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Completing theAccounting Cycle Chapter 4 Objective 1 The Accounting Cycle The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time. The Accounting Cycle For a new business, begin by setting up ledger accounts. For an established business, begin with account balances carried over from the previous period. The Accounting Cycle The Accounting Cycle The Accounting Cycle The Accounting Work Sheet What is the work sheet? A work sheet is a multi-columned document used by accountants to help move data from the trial balance to the financial statements. It is an internal document. The Accounting Work Sheet The Accounting Work Sheet The company has earned revenue of $1,700 which will be collected next month. Inventory of supplies at month end totaled $150. Depreciation for the period was calculated as $200. The Accounting Work Sheet The Accounting Work Sheet The Accounting Work Sheet The Accounting Work Sheet Objective 2 Recording theAdjusting Entries Recording theAdjusting Entries The adjusting entries may be recorded in the journal when they are entered on the work sheet. Many accountants journalize and post the adjusting entries just before they make the closing entries. Objective 3 Closing the Accounts Closing the accounts is the end of period process that prepares the accounts for recording transactions during the next period. Closing the Accounts Closing the Accounts Revenues and Expense accounts are closed to Income Summary. Income Summary is closed to Capital. Withdrawals are closed to Capital. In a corporation, Dividends are closed to Retained Earnings. Closing the Accounts Closing the Accounts Postclosing Trial Balance The accounting cycle ends with the postclosing trial balance. The postclosing trial balance is dated as of the end of the period for which the statements have been prepared. Permanent Accounts What accounts never close? Assets Liabilities Owner’s equity Balances of perman