Class 7
Chapter 4
The adjustment process
Accounting 2610
Xiumin Martin
2/5/2014
1
Plan
Prepare financial statements
Closing entry
2
The Accounting Cycle
Start of the Accounting Period
Phase 1:
During the
Accounting
Period.
Phase 2:
End of the
Accounting
Period.
Perform transaction analysis.
Perform transaction analysis.
Record journal entries.
Record journal entries.
Post amounts to general ledger.
Post amounts to general ledger.
Prepare a trial balance.
Prepare a trial balance.
Record and post adjusting
Record and post adjusting entries.
entries.
Prepare financial statements.
Prepare financial statements.
Record and post closing entries.
Record and post closing entries.
End of the Accounting Period
3
Financial Statement
Preparation
1.
The next step in the accounting cycle
is to prepare the financial statements
Income Statement
3.
Statement of Retained Earnings
Balance Sheet
4.
Statement of Cash Flows
2.
(Chapter 12)
Prepared
from
T-account
balances
Prepared from information
provided in balance sheet,
statement of retained
earnings
and income statement
4
5
The Closing Process
Why do we need to close?
Balance Sheet account balances carry forward from
period to period
Income Statement accounts do not carry forward
What do we do in the process?
Transfer net income (or loss) to Retained Earnings.
Establish a zero balance in each of the temporary
accounts to start the next accounting period.
6
Temporary
7
Closing Entries
Temporary (or nominal) accounts that
are closed to retained earnings at the
end of the period
-• Revenues.
• Revenues.
Revenues.
•• Expenses.
Expenses.
•• Gains.
Gains.
•• Losses.
Losses.
•• Dividends
Dividends declared.
declared.
8
Closing Entries
Permanent (or real) accounts and
are never closed at the end of the
period
...