Quản trị Kinh doanh - Chapter 4: Completing the accounting cycle

A work sheet is not a required report, yet using a manual or electronic work sheet has several potential benefits. Specifically, a work sheet 1. Aids the preparation of financial statements. Reduces the possibility of errors when working with many accounts and adjustments. Links accounts and adjustments to their impacts in financial statements. 4. Assists in planning and organizing an audit of financial statements—as it can be used to reflect any adjustments necessary. 5. Helps in preparing interim (monthly and quarterly) financial statements when the journalizing and posting of adjusting entries are postponed until year-end. Shows the effects of proposed or “what-if” transactions. Review what you have learned in the following NEED-TO-KNOW Slides.

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Completing the Accounting CycleChapter 4PowerPoint Editor: Beth Kane, MBA, CPA1Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 04-P1: Benefits of a Work Sheet 2Benefits of a Work SheetAids the preparation of financial statements.Reduces possibility of errors.Links accounts and their adjustments.Assists in planning and organizing an audit.Helps in preparing interim financial statements.Shows the effects of proposed transactions.Not a required report.P 13NEED-TO-KNOWThe following 10-column work sheet contains the year-end unadjusted trial balance for Magic Companyas of December 31, 20X2. Complete the work sheet by entering the necessary adjustments, computing the adjustedaccount balances, extending the adjusted balances into the appropriate financial statement columns, and entering the amount of net income for the period. Note: The Magic, Capital account balance was $75,000 at December 31, 20X1.No.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.101Cash13,000106Accounts receivable8,000183Land85,000201Accounts payable10,000251Long-term notes payable33,000301Magic, Capital75,000302Magic, Withdrawals20,000401Fees earned70,000622Salaries expense54,000650Office supplies expense8,000Totals188,000188,000UnadjustedTrial BalanceAdjustmentsAdjustedTrial BalanceIncomeStatementBalance Sheet and Statement of Owner's Equity1. Prepare and complete the work sheet, starting with the unadjusted trial balance and including adjustmentsbased on the following.a. The company has earned $9,000 in fees that were not yet recorded at year-end.b. The company incurred $2,000 in salary expense that was not yet recorded at year-end. (Hint: For simplicity, assume it records any salary not yet paid as part of accounts payable.) c. The long-term note payable was issued on December 31 this year. Thus, no interest has yet accruedon this loan.P 14a. The company has earned $9,000 in fees that were not yet recorded at year-end.b. The company incurred $2,000 in salary expense that was not yet recorded at year-end. (Hint: For simplicity, assume it records any salary not yet paid as part of accounts payable.)c. The long-term note payable was issued on December 31 this year. Thus, no interest has yet accruedon this loan.No.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.101Cash13,00013,00013,000106Accounts receivable8,000(a) 9,00017,00017,000183Land85,00085,00085,000201Accounts payable10,000(b) 2,00012,00012,000251Long-term notes payable33,00033,00033,000301Magic, Capital75,00075,00075,000302Magic, Withdrawals20,00020,00020,000401Fees earned70,000(a) 9,00079,00079,000622Salaries expense54,000(b) 2,00056,00056,000650Office supplies expense8,0008,0008,000Totals188,000188,00011,00011,000199,000199,00064,00079,000135,000120,000Net income15,00015,000Totals79,00079,000135,000135,000UnadjustedTrial BalanceAdjustmentsAdjustedTrial BalanceIncomeStatementBalance Sheet and Statement of Owner's EquityP 15No.