Chapter 4 - Completion of the Accounting Cycle

Closing the Books

• Done at end of accounting period to make accounts ready for next period.

Temporary Accounts

• Only collect data for single period, then closed at the end of the period

• Revenue, Expense, + Drawings

Permanent Accounts

• Not closed, instead balances are carried to next period

• ALL BALANCE SHEET ACCOUNTS

Closing Entries

• Transfer temporary accounts into owner’s capital account

Post-Closing Trial Balance

• Provides list of all permanent accounts and their balances

  • Balances then carried forward to next period

  • Since temporary accounts = 0… Therefore only permanent accounts should remain

Worksheets + Reversing Entries (Optional Step)

Worksheet

• Multiple columns to help prepare adjusting entries + financial statements.

• Useful for Internal use or interim financial info

Reversing Entries

• Reverse certain adjusting entries made in previous period

  • Created at beginning of next accounting period

  • Simplifies recording of transactions in future periods

Correcting Entries

• Correct errors that have occured in recording process

  • Unnecessary is records free of errors

  • Journalized + posted WHENEVER error is discovered

  • DONE BEFORE closing entries are created.

• Simply reverse the incorrect entry + record correct entry (easier and logical)

Classified Balance Sheet (Pt.1)

Current Assets = resources converted into cash, sold, or used up in 1 year.

• In Liquidity = cash, short-term investments, A/R, inventory, prepaid expenses

Long-Term Investments

Property, Plant, + Equipment = long-lived tangible assets; not intended for sale.

• Land, buildings, + equipment

Intangible Assets = long-lived tangible assets but no physical “substance”.

• Patents, copyrights, licences, goodwill

Classified Balance Sheet (Pt.2)

Current Liabilities = obligations expected to resolve in 1 year.

• In Liquidity = A/P, interest payable, salaries payable, unearned revenue.

Non-Current Liabilities = obligations expected to resolve after 1 year.

• Long-term notes payable, mortgage payables, lease.

Owner’s Equity

Operating Cycle

• Length from starting with cas to ending with cash in producing revenues

• Usually less than 1 year, but can be longer

IFRS vs. ASPE

IFRS

• Statement Name = Statement of Financial Position or Balance Sheet

• Terms Order = assets, liabilities, equity in REVERSE order of liquidity

• Terms: Long-term investment, Property, Plant, and Equipment, Intangible Assets = “Non-Current Assets”

ASPE

• Statement Name = Statement of Financial Position or Balance Sheet

• Terms Order = assets, liabilities, equity in order of liquidity

• Terms: ““ = each seperate classification