太原工业学院管理工程系会计学原理英文课件CHAPTER5 Completing the Accounting Cycle and Classifying the Accounts.pptVIP

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太原工业学院管理工程系会计学原理英文课件CHAPTER5 Completing the Accounting Cycle and Classifying the Accounts.ppt

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Learning Objectives Describe and prepare a worksheet and describe its usefulness. Describe the closing process and explain why temporary accounts are closed each period. Prepare closing entries. Explain and prepare a post-closing trial balance. Learning Objectives Describe the steps in the accounting cycle. Explain and prepare a classified balance sheet. Prepare reversing entries and explain their purpose. (Appendix 5A) Compute the current ratio and describe what it reveals about a company’s financial condition. (Appendix 5B) An optional working paper that can be used to simplify the preparation of financial statements. It is: Prepared before adjusting entries are made. Not distributed to decision makers. Helpful in preventing errors. Often used by auditors. The Closing Process The closing process occurs at the end of an accounting period after financial statements are prepared. Reasons for closing entries: Resets revenue, expense and withdrawal account balances to zero at the end of the period. Updates the capital account to reflect net income and drawings. Four-Step Closing Process (REID) Close Revenue accounts to Income Summary. Close Expense accounts to Income Summary. Close Income Summary account to Owner’s Capital. Close Drawings (Withdrawals) account to Owner’s Capital. Four-Step Closing Process (REID) Example Please see the Adjusted Trial Balance illustration in the textbook. Step 1: Close Revenue accounts to Income Summary Step 2: Close Expense Accounts to Income Summary Step 3: Close Income Summary to Owner’s Capital Step 4: Close Drawings to Owner’s Capital A list of balances for all accounts not closed. It verifies that: Total debits = total credits for permanent accounts. All temporary accounts have zero balances. Closing the temporary accounts at the end of each accounting period: ?? A) Serves to transfer the effects of these accounts to the proper owners equity account on the balance sheet. ?B)Prepares the withdrawals a