Chapter 4 Flashcards
after trial balance
record adjusting entries in journal
post entries to ledger
prepare adjusted trial balance from ledger
then you can make financial statements
financial statements
income statement
statement of retained earning
balance sheet
steps of process
- transactions are recorded in the journal
- journal entries are posted to appropriate ledger accounts
- a trial balance is constructed
- adjusting entries are prepared and posted
- an adjusted trial balance is prepared
- formal financial statements are produced (perhaps with the assistance of a worksheet)
accounting cycle
completed by capturing transaction and event information and moving it through an orderly process that results in the production of useful financial statements
left with substantial records that document each transaction (the journal) and each account’s activity (the ledger).
closing process
final process with 2 objectives
UPDATE RETAINED EARNINGS
closing process “updates” the Retained Earnings account for the impact of the period’s operations.
RESET TEMPORARY ACCOUNTS
Revenues, expenses, and dividends
must zero out at end of period
temporary or nominal accounts
Revenues, expenses, and dividends
must zero out at end of period
real accounts
asset, liability, and equity accounts
balances are carried forward from period to period
closing process
close revenue account to a unique account called income summary
close expense accounts to income summary
close income summary to retained earnings
close dividends to retained earnings
income summary
non financial statement to facilitate closing process
net of which represents the income or loss for the period
post-closing trial balance
reveals the balance of accounts after the closing process, and consists of balance sheet accounts only
show accounts are in balance
not formal financial statement
Reversing entries
optional accounting procedures which may sometimes prove useful in simplifying record keeping. A reversing entry is a journal entry to “undo” an adjusting entry
simplify the accounting process. For example, on the first payday following the reversing entry, a “normal” journal entry can be made to record the full amount of salaries paid as expense. This eliminates the need to give special consideration to the impact of any prior adjusting entry
classified balance sheets
accountants will often divide the balance sheet into categories or classifications. The result is that important groups of accounts can be identified and subtotaled
asset side of balance sheet
five separate sections (when applicable): Current assets; Long-term investments; Property, plant and equipment; Intangible assets; Other assets
side of balance sheet
current
long term
equity on balance sheet
capital stock
retained earnings
