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This chapter explores the critical role of work sheets in completing the accounting cycle. Work sheets aid in preparing financial statements, assist in planning audits, and reduce the possibility of errors. While not a required report, they facilitate the preparation of interim financial statements and link accounts with their adjustments, showcasing the effects of proposed transactions. The chapter further details the closing process, guiding readers through resetting account balances and preparing post-closing trial balances, thus ensuring accurate accounting practices.
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Chapter 4 Completing the Accounting Cycle
Benefits of a Work Sheet P 1 Aids the preparation of financial statements. Assists in planning and organizing an audit. Not a required report. Reduces possibility of errors. Helps in preparing interim financial statements. Links accounts and their adjustments. Shows the effects of proposed transactions.
FastForwardWorksheetFor the Month Ended December 31, 2011 P 1
Resets revenue, expense and withdrawal account balances to zero at the end of the period. Helps summarize a period’s revenues and expenses in theIncome Summaryaccount. Identify accountsfor closing. Recordand postclosing entries. Prepare post-closingtrial balance. Recording Closing Entries C 1
Revenues Assets Owner’s Capital Permanent Accounts Temporary Accounts Liabilities Withdrawals Expenses Income Summary TEMPORARY ANDPERMANENT ACCOUNTS C 1 The closing process applies only to temporary accounts.
Close Credit Balances in Revenue Accounts to Income Summary. Close Debit Balances in Expense accounts to Income Summary. Close Income Summary account to Owner’s Capital. Close Withdrawals to Owner’s Capital. Recording Closing Entries P 2 Let’s see how the closing process works!
P 2 • Close Credit Balances in Revenue Accounts to Income Summary.
Close Credit Balances inRevenue Accounts to Income Summary P 2 Now, let’s look at the ledger accounts after posting this closing entry.
Close Credit Balances inRevenue Accounts to Income Summary P 2
P 2 • Close Debit Balances in Expense Accounts to Income Summary.
Close Debit Balances in Expense Accounts to Income Summary P 2 Now, let’s look at the ledger accountsafter posting this closing entry.
Close Debit Balances in Expense Accounts to Income Summary P 2 Net Income
Summary of the Closing Process • Close Credit Balances in Revenue Accounts to Income Summary. • Close Debit Balances in Expense Accounts to Income Summary. • Close Income Summary to Owner’s Capital. • Close Withdrawals Account to Owner’s Capital.
