Acctg 1 Ch 4

Categories listed on a Classified Balance Sheet

Current Assets, Noncurrent assets;longterm invest, plant assets, intangible assets, Current Liabilities Noncurrent Liabilities and Equity.

Reversing entries are recorded in response to

accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period.

Temporary(nominal) Accts

accumulated data related to one acctfg period. They inlcude all income statements accts, withdrawals and income summary. Ex:Service Rev, Salaries Exp

What is keying?

adding an Identifying letter that links the debit and the credit in the adjustment columns

When completing a worksheet the following is true

adding net income to the Credit column on the Balance sheets & Owners Eq columns implies it will be added to the Owner Cap., if a net income occurs it is added to the credit column on the balance sheet or to the debit column on the income statement, if a loss occurs it is added to the debit column on the balance sheet.

The journal entry to close all a companies exp accts would be

credit each exp account(bc exps are debits) and debit the income summary(to transfer the exp balance to IS)

The journal entry to close all of a companys expense accounts would include a

credit to each of the expense accounts and a corresponding debit to the income summary account.

Under Both the U.S. GAAP & IFRS there exist two categories of liabilites

current and long term.

Current Ratio equals

current assets divided by current liabilities.

Income Summary

is a temp acct that contains a credit for the sum of all revenures and a debit for the sums of all expenses.Its balance equals net income or loss and it transferred to the CAP acct.

Operating Cycle of a business

is the time span from when cash is used to acquie goods and services until cash is receieved form the sale of goods and services. The length of a comp Op cycle depends on its activities but most are less than one year. Meaning most comps use one year period in deciding which assets and liabilities are current.

Current Ratio is

one measure of a companys ability to pay off its short term obilgations. The current ratio can affect interest rates charged by creditors when lending money to a business. It also helps a supplier help determine it wants to extend credit to a customer.

Current Liabilites are obligations due to be paid or settled within

one year. Usually settled by paying out current assets such as cash. Ex: accts payable, notes payble, wages payable, taxes payable, interest payable and unearned revenues.they are listed in the order those settles first.

The Accounting Cycle refers to the steps in

preparing financial statements, it is a cycle that is repeated each reporting period.

The Closing process description

1) Close Credit balances in Rev Accts to I.S. 2)Close Debit balances in Exp accts to I.S. 3)Close I.S. to Owners Cap. 4) Close Withdrawals Acct to Owners Cap.

Preparing the Worksheet has 5 steps

1) Enter Adjstd Trail Balance 2)Enter Adjustments 3)Prepare ATB 4)Sort ATB amounts to FS 5)Ttl Statement Columns, compute Income or Loss, & Blance COlumns

Accounting Cycle

1)Analyze transactions 2) Journalize 3)Post 4)Prepare unadjusted Trial Balance 5)Adjust 6)Prep ADJ Trial Balance 7)Prep Statements 8)Close 9)Prep Post closing trial balance. 10)Reverse(optional)

The 4 step Closing Process

1)Close income statements credit balances 2)Close income statement debit balances 3)Close income summary account 4) Close Withdrawals account.

In the Closing Process we must

1)Id accounts for closing 2)Record and Post the closing entries 3) Prepare a post closing trial balance.

Completing the Acctg Cycle

1)Worksheet 2)Closing Process 3)Acctg Cycle 4)Classified Balance Sheet.

Describe the General Ledger after the adjusting & closing entries have been posted.

All expense accounts and Owners Withdrl account will be zero balance. Income Summary will show three closing entries. The abbrevaitions adj. and clos will be entered in the explanation columns on the ledger.

Balance Sheet is after worksheet is completed and includes

Assets(ttl assets), Liabilities(ttl Liabs), EQ; ending Cap(from statement of owners Eq) + TTL liab &EQ(cap)

If at year end a company is beginning its closing process what actions are taken to which account balances to close out the revenue accounts?

Credit to the income summary and a debit to the revenue and service fees.

Define Current as it applies to assets and liabilities on a Classified Balance sheet

Current items are those expected to come due within one year of the companys operating cycle.

The last journal entry to close a withdrawals account in a closing process is

Debit Owners Cap; Credit Owners Withdrawals. to satisfy the step of transferring any debit balances in the withdrawals account to the owners Cap accoutn

Define Equity

Equity is the owners claim on the assets of the business. In a Proprietership this claim is reported in the equity section of a balance sheet in the owners capital account.

The Closing Process is a step at the end of acctg period AFTER

FS have been completed It preps accts for recording the trans and events of the next period. It resets revenur, expense and withdrals to zero at end of each period.

Summarize the steps in the closing process

Id the accts for closing,record and post closing entries, prep a post closing trial balance.

Long term Investments a second major balance sheet classification.

Notes recvble, investments from stock and bonds expected to be held longer than one year. Land held for future expansion is also long term.

