Completing The Accounting Cycle

Question 1

define a worksheet

Answer 1

a multiple-column form used in the ADJUSTMENT PROCESS and in PREPARING FINANCIAL STATEMENTS

not a permanent accounting record

Question 2

steps in preparing a worksheet

Answer 2

1. prepare a trial balance
2. enter adjustment data
3. enter adjusted balances
4. add statement columns
5. total the statement of columns and compute net income / net loss to complete worksheet

Question 3

preparing a trial balance in the worksheet

Answer 3

enter all ledger accounts with balances in the account titles column and enter their dr and cr amount

Question 4

entering adjustments in the adjustments column

Answer 4

letters to cross reference

letter used to identify the debit and credit for each adjusting entry — KEYING

Question 5

do companies journalize the adjustments immediately?

Answer 5

no, they need to complete the worksheet first before preparing financial statements

Question 6

entering adjusted balances

Answer 6

the amount in the adjusted trial balance is the balances after journalizing and posting the adjusting entries

note, values in the ledger are already posted

combine trial balance amounts with adjustment amounts to obtain the adjusted trial balance

Question 7

income statement

Answer 7

credit service revenue

debit expenses

Question 8

statement of financial position

Answer 8

assets
owner’s equity
liability

**LOOK INTO THIS MORE

Question 9

define closing the books

Answer 9

company makes the account ready for the next period

the company distinguishes between TEMPORARY and PERMANENT accounts

Question 10

define TEMPORARY ACCOUNTS

Answer 10

relates only to a given accounting period

all temporary accounts are closed at the end of the accounting period

Question 11

define PERMANENT ACCOUNTS

Answer 11

relate to one or more future accounting periods

consists of all statement of financial position accounts, including the owner’s capital account

NOT CLOSED FROM PERIOD TO PERIOD

Question 12

define CLOSING ENTRIES

Answer 12

company transfers temporary account balances to the permanent owner’s equity account (owner’s capital) by means of closing entries

*FORMALLY RECOGNIZE IN THE LEDGER THE TRANSFER OF NET INCOME AND OWNER’S DRAWINGS TO OWNER’S CAPITAL

Question 13

what produces a 0 balance in each temporary account?

Answer 13

closing entry

Question 14

what is a required step in the accounting cycle?

Answer 14

journalizing and posting closing entries

Question 15

define reversing entries

Answer 15

an optional book-keeping procedure
not a required step

MAKING A REVERSING ENTRY AT THE BEGINNING OF THE NEXT ACCOUNTING PERIOD

Question 16

define correcting entries

Answer 16

should be done as soon as errors are recognized

make corrections

MUST BE POSTED BEFORE CLOSING ENTRIES

Question 17

differentiate adjusting and correcting entries

Answer 17

correcting

• should be done only when needed
• must be done immediately

adjusting

• an integral part of the accounting cycle
• done only at the end of the accounting period

Question 18

define classified statement of financial position

Answer 18

groups together similar assets and similar liabiltiies

items are grouped based on their similar economic characteristics

Question 19

intangible assets examples

Answer 19

longlived assets that do not have physical substance

patents, copyrights, trandemarks, trade names

1. capitalized development costs
2. goodwill
3. other intangible assets

Question 20

property, plant, and equipment examples

Answer 20

assets with relatively long useful lives that a company uses

DEPRECIATION = PROCESS OF ALLOCATING COSTS OF ASSETS OVER A YEARS

ACCUMULATED DEPRECIATION = total amount of depereciation that the company has expensed thus fair in the asset’s life

• land
• buidings
• structures
• machinery
• vehicles

Question 21

long term investments example

Answer 21

investment in shares and bonds of other companies that are normally held for many years

non current assets such as land or buildings

long term notes receivable

• non-marketable equity investments

Question 22

current assets example

Answer 22

asste stha ta company expectes to convert to cash or use up witithin one year or its operating cycle, whichever is LONGER

• CASH
• investments
• receivables (notes, accounts, interest)
• inventories
• prepaid expenses (supplies&insurance)

Question 23

owner’s equity examples

Answer 23

share capital

retained earnings

Question 24

non-current liabilities examples

Answer 24

obligations that a company xexpects to pay AFTER one year
- includes bonds payable, mortgages payable, long-term notes payable, lease liabilities, and pension liabilities

• long term debt
• pension plans and similar commitments
• provisions
• deferred tax liabilities
• other non-current liabilities

Question 25

current liabilities example

Answer 25

obligations that the company is to pay WITHIN THE COMING YEAR or its operating cycle, whichever is longer

• trade payables
• currnt provisions
  financial liabilities
  income taxes payable
  current maturities for long term debt
  other current liabilities

Question 26

define operating cycle

Answer 26

average time that it takes to PURCHASE INVENTORY, SELL IT ON ACCOUNT, AND COLLECT CASH FROM CUSTOMERS

sually less than a year with a 1 year cut ogg

Question 27

define liquidity

Answer 27

ability to pay obligations that are expected to be due within the next year

Question 28

after preparing financial statements and closing the books, it is often helpful to reverse some of the adjusted entries before recording regular transactions of the next period.

this is called?

Answer 28

reversing entries

Question 29

when does a company make reversing entries

Answer 29

at the BEGINNING OF THE NEXT ACCOUNTING PERIOD

Question 30

define reversing entry

Answer 30

an exact opposite of the adjusting entry made in the previous period

• optional

the use of reversing entries does not change the amounts reported in the financial statements