Kế toán, kiểm toán - Chapter 4: Completing the accounting cycle
Here are the four steps we always follow in the closing process. First, we close all revenue accounts to the income summary. We move the balance in all revenue accounts from the account to the income summary. This process will cause all revenue accounts to have a zero balance. Remember that revenue accounts normally have a credit balance. Next, we close all expense accounts to the income summary. This will zero out all our expense accounts. Expense accounts normally have a debit balance. Next, the income summary will show revenues and expenses, or net profit. We must close the income summary, which contains net profit, to owner’s capital. This process zeroes out the income summary. The final closing entry will be to move the owner’s withdrawals to the owner’s capital account. This will cause the withdrawal account to have a zero balance. Let’s see how this process works. To prevent confusion, when you first try to make closing entries, it is an excellent idea to follow these four steps exactly.
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Chapter 4Completing the Accounting CycleBenefits of a Work SheetAids the preparation of financial statements.Reduces possibility of errors.Links accounts and their adjustments.Assists in planning and organizing an audit.Helps in preparing interim financial statements.Shows the effects of proposed transactions.Not a required report.P 1FastForward Worksheet For the Month Ended December 31, 2015P 1Unadjusted Trial BalanceAdjustmentsAdjusted Trial BalanceIncome StatementStatement of Financial Position and Statement of Changes in EquityFastForward Worksheet For the Month Ended December 31, 2015P 1Unadjusted Trial BalanceAdjustmentsAdjusted Trial BalanceIncome StatementStatement of Financial Position and Statement of Changes in EquityFastForward Worksheet For the Month Ended December 31, 2015P 1Unadjusted Trial BalanceAdjustmentsAdjusted Trial BalanceIncome StatementStatement of Financial Position and Statement of Changes in EquityFastForward Worksheet For the Month Ended December 31, 2015P 1Unadjusted Trial BalanceAdjustmentsAdjusted Trial BalanceIncome StatementStatement of Financial Position and Statement of Changes in EquityNet profitFastForward Worksheet For the Month Ended December 31, 2015P 1Unadjusted Trial BalanceAdjustmentsAdjusted Trial BalanceIncome StatementStatement of Financial Position and Statement of Changes in EquityNet profitPreparing the Financial StatementsP 1Recording Closing EntriesResets revenue, expense and withdrawal account balances to zero at the end of the period.Helps summarize a period’s revenues and expenses in the Income Summary account.Identify accounts for closing.Record and post closing entries. Prepare post-closing trial balance.C 1Temporary AccountsRevenuesIncome SummaryExpensesWithdrawalsPermanent AccountsAssetsLiabilitiesOwner’s CapitalTemporary and Permanent AccountsThe closing process applies only to temporary accounts.C 1Let’s see how the closing process works!Recording Closing EntriesClose Credit Balances in Revenue Accounts to Income Summary.Close Debit Balances in Expense accounts to Income Summary.Close Income Summary account to Owner’s Capital.Close Withdrawals to Owner’s Capital.P 2Using the adjusted trial balance, let’s prepare the closing entries for FastForward.P 21. Close Credit Balances in Revenue Accounts to Income Summary.P 2 Close Credit Balances in Revenue Accounts to Income SummaryNow, let’s look at the ledger accounts after posting this closing entry. Dr. Cr. Dec. 31 Consulting revenue 7,850 Rental revenue 300 Income summary 8,150 P 2P 2 Close Credit Balances in Revenue Accounts to Income Summary2. Close Debit Balances in Expense Accounts to Income Summary.P 2Now, let’s look at the ledger accounts after posting this closing entry. Close Debit Balances in Expense Accounts to Income SummaryP 2Net Profit Close Debit Balances in Expense Accounts to Income Summary P 23. Close Income Summary to Owner’s Capital.P 2Now, let’s look at the ledger accounts after posting this closing entry. CLOSE INCOME SUMMARY TO OWNER’S CAPITALP 2P 2 CLOSE INCOME SUMMARY TO OWNER’S CAPITAL4. Close Withdrawals Account to Owner’s Capital.P 2Now, let’s look at the ledger accounts after posting this closing entry. CLOSE WITHDRAWALS ACCOUNT TO OWNER’S CAPITALP 2P 2 CLOSE WITHDRAWALS ACCOUNT TO OWNER’S CAPITALSummary of the Closing ProcessClose Credit Balances in Revenue Accounts to Income Summary.Close Debit Balances in Expense Accounts to Income Summary.Close Income Summary to Owner’s Capital.Close Withdrawals Account to Owner’s Capital.Post-Closing Trial BalanceList of permanent accounts and their balances after posting closing entries. Total debits and credits must be equal.P 3Post-Closing Trial BalanceP 3Accounting CycleC 2Current items are those expected to come due (both collected and owed) within the longer of one year or the company’s normal operating cycle.Classified Statement of Financial PositionC 3Current assets are expected to be sold, collected, or used within one year or the company’s operating cycle. C 3Long-term financial assets or investments are expected to be held for more than one year or the operating cycle.C 3Property, plant and equipment are tangible long-term assets used to produce or sell products and services.C 3Intangible assets are long-term resources used to produce or sell products and services and that lack physical form.C 3Current liabilities are obligations due within the longer of one year or the company’s operating cycle.C 3Noncurrent liabilities are obligations not due within the longer of one year or the company’s operating cycle.C 3Equity is the owner’s claim on the assets. C 3Current RatioHelps assess the company’s ability to pay its debts in the near future Current Ratio =Current Assets Current Liabilities NestléA 1P 44A – REVERSING ENTRIESReversing entries are optional. They are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period. The purpose of reversing entries is to simplify a company’s recordkeeping.Let’s see how the accounting for our payroll accrual will be handled with and without reversing entries.P 4P 4Without Reversing EntriesWith Reversing EntriesEND OF CHAPTER 4
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