AC Financial Statements Flashcards
Fill in the blank
The balances of the accounts reported on the ___ are carried forward from period to period.
Closing Entries
Completing the Accounting Cycle
balance sheet
Closing Entries
Completing the Accounting Cycle
Fill in the blank
The balances of the accounts reported on the balance sheet are carried forward from ___.
Closing Entries
Completing the Accounting Cycle
period to period
Closing Entries
Completing the Accounting Cycle
Fill in the blank
Because the accounts reported on the balance sheet are carried forward from period to period, they are called ___ or ___.
Closing Entries
Completing the Accounting Cycle
permanent accounts [or] real accounts
Closing Entries
Completing the Accounting Cycle
enumerate
balance sheet permanent accounts
Closing Entries
Completing the Accounting Cycle
- Cash
- Accounts Receivable
- Equipment
- Accumulated Depreciation
- Accounts Payable
- Owner’s Capital
- any account whose balance doesn’t reset to zero at the end of the period
Closing Entries
Completing the Accounting Cycle
Complete the sentence
The accounting process begins with (1) […] and
ends with (2) […]
Closing Entries
(1) analyzing and journalizing transactions
(2) post-closing trial balance
Closing Entries
Concept
Transactions are analyzed and recorded in the journal
Financial Accounting 16e
Accounting Cycle - Step 1
Financial Accounting 16e
Concept
Transactions are posted to the ledger.
Financial Accounting 16e
Accounting Cycle - Step 2
Financial Accounting 16e
Concept
An unadjusted trial balance is prepared
Financial Accounting 16e
Accounting Cycle - Step 3
Financial Accounting 16e
Concept
Adjustment data are assembled and analyzed
Financial Accounting 16e
Accounting Cycle - Step 4
Financial Accounting 16e
Concept
An optional end-of-period spreadsheet is prepared
Financial Accounting 16e
Accounting Cycle - Step 5
Financial Accounting 16e
Concept
Adjusting entries are journalized and posted to the ledger
Financial Accounting 16e
Accounting Cycle - Step 6
Financial Accounting 16e
Concept
An adjusted trial balance is prepared
Financial Accounting 16e
Accounting Cycle - Step 7
Financial Accounting 16e
Concept
Financial statements are prepared
Financial Accounting 16e
Accounting Cycle - Step 8
Financial Accounting 16e
Concept
Closing entries are journalized and posted to the ledge
Financial Accounting 16e
Accounting Cycle - Step 9
Financial Accounting 16e
Concept
A post-closing trial balance is prepared
Financial Accounting 16e
Accounting Cycle - Step 10
Financial Accounting 16e
identify which steps are missing from the accounting cycle
a. Transactions are analyzed and recorded in the journal.
b. Transactions are posted to the ledger.
c. Adjustment data are assembled and analyzed.
d. An optional end-of-period spreadsheet is prepared.
e. Adjusting entries are journalized and posted to the ledger.
f. Financial statements are prepared.
g. Closing entries are journalized and posted to the ledger.
h. A post-closing trial balance is prepared.
Accounting Cycle
(1) the preparation of an unadjusted trial balance after step (e)
(2) The unadjusted trial abalance should be prepared after step (b)
Accounting Cycle
Enumerate steps
The first step in the accounting cycle is to analyze and record transactions using …
Accounting Cycle
- Carefully read the description of the transaction to determine nature: asset, liability, owner’s equity, revenue, expense, or drawing
- Determine increases or decreases in the affected accounts involving the transaction
- Determine whether each increase or decrease is a debit or credit
- Record the transaction using a journal entry
Accounting Cycle
Enumerate steps
Step 2. Posting transactions to the ledger using…
Accounting Cycle
- The date is entered in the Date column for the account
- The amount is entered in the Debit or Credit column
- The jounral page number is entered in the Posting Reference column
- The account number is entered
Accounting Cycle
Enumerate steps
Step 3. Preparing an unadjusted trial balance
Accounting Cycle
- A check for the equality of debits and credits is made.
- If the two totals of a trial balance are not equal, an error has occured.
- The error is then discovered and corrected.
Accounting Cycle
Enumerate steps
Step 4. Assembling and analyzing adjustment data
Accounting Cycle
- The accounts must be updated.
- The four types of accounts that normally require updating: prepaid expenses, unearned revenue, accrued revenue, and accrued expenses.
Accounting Cycle
Enumerate steps
Step 5. Preparing an optional end-of-period spreadsheet
Accounting Cycle
- An end-of-period spreadsheet is useful in showing the flow of accounting information from the unadjusted.
- it is also useful in analyzing the impact of proposed adjustments on financial statements.
Accounting Cycle
Enumerate steps
Step 5. Preparing an optional end-of-period spreadsheet
Accounting Cycle
- An end-of-period spreadsheet is useful in showing the flow of accounting information from the unadjusted.
- it is also useful in analyzing the impact of proposed adjustments on financial statements.
Accounting Cycle
Enumerate steps
Step 6. Journalizing and posting adjusting entries
Accounting Cycle
- Each adjusting entry affects at least one income statement account and one balance sheet account.
- Explanations for each adjustment including any computations are normally included with each adjusting entry
Accounting Cycle
Enumerate steps
Step 7. Preparing an adjusting trial balance
Accounting Cycle
- The adjusted trial balance is the last step before preparing the financial statements.
- The adjusted trial balance must balance
Accounting Cycle
Enumerate steps
Step 8. Preparing the financial statements
Accounting Cycle
- The income statement is prepared
- The statement of owner’s equity is prepared
- The balance sheet is prepared last
- The net income or net loss from income statement is reported on the statement of owner’s equity along with any additional investments and withdrawals by the owner.
- The ending owner’s capital is reported on the balance sheet
- This value is added with total liabilities to equal total assets
Accounting Cycle
Enumerate steps
Step 9. Journalizing and posting closing entries
Accounting Cycle
Two closing entries are required at the end of the accounting period.
1. First Closing Entry:
Debit each revenue account for its balance,
Credit each expense account for its balance
Credit (net income) or
Debit (net loss) the owner’s capital account
2. Second Closing Entry:
Debit the owner’s capital account for the balance of the drawing account
Credit the drawing account
Accounting Cycle
Enumerate steps
Step 10. Preparing a post-closing trial balance
Accounting Cycle
- A post-closing trial balance is prepared after the closing entries have been posted.
- The accounts and amounts in the post-closing trial balance shold agree exactly with the accounts and amounts listed on the balance sheet at the end of the period.
Accounting Cycle
Fill in the blank
The ability to convert assets into cash is called ___.
Accounting Cycle
liquidity
Accounting Cycle
Fill in the blank
The ability of a business to pay its debts is called ____.
Accounting Cycle
solvency
Accounting Cycle
Fill in the blank
Two financial measures for evaluating a business’s liquidity and solvency are working ___ and _____.
Accounting Cycle
working capital [and] current ratio
Accounting Cycle
Concept
Is the excess of the current assets of a business over its current liabilities.
Accounting Cycle
working capital
Accounting Cycle
Concept
Is another means of expressing the relationship between current assets and current liabilities.
Accounting Cycle
working capital
Accounting Cycle
Fill in the blank
__(1)___ assets are more liquid than __(2)___ assets.
Accounting Cycle
- current
- long-term
Accounting Cycle
Determine the working capital and current ratio for 20Y6 and 20Y6
Is the change in the current ratio from 20Y6 to 20Y7 favorable?
($310,500 / $172,500) = 1.80 20Y7
($262,500 / $150,000) = 1.75 20Y6
The change from 1.75 to 1.80 is favorable.
