Completing The Accounting Cycle Flashcards
define a worksheet
a multiple-column form used in the ADJUSTMENT PROCESS and in PREPARING FINANCIAL STATEMENTS
not a permanent accounting record
steps in preparing a worksheet
- prepare a trial balance
- enter adjustment data
- enter adjusted balances
- add statement columns
- total the statement of columns and compute net income / net loss to complete worksheet
preparing a trial balance in the worksheet
enter all ledger accounts with balances in the account titles column and enter their dr and cr amount
entering adjustments in the adjustments column
letters to cross reference
letter used to identify the debit and credit for each adjusting entry — KEYING
do companies journalize the adjustments immediately?
no, they need to complete the worksheet first before preparing financial statements
entering adjusted balances
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
income statement
credit service revenue
debit expenses
statement of financial position
assets
owner’s equity
liability
**LOOK INTO THIS MORE
define closing the books
company makes the account ready for the next period
the company distinguishes between TEMPORARY and PERMANENT accounts
define TEMPORARY ACCOUNTS
relates only to a given accounting period
all temporary accounts are closed at the end of the accounting period
define PERMANENT ACCOUNTS
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
define CLOSING ENTRIES
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
what produces a 0 balance in each temporary account?
closing entry
what is a required step in the accounting cycle?
journalizing and posting closing entries
define reversing entries
an optional book-keeping procedure
not a required step
MAKING A REVERSING ENTRY AT THE BEGINNING OF THE NEXT ACCOUNTING PERIOD
define correcting entries
should be done as soon as errors are recognized
make corrections
MUST BE POSTED BEFORE CLOSING ENTRIES
differentiate adjusting and correcting entries
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
define classified statement of financial position
groups together similar assets and similar liabiltiies
items are grouped based on their similar economic characteristics
intangible assets examples
longlived assets that do not have physical substance
patents, copyrights, trandemarks, trade names
- capitalized development costs
- goodwill
- other intangible assets
property, plant, and equipment examples
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
long term investments example
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
current assets example
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)
owner’s equity examples
share capital
retained earnings
non-current liabilities examples
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
current liabilities example
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
define operating cycle
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
define liquidity
ability to pay obligations that are expected to be due within the next year
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?
reversing entries
when does a company make reversing entries
at the BEGINNING OF THE NEXT ACCOUNTING PERIOD
define reversing entry
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
