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Student Version. Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information.

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Student Version

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  1. Student Version • Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. • These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. • In addition, most text book exhibits have been removed as they are available in your text directly.

  2. Completing the Accounting Cycle Chapter 4

  3. Learning Objective 1 Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements.

  4. Flow of Accounting Information • Account balances are listed in the ________ ________ ________ column using the ________ balances found in the ________ ________ . End-of-Period Spreadsheet (Work Sheet) Unadjusted TB Adjustments Adjusted TB Accounts Dr Cr Dr Cr Dr Cr

  5. Flow of Accounting Information • Adjustments are entered here. Two possibilities: • ________– ________ balances are ________ • ________– ________ information is entered End-of-Period Spreadsheet (Work Sheet) Unadjusted TB Adjustments Adjusted TB Accounts Dr Cr Dr Cr Dr Cr

  6. Flow of Accounting Information • ________ are combined with the ________ ________ ________ amounts to provide balances for the _____ _____ _____ columns. End-of-Period Spreadsheet (Work Sheet) Unadjusted TB Adjustments Adjusted TB Accounts Dr Cr Dr Cr Dr Cr

  7. Flow of Accounting Information • ________ and ________ balances in the Adjusted Trial Balance column are ________ to the ________ ________ column. End-of-Period Spreadsheet (Work Sheet) Adjusted TB Income State. Balance Sheet Accounts Dr Cr Dr Cr Dr Cr

  8. Flow of Accounting Information • ________, ________ , and ________ ________ balances in the Adjusted Trial Balance column are ________ to the ________ ________ columns. End-of-Period Spreadsheet (Work Sheet) Adjusted TB Income State. Balance Sheet Accounts Dr Cr Dr Cr Dr Cr

  9. Learning Objective 2 Prepare financial statements from adjusted account balances.

  10. Income Statement • The income statement for NetSolutions is prepared directly from the Income Statement or Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet) beginning with fees earned of $16,840.

  11. Income Statement to _____________ ________ ___________

  12. Retained Earnings Statement • The first item normally presented on the ________ ________ ________ is the balance of the ________ ________ account at the ________ of the period.

  13. Retained Earnings Statement from the _____________ _____________ to the _____________ ____________

  14. _____________ _____________ • The _____________ _____________ is prepared directly from the _____________ _____________ or _____________ _____________ _____________ columns of the end-of-period spreadsheet (or _____________ ), beginning with Cash of $2,065.

  15. Balance Sheet from the __________ __________ __________

  16. __________ Balance __________ • A __________ __________ __________ is a balance sheet that was __________ by adding subsections for (1) _______ assets, (2) property, plant, and equipment, (3) current liabilities, and (4) ________ liabilities.

  17. __________ Assets ________ and other ________ that are expected to be ________ into cash, sold, or used up usually within ___ _____ or ________ , through the normal operations of the business, are called ________ ________ . • _____________ • _____________ • _____________ • _____________

  18. _________ Receivable • ____________ ____________ are written promisesby the customer to ______ the amount of the ____________ and possibly____________ at an agreed____________.

  19. _______ Assets ______, ________, and __________ (also called fixed assets or __________ __________ ) include assets that __________ over a period of time. __________ is an exception, since it is __________ subject to __________ . • __________ • __________ • __________ • __________

  20. Current ______________ _________ that will be due within a __________ time (usually ______ _____ or ___) and that are to be paid out of __________ __________ are called __________ __________ . • __________ • __________ • __________ • __________

  21. ________________ Liabilities __________ not due for a __________ __________ (usually _____ than ____ year) are called ____________________ . • _______________ • _______________ • _______________

  22. ________________ ____________ __________ __________ is the __________ right to the __________ of the business. It is presented on the __________ __________ below the __________ section. • ______________ • ______________

  23. Learning Objective 3 Prepare closing entries.

  24. Closing Entries • Accounts that are relatively __________ from year to year are called __________ __________ or __________ accounts. These accounts are carried __________ from __________ to __________ . • Accounts that report amounts for only __________ period are called __________ __________ or __________ accounts. __________ accounts are not ____ ______ because they relate to only __________ period.

