accounting unit 6
post-closing trial balance
only lists the accounts that have a balance
Quick Ratio Formula
quick ratio= (cash+ accounts receivable + short-term investments)/ Current liabilities
if a company has a net income for the period and closes its books using the income summary account, will the income statement summary account have a debit or credit balance before it is closed to the capital account
the income summary will have a credit balance
closing the books
updates owners capital and starts a new income statement for the upcoming period.
1. close revenue on the income summary account 2. close the expense on the income summary account 3. close owners capital on the income summary account 4. close owners withdraws account to owners capital
what are four steps to close the accounts using the income summary?
1. Zero out the revenue account 2. zero out the expense account 3. zero out owners withdraws
what are the three steps to close directly to owners capital
The categories that appear on the post closing balance trial balance are, assets, liabilities and capital account
which categories of accounts appear on the post-closing trial balance.
Current Ratio Formula
Current Ratio = Current Assets / Current Liabilities
working capital = current assets - current liabilites
How do you calculate the working capital
What does it mean to have negative working capital
If a business has a negative working capital the business has a hard time paying off its debts.
Current Ratio
Measures the company's ability to pay current liabilities from current assets. Total current assets / Total current liabilities.
The classified balance sheet groups assets and liabilities into current and long term items. A non-classified balance sheet doesn't do this
What is one difference between a non-classified balance sheet and a classified balance sheet
temporary accounts
accounts are brought back to zero at the end of the period. ex. revenue, expenses owners withdraws
permanent accounts
are balance sheet items that have their balances carried forward from one accounting period to the next. Ex. cash liabilities and owners capital
closing entries
are made to revenue, expenses and owners withdraws at the end of an accounting period, to close out the account
current assets
cash and other assets expected to be exchanged for cash or consumed within a year
Statement of Owner's Equity
changes in equity during the reporting period
Direct Method
close directly to owners capital
income summary method
close using the income summary method
plant assets
contains several types of non-current assets such as land building equipment.
Operating Cycle
is the time between the use of cash and the receipt of cash for the business
Current Liabilities
liabilities due within a short time, usually within a year
long-term liabilities
liabilities owed for more than a year
noncurrent assets
long-term investments, plant assets, intangible assets
Quick Ratio
measures how easily assets can be turned into cash
