Chapter 4 Completing the Accounting cycle condensed notes

What are the steps to use a worksheet?

1. Enter Unadjusted trial balance

2. Enter adjustments

3. Prepare your adjusted trial balance

4. Sort adjusted trial balance totals to the income or balance sheet statement

5. Total Statement Columns, compute net income or loss, and balance columns

When it comes to the forth step in using a worksheet (sorting out your adjusted trial balance totals to the income statement/ balance sheet, where does everything go?)

Income Statement (Revenues & Expenses)

• Expenses go to the debit side of the column

• Revenues go to the credit side of the column

Balance Sheet (Assets & Liabilities)

• Assets, withdrawals, and owners equity goes to the debit side

• Liabilities and owners capital goes to the credit side

When it comes to the fifth step in the worksheet, how do you find the net income? How do you know if there’s a net income vs a net loss?

You find the net income by taking the differences between the numbers in the debit and the credit side.

You know that there’s a net income if the credit total is greater than the debit total

You know that there’s a net loss if the debit total is greater than the credit total.

How do you record closing entries?

1. Close credit balances in revenue to the income statement

2. Close debit balances in expenses to income statement

3. Close income statement to owners capital

4. close withdraws to owners capital

What’s a classified balance sheet

A balance sheet that organizes assets and liabilities into relevant subgroups including current and non current classifications

What are the assets in the classified balance sheet?

1. Current Assets

2. Long term investments

3. Plant Assets

4. Intangible Assets

What are the liabilities in the classified balance sheet?

1. Current liabilities

2. Long term liabilities

Current Assets:

Assets expected to be sold, collected, or used within one year or the companies operating cycle-whichever is longer.

Long term investments

An asset expected to be held for more than one year or the operating cycle

Plant Assets

Tangible long lived assets used to produce or sell products and services

(equipment, machinery, buildings)

Intangible Assets

Long term assets that benefit business operations but lack a psychical form

Current Liabilities

Liabilities due within the length of one year or the companies operating cycle

Long term liabilities

liabilities that aren’t due within the length of one year or the companies operating cycle

Equity

The owners claim on the assets

• Equity isn’t separated into current and noncurrent categories

• For proprietorship, reported in owners equity capital account

Current Ratio

Helps assess the company’s ability to pay its debts in the near future

Current ratio= Current assets (over) current liabilities

What are the fixed assets

1. Property

2. Plant

3. Equipment

Temporary/ Nominal accounts

Accounts that start an accounting period off at zero

Permanent Accounts/ real accounts

Accounts that start an accounting period with the ending balance

What’re the temporary accounts? (RWIE)

1. revenues

2. withdrawals

3. income summary

4. expenses

what’re the permanent accounts? (ALO)

1. Assets

2. Liabilities

3. Owners capital

What type of account does the closing process apply to?

Temporary accounts

What accounts does the closing process reset to zero?

1. Revenue

2. Expense

3. Withdrawals

What account does the closing process update to match the amount reported on the statement of owners equity and the balance sheet

the owners capital account