Accounting Ch. 5,6

Adjustments and Closing entries are done at this point in the fiscal period

end

acc. depr. is a special asset account called

contra asset

2 methods of depr.

straight line and decl bal

When acc. depr is sub from an asset the resulting answer is the asset’s

book val

adj, and closing entry are journalized using this as the source doc

worksheet

all fixed assets are depr. except

land

provides info about the adjustment on worksheet

legend

rev. exp. drawing, and income summary accounts are known as ______ accounts bc they get closed

temporary

which accounts get closed

revenue, expenses, drawings, and income summary

which accounts dont get closed

assets, liabilities, and capital

accounts that don’t get closed are called what

permanent accounts

2 reasons for closing entries

1. to update capital
2. to prepare revenue and expenses for the next fiscal period

another name for the net income or net loss on a worksheet is

balancing figure

Principle of Materiality:

Any information that could affect the decisions of the users of financial statements, should be included.

Principle of Conservatism:

Accountants should select a method of accounting that will result in lower net income and / or net assets

what does the accronym REID stand for

1. Closing all **R**evenue Accounts to income summary
2. Close all **E**xpense accounts to income summary
3. Close all **I**ncome Summary to Capital
4. Close **D**rawings to Capital

What do you put in the revenue part of the general journal when closing entries

fees earned

income summary

to close revenue accounts

What do you put in the expenses part of the general journal when closing entries

income summary

expenses

to close expenses accounts

What do you put in the income summary part of the general journal when closing entries

If net income:

income summary

capital

to update capital

if net loss: vice-versa

What do you put in the drawings part of the general journal when closing entries

capital

drawings

to close drawings

What do you put in the capital part of the general ledger when closing entries

to update with net income

to update with drawings

What do you put in the income summary part of the general ledger when closing entries

to close revenue

to close expenses

to update capital

What do you put in all the non I.S and capital parts of the general ledger when closing entries

closing entry → bring to 0

how to do an income statement

__rev__

fees earned __100__

total revenue 100

\
__exp__

expense 1 50

expense 2 __75__

total expenses __125__

net loss 25

how to do statement of owner’s equity

capital (beginning of fp)

add: net income

__less: drawings__

__increase in capital__

__**capital (end of fp)**__

How to do a balance sheet

__Assets__

__Current Assets__

…

total current assets

\
__Fixed assets__

…

total fixed assets

**total assets**

\
__Liabilities and Owner’s Equity__

__Liabilities__

__current liabilities__

…

total current liabilities

__LTL__

…

total LTL

total liabilities

\
__Owners Equity__

capital

**total liabilities + capital**

\
* double underline under total assets and total liabilities + capital

how to do depreciation bit in balance sheet

office equipment 100

acc. depr. - equipment __25__ 75

accounting cycle

business transactions → general journal →general ledger →worksheet →financial statements →journal(adj, closing) →ledger(adj, closing) →post closing trial balance →now accounting period begins

what is a contra account

Normal balance is opposite

reason adjustments are done

matching principal

why are adjustments journalized

Update accounts for the financial statements

who provides the rate of depreciation for the declining balance method

Government Canada

once closing entries have been posted, this is prepared

Post closing trial balance

How is the ending figure for supplies is found

it is counted

The Time Period Principle:

Accounting takes place over specific time periods known as fiscal reports. Each company sets and defines this. The company must consistently use the same time period when it preps its financial statements

The Accrual Basis of Accounting:

Revenue should be recognized when it is earned. The job or service must be completed. Expenses are Recorded when incurred. It doesn’t matter if it is cash or credit transaction.

The Matching Principle:

Each expense item related to the revenue must be recorded in the same fiscal period as the revenue it helped earn.

Revenue Recognition:

Revenue should be recognized when a job is completed

Principle of Objectivity

Accounting Records are based on facts or evidence. A course document provides the best evidence of facts to record a business transaction. 

Business Entity concept

There is a separation between personal and business items (assets, liabilities etc.) The owner shouldn’t include and personal items on the balance sheet. Financial data is for the business should be kept separate from the owner’s personal financial data.

Double-entry accounting

This states that when recording transactions, the total debut amounts must equal the total credit amounts

The cost principal

assets are shown on the balance sheet at the cost of their acquisition (purchase price) or construction