1 / 28

The Accounting Cycle Reporting Financial Results

The Accounting Cycle Reporting Financial Results. Chapter 5. THE ACCOUNTING CYCLE. Process by which accountants prepare financial statements for an entity for a specific period of time. Accounting Cycle. Review – Accounting Cycle. Analyze transactions.

drake-vincent
Download Presentation

The Accounting Cycle Reporting Financial Results

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Accounting CycleReporting Financial Results Chapter 5

  2. THE ACCOUNTING CYCLE Process by which accountants prepare financial statements for an entity for a specific period of time

  3. Accounting Cycle

  4. Review – Accounting Cycle • Analyze transactions. • Prepare general journal entries, and post to general ledger. • Prepare unadjusted trial balance. • Prepare adjusting journal entries, and post to general ledger. • Prepare adjusted trial balance. • Prepare financial statements. • Prepare closing journal entries, and post to general ledger. • Prepare post-closing trial balance.

  5. A) Preparing Financial Statements Publicly owned companies – those with shares listed on a stock exchange – have obligations to release annual and quarterly information to their stockholders and to the public. The annual report includes comparative financial statements and other information relating to the company’s financial position, business operations, and future prospects. The financial statements contained in the annual report must be audited by a firm of certified public accountants (CPAs).

  6. Now, let’s prepare the financial statements for JJ’s Lawn Care Service for May.

  7. 1) The Income Statement Net income also appears on the Statement of Retained Earnings.

  8. Business Earnings Dividends Business Losses 2) The Statement of Retained Earnings Summarizes the increases and decreases in Retained Earnings during the period.

  9. The Statement of Retained Earnings Now, let’s prepare the Balance Sheet.

  10. 3) The Balance Sheet

  11. RelationshipsAmongthe Financial Statements

  12. Drafting the Notes that Accompany Financial Statements • Examples of Items Disclosed • Lawsuits pending • Scheduled plant closings • Governmental investigations • Significant events occurring after the balance sheet date • Specific customers that account for a large portion of revenue • Unusual transactions and related party transactions Notes to the Financial Statements

  13. B) Closing the Temporary Accounts The closing process gets the temporary accounts ready for the next accounting period. 1.Close Revenue accounts to Income Summary. 2.Close Expense accounts to Income Summary. 3.Close Income Summary account to Retained Earnings. 4.Close Dividends to Retained Earnings.

  14. Closing the Temporary Accounts

  15. Closing Entries for Revenue Accounts Since Sales Revenue has a credit balance, the closing entry requires a debit to the Sales Revenue account.

  16. Closing Entries for Revenue Accounts

  17. Closing Entries for Expense Accounts Since expense accounts have a debit balance, the closing entry requires a credit to the expense accounts.

  18. Net Income Closing Entries for Expense Accounts

  19. Closing the Income Summary Account Since Income Summary has a $400 credit balance, the closing entry requires a debit to Income Summary.

  20. The balance in Income Summary is now zero. Closing the Income Summary Account

  21. Closing the Dividends Account Since the Dividends account has a debit balance, the closing entry requires a credit to the Dividends account.

  22. Closing the Dividends Account

  23. C) AFTER-CLOSING TRIAL BALANCE • The final Trial Balance after closing will display only permanent, balance sheet accounts. • The Retained Earnings in this Trial Balance is the ENDING retained earnings for the period and includes the effects of all the revenues, expenses, and dividends for the period.

  24. After-Closing Trial Balance • List of permanent accounts and their balances after posting closing entries • Total debits and credits must be equal

  25. After-Closing Trial Balance

  26. Evaluating Profitability Evaluating Liquidity Net Income Percentage Net IncomeTotal Revenue Working Capital Current Assets – Current Liabilities = = Return on Equity Net IncomeAvg. Stockholders’Equity = CurrentRatio Current AssetsCurrent Liabilities = EVALUATING THE BUSINESS

  27. Preparing Financial Statements Covering Different Periods of Time Many companies prepare financial statements at various points throughout the year. Annually Quarterly Interim Financial Statements Monthly Dec. 31 Jan. 1

  28. End of Chapter 5

More Related