ACCTG CHAPTER 3

BA 211Z

closing entries steps

1. close credit balances in revenue (and gain) accounts to Income Summary

   Close the revenue accounts

2. close debit balances in expense (and loss) accounts to Income Summary

   Close the expense accounts

3. close Income Summary to the Retained Earnings account,

   close income summary

4. close Dividends account to Retained Earnings.

   Close the dividends accounts

A post-closing trial balance is a list of permanent accounts and their balances after all closing entries have been journalized and posted. Its purpose is to verify that

(1) total debits equal total credits for permanent accounts and

(2) all temporary accounts have zero balances.

profit margin ( return on sales )

Profit margin = net income/ net sales

Profit margin reflects on a company’s earnings activities by showing how much income is in each dollar of sales. If net income increases while net sales remained constant, the companys profit margin would increase.

current ratio

current ratio = current assets / current liabilities.

ability to pay short term obligations

worksheet

helpful at the end of a period in preparing adjusting entries, an adjusted trial balance, and financial statements. A work sheet usually contains five pairs of columns titled:

1. Unadjusted Trial Balance

2. Adjustments

3. Adjusted Trial Balance

4. Income Statement

5. Balance Sheet

steps:

1. list out accounts

2. enter adjustments

3. prepare adjusted trial balance

retained earnings - adjusted balance

RE adjusted balance is entered in balance sheet credit column

unclassified balance sheet

broadly groups assets, liabilities and equity

classified balance sheets

reports assets and liabilites into current and non current

Noncurrent assets often include long-term investments, plant assets, and intangible assets

ASSETS:

current assets

noncurrent assets

ASSETS	LIABILITIES
current assets	current liabilites
noncurrent assets	noncurrent liabilities
long- term investments
plant assets
intangible assets

reversing entries

**optional

applied to accrued assets and accrued liabilites

used in order to simplify record keeping process

fraud triangle

opportunity

• able to commit fraud w low risk of getting caught

pressure/ incentive

rationalize

• justifies fraud