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