Accounting Chapter 5
longterm liabilities
*each could have a current portion Notes payable mortgages payable bonds payable lease obligations
What are the ten steps in the accounting cycle?
-Analyze transactions -Journalize -Post -Prepare unadjusted trial balance -Adjust and post accounts -Prepare adjusted trial balance -Prepare finanical statement -Close accounts -Prepare post closing trial balance -Reverse and Post(Optional)
closing entry process
-close revenue accounts to income summary -close expense accounts to income summary -close income summary to capital account -close withdrawals to capital
What are the two reasons why we use a post-closing trial balance?
1. Ensure debits and credits match 2. Ensure temporary account balances have been reset to zero
Why do we do closing entries?
1. So we can properly measure income and withdrawals for the next period 2. Helps summarize the revenues and expenses for the period
What are the steps in the closing process?
1. identify accounts for closing 2. record and post closing entries 3. prepare a post-closing trial balance
How many columns are on a worksheet?
6
Accounting Cycle Definition
A ten-step procedure that results in the preparation and analysis of the major financial statements.
Current Liabilities
Accounts payable notes payable (current portion) wages payable taxes payable interest payable unearned revenue
What is a worksheet?
An internal document that helps summarize data for the preparation of financial statements.
When is a worksheet made?
At the end of the period before the adjusting process
What do closing entries do?
Close out temporary accounts to a zero balance
Debits and credits for the same column except income statements do not have to equal
FALSE
A zero balance has to be in permanent accounts
False.
What does a classified balance sheet do?
Groups a company's assets and liability accounts into current and long-term categories. reports assets, liabilities, and equity of a company
What is the special account used only in the closing process?
Income Summary
What is a work sheet?
It can help with adjusting and closing accounts and with preparing financial statements.
What is the balance called in the Income Summary account after the revenue and expense accounts are closed?
It equals the company's net income or loss for the period.
Why do we close temporary accounts?
It helps ensure that transactions that occurred in current accounting period are not included in the following period.
Why do we use a classified balance sheet?
It makes it easier to read and extract the information that you need.
Why is the closing process necessary?
It resets the temporary account balances to zero. It also is used to transfer temporary account balances to permanent entries on the company's balance sheet.
When do people usually do financial statements?
Monthly
Are assets, liabilities, and equity accounts closed?
NO
Does a worksheet substitute financial statements?
No
longterm investments
Notes receivable investments (stocks and bonds) land held for future expenses
What are the exceptions to permanent accounts?
Revenue expenses withdrawals
Income statement debits and credits do not have to equal
TRUE
Do permanent or temporary accounts involve the closing process?
Temporary accounts
What has to have zero balance?
Temporary accounts
What types of accounts do we close at the end of a period?
Temporary accounts
What is the formula used to calculate net income/net loss?
Total Revenues- Total Expenses
________ are useful aids in the accounting process.
Worksheets
The effects of adjusting entries are shown on the balance on a ________.
adjusted trial balance
If the temporary accounts are to reflect correct amounts for each accounting period, _______ _______ are required.
adjusting entries
When does the closing process take place?
after financial statements have been completed
What are permanent accounts?
assets, liabilities, equity
The effects of accounting adjustments (adjusting entries) are shown on the balances on a _______ ______
balance sheet
At the bottom of ______ there will be ____
columns; totals
Current Ratio Formula
current assets - current liabilities
If Income Summary has a debit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a
debit to retained earnings
If an owner withdrew money from their business during the current year, what would be the entry to close the withdrawals account at the end of the year?
debits the owner's capital account and credits the owner's drawing account.
plant assets
equipment machinery land (used in operations)
After a worksheet is completed, it can be used to prepare the _______ ______
financial statements
unearned revenue
haven't provided the product or completed the service yet
What are closing entries?
journal entries used to prepare temporary accounts for a new fiscal period
Noncurrent Assets
long-term investments, plant assets, intangible assets
What is the current ratio formula used for?
measures a company's ability to pay short-term obligations or those due within one year.
How is land held for future expansion classified?
noncurrent asset
intangible assets
patents trademarks copyrights goodwill franchise
The closing process for a corporation is similar to that of a sole proprietorship, except it uses a _______ account instead of a capital account, and a ______account instead of a withdrawals account.
retained earnings; dividends
What are some examples of temporary accounts
revenue expenses withdrawals income summary
A reversing entry is the _______ of the adjusting entry that takes place immediately in the next period; Reversing entries are optional.
reverse
Reversing entries are made to _______ the compound journal entry process after making accrued revenue and accrued expense ______ entries.
reverse; adjusting
What is a classified balance sheet used for?
separates a company's assets and liabilities into different categories
The financial statements can be prepared from a completed work sheet, but a work sheet is not a ______ for financial statements.
substitution
What columns are divided by debits and credits?
unadjusted trial balance adjusted trial balance adjusting entries income sheet balance sheet
Notes Payable
usually long term liability, but sometimes the portion is a current portion
