FAR 1 - Chapter 6: Completions of the Accounting Cycle (copy)

Work Sheet

a working paper that facilitates the preparation of financial statements.

Net Profit

If the credit total in the income statement is more than the debit total

Net Loss

If the debit total in the income statement is more than the credit total

Contents of a Work Sheet:

1. Accounts Title

2. Trial Balance

3. Adjustments

4. Adjusted Trial Balance

5. Income Statement

6. Statement of Financial Position

Contents of a Financial Statement:

1. Income Statement

2. Statement of Changes in Owner’s Equity

3. Statement of Financial Position

 

Adjusting Entries

Is usually convenient to delay their recording until after the preparation of the work sheet and the financial statements.

Closing Entries

are journal entries made at the end of an accounting period to clear or eliminate the balance of temporary accounts in preparation for the next accounting period.

Income Summary

account used for summarizing the data for the revenue and expense accounts.

Income Summary

It is only opened and then closed at the end of the accounting period

Revenue accounts

represented by accounts with credit balances under the Income Statement columns, are debited, and Income Summary account is credited for the total

Expense accounts

represented by accounts with debit balances under the Income Statement columns, are credited, and Income Summary account is debited for the total

Profit

If the credit entry of the Income Summary account is more than the debit entry

Loss

If the debit entry is more than the credit

Drawing account

is used to show reduction of owner's equity by withdrawals of cash and other assets made by the owner during the period.

Post-Closing Trial Balance

The last step in the accounting cycle for a service concern

Post-Closing Trial Balance

The purpose of this is to make sure that the ledger accounts are in balance at the beginning of the next period.

Reversing entries

are journal entries made at the beginning of the new accounting period to reverse the adjusting entries made at the end of the preceding period.

Accounts that reverses:

1. Accrued Revenues and Expense

2. Deferred Revenues and Expense (Income and Expense method)