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Work sheet
- A useful tool for preparers in working with accounting info. Not available to external decision makers
- Made at the end of the period
- Step 1- enter unadjusted trial balance
- Step 2-Enter adjustments
- Step 3-Prepare adjsuted trial balance
- Step 4-Sort Adjusted trial balance amounts to financial statements
- Step 5-Total Statement columns, compute income or loss, and balance columns
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Closing process
- An important step at the end of an accounting period after financial statements have been completed
- Prepares accounts for recording transactions and events of the next period
- Must identify accounts for closing
- Must record and post closing entries
- Must prepare a post-closing trial balance
- Will reset revenue, expense, and withdrawals account balances to 0 at the end of each period
- Helps in summarizing a period's revenues and expenses
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Temporary accounts
- accumulate data related to one accounting period
- Include income statements, withdrawals, and income summary accounts
- Closed one the period is over
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Permanent accounts
- Report on activities related to one or more future accounting periods
- They carry their ending balances into the next period and cosist of all balance sheet accounts
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Closing entries
To transfer the end-of-period balances in revenue, expense, and withdrawals accounts to the permanent capital account
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Income summary
- A temporary account that contains a credit for the sum of all revenues and a debit for the sum of all expenses
- Balances equals net income or net loss and is transferred to the capital account
- Step 1-Close credit balances in revenue accts to income summary
- Step 2- Close debit balances in expense accounts to income summary
- Step 3-Close income summary to owner's capital
- Step 4-Close withdrawals account to owner's capital
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Post closing trial balance
A list of permanent accounts and their balances from the ledger after all closing entries have been journalized and posted.
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Accounting cycle
- Refers to the steps in preparing financial statements
- The steps are repeated each reporting period
- 1. Analyze transaction
- 2. Journalize
- 3. Post
- 4. Prepare unadjusted trial balance
- 5. Adjust
- 6. Prepare adjusted trial balance
- 7. Prepare statements
- 8. Close
- 9. Prepare post-closing trial balance
- 10. Reverse (optional)
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Unclassified balance sheet
Items are broadly grouped into assets, liabilities, and equity
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Classified balance sheet
Organizes assets and liabilities into important subgroups that provide more info. to decision makers
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Operating cycle
The time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services
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Current assets
- Cash and other resources that are expected to be sold, collected, or used within one year or the company' operating cycle, whichever is longer
- Examples- cash, short-term investments, accounts receivable, and short-term notes receivable
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Long term investments
Examples are notes recievable, and investements in stocks and bonds
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Intangible assets
long term resources that benefit business operations, usually lack physical form, and have uncertain benefits
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Current liabilities
- Obligations due to be paid or settled within one year or the operating cyce, whichever is longer
- Includes accounts payable, notes payable, and uneared revenue
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Long term liabilities
Obligations not due within one year or the operating cycle, whichever is longer
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