Week 2
Completing the
Accounting Cycle
The Accounting Cycle
Process by which companies produce their financial statements
Use of a work sheet summarizes needed data in one place
2
Accounting Cycle
Journalize Transaction
During the period
Post to Accounts
Adjust Accounts
End of the period
Prepare
Financial Statements
Close Accounts
3
Work Sheet
Internal summary device
NOT:
A journal
A ledger
A financial statement
Computerized spreadsheets work well
4
Work Sheet Steps
Enter account titles and their unadjusted balances in the
Trial Balance columns Total the amounts
5
Work Sheet Steps
Enter the adjusting entries in the
Adjustments
columns
Total the amounts
6
Work Sheet Steps
Compute each account’s adjusted balance by combining the trial balance and adjustment figures Enter each account’s adjusted amount in the
Adjusted trial balance columns
See following slide
7
Work Sheet Steps
8
Work Sheet Steps
Draw an imaginary line above the first revenue account
Every account above goes to the
Balance sheet columns Every account below goes to the Income
Statement columns
9
10
Work Sheet
Steps
On the income statement, compute net income Revenues minus expenses Enter net income as the balancing amount Net Income
11
Work Sheet
Steps
Also enter net income as a balancing amount on the balance sheet Net Income
12
13
Preparing Financial
Statements from a Work Sheet
Both work sheet and financial statements have the same account balances and the same net income(or loss)
Work sheet is an internal document
Financial statements are for external users
Adjusting entries from work sheet need to be recorded in journal and posted
14
Work Sheet
Financial Statement
Any Company
Income Statement
Month ended May 31, 2010
Revenue:
Service revenue
Expenses:
Salary expense
Depreciation
expense
Net Income
Supplies expense
Utilities expense Total expenses
Net Income
$ $1,000
6,500
1,000
500
400 $
2,900
3,600
15
Any
Accounting Cycle
The Accounting Cycle
Process by which companies produce their financial statements
Use of a work sheet summarizes needed data in one place
2
Accounting Cycle
Journalize Transaction
During the period
Post to Accounts
Adjust Accounts
End of the period
Prepare
Financial Statements
Close Accounts
3
Work Sheet
Internal summary device
NOT:
A journal
A ledger
A financial statement
Computerized spreadsheets work well
4
Work Sheet Steps
Enter account titles and their unadjusted balances in the
Trial Balance columns Total the amounts
5
Work Sheet Steps
Enter the adjusting entries in the
Adjustments
columns
Total the amounts
6
Work Sheet Steps
Compute each account’s adjusted balance by combining the trial balance and adjustment figures Enter each account’s adjusted amount in the
Adjusted trial balance columns
See following slide
7
Work Sheet Steps
8
Work Sheet Steps
Draw an imaginary line above the first revenue account
Every account above goes to the
Balance sheet columns Every account below goes to the Income
Statement columns
9
10
Work Sheet
Steps
On the income statement, compute net income Revenues minus expenses Enter net income as the balancing amount Net Income
11
Work Sheet
Steps
Also enter net income as a balancing amount on the balance sheet Net Income
12
13
Preparing Financial
Statements from a Work Sheet
Both work sheet and financial statements have the same account balances and the same net income(or loss)
Work sheet is an internal document
Financial statements are for external users
Adjusting entries from work sheet need to be recorded in journal and posted
14
Work Sheet
Financial Statement
Any Company
Income Statement
Month ended May 31, 2010
Revenue:
Service revenue
Expenses:
Salary expense
Depreciation
expense
Net Income
Supplies expense
Utilities expense Total expenses
Net Income
$ $1,000
6,500
1,000
500
400 $
2,900
3,600
15
Any