Académique Documents
Professionnel Documents
Culture Documents
Principles
Prepared by:
Carole Bowman, Sheridan College
CHAPTER
4
COMPLETION OF THE
ACCOUNTING CYCLE
WORK SHEET
A work
ILLUSTRATION 4-1
WORK SHEET
Account Titles
Trial Balance
Debit
Credit
1. Prepare
trial balance
on the
worksheet.
Adjustments
Debit
Credit
2. Enter
adjustment
data.
3. Enter
adjusted
balances
Income Statement
Debit
Credit
Balance Sheet
Debit
Credit
4. Extend adjusted
balance to appropriate
columns.
5. Calculate income/loss
and complete the
worksheet.
ILLUSTRATION 4-2
TEMPORARY VERSUS
PERMANENT ACCOUNTS
TEMPORARY (NOMINAL)
closed
PERMANENT (REAL)
Owners drawings
(Income Statement /
Drawings Accounts)
ILLUSTRATION 4-3
(INDIVIDUAL)
EXPENSES
Normal Dr.
Balance
-0-
Cr. to close
Dr. to close
Normal Cr.
Balance
-0-
1
OWNERS
CAPITAL
Expenses
Opening Balance
Revenues
11 Debit
Debit each
each revenue
revenue account
account for
for its
its balance,
balance, and
and credit
credit the
the owners
owners
capital
capital account
account for
for total
total revenues.
revenues.
22 Debit
Debit the
the owners
owners capital
capital account
account for
for total
total expenses,
expenses, and
and credit
credit
each
each expense
expense account
account for
for its
its balance.
balance.
ILLUSTRATION 4-3
Expenses
Drawings
Opening Balance
Revenues
Ending Balance
3
OWNERS
DRAWINGS
Normal Dr.
Balance
Cr. to close
-0-
3 Debit owners
owners capital
capital for
for the
the balance
balance in
in the
the owners
owners drawings
drawings
account and credit owners
owners drawings for the
the same amount.
amount.
CLOSING ENTRIES
STOP AND CHECK
1. Does the balance in your
Owners Capital account
equal the ending capital
balance reported in the
Balance Sheet and
Statement of Owners
Equity?
2. Are all of your temporary
account balances zero?
ILLUSTRATION 4-8
1. Analyse
transactions
3. Post to ledger
accounts
8. Journalize
and post
closing entries
7. Prepare
financial
statements
2. Journalize the
transactions
4. Prepare a
trial balance
6. Prepare
adjusted trial
balance
5. Journalize
and post
adjusting
entries
REVERSING ENTRIES
(OPTIONAL STEP)
A reversing
CORRECTING ENTRIES
Errors
ILLUSTRATION 4-10
Assets
Current Liabilities
Long-Term Investments
Long-Term Liabilities
Capital Assets
Owners/ Partners/ Shareholders Equity
CURRENT ASSETS
Current
LONG-TERM
INVESTMENTS
100
XYZ shares
CAPITAL ASSETS
CAPITAL ASSETS
Intangible
CURRENT LIABILITIES
Current
LONG-TERM LIABILITIES
Obligations
EQUITY
The
ILLUSTRATION 4-17
CLASSIFIED BALANCE SHEET IN REPORT FORM
Pioneer Advertising Agency
Balance Sheet
October 31, 2002
Assets
Current Assets
Cash
Accounts Receivable
Advertising Supplies
Prepaid Insurance
Total Current Assets
Capital Assets
Office Equipment
Less: Accumulated Amortization
Total Assets
5,000
83
$
15,200
200
1,000
550
16,950
4,917
21,867
1,000
2,500
800
1,200
25
5,525
4,000
9,525
12,342
21,867
A classified balance
sheet helps the
financial statement
user determine:
The availability of
assets to meet debts as
they come due, and
The claims of shortand long-term creditors
on total assets.
LIQUIDITY
Liquidity
CURRENT RATIO
The current ratio (working capital ratio) is a
widely used measure for evaluating a companys
liquidity and short-term debt-paying ability. It is
calculated by dividing current assets by current
liabilities and is a more dependable indicator of
liquidity than working capital.
CURRENT ASSETS
CURRENT RATIO =
COPYRIGHT
Copyright 2002 John Wiley & Sons Canada, Ltd. All rights
reserved. Reproduction or translation of this work beyond
that permitted by CANCOPY (Canadian Reprography
Collective) is unlawful. Request for further information
should be addressed to the Permissions Department, John
Wiley & Sons Canada, Ltd. The purchaser may make back-up
copies for his / her own use only and not for distribution or
resale. The author and the publisher assume no responsibility
for errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.