  25. Closing Entries • To report amounts for ______ ______ period, ______ accounts should have zero balances at the ______ of the ______ period. • To achieve this, the ______ and ______ account balances are transferred to ______ ______ at the ______ of the period.

  26. Closing Entries • The balance of ______ ______ (net ______ or ______ ______ ) is then transferred to the ______ ______ account. • The balance of the Dividends account is also transferred to the ______ ______ account. • The entries that ______ these balances are called ______ ______ .

  27. Closing Entries

  28. ________- Closing ______ ______ • A ______ trial balance is prepared ______ the closing entries have been ______ . The purpose of the ______ (after closing) trial balance is to verify that the ______ is in balance and ready for the next accounting period.

  29. Learning Objective 4 Describe the accounting cycle.

  30. ____________ Cycle • The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period’s transactions is called the ______ ______ . There are ______ steps in the ______ ______ .

  31. Accounting Cycle • _________________________________________ • _________________________________________ • _________________________________________ • _________________________________________ • _________________________________________ (continued)

  32. Accounting Cycle • _________________________________________ • _________________________________________ • _________________________________________ • _________________________________________ • ________________________________________

  33. Learning Objective 5 Illustrate the accounting cycle for one period.

  34. Income Statement

  35. Retained Earnings Statement

  36. Balance Sheet

  37. Learning Objective 6 Explain what is meant by the fiscal year and the natural business year.

  38. Accounting ________ • The ________ accounting period ________ by a business is known as its ________ year. • When a business adopts a ________ ________ that ________ when business activities have reached the ________ point in its annual operation, such a ________ ________ is also called the ________ ________ ________ .

  39. Learning Objective 7 Describe and illustrate the use of working capital and the current ratio in evaluating a company’s financial condition.

  40. Working ________ and ________ Ratio • The ability to convert assets into ________ is called ________ . • The ability of a business to pay its ________ is called ________ . • ________ ________ is the excess of the ________ ________ of a business over its ________ ________ .

  41. Working Capital and Current Ratio • NetSolutions’ working capital at the end of 2013 is $6,355 as computed below. This amount of working capital implies that NetSolutions is able to pay its current liabilities.

  42. Working Capital and ________ ________ • The ________ ratio is another means of expressing the relationship between ________ ________ and ________ ________ . The ________ ________ is computed by dividing ________ ________ by ________ ________ .

  43. Working Capital and Current Ratio • The current ratio for NetSolutions at the end of 2013 is 5.6, computed as follows:

  44. Appendix End-of-Period Spreadsheet

  45. Unadjusted Trial Balance Adjustments Trial Balance Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 The unadjusted trial balance is checked for equality.

  46. Trial Balance Adjustments Trial Balance Unadjusted Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 Supplies needs adjusting

  47. Trial Balance Adjustments Trial Balance Unadjusted Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (a) 1,240 (a) Cost of supplies on hand at December 31 is $760. (a) 1,240

  48. Trial Balance Adjustments Trial Balance Unadjusted Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (a) 1,240 (b) 200 (b) The insurance expense for December is $200 ($2,400 ÷ 12). (a) 1,240 (b) 200

  49. Trial Balance Adjustments Trial Balance Unadjusted Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (a) 1,240 (b) 200 (c) Rent revenue earned during December was $120 ($360 ÷ 3). (c) 120 (c) 120 (a) 1,240 (b) 200

  50. Trial Balance Adjustments Trial Balance Unadjusted Adjusted Account Title Debit Credit Debit Credit Debit Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Cash 2,065 Accounts Receivable 2,220 Supplies 2,000 Prepaid Insurance 2,400 Land 20,000 Office Equipment 1,800 Accumulated Depr. Accounts Payable 900 Wages Payable Unearned Rent 360 Capital Stock 25,000 Dividends 4,000 Fees Earned 16,340 Rent Revenue Wages Expense 4,275 Rent Expense 1,600 Depreciation Expense Utilities Expense 985 Supplies Expense 800 Insurance Expense Miscellaneous Exp. 455 42,600 42,600 (d) 500 (a) 1,240 (b) 200 (d) Fees accrued at the end of December, but not recorded, totaled $500. (c) 120 (d) 500 (c) 120 (a) 1,240 (b) 200

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