completing the accounting cycle describe the accounting cycle and the role of closin 257923

LO1 Describe the accounting cycle and the role of closing entries in the preparation of financial statements. (pp. 144–146) LO2 Prepare closing entries. (pp. 147–151) LO3 Prepare reversing entries. (pp. 152–153) LO4 Prepare and use a work sheet. (pp. 154–158)

The Accounting Cycle As Figure 4-1 shows, the accounting cycle is a series of steps whose ultimate purpose is to provide useful information to decision-makers. These steps are as follows: 1. Analyze business transactions from source documents. 2. Record the transactions by entering them in the general journal. 3. Post the journal entries to the ledger, and prepare a trial balance. 4. Adjust the accounts, and prepare an adjusted trial balance. 5. Prepare financial statements. 6. Close the accounts, and prepare a post-closing trial balance. You are already familiar with Steps 1 through 5 from previous chapters. In the next section, we describe Step 6, which may be performed before or after Step 5. Closing Entries Balance sheet accounts, such as Cash and Accounts Payable, are considered permanent accounts, or real accounts, because they carry their end-of-period balances into the next accounting period. In contrast, revenue and expense accounts, such as Revenues Earned and Wages Expense, are considered temporary accounts, or nominal accounts, because they begin each accounting period with a zero balance, accumulate a balance during the period, and are then cleared by means of closing entries. Closing entries are journal entries made at the end of an accounting period. They have two purposes: 1. They set the stage for the next accounting period by clearing revenue and expense accounts and the Withdrawals account of their balances.

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Ch4 CP 13 Ch4 CP 12 Ch4 CP 11 Ch4 CP 10 Ch4 CP 9 Ch4 CP 8 Ch4 CP 7 Ch4 CP 6 Ch4 CP 5 Ch4 CP 4 Ch4 CP 3 Ch4 CP 2 Ch4 CP 1 Choices_Wrapper T Z General Journal Page 5 Post. Date Description Ref. Debit Credit Aug. Wages Payable Wages Expense Design Revenue Accounts Receivable Entries: Cash Office Equipment Office Supplies Accounts Payable Unearned Design Revenue Page 6 Utilities Expense Prepaid Rent General Ledger Account No. 111 Balance Item July Account No. 113 Account No. 117 Account No. 146 Account No. 147 Account No. 212 Account No. 213 Account No. 214 Account No. 313 Income Summary Account No. 411 Account No. 511 Account No. 512 Rent Expense Account No. 514 Office Supplies Expense Account No. 517 Work Sheet Adjusted Trial Balance Adjustments Income Statement Balance Sheet Account Name Net Income 6. Expenses Total expenses Net income Subtotal Assets Total assets Liabilities Total liabilities Total owner’s equity Total liabilities and owner’s equity – = 9. Post-closing trial balance prepared Post-Closing Trial Balance Chapter 4, Comprehensive Problem (Continued) 1. Reversing entries prepared and posted Transactions for August journalized and posted 7 and 8. Adjusting and closing entries prepared and posted Page 7 Page 8 Chapter 4, Comprehensive Problem ` Reversing entries: Adjusting entries: Closing entries: Account No. 311 Revenue 2. 2011 J. Miller, Capital J. Miller, Withdrawals 3. For the Month Ended August 31, 2011 Account No. 115 Accumulated Depreciation—Office Equipment Account No. 312 Depreciation Expense—Office Equipment Account No. 519 Miller Design Studio Accumulated Depreciation— Depreciation Expense— 4. Trial balance amounts entered on the work sheet Income statement, statement of owner’s equity, and balance sheet prepared Statement of Owner’s Equity August 31, 2011 J. Miller,…

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