Accounting Chapter 4

Temporary Accounts

-All revenue accounts -All expense accounts -Dividends relate to only a given accounting period

Basic Form of Worksheet consists of

-Trial Balance -Adjustments -Adjusted Trial Balance -Income Statement -Balance Sheet

Closing Entries

-recognize in LEDGER the transfer of net income or net loss and Dividends to Retained Earnings *Produce a ZERO balance in each TEMPORARY account* -Journalizing and Posting closing entries is essential in Accounting cycle

Preparing a Post Closing Trial Balance

-to prove equality of PERMANENT accounts -Will contain only PERMANENT because temporary accounts will be Zero

Preparing Closing Entries

1. Debit each revenue account and credit Income Summary for total revenues 2. Debit Income Summary for total expenses and credit each Expense Account 3. Debit Income Summary and Credit Retained earnings for the amount of net income 4. Debit Retained Earnings for balance in Dividends account and credit Dividends for same amount

Steps of Preparing Worksheet

1. Prepare Trial Balance on Worksheet 2. Enter Adjustments in adjustment column 3. Enter adjusted balances in the adjusted trial balance columns 4. Extend Adjusted Trial Balance Amounts to appropriate financial statement columns 5. Total the statement columns, compute net income or net loss and complete

Cost of Goods Sold is determined at the END of the accounting period in a...

A PERIODIC inventory system

Permanent Accounts

All asset accounts All liability Accounts Stockholder's Equity -Relate to 1 or more future accounting periods

Step 1 of Accounting Cycle

Analyze business transactions

Net Income

Gross Profit - Operating expenses

Gross Profit RATE

Gross Profit / Net Sales

Step 5 accounting cycle

Journalize and post adjusting entries: Prepayments/accruals

Step 8 accounting cycle

Journalize and post closing entries

Step 2 accounting cycle

Journalize transactions

Profit Margin Ratio

Net Income / Net Sales

Step 3 accounting cycle

Post to ledger accounts

Step 6 accounting cycle

Prepare adjusted trial balance

Step 7 accounting cycle

Prepare financial statements: Retained earnings, income statement, balance sheet

Step 9 accounting cycle

Prepare post closing trial balance

Step 4 accounting cycle

Prepare trial balance

Gross Profit

Sales revenue or Net sales - cost of goods sold(COGS)

A completed work sheet is NOT

a substitute for formal financial statements

Sales Revenues are usually considered earned when

adjusting entries are made

Companies do not journalize the adjustments of a worksheet until...

after they complete the worksheet and prepare financial statements

Closing the Books

company distinguishes between temporary and permanent accounts, when the accountant makes the accounts ready for the next period

A worksheet does NOT show

net income or loss for the period