5 completion of the accounting cycle - summary

describe the content and the purpose of a post closing trial balance

a post closing trial balance contains the balances in permanent accounts that are carried forward to the next accounting period. the purpose of this trial balance is to prove the equality of these balances.

explain the process of closing the books

closing the books occurs at the end of an accounting period. the process is to journalize and post closing entries and then rule and balance all accounts. in closing the books, separate entries are made to close revenues and expenses to income summary, income summary to retained earnings, and dividends to retained earnings. only temporary accounts are closed.

identify the sections of a classified balance sheet

in a classified balance sheet, assets are classified as current assets; long-term investments; property, plant, and equipment; or intangibles. liabilities are classified as either current or long term. there is also an owners' equity section, which varies with the form of business organization. the classified balance sheet can be presented in either report form or account form

explain the approaches to preparing correcting entries

one approach for determining the correcting entry is to compare the incorrect entry with the correct entry. after comparison, a correcting entry is made to correct the accounts. an alternative to a correcting entry is to reverse the incorrect entry and then prepare the correct entry

state the required steps in the accounting cycle

the required steps in the accounting cycle are analyze business transactions journalize the transactions post to ledger accounts prepare a trial balance journalize and post adjusting entries prepare an adjusted trial balance prepare financial statements journalize and post closing entries, prepare a post closing trial balance

prepare a work sheet

the steps in preparing a work sheet are prepare a trial balance on the work sheet enter the adjustments in the adjustment columns enter adjusted balances in the adjusted trial balance columns extend adjusted trial balance amounts to appropriate financial statement columns total the statement columns, compute net income (or net loss), and complete the work sheet.