completing the accounting cycle: closing and reversing entries Flashcards
temporary vs permanent accounts
not closed at the end of the period vs closed and cleared
closing process
at the end of an accounting period after financial statements are prepared
reasons for closing entries (2)
reset revenues, expense and withdrawal
updates the capital account to reflect net income
steps of the closing process (4)
close revenue accounts to income summary
close expense accounts to income summary
close income summary account to owner’s capital
close withdrawals account to owner’s capital
close revenue accounts
revenues
income summary
close expense accounts
income summary
expenses
close income summary account: net income
income summary
capital
close income summary account: net loss
capital
income summary
close withdrawals account
capital
withdrawals
post-closing trial balance
list of balances for all accounts not closed
verify total debits = total credits
errors found after founding
prepare single correcting entry or reverse the original entry and record correct entry
current vs long-term
expected to use or repay it within the next year vs land building, note payable or bank loan
current ratio + formula + result
measures the ability to pay current liabilities from current assets
total current assets/ total current liabilities
under one can assume its short-term obligations
debt ratio + formula + result
measures a company’s ability to pay current and long-term debts
total liabilities/ total assets
high can be considered over-leverage or a financial risk
statement of financial position
balance sheet
