusted trial balance 7. Financial statements (ISREBS) What items in the accounting cycle are in ALSHERE order? Chart of accounts, ledger (t-accounts), unadjusted trial balance, adjusted trial balance 1. Financial statements: a. IS and RE do not change b. BS > we will now split our assets and liabilities into subsections called classifications (page 216) i. Assets > defined as something that has value that a business owns 1. Asset classifications: a. Current Assets > assets that will be used or consumed to produce revenue within one year of the BS date (accounting cycle); listed in order of liquidity (how easy it can be turned into cash) b. Plant Assets > (aka PPE (property plant equipment)), assets that will be used or consumed to produce revenue for longer than one year; these will all be disclosed on the BS at (cost – accumulated depreciation = book value) except for Land (we cannot estimate the life of Land; lasts forever we hope) c. Long-term Investments > our investments in other company’s stocks and bonds (page 215) d. Intangible Assets > assets with no physical form; i.e. Website, customer call list, patents, intellectual property, rights (licensing, air), copyrights, trademarks 2. Liabilities’ classifications: a. Current Liabilities > debts that are due within one year of the BS date (accounting cycle); Notes Payable (N/P), Accounts Payable (A/P), Unearned Revenue (UR) b. Long-term Liabilities > debts that are due more than one year from the BS date; N/P, Mortgage Payable 2. Next step in the accounting cycle is to close our temporary accounts (nominal) a. Temporary Accounts: i. Closing process is REID 1. Close revenues (CR balance) into Income Summary DR Revenues 50,000 CR Income Summary 50,000 2. Close expenses (DR balance) into Income Summary DR Income Summary 40,000 CR Expenses 40,000 a. After the second step, Income Summary should contain what account? Net income or net loss (should match the IS) 3. Close Income Summary > if we have net income, Income Summary should have a CR balance; net loss will have a DR balance DR Income Summary 10,000 CR Retained Earnings 10,000 (transfer net income into RE) 4. Close Dividends (DR balance) DR Retained Earnings 2,000 CR Dividends 2,000 b. Permanent accounts (real) > these are not closed; all of these accounts are on the BS (same as the post-closing trial balance; PCTB) i. Order of the PCTB > ALSHE For next Tuesday, complete the following: Ch. 4 practice, Ch. 4 homework; we will take the quiz in class and then we will review Next Thursday > CH. 1-4 Exam; you may use a 3.5 x 5” note card; paper/pencil/calculator
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