Chapter 4 Completing the Accounting Cycle PDF

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Lecture notes for chapter 4 of financial accounting....

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Chapter 4 Completing the Accounting Cycle -

Closing entries transfer net income/ loss and dividends to retained earnings

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Temporary Accounts: always closed

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All revenue accounts All expense accounts

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Dividends

Permanent Accounts: not always closed - All asset accounts -

All liability accounts

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Equity accounts

Procedure for Closing Entries -

Close revenues ---- income summary ---- retained earnings

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Close dividends ---- income summary---- retained earnings

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Close dividends--- retained earnings

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After closing entries are posted all temporary accounts have zero balances

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After closing entries are posted the balance in retained earnings represents the

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accumulated undistributed earnings at the end of the accounting period The income summary account is used only in the closing process. No entries are journalized or posted to this account during the year

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The permanent accounts are not closed

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Post-closing trial balance: prepared after all closing entries have been journalized and

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posted--- purpose is to prove the equality of the permanent account balances Classified balance sheet -

Assets -

Current assets (cash and other resources- accounts receivable, inventory) *listed on bank sheet in order of liquidity*, long term investments (bond investments, long term receivables, land held for resale,

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property/plant/equipment (buildings, machinery, equipment), intangible assets (patents, trademarks, copyrights) liabilities/ stockholders equity -

Current liabilities (accounts payable, interest payable, wages payable), long term liabilities (long term notes payable, bonds payable, mortgages payable, lease obligations), stockholders’ equity

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Closing process: close revenues to income summary; Close expenses to income summary; Close income summary to retained earnings (net income or net loss); Close dividends to retained earnings. Intangible Assets: Copyrights, patents, goodwill; only goodwill is not amortized Chapter 4 Examples:

Closing Journal Entries 1. Close revenues a. DR sales 185,000 b. interest income 17,000 i. CR income summary 202,000 2. Close expenses a. DR income summary 115,000 i. CR COGS 47,000 ii. salary expense 25,000 iii. Depreciation expense 43,000 3. Record profit (revenue- expenses) a. DR income summary 87,000 i. CR retained earnings 87,000 4. Close dividends a. DR retained earnings 10,000 i. CR dividends 10,000

1. Close Revenues DR service revenue 105,000 Interest revenue 8,000 CR income summary 113,000 2. Close Expenses DR income summary 84,000 CR depreciation expense 27,000 Insurance expense 6,000 Salary expense 30,000 Supplies expense 9,000 Utilities expense 12,000 3. Record Profit DR income summary 29,000 CR retained earnings 29,000 4. Close Dividends DR retained earnings 15,000 CR dividends 15,000 5. Ending Balance of Retained Earnings (Given retained earnings + calculated profit) - dividends =8

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