Permanent(real) Accts

Report on activities realted to one ot more future acctg periods. They carry their ending balancs into next period and generally consists of all balance sheet columns.Ex:Cash, Accts Recvable, Accts payable

Income statement is after the worksheet is completed and includes

Revenues(ttl rev) Expenses(ttl exp).. Rev-exp=Net income

After an Adjusted Trial Balance is prepared what is next step?

Sort adjstd TB amounts to FS

To close credit balances In Revenue Accts to income summary

To close Revenue account transfer CREDIT balances to income summary, to close the rev -bring the account to zero, debit the account that is transferred to I.S.

In regards to a worksheet each set of column totals MUST balance on the

Trial balance, Adjusted and Adjusted Trial Balance Columns.

What are the column headings on a worksheet?

Unadjusted Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, Balance Sheet& Statement of Owners Eq.

A current ratio less than one would indicate that

a company would have a problem paying off short term debt.

Post-Closing Trial Balance

a list of Permanent accts and their balances from the ledger afer all closing entries have been journalized and posted. It lists the balances for all accounts NOT closed.

Trial Balance

a list of accts and their balances at a point in time

How can you add adjusted accts to a worksheet when they did not appear on the trial balance?

a new line can be added following the totals line on the trial balance.

To close Income Summary to Owners Cap

after step 2, the balance of the I.S. is equal to the net income. Transfer the balance of I.S. to the CAP acct. this entry closes the I.S. by bringing it to zero.

The Worksheet

aids in the prep of financial statements, Is not usually available to external decision makers, reduces errors, links accounts & adjts to their impacts in F.S. Helps in preping interim F.S. Tools accountants use.

Prepping a post-closing trial balance will include

all perm accts with balance in ledger, the ttl debit and credit balances equal. the cap act will include net income or loss.

Use of Worksheet is constructed

at the end of a period before the adjting process.

Statement of Owners Eq is after worksheet is completed and has

beg Cap +investments by owner=net income. Less withdrawals by owner is the ending Cap.

Intangible Assets are long term resources that benefit

business operations lack physical form and have uncertain benefits. Ex: patents, trade marks, copyrights, franchises and goodwill. Value is from privaleges or rights granted to owner

Current assets are

cash and other resources that are expected to be sold, collected or used within one year. Ex:Cash, short term investments, accts recvble, short term notes rcvble, goods for sale and prepaid exp or supplies(which are usually listed last)

Accounting WITHOUT reverse entries for accrued salaries will require a debit to salaries expense, debit to salaries payable and a credit to

cash for the first payment of salaries in the next period.

To indicate an account has an abnormal balance you will

circle the abnormal balance

The first closing journal entry would include a

credit to the income summary (transferring credit balances in revenue to I.S.)

IN the closing process, close the

expense, withdrals, rev and income summary accts. it resets balances to temp accts to zero, it helps summarize a periods rev and exps.

Equity is the owners claim on assets

for proprietorship this claim is reported int he equity section in an owners cap acct.

The complete Worksheet includes

list of accts, their balances & adjstments and their sorting into FS columns.

Plant assets are tangible assets that are both

long lived and used to produce or sell product and services. Ex: equip, machinery, buildings and land used to produce or sell. Listed most liquid to least liquid ; equip & machinery to buildings and land. Difficult to convert to cash quickly.

When is a reversing entry made?

on the first day of a new accounting period.

Reversing entries are

optional. and the exact opposite of an adjusting entry.

Balance Sheet

reports a businesses assets, liabilites and eq on a specific date.

income statement

reports a businesses rev and exp for a period of time.

Statement of cash flows

reports the inflows and outflows of cash during a period of time.

The purpose of Reverse Entries is to

simplify a companys recordkeeping.

The income summary acct is a

temp acct used during the closing process to summarize rev & exps.

Closing means to transfer

temp accts so they will start with a ZERO balance at the begng of next period.

To close Withdrawals Acct to Owners Cap

the 4th closing entry transfers the debit balance (by crediting the acct) in the withdrawals acct to owners Cap acct. This will zero out the withdrawals acct closing it. When is it transferred to the cap account, the cap acct is debited that amount.

Reporting Assets and Liabilities under U.S. GAAP vs. IFRS

the definition of an asset & liability is similar under the US GAAP & IFRS. BOTH define the initial asset value at its historical cost. After acquisisiton IFRS defines fair value of an asset as exchange value - either replacement cost or selling price.

To close DEBIT balances in Expense accts to income summary

transfer the debit balance of all expenses to income summary. Bring the expense account to zero by crediting them.

The aim of a Post-Closing T.B. is to

verify 1)ttl debits =ttl credits for the perm accts 2)all temp accts have zero balances.

Unclassified Balance Sheet is one

whose items are broadly grouped into the assets, liabilities and equity.

Long Term Liabilities are obligations NOT due

within one year of operating cycle.Ex:Notes payable, mortgages payable,bonds payable lease obligations.