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.Dr.Cr.101Cash13,00013,00013,000106Accounts receivable8,000(a) 9,00017,00017,000183Land85,00085,00085,000201Accounts payable10,000(b) 2,00012,00012,000251Long-term notes payable33,00033,00033,000301Magic, Capital75,00075,00075,000302Magic, Withdrawals20,00020,00020,000401Fees earned70,000(a) 9,00079,00079,000622Salaries expense54,000(b) 2,00056,00056,000650Office supplies expense8,0008,0008,000Totals188,000188,00011,00011,000199,000199,00064,00079,000135,000120,000Net income15,00015,000Totals79,00079,000135,000135,000UnadjustedTrial BalanceAdjustmentsAdjustedTrial BalanceIncomeStatementBalance Sheet and Statement of Owner's Equity2. Use information from the completed work sheet in part 1 to prepare adjusting entries.DateDebitCreditDec. 31Accounts Receivable9,000Fees earned9,000Dec. 31Salaries expense2,000Accounts payable2,000Dec. 31No journal entry requiredGeneral JournalP 16DebitCreditCash$13,000Accounts receivable17,000Land85,000Accounts payable$12,000Long-term notes payable33,000Magic, Capital75,000Magic, Withdrawals20,000Fees earned79,000Salaries expense56,000Office supplies expense8,000Totals$199,000$199,000Fees earned$79,000Magic, Capital, Dec. 31 20X1$75,000ExpensesPlus: Net income15,000Salaries expense$56,000Less: Magic, Withdrawals(20,000)Office supplies expense8,000Magic, Capital, Dec. 31 20X2$70,00064,000Net income$15,000Cash$13,000Accounts payable$12,000Accounts receivable17,000Long-term notes payable33,000Land85,000Total liabilities45,000Magic, Capital70,000Total assets$115,000Total liabilities and equity115,000AssetsLiabilitiesEquityFor Year Ended December 31, 20X2For Year Ended December 31, 20X2Magic CompanyBalance SheetDecember 31, 20X2Magic CompanyMagic CompanyIncome StatementStatement of Owner’s Equity3. Prepare the income statement and the statement of owner’s equity for the year ended December 31 andthe unclassified balance sheet at December 31.P 17 04-C1: Closing Process 8Recording Closing EntriesResets revenue, expense, and withdrawal account balances to zero at the end of the period.Helps summarize a period’s revenues and expenses in the Income Summary account.Identify accounts for closing.Record and post closing entries. Prepare post-closing trial balance.C 19Temporary AccountsRevenuesIncome SummaryExpensesWithdrawalsPermanent AccountsAssetsLiabilitiesOwner’s CapitalTemporary and Permanent AccountsThe closing process applies only to temporary accounts.C 110 04-P2: Recording Closing Entries 11Recording Closing EntriesClose 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.P 212NEED-TO-KNOWDebitCreditCash$13,000Accounts receivable17,000Land85,000Accounts payable$12,000Long-term notes payable33,000Magic, Capital75,000Magic, Withdrawals20,000Fees earned79,000Salaries expense56,000Office supplies expense8,000Totals$199,000$199,000Magic CompanyTrial BalanceDecember 31, 20X2Use the adjusted trial balance of Magic Company to prepare its closing entries.P 213DateDebitCreditDec. 31Fees Earned79,000Income summary79,000Dec. 31Income summary64,000Salaries expense56,000Office supplies expense8,000Dec. 31Income summary15,000Magic, Capital15,000Dec. 31Magic, Capital20,000Magic, Withdrawals20,000General JournalExpenses64,000Revenues79,000Net income15,000Closing15,000012/31/20X175,000Magic, Withdrawals20,000Net income15,00012/31/20X270,000Income summaryMagic, CapitalDebitCreditCash$13,000Accounts receivable17,000Land85,000Accounts payable$12,000Long-term notes payable33,000Magic, Capital75,000Magic, Withdrawals20,000Fees Earned79,000Salaries expense56,000Office supplies expense8,000Totals$199,000$199,000P 214Cash$13,000Accounts payable$12,000Accounts receivable17,000Long-term notes payable33,000Land85,000Total liabilities45,000Magic, Capital70,000Total assets$115,000Total liabilities and equity115,000AssetsLiabilitiesEquityMagic CompanyBalance SheetDecember 31, 20X2DebitCreditCash$13,000Accounts receivable17,000Land85,000Accounts payable$12,000Long-term notes payable33,000Magic, Capital70,000Totals$199,000$199,000$115,000 $115,000Expenses64,000Revenues79,000Net