Chapter 5 accounting notes PDF

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Download Chapter 5 accounting notes PDF

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Chapter 5- The Accounting Cycle Completed Temporary (Nominal) Accounts -Account balances are set to zero at the beginning of the accounting period -Withdrawals -Revenues -Expenses Why? -Shareholders/ owners are interested in the performance of a company on a yearly basis -So at the end of every year we need to zero out the revenue and expense accounts so we can start collecting data for the next year. Permanent (Real) Accounts -Account balances carry forward to next accounting period -Assets (Cash, Supplies , Accounts Receivable) -Liabilities (Accounts Payable, Wages Payable) -Capital (Jones Capital) Why? -it would not make sense to zero out the cast balance. Cash in the company at the end of an accounting period stays there -Amounts owed to the company and to creditors carry over to the next accounting period as well. Assets= Liabilities + Capital – Withdrawals + Revenues- Expenses O.E= Capital- Withdrawals+ Revenue- Expenses Closing Entries- 4 steps 1. Clear revenue balance & transfer to Income Summary 2. Clear individual expense balances and transfer the total to Income Summary 3. Clear balance in Income Summary (Net Income) and transfer it to Capital 4. Clear the Withdrawals balance and transfer it to Capital 5....