day two

Dr. Fred Barbee 1

ACCT 201 ACCT 201 ACCT 201

Reporting and Preparing Financial Statements

UAA – ACCT 201 Principles of Financial

Accounting Dr. Fred Barbee

Chapter 3

Topic LO Read HW

Closing ProcessC4, C5 P4, P5

118-123

QS8, QS9, E7

Classified Balance Sheet C6 123-

126 E8, E9

Decision Analysis A2, A3

126-127 P2A

Chapter 3 - Day 2 - Agenda

Dr. Fred Barbee 5

Learning Objective

Describe and prepare closing entries.

Procedural

Dr. Fred Barbee 6

Learning Objective

Explain why temporary accounts are closed each period.

Conceptual

Temporary Accounts

Revenues

Income Summary

Dividends

Permanent Accounts

Assets

ilitie

s Retained

EarningsTemporary and Permanent

Accounts

CreditDebit

Post.Ref.ItemDate

BalanceAccount No. ### Account Title

CreditDebit

Post.Ref.ItemDate

BalanceAccount No. ### Account Title

Nominal (Temporary) Accounts

Real (Permanent) Accounts

Account Title Account No. ###

Date ItemPost.Ref. Debit Credit

Balance

Debit Credit

Real Accounts

Dr. Fred Barbee 10

Real Accounts . . .

Accounts that are not closed to a zero balance at the end of each accounting period.

Permanent accounts appearing on the Balance Sheet.

Assets

Liabilities

Owner’s Equity

Assets

Liabilities

Owner’s Equity

Balance

Debit Credit

Nominal Accounts

Dr. Fred Barbee 13

Nominal Accounts . . .

Accounts that are closed to a zero balance at the end of each accounting period.

Temporary accounts generally appearing on the Income Statement.

Revenues

Expenses

Revenues

Expenses

What are closing entries?

Dr. Fred Barbee 16

Closing Entries . . .

Journal entries made at the end of an accounting period.

They clear all nominal accounts and prepare them to receive transactions in the new accounting period.They summarize a period’s revenues and expenses.

Dr. Fred Barbee 17

Purpose of Closing Entries

Closing entries bring the income statement accounts back to a zero balance, making them ready for a new set of transactions.

Dr. Fred Barbee 18

Purpose of Closing Entries .

The closing entry process transfers the net income or net loss for the accounting period to the owner’s equity and Reduces owner’s equity for any distributions to owners.

Is there a set procedure?

Balance

Debit CreditIncome Summary

Introducing a new

account!

Overview of the Closing Process

Using the adjusted trial balance, let’s prepare the

closing entries for

FastForward.

Now, let’s look at the ledger accounts after posting this closing entry.

Close Revenue Accounts to Income Summary

GENERAL JOURNAL Page 34Date Description PR Debit Credit

Dec. 31 Consulting Revenue 7,850Rental Revenue 300

Income Summary 8,150

Close Revenue Accounts to Income Summary

Income Summary7,850

Consulting Revenue7,850 7,850

Rental Revenue300 300

Close Expense Accounts to Income Summary

Income Summary375 7,850

1,610 300 100

1,000 1,050

3,785 Utilities Expense230 230

Depreciation Expense- Eq.

375 375 -

Salaries Expense1,610 1,610

Insurance Expense100 100

Supplies Expense1,050 1,050

Rent Expense1,000 1,000

Net Income

1,610 300 100

1,000 1,050

GENERAL JOURNAL Page 34Date Description PR Debit Credit

Dec. 31 Income Summary 3,785Retained Earnings 3,785

Close Income Summary to Retained Earnings

Retained Earnings600 3,785

1,610 300 100

1,000 1,050

230 3,785

Dr. Fred Barbee 37

Learning Objective

Explain and prepare a post-closing trial balance.

Procedural

Dr. Fred Barbee 38

Post-Closing Trial Balance

List of permanent accounts and their balances after posting closing entries.

Total debits and credits must be equal.

Dr. Fred Barbee 41

Learning Objective

Identify steps in the accounting cycle.

Conceptual

1. Analyze Transaction

2. Journalize

3. Post

4. Prepare Unadjusted

Trial Balance

5. Adjust6. Prepare Adjusted

Trial Balance

7. Prepare Statements

8. Close

9. Prepare Post-Closing

Trial balance

10. Reverse (Optional)

Dr. Fred Barbee 44

Learning Objective

Explain and prepare a classified balance sheet.

Conceptual

Dr. Fred Barbee 45

Classified Balance Sheet

Dr. Fred Barbee 46

Current Assets/Liabilities

Current items are those expected to come due (either collected or owed) within one year or the company’s operating cycle, whichever is longer.

Dr. Fred Barbee 47

Operating Cycle – Service Company – Exhibit 3-31

Cash Available

Cash paid for employee

Services sold to customers

Customers pay for services

Dr. Fred Barbee 48

Operating Cycle – Merchandising Company

Cash Available

Cash paid for products

Products sold to

customers

Customers pay for

products

Let’s look at the asset

section of a classified balance sheet.

Current assets are assets that will be turned into cash or

expire (be used up) within the longer of one

year or the operating cycle.

Property, plant and equipment includes assets

with useful lives of more than one year acquired for

use in the business rather than for resale.

Other assets and intangible assets include items such as

patents, goodwill,

copyrights, etc.

Let’s look at the liability section of a classified balance sheet.

Current liabilities are obligations that will be paid with current assets, normally

within one year.

Long-term liabilities are debts that have maturity dates extending

beyond one year from the balance sheet date.

Let’s look at the

stockholders’ equity section of a classified balance sheet.

Contributed capital is often shown in two separate accounts . . .Common stockPaid-in capital

Comprehensive income includes gains and losses not included in the

computation of net income.

Retained earnings is the accumulated earnings of the company less the accumulated dividends declared.

day two

closing process acct

account title acct

nominal accounts

income summary account

ledger accounts

income statement accounts

real accounts

item date balance account

Economy & Finance

elit 46a – day two

day two filming

day one day two

two day auction!

raga, day two

day two

slides day two

tech sessions day two

tech connect day two

two day sale: day two- pictures, rugs, garden, general...

chapter four day two

entrepreneurial journalism - day two

uk travelogue - day two

scott andersen - day two, session two

entrepreneurship school day two

welcome day two

day two - czone

07_4g rf planning - day two - session two

day on two pages

daily day two