income15,000Closing15,000012/31/20X175,000Magic, Withdrawals20,000Net income15,00012/31/20X270,000Income summaryMagic, CapitalP 215 04-P3: Post-Closing Trial Balance 16Post-Closing Trial BalanceList of permanent accounts and their balances after posting closing entries. Total debits and credits must be equal.P 317Post-Closing Trial BalanceP 318 04-C2: Accounting Cycle 19Accounting CycleC 220 04-C3: Classified Balance Sheet 21Current items are those expected to come due (both collected and owed) within the longer of one year or the company’s normal operating cycle.Classified Balance SheetC 322Current assets are expected to be sold, collected, or used within one year or the company’s operating cycle. C 3Current Assets23Long-term investments are expected to be held for more than one year or the operating cycle.C 3Long-Term Investments24Plant assets are tangible long-lived assets used to produce or sell products and services.C 3Plant Assets25Intangible assets are long-term resources used to produce or sell products and services and that lack physical form.C 3Intangible Assets26Current liabilities are obligations due within the longer of one year or the company’s operating cycle.Current LiabilitiesC 327Long-term liabilities are obligations not due within the longer of one year or the company’s operating cycle.C 3Long-Term Liabilities28Equity is the owner’s claim on the assets. C 3Equity29NEED-TO-KNOWDebitCreditCash$13,000Accounts receivable17,000Land85,000Accounts payable$12,000Long-term notes payable33,000Magic, Capital75,000Magic, Withdrawals20,000Fees earned79,000Salaries expense56,000Office supplies expense8,000Totals$199,000$199,000Magic CompanyAdjusted Trial BalanceDecember 31, 20X2Use the adjusted trial balance of Magic Company to prepare its classified balance sheet as of December 31, 20X2.C 330NEED-TO-KNOWCurrent assetsCash$13,000Accounts receivable17,000Total current assets30,000Plant assetsLand85,000Total plant assets85,000Total assets$115,000Current liabilitiesAccounts payable$12,000Total current liabilities12,000Long-term notes payable33,000Total liabilities$45,000Magic, Capital70,000Total liabilities and equity$115,000Magic CompanyBalance SheetDecember 31, 20X2Use the adjusted trial balance of Magic Company to prepare its classified balance sheet as of December 31, 20X2. AssetsLiabilitiesEquityLong-term liabilitiesDebitCreditCash$13,000Accounts receivable17,000Land85,000Accounts payable$12,000Long-term notes payable33,000Magic, Capital75,000Magic, Withdrawals20,000Fees earned79,000Salaries expense56,000Office supplies expense8,000Totals$199,000$199,000Magic CompanyAdjusted Trial BalanceDecember 31, 20X2C 331Global ViewThe definition of an asset is similar under U.S. GAAP and IFRS and involves three basic criteria: the company owns or controls the right to use the item, the right arises from a past transaction or event, and the item can be reliably measured. Both systems define the initial asset value as historical cost for nearly all assets.The definition of a liability is similar under U.S. GAAP and IFRS and involves three basic criteria: (1) the item is a present obligation requiring a probable future resource outlay, (2) the obligation arises from a past transaction or event, and (3) the obligation can be reliably measured.32 04-A1: Current Ratio 33Current RatioHelps assess the company’s ability to pay its debts in the near future      Current ratio =Current assets Current liabilities      Limited Brands, Inc.A 134 04-P4: Reversing Entries 35P 4Appendix 4A – Reversing EntriesReversing entries are optional. They are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period. The purpose of reversing entries is to simplify a company’s recordkeeping.Let’s see how the accounting for our payroll accrual will be handled with and without reversing entries.3637P 4Without Reversing EntriesWith Reversing Entries38P 4End of Chapter 439
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