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Completing the Accounting Cycle

Completing the Accounting Cycle. ACG 2021: Chapter 4. Record entries in the journal Post to the ledger Prepare trial balance Record and post adjusting entries Prepare adjusted trial balance. Prepare financial statements Income Statement Statement of Retained earnings Balance Sheet

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Completing the Accounting Cycle

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  1. Completing the Accounting Cycle ACG 2021: Chapter 4

  2. Record entries in the journal Post to the ledger Prepare trial balance Record and post adjusting entries Prepare adjusted trial balance Prepare financial statements Income Statement Statement of Retained earnings Balance Sheet Statement of Cash Flows Completing the Cycle

  3. Income statement Shows results of operations for a period of time Financial Statements Brady Corp Income Statement December 31, 2001 Revenues: Fees earned $50,000 Expenses Salaries exp $12,000 Rent expense 15,800 Supplies exp 7,200 Total 35,000 Net income 15,000

  4. Statement of Retained Earnings Shows the changes in the earnings of the corporation Financial Statements Brady Corp Statement of Retained Earnings Dec 31, 2001 Beg RE $9,875 Add Net income 15,000 24,875 Deduct: dividends 10,000 Ending RE 14,875

  5. Balance sheet Shows that the accounting equation holds true Snapshot of a moment in time Three sections Assets Liabilities Shareholder’s Equity Financial Statements

  6. Balance Sheet Brady Corporation Balance Sheet Dec 31, 2001 Assets:Liabilities: Cash $12,705 Accts pay $7280 Accts rec 5,400 Loans pay 9800 Supplies 1,250 Total $17,080 Fixed assets 15,100 Total $34,455 Stockholder’s Equity Capital stock $2,500 Retained earn 14,875 Total 17,375 TOTAL 34,455

  7. Statement of Cash Flows sources and uses of cash Operating Investing Financing Always prepared in the same order Financial Statements

  8. Real accounts Balances of accounts reported on the balance sheet are carried forward from year to year Temporary Balances of accounts reported on the income statement not carried forwarded We ZERO the account Closing Entries

  9. Income Summary Clearance account used to process the closing entries Four entries Close revenues Close expenses Close income summary Close dividends Closing Entries

  10. Example:

  11. Close Revenues

  12. Close Expenses

  13. Close income summary Income summary Exp $8,000 Rev $10,000 Balance $2,000

  14. Close income summary Close the amount of net income to retained earnings

  15. Close dividends

  16. Balance in Retained earnings Retained Earnings Dividends $4,000 $12,000 Beg Balance 2,000 Net income $10,000 Ending balance

  17. Example 1

  18. Example 1

  19. Closing entries • After closing entries are posted • Post Closing trial balance is prepared

  20. Accounting Year • Calendar year – ends on December 31st • Fiscal year – endsother than December 31st

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