Chapter 4: Completion of the Accounting Cycle Flashcards
What accounts are closed at the end of the accounting period?
Revenues, Expenses, Withdrawals/Drawings, and Income Summary. These are called TEMPORARY accounts.
When are the temporary accounts closed?
Temporary accounts are closed after the financial statements are prepared and the company has reported it’s profits/losses for the year.
Explain the process to close revenue accounts.
Revenue accounts are closed by DEBITING the Revenue accounts and CREDITING the Income Summary Account.
Explain the process to close expense accounts.
Expense accounts are closed by CREDITING the Expense accounts and DEBITING the Income Summary account.
Explain the process to close the Income Summary account.
The balance in the income summary account (after closing revenue and expenses) is then closed to the Owner’s Capital account. This amount should equal the company’s profit/loss. If profit, credit Owner’s Capital, if loss, debit Owner’s Capital.
Explain the process to close the Withdrawals/Drawing account.
After the Income Summary account is closed to the Owner’s Capital, DEBIT Owner’s Capital and CREDIT the Drawings account.
After closing all temporary accounts, what is the balance in the temporary accounts?
$0
Why do we complete the closing process to close the temporary accounts?
Closing the temporary accounts transfers the company’s profits/loss and any personal drawings to the Owner’s Capital account for the full accounting period, so the company can begin it’s business activities afresh for another year.
What accounts appear in the POST CLOSING TRIAL BALANCE?
Only balance sheet accounts (permanent accounts) would appear in this Trial Balance.
What accounts appear in the POST CLOSING TRIAL BALANCE?
Only balance sheet accounts (permanent accounts) would appear in this Trial Balance.
What is the difference between a Balance Sheet and a Classified Balance sheet?
A classified balance sheet breaks down the assets and liabilities into a number of categories/classifications.
What categories are the assets broken down into on the Classified Balance sheet?
Current Assets, Long-Term Investments, Property Plant, & Equipment, Intangible Assets, Goodwill
What categories are Liabilities broken down into on the Classified Balance Sheet?
Current Liabilities, Non-Current Liabilities
What is a current asset and give two examples.
Assets that will be used up within a year. Examples: Cash, Petty Cash, Accounts Receivable, Prepaids, Temporary Investments, Supplies, Inventory
What is a long term investment?
Longer than one year, will no be converted into cash within a year
