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Lecture Fundamental accounting principles (19/e) - Chapter 4: Completing the accounting cycle

After completing this chapter you should be able to: Explain why temporary accounts are closed each period, identify steps in the accounting cycle, explain and prepare a classified balance sheet. | COMPLETING THE ACCOUNTING CYCLE Chapter 4 Chapter 4: Completing the Accounting Cycle. BENEFITS OF A WORK SHEET Aids 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. P1 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. 2. Reduces the possibility of errors. 3. Links accounts and adjustments to their impacts in financial statements. 4. Assists in planning and organizing an audit of financial statements. 5. Helps in preparing interim financial statements. 6 Shows the effects of proposed transactions. FastForward Work Sheet For Month Ended December 31, 2007 Total statement columns, compute income or loss, and balance columns. P1 First, we subtract total expenses of $4,365 from total revenues of $8,150 to determine net income of $3,785. We move the income to the debit column so that our column totals will be the same. We are not implying that income has a debit balance but simply that when we put it in the debit column, we get the totals straight. Next, we move net income to the credit side of the balance sheet because we know it will increase the owner’s equity account. To make sure it appears in the proper side of the balance sheet, we place net income on the credit side of the balance columns. By doing this you can see that our balance sheet is in balance. Using an electronic spreadsheet saves us a great deal of time and effort. The math is automatically recalculated and we can make sure the books remain in balance. We encourage you to use this type of spreadsheet, where appropriate, to complete your homework assignments. Prepare the Income Statement. PREPARE THE FINANCIAL STATEMENTS A work sheet | COMPLETING THE ACCOUNTING CYCLE Chapter 4 Chapter 4: Completing the Accounting Cycle. BENEFITS OF A WORK SHEET Aids 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. P1 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. 2. Reduces the possibility of errors. 3. Links accounts and adjustments to their impacts in financial statements. 4. Assists in planning and organizing an audit of financial statements. 5. Helps in preparing interim financial statements. 6 Shows the effects of proposed transactions. FastForward Work Sheet For Month Ended December 31, 2007 Total statement columns, compute income or loss, and balance .